Amendment No. 7 to Form S-4
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As filed with the Securities and Exchange Commission on April 30, 2013

Registration No. 333-185742

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 7 to

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Gulf Coast Ultra Deep Royalty Trust

Freeport-McMoRan Copper & Gold Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

(State or other jurisdiction of

incorporation or organization)

 

6792

1000

 

46-6448579

74-2480931

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

 

333 N. Central Ave.

Phoenix, AZ 85004

(602) 366-8100

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Douglas N. Currault II

Assistant General Counsel and Secretary

Freeport-McMoRan Copper & Gold Inc., as depositor of the Royalty Trust

333 N. Central Ave.

Phoenix, AZ 85004

(602) 366-8100

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

David E. Shapiro

Wachtell, Lipton, Rosen, & Katz

51 West 52nd Street

New York, NY 10019

(212) 403-1000

 

Michael J. Aiello

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, NY 10153

(212) 310-8000

 

 

Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective and upon completion of the merger described in the enclosed document.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

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

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ¨

CALCULATION OF REGISTRATION FEE

 

 

Title of each Class of

Securities to be Registered

 

Amount

to be
Registered(1)

  Proposed
Maximum
Offering Price
Per Share(2)
 

Proposed
Maximum
Aggregate

Offering Price(2)

 

Amount of

Registration Fee(3)(4)

Royalty Trust Units

  241,688,791 units   N/A   $217,193,516   $29,625.20

 

 

(1) The maximum number of units that could be issuable pursuant to this registration statement upon completion of the merger described herein. This number is based on the number of shares of McMoRan Exploration Co. (MMR) common stock estimated to be outstanding, including shares reserved for issuance upon conversion of MMR’s outstanding convertible securities, the exercise of options and the vesting of restricted stock units under incentive plans, and the exchange of each of those shares of MMR common stock, for cash and royalty trust units pursuant to the formula set forth in the Agreement and Plan of Merger, dated as of December 5, 2012, by and among MMR, Freeport-McMoRan Copper & Gold Inc. (FCX) and INAVN Corp. (the merger agreement).
(2) Estimated solely for purposes of calculating the registration fee required by Section 6(b) of the Securities Act, and calculated pursuant to Rules 457(f)(1), 457(f)(3) and 457(c) under the Securities Act, the proposed maximum aggregate offering price of the registrant’s royalty trust units was calculated based upon the market value of shares of MMR common stock (the securities to be cancelled in the merger) in accordance with Rule 457(c) under the Securities Act as follows: (A) the product of (1) $15.67, the average of the high and low prices per share of MMR common stock on December 20, 2012, as quoted on the New York Stock Exchange, multiplied by (2) 236,079,909, the maximum number of shares of MMR common stock which may be cancelled in the merger as described in footnote 1, less (B) the amount of cash to be paid by FCX in exchange for shares of MMR common stock (which equals $3,482,178,658 or $14.75 per share of MMR common stock).
(3) Calculated pursuant to Section 6(b) of the Securities Act and Securities and Exchange Commission Fee Rate revised October 2012 at a rate equal to $136.40 per $1,000,000 of the proposed maximum aggregate offering price.
(4) Previously paid.

 

 

The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale is not permitted.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED APRIL 30, 2013

 

LOGO

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear McMoRan Exploration Co. Stockholders:

On December 5, 2012, McMoRan Exploration Co., which is referred to herein as MMR, agreed to the acquisition of MMR by Freeport-McMoRan Copper & Gold Inc., which is referred to herein as FCX, under the terms of the Agreement and Plan of Merger, which is referred to herein as the merger agreement, between MMR, FCX and INAVN Corp., a wholly owned subsidiary of FCX, which is referred to herein as Merger Sub. Upon completion of the merger of Merger Sub with and into MMR, pursuant to the merger agreement MMR will become a wholly owned subsidiary of FCX. We refer to this transaction as the merger. We are sending you this proxy statement/prospectus to invite you to attend a special meeting of MMR stockholders being held to vote on the merger and to ask you to vote at the special meeting in favor of the merger.

If the merger is completed, each outstanding share of common stock of MMR (other than shares owned by FCX and its subsidiaries and shares held by stockholders who properly exercise dissenters’ rights) will be converted into the right to receive $14.75 in cash, without interest, and 1.15 units, which are referred to herein as the royalty trust units, representing beneficial interests in Gulf Coast Ultra Deep Royalty Trust, which is referred to herein as the Royalty Trust. Holders of royalty trust units will be entitled to share in a 5% gross overriding royalty interest in hydrocarbons saved and produced from MMR’s existing shallow water Gulf of Mexico and onshore Gulf Coast ultra-deep exploration prospects. Cash will be paid in lieu of any fractional royalty trust units. As of the date of this proxy statement/prospectus, none of the prospects related to the royalty trust units had any reserves classified as proved, probable or possible, other than MMR’s onshore Lineham Creek well, and none of them had any associated production.

Certain of MMR’s directors and executive officers may have material financial interests in the merger that are different from, or in addition to, the interests of MMR stockholders generally. See “Special Factors—Interests of MMR Directors and Executive Officers in the Merger,” beginning on page 76.

We cannot complete the merger unless the MMR stockholders approve a proposed amendment to the amended and restated certificate of incorporation of MMR and the adoption of the merger agreement. We are seeking approval of both proposals at the special meeting of stockholders of MMR to be held on             , 2013. Your vote is very important, regardless of the number of shares you own. Whether or not you expect to attend the MMR special meeting in person, please submit your voting instructions as promptly as possible by (1) accessing the Internet website specified on your proxy card or (2) signing and returning all proxy cards that you receive in the postage-paid envelope provided, so that your shares may be represented and voted at the MMR special meeting. A failure to vote your shares is the equivalent of a vote against the charter amendment and the merger.

Under Delaware law, if the merger is completed, holders of shares of MMR common stock who do not vote in favor of the adoption of the merger agreement may, under certain circumstances, have the right to seek appraisal of the fair value of their shares, but only if they comply with all procedures and requirements of Delaware law explained in the accompanying proxy statement/prospectus.

The MMR board of directors, upon the unanimous recommendation of the special committee of the MMR board of directors, determined that the merger and related matters are fair to, advisable and in the best interests of MMR and its stockholders, and the MMR board of directors recommends that the MMR stockholders vote “FOR” the proposal to approve the amendment to the charter, “FOR” the proposal to approve the adoption of the merger agreement and “FOR” the other proposals to be submitted to the MMR stockholders at the MMR special meeting.

The obligations of FCX and MMR to complete the merger are subject to the satisfaction or waiver of several conditions set forth in the merger agreement. More information about MMR, the charter amendment and the merger is contained in this proxy statement/prospectus. We encourage you to read this entire proxy statement/prospectus carefully, including the section entitled “Risk Factors” beginning on page 99.

We thank you for your continued support of MMR and look forward to the successful acquisition of MMR by FCX.

 

Sincerely,

LOGO

James R. Moffett

Co-Chairman of the Board of Directors, President & Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this proxy statement/prospectus or determined if this proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus is dated                 , and is first being mailed to MMR stockholders on or about                 .


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LOGO

MCMORAN EXPLORATION CO.

1615 Poydras St.

New Orleans, LA 70112

(504) 582-4000

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON             , 2013

 

 

NOTICE IS HEREBY GIVEN that the special meeting of stockholders of McMoRan Exploration Co., a Delaware corporation, which is referred to herein as MMR, will be held at 10:00 a.m., local time, on             , 2013 at McMoRan Exploration Co., 1615 Poydras Street, New Orleans, Louisiana, 70112, to consider and vote upon the following proposals:

 

  1. to approve the proposed amendment to Article X section (k) of the amended and restated certificate of incorporation of MMR to exclude FCX from the definition of “Interested Stockholder” solely for the purposes of the transactions contemplated by the merger agreement (as defined in proposal 2, below), which is referred to herein as the charter amendment proposal;

 

  2. to approve the adoption of the Agreement and Plan of Merger, dated as of December 5, 2012, by and among MMR, Freeport-McMoRan Copper & Gold Inc., which is referred to herein as FCX, and INAVN Corp., a wholly owned subsidiary of FCX, which is referred to herein as Merger Sub, as such agreement may be amended from time to time, which is referred to herein as the merger agreement, which provides for, among other things, the merger of Merger Sub with and into MMR, with MMR surviving the merger as a wholly owned subsidiary of FCX, which is referred to herein as the merger proposal; and

 

  3. to approve the adjournment of the MMR special meeting, if necessary or appropriate, in the view of the MMR board of directors, to solicit additional proxies in favor of the charter amendment proposal or the merger proposal if there are not sufficient votes at the time of such adjournment to approve either proposal, which is referred to herein as the adjournment proposal.

These matters are described more fully in the accompanying proxy statement/prospectus, which MMR stockholders are urged to read thoroughly. The MMR board of directors, upon the unanimous recommendation of the MMR special committee, recommends that the MMR stockholders vote:

 

   

“FOR” the proposal to approve the proposed amendment to the charter;

 

   

“FOR” the proposal to approve the adoption of the merger agreement; and

 

   

“FOR” any adjournment of the special meeting, if necessary to solicit additional proxies in favor of the charter amendment proposal or the merger proposal.

All MMR stockholders are cordially invited to attend this special meeting with proper identification and, if applicable, acceptable proof of ownership, although only holders of record of MMR common stock at the close of business on April 4, 2013, will be entitled to receive notice of, and to vote at, the MMR special meeting, or any adjournment or postponement thereof. A list of stockholders entitled to receive notice of and vote at the MMR special meeting will be available in MMR’s offices located at 1615 Poydras Street, New Orleans, Louisiana 70112, during ordinary business hours for the ten-day period preceding the date of the MMR special meeting. A stockholder list will also be available at the MMR special meeting.

Approval of the charter amendment proposal requires the affirmative vote of holders of a majority of the outstanding shares of MMR common stock. Approval of the merger proposal requires the affirmative vote of holders of (1) a majority of the outstanding shares of MMR common stock and (2) a majority of the outstanding shares of MMR common stock, excluding shares owned by FCX and its subsidiaries, Plains Exploration &


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Production Company, which is referred to herein as PXP, and its subsidiaries, and certain MMR executive officers and directors who also serve as officers and/or directors of FCX, specifically, Richard C. Adkerson, Robert A. Day, Gerald J. Ford, H. Devon Graham, Jr., James R. Moffett, Nancy D. Parmelee, Kathleen L. Quirk and B. M. Rankin, Jr., who are referred to herein as the interested stockholders.

In connection with MMR’s solicitation of proxies for the special meeting, MMR began mailing the accompanying proxy statement/prospectus and proxy card on or about             , 2013. Whether or not you expect to attend the MMR special meeting in person, please submit your voting instructions as promptly as possible by (1) accessing the Internet website specified on your proxy card or (2) signing and returning all proxy cards that you receive in the postage-paid envelope provided, so that your shares may be represented and voted at the MMR special meeting. This will not prevent you from voting in person, but it will help to secure a quorum and avoid added solicitation costs. Any holder of MMR common stock who is present at the special meeting may vote in person instead of by proxy, thereby canceling any previous proxy. In any event, a proxy may be revoked in writing at any time before its exercise at the MMR special meeting in the manner described in the accompanying proxy statement/prospectus.

BY ORDER OF THE BOARD OF DIRECTORS,

 

LOGO

Nancy D. Parmelee

Senior Vice President, Chief Financial Officer & Secretary

McMoRan Exploration Co.

            , 2013

YOUR VOTE IS VERY IMPORTANT. PLEASE SUBMIT YOUR VOTING INSTRUCTIONS USING ONE OF THE METHODS ABOVE TO ENSURE THAT YOUR VOTE WILL BE COUNTED, REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING. YOUR PROXY

MAY BE REVOKED AT ANY TIME BEFORE THE VOTE AT THE MMR SPECIAL MEETING BY FOLLOWING THE PROCEDURES OUTLINED IN THE ACCOMPANYING

PROXY STATEMENT/PROSPECTUS. YOU CAN FIND INSTRUCTIONS FOR VOTING ON

THE ENCLOSED PROXY CARD.


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INFORMATION ABOUT ATTENDING THE MMR SPECIAL MEETING

Only stockholders of record on the record date of April 4, 2013 are entitled to notice of and to attend or vote at the MMR special meeting. If you plan to attend the MMR special meeting in person, please bring the following:

 

  1. Proper identification.

 

  2. Acceptable Proof of Ownership if your shares are held in street name.

Street name means your shares are held of record by brokers, banks or other institutions.

Acceptable Proof of Ownership is either (a) a letter from your broker stating that you beneficially owned MMR stock on the record date or (b) an account statement showing that you beneficially owned MMR stock on the record date.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SPECIAL MEETING OF MMR STOCKHOLDERS TO BE HELD ON             , 2013.

This proxy statement is available at

http://www.edocumentview.com/MMR_MTG.


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TABLE OF CONTENTS

 

      Page  

QUESTIONS AND ANSWERS ABOUT THE MMR SPECIAL MEETING

     iii   

SUMMARY

     1   

Special Factors

     1   

Risk Factors

     6   

The Companies

     6   

The Merger Agreement

     8   

The MMR Special Meeting

     11   

SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING DATA OF FCX

     13   

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF MMR

     18   

UNAUDITED PRO FORMA STATEMENT OF ASSETS, LIABILITIES AND TRUST CORPUS

     20   

GULF COAST ULTRA DEEP ROYALTY TRUST UNAUDITED PRO FORMA STATEMENT OF ASSETS, LIABILITIES AND TRUST CORPUS AT DECEMBER 31, 2012

     21   

NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF ASSETS, LIABILITIES AND TRUST CORPUS

     21   

HISTORICAL FINANCIAL DATA OF THE ROYALTY TRUST

     22   

STATEMENT OF ASSETS, LIABILITIES AND TRUST CORPUS

     22   

STATEMENT OF CHANGES IN TRUST CORPUS

     22   

NOTES TO FINANCIAL STATEMENTS

     22   

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     23   

SPECIAL FACTORS

     24   

General Description and Effects of the Merger

     24   

Background of the Merger

     24   

MMR’s Reasons for the Merger and Recommendation of the MMR Special Committee and Board of  Directors

     39   

Position of the FCX Parties as to the Fairness of the Merger and Purpose of the Merger

     45   

Purposes and Reasons of the FCX Parties for the Merger

     49   

Differing Interests of MMR Stockholders and FCX in the Merger

     50   

Certain Effects of the Merger

     50   

Certain Information Prepared by the Management of MMR

     52   

Opinion of Financial Advisor to the MMR Special Committee

     56   

Opinion of Financial Advisor to the FCX Special Committee

     68   

Interests of MMR Directors and Executive Officers in the Merger

     76   

Board and Management After the Merger

     80   

Material U.S. Federal Income Tax Consequences of the Merger

     80   

Accounting Treatment

     90   

Regulatory Approvals Required for the Merger

     91   

Treatment of Convertible Securities

     91   

Treatment of Options and Restricted Stock Units

     92   

Listing of the Royalty Trust Units

     92   

Rights of Dissenting Stockholders

     92   

De-Listing and Deregistration of MMR Common Stock

     96   

Legal Proceedings

     96   

Description of Financing

     97   

RISK FACTORS

     99   

Risks Related to the Merger

     99   

Risks Related to the Royalty Trust Units

     101   

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     107   

THE COMPANIES

     108   

MMR

     108   

Royalty Trust

     108   


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FCX

     109   

Merger Sub

     109   

THE MERGER AGREEMENT

     110   

The Merger

     110   

Time of Closing and Effective Time of the Merger

     110   

Merger Consideration

     110   

Exchange Procedures

     111   

MMR Stockholder Approval

     111   

Representations and Warranties

     112   

Definition of Material Adverse Effect

     113   

Covenants of MMR Relating to the Conduct of its Business

     114   

FCX’s Access to MMR; Confidentiality

     116   

No Solicitation by MMR of Takeover Proposals

     117   

Definitions of Superior Proposal and Takeover Proposal

     118   

Recommendation of the MMR Board of Directors

     118   

SEC Filings

     120   

Employee Matters

     121   

Efforts to Obtain Regulatory Approvals

     121   

Financing Covenant; MMR Cooperation

     121   

Royalty Trust Units

     122   

Standstill Waivers

     122   

Voting and Support Agreement

     123   

Transaction Litigation

     123   

Conditions to the Completion of the Merger

     123   

Termination of the Merger Agreement

     124   

Termination Fees

     125   

Remedies

     125   

Amendment; Extension and Waiver

     126   

Expenses

     126   

THE ROYALTY TRUST AGREEMENT

     127   

THE VOTING AND SUPPORT AGREEMENT

     131   

THE MMR SPECIAL MEETING

     132   

Date, Time and Place

     132   

Purpose of the MMR Special Meeting

     132   

Recommendations of the Board of Directors of MMR

     132   

Record Date; Stock Entitled to Vote

     132   

Quorum

     133   

Required Vote

     133   

Abstentions, Failures to Vote and Broker Non-Votes

     133   

Voting at the Special Meeting

     133   

Revocation of Proxies or Voting Instructions

     134   

Solicitation of Proxies

     134   

Adjournments and Postponements

     135   

PROPOSALS TO BE CONSIDERED AT THE MMR SPECIAL MEETING

     136   

The Charter Amendment Proposal (Item 1 on the Proxy Card)

     136   

The Merger Proposal (Item 2 on the Proxy Card)

     137   

The Adjournment Proposal (Item 3 on the Proxy Card)

     138   

STOCK OWNERSHIP OF FCX AND MMR DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL OWNERS

     139   

Ownership of Major FCX Stockholders

     139   

Ownership of FCX Directors and Executive Officers

     139   

Ownership of Major MMR Stockholders

     141   

Ownership of MMR Directors and Executive Officers

     142   


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DESCRIPTION OF THE ROYALTY INTERESTS

     144   

DESCRIPTION OF THE SUBJECT INTERESTS

     146   

DESCRIPTION OF ROYALTY TRUST UNITS

     150   

COMPARATIVE MARKET PRICE INFORMATION AND DIVIDENDS

     153   

RELATED PARTY TRANSACTIONS

     154   

COMPARISON OF RIGHTS OF MMR STOCKHOLDERS AND ROYALTY TRUST UNITHOLDERS

     156   

MERGER FEES AND EXPENSES

     158   

LEGAL MATTERS

     159   

EXPERTS

     159   

RESERVES

     159   

MMR 2013 ANNUAL MEETING STOCKHOLDER PROPOSALS

     159   

OTHER MATTERS

     160   

WHERE YOU CAN FIND MORE INFORMATION

     160   

ANNEXES

 

Annex A Agreement and Plan of Merger

     A-1   

Annex B Voting and Support Agreement

     B-1   

Annex C Opinion of Evercore Group L.L.C.

     C-1   

Annex D Section 262 of the General Corporation Law of the State of Delaware

     D-1   


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REFERENCES TO ADDITIONAL INFORMATION

This document incorporates important business and financial information about FCX and MMR from documents that are not included in or delivered with this document. You can obtain documents incorporated by reference in this document, other than certain exhibits to those documents, by requesting them in writing or by telephone from the appropriate company at the following addresses:

 

Freeport-McMoRan Copper & Gold Inc.

333 N. Central Ave.

Phoenix, AZ 85004

(602) 366-8100

Email: fcx_communications@fmi.com

  

McMoRan Exploration Co.

1615 Poydras Street

New Orleans, Louisiana 70112

(504) 582-4000

The firms assisting MMR with the solicitation of proxies are:

 

Georgeson Inc.

599 Lexington Avenue

New York, New York 10022

(888) 607-9252

  

MacKenzie Partners, Inc.

105 Madison Avenue

New York, New York 10016

(800) 322-2885

You will not be charged for any of these documents that you request. If you would like to receive documents before the special meeting, please request them by             , 2013 (which is five business days before the scheduled date of the MMR special meeting).

Investors may also consult MMR’s website and FCX’s website for more information concerning the merger described in this proxy statement/prospectus. MMR’s website is www.mcmoran.com. FCX’s website is www.fcx.com. Information included on MMR’s website and/or FCX’s website is not incorporated by reference into this proxy statement/prospectus.

See the section entitled “Where You Can Find More Information” beginning on page 160.

ABOUT THIS DOCUMENT

This document, which forms a part of a registration statement on Form S-4 filed with the Securities and Exchange Commission, which is referred to herein as the SEC, constitutes a prospectus of FCX and the Royalty Trust under Section 5 of the Securities Act of 1933, which is referred to herein as the Securities Act, with respect to the royalty trust units to be issued to MMR stockholders as part of the consideration in connection with the merger. This document also constitutes a proxy statement of MMR under Section 14(a) of the Securities Exchange Act of 1934, which is referred to herein as the Exchange Act, and the rules thereunder, and a notice of meeting with respect to the special meeting of MMR’s stockholders to consider and vote upon the charter amendment, the merger and related matters.

You should rely only on the information contained or incorporated by reference in this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference in, this proxy statement/prospectus. This proxy statement/prospectus is dated                 , 2013. You should not assume that the information contained in this proxy statement/prospectus is

 

i


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accurate as of any date other than such date, or that the information incorporated by reference in, this proxy statement/prospectus is accurate as of any date other than the date of such incorporated documents. Neither the mailing of this proxy statement/prospectus to MMR stockholders nor the issuance of the royalty trust units in connection with the merger will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

 

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QUESTIONS AND ANSWERS ABOUT THE MMR SPECIAL MEETING

The following are answers to some questions that you, as a stockholder of MMR, may have regarding the merger and the other matters being considered at the special meeting of stockholders of MMR, which is referred to herein as the special meeting or the MMR special meeting. MMR urges you to read carefully the remainder of this proxy statement/prospectus because the information in this section does not provide all the information that might be important to you with respect to the merger and the other matters being considered at the special meeting. Additional important information is also contained in the annexes to and the documents incorporated by reference into this proxy statement/prospectus.

 

Q: Why am I receiving this proxy statement/prospectus?

 

A: The board of directors of McMoRan Exploration Co., which is referred to herein as MMR, is soliciting your proxy to vote at the MMR special meeting of stockholders because you owned shares of MMR common stock at the close of business on April 4, 2013, the record date for the MMR special meeting, and are therefore entitled to vote at the MMR special meeting. This proxy statement/prospectus, along with a proxy card or a voting instruction card, is being mailed to stockholders on or about             , 2013. MMR has made these materials available to you on the internet, and MMR has delivered printed proxy materials to you. This proxy statement/prospectus summarizes the information that you need to know in order to cast your vote at the special meeting. You do not need to attend the special meeting in person to vote your shares of MMR common stock.

In order to complete the merger, MMR stockholders must vote to adopt the charter amendment and the merger proposal, and all other conditions to the merger must be satisfied or waived.

 

Q: When and where will the special meeting be held?

 

A: The MMR special meeting will be held at 10:00 a.m., local time, on                 , 2013 at McMoRan Exploration Co., 1615 Poydras Street, New Orleans, Louisiana, 70112.

 

Q: On what matters will I be voting?

 

A: You are being asked to approve a proposed amendment to Article X section (k) of the amended and restated certificate of incorporation of MMR to exclude FCX from the definition of “Interested Stockholder” solely for the purposes of the transactions contemplated by the merger agreement (as defined in the following paragraph), which is referred to herein as the charter amendment proposal.

You also are being asked to approve a proposal to adopt the Agreement and Plan of Merger, dated December 5, 2012, by and among McMoRan Exploration Co., which is referred to herein as MMR, Freeport-McMoRan Copper & Gold Inc., which is referred to herein as FCX, and INAVN Corp., a wholly owned subsidiary of FCX, which is referred to herein as Merger Sub, as such agreement may be amended from time to time, which is referred to herein as the merger agreement. The merger agreement provides for, among other things, the merger of Merger Sub with and into MMR, with MMR surviving the merger as a wholly owned subsidiary of FCX, which is referred to herein as the merger proposal. A copy of the merger agreement is attached to this proxy statement/prospectus as Annex A.

In addition you are also being asked to vote on a proposal to adjourn the MMR special meeting, if necessary or appropriate, in the view of the MMR board of directors, to solicit additional proxies in favor of the charter amendment proposal or the merger proposal if there are not sufficient votes at the time of such adjournment to approve either proposal, which is referred to herein as the adjournment proposal.

 

Q: How does the MMR board of directors recommend that I vote?

 

A: The MMR board of directors, upon the unanimous recommendation of the MMR special committee, recommends that MMR stockholders vote “FOR” the charter amendment proposal, “FOR” the merger proposal and “FOR” the adjournment proposal.

 

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Q: How do I vote?

 

A: After you have carefully read this proxy statement/prospectus and have decided how you wish to vote your shares of MMR common stock, please vote your shares promptly.

Stockholders of Record

If your shares of MMR common stock are registered directly in your name with MMR’s transfer agent, Computershare Shareowner Services LLC, you are the stockholder of record of those shares and these proxy materials have been mailed to you by MMR. You may vote your shares by internet or by mail as further described below. Your vote authorizes each of James R. Moffett, Richard C. Adkerson, Nancy D. Parmelee and Kathleen L. Quirk, as your proxies, each with the power to appoint his or her substitute, to represent and vote your shares as you directed.

 

   

Vote by Internet—http://www.ivselection.com/explor2013_special

 

   

Use the internet to transmit your voting instructions 24 hours a day, seven days a week until 11:59 p.m. (Central Time) on                 , 2013.

 

   

Please have your proxy card available and follow the instructions to obtain your records and create an electronic ballot.

 

   

Vote by Mail

 

   

Complete, date and sign your proxy card and return it in the postage-paid envelope provided.

Only the latest dated proxy received from you, whether by internet or mail, will be voted at the MMR special meeting. If you vote by internet, you do not also need to mail your proxy card. You may also vote in person at the MMR special meeting.

Beneficial Owners

If your shares of MMR common stock are held in a stock brokerage account, by a bank, broker or other nominee, you are considered the beneficial owner of shares held in street name and these proxy materials are being forwarded to you by your bank, broker or nominee that is considered the shareowner of record of those shares. As the beneficial owner, you have the right to direct your bank, broker, trustee or nominee on how to vote your shares via the internet or by telephone if the bank, broker, trustee or nominee offers these options or by signing and returning a proxy card. Your bank, broker, trustee or nominee will send you instructions for voting your shares. Please note that you may not vote shares held in street name by returning a proxy card directly to MMR or by voting in person at the special meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or nominee. Further, brokers, banks and nominees who hold shares of MMR common stock on your behalf may not give a proxy to MMR to vote those shares without specific instructions from you.

For a discussion of the rules regarding the voting of shares held by beneficial owners, please see the question below entitled “If I am a beneficial owner of shares of MMR common stock, what happens if I don’t provide voting instructions? What is discretionary voting? What is a broker non-vote?”

Participants in MMR’s Employee Capital Accumulation Program

If you hold shares of MMR common stock through MMR’s Employee Capital Accumulation Program (ECAP), you may only vote your shares by mail. Accordingly, please complete, date and sign your proxy card and return it in the postage-paid envelope provided to you.

 

Q: What vote is required to adopt each proposal?

 

A: Approval of the charter amendment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of MMR common stock.

 

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Approval of the merger proposal requires the affirmative vote of holders of (1) a majority of the outstanding shares of MMR common stock and (2) a majority of the outstanding shares of MMR common stock, excluding shares owned by FCX and its subsidiaries, PXP and its subsidiaries, and certain MMR executive officers and directors who also serve as officers and/or directors of FCX, specifically, Richard C. Adkerson, Robert A. Day, Gerald J. Ford, H. Devon Graham, Jr., James R. Moffett, Nancy D. Parmelee, Kathleen L. Quirk and B. M. Rankin, Jr., who collectively are referred to herein as the interested stockholders. As of April 4, 2013, the record date, the interested stockholders as a group owned and were entitled to vote 60,070,442 shares of MMR common stock, or representing approximately 36.8% of the outstanding shares of MMR common stock on that date (excluding 31.25 million shares of MMR common stock beneficially owned by FCX due to its ownership of shares of MMR 5.75% convertible perpetual preferred stock, Series 2, which shares of common stock are not outstanding as of such date). Accordingly, if the interested stockholders were to maintain their holdings as of the record date for the MMR special meeting and the number of outstanding shares of MMR common stock remained unchanged, the affirmative vote of approximately 51,515,084 shares of MMR outstanding common stock held by persons other than the interested stockholders would be required to satisfy the required approval of the merger proposal by a majority of the outstanding shares of MMR common stock, excluding the shares held by the interested stockholders.

If the charter amendment were not adopted, the consummation of the merger would require the approval of a supermajority of the outstanding shares of MMR common stock. Under the version of Article X section (k) of the amended and restated MMR certificate of incorporation currently in effect, FCX is an “interested stockholder” of MMR due to its ownership of shares of MMR convertible preferred stock convertible into approximately 16.1% of the outstanding shares of MMR common stock as of April 4, 2013, the record date. Approval of the charter amendment proposal is a condition to the consummation of the merger. Because the charter amendment proposal only relates to the transactions contemplated by the merger agreement, if the charter amendment proposal is adopted but the merger is not consummated, FCX will continue to constitute an “interested stockholder” of MMR and will therefore only be permitted to engage in certain transactions with MMR if certain heightened approval requirements are satisfied.

Approval of the adjournment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of MMR common stock entitled to vote on the proposal present in person or represented by proxy at the special meeting.

 

Q: How many votes do I and others have?

 

A: You are entitled to one vote for each share of MMR common stock that you held as of the record date. As of the close of business on April 4, 2013, the record date, there were 163,100,608 outstanding shares of MMR common stock.

In connection with entry into the merger agreement, FCX, MMR and PXP entered into a voting and support agreement, which is referred to herein as the support agreement, with respect to the merger. The support agreement generally requires that PXP, in its capacity as a stockholder of MMR, vote all of its shares of MMR common stock in favor of the charter amendment proposal and the merger proposal and against alternative transactions and generally prohibits PXP from transferring its shares of MMR common stock prior to the consummation of the merger. As of April 4, 2013, the record date, PXP held 51,000,000 shares of MMR common stock, representing approximately 31.3% of the outstanding shares of MMR common stock, all of which are subject to the support agreement.

As of April 4, 2013, the record date, the directors and executive officers of MMR as a group owned and were entitled to vote 9,110,202 shares of the common stock of MMR, representing approximately 5.6% of the outstanding shares of MMR common stock on that date (including 9,070,442 shares of MMR common stock, representing approximately 5.6% of the outstanding shares of MMR common stock, which are beneficially owned by the directors and executive officers of MMR who are interested stockholders). MMR currently expects that its directors and executive officers will vote their shares in favor of the charter

 

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amendment proposal and the merger proposal, but none of MMR’s directors or executive officers have entered into any agreement obligating them to do so.

 

Q: What will happen if I fail to vote or I abstain from voting?

 

A: Your failure to vote will have the same effect as a vote against the charter amendment proposal and the merger proposal, but will have no effect on the adjournment proposal. Your abstention from voting will have the same effect as a vote against the charter amendment proposal, the merger proposal and the adjournment proposal.

 

Q: How many shares must be present to hold the MMR special meeting?

 

A: Under Delaware law and the amended and restated by-laws of MMR, the presence in person or by proxy of a majority of the outstanding shares of MMR common stock entitled to vote at the special meeting is necessary to constitute a quorum at the MMR special meeting. The inspector of election will determine whether a quorum is present. If you are a beneficial owner (as defined above) of shares of MMR common stock and you do not instruct your bank, broker or other nominee how to vote your shares on any of the proposals, your shares will not be counted as present at the special meeting for purposes of determining whether a quorum exists. Votes of stockholders of record who are present at the special meeting in person or by proxy will be counted as present at the special meeting for purposes of determining whether a quorum exists, whether or not such holder abstains from voting on all of the proposals.

 

Q: If I am a beneficial owner of shares of MMR common stock, what happens if I don’t provide voting instructions? What is discretionary voting? What is a broker non-vote?

 

A: If you are a beneficial owner and you do not provide voting instructions to your broker, bank or other holder of record holding shares for you, your shares will not be voted with respect to any proposal for which your broker does not have discretionary authority to vote. The rules of the NYSE determine whether proposals presented at stockholder meetings are “discretionary” or “non-discretionary.” If a proposal is determined to be discretionary, your broker, bank or other holder of record is permitted under NYSE rules to vote on the proposal without receiving voting instructions from you. If a proposal is determined to be non-discretionary, your broker, bank or other holder of record is not permitted under NYSE rules to vote on the proposal without receiving voting instructions from you. A “broker non-vote” occurs when a bank, broker or other holder of record holding shares for a beneficial owner does not vote on a non-discretionary proposal because the holder of record has not received voting instructions from the beneficial owner.

Under the rules of the NYSE, each of the proposals to be presented at the MMR special meeting is a non-discretionary proposal. Accordingly, if you are a beneficial owner and you do not provide voting instructions to your broker, bank or other holder of record holding shares for you, your shares will not be voted with respect to any of the proposals. A broker non-vote would have the same effect as a vote against the charter amendment proposal and the merger proposal, but no effect on the adjournment proposal. In addition, such shares will not be considered present at the special meeting for purposes of determining the existence of a quorum. Because there are no proposals being voted upon at the MMR special meeting that brokers have discretionary authority to vote on, MMR does not expect any broker non-votes on any of the proposals.

 

Q: What will happen if I return my proxy card without indicating how to vote?

 

A: If you sign and return your proxy card without indicating how to vote on any particular proposal, the MMR common stock represented by your proxy will be voted in favor of each such proposal. Proxy cards that are returned without a signature will not be counted as present at the MMR special meeting and cannot be voted.

 

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Q: Can I change my vote after I have returned a proxy or voting instruction card?

 

A: Yes. You can change your vote at any time before your proxy is voted at the special meeting. You can do this in one of three ways:

 

   

you can grant a new, valid proxy bearing a later date;

 

   

you can send a signed notice of revocation; or

 

   

if you are a holder of record, you can attend the special meeting and vote in person, which will automatically cancel any proxy previously given, or you may revoke your proxy in person, but your attendance alone will not revoke any proxy that you have previously given.

If you choose either of the first two methods, you must submit your notice of revocation or your new proxy to the Secretary of MMR, as specified in this proxy statement/prospectus, no later than the beginning of the special meeting. If your shares are held in street name by your broker, bank or nominee, you should contact them to change your vote.

 

Q: Do I need identification to attend the MMR special meeting in person?

 

A: Yes. Please bring proper identification, together with proof that you are a record owner of shares of MMR common stock. If your shares are held in street name, please bring acceptable proof of ownership, such as a letter from your broker or an account statement stating or showing that you beneficially owned shares of MMR common stock on the record date.

 

Q: What consideration will MMR stockholders receive if the merger is completed, and what do the royalty trust units represent?

 

A: If the merger is completed, each outstanding share of common stock of MMR (other than shares owned by FCX and its subsidiaries and shares held by stockholders who properly exercise dissenters’ rights) will be converted into the right to receive $14.75 in cash, without interest, and 1.15 units, which are referred to herein as the royalty trust units, representing beneficial interests in Gulf Coast Ultra Deep Royalty Trust, which is referred to herein as the Royalty Trust, that will be entitled to share in a 5% gross overriding royalty interest in hydrocarbons saved and produced from the subject interests (as defined below) during the life of the Royalty Trust. An overriding royalty interest in general represents a non-operating interest in an oil and gas property that provides the owner a specified share of production without any related operating expenses or development costs and is carved out of an oil and gas lessee’s working or cost-bearing interest under the lease. A working or cost-bearing interest in general represents an interest in an oil and gas property that provides the owner a specified share of production that is subject to all production expense and development costs. An owner of a working or cost-bearing interest, subject to the terms of applicable operating agreements, generally has the right to participate in the selection of a prospect, drilling location, or drilling contractor to propose the drilling of a well, to determine the timing and sequence of drilling operations, to commence or shut down production, to take over operations, or to share in any operating decision. An owner of an overriding royalty interest in general has none of the rights described in the preceding sentence, and holders of royalty trust units will not have such rights. Unlike royalty interests that are retained by the mineral rights owner that grants the leasehold, an “overriding” royalty is generally granted to a party that does not own any interest in the underlying minerals, and the overriding royalty interest expires when production ceases and the lease terminates. For more information, see the section entitled “Description of the Royalty Interests” beginning on page 144.

 

    

The Royalty Trust will dissolve on the earliest of the twentieth anniversary of the closing of the merger, the sale of all of the overriding royalty interests by the Royalty Trust, a vote in favor of termination by the holders of the required percentage of the royalty trust units, upon the election of the Trustee following its resignation for cause (as more fully described in the amended and restated trust agreement) or the exercise by FCX of the right to call all of the royalty trust units described in the following sentence. FCX has the right to call all of the royalty trust units beginning on the fifth anniversary of the closing at a price of $10 per royalty trust unit, or, if the applicable trading price of the royalty trust units falls below $0.25 per unit for a nine-month period, at a price of $0.25 per

 

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  royalty trust unit. As of the date of this proxy statement/prospectus, none of the subject interests had any reserves classified as proved, probable or possible, other than MMR’s onshore Lineham Creek well, and none of the subject interests had any associated production. MMR’s independent reserve engineers have assigned initial estimates of 12.9 Bcfe of net proved reserves, 46.6 Bcfe of net probable reserves and 82.2 Bcfe of net possible reserves, associated with interim drilling results through December 31, 2012, from the sands encountered above 24,000 feet in the Lineham Creek well, located on one of the onshore subject interests. Upon the execution of the amended and restated trust agreement, the Royalty Trust will issue a number of royalty trust units equal to the fully diluted number of shares of MMR common stock outstanding immediately prior to the effective time of the merger (including shares beneficially owned by FCX and its subsidiaries, excluding shares issuable pursuant to equity awards which will be converted into FCX equity awards in connection with the consummation of the merger, and calculated assuming each of MMR’s convertible securities are converted at a conversion rate calculated assuming the maximum possible make-whole premium is received). We currently estimate that the total number of royalty trust units to be issued will approximate 230 million. This expectation is based on the maximum number of MMR common shares that could be issued to holders of MMR’s outstanding convertible securities at the maximum applicable make-whole premiums based on an assumed trading price and closing date for the merger and the assumption that no options are exercised prior to the closing of the merger. The exact number of royalty trust units to be issued will not be known until immediately prior to the closing of the merger. FCX, through one of its wholly owned subsidiaries, beneficially owns 500,000 shares of MMR’s 5.75% convertible perpetual preferred stock, series 2, which is currently convertible into 31,250,000 shares of MMR common stock. If the PXP merger is consummated prior to the consummation of the merger, FCX will beneficially own an additional 51 million shares of MMR common stock currently owned by PXP. Those shares beneficially owned by FCX will not be converted into the merger consideration. Accordingly, FCX will not directly receive royalty trust units. However, FCX will be entitled to retain the difference between the full number of royalty trust units issued and the number of royalty trust units required to be delivered as merger consideration (subject to an ongoing obligation to deliver royalty trust units to holders of certain outstanding convertible securities of MMR). If the PXP merger is not consummated prior to the consummation of the merger, PXP, due to ownership of approximately 31.3% of the outstanding shares of MMR common stock as of April 26, 2013, is expected to be the largest holder of royalty trust units following the consummation of the merger. If the PXP merger is consummated prior to the consummation of the merger, FCX, due to its retention of the royalty trust units which would no longer need to be delivered as merger consideration in respect of the shares previously held by PXP, is expected to be the largest holder of royalty trust units following the consummation of the merger, with anticipated holdings of approximately 27.1% of the outstanding royalty trust units at the time of closing of the merger (assuming that all holders of MMR convertible securities have exercised their conversion rights immediately following the closing of the merger). If the PXP merger is not consummated prior to the consummation of the MMR merger, it is anticipated that FCX would hold approximately 1.6% of the outstanding royalty trust units at the time of closing of the MMR merger (assuming that all holders of MMR convertible securities have exercised their conversion rights immediately following the closing of the merger). These percentages are approximate, and will vary with changes in the number of shares of MMR common stock outstanding, the closing date of the merger and the trading price of MMR common stock used to determine the conversion rate applicable to the MMR convertible securities at the time of the closing of the merger. As a function of the fact that the number of royalty trust units to be issued will be fixed at MMR’s fully diluted outstanding share count, but the number of outstanding shares of MMR common stock beneficially owned by persons other than FCX and its affiliates (and therefore entitled to receive the merger consideration) will fluctuate, FCX will retain a number of royalty trust units at the closing of the merger which will vary based on the number of outstanding shares of MMR common stock held by persons other than FCX and its affiliates at closing. Among other factors, the number of outstanding shares of MMR common stock beneficially owned by persons other than FCX and its affiliates will fluctuate based on the exercise of equity awards related to MMR common stock and, due to the impact of such variables on the make-whole conversion adjustment applicable to MMR’s convertible securities, the closing date of the merger and the trading price of MMR common stock at the time of closing of the merger.

 

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  Set forth below is a table showing FCX’s and PXP’s expected percentage ownership of the outstanding royalty trust units (i) immediately after the closing of the merger in the event that the PXP merger has been completed at or prior to that time, (ii) immediately after the closing of the merger in the event that the PXP merger has not been completed at or prior to that time and (iii) immediately after the closing of the PXP merger in the event that the PXP merger is completed after the closing of the merger.

 

    Percentage of Outstanding Royalty
Trust Units Owned (1)
     FCX   PXP

If the PXP merger has been completed at closing

  27.1%   N/A

If the PXP merger has not been completed at closing

  1.6%   25.5%

If the PXP merger is completed after closing

  27.1%   N/A

 

(1) Percentages are approximate, assume that all holders of MMR convertible securities have exercised their conversion rights immediately following the closing of the merger, and will vary based upon the closing date of the merger, the number of shares of MMR common stock outstanding, the trading price of MMR common stock used to determine the conversion rate applicable to MMR’s convertible securities, and the timing of the conversion of such securities by the holders thereof.

 

Q: Will I be able to trade the royalty trust units that I receive in the merger?

 

A: The parties to the merger do not currently expect that the royalty trust units will be listed on a national securities exchange at the time of issuance. The parties to the merger intend to seek to list the royalty trust units for trading on a national securities exchange or market in the future; however, there can be no assurance that they will be successful in doing so, that a market will develop for the royalty trust units, or that you will be able to sell your royalty trust units.

 

Q: What are the “subject interests”?

 

A:

The “subject interests” consist of 20 ultra-deep (target depths generally greater than 18,000 total vertical depth) prospects. The offshore “subject interests” consist of the following: (1) Barataria; (2) Barbosa; (3) Blackbeard East; (4) Blackbeard West; (5) Blackbeard West #3; (6) Bonnet; (7) Calico Jack; (8) Captain Blood; (9) Davy Jones; (10) Davy Jones West; (11) Drake; (12) England; (13) Hook; (14) Hurricane; (15) Lafitte; (16) Morgan; and (17) Queen Anne’s Revenge. The onshore “subject interests” consist of the following: (1) Highlander; (2) Lineham Creek; and (3) Tortuga. All of the subject interests are located in relatively shallow waters offshore of the state of Louisiana, or onshore in Louisiana. MMR does not own 100% of the working interest of any of the subject interests. The 5% gross overriding royalty interest in hydrocarbons saved and produced from the subject interests will burden all of MMR’s current leasehold interests associated with such prospects, as well as any leasehold interests associated with such prospects which are acquired by MMR on or before December 5, 2017. The gross overriding royalty interest will apply only to MMR’s working interest in each leasehold, as opposed to the working interest owned by any other interest owners in that leasehold subject to a cap equal to MMR’s estimated working interest (equal to the working interest MMR owns or expects to acquire and as set forth herein) in each subject interest, on a prospect by prospect basis. As a result, the 5% gross overriding royalty interest will be proportionately reduced based on MMR’s working interest to equal the product of five per cent (5%) multiplied by a fraction, the numerator of which is the working interest held by MMR and its affiliates in the applicable subject interest and the denominator of which is one hundred per cent (100%). As of the date of the merger agreement, the subject interests comprised all of MMR’s ultra-deep prospects and none of the subject interests had any reserves classified as proved, probable or possible, and none of the subject interests had any associated production. MMR may develop additional ultra-deep prospects subsequent to the date of the merger agreement, which will not be included in the subject interests. As of the date of this proxy statement/prospectus, MMR’s independent reserve engineers have assigned initial estimates of 12.9 Bcfe of net proved reserves, 46.6 Bcfe of net probable reserves and 82.2 Bcfe of net possible reserves, associated with interim

 

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  drilling results through December 31, 2012, from the sands encountered above 24,000 feet in the Lineham Creek well, located on one of the onshore subject interests. As of the date of this proxy statement/prospectus, none of the subject interests had any associated production.

 

Q: What is MMR’s estimated working interest with respect to each of the subject interests?

 

A: MMR’s estimated working interest, which represents the working interest MMR owns or expects to acquire, for each subject interest is as follows:

 

Subject Interest Name

   Estimated
Working
Interest
 

Davy Jones

     63.40

Blackbeard East

     72.00

Lafitte

     72.00

Blackbeard West

     69.40

England

     36.00

Barbosa

     72.00

Morgan

     72.00

Barataria

     72.00

Blackbeard West #3

     69.40

Drake

     72.00

Davy Jones West

     36.00

Hurricane

     72.00

Hook

     72.00

Captain Blood

     72.00

Bonnet

     72.00

Queen Anne’s Revenge

     72.00

Calico Jack

     36.00

Highlander

     72.00

Lineham Creek

     36.00

Tortuga

     72.00

 

Q: Are MMR stockholders entitled to appraisal rights?

 

A: Yes. MMR stockholders may exercise appraisal rights in connection with the merger under Delaware law. The full text of the applicable section of the General Corporation Law of Delaware, which is referred to herein as the DGCL, is attached to this proxy statement/prospectus as Annex D. For more information, see the section entitled “Special Factors—Rights of Dissenting Stockholders” beginning on page 92.

 

Q: What do I do if I receive more than one set of voting materials?

 

A: You may receive more than one set of voting materials for the MMR special meeting, including multiple copies of this proxy statement/prospectus, proxy cards and/or voting instruction forms. This can occur if you hold your shares of MMR common stock in more than one brokerage account, if you hold shares directly as a record holder and also in street name, or otherwise through a nominee, and in certain other circumstances. If you receive more than one set of voting materials, each should be voted and/or returned separately in order to ensure that all of your shares of MMR common stock are voted.

 

Q: If I am a MMR stockholder, should I send in my MMR stock certificates with my proxy card?

 

A: No. Please DO NOT send your MMR stock certificates with your proxy card. After the merger is completed, if you held certificates representing shares of MMR common stock prior to the merger, Computershare Trust Company N.A., FCX’s exchange agent, will send you a letter of transmittal and instructions for exchanging your shares of MMR common stock for the merger consideration. Upon surrender of the certificates for cancellation along with the executed letter of transmittal and other required documents described in the instructions, you will receive the merger consideration.

 

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Q: Do you expect the merger to be taxable to MMR stockholders?

 

A: Yes. The receipt of the merger consideration in exchange for shares of MMR common stock in the merger will be a fully taxable transaction. Please review carefully the information under “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 80, for a description of the material U.S. federal income tax consequences of the merger. The tax consequences to you will depend on your own situation. Please consult your tax advisors as to the specific tax consequences to you of the merger and of the ownership and disposition of the royalty trust units, including the applicability and effect of U.S. federal, state, local and foreign income and other tax laws in light of your particular circumstances.

 

Q: When do you expect the merger to be completed?

 

A: MMR expects to complete the merger in the second quarter of 2013. However, MMR cannot assure you when or if the merger will occur. The merger is subject to regulatory and stockholder approvals and other conditions, and it is possible that factors outside the control of both MMR and FCX could result in the merger being completed at a later time, or not at all. There may be a substantial amount of time between the MMR special meeting and the completion of the merger. MMR hopes to complete the merger as soon as reasonably practicable following the receipt of all required approvals.

 

Q: How will the Royalty Trust be managed?

 

A: The Royalty Trust will be managed by The Bank of New York Mellon Trust Company, N.A., as the trustee. The duties and liabilities of the trustee will be set forth in the amended and restated trust agreement to be entered into and are governed by the laws of the State of Delaware. The trustee will not make business decisions affecting the assets of the Royalty Trust. Therefore, substantially all of the trustee’s functions under the amended and restated trust agreement are expected to be ministerial in nature.

 

Q: How does the proposed transaction relate to FCX’s proposed transaction with PXP?

 

A: On December 5, 2012, FCX entered into an Agreement and Plan of Merger with PXP and IMONC LLC, a wholly owned subsidiary of FCX, which, as amended from time to time, is referred to herein as the PXP merger agreement, pursuant to which FCX will acquire PXP, which is referred to herein as the PXP merger. Concurrently with the filing of this proxy statement/prospectus, FCX and PXP are filing a proxy statement/prospectus in connection with the PXP merger that will be mailed to stockholders of PXP. The PXP merger is a separate transaction and the completion of the PXP merger is not a condition to the completion of the merger, nor is completion of the merger a condition to the completion of the PXP merger.

 

Q: Whom should I call with questions about the special meeting or the merger?

 

A: MMR stockholders should call MMR’s proxy solicitors, Georgeson Inc., toll-free at (888) 607-9252, or MacKenzie Partners, Inc., toll-free at (800) 322-2885, with any questions about the merger and related transactions.

 

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SUMMARY

This summary highlights information contained elsewhere in this proxy statement/prospectus and may not contain all the information that is important to you. MMR urges you to read carefully the remainder of this proxy statement/prospectus, including the attached annexes, and the other documents to which MMR has referred you because this section does not provide all the information that might be important to you with respect to the charter amendment and merger being considered at the MMR special meeting. See also the section entitled “Where You Can Find More Information” beginning on page 160. MMR has included page references to direct you to a more complete description of the topics presented in this summary.

Special Factors (see page 24)

General Description and Effects of the Merger (see page 24)

At the effective time, Merger Sub will merge with and into MMR, with MMR surviving the merger as a wholly owned subsidiary of FCX.

Pursuant to the merger agreement, at the effective time, each issued and outstanding share of MMR common stock, other than any dissenting shares or shares held by FCX and any of its subsidiaries (including any shares acquired in connection with the consummation of the transactions contemplated by the PXP merger agreement), will be converted into the right to receive $14.75 in cash and 1.15 royalty trust units, which is referred to herein as the merger consideration. As of the date of this proxy statement/prospectus, none of the subject interests associated with the royalty trust units had any reserves classified as proved, probable or possible, other than MMR’s onshore Lineham Creek well, and none of such subject interests had any associated production. Cash will be paid in lieu of any fractional royalty trust units. Pursuant to the merger agreement, equity awards relating to shares of MMR common stock will either be cancelled and converted upon the consummation of the merger into the right to receive the merger consideration or will be converted into comparable equity awards relating to FCX common stock on generally the same terms and conditions as prior to the merger. Concurrently with the execution of the merger agreement, certain executive officers of MMR waived their contractual rights to accelerated vesting of equity awards as a result of the merger. For additional information on equity awards relating to shares of MMR, see the section entitled “Special Factors—Treatment of Options and Restricted Stock Units” beginning on page 92.

The corporate headquarters of the combined company will be located in Phoenix, Arizona, and the combined company expects to maintain offices in Houston, Texas and New Orleans, Louisiana, to support its oil and gas operations and existing administrative functions. FCX and MMR expect to complete the merger in the second quarter of 2013. However, the merger is subject to approvals and other conditions, and it is possible that factors outside the control of MMR and FCX could result in the merger being completed at a later time, or not at all.

MMR’s Reasons for the Merger and Recommendation of the MMR Special Committee and Board of Directors (see page 39)

The MMR special committee has unanimously (i) determined that the charter amendment and merger are fair to, advisable and in the best interests of MMR and its stockholders; (ii) approved the merger agreement; and (iii) recommended that the MMR board of directors adopt and approve the merger agreement.

Acting upon the unanimous recommendation of the MMR special committee, the MMR board of directors has approved the charter amendment and the merger agreement and recommends that MMR stockholders vote to approve the charter amendment and adopt the merger agreement.

 

 

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Subject to certain conditions, the MMR board of directors, acting upon the recommendation of the MMR special committee, may change its recommendation in response to either (i) an intervening event or (ii) a superior proposal, if it determines, after consultation with its outside financial advisors and outside counsel, that not doing so would be inconsistent with its fiduciary duties under applicable law.

Opinion of Financial Advisor to the MMR Special Committee (see page 56)

In connection with the merger, on July 16, 2012, the MMR special committee retained Evercore Group L.L.C., which is referred to herein as Evercore, to act as a financial advisor to the MMR special committee. On December 5, 2012, at a meeting of the MMR special committee, Evercore rendered its oral opinion, subsequently confirmed by delivery of a written opinion later that day, that, as of December 5, 2012 and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set forth in its opinion, the merger consideration to be received by the holders of shares of MMR common stock pursuant to the merger agreement was fair, from a financial point of view, to the holders of shares of MMR common stock entitled to receive such merger consideration (other than PXP or any of its subsidiaries).

The full text of the written opinion of Evercore, dated as of December 5, 2012, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached as Annex C to this proxy statement/prospectus and is incorporated by reference in its entirety into this proxy statement/prospectus. You are urged to read the opinion carefully and in its entirety. Evercore’s opinion was addressed to, and provided for the information and benefit of, the MMR special committee (in its capacity as such) in connection with its evaluation of whether the merger consideration to be received by the holders of shares of MMR common stock was fair, from a financial point of view, to the holders of shares of MMR common stock entitled to receive such merger consideration (other than PXP or any of its subsidiaries) and did not address any other aspects or implications of the merger. Evercore’s opinion does not address the fairness of the proposed merger, or any consideration received in connection with the proposed merger, to the holders of any other securities, creditors or other constituencies of MMR, nor does it address the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of MMR, or any class of such persons, whether relative to the merger consideration or otherwise. Evercore assumed that any modification to the structure of the merger would not vary in any respect material to its analysis. Evercore’s opinion does not address the relative merits of the merger as compared to any other business or financial strategies that might be available to MMR, nor does it address the underlying business decision of MMR to engage in the merger. Evercore’s opinion does not constitute a recommendation to the MMR special committee or to any other persons in respect of the merger, including as to how any holder of shares of common stock of MMR should act or vote in respect of the merger. Finally, Evercore did not express any opinion as to the price at which shares of MMR capital stock or shares of FCX capital stock will trade at any time or as to the price at which the royalty trust units will trade at any time.

Opinion of Financial Advisor to the FCX Special Committee (see page 68)

On December 4, 2012, Credit Suisse Securities (USA) LLC, which is referred to herein as Credit Suisse, rendered its oral opinion to the special committee of the FCX board of directors (which was subsequently confirmed in writing by delivery of Credit Suisse’s written opinion dated the same date) with respect to the fairness, from a financial point of view, to FCX of the aggregate merger consideration (which, for purposes of the opinion, refers to the aggregate cash consideration and royalty trust units) to be paid or issued by FCX for the outstanding shares of MMR common stock in the merger pursuant to the merger agreement.

Credit Suisse’s opinion was directed to the FCX special committee (in its capacity as such), and only addressed the fairness, from a financial point of view, to FCX of the aggregate merger consideration to be

 

 

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paid or issued by FCX in the merger pursuant to the merger agreement and did not address any other aspect or implication of the merger, including, without limitation, the fairness from a financial point of view to MMR’s stockholders of the merger consideration to be received by MMR’s stockholders in the merger pursuant to the merger agreement. The Credit Suisse opinion did not address the fairness to the holders of MMR common stock (in their capacity as such) of the merger or the merger consideration to be received by such holders in the merger or the differing interests of such holders, discussed under “Differing Interests of MMR Stockholders and FCX.” This proxy statement/prospectus includes a summary of Credit Suisse’s opinion and the material financial analyses performed by Credit Suisse in connection with the preparation of its opinion. The full text of Credit Suisse’s written opinion is included as an exhibit to the Rule 13e-3 transaction statement on Schedule 13E-3 with respect to the merger filed with the SEC as of the date hereof, which is referred to herein as the Schedule 13E-3, and is incorporated by reference hereby and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Credit Suisse in preparing its opinion. However, neither Credit Suisse’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement/prospectus are intended to be, and they do not constitute a recommendation to the FCX special committee or the FCX board of directors with respect to the proposed merger or advice or a recommendation to any holder of MMR common stock as to how such holder should vote or act on any matter relating to the proposed merger. See the section entitled “Special Factors—Opinion of Financial Advisor to the FCX Special Committee” beginning on page 68.

Differing Interests of MMR Stockholders and FCX in the Merger (see page 50)

The interests of MMR stockholders other than FCX with respect to the merger consideration are significantly different from the interests of FCX. Among other things, FCX will pay the merger consideration in exchange for all of the outstanding equity interests in MMR while MMR stockholders other than FCX will receive the merger consideration in exchange for their equity interests in MMR and, following the consummation of the merger, MMR stockholders will not have a direct or indirect equity ownership interest in MMR or any of its assets. However, the royalty trust units that MMR stockholders receive as merger consideration pursuant to the merger agreement will provide the right to have an economic interest with respect to MMR’s ultra-deep assets.

Interests of MMR Directors and Executive Officers in the Merger (see page 76)

In considering the recommendation of the MMR board of directors, acting upon the unanimous recommendation of the MMR special committee, to adopt the merger agreement, MMR stockholders should be aware that certain MMR executive officers and directors may be deemed to have interests in the merger that are different from, or in addition to, those of MMR stockholders generally. These interests, which may create actual or potential conflicts of interest, are, to the extent material, described in the section entitled “Special Factors—Interests of MMR Directors and Executive Officers in the Merger” beginning on page 76. The MMR board of directors was aware of these potential conflicts of interest and considered them, among other matters, in evaluating and negotiating the merger agreement, in reaching its decision to approve the merger agreement, and in recommending to MMR stockholders that the merger agreement be adopted. These interests include the following:

 

   

Other than equity awards to which certain executive officers of MMR waived their contractual rights to accelerated vesting as a result of the merger, all outstanding options and restricted stock units held by non-employee directors of MMR will vest in connection with the completion of the merger; assuming the merger was consummated on April 26, 2013, the aggregate value of such as converted options is $766,050 and the aggregate value of such accelerated restricted stock units is merger consideration consisting of $774,378 in cash and 60,371 royalty trust units. See the section entitled “Special Factors—Interests of MMR Directors and Executive Officers in the Merger—Outstanding Equity Awards of MMR Non-Employee Directors that Will Vest” beginning on page 77.

 

 

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MMR directors and officers are entitled to continued indemnification and insurance coverage pursuant to the merger agreement.

In addition, certain MMR directors and executive officers own significant amounts of MMR common stock, as described in the section entitled “Stock Ownership of FCX and MMR Directors and Executive Officers and Certain Beneficial Owners—Ownership of MMR Directors and Executive Officers” beginning on page 142. Shares of MMR common stock held by MMR directors and executive officers will be treated in the merger in the same manner as shares held by unaffiliated holders. Assuming the merger was consummated on April 26, 2013, the merger consideration payable to the MMR directors in the aggregate would consist of approximately $134.9 million in cash and 10.5 million royalty trust units. See the section entitled “Special Factors—Interests of MMR Directors and Executive Officers in the Merger—Merger Consideration Payable to MMR Directors” beginning on page 78.

Interests of the FCX Parties in the Merger (see page 154)

In considering voting on the proposals to be presented at the special meeting and other matters related to the merger, MMR stockholders should be aware that FCX has interests in the merger that are different from, or in addition to, those of MMR stockholders generally. These interests, which may create actual or potential conflicts of interest, are, to the extent material, described in the section entitled “Related Party Transactions” beginning on page 154. The MMR board of directors and the special committee of the MMR board of directors were aware of these potential conflicts of interest and considered them, among other matters, in evaluating and negotiating the merger agreement, in reaching its decision to approve the merger agreement, and in recommending to MMR stockholders that the merger agreement be adopted. These interests include the following:

 

   

FCX is currently the owner of shares of MMR convertible preferred stock representing approximately 16.1% of the total shares of MMR common stock outstanding as of April 26, 2013, on an as-converted basis.

 

   

Several of MMR’s directors and executive officers also serve as directors or officers of FCX.

 

   

Certain FCX directors and executive officers own significant amounts of MMR common stock.

In addition, on December 5, 2012, FCX entered into the PXP merger agreement, pursuant to which FCX agreed to acquire PXP. The PXP merger is a separate transaction and the completion of the PXP merger is not a condition to the completion of the merger, nor is completion of the merger a condition to the completion of the PXP merger. PXP is the owner of shares of MMR common stock representing approximately 31.3% of the outstanding shares of MMR common stock as of April 4, 2013, the record date, and PXP has entered into a support agreement with respect to the merger, which generally obligates PXP, in its capacity as a stockholder of MMR, to vote all of its shares of MMR common stock in favor of the charter amendment proposal and the merger proposal and against alternative transactions and generally prohibits PXP from transferring its shares of MMR common stock prior to the consummation of the merger.

For a discussion of certain relationships between MMR and FCX, see the section entitled “Related Party Transactions” beginning on page 154.

Material U.S. Federal Income Tax Consequences of the Merger (see page 80)

The MMR stockholders’ receipt of the merger consideration in exchange for their shares of MMR common stock in the merger will be a fully taxable transaction for U.S. federal income tax purposes.

The Royalty Trust intends to treat itself as a grantor trust. Accordingly, the Royalty Trust unitholders will be taxed directly on their pro-rata share of the income attributable to the assets of the Royalty Trust. The U.S. federal

 

 

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income tax treatment of the royalty interests held by the Royalty Trust is subject to uncertainty. Based on the state of facts as of the date hereof, however, the Royalty Trust intends to treat the royalty interests as mineral royalty interests for U.S. federal income tax purposes, generating ordinary income subject to depletion. If the royalty interests are not properly treated as mineral royalty interests, then the royalty interests would be treated as a debt instrument for U.S. federal income tax purposes and a Royalty Trust unitholder, in that event, will be required to include in such Royalty Trust unitholder’s income its share of the interest income on such debt instrument as it accrues in accordance with the rules applicable to contingent payment debt instruments contained in the Internal Revenue Code of 1986, as amended, and the corresponding regulations. In such a case, the amount, timing and character of income, gain, or loss in respect of an investment in the Royalty Trust could be affected.

For more information, see the section entitled “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 80.

MMR URGES YOU TO CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES.

Before deciding whether to vote for the proposals presented in this proxy statement/prospectus, you should carefully consider all of the information contained in or incorporated by reference herein, as well as the specific material U.S. federal income tax consequences under the section entitled “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 80.

Regulatory Approvals Required for the Merger (see page 91)

To complete the merger, FCX and MMR must make filings with antitrust authorities in the United States and obtain the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the related rules and regulations, which is referred to herein as the HSR Act, which provide that certain transactions may not be completed until required information has been furnished to the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission and until certain waiting periods have been terminated or have expired. MMR and FCX each filed a notification and report form with the Antitrust Division and the FTC on December 14, 2012. Early termination of the HSR waiting period was granted by the FTC on December 26, 2012.

FCX and MMR will seek to complete the merger in the second quarter of 2013.

Legal Proceedings (see page 96)

Purported MMR stockholders have filed a number of putative class actions challenging the merger on behalf of all MMR stockholders. In addition, purported FCX stockholders have filed a number of derivative actions challenging the merger on behalf of FCX. The defendants in these lawsuits include, among others, MMR, FCX, members of their boards of directors, the Royalty Trust, Merger Sub and PXP. The lawsuits seek various forms of relief, including an injunction barring or rescinding the merger and damages. Additional information on these legal proceedings related to the merger is provided in the section entitled “Special Factors—Legal Proceedings,” beginning on page 96. The MMR and FCX defendants believe the lawsuits are without merit and intend to defend vigorously against them.

 

 

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Risk Factors (see page 99)

Before deciding whether to vote for the proposals presented in this proxy statement/prospectus, you should carefully consider all of the information contained in or incorporated by reference herein, as well as the section entitled “Risk Factors” beginning on page 99.

The Companies (see page 108)

MMR

McMoRan Exploration Co.

1615 Poydras Street

New Orleans, Louisiana 70112

(504) 582-4000

McMoRan Oil & Gas Co., the immediate predecessor of McMoRan Exploration Co. (MMR), was incorporated under the laws of the State of Delaware on April 15, 1994. On May 12, 1994, Freeport-McMoRan Inc. spun off its oil and gas operations to its shareholders through a distribution of shares of McMoRan Oil & Gas Co. At the time of the spin-off, James R. Moffett and Richard C. Adkerson were (1) Co-Chairman of the Board and Co-Chairman of the Board and Chief Executive Officer, respectively, of McMoRan Oil & Gas Co. and (2) Chairman of the Board and Senior Vice President, respectively, of Freeport-McMoRan Inc. Following its separation from Freeport-McMoRan Inc., McMoRan Oil & Gas Co. pursued a business plan of exploring for and producing oil and gas, primarily in the Gulf of Mexico and onshore in the Gulf Coast area. Freeport Sulphur Company was incorporated under the laws of the State of Delaware on August 26, 1997 (name was changed to Freeport-McMoRan Sulphur Inc. on October 21, 1997). MMR was incorporated under the laws of the State of Delaware on July 30, 1998. MMR began doing business as a publicly-traded company on November 17, 1998 when McMoRan Oil & Gas Co. and Freeport-McMoRan Sulphur Inc. combined their operations. As a result, McMoRan Oil & Gas LLC and Freeport-McMoRan Sulphur LLC (name was changed to Freeport-McMoRan Energy LLC on September 29, 2003), the successors to those companies, became MMR’s wholly owned subsidiaries.

MMR’s oil and gas operations are conducted through McMoRan Oil & Gas LLC, its principal operating subsidiary. MMR engages in the exploration, development and production of oil and natural gas in the shallow waters (less than 500 feet of water) of the Gulf of Mexico and onshore in the Gulf Coast area of the United States. MMR’s exploration strategy is focused on targeting large structures on the “deep gas play,” and on the “ultra-deep play.” Deep gas prospects target large deposits at depths typically between 15,000 and 25,000 feet. Ultra-deep prospects target objectives at depths typically below 25,000 feet. MMR has one of the largest acreage positions in the shallow waters of the Gulf of Mexico and Gulf Coast areas, MMR’s regions of focus. MMR has rights to approximately 855,000 gross acres, including approximately 381,000 gross acres associated with the ultra-deep gas play below the salt weld. MMR’s focused strategy enables it to make efficient use of its geological, engineering and operational expertise in these areas where MMR has more than 40 years of operating experience. MMR also believes that the scale of its operations in the Gulf of Mexico allows it to realize certain operating synergies and provides a strong platform from which to pursue its business strategy.

Royalty Trust

The Royalty Trust is a statutory trust created by FCX under the Delaware Statutory Trust Act pursuant to a trust agreement entered into on December 18, 2012, between FCX, as depositor, Wilmington Trust, National Association, as Delaware trustee and certain officers of FCX, as regular trustees. The Royalty Trust was created to hold certain overriding royalty interests, which are referred to herein as the royalty interests, in hydrocarbons saved and produced from MMR’s shallow water Gulf of Mexico and onshore Gulf Coast ultra-deep exploration

 

 

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prospects, which are referred to herein as the subject interests. MMR owns less than 100% of the working interest in each of the subject interests.

Since 2008, MMR’s ultra-deep drilling activities (below the salt weld, i.e., the listric fault) have confirmed MMR’s geologic model and the highly prospective nature of this emerging geologic trend. Data from seven wells drilled to date tie geologic formations encountered below the salt weld to productive zones onshore, in the deepwater Gulf of Mexico and in Mexico. Each of these seven wells is included in the subject interests, along with additional exploration prospects that will also be burdened by the Royalty Trust. To date, only the Davy Jones No. 1 well has been completed and efforts continue to obtain a measurable flow rate. As such, the subject interests remain “exploration concepts” and further drilling and flow testing will be required to determine the commercial potential of the subject interests.

AT THIS TIME, THERE IS NO PRODUCTION AND THERE ARE NO RESERVES CLASSIFIED AS PROVED, PROBABLE OR POSSIBLE ASSOCIATED WITH THE SUBJECT INTERESTS, OTHER THAN THE LINEHAM CREEK WELL, OR THE ROYALTY TRUST UNITS. The Royalty Trust will have no ability to influence the exploration or development of the subject interests. In addition, FCX will be under no obligation to fund or to commit any other resources to the exploration or development of the subject interests.

FCX

Freeport-McMoRan Copper & Gold Inc.

333 North Central Avenue

Phoenix, Arizona 85004

(602) 366-8100

FCX is a leading international mining company with headquarters in Phoenix, Arizona. FCX operates large, long-lived, geographically diverse assets with significant proven and probable reserves of copper, gold and molybdenum. FCX has a dynamic portfolio of operating, expansion and growth projects in the copper industry and is the world’s largest producer of molybdenum. FCX’s portfolio of assets includes the Grasberg minerals district in Indonesia, the world’s largest copper and gold mine in terms of recoverable reserves, significant mining operations in the Americas, including the large scale Morenci minerals district in North America and the Cerro Verde and El Abra operations in South America, and the highly prospective Tenke Fungurume minerals district in the Democratic Republic of Congo.

Merger Sub

INAVN Corp.

333 North Central Avenue

Phoenix, Arizona 85004

(602) 366-8100

INAVN Corp., a wholly owned subsidiary of FCX, which is referred to herein as the Merger Sub, is a Delaware corporation formed on December 3, 2012 for the purpose of effecting the merger.

Merger Sub has not conducted any activities other than those incidental to its formation and the matters contemplated by the merger agreement, including the preparation of applicable notice filings in connection with the merger.

 

 

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Relationships Among FCX, MMR and PXP

Certain officers and directors of each of FCX and PXP serve as officers and/or directors of MMR, as set forth below.

 

Name

  

FCX

  

PXP

  

MMR

James R. Moffett

   Director and Chairman of the Board       Co-Chairman of the Board, President and Chief Executive Officer

Richard C. Adkerson

   President, Chief Executive Officer and Director       Co-Chairman of the Board

Robert A. Day

   Director       Director

Gerald J. Ford

   Director       Director

H. Devon Graham, Jr.

   Director       Director

B.M. Rankin, Jr.

   Director and Vice Chairman       Director and Vice Chairman

Kathleen L. Quirk

   Executive Vice President, Chief Financial Officer and Treasurer       Senior Vice President and Treasurer

James C. Flores

      Chairman of the Board, President and Chief Executive Officer    Director

John F. Wombwell

      Executive Vice President, General Counsel and Secretary    Director

In addition, each of FCX and PXP owns outstanding shares of MMR capital stock as of April 26, 2013, as set forth below.

 

    

Capital Stock of MMR
Beneficially Owned

  

Shares of MMR Common
Stock Issuable Upon
Conversion of Convertible
Securities

  

Percentage of Outstanding
Common Stock of MMR
Beneficially Owned

FCX

   500,000 shares of MMR 5.75% Convertible Perpetual Preferred Stock, Series 2 (1)    31,250,000    16.1%

PXP

   51,000,000 shares of MMR common stock                  —    31.3%

 

(1) Assumes all shares of MMR convertible preferred stock held by FCX are converted into MMR common stock.

The Merger Agreement (see page 110)

The merger agreement is included as Annex A hereto. FCX and MMR encourage you to read carefully the merger agreement in its entirety. It is the principal document governing the merger and the other related transactions.

 

 

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MMR Stockholder Approval (see page 111)

The merger agreement contemplates that the merger is conditioned upon the following stockholder approvals, which collectively are referred to herein as the MMR stockholder approval:

 

   

approval of the charter amendment proposal by a majority of the outstanding shares of MMR common stock;

 

   

approval of the merger proposal by a majority of the outstanding shares of MMR common stock; and

 

   

approval of the merger proposal by a majority of the outstanding shares of MMR common stock, excluding shares owned by FCX and its subsidiaries, PXP and its subsidiaries, and certain MMR executive officers and directors who also serve as officers and/or directors of FCX, specifically, Richard C. Adkerson, Robert A. Day, Gerald J. Ford, H. Devon Graham, Jr., James R. Moffett, Nancy D. Parmelee, Kathleen L. Quirk and B. M. Rankin, Jr. of MMR and FCX, which are referred to herein as the disinterested stockholders.

Conditions to the Completion of the Merger (see page 123)

FCX and MMR currently expect to complete the merger during the second quarter of 2013, subject to receipt of required stockholder and regulatory approvals and the satisfaction or waiver of the conditions to the merger in the merger agreement.

The obligation of each of FCX and MMR to complete the merger is subject to the satisfaction or waiver of a number of conditions, including the following:

 

   

the MMR stockholder approval;

 

   

the absence of any injunction or law prohibiting the consummation of the merger or any related transaction;

 

   

the expiration or termination of all waiting periods applicable to the merger under the HSR Act;

 

   

the effectiveness of the registration statement on Form S-4 of which this proxy statement/prospectus is a part and the absence of any stop order or proceedings seeking a stop order or initiation or threat of such proceeding by the SEC;

 

   

delivery of a fully executed amended and restated trust agreement for the Royalty Trust.

The obligation of MMR to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

   

the accuracy of the representations and warranties of FCX, subject to certain standards, including materiality and material adverse effect qualifications;

 

   

FCX and Merger Sub having complied, in all material respects, with their obligations contained in the merger agreement required to be performed or complied with by either of them prior to or on the closing date of the merger; and

 

   

MMR’s receipt of an officer’s certificate executed by FCX’s chief executive officer or another senior officer certifying that the preceding conditions have been satisfied.

The obligation of FCX to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

   

the accuracy of the representations and warranties of MMR, subject to certain standards, including materiality and material adverse effect qualifications;

 

 

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MMR having complied, in all material respects, with its obligations contained in the merger agreement required to be performed or complied with by MMR prior to or on the closing date of the merger agreement; and

 

   

FCX’s receipt of an officer’s certificate executed by MMR’s chief executive officer or another senior officer certifying that the preceding conditions have been satisfied.

Termination of the Merger Agreement (see page 124)

Generally, the merger agreement may be terminated and the merger may be abandoned at any time prior to the effective time of the merger, under the following circumstances:

 

   

by the mutual written consent of the parties;

 

   

by either FCX or MMR if:

 

   

the merger has not been consummated on or before June 5, 2013, except that, if on June 5, 2013, all of the conditions to closing have been satisfied (other than the condition requiring that there be no injunction or law prohibiting the merger, the condition requiring that all HSR Act waiting periods have expired or been terminated or the condition requiring the effectiveness of the Form S-4 filing), the date may be extended to September 5, 2013, subject to certain exceptions discussed in “The Merger Agreement—Termination of the Merger Agreement” on page 124;

 

   

a final and nonappealable injunction has been entered permanently prohibiting the consummation of the merger, subject to certain exceptions discussed in “The Merger Agreement—Termination of the Merger Agreement” on page 124; or

 

   

the MMR stockholder approval is not obtained at the special meeting or any adjournment or postponement of the special meeting;

 

   

by MMR if:

 

   

FCX breaches or fails to comply with its representations, warranties, agreements or covenants in the merger agreement which would give rise to the failure of certain conditions to closing and cannot be cured by June 5, 2013 (as such date may be extended as described above) (or, if curable by such date, is not cured within 45 days following delivery of written notice received from MMR), subject to certain exceptions discussed in “The Merger Agreement—Termination of the Merger Agreement” on page 124; and

 

   

by FCX if:

 

   

prior to the MMR stockholder approval, the MMR board of directors changes its recommendation in favor of the merger and related matters to MMR stockholders; or

 

   

MMR breaches or fails to comply with its representations, warranties, agreements or covenants in the merger agreement which would give rise to the failure of certain conditions to closing and cannot be cured by June 5, 2013 (as such date may be extended as described above) (or, if curable by such date, is not cured within 45 days following delivery of written notice received from FCX), subject to certain exceptions discussed in “The Merger Agreement—Termination of the Merger Agreement” on page 124.

Termination Fees (see page 125)

The merger agreement provides that MMR is required to pay FCX up to $19.5 million in connection with FCX’s expenses in connection with the merger agreement if:

 

   

either MMR or FCX terminates the merger agreement because the MMR stockholder approval is not obtained; or

 

 

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FCX terminates the merger agreement because, prior to obtaining the MMR stockholder approval, the MMR board of directors changes its recommendation in favor of the merger and related matters due to an intervening event other than receipt of an alternative takeover proposal.

The merger agreement also provides that MMR is required to pay FCX a termination fee of $98 million if:

 

   

FCX terminates the merger agreement because, prior to obtaining MMR stockholder approval, the MMR board of directors changes its recommendation in favor of the merger and related matters due to a superior proposal; or

 

   

MMR or FCX terminates the merger agreement because the merger has not been consummated on or before June 5, 2013 or because the MMR stockholder approval is not obtained, and, in either case, (i) an alternative takeover proposal is publicly announced or publicly known and not withdrawn at least 15 business days prior to the special meeting and (ii) at any time on or prior to the twelve-month anniversary of such termination, MMR or any of its subsidiaries enters into a definitive agreement with respect to any takeover proposal, or the transactions contemplated by any takeover proposal are consummated.

No Solicitation by MMR of Takeover Proposals (see page 117)

The merger agreement restricts the ability of MMR to, directly or indirectly:

 

   

solicit, initiate or knowingly facilitate or knowingly encourage any inquiries regarding, or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, a takeover proposal;

 

   

engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any other person any non-public information in connection with or for the purpose of encouraging or facilitating, a takeover proposal; or

 

   

approve, recommend or enter into, or propose to approve, recommend or enter into, any letter of intent or similar document, agreement, commitment, or agreement in principle with respect to a takeover proposal.

If, however, at any time prior to the MMR stockholder approval having been obtained, MMR, directly or indirectly, receives a bona fide, unsolicited written takeover proposal from any person that does not result from a breach of the non-solicitation provisions of the merger agreement and if the MMR board of directors, acting upon the recommendation of the MMR special committee, determines in good faith, after consultation with its outside financial advisors and outside legal counsel, that such takeover proposal constitutes or would reasonably be expected to lead to a superior proposal, then MMR may directly or indirectly engage in or otherwise participate in discussions or negotiations with the person making such takeover proposal and its representatives and potential sources of financing regarding such takeover proposal.

The MMR Special Meeting (see page 132)

The special meeting of MMR stockholders is scheduled to be held at 10:00 a.m., local time, on                 , 2013 at McMoRan Exploration Co., 1615 Poydras Street, New Orleans, Louisiana, 70112. At the MMR special meeting stockholders of MMR will be asked:

 

   

to approve the proposed amendment to Article X section (k) of the amended and restated certificate of incorporation of MMR to exclude FCX from the definition of “Interested Stockholder” solely for the purposes of the transactions contemplated by the merger agreement, which is referred to herein as the charter amendment proposal;

 

   

to approve the adoption of the merger agreement, which provides for, among other things, the merger of Merger Sub with and into MMR, with MMR surviving the merger as a wholly owned subsidiary of FCX, which is referred to herein as the merger proposal; and

 

   

to approve the adjournment of the MMR special meeting, if necessary or appropriate, in the view of the MMR board of directors, to solicit additional proxies in favor of the charter amendment proposal or the

 

 

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merger proposal if there are not sufficient votes at the time of such adjournment to approve either proposal, which is referred to herein as the adjournment proposal.

You may vote at the MMR special meeting if you owned common stock of MMR at the close of business on the record date, April 4, 2013.

You may cast one vote for each share of common stock of MMR that you owned on the record date.

Approval of the charter amendment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of MMR common stock. Approval of the merger proposal requires the affirmative vote of holders of (1) a majority of the outstanding shares of MMR common stock and (2) a majority of the outstanding shares of MMR common stock, excluding shares owned by FCX and its subsidiaries, PXP and its subsidiaries, and certain MMR executive officers and directors who also serve as officers and/or directors of FCX, specifically, Richard C. Adkerson, Robert A. Day, Gerald J. Ford, H. Devon Graham, Jr., James R. Moffett, Nancy D. Parmelee, Kathleen L. Quirk and B. M. Rankin, Jr., who are referred to herein as the interested stockholders. Approval of the adjournment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of MMR common stock entitled to vote on the proposal present in person or represented by proxy at the special meeting.

As of April 4, 2013, the record date, the directors and executive officers of MMR as a group owned and were entitled to vote 9,110,202 shares of the common stock of MMR, representing approximately 5.6% of the outstanding shares of MMR common stock on that date (including 9,070,442 shares of MMR common stock, representing approximately 5.6% of the outstanding shares of MMR common stock, which are beneficially owned by the directors and executive officers of MMR who are interested stockholders). MMR currently expects that its directors and executive officers will vote their shares in favor of the charter amendment proposal and the merger proposal, but none of MMR’s directors or executive officers have entered into any agreement obligating them to do so.

As of April 4, 2013, the record date, the directors and executive officers of FCX as a group owned and were entitled to vote 10,043,446 shares of the common stock of MMR, representing approximately 6.2% of the outstanding shares of MMR common stock on that date (including 9,070,442 shares of MMR common stock, representing approximately 5.6% of the outstanding shares of MMR common stock, which are beneficially owned by the directors and executive officers of FCX who are interested stockholders).

 

 

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SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING DATA OF FCX

The following selected historical consolidated financial data is derived from FCX’s audited consolidated financial statements for each of the years ended December 31, 2012, 2011, 2010, 2009 and 2008. These historical results are not necessarily indicative of results that you can expect for any future period. You should read this data in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and FCX’s consolidated financial statements and notes thereto contained in FCX’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which is incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information.”

 

     As of or for the years ended December 31,  
    2012     2011     2010     2009     2008  
    (In Millions, Except Per Share Amounts)  

FCX CONSOLIDATED FINANCIAL DATA

         

Revenues

  $ 18,010      $ 20,880      $ 18,982      $ 15,040      $ 17,796   

Operating income (loss)

    5,814 (a),(b)      9,140 (b)      9,068        6,503 (c),(d)      (12,710 )(c),(d),(e) 

Net income (loss)

    3,980        5,747        5,544        3,534        (10,450

Net income (loss) attributable to FCX common stockholders

    3,041 (a),(b),(f),(g)      4,560 (b),(f),(g)      4,273 (f)      2,527 (c),(d),(f)      (11,341 )(c),(d),(e),(f) 

Basic net income (loss) per share attributable to FCX common stockholders

  $ 3.20      $ 4.81      $ 4.67      $ 3.05      $ (14.86

Basic weighted-average common shares outstanding

    949        947        915        829        763   

Diluted net income (loss) per share attributable to FCX common stockholders

  $ 3.19 (a),(b),(f),(g)    $ 4.78 (b),(f),(g)    $ 4.57 (f)    $ 2.93 (c),(d),(f)    $ (14.86 )(c),(d),(e),(f) 

Diluted weighted-average common shares outstanding

    954        955        949        938        763   

Dividends declared per share of common stock

  $ 1.25      $ 1.50      $ 1.125      $ 0.075      $ 0.6875   

Operating cash flows

    3,774 (h)      6,620 (h)      6,273 (h)      4,397 (h)      3,370 (h) 

Capital expenditures

    3,494        2,534        1,412        1,587        2,708   

Cash and cash equivalents

    3,705        4,822        3,738        2,656        872   

Property, plant, equipment and development costs, net

    20,999        18,449        16,785        16,195        16,002   

Total assets

    35,440        32,070        29,386        25,996        23,353   

Total debt, including current portion

    3,527        3,537        4,755        6,346        7,351   

Total FCX stockholders’ equity

    17,543        15,642        12,504        9,119        5,773   

 

(a) Includes a gain of $59 million ($31 million to net income attributable to common stockholders or $0.03 per share) for the settlement of the insurance claim for business interruption and property damage relating to the 2011 incidents affecting PT Freeport Indonesia’s concentrate pipeline.
(b) Includes charges totaling $16 million ($8 million to net income attributable to common stockholders or $0.01 per share) associated with labor agreement costs at Candelaria in 2012, and $116 million ($50 million to net income attributable to common stock or $0.05 per share) primarily associated with bonuses for new labor agreements and other employee costs at PT Freeport Indonesia, Cerro Verde and El Abra in 2011.
(c) Includes charges totaling $23 million ($18 million to net income attributable to common stockholders or $0.02 per share) associated with restructuring charges in 2009 and $17.0 billion ($12.7 billion to net loss attributable to common stockholders or $16.60 per share) associated with impairment and restructuring charges in 2008.
(d) Includes charges for lower of cost or market inventory adjustments totaling $19 million ($15 million to net income attributable to common stockholders or $0.02 per share) in 2009 and $782 million ($479 million to net loss attributable to common stockholders or $0.63 per share) in 2008.
(e) Includes purchase accounting impacts related to the 2007 acquisition of Freeport-McMoRan Corporation (FMC) totaling $1.0 billion ($622 million to net loss attributable to common stockholders or $0.82 per share) in 2008.
(f)

Includes net losses on early extinguishment and conversion of debt totaling $149 million ($0.16 per share) in 2012, $60 million ($0.06 per share) in 2011, $71 million ($0.07 per share) in 2010, $43 million ($0.04 per share) in 2009 and $5 million ($0.01 per share) in 2008; 2008 also includes charges totaling $22 million ($0.03 per share) associated with privately negotiated transactions to induce conversion of a portion of FCX’s 5 1/2% Convertible Perpetual Preferred Stock into FCX common stock.

 

 

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(g) Includes a net tax credit associated with adjustments to Cerro Verde’s deferred income taxes totaling $98 million, net of noncontrolling interests ($0.11 per share) in 2012, and a tax charge for additional taxes associated with Cerro Verde’s election to pay a special mining burden during the remaining term of its current stability agreement totaling $49 million, net of noncontrolling interests ($0.05 per share) in 2011.
(h) Net of working capital uses and other tax payments totaling $1.4 billion in 2012, $461 million in 2011, $834 million in 2010, $770 million in 2009 and $965 million in 2008.

 

 

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SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING DATA

OF FCX (CONTINUED)

 

    Years ended December 31,  
    2012     2011     2010     2009     2008  
   

(unaudited)

 

FCX CONSOLIDATED MINING OPERATING DATA

         

Copper (recoverable)

         

Production (millions of pounds)

    3,663        3,691        3,908        4,103        4,030   

Production (thousands of metric tons)

    1,662        1,674        1,773        1,861        1,828   

Sales, excluding purchases (millions of pounds)

    3,648        3,698        3,896        4,111        4,066   

Sales, excluding purchases (thousands of metric tons)

    1,655        1,678        1,767        1,865        1,844   

Average realized price per pound

  $ 3.60      $ 3.86      $ 3.59      $ 2.60      $ 2.69   

Gold (thousands of recoverable ounces)

         

Production

    958        1,383        1,886        2,664        1,291   

Sales, excluding purchases

    1,010        1,378        1,863        2,639        1,314   

Average realized price per ounce

  $ 1,665      $ 1,583      $ 1,271      $ 993      $ 861   

Molybdenum (millions of recoverable pounds)

         

Production

    85        83        72        54        73   

Sales, excluding purchases

    83        79        67        58        71   

Average realized price per pound

  $ 14.26      $ 16.98      $ 16.47      $ 12.36      $ 30.55   

NORTH AMERICA COPPER MINES

         

Operating Data, Net of Joint Venture Interest

         

Copper (recoverable)

         

Production (millions of pounds)

    1,363        1,258        1,067        1,147        1,430   

Production (thousands of metric tons)

    618        571        484        520        649   

Sales, excluding purchases (millions of pounds)

    1,351        1,247        1,085        1,187        1,434   

Sales, excluding purchases (thousands of metric tons)

    613        566        492        538        650   

Average realized price per pound

  $ 3.64      $ 3.99      $ 3.42      $ 2.38      $ 3.07   

Molybdenum (millions of recoverable pounds)

         

Production

    36        35        25        25        30   

100% Operating Data

         

Solution extraction/electrowinning (SX/EW) operations

         

Leach ore placed in stockpiles (metric tons per day)

    998,600        888,300        648,800        589,400        1,095,200   

Average copper ore grade (percent)

    0.22        0.24        0.24        0.29        0.22   

Copper production (millions of recoverable pounds)

    866        801        746        859        943   

Mill operations

         

Ore milled (metric tons per day)

    239,600        222,800        189,200        169,900        249,600   

Average ore grade (percent):

         

Copper

    0.37        0.38        0.32        0.33        0.40   

Molybdenum

    0.03        0.03        0.03        0.02        0.02   

Copper recovery rate (percent)

    83.9        83.1        83.0        86.0        82.9   

Copper production (millions of recoverable pounds):

    592        549        398        364        599   

 

 

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     Years ended December 31,  
    2012     2011     2010     2009     2008  
   

(unaudited)

 

SOUTH AMERICA MINING

         

Copper (recoverable)

         

Production (millions of pounds)

    1,257        1,306        1,354        1,390        1,506   

Production (thousands of metric tons)

    570        592        614        631        683   

Sales (millions of pounds)

    1,245        1,322        1,335        1,394        1,521   

Sales (thousands of metric tons)

    565        600        606        632        690   

Average realized price per pound

  $ 3.58      $ 3.77      $ 3.68      $ 2.70      $ 2.57   

Gold (thousands of recoverable ounces)

         

Production

    83        101        93        92        114   

Sales

    82        101        93        90        116   

Average realized price per ounce

  $ 1,673      $ 1,580      $ 1,263      $ 982      $ 853   

Molybdenum (millions of recoverable pounds)

         

Production

    8        10        7        2        3   

SX/EW operations

         

Leach ore placed in stockpiles (metric tons per day)

    229,300        245,200        268,800        258,200        279,700   

Average copper ore grade (percent)

    0.55        0.50        0.41        0.45        0.45   

Copper production (millions of recoverable pounds)

    457        439        504        565        560   

Mill operations

         

Ore milled (metric tons per day)

    191,400        189,200        188,800        181,300        181,400   

Average ore grade:

         

Copper (percent)

    0.60        0.66        0.65        0.66        0.75   

Gold (grams per metric ton)

    0.10        0.12        0.10        0.10        0.13   

Molybdenum (percent)

    0.02        0.02        0.02        0.02        0.02   

Copper recovery rate (percent)

    90.1        89.6        90.0        88.9        89.2   

Copper production (millions of recoverable pounds)

    800        867        850        825        946   

INDONESIA MINING

         

Operating Data, Net of Joint Venture Interest

         

Copper (recoverable)

         

Production (millions of pounds)

    695        846        1,222        1,412        1,094   

Production (thousands of metric tons)

    315        384        554        640        496   

Sales (millions of pounds)

    716        846        1,214        1,400        1,111   

Sales (thousands of metric tons)

    325        384        551        635        504   

Average realized price per pound

  $ 3.58      $ 3.85      $ 3.69      $ 2.65      $ 2.36   

Gold (thousands of recoverable ounces)

         

Production

    862        1,272        1,786        2,568        1,163   

Sales

    915        1,270        1,765        2,543        1,182   

Average realized price per ounce

  $ 1,664      $ 1,583      $ 1,271      $ 994      $ 861   

100% Operating Data

         

Ore milled (metric tons per day)

    165,000        166,100        230,200        238,300        192,900   

Average ore grade:

         

Copper (percent)

    0.62        0.79        0.85        0.98        0.83   

Gold (grams per metric ton)

    0.59        0.93        0.90        1.30        0.66   

Recovery rates (percent):

         

Copper

    88.7        88.3        88.9        90.6        90.1   

Gold

    75.7        81.2        81.7        83.7        79.9   

Production (recoverable):

         

Copper (millions of pounds)

    695        882        1,330        1,641        1,109   

Gold (thousands of ounces)

    862        1,444        1,964        2,984        1,163   

 

 

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     Years ended December 31,  
    2012     2011     2010     2009     2008  
   

(unaudited)

 

AFRICA MINING(a)

         

Copper (recoverable)

         

Production (millions of pounds)

    348        281        265        154        —     

Production (thousands of metric tons)

    158        127        120        70        —     

Sales (millions of pounds)

    336        283        262        130        —     

Sales (thousands of metric tons)

    152        128        119        59        —     

Average realized price per pound

  $ 3.51      $ 3.74      $ 3.45      $ 2.85        —     

Cobalt (millions of contained pounds)

         

Production

    26        25        20        —          —     

Sales

    25        25        20        —          —     

Average realized price per pound

  $ 7.83      $ 9.99      $ 10.95        —          —     

Ore milled (metric tons per day)

    13,000        11,100        10,300        7,300        —     

Average ore grade (percent):

         

Copper

    3.62        3.41        3.51        3.69        —     

Cobalt

    0.37        0.40        0.40        —          —     

Copper recovery rate (percent)

    92.4        92.5        91.4        92.1        —     

MOLYBDENUM OPERATIONS

         

Molybdenum (millions of recoverable pounds)
Production

    41 (b)      38        40        27        40   

Sales, excluding purchases(c)

    83        79        67        58        71   

Average realized price per pound

  $ 14.26      $ 16.98      $ 16.47      $ 12.36      $ 30.55   

Henderson molybdenum mine

         

Ore milled (metric tons per day)

    20,800        22,300        22,900        14,900        24,100   

Average molybdenum ore grade (percent)

    0.23        0.24        0.25        0.25        0.23   

Molybdenum production (millions of recoverable pounds)

    34        38        40        27        40   

 

(a) Results for 2009 represent mining operations that began production in March 2009.
(b) Includes production of 7 million pounds of molybdenum from the Climax mine, which began commercial operations in May 2012.
(c) Includes sales of molybdenum produced at FCX’s North and South America copper mines.

Ratio of Earnings to Fixed Charges

For FCX’s ratio of earnings to fixed charges calculation, earnings consist of income (loss) from operations before income taxes, noncontrolling interests in consolidated subsidiaries, equity in affiliated companies’ net earnings, cumulative effect of accounting changes and fixed charges. Fixed charges include interest and that portion of rent deemed representative of interest. For ratio of earnings to fixed charges and preferred stock dividends calculation, FCX assumed that its preferred stock dividend requirements were equal to the pre-tax earnings that would be required to cover those dividend requirements. FCX computed pre-tax earnings using the effective tax rate for each year. FCX’s ratio of earnings to fixed charges was as follows for the periods presented:

 

     Years ended December 31,  
     2012      2011      2010      2009      2008  

Ratio of earnings to fixed charges

     19.8x         20.7x         16.3x         9.3x         (a) 

Ratio of earnings to fixed charges and preferred stock dividends

     19.8x         20.7x         13.9x         6.1x         (b) 

 

(a) As a result of the loss recorded in 2008, the ratio coverage was less than 1:1. FCX would have needed to generate additional earnings of $13.4 billion to achieve coverage of 1:1 in 2008.
(b) As a result of the loss recorded in 2008, the ratio coverage was less than 1:1. FCX would have needed to generate additional earnings of $13.8 billion to achieve coverage of 1:1 in 2008.

 

 

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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF MMR

The following table sets forth MMR’s selected consolidated audited historical financial data for each of the years ended December 31, 2012, 2011, 2010, 2009 and 2008.

These historical results are not necessarily indicative of MMR’s future results. You should read this data in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and MMR’s consolidated financial statements and notes thereto contained in MMR’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which is incorporated by reference in this proxy statement/ prospectus. See the section entitled “Where You Can Find More Information” beginning on page 160.

 

     Year Ended December 31,  
     2012     2011     2010     2009     2008  
     (In Thousands, Except Per Share Amounts)  

Revenues a

   $ 376,888      $ 555,414      $ 434,376      $ 435,435      $ 1,072,482   

Depreciation and amortization b

     173,817        307,902        282,062        313,980        854,798   

Exploration expenses c

     127,994        81,742        42,608        94,281        79,116   

Main Pass Energy Hub costs

     287        588        1,011        1,615        6,047   

Insurance recoveries d

     (1,229     (91,076     (38,944     (24,592     (3,391

Gain on sale of oil and gas properties

     (40,453 )e      (900     (3,455     —          —     

Operating income (loss)

     (91,646     1,368        (78,985     (168,434     (155,234

Interest expense, net

     —          (8,782     (38,216     (42,943     (50,890

Loss from continuing operations

     (97,033     (6,604     (116,976     (204,889     (211,198

Income (loss) from discontinued operations

     (7,261     (9,364     (3,366     (6,097     (5,496

Net loss applicable to common stock

     (145,570     (58,768     (197,443     (225,318     (238,980

Basic and diluted net income (loss) per share of common stock:

          

Continuing operations

   $ (0.86   $ (0.31   $ (2.04   $ (2.79   $ (3.79

Discontinued operations

     (0.04     (0.06     (0.04     (0.08     (0.09
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net loss per share

   $ (0.90   $ (0.37   $ (2.08   $ (2.87   $ (3.88
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average basic and diluted common shares outstanding f

     161,702        159,216        95,125        78,625        61,581   

At December 31:

          

Working capital (deficit)

   $ (144,368   $ 265,508      $ 628,597      $ 148,357      $ 3,601   

Property, plant and equipment, net

     2,394,522        2,181,926        1,785,607 g      796,223        992,563   

Total assets

     2,677,122        2,939,214        2,899,364        1,248,882        1,330,282   

Oil and gas reclamation obligations

     245,581        326,394        358,624        428,711        421,201   

Long-term debt, including current portion

     557,302        553,586        559,976 f      374,720        374,720   

Stockholders’ equity

     1,603,211        1,722,964        1,724,337 f,g      265,808        309,023   

 

a. Includes service revenues for the years ended December 31, totaling $13.9 million in 2012, $13.1 million in 2011, $15.6 million in 2010, $12.5 million in 2009 and $13.7 million in 2008.
b. Includes impairment charges for the years ended December 31, totaling $46.2 million in 2012, $71.1 million in 2011, $107.2 million in 2010, $75.3 million in 2009 and $332.6 million in 2008.

 

 

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c. Includes charges to exploration expense for leasehold cost write-offs and non-productive exploration well costs for the years ended December 31, totaling $93.5 million in 2012, $42.3 million in 2011, $14.5 million in 2010, $61.5 million in 2009 and $38.9 million in 2008.
d. Reflects proceeds received primarily in connection with MMR’s oil and gas property hurricane-related insurance claims.
e. Reflects gain on sale of oil and gas properties resulting from the sale of two traditional Gulf of Mexico shelf oil and gas property packages in 2012.
f. Reflects the applicable impact of common and preferred stock and convertible debt transactions during the periods presented.
g. Includes the impact of the approximate $1 billion acquisition of Gulf of Mexico shallow water properties from PXP, including the issuance of 51 million shares of MMR common stock on December 30, 2010.

 

 

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UNAUDITED PRO FORMA STATEMENT OF ASSETS, LIABILITIES

AND TRUST CORPUS

The following unaudited pro forma statement of assets, liabilities and trust corpus (the “Pro Forma Financial Statement”) has been prepared to reflect the Royalty Trust’s receipt of the five percent overriding royalty interest in MMR’s ultra-deep prospects. The Pro Forma Financial Statement has been prepared in accordance with accounting principles generally accepted in the United States, and is presented as if the receipt of the overriding royalty interest from MMR had occurred on December 31, 2012.

The Pro Forma Financial Statement is provided for informational purposes only and does not purport to represent what the actual statement of assets, liabilities and trust corpus would have been had the receipt of the overriding royalty interest occurred on December 31, 2012, nor are they indicative of the Royalty Trust’s future financial condition. This Pro Forma Financial Statement should be read in conjunction with the accompanying notes to the Pro Forma Financial Statement and the audited statement of assets, liabilities and trust corpus of the Royalty Trust, as set forth on the following pages.

 

 

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GULF COAST ULTRA DEEP ROYALTY TRUST

UNAUDITED PRO FORMA STATEMENT OF ASSETS, LIABILITIES AND TRUST CORPUS

AT DECEMBER 31, 2012

 

     Historical (1)      Pro Forma
Adjustment (2)
           Pro Forma  

ASSETS

          

Cash

   $ 10       $ —           $ 10   

Overriding royalty interest in MMR’s ultra-deep prospects

     —           268,000,000        A         268,000,000   
  

 

 

    

 

 

      

 

 

 

Total assets

   $ 10       $ 268,000,000         $ 268,000,010   
  

 

 

    

 

 

      

 

 

 

LIABILITIES AND TRUST CORPUS

          

Trust corpus

   $ 10         268,000,000        A       $ 268,000,010   
  

 

 

    

 

 

      

 

 

 

Total liabilities and trust corpus

   $ 10       $ 268,000,000         $ 268,000,010   
  

 

 

    

 

 

      

 

 

 

NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF ASSETS, LIABILITIES AND TRUST CORPUS

 

(1) Historical Financial Information

The Royalty Trust’s historical financial information has been derived from the section entitled “Historical Financial Data of the Royalty Trust,” beginning on page 22.

 

(2) Pro Forma Adjustment

 

  A. Royalty Interest in MMR’s Ultra-Deep Prospects

The estimated fair value of the overriding royalty interest in MMR’s ultra-deep prospects was derived from the closing share price of MMR common stock at February 28, 2013, as follows:

 

Closing price of MMR common stock at February 28, 2013

   $ 16.09   

Less: Per share cash consideration to be received by MMR shareholders

   $ (14.75
  

 

 

 
   $ 1.34   

Divided by: Royalty trust units to be issued per share of MMR common stock

     1.15   
  

 

 

 

Implied fair value per royalty trust unit to be issued

   $ 1.17   

Estimated number of royalty units to be issued

     230,000,000 (i) 
  

 

 

 

Estimated fair value of the overriding royalty interest in MMR’s ultra-deep prospects

   $ 268,000,000 (ii) 
  

 

 

 

 

(i) As further discussed in the section entitled “The Royalty Trust Agreement,” beginning on page 127, the total number of royalty trust units to be issued is estimated at 230 million. However, the exact number of royalty trust units to be issued at closing will not be known until immediately prior to the closing of the merger.
(ii) The final fair value of the overriding royalty interest in MMR’s ultra-deep prospects will be determined based on the actual number of royalty units issued and MMR’s closing price for its common stock immediately prior to the effective time of the merger.

 

 

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HISTORICAL FINANCIAL DATA OF THE ROYALTY TRUST

STATEMENT OF ASSETS, LIABILITIES AND TRUST CORPUS

 

     December 31,
2012
 

ASSETS

  

Cash

   $                 10   
  

 

 

 

Total assets

   $ 10   
  

 

 

 

LIABILITIES AND TRUST CORPUS

  

Trust corpus

   $ 10   
  

 

 

 

Total trust corpus

   $ 10   
  

 

 

 

STATEMENT OF CHANGES IN TRUST CORPUS

 

     December 18, 2012
(inception) to
December 31, 2012
 

Trust corpus, beginning of period

   $                 —     

Initial trust contribution

     10   
  

 

 

 

Trust corpus, end of period

   $ 10   
  

 

 

 

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

NOTES TO FINANCIAL STATEMENTS

 

1. FORMATION OF THE ROYALTY TRUST AND BASIS OF ACCOUNTING

Gulf Coast Ultra Deep Royalty Trust (the Royalty Trust), is a statutory trust created under the Delaware Statutory Trust Act pursuant to a trust agreement entered into on December 18, 2012 (inception), between Freeport-McMoRan Copper & Gold Inc. (FCX), as depositor, Wilmington Trust, National Association, as the Delaware trustee, and certain officers of FCX, as trustees. Prior to the first issuance of beneficial interests in the Royalty Trust pursuant to the registration statement of which this proxy statement/prospectus forms a part, the depositor and trustees will enter into an amended and restated trust agreement to provide for the contemplated operation of the Royalty Trust and the issuance of beneficial interests therein. Other than its formation, the Royalty Trust has not conducted any activities.

The financial statements of the Royalty Trust are prepared on a modified cash basis and are not intended to present the financial position and results of operations in conformity with U.S. generally accepted accounting principles (GAAP). This comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by the Securities Exchange Commission, as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts.

 

2. CONTINGENCIES

Between December 11, 2012 and December 26, 2012, ten putative class actions challenging the proposed merger of FCX with McMoRan Exploration Co. (MMR), were filed on behalf of all MMR stockholders by purported MMR stockholders. Nine were filed in the Court of Chancery of the State of Delaware (the Court of Chancery). On January 9, 2013, one of the actions was voluntarily dismissed by the plaintiff. On January 25, 2013, the Court of Chancery consolidated the remaining eight actions into a single action, In re McMoRan Exploration Co. Stockholder Litigation, No. 8132-VCN. One action was also filed on December 19, 2012 in the Civil District Court for the Parish of Orleans of the State of Louisiana: Langley v. Moffett et al., No. 2012-11904. The actions name some or all of the following as defendants: MMR and its directors, FCX, the Royalty Trust, subsidiaries of FCX, and Plains Exploration & Production Company. The lawsuits allege, among other things, that members of MMR’s board of directors breached their fiduciary duties to MMR’s stockholders because they, among other things, pursued their own interests at the expense of stockholders, failed to maximize stockholder value with respect to the merger, and failed to disclose material facts regarding the merger. These lawsuits seek, among other things, an injunction barring or rescinding the merger, damages, and attorney’s fees and costs. The Court of Chancery has scheduled a hearing on April 12, 2013, regarding any motions for preliminary injunction that are made in the consolidated actions described above. The MMR and FCX defendants believe the lawsuits are without merit and intend to defend vigorously against them.

 

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Trustees of Gulf Coast Ultra Deep Royalty Trust:

We have audited the accompanying statement of assets, liabilities and trust corpus as of December 31, 2012 and the related statement of changes in trust corpus for the period from December 18, 2012 (inception) to December 31, 2012 of Gulf Coast Ultra Deep Royalty Trust (the Royalty Trust). These financial statements are the responsibility of the Trustee. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Royalty Trust’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Royalty Trust’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

As described in Note 1 to the financial statements, these financial statements were prepared on a modified cash basis of accounting, which is a comprehensive basis of accounting other than U.S. generally accepted accounting principles.

In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and trust corpus of the Royalty Trust at December 31, 2012 and its changes in trust corpus for the period from December 18, 2012 (inception) to December 31, 2012, on the basis of accounting described in Note 1.

/s/ ERNST & YOUNG LLP

Phoenix, Arizona

March 11, 2013

 

 

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SPECIAL FACTORS

General Description and Effects of the Merger

Under the terms of the merger agreement and in accordance with the DGCL, at the effective time of the merger, Merger Sub, a wholly owned subsidiary of FCX, will merge with and into MMR, with MMR surviving the merger as a wholly owned subsidiary of FCX.

The completion of the merger, which is referred to herein as the closing, will take place no later than the fourth business day after the closing conditions contained in the merger agreement have been satisfied or waived (other than conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or waiver of such conditions), unless another time is agreed to by the parties in writing. The merger will become effective when the certificate of merger is duly filed with the Secretary of State of the State of Delaware or at a later time as agreed by MMR and FCX and specified in the certificate of merger, which is referred to herein as the effective time of the merger.

Pursuant to the merger agreement, at the effective time of the merger, each issued and outstanding share of MMR common stock (other than any dissenting shares or shares held by FCX and any of its subsidiaries (including any shares beneficially acquired in connection with the consummation of the PXP merger agreement)) will be converted into the right to receive $14.75 in cash and 1.15 royalty trust units that will be entitled to share in a 5% gross overriding royalty interest in hydrocarbons saved and produced from MMR’s shallow water Gulf of Mexico and onshore Gulf Coast ultra-deep exploration prospects, which is referred to herein as the merger consideration. Cash will be paid in lieu of any fractional royalty trust units. As of the date of this proxy statement/prospectus, none of the subject interests associated with the royalty trust units had any reserves classified as proved, probable or possible, other than MMR’s onshore Lineham Creek well, and none of such subject interests had any associated production. MMR’s independent reserve engineers have assigned initial estimates of 12.9 Bcfe of net proved reserves, 46.6 Bcfe of net probable reserves and 82.2 Bcfe of net possible reserves, associated with interim drilling results through December 31, 2012, from the sands encountered above 24,000 feet in the Lineham Creek well, located on one of the onshore subject interests. Pursuant to the merger agreement, equity awards relating to shares of MMR common stock will either be cancelled and converted upon the consummation of the merger into the right to receive the merger consideration or will be converted into comparable equity awards relating to FCX common stock on generally the same terms and conditions as prior to the merger. Concurrently with the execution of the merger agreement, certain executive officers of MMR waived their contractual rights to accelerated vesting of equity awards as a result of the merger. For additional information on equity awards relating to shares of MMR, see the section below entitled “—Treatment of Options and Restricted Stock Units.”

The corporate headquarters of the combined company will be located in Phoenix, Arizona, and the combined company expects to maintain offices in Houston, Texas and New Orleans, Louisiana, to support its oil and gas operations and existing administrative functions. The companies are targeting to complete the merger in the second quarter of 2013. However, the merger is subject to approvals and other conditions, and it is possible that factors outside the control of both companies could result in the merger being completed at a later time, or not at all.

Background of the Merger

The management and board of directors of MMR continually review MMR’s results of operations as well as strategic alternatives to create and maximize value for MMR stockholders. In connection with these reviews, MMR from time to time has evaluated potential transactions that would further its strategic objectives.

FCX periodically evaluates opportunities to achieve long-term operational and financial goals and to enhance stockholder value through strategic transactions, including business combinations, divestitures, acquisitions and joint ventures.

 

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FCX’s management regularly reviews business strategy and financial policy with the FCX board of directors. With FCX’s positive outlook for commodities in recent years and FCX’s strong financial position, the FCX board of directors has encouraged management to identify internal and external growth opportunities. The FCX board of directors also periodically considers cash returns to stockholders through regular and supplemental dividends and share purchases. The FCX board of directors reinstated a quarterly common stock dividend in 2009, increased the dividend twice during 2010, and paid a supplemental dividend in December 2010.

Also during 2009 and 2010, FCX’s management identified several financially attractive organic growth projects in the copper and molybdenum markets and the FCX board of directors approved investments in these projects. In addition, FCX’s management identified a pipeline of potential brownfield development projects for future growth. Because of the nature and scale of mining investments, requirements for feasibility studies, detailed engineering, permitting and other factors, projects typically take many years to develop. FCX’s management has also regularly evaluated external opportunities for investments in mining projects but has found limited opportunities in recent years to acquire high quality copper assets from other companies on financial terms that would be attractive to FCX.

During 2010, the FCX board of directors discussed the possibility of using some of the cash flow generated by FCX’s mining operations to invest in other natural resources, including a potential investment in oil and gas resources with MMR. After concluding that such an investment may be in FCX’s interest, the FCX board of directors appointed an independent committee in May 2010 to consider the opportunity of investing in MMR.

In December 2010, MMR purchased all of PXP’s interests in PXP’s U.S. Gulf of Mexico leasehold acreage located in less than 500 feet of water in exchange for consideration including cash and 51 million shares of MMR common stock. In connection with the acquisition of PXP’s interest, and in order to fund its expanded drilling program, MMR raised $900 million through the issuance of convertible securities. FCX invested $500 million in MMR’s convertible preferred stock on the same terms as institutional investors. Beginning with the closing of MMR’s asset acquisition in December 2010, PXP was granted the right to appoint two members of MMR’s board of directors as long as it maintained certain minimum ownership levels of MMR common stock, and PXP appointed James C. Flores and John F. Wombwell to serve as its designees on the MMR board. As a result of these transactions, FCX beneficially owns approximately 16.1% of the outstanding shares of MMR common stock as of April 26, 2013 on an as-converted basis, and PXP beneficially owns approximately 31.3% of the outstanding shares of MMR common stock as of April 26, 2013.

During 2011 and 2012, FCX’s management continued to advance its investments in brownfield development projects, with three expansion projects expected to increase annual copper production by one billion pounds in the next few years. FCX’s management and the FCX board of directors also continued to evaluate and consider external opportunities for investments in mining but found limited opportunities to acquire copper assets that met FCX’s investment criteria. In addition, the FCX board of directors continued to consider cash returns to stockholders, paying a supplemental dividend in June 2011 and increasing the regular dividend in February 2012.

James R. Moffett, FCX’s Chairman and MMR’s Co-Chairman and Chief Executive Officer, and James C. Flores, PXP’s Chairman and Chief Executive Officer, have periodically had, since the negotiation of the 2010 transactions between MMR and PXP, informal discussions regarding the long-term strategic goals and objectives of each of FCX, MMR and PXP, including with respect to each of FCX’s and PXP’s investment in MMR’s securities. Such discussions took place in the course of Mr. Moffett’s and Mr. Flores’ interactions due to the fact that each of Mr. Moffett and Mr. Flores served as a member of the MMR board of directors and are experts in the oil and gas business, and that each of FCX and PXP are significant shareholders of MMR, and did not progress into the formal exploration of any potential transactions. In January 2012, pursuant to registration rights granted to PXP in connection with its acquisition of MMR securities, PXP requested MMR to file a registration statement with the SEC with respect to the sale of a portion of the shares of MMR common stock owned by PXP. Subsequent to such request and during the first quarter of 2012, Mr. Moffett and Mr. Flores discussed in general

 

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terms the potential of FCX acquiring the shares of MMR common stock owned by PXP or a potential combination transaction among the three companies.

In April 2012, FCX’s management retained Hanover Advisors LLC to provide financial consulting services with respect to FCX’s potential acquisition of certain oil and gas assets.

On April 30, 2012, in connection with regularly scheduled meetings of the board of directors of FCX and MMR, Mr. Moffett discussed with all of the members of the FCX and MMR boards of directors the potential combination of FCX and MMR, along with PXP, to create a premier U.S.-based natural resources company with a successful record of building values through mineral and oil and gas exploration, development and production. During this discussion, Mr. Moffett noted the proven track record of the companies’ management teams in finding and developing world class mineral and oil and gas assets and described the potential benefits of combining the companies.

During the executive session at a meeting of the FCX board of directors on May 1, 2012, the FCX board of directors discussed the potential of increasing FCX’s North American operations, and diversifying into oil and gas exploration and production. In particular, the FCX board of directors discussed potential business combination transactions with one or both of MMR and PXP because of FCX’s understanding of the oil and gas industry and positive view of the assets of MMR and PXP. The FCX board of directors was not considering any alternative oil and gas business combination transaction in view of FCX’s existing investment in MMR. Subsequent to the April 30, 2012 discussions, and the May 1, 2012 FCX board of directors meeting, Mr. Moffett contacted Mr. Flores to inform him of FCX’s continued interest in a possible combination with PXP and MMR.

At a meeting on May 24, 2012, the FCX board of directors again discussed potential business combination transactions with one or both of MMR and PXP and established a special committee of the FCX board of directors made up of independent directors, which is referred to herein as the FCX special committee, which the FCX board of directors authorized to review, evaluate and, as appropriate, negotiate with either or both MMR and PXP regarding a possible transaction, with a view toward making a recommendation to the FCX board of directors as to whether FCX should pursue a transaction with either or both of the companies. The FCX board of directors also authorized the FCX special committee to do all things that, in the judgment of the members of the FCX special committee, would be necessary, appropriate or advisable to assist the FCX special committee in carrying out its responsibilities with respect to any potential transaction with either MMR or PXP. While the FCX special committee was presented with data on other oil and gas companies during the process described below, the FCX special committee focused on considering the potential transactions with MMR and PXP. The FCX board of directors appointed Messrs. Allison, Krulak, Lackey, Madonna and McCoy to the FCX special committee. None of these directors served on the board of directors or as a member of management of either MMR or PXP, and all were the same directors who constituted the special committee of the FCX board of directors formed in connection with FCX’s 2010 purchase of shares of MMR convertible preferred stock. The FCX special committee determined to elect Mr. Allison as chairman of the FCX special committee for reasons including his past experience as the Chairman and Chief Executive Officer of Anadarko Petroleum Corporation, and to retain Wachtell, Lipton, Rosen & Katz, which is referred to herein as Wachtell Lipton, as legal counsel to the FCX special committee.

Given that FCX was considering the acquisition of both MMR and PXP and in light of FCX’s and PXP’s beneficial ownership of MMR securities, the MMR board of directors determined on May 24, 2012 that it would be in the best interests of MMR and its stockholders to establish a special committee of the MMR board of directors made up of directors unaffiliated with FCX or PXP, which is referred to herein as the MMR special committee, comprised of Messrs. William P. Carmichael and A. Peyton Bush, III, two of the three independent directors of MMR, to consider any potential proposals made by FCX with respect to MMR as well as any alternatives available to MMR, including potential transactions with third parties. In arriving at its decision to elect Messrs. Carmichael and Bush to the MMR special committee the MMR board took into account the fact that Messrs. Carmichael and Bush were also selected by the MMR board in 2010 to serve as members of a special committee of the MMR board of directors to consider FCX’s initial investment in MMR. In 2010, the

 

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third independent director of MMR, Suzanne T. Mestayer, had declined to serve on the special committee citing insufficient time due to outstanding business commitments. In light of Messrs. Carmichael and Bush’s prior service and experience, the MMR board of directors concluded that Messrs. Carmichael and Bush were best suited to serve on the MMR special committee. The MMR board of directors delegated to the MMR special committee the full power and authority of the MMR board of directors to, among other things, (1) consider and evaluate any proposals with respect to MMR and any alternatives, (2) negotiate the terms of any potential transaction, (3) reject any potential transaction, and (4) recommend a potential transaction or any other alternatives to the MMR board of directors. Messrs. Flores and Wombwell recused themselves from, and did not participate in, this meeting.

On May 31, 2012, Mr. Allison and counsel from Wachtell Lipton interviewed representatives of several investment banking firms who had been determined to be independent with respect to potential transactions involving MMR and PXP, including Credit Suisse Securities (USA) LLC, which is referred to herein as Credit Suisse. On June 6, 2012, Mr. Allison discussed with the FCX special committee the qualifications of each investment bank and the FCX special committee determined to retain Credit Suisse as its financial advisor in connection with potential transactions involving either or both of PXP and MMR, subject to negotiation of an acceptable engagement letter.

In May 2012, the MMR special committee considered potential legal counsel based on their experience and lack of any relationship with FCX and/or PXP to assist the MMR special committee in connection with a potential transaction. On May 30, 2012, the MMR special committee retained Weil, Gotshal & Manges LLP, which is referred to herein as Weil, as independent legal counsel to the MMR special committee in connection with a potential transaction, based on Weil’s reputation, its experience advising special committees in comparable situations, its lack of any relationship with FCX and/or PXP and its independence with respect to a potential transaction involving MMR.

During May 2012 and June 2012, the MMR special committee together with Weil, considered potential financial advisors based on their experience and lack of any relationship with FCX or PXP to assist the MMR special committee in connection with a potential transaction.

On June 12, 2012, the MMR special committee met in person at Weil’s offices in New York, New York to interview three potential independent financial advisors. After meeting with each potential financial advisor, the MMR special committee and Weil discussed the background, experience and qualifications of each financial advisor, including any potential conflicts of interests involving the potential financial advisors. At the conclusion of the meeting, the MMR special committee decided to retain Evercore Group L.L.C., which is referred to herein as Evercore, based on Evercore’s reputation, experience and expertise in the oil and gas industry, its experience advising special committees in comparable situations, its lack of any relationship with FCX or PXP and its independence with respect to a potential transaction involving MMR. An engagement letter was subsequently entered into between Evercore and the MMR special committee on July 16, 2012.

On June 15, 2012, Wachtell Lipton delivered a confidentiality agreement to Weil. Wachtell Lipton and Weil negotiated the terms of the confidentiality agreement, which provided that the standstill obligations imposed on FCX by the existing stockholder agreement between MMR and FCX would continue for a minimum of six months from the date of the confidentiality agreement even if they would otherwise terminate earlier pursuant to the terms of the stockholder agreement, which provides for the termination of FCX’s standstill obligations on the date that FCX’s beneficial ownership interest in MMR falls below 15% of the outstanding shares of MMR common stock (as determined according to the procedures set forth in the stockholder agreement). MMR and FCX entered into the confidentiality agreement on July 11, 2012. Around this same time, Weil and Latham & Watkins, LLP, which is referred to herein as Latham & Watkins, counsel to PXP, negotiated the terms of a separate confidentiality agreement between MMR and PXP relating to a possible transaction with FCX, which provided that the standstill obligations imposed on PXP by the existing stockholder agreement between MMR and PXP would continue for a minimum of six months from the date of the confidentiality agreement even if

 

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they would otherwise terminate earlier pursuant to the terms of the stockholder agreement, which provides for the termination of PXP’s standstill obligations on the later of the date that PXP’s beneficial ownership interest in MMR falls below 20% of the outstanding shares of MMR common stock (as determined according to the procedures set forth in the stockholder agreement) and the date that is six months after PXP has ceased to have any designees serving as members of the MMR board of directors. MMR and PXP subsequently entered into the confidentiality agreement on July 16, 2012.

After executing the confidentiality agreement, PXP and MMR began to exchange non-public information in connection with their evaluation of the potential transactions, in light of the possibility that either or both transactions could have included FCX common stock as a portion of the merger consideration and therefore resulted in stockholders of each of PXP and MMR owning an interest in the combined company. At no time did MMR engage in direct discussions with PXP regarding a potential transaction between PXP and MMR. In light of the fact that FCX was contemplating transactions with both PXP and MMR and the fact that PXP had not separately approached MMR regarding a potential transaction, the MMR special committee did not pursue a potential transaction with PXP.

On June 22, 2012, FCX and PXP entered into a confidentiality agreement, after which FCX and PXP began to exchange non-public information in connection with the potential transaction.

On June 28, 2012, at a meeting of the FCX special committee in Houston, Texas, the FCX special committee, with the assistance of representatives of Credit Suisse and Wachtell Lipton, reviewed and discussed potential transactions with each of PXP and MMR. The FCX special committee also decided to retain petroleum engineers in connection with its evaluation of the potential transactions. The FCX special committee subsequently engaged the RPS Group, which is referred to herein as RPS, to perform a review and analysis of the reserves and resource potential of each of MMR and PXP.

On July 2, 2012, members of the FCX special committee met with Mr. Moffett in Austin, Texas to discuss matters related to the governance structure of the combined company resulting from consummation of the potential transactions with PXP and MMR.

Throughout this period, Mr. Allison, in his capacity as chairman of the FCX special committee, periodically spoke with each of Mr. Flores, PXP’s Chairman and Chief Executive Officer, and Mr. Bush, a member of the MMR special committee, with respect to the review process and the potential for a transaction with either or both of their respective companies.

On July 31, 2012, the FCX special committee held a telephonic meeting attended by representatives of Credit Suisse and Wachtell Lipton. During the meeting, Credit Suisse updated the FCX special committee with regard to the status of its review of information with respect to PXP, including the review and analysis being conducted by RPS, and the FCX special committee authorized Credit Suisse, RPS and Wachtell Lipton to continue reviewing information with respect to each of PXP and MMR. This review continued during the month of August.

From August 2012 through October 2012, FCX and PXP each conducted review and analysis of MMR. Evercore also conducted review and analysis on MMR during this time and periodically updated the MMR special committee regarding its financial analysis of MMR. The MMR special committee, Weil and Evercore had periodic discussions during this period on the status of their reviews and recent developments affecting MMR, FCX and PXP, including developments regarding MMR’s Davy Jones No. 1 prospect and whether MMR would be able to successfully conduct a flow test on the prospect in the near future. The MMR special committee, Weil and Evercore also discussed PXP’s recent $6.1 billion acquisition of certain deepwater Gulf of Mexico assets from BP Exploration & Production Inc., BP America Production Company and Shell Offshore Inc. and whether PXP’s pursuit of financing in order to consummate such acquisition would impact the timing of any potential transaction between MMR and FCX.

 

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On August 14, 2012, Mr. Moffett and three MMR geologists met with PXP representatives to discuss PXP’s Gulf of Mexico exploration properties for purposes of assessing those properties and the possible impact the data on those properties could have on MMR’s exploration activities. This meeting was in the context of potential acquisitions by FCX of each of MMR and PXP in transactions potentially involving the payment of shares of FCX common stock as all or a portion of the merger consideration.

On August 15, 2012, representatives of RPS, Credit Suisse, Wachtell Lipton and Evercore met with management of MMR in Houston to gather and discuss information regarding certain aspects of MMR’s operations.

During September and October 2012, representatives of Credit Suisse and representatives of Evercore periodically discussed matters relating to a potential transaction between MMR and FCX, including the possibility of including an overriding royalty trust structure as part of the consideration in any such transaction.

On September 13, 2012, representatives of RPS and Evercore met with management of MMR in Houston to conduct a review of certain aspects of MMR’s operations.

On September 20, 2012, at a meeting of the FCX special committee held in Houston and attended by representatives of Credit Suisse, Wachtell Lipton and RPS, representatives of RPS discussed certain aspects of RPS’ ongoing review of the exploration prospects and production assets of PXP and MMR. The update included an analysis of the assets and prospects of each company located in various geologic regions, management estimates, and historical success levels in each such region. Also during this meeting, the FCX special committee met with Mr. Flores and discussed with him PXP’s recently announced acquisitions and plans for future development, and PXP’s existing equity ownership interest in MMR.

In the weeks following September 20, 2012, Credit Suisse, Wachtell Lipton and RPS continued their review of information relating to the assets and business of each of MMR and PXP. At a telephonic meeting on October 9, 2012, Credit Suisse and Wachtell Lipton updated the FCX special committee on the status of their reviews. At the request of the FCX special committee, Credit Suisse discussed matters relating to the potential transaction with PXP, including information received from RPS based on its ongoing review of PXP’s existing assets and the assets to be acquired in PXP’s pending Gulf of Mexico acquisitions. RPS continued its review of information relating to the assets and business of each of MMR and PXP through the beginning of December.

On September 20, 2012, Mr. Flores informed Mr. Allison that PXP had determined to focus on its recently announced Gulf of Mexico acquisition and terminated its discussions with FCX concerning a possible combination.

On October 16, 2012, representatives of RPS and Credit Suisse met with representatives of Evercore in Houston to conduct a further review of certain aspects of MMR’s operations, including risking and resource potential estimates.

On October 24, 2012, at a meeting of the FCX special committee in Houston attended by representatives of Credit Suisse and Wachtell Lipton, the FCX special committee discussed the status of each potential transaction, including the possibility of including an overriding royalty trust structure (as previously discussed between Evercore and Credit Suisse) as part of the consideration in a potential transaction. The FCX special committee asked Mr. Adkerson and Ms. Quirk to attend part of the meeting to provide input on the pro forma balance sheet and capitalization of the companies, if combined, and to comment on potential stockholder reaction to the proposed transactions. At the request of the FCX special committee, Mr. Moffett also attended a portion of the meeting for the purpose of discussing the operating characteristics of a combined company resulting from the potential transactions with each of PXP and MMR.

On October 27, 2012, Messrs. Allison and Flores spoke to determine that PXP was willing to re-engage in discussions with FCX with respect to a potential transaction.

 

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On October 28, 2012, at a telephonic meeting of the FCX special committee attended by representatives of Credit Suisse and Wachtell Lipton, Mr. Allison informed the FCX special committee of recent discussions with Mr. Flores in which Mr. Flores expressed PXP’s preference that any potential transaction with PXP include FCX common stock as a significant proportion (approximately two-thirds) of the consideration payable to PXP stockholders. PXP’s preference was aimed at minimizing the tax impact of the potential transaction and allowing PXP’s stockholders to own an interest in the combined company on a tax deferred basis. Separately, Latham & Watkins informed Wachtell Lipton that, in addition to the price to be paid to PXP stockholders, PXP was focused on any potential conditionality of a transaction, and was not interested in pursuing any transaction that would be conditioned on the closing of a transaction with MMR or would require a vote of the FCX stockholders. Mr. Allison also informed the FCX special committee of recent discussions between Messrs. Allison and Bush during which Mr. Bush informed Mr. Allison of the MMR special committee’s opinion that a form of contingent consideration could be desirable as a component of any potential transaction between the parties. The FCX special committee discussed potential cash, stock and contingent consideration structures for acquisitions of each of MMR and PXP, including the accretive or dilutive effect of the various structures to FCX’s stockholders, the availability of debt financing, prevailing interest rates at which FCX would anticipate being able to raise financing to fund any cash consideration, and the appropriate valuation and consideration mixes that could be explored with the representatives of each company, and agreed to schedule a follow-up meeting to further discuss those issues. In addition, the FCX special committee, with the assistance of Credit Suisse and Wachtell Lipton, discussed certain matters relating to potential transactions or actions with respect to FCX’s capital structure that might be undertaken either as alternatives to, or in connection with, any potential transaction with PXP and/or MMR.

On October 30, 2012, at a regularly scheduled telephonic meeting of the FCX board of directors, the FCX special committee provided the FCX board of directors with an update on the status of each transaction.

At a telephonic meeting on October 30, 2012 attended by representatives of Credit Suisse and Wachtell Lipton, the FCX special committee, with the assistance of Credit Suisse and Wachtell Lipton, discussed the potential consideration structures for the acquisition of each of MMR and PXP (including the effect on FCX’s post-transaction capital structure of offering consideration consisting of either cash or FCX common stock), and thereafter the FCX special committee authorized Mr. Allison to discuss a potential transaction with PXP at a price of up to $47 per share, with the consideration consisting of half cash and half FCX common stock, and to discuss a potential transaction with MMR at a price of up to $15 per share in cash, subject in each case to the FCX special committee deciding to recommend a transaction to the FCX board of directors.

On November 1, 2012, the MMR special committee met by telephone with Evercore and Weil to inform them of a conversation with Mr. Allison, who informed Mr. Bush that, while FCX had not made a decision with respect to whether to pursue a transaction with MMR and had not made any changes in its investment intent with respect to its current ownership of MMR securities, it was willing to discuss the potential for an acquisition of MMR by FCX for $15 per share in cash, subject to FCX board of directors approval. The MMR special committee, Evercore and Weil determined to meet in person the following week after Evercore had an opportunity to analyze and evaluate this information and determine next steps.

On November 1, 2012, Mr. Allison contacted Mr. Flores and indicated that the FCX special committee had continued its evaluation of PXP and was willing to discuss a potential acquisition of PXP, with consideration of up to $47 per share, consisting of half cash and half FCX common stock.

On November 9, 2012, the MMR special committee, Evercore and Weil met in person at Evercore’s offices in Houston, Texas to discuss and evaluate the FCX special committee’s proposal. Evercore reviewed with the MMR special committee its preliminary financial analyses of MMR and the FCX special committee’s proposal. The MMR special committee, Evercore and Weil discussed, among other things, the fact that a significant portion of MMR’s potential value is linked to the results of its ultra-deep prospects (including the uncertain results at Davy Jones No. 1), which had resulted in widely diverging views regarding the potential value of

 

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MMR. Given the uncertainty surrounding MMR’s ultra-deep prospects, the MMR special committee, Evercore and Weil then discussed the possibility of using a contingent value security, such as an overriding royalty trust structure, to allow MMR stockholders to continue to participate in any future upside in MMR’s ultra-deep prospects while at the same time providing certainty of value to MMR stockholders for the remainder of MMR in the form of cash consideration. The MMR special committee also considered proposing that MMR stockholders receive shares of FCX common stock as part of the merger consideration, but decided against making such a proposal given that MMR stockholders would have limited participation in future upside in MMR’s ultra-deep prospects given the relative size of FCX as compared to MMR. While MMR had some liquidity through cash on hand and an undrawn bank credit line, an additional capital raise of up to $700 million through asset sales, joint ventures and/or equity or debt offerings would be required to continue MMR’s aggressive drilling and development plans. The MMR special committee considered the relative risks of raising this additional capital and the cost to raise such capital and the impact of such decisions on MMR’s valuation. The MMR special committee, Evercore and Weil also discussed the feasibility of MMR remaining independent given the strong likelihood that MMR would need to raise additional cash to fund future capital expenditures as soon as the end of the first quarter of 2013. The MMR special committee, Evercore and Weil agreed that, given these financing and standalone risks, the MMR special committee should consider entering into a potential transaction with FCX. After further discussion, the MMR special committee determined to respond to the FCX special committee with a proposal to discuss a potential transaction that would give MMR shareholders the option of receiving $17.50 per share in cash or $16.00 per share in cash and one unit of a trust that would hold a 4% overriding royalty interest in all of MMR’s existing ultra-deep exploration prospects, which the MMR special committee valued at $1.50 per unit (at no point did the parties contemplate that less than all of MMR’s existing ultra-deep prospects would be covered by the overriding royalty interest). Under this proposal, the total number of royalty trust units would have been equal to the total number of fully diluted shares of MMR common stock, and the subject interests with respect to the royalty trust would include all of the areas in which MMR was currently conducting or planning to conduct ultra-deep oil and gas exploration activity. Weil then discussed with the MMR special committee other matters related to the proposed transaction, and noted that MMR’s amended and restated certificate of incorporation provides that the approval of any merger with an “interested stockholder”, such as FCX, would require the affirmative vote of holders of at least 80% of the outstanding shares of MMR common stock and the affirmative vote of 75% of the outstanding shares held by the disinterested stockholders, such approvals are referred to herein as the “supermajority approvals.” Evercore, Weil and the MMR special committee also discussed the standstill obligations, which are referred to herein as the standstills, imposed on FCX and PXP by the existing stockholder agreements between MMR and FCX and MMR and PXP respectively. The MMR special committee, Evercore and Weil also discussed whether any third parties would be interested in a transaction with MMR and certain additional matters related to the exploration of strategic alternatives. The MMR special committee discussed the challenges in a transaction with third parties given the significant ownership positions in MMR held by FCX and PXP. Based on discussions with Evercore and Weil regarding MMR and the market, the MMR special committee and Evercore identified two large oil and gas companies, referred to as Party A and Party B, that might be interested in a transaction with MMR. Evercore selected these companies based on their respective experience with assets similar to MMR’s ultra-deep resource base. Additionally, Evercore selected only companies that had the financial wherewithal to acquire MMR, had extensive experience with assets similar to MMR’s and had the ability to make an acquisition decision within the short timeframe associated with this potential transaction. The MMR special committee confirmed with MMR management that no prior discussions had taken place with any third parties about a possible transaction with MMR and then instructed Evercore to reach out to Party A and Party B to determine whether they might be interested in considering a potential transaction with MMR.

On November 9, 2012, Mr. Allison discussed with Mr. Flores the possibility of a business combination transaction with PXP. Mr. Flores indicated that PXP would potentially be interested in a transaction at $55 per share with one-third of the consideration in the form of cash and two-thirds of the consideration in the form of FCX common stock.

On November 9, 2012, the FCX special committee held a telephonic meeting attended by Credit Suisse and Wachtell Lipton during which Mr. Allison updated the members of the FCX special committee with respect to

 

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his discussions with Mr. Flores. Also at this meeting, representatives of Credit Suisse discussed with the FCX special committee certain matters relating to the potential transaction with each of PXP and MMR. The FCX special committee authorized Mr. Allison to continue discussions with each of PXP and MMR, and authorized Mr. Allison to discuss with Mr. Flores a potential valuation of PXP of $49 to $50 per share.

At a telephonic meeting on November 11, 2012 attended by representatives of Credit Suisse and Wachtell Lipton, the FCX special committee authorized Mr. Allison to continue discussing potential transactions with each of PXP and MMR. During this meeting, Credit Suisse informed the FCX special committee that representatives of Evercore had recently reiterated that the MMR special committee desired the consideration in any transaction to include a contingent component such as an overriding royalty interest in MMR’s future production.

On November 11, 2012, Mr. Allison informed Mr. Bush that the FCX special committee would be willing to discuss a potential transaction involving consideration of $15 per share in cash and units in a royalty trust holding a 4% overriding royalty interest in future production from MMR’s ultra-deep exploration prospects, which was a structure that had been previously used in a public company acquisition of an oil and gas exploration and production company. Mr. Bush stated that the MMR special committee would discuss the potential consideration with its advisors.

On November 11, 2012, Mr. Allison indicated to Mr. Flores that FCX would be interested in a transaction valued at $49 per share of PXP common stock. Messrs. Flores and Allison then discussed a potential transaction in the range of $49-$51 per share of PXP common stock. Both Messrs. Flores and Allison agreed to convey such discussion to the PXP board of directors and the FCX special committee, as applicable, for discussion.

On November 13, 2012, the MMR special committee, Evercore and Weil met by telephone to discuss the FCX special committee’s rejection of the terms proposed by the MMR special committee on November 9, 2012 and the FCX special committee’s terms proposed in response (subject to FCX board of directors approval). Evercore described the FCX special committee’s new proposal, which included the right to receive $15 per share in cash and one unit of a 4% overriding royalty interest trust, with MMR stockholders having an option to elect to increase the number of units they would receive for each share of MMR common stock and decrease the cash component by a value to be agreed by the parties for each additional trust unit they elect to receive. Under this proposal, the total number of royalty trust units would have been equal to the total number of fully diluted shares of MMR common stock. Evercore also informed the MMR special committee that Party A had indicated that it might be interested in exploring a potential transaction with MMR and requested a confidentiality agreement. On November 13, 2012, at the request of the MMR special committee, Evercore sent Party A a confidentiality agreement.

On November 15, 2012, during a telephonic meeting of the FCX special committee attended by representatives of Credit Suisse and Wachtell Lipton, Mr. Allison informed the FCX special committee that in a recent discussion with Mr. Flores, they discussed a potential transaction between PXP and FCX at a price range of $49 – $51 per share with consideration to consist of half cash and half FCX common stock, and that Mr. Allison and Mr. Flores had discussed Mr. Flores’ potential role in the management of the combined company. Also on November 15, 2012, management of each of FCX and PXP met in Houston, together with their respective legal and financial advisors, with each party answering questions of the other party’s management and representatives. Mr. Allison attended this meeting in his capacity as chairman of the FCX special committee.

On November 16, 2012, to help facilitate the discussion, Mr. Bush called Mr. Allison and indicated that he would be sending him a summary outlining the MMR special committee’s revised proposal. Later that evening, Mr. Bush sent Mr. Allison a revised proposal with consideration of $16 per share in cash and one unit in a royalty trust holding a 4% overriding royalty interest in future production from MMR’s ultra-deep exploration prospects per share, which the MMR special committee valued at $1.50 per unit, with MMR stockholders having an option to elect to increase the number of units they would receive for each share of MMR common stock and decrease the cash component by $1.50 for each additional trust unit they elect to receive. As with the prior proposals, the total number of royalty trust units would have been equal to the total number of fully diluted shares of MMR

 

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common stock. However, in this proposal, the additional trust units exchanged for the cash consideration in the election would come from the trust units that otherwise would be attributable to the shares of MMR common stock owned by FCX on an as-converted basis (and, if the PXP merger had been consummated prior to the consummation of the MMR merger, PXP) and would be subject to proration.

On the afternoon of November 18, 2012, the MMR special committee met with Weil and Evercore by telephone to receive an update on Evercore’s discussions with Credit Suisse regarding the FCX special committee’s reaction to the MMR special committee’s revised proposal.

On November 18, 2012, the FCX special committee met telephonically to discuss the potential transactions with representatives of Credit Suisse and Wachtell Lipton present. During this meeting, Mr. Allison informed the FCX special committee that Mr. Bush had indicated to Mr. Allison that the MMR special committee would potentially be interested in discussing a transaction with consideration consisting of $16 per share in cash and units in a royalty trust holding a 4% overriding royalty interest in future production from MMR’s ultra-deep exploration prospects. Later that day, Mr. Allison called Mr. Bush and proposed revised terms of $15.50 per share in cash and one unit in a royalty trust holding a 4% overriding royalty interest in MMR’s ultra-deep exploration prospects per share, which the MMR special committee valued at $1.50 per unit, subject to FCX board of directors approval. Under the proposed terms, each share of MMR common stock would receive identical consideration, without an option to exchange cash for additional royalty trust units, in order to increase the clarity of the proposed consideration to holders of MMR common stock and to avoid the possibility that the royalty trust units would become oversubscribed. Furthermore, these proposed terms would give each shareholder a proportionately equal opportunity to benefit from any potential future production from MMR’s ultra-deep prospects. After this conversation with Mr. Allison, the MMR special committee convened a telephonic meeting later in the evening of November 18, 2012 with Weil and Evercore to discuss the proposed terms. The MMR special committee, Weil and Evercore agreed to further evaluate the proposed terms and regroup on November 21, 2012.

On November 19, 2012, Wachtell Lipton sent Weil an initial draft term sheet outlining the terms of the proposed overriding royalty interest trust, which included, among other things, a 10-year term and a 4% overriding royalty interest in the hydrocarbons produced from MMR’s ultra-deep exploration prospects.

On November 21, 2012, the MMR special committee met by telephone with Weil and Evercore to further review and discuss the counteroffer received from the FCX special committee on November 18, 2012, the potential value of the overriding royalty interest trust and the term sheet forwarded by Wachtell Lipton. Evercore presented the MMR special committee with preliminary discussion materials regarding the potential value of the overriding royalty interest trust, including a sensitivity analysis based on various risk assumptions, duration of the trust, oil prices and discount rates. The MMR special committee also reviewed the proposed terms of the overriding royalty interest trust, including the prospects that would be included in the trust, the duration of the trust (initially proposed to be a 10-year term), and FCX’s ability to have a call right on the royalty trust units and the impact of these terms on the potential value of the royalty trust units. After discussion, the MMR special committee authorized Evercore to respond to Credit Suisse on the terms of the royalty trust units by proposing, among other things, a 25-year term and a $12 call price after the expiration of a five-year no call period. The MMR special committee was willing to agree to FCX’s request to have a finite term for the trust, but only if the term was long enough that the present value of the royalty trust units was not materially affected. Furthermore, the MMR special committee was willing to give FCX a call right on the royalty trust units, but only if the call price was significantly higher than the current implied value of the royalty trust units. Following the discussion regarding the royalty trust term sheet, Weil then discussed with the MMR special committee the supermajority approvals provisions in MMR’s amended and restated certificate of incorporation. Weil noted to the MMR special committee that FCX was unwilling to enter into transaction without an agreement by MMR to submit a stockholder proposal at the special meeting to amend MMR’s amended and restated certificate of incorporation to exclude FCX from the definition of “interested stockholder”, which is referred to herein as the charter amendment, thereby making the supermajority approvals provisions inapplicable, and conditioning closing of the merger on adoption of such proposal.

 

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Later on November 21, 2012, Wachtell Lipton sent Weil an initial draft of the merger agreement.

On November 26, 2012, Evercore and Weil met with Mr. Moffett and the MMR special committee in New Orleans, Louisiana to discuss MMR’s prospects. The MMR special committee also discussed MMR’s current position in the market and its general ability to raise financing. Mr. Adkerson attended part of the meeting at which the potential royalty trust was discussed. In addition, on November 26, 2012, MMR issued a press release providing an update on its Gulf of Mexico exploration and development activities, including delays in completing a production test on and the need for additional work to be conducted on the Davy Jones No. 1 well, positive drilling results at MMR’s onshore Lineham Creek well, and logging results from MMR’s Blackbeard West No. 2 ultra-deep exploration well. That same day, MMR’s stock price declined approximately 22%.

On November 27, 2012, the MMR special committee met by telephone with Weil and Evercore to discuss their meeting with Messrs. Moffett and Adkerson and to discuss the recent decline in the MMR stock price and the impact it would have on the discussions about a potential transaction. The MMR special committee also discussed that they had been informed that Mr. Moffett had discussions with a foreign energy company as part of MMR’s ongoing capital raising program regarding that company potentially acquiring 25% of MMR’s interest in all of its ultra-deep prospects and properties for $500 million and participating in MMR’s ultra-deep exploration program for an additional $500 million by paying 2.5 times its proportionate 25% share of capital expenditures for existing and future ultra-deep prospects. The MMR special committee considered these discussions to be indicative of the market’s valuation of MMR’s ultra-deep prospects, although the discussions did not lead to an agreement on terms or to an offer being made by the foreign energy company to acquire MMR or a portion of its assets.

On November 29, 2012, the FCX special committee held a telephonic meeting attended by representatives of Credit Suisse and Wachtell Lipton and discussed recent trading activity in shares of MMR common stock, including a review of the transcript of an investor call recently held by MMR and recently released research analyst reports relating to MMR’s common stock. In light of the decline in MMR’s stock price, the FCX special committee authorized Mr. Allison to discuss a potential transaction with Mr. Bush involving reduced consideration of $14 per share in cash and units in a royalty trust holding a 4% overriding royalty interest in future production from MMR’s ultra-deep exploration prospects.

On November 29, 2012, the MMR special committee met by telephone with Evercore and Weil on numerous occasions over the course of the day to discuss the status of conversations with the FCX special committee and legal and financial advisors of the FCX special committee regarding the potential transaction and the terms of the royalty trust units, including in light of the recent decline in the MMR stock price. Evercore informed the MMR special committee that in light of the recent decline in the MMR stock price, the FCX special committee had proposed revised consideration of $14 per share in cash and units in a royalty trust holding a 4% overriding royalty interest in future production from certain of MMR’s exploration prospects. A discussion ensued regarding the merger consideration and the appropriate response and the MMR special committee authorized Evercore to propose consideration of $14.75 per share in cash and one unit of a 6% overriding royalty interest trust which the MMR special committee valued at $2.25 per unit, with the total number of royalty trust units to equal the total number of fully diluted shares of MMR’s common stock. Weil then discussed with the MMR special committee the proposed terms of the merger agreement, including FCX’s desire to have (1) a 20 business day marketing period in order to secure financing for the proposed transaction, (2) the charter amendment and no requirement to obtain approval of the merger agreement by a majority of the disinterested stockholders, referred to as the “majority of the disinterested stockholders condition”, and (3) no ability of MMR to terminate the merger agreement if the MMR board of directors changes its recommendation in response to a superior proposal, referred to as a “superior proposal termination right.”

On November 30, 2012, representatives of MMR, Evercore, Credit Suisse and RPS held a conference call to discuss recent results from the Lineham Creek well. MMR confirmed its discovery of apparent hydrocarbon-bearing sands above 24,000 feet, which was not previously reflected in MMR’s estimate of total resource potential.

 

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On November 30, 2012, representatives of Evercore discussed the potential merger consideration with representatives of Credit Suisse. At the direction of the FCX special committee, representatives of Credit Suisse informed the representatives of Evercore that the FCX special committee was unlikely to recommend in favor of a transaction involving a 6% overriding royalty interest due to concerns regarding dilution of FCX’s interest in the subject properties.

On November 30, 2012, the MMR special committee met by telephone with Weil and Evercore to discuss the FCX special committee’s reaction to the proposal of the MMR special committee. Evercore informed the MMR special committee that the FCX special committee had rejected the 6% overriding royalty interest counteroffer of the MMR special committee because it would be too dilutive to their interests and would not agree to an overriding royalty interest greater than 5%. The MMR special committee discussed the potential value of a 5% overriding royalty interest and after careful consideration authorized Evercore to propose $14.75 per share in cash and 1.15 units of a 5% overriding royalty interest trust, which the MMR special committee valued at approximately $2.45 per 1.15 units (reflecting a revised value for the overriding royalty interest based on newly available information on MMR’s Lineham Creek well that was in the process of being drilled), with the total number of royalty trust units to equal the total number of fully diluted shares of MMR’s common stock. Weil then discussed with the MMR special committee the progress of negotiations regarding the merger agreement, including the FCX special committee’s desire to include an expense reimbursement fee payable by MMR if stockholder approval was not obtained and a termination fee payable by MMR in certain instances, including if FCX terminated the agreement upon the MMR board of directors changing its recommendation, and also that, although the FCX special committee agreed not to require a marketing period, the FCX special committee remained unwilling to enter into a transaction including a majority of the disinterested stockholders condition or a superior proposal termination right. Following this discussion, the MMR special committee directed Weil to continue to insist on the majority of the disinterested stockholders condition in light of the potential inclusion of the charter amendment condition and the superior proposal termination right. The MMR special committee also noted the importance of being able to withdraw its support for a transaction with FCX if things changed.

On November 30, 2012, Mr. Bush informed Mr. Allison of the MMR special committee’s proposed transaction consideration of $14.75 per share in cash and 1.15 units of a 5% overriding royalty interest trust. Mr. Allison discussed this proposed consideration with the individual members of the FCX special committee, and informed Mr. Bush that, based on such discussions, he believed that the FCX special committee was likely to support recommendation of a transaction involving this level of consideration.

During this period, Wachtell Lipton and Weil continued to exchange drafts of the merger agreement and to negotiate remaining open items in the merger agreement (including applicable termination fees which might be payable by MMR and the definition of “intervening event” with respect to the MMR board’s ability to change its recommendation in favor of the merger to MMR stockholders) subject to the guidance received from the FCX special committee and the MMR special committee.

On December 1, 2012, the MMR special committee met by telephone with Weil and Evercore to discuss the latest developments in the potential transaction with FCX. Evercore reported to the MMR special committee that the FCX special committee had tentatively agreed (subject to the FCX board of directors approval) to the proposal of the MMR special committee of $14.75 per share in cash and a certain number of units in a royalty trust with a 5% overriding royalty interest. After further discussion, the MMR special committee agreed to move forward with a proposal by which each MMR stockholder (excluding FCX and its subsidiaries) would receive $14.75 in cash and 1.15 units of a 20 year royalty trust with a 5% overriding royalty interest, in exchange for one share of MMR common stock. Weil then discussed with the MMR special committee the terms of the merger agreement and the progress of negotiations regarding the merger agreement, including that the FCX special committee remained unwilling to enter into a transaction including a majority of the disinterested stockholders condition or a superior proposal termination right. Weil discussed further FCX’s desire to include an expense reimbursement fee of 1% of the equity value of MMR payable by MMR if stockholder approval was not obtained

 

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and a termination fee of 3% of the equity value of MMR payable by MMR in certain instances, including if FCX terminated the agreement upon the MMR board of directors changing its recommendation. The MMR special committee advised Weil to circulate a revised draft of the merger agreement to Wachtell to include a majority of the disinterested stockholders condition, a superior proposal termination right, an expense reimbursement fee of up to $10 million and a termination fee of 2% of the equity value of MMR.

On December 2, 2012, the MMR special committee met by telephone with Weil and Evercore to discuss the insistence of the FCX special committee on not including a majority of the disinterested stockholders condition or a superior proposal termination right. The MMR special committee, Weil and Evercore discussed the implications of not having a majority of the disinterested stockholders condition in light of the potential inclusion of the charter amendment condition given the significant ownership positions in MMR held by FCX and PXP. In light of FCX’s position, Evercore reviewed and discussed with the MMR special committee available alternatives outside of the proposed merger, including the implications of continuing as a standalone entity. Evercore discussed that the available alternatives, including seeking a partner to engage in a joint venture and raising capital in the equity markets, were uncertain (as MMR had yet to receive any response from Party A or Party B) and unlikely to be economically more favorable than the potential transaction with FCX and that MMR would face an immediate cash shortfall if it tried to pursue a standalone plan. Evercore reiterated, as previously discussed by Evercore and the MMR special committee, that MMR required significant capital to pursue a standalone plan. Weil discussed with the MMR special committee the legal standards applicable to its decisions and actions with respect to the proposed transaction. After further discussion regarding available alternatives and applicable legal standards, the MMR special committee determined that although it would consider not requiring a superior proposal termination right in light of the fact that the MMR board of directors would still be able to change its recommendation in response to an intervening event or a superior proposal, it was unwilling to approve a transaction which included the charter amendment condition without a majority of the disinterested stockholders condition, and instructed Weil and Evercore to communicate such to Wachtell Lipton and Credit Suisse.

On December 3, 2012, the MMR board of directors met in person in Austin, Texas to receive an update from the MMR special committee regarding the status and progress of negotiations between the FCX special committee and the MMR special committee. At the meeting, the MMR special committee informed the MMR board of directors that the parties have made significant progress on the terms of the merger agreement and related documents.

On December 3, 2012, at a meeting of the FCX special committee in Austin, Texas attended by representatives of Credit Suisse and Wachtell Lipton, Mr. Allison informed the FCX special committee that Mr. Flores had indicated that he was prepared to recommend to the PXP board that PXP enter into a definitive agreement providing for a transaction at a price of $50 per share consisting of an equal amount of cash and FCX common stock as merger consideration, and that, subject to negotiation of the final terms of the merger agreement, the MMR special committee had indicated that it was prepared to recommend to its board that MMR enter into a transaction at a price of $14.75 in cash per share of MMR common stock and units in a royalty trust holding a 5% overriding royalty interest in future production from MMR’s ultra-deep exploration prospects. At the request of the FCX special committee, Credit Suisse then reviewed its preliminary financial analysis of MMR, the royalty trust units and the merger with the FCX special committee. The FCX special committee then reviewed and discussed matters relating to the proposed PXP merger. After discussion, the FCX special committee agreed to move forward with its recommendation of the potential transactions, subject to the FCX special committee’s receiving additional information as to the management structure of the combined company.

In the evening of December 3, 2012, the FCX special committee held a meeting that Messrs. Moffett, Adkerson and Flores, at the invitation of the FCX special committee, also attended to discuss the roles that each of them would play in the combined company after a transaction. In addition, the meeting was attended by representatives of Wachtell Lipton. At this meeting, it was agreed that, upon completion of the proposed transaction, Mr. Moffett would continue to serve as the Chairman of FCX, that Mr. Adkerson would continue to

 

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serve as President and Chief Executive Officer of FCX and would be appointed Vice Chairman of FCX, and that Mr. Flores would be appointed as Vice Chairman of FCX and Chief Executive Officer of FCX’s oil and gas operations. After speaking with Messrs. Moffett, Adkerson and Flores, the FCX special committee tentatively determined to recommend to the FCX board of directors the transactions with each of PXP and MMR on the terms that had been described earlier that day to the FCX special committee.

On December 4, 2012, the MMR special committee met by telephone with Weil and Evercore for the purpose of updating the MMR special committee on continuing discussions since the December 2, 2012 meeting. At the meeting, Evercore and Weil updated the MMR special committee that Party A had responded that it did not have any interest in pursuing a potential transaction and Party B had not responded to phone inquiries. The MMR special committee then discussed with Weil and Evercore the terms of the merger agreement and related agreements and the advisability of the proposed transaction. Weil informed the MMR special committee that the FCX special committee would accept a majority of the disinterested stockholders condition in light of the inclusion of the charter amendment condition. The MMR special committee then discussed the risks associated with not being able to terminate the merger agreement in response to a superior proposal, including that the MMR board would be required to submit the merger agreement to a vote of the MMR stockholders even if a superior proposal had been submitted to the MMR board, but that the MMR board would not be prohibited from changing its recommendation in the event of an intervening event or if it was presented with a superior proposal. Weil then discussed with the MMR special committee the legal standards applicable to its decisions and actions with respect to the merger. After discussion and careful consideration, the MMR special committee determined to accept the FCX special committee’s proposal to include the majority of the disinterested stockholders condition in the merger agreement in exchange for excluding the right to terminate the merger agreement in response to a superior proposal, particularly in light of the fact that the MMR board of directors would not be prohibited from changing its recommendation in the event of an intervening event or if it was presented with a superior proposal. Weil then discussed with the MMR special committee that the definition of “intervening event” would exclude events or changes relating to the expectation, discovery or development of hydrocarbons which may be contained in or which may be accessible, produced, marketed or sold from any oil and gas interest of MMR or any of its subsidiaries. Weil and the MMR special committee also discussed that any such positive events or changes related to the subject interests would also result in an increase in the value of the units of the overriding royalty interest trust that MMR’s existing shareholders would receive as part of the merger consideration. In addition, the MMR special committee discussed with Evercore and Weil the FCX special committee’s latest proposal to include an expense reimbursement fee of up to $19.5 million payable by MMR in the event MMR stockholder approval was not obtained or if the MMR board of director changed its recommendation due to an intervening event and to include a termination fee of $98 million in certain instances, including if the MMR board of directors changed its recommendation in response to a superior proposal. Evercore noted to the MMR special committee that such termination fees were customary for a transaction of this nature and would not deter a third party from potentially offering a superior proposal for MMR. Following review and discussion among the members of the MMR special committee, the MMR special committee authorized its advisors to seek to finalize the merger agreement and the agreements related thereto on the terms described to the MMR special committee at the meeting. Following this discussion, Evercore updated its financial analyses from the prior meeting of the MMR special committee and orally advised the MMR special committee that it would be prepared to render its opinion to the effect that, as of the date of its opinion, and subject to and based on the qualifications, limitations and assumptions set forth in its opinion, the merger consideration to be received by the holders of shares of MMR common stock entitled to receive merger consideration (other than PXP and its subsidiaries) in the merger was fair to such holders. The MMR special committee then noted that it would be prepared to approve and adopt the merger agreement and the transactions related thereto (including the waiver of the standstills and the charter amendment) and recommend to the MMR board of directors that it approve and adopt the merger agreement and the transactions related thereto at the December 5, 2012 meeting.

Following the meeting of the MMR special committee, the MMR board of directors met by telephone with Weil and Evercore. Evercore summarized the key terms of the merger and presented its financial analyses on the

 

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merger. Weil then discussed with the MMR board of directors the fact that the advisors were in the process of finalizing the merger agreement and related documents thereto. The MMR board of directors agreed to vote on the merger at the December 5, 2012 meeting.

The FCX board of directors and the FCX special committee met concurrently on December 4, 2012 to consider the proposed transactions with each of PXP and MMR. At the invitation of the FCX board of directors and the FCX special committee, certain members of FCX’s management and representatives of Hanover Advisors also participated in the meeting. At the request of the FCX special committee, representatives of Credit Suisse and Wachtell Lipton also participated in the meeting. At the request of the FCX special committee, Credit Suisse reviewed and discussed with the FCX special committee and the FCX board of directors its financial analysis with respect to MMR, the royalty trust units and the merger.

Representatives of Wachtell Lipton then reviewed the terms of each of the proposed merger agreements to be entered into with PXP and MMR and other related transaction documents. Representatives of Wachtell Lipton then reviewed the terms of waiver letters and other employment arrangements to be entered into by Mr. Flores and other PXP officers in connection with the PXP transaction and the terms of the financing to be entered into in connection with the transactions, and reviewed with the FCX special committee and FCX board of directors their fiduciary duties with respect to the transactions. Credit Suisse then rendered its oral opinion to the FCX special committee (which was subsequently confirmed in writing by delivery of Credit Suisse’s written opinion dated December 4, 2012) with respect to the fairness, from a financial point of view, to FCX of the aggregate merger consideration to be paid or issued by FCX in the merger pursuant to the merger agreement. See the section below entitled “—Opinion of Financial Advisor to the FCX Special Committee.”

Following that discussion, the members of the FCX special committee approved and declared advisable each of the merger agreements with PXP and MMR, the related transactions, and the additional transaction documents, and recommended that the FCX board of directors approve the same. Wachtell Lipton then described to the FCX board of directors the resolutions proposed to be adopted in connection with each of the transactions. At this time, each of Messrs. Adkerson, Moffett and Stephen Siegele recused themselves from the meeting due to their relationships with MMR. Following discussion, the FCX board of directors, upon recommendation of the FCX special committee, approved each of the merger agreements with PXP and MMR, the related transactions, the transaction documents and other matters in connection with the transactions, with Messrs. Allison, Krulak, Lackey and Madonna voting in favor and Messrs. Robert Day, Gerald Ford and Devon Graham abstaining from the vote due to their positions as members of the MMR board of directors.

On the morning of December 5, 2012, the MMR special committee met again by telephone with Weil and Evercore. Weil reviewed the terms of the merger agreement and other transaction documents and informed the MMR special committee that all documents were agreed to and in final form. Evercore reviewed with the MMR special committee the structure and other terms of the merger. In connection with the deliberation by the MMR special committee, Evercore rendered to the MMR special committee its oral opinion (subsequently confirmed in writing), as described in the section below entitled “—Opinion of Financial Advisor to the MMR Special Committee,” that, based upon the qualifications, limitations and assumptions set forth in Evercore’s opinion, as of the date of its opinion, from a financial point of view, the merger consideration to be received by the holders of MMR common stock entitled to receive merger consideration (other than PXP and its subsidiaries) in the merger was fair to such holders. Following these discussions, and discussions among the members of the MMR special committee and its advisors, including consideration of the factors described in the section below entitled “—MMR’s Reasons for the Merger and Recommendation of the MMR Special Committee and Board of Directors,” the MMR special committee unanimously determined that the transactions contemplated by the merger agreement and the related transactions and agreements are fair to, advisable for, and in the best interests of MMR and its stockholders, and, voted unanimously to approve and adopt the merger agreement and the transactions related thereto (including the waiver of the standstills and the charter amendment) and to recommend to the MMR board of directors that it approve and adopt the merger agreement and the transactions related thereto (including the waiver of the standstills and the charter amendment).

 

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Following the meeting of the MMR special committee, the MMR board of directors met by telephone with Weil and Evercore. Weil reviewed the terms of the merger agreement and other transaction documents and informed the MMR board of directors that all documents were agreed to and in final form. Evercore reviewed with the MMR board of directors the structure and other terms of the proposed transaction. The MMR special committee informed the MMR board of directors that the terms of the merger agreement and other transaction documents have been agreed to and are in final form, that Evercore had rendered its fairness opinion to the MMR special committee, as described above, and that the special committee had voted unanimously to approve and adopt the merger agreement and the transactions related thereto (including the waiver of the standstills and the charter amendment). Weil then described to the MMR board of directors the resolutions in connection with the merger and noted to the MMR board of directors that the charter amendment would need to be first adopted by both a majority of the MMR board of directors and a majority of the disinterested directors, voting as a separate group. The MMR special committee then recommended to the MMR board of directors that it approve and adopt the merger agreement and the transactions related thereto (including the waiver of the standstills and the charter amendment). Following these discussions and consideration of the factors described in the section below entitled “—MMR’s Reasons for the Merger and Recommendation of the MMR Special Committee and Board of Directors,” the MMR board of directors determined that the transactions contemplated by the merger agreement and the related transactions and agreements are fair to, advisable for, and in the best interests of MMR and its stockholders. The MMR board of directors conducted two votes with Messrs. Moffett and Adkerson recusing themselves: a vote of the disinterested directors only (consisting of Messrs. Bush and Carmichael and Ms. Mestayer) and a vote of the full MMR board of directors, with all disinterested directors and all directors present (subject to the recusal by Messrs. Moffett and Adkerson) voting in favor of approving and adopting the merger agreement and the transactions related thereto (including the waiver of the standstills and the charter amendment). Messrs. Flores and Wombwell also recused themselves from, and did not participate in, this meeting due to their positions as members of the PXP board of directors.

On December 5, 2012, the merger agreements and related transaction documents were executed by the parties thereto, and FCX, PXP and MMR issued a joint press release announcing the transactions.

MMR’s Reasons for the Merger and Recommendation of the MMR Special Committee and Board of Directors

After careful consideration, the MMR special committee and the MMR board of directors determined that the merger and the other transactions contemplated by the merger agreement are fair to, advisable and in the best interests of MMR as a whole and the unaffiliated stockholders of MMR. Based on such determination, the MMR board of directors, upon the unanimous recommendation of the MMR special committee, adopted the merger agreement and the transactions contemplated thereby, and now recommend that the MMR stockholders vote “FOR” the charter amendment proposal, “FOR” the merger proposal and “FOR” the adjournment proposal. The purpose of the merger for MMR is to enable its stockholders to immediately realize the value of their investment in MMR through their receipt of the cash consideration of $14.75 per share, while still maintaining the opportunity for MMR stockholders to benefit from future hydrocarbon production from the subject interests. In evaluating the merger and the other transactions contemplated by the merger agreement, the members of the MMR special committee and the MMR board of directors as a whole consulted with their legal and financial advisors and considered a number of factors that supported their decision (described in detail in “—Background of the Merger” above), including the following:

 

   

the fact that the $14.75 in cash being paid for each outstanding share of MMR common stock represented a premium of 74.3% based on the closing price of MMR on December 4, 2012, the last trading day before the merger agreement was signed, a premium of 44.2% based on MMR’s 30-day volume-weighted average price at that date, a premium of 28.4% based on MMR’s 90-day volume-weighted average price at that date, a premium of 35.3% based on MMR’s 180-day volume-weighted average price at that date, a premium of 27.8% based on MMR’s one-year volume-weighted average price at that date and a premium of 11.5% based on MMR’s two-year volume-weighted average price at that date;

 

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the directors’ familiarity with, and presentations by MMR’s management regarding, the business, operations, properties and assets, financial condition, business strategy, the estimated value of MMR’s assets and prospects of MMR, as well as the risks involved in achieving those prospects, the nature of the industry in which MMR competes, industry trends and economic and market conditions, both on an historical and on a prospective basis;

 

   

the potential stockholder value that could be expected to be generated from the strategic alternatives available to MMR (including the alternative of (1) remaining independent and (2) negotiating and entering into a potential sale transaction with another party) and their belief that the merger agreement and the transactions contemplated thereby were more favorable to stockholders than pursuing such strategic alternatives given the risks and uncertainty associated with executing such strategic alternatives such as the ability to raise additional capital to fund the approximately $700 million cash shortfall in future capital requirements required to remain independent and the voting influence that FCX has (due to its ability to convert its preferred shares of MMR into common stock) on the ability of MMR to execute an alternative transaction;

 

   

the financial presentation of Evercore and its opinion, dated December 5, 2012, to the MMR special committee, to the effect that, as of December 5, 2012 and based upon and subject to the factors and assumptions set forth therein, the merger consideration, consisting of $14.75 in cash and 1.15 royalty trust units per share, to be received by the holders of MMR common stock entitled to receive merger consideration (other than PXP and its subsidiaries) was fair from a financial point of view to holders of such shares. The full text of the opinion, which sets forth the assumptions made, matters considered and limitations on the scope of review undertaken by Evercore in rendering its opinion, is attached to this proxy statement as Annex C. A discussion of the opinion and presentation appears in the section below entitled “—Opinion of Financial Advisor to the MMR Special Committee”;

 

   

the financial and other terms and conditions of the merger agreement and the transactions contemplated thereby as reviewed by the MMR special committee and the fact that they were the product of extensive negotiations between the parties;

 

   

the fact that, subject to compliance with the terms and conditions of the merger agreement, MMR is permitted under certain circumstances to directly or indirectly engage in or otherwise participate in discussions or negotiations with third parties that make an unsolicited proposal relating to a competing transaction for the acquisition of MMR (as defined in the section below entitled “The Merger Agreement—No Solicitation by MMR of Takeover Proposals” beginning on page 117);

 

   

the fact that, subject to compliance with the terms and conditions of the merger agreement, including, without limitation, MMR’s payment of the appropriate termination fee under certain circumstances, the MMR board of directors, acting upon the recommendation of the MMR special committee, may change its recommendation to MMR stockholders in response to either (1) an intervening event or (2) a superior proposal, if it determines, after consultation with its outside financial advisors and outside counsel, that not doing so would be inconsistent with its fiduciary duties under applicable law. (see the sections below entitled “The Merger Agreement—Termination of the Merger Agreement” beginning on page 124 and “The Merger Agreement—Termination Fees” beginning on page 125);

 

   

the fact that a portion of the merger consideration is payable in royalty trust units providing stockholders the opportunity to participate in future hydrocarbon production from the subject interests; and

 

   

the availability of appraisal rights for stockholders who properly exercise such statutory rights.

Except as otherwise described in “—Opinion of Financial Advisor to the MMR Special Committee” below, the MMR special committee did not specifically consider the net book value or the liquidation value of MMR as factors in assessing the fair value of MMR because the MMR special committee did not consider them relevant to its determination. The MMR special committee did not consider the liquidation value of MMR because it considers MMR to be a viable going concern. Therefore, the MMR special committee believes that the

 

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liquidation value of MMR is irrelevant to a determination as to whether the merger is fair to MMR’s unaffiliated stockholders, and no appraisal of liquidation value was sought for purposes of valuing the MMR common stock. Further, net book value, which is an accounting concept, was not considered as a factor because the MMR special committee believes that net book value is not a material indicator of the value of MMR as a going concern but rather is indicative of historical costs. The MMR special committee was not aware of any firm offer made to MMR by any unaffiliated person during the past two years for the merger or consolidation of MMR into another company, the sale or transfer of all or any substantial part of the assets of MMR to another company, or the purchase of a controlling stake in MMR by another company, and no such firm offer was considered as a factor in the MMR special committee’s decision.

The MMR special committee believes that sufficient procedural safeguards were and are present to ensure the fairness of the merger to MMR’s disinterested stockholders and to permit the MMR special committee to represent effectively the interests of MMR’s disinterested stockholders. These procedural safeguards include the following:

 

   

the fact that the MMR special committee is comprised entirely of independent directors to whom the MMR board of directors delegated the full power and authority of the board to, among other things, (1) consider and evaluate any prospects with respect to MMR and any alternatives, (2) negotiate the terms of any potential transaction, (3) reject any potential transaction, and (4) recommend a potential transaction or any other alternatives to the MMR board of directors;

 

   

the fact that the MMR special committee and the MMR board of directors were aware of the existing relationships among FCX, MMR and PXP, and the fact that FCX intended to contemporaneously enter into the PXP merger agreement and the voting and support agreement, and could take such relationships and plans into account when conducting the MMR special committee process and in considering whether to enter into the proposed transaction on the contemplated terms, or at all;

 

   

the fact that, other than the indemnification of and provision of directors and officers liability insurance for each director for six years from and after the effective time of the merger, and the accelerated vesting of certain MMR stock options and MMR restricted stock units held by each non-employee director of MMR, the members of the MMR special committee will not receive any consideration in connection with the merger that is different from that received by any other stockholder of MMR;

 

   

the fact that the MMR special committee made its evaluation of the merger agreement and the merger based upon the factors discussed in this proxy statement/prospectus, independent of management, and with knowledge of the interests of management in the merger;

 

   

the fact that, subject to compliance with the terms and conditions of the merger agreement, MMR is permitted under certain circumstances to directly or indirectly engage in or otherwise participate in discussions or negotiations in response to unsolicited inquiries regarding proposals for a competing proposal for the acquisition of MMR, and the MMR board of directors is permitted to change its recommendation in light of a superior proposal;

 

   

the fact that the MMR special committee retained Evercore to provide an opinion as to the fairness, from a financial point of view, of the merger consideration to be received by the holders of MMR common stock entitled to receive merger consideration (other than PXP and its subsidiaries) in connection with the merger; and

 

   

the fact that approval of the holders of a majority of the shares of MMR common stock held by disinterested stockholders is required for the approval of the merger agreement.

The MMR special committee and board of directors also considered a variety of risks and other potentially negative factors concerning the merger agreement and the merger, including the following:

 

   

the fact that the merger is subject to conditions, including certain conditions that may not be satisfied, and may not be completed on a timely basis, or at all, and that the failure to complete the merger could have material and adverse effects on MMR;

 

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the fact that certain of MMR’s directors and executive officers may be deemed to have interests in the merger that are different from, or in addition to, the interests of MMR stockholders generally;

 

   

the fact that the merger agreement contains provisions that limit MMR’s ability to pursue alternatives to the merger, including the fact that the MMR board of directors does not have the right to terminate the merger agreement if the MMR board of directors changes its recommendation in response to an intervening event or superior proposal, which could discourage a potential acquirer of MMR from making an alternative transaction proposal and, in certain circumstances, could require MMR to pay to FCX a termination fee;

 

   

the fact that the opinion obtained by the MMR special committee from its financial advisor will not reflect changes in circumstances between the signing of the merger agreement and the completion of the merger;

 

   

the fact that the value and tax consequences of the royalty trust units are uncertain;

 

   

the fact that the operations of MMR will be restricted by interim operating covenants during the period between signing the merger agreement and the closing of the merger, which could effectively prohibit MMR from undertaking any strategic initiatives or other material transactions to the detriment of MMR and its stockholders;

 

   

the fact that because none of the subject interests are at present producing hydrocarbons, and upon completion of the merger will have no source of income, the Royalty Trust will depend on FCX for funding until it generates revenue; and

 

   

the fact that the Royalty Trust unitholders have no influence or control over the operations or future development of the underlying properties.

The implied reference ranges per share of MMR common stock and the values attributable to the royalty trust units indicated by the financial analyses of the financial advisors to each of the MMR special committee and the FCX special committee varied as a result of the differences in assumptions, analyses and implied valuation ranges used by each financial advisor. As more fully discussed under “—Special Factors—Opinion of Financial Advisor to the MMR special committee,” for purposes of its analyses Evercore, the financial advisor to the MMR special committee, among other things, reviewed reports regarding MMR’s proved, probable and possible reserves prepared by Ryder Scott Company, L.P., each as of July 1, 2012, which are referred to herein together as the Ryder Scott reserve report, and applied customary adjustments to reflect an effective date of October 1, 2012 for MMR’s reserve estimates; reviewed and discussed with MMR’s technical personnel MMR’s unrisked resource potential from its inventory of subsalt ultra-deep assets prepared and furnished to Evercore by the management of MMR; developed risking assumptions of MMR’s resource potential from its ultra-deep assets utilizing Evercore’s technical team, which on a weighted average basis was a 30% risking assumption, resulting in an estimated risked resource potential for MMR’s ultra-deep assets of 17,887 Bcfe; and reviewed the impact of different commodity price assumptions on the net asset value of MMR’s proved, probable and possible reserves, as well as the resources potential of the ultra-deep assets. “Risking assumptions” are industry standard geologic and mechanical methodologies that estimate the probability of success for discovering oil and gas volumes that can be recovered. Evercore discussed these risking assumptions with MMR’s technical personnel, who deemed the assumptions reasonable. For purposes of Evercore’s net asset valuation analysis of MMR’s assets, Evercore calculated indicative values of shares of MMR common stock based on the present value of the future after-tax cash flows expected to be generated from MMR’s proved and non-proved reserves based on the Ryder Scott reserve report rolled forward to October 1, 2012 and MMR’s resource estimates for its ultra-deep assets (which reflected the application of the Evercore technical team’s risking assumptions described above to MMR’s ultra-deep resource potential). As more fully discussed under “—Special Factors—Opinion of Financial Advisor to the MMR Special Committee,” Evercore also performed a peer group trading analysis with companies Evercore deemed to have assets similar to MMR in one or more respects. However, with respect to an analysis of MMR’s ultra-deep assets, which do not currently include any producing assets, Evercore excluded from its peer group trading analysis any companies that had mature, producing deepwater assets. As more fully discussed under

 

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“—Special Factors—Opinion of Financial Advisor to the MMR Special Committee,” Evercore also reviewed publicly-available information for certain precedent transactions that included assets Evercore deemed similar to MMR’s assets, certain precedent corporate transactions in which the target company was an exploration and production company with exploration and production assets in the United States and certain precedent corporate takeover transactions, in each case that were announced within certain recent time periods. In arriving at its fairness determination, Evercore considered the results of all its analyses and did not draw, in isolation, conclusions from or with regard to any one analysis or factor considered by it for purposes of its opinion. Rather, Evercore made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all the analyses. In addition, Evercore may have given various analyses and factors more or less weight than other analyses and factors and may have deemed various assumptions more or less probable than other assumptions. For purposes of its analysis and opinion, Evercore assumed and relied upon, without undertaking any independent verification of, the accuracy and completeness of all of the information publicly available, and all of the information supplied or otherwise made available to, discussed with, or reviewed by Evercore, and Evercore assumed no liability therefor.

As more fully discussed under “Special Factors—Background of the Merger,” the FCX special committee retained RPS, third-party oil and gas reserve consultants, to perform a review and analysis of the reserves and resource potential of MMR. MMR provided RPS and Credit Suisse with the Ryder Scott reserve report and provided RPS and Credit Suisse with the same resource development plan as MMR had provided to Evercore with respect to certain contingent oil and gas resources of MMR prepared by management of MMR, which Credit Suisse referred to as the MMR resource development plan. Based on, among other things, its review of the Ryder Scott reserve report, the MMR resource development plan and discussions with the management and other representatives of MMR, RPS analyzed the assets and prospects of MMR located in various geologic regions, management estimates, and historical success levels in each such region, and reviewed with the FCX special committee and with Credit Suisse its analysis of the oil and gas reserves and contingent oil and gas resources of MMR.

As more fully discussed under “Special Factors—Opinion of Financial Advisor to the FCX Special Committee,” for purposes of its analyses, Credit Suisse, the financial advisor to the FCX Special Committee, reviewed, among other things, the Ryder Scott reserve report; reviewed the MMR resource development plan (which collectively with the Ryder Scott reserve report were referred to by Credit Suisse as the MMR reserve and resource analysis); and discussed the MMR reserve and resource analysis with RPS. In connection with its review, Credit Suisse did not independently verify any of the foregoing information, and Credit Suisse assumed and relied upon such information being complete and accurate in all material respects. With respect to the MMR reserve and resource analysis that Credit Suisse reviewed, management of MMR advised Credit Suisse, and Credit Suisse assumed, that such data and analysis were reasonably prepared in good faith on bases reflecting the best available estimates and judgments of the management of MMR and Ryder Scott, as applicable, as to the oil and gas reserves and contingent oil and gas resources of MMR, and were a reasonable basis on which to evaluate MMR, and Credit Suisse expressed no opinion with respect to such MMR reserve and resource analysis or the assumptions upon which they were based. With respect to the RPS analyses that Credit Suisse received, which reflected the application by RPS of a 13.1% weighted average risking to MMR’s ultra deep resources resulting in an estimated risked resource potential of MMR’s ultra deep resources of 2.8 Tcfe (or approximately 2,800 Bcfe), Credit Suisse was advised and assumed that RPS’s analyses were reasonably prepared in good faith on bases reflecting the best available estimates and judgments of RPS as to the oil and gas reserves and contingent oil and gas resources of MMR, and were a reasonable basis on which to evaluate MMR, and Credit Suisse expressed no opinion with respect to RPS’s analyses or the assumptions upon which they were based. For purposes of Credit Suisse’s analyses, Credit Suisse, at the direction of the FCX special committee, assumed that the capital expenditures, expenses and production development plans contemplated by the MMR resource development plan will, in all respects material to Credit Suisse’s analyses, be incurred and achieved in the amounts and at the times indicated thereby. At the direction of the FCX special committee, Credit Suisse relied upon the MMR reserve and resource analysis and RPS’s analyses for purposes of Credit Suisse’s analyses and assumed that they were a reasonable basis on which to evaluate MMR. As more fully discussed under “—Special Factors—Opinion of Financial Advisor to the FCX Special Committee,” in addition to a Discounted Cash Flow/Net Asset Value

 

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(NAV) Analysis in reliance upon, among other things, the MMR reserve and resource analysis and RPS’s analyses, Credit Suisse also performed a Selected Companies Analysis of selected companies in the oil and gas industry deemed by Credit Suisse to be similar to MMR in one or more respects which included nature of business, size, diversification, financial performance and geographic concentration and a Selected Transactions Analysis of selected publicly-announced transactions involving target companies in the oil and gas industry or sales of oil and gas assets in the Gulf of Mexico. Credit Suisse arrived at its opinion based on the results of all analyses undertaken by it, assessed as a whole, and did not draw, in isolation, conclusion from or with regard to any individual analysis, analytic method or factor. While the results of each analysis were taken into account in reaching its overall conclusion with respect to fairness, Credit Suisse did not make separate or quantifiable judgments regarding individual analyses.

As a result of these and other differences in interpretation of resource potential, risking, commodity price and other assumptions and analyses, the implied equity value range per share of MMR indicated by the various financial analyses performed by Evercore differed from the implied reference range per share of MMR common stock indicated by the various financial analyses performed by Credit Suisse. See “Special Factors—Opinion of Financial Advisor to the MMR Special Committee” and “Special Factors—Opinion of Financial Advisor to the FCX Special Committee.”

In the course of negotiations prior to the signing of the merger agreement, and prior to the delivery by Evercore of its opinion to the MMR special committee on December 5, 2012 and the delivery by Credit Suisse of its opinion to the FCX special committee on December 4, 2012, neither Evercore nor Credit Suisse was provided a copy of the other’s financial analyses or opinion.

The MMR special committee and board of directors took these variations and differences into account in reaching their conclusion as to fairness for purposes of inclusion in this proxy statement/prospectus, viewing the implied reference range per share of MMR common stock indicated by the financial analyses of the financial advisor to the FCX special committee as an additional data point indicative of an alternative view of the value of MMR’s common stock and the resource potential of MMR’s ultra-deep exploration prospects. The MMR special committee and board of directors did not view the analyses and assumptions utilized by the financial advisor to the FCX special committee as determinative, or as indicative of knowledge of any additional or different factual information which would require a change in the analysis otherwise conducted by or on behalf of the MMR special committee and board of directors.

The foregoing discussion summarizes the material factors considered by the MMR special committee and board of directors in their consideration of the merger. After considering these factors, the MMR special committee and board of directors both concluded that the positive factors relating to the merger agreement and the merger outweighed the negative factors. In view of the wide variety of factors considered by the MMR special committee and board of directors, the MMR special committee and board of directors did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual members of the MMR special committee and board of directors may have assigned different weights to various factors. The MMR special committee and board of directors both adopted and now recommend the merger agreement and the merger based upon the totality of the information presented to and considered by them, respectively.

The following materials prepared by Evercore and Credit Suisse have been filed as exhibits to the Schedule 13E-3:

 

   

the preliminary discussion materials prepared by Evercore and reviewed with the MMR Special Committee on November 9, 2012 and November 21, 2012 and the fairness opinion discussion materials prepared by Evercore and reviewed with the MMR Special Committee on December 4, 2012

 

   

the preliminary discussion materials prepared by Credit Suisse and reviewed with the FCX special committee on November 26, 2012 and November 29, 2012 and the discussion materials reviewed with the FCX special committee on December 4, 2012

 

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Position of the FCX Parties as to the Fairness of the Merger and Purpose of the Merger

Under the SEC rules governing “going private” transactions, each of FCX, Merger Sub, Freeport-McMoRan Preferred LLC, a wholly owned subsidiary of FCX referred to herein as FCX Preferred, and the Royalty Trust may be deemed to be affiliates of MMR, and, therefore, required to express their beliefs as to the fairness of the proposed merger to MMR’s unaffiliated stockholders. We refer to FCX, Merger Sub, FCX Preferred and the Royalty Trust collectively as the FCX Parties. The FCX Parties are making the statements included in this section solely for the purposes of complying with the requirements of Rule 13e-3 and the related rules under the Exchange Act. The FCX Parties believe that the terms of the merger (which is the Rule 13e-3 transaction for which a Schedule 13E-3 Transaction Statement has been filed with the SEC) are fair to MMR’s unaffiliated stockholders on the basis of the factors described in “—MMR’s Reasons for the Merger and Recommendation of the MMR Special Committee and Board of Directors” beginning on page 39 (which analysis and resulting conclusions the FCX Parties adopt) and the additional factors described below.

None of the FCX Parties participated in the deliberations of MMR’s special committee or board of directors regarding, or received advice from MMR’s legal advisors or financial advisors as to, the fairness of the proposed merger. Certain directors and executive officers of each of FCX, Merger Sub and FCX Preferred and certain ordinary trustees of the Royalty Trust serve as directors and/or executive officers of MMR and, in their capacity as directors and/or executive officers of MMR, received certain information presented by MMR’s legal and financial advisors. However, such individuals were bound by their obligations to MMR to refrain from sharing such information with FCX, and none of such individuals served on either the MMR special committee or the FCX special committee. None of the FCX Parties has performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the fairness of the proposed merger to MMR’s unaffiliated stockholders. Based on the knowledge and analysis by the FCX Parties of available information regarding MMR, the FCX Parties believe that the merger is both procedurally and substantively fair to such stockholders. The FCX Parties base this belief on the following factors, each of which, in their judgment, supports their view as to the fairness of the merger:

 

   

as merger consideration, each MMR stockholder, excluding FCX and FCX Preferred, will be entitled to receive, for each share of MMR common stock such stockholder owns, $14.75 in cash and 1.15 royalty trust units. The FCX Parties believe that this is relevant to the following factors supporting their view as to the fairness of the merger:

 

   

the cash portion of the merger consideration, as described above and excluding any incremental value that may be attributable to the royalty trust units, represents a premium of:

 

   

74.3% to the closing price of the shares of MMR common stock on December 4, 2012, the last trading day prior to the date of the announcement of the merger;

 

   

72.3% to the average closing prices of the shares of MMR common stock for the one-week period prior to the date of the announcement of the merger;

 

   

31.2% to the average closing prices of the shares of MMR common stock for the 30-day period prior to the date of the announcement of the merger; and

 

   

29.1% to the average closing prices of the shares of MMR common stock for the 60-day period prior to the date of the announcement of the merger.

 

   

in addition to receiving the cash portion of the merger consideration MMR stockholders will be able to participate and share in the potential future revenues of MMR’s ultra-deep exploration prospects through their receipt of units of the Royalty Trust;

 

   

the merger, once completed, will shift the majority of the risk of MMR’s future financial performance away from MMR’s public stockholders to FCX, eliminating the exposure of such stockholders to fluctuations in the market price of MMR or FCX common stock; and

 

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the merger is not subject to a financing condition, which limits the execution risk attached to the completion of the merger, subject to satisfaction of the conditions to the completion of the merger as described in this proxy statement/prospectus.

In addition, the FCX Parties believe that the merger is procedurally fair to the unaffiliated stockholders of MMR, based on the following factors:

 

   

consummation of the merger is subject to the adoption of the merger agreement by the holders of a majority of the outstanding shares of MMR common stock and by holders of the majority of the shares of MMR common stock held by the disinterested stockholders;

 

   

the fact that the MMR board of directors granted the authority to negotiate the terms of the merger agreement, to recommend for or against MMR entering into the merger, and to explore alternative transactions, to the MMR special committee (comprised entirely of independent directors unaffiliated with either FCX or PXP);

 

   

the fact that the MMR special committee and the MMR board of directors were aware of the existing relationships among FCX, MMR and PXP, and the fact that FCX intended to contemporaneously enter into the PXP merger agreement and the voting and support agreement, and could take such relationships and plans into account when conducting the MMR special committee process and in considering whether to enter into the proposed transaction on the contemplated terms, or at all;

 

   

the MMR board of directors, after considering the unanimous recommendation of the MMR special committee (which reached its conclusion after consultation with independent legal and financial advisors) has approved and declared advisable the merger agreement, has determined that it and the merger are fair to and in the best interests of MMR and its stockholders, including its unaffiliated stockholders, and has recommended that MMR stockholders vote for approval of the proposal to adopt the merger agreement;

 

   

the MMR special committee requested and received from Evercore an opinion, delivered orally and subsequently confirmed in writing, with respect to the fairness, from a financial point of view, of the merger consideration to be received by MMR’s stockholders, including unaffiliated stockholders, pursuant to the merger agreement; and

 

   

the fact that if the merger is completed, the stockholders of MMR have the right under Delaware law to dissent from the merger and to seek payment of the fair value of their shares provided that any such stockholders comply with the procedures provided under Delaware law.

The FCX Parties also considered a variety of risks and other countervailing factors related to the substantive and procedural fairness of the proposed merger, including:

 

   

that the stockholders of MMR will only participate in the revenues or growth of MMR’s business to the extent of such stockholders’ ownership of units of the Royalty Trust and will otherwise not benefit from any potential appreciation in MMR’s value in the future;

 

   

the risk that the proposed merger might not be completed in a timely manner or at all;

 

   

the restrictions on the conduct of MMR’s business prior to the completion of the merger, which may delay or prevent MMR from undertaking business opportunities that may arise and certain other actions it might otherwise take with respect to the operations of MMR pending completion of the merger;

 

   

the potential negative effect that the pendency of the merger, or a failure to complete the merger, could have on MMR’s business and relationships with its employees, partners and investors;

 

   

the fact that certain executive officers and directors of MMR are also executive officers and/or directors of FCX;

 

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the fact that FCX contemporaneously entered into the PXP merger agreement and the voting and support agreement, and that PXP has a significant ownership interest in MMR and certain officers and directors of PXP serve on the MMR board;

 

   

the fact that under certain circumstances the going concern value of MMR could exceed the merger consideration, based in part on the belief of the FCX parties that a discounted cash flow analysis of MMR is equivalent to a type of going concern analysis;

 

   

the fact that FCX and other investors had invested in shares of MMR capital stock at a price valuing MMR common stock at $16 per share in 2010;

 

   

the fact that certain executive officers and directors of MMR owned substantial amounts of MMR common stock and will consequently receive significant payments in the form of the merger consideration in exchange for such MMR common stock if the merger is completed;

 

   

that, in general, unless and until the merger agreement is terminated, MMR is restricted from, among other things, soliciting, initiating, knowingly facilitating or knowingly encouraging any inquiries regarding, or making any competing takeover proposal;

 

   

the possibility that the amounts that may be payable by MMR upon the termination of the merger agreement, including a termination fee of $98 million and up to $19.5 million in expenses, and the processes required to terminate the merger agreement, including the opportunity for FCX to make revisions to its merger proposal, could discourage other potential acquirors from making a competing bid to acquire MMR; and

 

   

the fact that the merger consideration would be taxable to MMR’s stockholders that are U.S. holders for U.S. federal income tax purposes.

The implied reference ranges per share of MMR common stock and the values attributable to the royalty trust units indicated by the financial analyses of the financial advisors to each of the MMR special committee and the FCX special committee varied as a result of the differences in assumptions, analyses and implied valuation ranges used by each financial advisor. As more fully discussed under “—Special Factors—Opinion of Financial Advisor to the MMR special committee,” for purposes of its analyses Evercore, the financial advisor to the MMR special committee, among other things, reviewed reports regarding MMR’s proved, probable and possible reserves prepared by Ryder Scott Company, L.P., each as of July 1, 2012, which are referred to herein together as the Ryder Scott reserve report, and applied customary adjustments to reflect an effective date of October 1, 2012 for MMR’s reserve estimates; reviewed and discussed with MMR’s technical personnel MMR’s unrisked resource potential from its inventory of subsalt ultra-deep assets prepared and furnished to Evercore by the management of MMR; developed risking assumptions of MMR’s resource potential from its ultra-deep assets utilizing Evercore’s technical team, which on a weighted average basis was a 30% risking assumption, resulting in an estimated risked resource potential for MMR’s ultra-deep assets of 17,887 Bcfe; and reviewed the impact of different commodity price assumptions on the net asset value of MMR’s proved, probable and possible reserves, as well as the resources potential of the ultra-deep assets. “Risking assumptions” are industry standard geologic and mechanical methodologies that estimate the probability of success for discovering oil and gas volumes that can be recovered. Evercore discussed these risking assumptions with MMR’s technical personnel, who deemed the assumptions reasonable. For purposes of Evercore’s net asset valuation analysis of MMR’s assets, Evercore calculated indicative values of shares of MMR common stock based on the present value of the future after-tax cash flows expected to be generated from MMR’s proved and non-proved reserves based on the Ryder Scott reserve report rolled forward to October 1, 2012 and MMR’s resource estimates for its ultra-deep assets (which reflected the application of the Evercore technical team’s risking assumptions described above to MMR’s ultra-deep resource potential). As more fully discussed under “—Special Factors—Opinion of Financial Advisor to the MMR Special Committee,” Evercore also performed a peer group trading analysis with companies Evercore deemed to have assets similar to MMR in one or more respects. However, with respect to an analysis of MMR’s ultra-deep assets, which do not currently include any producing assets, Evercore excluded from its peer group trading analysis any companies that had mature, producing deepwater assets. As more fully discussed under “—Special Factors—Opinion of Financial Advisor to the MMR Special Committee,” Evercore also reviewed publicly-available information for certain precedent transactions that included assets Evercore deemed similar to MMR’s assets, certain precedent

 

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corporate transactions in which the target company was an exploration and production company with exploration and production assets in the United States and certain precedent corporate takeover transactions, in each case that were announced within certain recent time periods.

In arriving at its fairness determination, Evercore considered the results of all its analyses and did not draw, in isolation, conclusions from or with regard to any one analysis or factor considered by it for purposes of its opinion. Rather, Evercore made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all the analyses. In addition, Evercore may have given various analyses and factors more or less weight than other analyses and factors and may have deemed various assumptions more or less probable than other assumptions. For purposes of its analysis and opinion, Evercore assumed and relied upon, without undertaking any independent verification of, the accuracy and completeness of all of the information publicly available, and all of the information supplied or otherwise made available to, discussed with, or reviewed by Evercore, and Evercore assumed no liability therefor.

As more fully discussed under “Special Factors—Background of the Merger,” the FCX special committee retained RPS, third-party oil and gas reserve consultants, to perform a review and analysis of the reserves and resource potential of MMR. MMR provided RPS and Credit Suisse with the Ryder Scott reserve report and provided RPS and Credit Suisse with the same resource development plan as MMR had provided to Evercore with respect to certain contingent oil and gas resources of MMR prepared by management of MMR, which Credit Suisse referred to as the MMR resource development plan. Based on, among other things, its review of the Ryder Scott reserve report, the MMR resource development plan and discussions with the management and other representatives of MMR, RPS analyzed the assets and prospects of MMR located in various geologic regions, management estimates, and historical success levels in each such region, developed risking assumptions of MMR’s resource potential from its ultra-deep assets and reviewed with the FCX special committee and with Credit Suisse its analysis of the oil and gas reserves and contingent oil and gas resources of MMR.

As more fully discussed under “Special Factors—Opinion of Financial Advisor to the FCX Special Committee,” for purposes of its analyses, Credit Suisse, the financial advisor to the FCX Special Committee, reviewed, among other things, the Ryder Scott reserve report; reviewed the MMR resource development plan (which collectively with the Ryder Scott reserve report were referred to by Credit Suisse as the MMR reserve and resource analysis); and discussed the MMR reserve and resource analysis with RPS. In connection with its review, Credit Suisse did not independently verify any of the foregoing information, and Credit Suisse assumed and relied upon such information being complete and accurate in all material respects. With respect to the MMR reserve and resource analysis that Credit Suisse reviewed, management of MMR advised Credit Suisse, and Credit Suisse assumed, that such data and analysis were reasonably prepared in good faith on bases reflecting the best available estimates and judgments of the management of MMR and Ryder Scott, as applicable, as to the oil and gas reserves and contingent oil and gas resources of MMR, and were a reasonable basis on which to evaluate MMR, and Credit Suisse expressed no opinion with respect to such MMR reserve and resource analysis or the assumptions upon which they were based. With respect to the RPS analyses that Credit Suisse received, which reflected the application by RPS of a 13.1% weighted average risking to MMR’s ultra deep resources resulting in an estimated risked resource potential of MMR’s ultra deep resources of 2.8 Tcfe (or approximately 2,800 Bcfe), Credit Suisse was advised and assumed that RPS’s analyses were reasonably prepared in good faith on bases reflecting the best available estimates and judgments of RPS as to the oil and gas reserves and contingent oil and gas resources of MMR, and were a reasonable basis on which to evaluate MMR, and Credit Suisse expressed no opinion with respect to RPS’s analyses or the assumptions upon which they were based. For purposes of Credit Suisse’s analyses, Credit Suisse, at the direction of the FCX special committee, assumed that the capital expenditures, expenses and production development plans contemplated by the MMR resource development plan will, in all respects material to Credit Suisse’s analyses, be incurred and achieved in the amounts and at the times indicated thereby. At the direction of the FCX special committee, Credit Suisse relied upon the MMR reserve and resource analysis and RPS’s analyses for purposes of Credit Suisse’s analyses and assumed that they were a reasonable basis on which to evaluate MMR. As more fully discussed under “—Special Factors—Opinion of Financial Advisor to the FCX Special Committee,” in addition to a Discounted Cash Flow/Net Asset Value

 

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(NAV) Analysis in reliance upon, among other things, the MMR reserve and resource analysis and RPS’s analyses, Credit Suisse also performed a Selected Companies Analysis of selected companies in the oil and gas industry deemed by Credit Suisse to be similar to MMR in one or more respects which included nature of business, size, diversification, financial performance and geographic concentration and a Selected Transactions Analysis of selected publicly-announced transactions involving target companies in the oil and gas industry or sales of oil and gas assets in the Gulf of Mexico. Credit Suisse arrived at its opinion based on the results of all analyses undertaken by it, assessed as a whole, and did not draw, in isolation, conclusion from or with regard to any individual analysis, analytic method or factor. While the results of each analysis were taken into account in reaching its overall conclusion with respect to fairness, Credit Suisse did not make separate or quantifiable judgments regarding individual analyses.

As a result of these and other differences in reserves, risking assumptions, commodity prices and other assumptions and analyses, the implied equity value range per share of MMR indicated by the various financial analyses performed by Evercore differed from the implied reference range per share of MMR common stock indicated by the various financial analyses performed by Credit Suisse. See “Special Factors—Opinion of Financial Advisor to the MMR Special Committee” and “Special Factors—Opinion of Financial Advisor to the FCX Special Committee.”

In the course of negotiations prior to the signing of the merger agreement, and prior to the delivery by Evercore of its opinion to the MMR special committee on December 5, 2012 and the delivery by Credit Suisse of its opinion to the FCX special committee on December 4, 2012, neither Evercore nor Credit Suisse was provided a copy of the other’s financial analyses or opinion.

The FCX Parties took these variations and differences into account in reaching their conclusion as to fairness for purposes of inclusion in this proxy statement/prospectus, viewing the implied reference range per share of MMR common stock and the values attributable to the royalty trust units utilized by the financial advisor to the MMR special committee as an additional data point indicative of an alternative view of the value of MMR’s common stock and the resource potential of MMR’s ultra-deep exploration prospects. The FCX Parties did not view the analyses and assumptions utilized by the financial advisor to the MMR special committee or the results of such analyses as determinative, or as indicative of knowledge of any additional or different factual information which would require a change in the analysis otherwise conducted by the FCX Parties. The FCX Parties did not find it practicable to assign, nor did they assign, relative weights to the individual factors considered in reaching their conclusion as to fairness. In reaching their conclusion as to fairness, the FCX Parties did not consider the liquidation value of MMR because they consider MMR to be a viable going concern and have no plans to liquidate MMR. Therefore, the FCX Parties believe that the liquidation value of MMR is irrelevant to a determination as to whether the merger is fair to MMR stockholders unaffiliated with the FCX Parties, and no appraisal of liquidation value was sought for purposes of valuing the MMR common stock. Further, net book value, which is an accounting concept, was not considered as a factor because the FCX Parties believe that net book value is not a material indicator of the value of MMR as a going concern but rather is indicative of historical costs. The FCX Parties are not aware of any firm offers made by a third party to acquire MMR during the past two years. The foregoing discussion of the information and factors considered and given weight by the FCX Parties is not intended to be exhaustive, but includes the factors considered by the FCX Parties that each believes to be material.

Purposes and Reasons of the FCX Parties for the Merger

Under the SEC rules governing “going private” transactions, each of the FCX Parties may be deemed to be affiliates of MMR, and, therefore, required to express their reasons for the merger to MMR’s unaffiliated stockholders. The FCX Parties are making the statements included in this section solely for the purposes of complying with the requirements of Rule 13e-3 and the related rules under the Exchange Act. For each of the FCX Parties, the purpose of the merger is to enable FCX to acquire all of the outstanding shares of MMR common stock so that FCX will benefit from any future earnings and growth of MMR (excluding amounts payable on the royalty trust units to other parties) after shares of MMR common stock cease to be publicly

 

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traded. An additional purpose of the merger for the FCX Parties is to enable FCX to create a premier U.S. based natural resource company with an asset portfolio complementary to FCX’s existing portfolio of mining assets, increasing the geographic diversity and scale of the resulting combined company. FCX believes that the combined company resulting from the merger and the expected PXP merger will be an industry leading company with a global portfolio of mineral assets, significant oil and gas resources and a growing production profile. In addition, the merger provides financially attractive opportunities to augment growth for FCX, at a time when attractive growth opportunities are limited in the mining business and during a time when oil and gas production is growing in the United States. The combination is expected to provide opportunities for the combined company to achieve superior returns through the allocation of capital investments to the highest-potential assets across a broader portfolio of opportunities at any given time.

The FCX Parties believe that the transaction structure of the merger is preferable to other structures because it will enable FCX to acquire all of the outstanding shares of MMR common stock at one time, while allowing the unaffiliated stockholders of MMR to receive consideration of $14.75 per share in cash and also retain an opportunity to participate and share in the potential future revenues of MMR’s ultra-deep exploration prospects through their receipt of 1.15 royalty trust units per share.

Differing Interests of MMR Stockholders and FCX in the Merger

The interests of MMR stockholders other than FCX with respect to the merger consideration are significantly different from the interests of FCX. Among other things, FCX will pay the merger consideration in exchange for all of the outstanding equity interests in MMR while MMR stockholders other than FCX will receive the merger consideration in exchange for their equity interests in MMR and, following the consummation of the merger, MMR stockholders will not have a direct or indirect equity ownership interest in MMR or any of its assets. However, the royalty trust units that MMR stockholders receive as merger consideration pursuant to the merger agreement will provide the right to have an economic interest with respect to MMR’s ultra-deep assets. For a further discussion of the differing effects of the merger on FCX and MMR stockholders, see “—Certain Effects of the Merger.”

Certain Effects of the Merger

If the merger agreement is adopted by MMR’s stockholders and certain other conditions to the closing of the merger are either satisfied or waived, Merger Sub will be merged with and into MMR with MMR being the surviving corporation, and continuing in existence as a wholly owned subsidiary of FCX.

At the effective time of the merger each issued and outstanding share of MMR common stock (other than shares held by FCX, Merger Sub or any of their respective subsidiaries that will be cancelled and holders who have perfected and not withdrawn a demand for appraisal rights) will be converted into the right to receive $14.75 in cash and 1.15 royalty trust units, without interest and less any applicable withholding taxes. Also at the effective time of the merger, FCX will cause MMR to convey the subject interests to the Royalty Trust and the Royalty Trust will issue a number of royalty trust units equal to the fully diluted number of shares of MMR common stock outstanding immediately prior to the effective time of the merger. FCX will retain ownership of any royalty trust units issued which are not required to be paid to holders of shares of MMR common stock as merger consideration, with a portion of such shares to remain subject to FCX’s ongoing obligation to deliver royalty trust units to holders of certain of MMR’s outstanding convertible securities upon conversion.

A primary benefit of the merger to MMR’s stockholders will be the right of such stockholders to receive a cash payment of $14.75, without interest, for each share of MMR common stock held by such stockholders as described above, representing a premium of approximately 74.3% to the closing market price of the MMR common stock on December 4, 2012, the last trading day before the merger agreement was signed, and 1.15 royalty trust units. Additionally, after the merger such stockholders will no longer be subject to the risk of any possible decrease in the value of MMR common stock, but will retain an opportunity to participate and share in

 

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the potential future revenues which may be produced by the assets of MMR which are subject to the overriding royalty interest.

The primary detriments of the merger to such stockholders include that the stockholders of MMR will only participate in the revenues or growth of MMR’s business to the extent of such stockholders’ ownership of royalty trust units and will otherwise not benefit from any potential appreciation in MMR’s value in the future. Additionally, the receipt of the merger consideration will generally be a taxable sale transaction for U.S. federal income tax purposes to MMR stockholders who surrender shares of MMR common stock in the merger.

Following the merger, all of the equity interests in MMR will be owned by FCX. The primary benefit of the merger to FCX is that after the merger, FCX will be the sole beneficiary of MMR’s future earnings and growth, if any, other than the Royalty Trust to the extent there is production of oil and gas associated with its royalty interests. In addition, FCX will be the only person entitled to vote on corporate matters affecting MMR following the merger. Similarly, FCX will also bear the risks of ongoing operations, including the risks of any decrease in the value of MMR after the merger, which is the primary detriment of the merger to FCX.

FCX Preferred currently jointly with FCX beneficially owns 16.1% of the outstanding shares of MMR common stock as of April 26, 2013, through its ownership of shares of MMR convertible preferred stock. Following the merger, FCX Preferred will cease to beneficially own any MMR common stock. FCX Preferred and Merger Sub, as wholly owned subsidiaries and instrumentalities of FCX, will not experience any material benefits or detriments as distinct from FCX resulting from the merger. The Royalty Trust will not experience any material benefits or detriments resulting from the merger, other than the benefit of receipt of an overriding royalty interest on the subject interests.

MMR common stock is currently registered under the Exchange Act and is quoted on the NYSE under the symbol “MMR.” As a result of the merger, MMR will be a wholly owned subsidiary of FCX and there will be no public market for its common stock, which will cease to be quoted on the NYSE. In addition, registration of the common stock under the Exchange Act will be terminated and MMR will no longer file periodic reports with the SEC with respect to the common stock. Termination of registration of MMR’s common stock under the Exchange Act will reduce the information required to be furnished by MMR to its stockholders and the SEC, and would make certain provisions of the Exchange Act, such as the short-swing trading provisions of Section 16(b) of the Exchange Act and the requirement of furnishing a proxy statement in connection with stockholders’ meetings pursuant to Section 14(a) of the Exchange Act, no longer applicable to MMR. As a result, FCX will benefit from any regulatory compliance cost savings realized by MMR following it ceasing to be a publicly traded company.

Merger Sub’s certificate of incorporation and bylaws will become the certificate of incorporation and bylaws of the surviving entity, until amended.

 

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FCX beneficially owns 31,250,000 shares of MMR common stock, or approximately 16.2% of the outstanding shares of MMR common stock as of December 31, 2012, through its ownership of shares of MMR convertible preferred stock. Following consummation of the merger, FCX will own 100% of the outstanding common stock of MMR and will have a corresponding interest in MMR’s net book value and net earnings. Each stockholder of FCX will have an interest in MMR’s net book value and net earnings in proportion to such stockholder’s ownership interest in FCX. The table below sets forth the direct and indirect interests in MMR’s net book value and net earnings of each filing person prior to and immediately after the merger, based on the unaudited net book value at December 31, 2012 and unaudited net earnings for the year ended December 31, 2012.

 

     Ownership of MMR Prior to the Merger     Ownership of MMR After the Merger  
     ($ in thousands)     ($ in thousands)  
     % Ownership     Net book
value at
December 31,
2012
     Net earnings
for the year
ended
December 31,
2012
    % Ownership     Net book
value at
December 31,
2012(b)
    Net earnings
for the year
ended
December 31,
2012(b)
 

FCX

     16.2 %(a)    $ 259,112       $ (23,527     100.0   $ 1,603,211      ($ 145,570

FCX Preferred

     16.2 %(a)      259,112         (23,527     0.0     0        0   

Royalty Trust

     0.0     0         0        0.0     0        0   

Merger Sub

     0.0     0         0        (c     (c     (c

 

(a) Reflects shares held by FCX Preferred and beneficially owned by FCX
(b) Amounts are derived from MMR’s December 31, 2012 unaudited financial statements and do not reflect the application of acquisition accounting.
(c) Merger Sub’s separate corporate existence will cease as a result of the Merger

Certain Information Prepared by the Management of MMR

MMR does not as a matter of course make public forecasts on projected financial performance because of the unpredictability of the underlying assumptions and estimates. At the request of the MMR special committee and its financial advisor, MMR provided to Evercore and Credit Suisse model information on potential future financial performance under a range of assumptions, such information is referred to here as the MMR models. In addition, MMR provided information regarding its oil and gas reserves classified as proved, probable and possible. MMR also provided data on its unrisked resource potential. MMR initially provided model information in July 2012 which was updated in October 2012 to incorporate actual results through September 2012, updated forecast assumptions and pending property sale transactions.

All of MMR’s proved reserve estimates included in the Ryder Scott reserve report (which are filed as exhibits to the registration statement of which this proxy statement/prospectus forms a part and which are incorporated by reference herein), were prepared by Ryder Scott Company, L.P., which is referred to herein as Ryder Scott, an independent petroleum engineering firm, in accordance with the current regulations and guidelines established by the Securities and Exchange Commission, which is referred to herein as the SEC. To achieve reasonable certainty, Ryder Scott employs technologies that have been demonstrated to yield results with consistency and repeatability. The technologies and economic data used in the estimation of MMR’s proved reserves include, but are not limited to, well logs, geologic maps, seismic data, well test data, production data, historical price and cost information and property ownership interests. Among other things, the accuracy of the estimates of MMR’s reserves is a function of:

 

   

the quality and quantity of available data and the engineering and geological interpretation of that data;

   

estimates regarding the amount and timing of future operating costs, severance taxes, development costs and workovers, all of which may vary considerably from actual results;

   

the accuracy of various mandated economic assumptions such as future prices of oil and natural gas; and

   

the judgment of the persons preparing the estimates.

 

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The scope and results of the procedures employed by Ryder Scott are summarized in the Ryder Scott reserve report (which are filed as exhibits to the registration statement of which this proxy statement/prospectus forms a part and which are incorporated by reference herein). There is a primary technical person from Ryder Scott who is responsible for overseeing the preparation of MMR’s reserve estimates. He has a Bachelor of Science degree in Chemical Engineering and is a Licensed Professional Engineer in the State of Texas. He has over nine years of experience in the estimation and evaluation of petroleum reserves and has attained the professional qualifications as a Reserve Estimator set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers.

MMR also maintains an internal staff of reservoir engineers and geoscientists who work closely with Ryder Scott in connection with their preparation of MMR’s reserve estimates, including assessing the integrity, accuracy and timeliness of the methods and assumptions used in this process. MMR’s internal reservoir engineering staff coordinates with MMR’s land, marketing, accounting and other departments to provide the appropriate data to Ryder Scott in support of the reserve estimation process. This process is coordinated and completed on a semi-annual basis (as of June 30 and December 31). To the extent any operational or other matters occur during periods between these semi-annual assessments that significantly impact previous reserve estimates, adjustments to those estimates are recognized at that time.

Because these estimates depend on many assumptions, any or all of which may differ substantially from actual results, reserve estimates may be different from the quantities of oil and natural gas that MMR ultimately recovers.

Ryder Scott has no relationship with MMR other than its engagement as MMR’s independent petroleum engineering firm.

The Ryder Scott reserve report will be made available for inspection and copying at the principal executive offices of MMR during its regular business hours by any interested MMR stockholder or representative who has been so designated in writing. A copy of the Ryder Scott reserve report will be transmitted by MMR to any MMR stockholder or representative who has been so designated in writing upon written request and at the expense of the requesting stockholder.

Model results provided to Evercore and Credit Suisse included all or portions of the following:

 

   

Internal estimates of production volumes and revenues based on production from existing fields:

 

($ in millions)

   2012E      2013E      2014E      2015E      2016E      2017E      2018E      2019E  

Production Volume (Bcfe)

     50.5         38.5         27.3         23.6         19.6         21.6         23.2         10.5   

Oil & Gas Revenues

   $ 367       $ 287       $ 219       $ 218       $ 186       $ 136       $ 152       $ 80   

EBITDAX (1)

   $ 185       $ 132       $ 82       $ 93       $ 75       $ 59       $ 84       $ 11   

 

(1)

EBITDAX is a financial measure commonly used in the oil and natural gas industry but is not defined under accounting principles generally accepted in the United States of America, which is referred to herein as GAAP. As defined herein, EBITDAX reflects MMR’s adjusted oil and gas operating income. EBITDAX is derived from net income (loss) from continuing operations before other income (expense), interest expense (net), startup costs for Main Pass Energy HubTM project, exploration expenses (net), depreciation, depletion and amortization expense, stock-based compensation charged to general and administrative expenses, gain on oil and gas derivative contracts and all unusual onetime items, net of insurance proceeds and insurance recoveries. EBITDAX should not be considered by itself or as a substitute for net income (loss), operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP, or as a measure of MMR’s profitability or liquidity. Because EBITDAX excludes some, but not all, items that affect net income (loss), this measure varies among companies. The EBITDAX data presented above may not be comparable to similarly titled measures of other oil and gas companies.

 

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Ultra-Deep Drilling and Development Activities

 

   

Management provided financial models under two price scenarios, both of which assumed a four rig drilling and development program.

 

   

The model assumed drilling and development activity at four rigs, which included, on average, three rigs drilling exploration or development wells and one rig performing well completion and development activities resulting in an average of three ultra-deep wells drilled and completed each year.

 

   

All ultra-deep exploration and development wells in the models were assumed to be successful. The models include successful drilling and development of 28 ultra-deep wells over the period from 2013 to 2019.

 

   

Each ultra-deep exploration or development well was assumed to take approximately one year to drill and six months to develop. Gross average costs for each ultra-deep well in the program approximated $100 million to drill ($60 million net to MMR) and $143 million to complete and develop ($85.8 million net to MMR).

 

   

Production costs per well were estimated to approximate $150 thousand per month gross ($90 thousand per month net to MMR) with variable production cost of approximately $0.15/Mcfe.

 

   

Gross estimated reserves of approximately 200 Bcfe per ultra-deep well consisting of 95% gas and 5% oil/condensate (approximating an oil/condensate yield of 9 barrels of oil/condensate per 1 million cubic feet of gas).

 

   

Finding and development costs were assumed to be $1.50 per mcfe.

 

   

Initial gross production rates for ultra-deep wells averaged 70 MMcfe/day (35 MMcfe/day net to MMR).

 

   

The material limitations on these assumptions include the uncertain nature of exploration and development expenditures and associated geologic risks, which may impact future production and ultimate recovery of reserves, uncertainties about future development costs given the limited history of ultra-deep drilling and development activities, the timing of development of ultra-deep prospects, and future commodity prices.

 

   

Under these assumptions and the NYMEX forward curve pricing as of October 26, 2012, the model results (which are net to MMR), including existing production and the ultra-deep drilling and development program are summarized in the table below:

 

($ in millions)

   2012E      2013E      2014E      2015E      2016E      2017E      2018E      2019E  

Production Volume (Bcfe)

     50.5         54.8         110.6         164.6         207.2         248.1         285.0         301.0   

Oil & Gas Revenues

   $ 367       $ 360       $ 615       $ 910       $ 1,140       $ 1,335       $ 1,597       $ 1,758   

EBITDAX

   $ 185       $ 198       $ 452       $ 746       $ 980       $ 1,200       $ 1,462       $ 1,614   

Operating Cash Flow

   $ 37       $ 23       $ 363       $ 639       $ 835       $ 873       $ 1,051       $ 1,183   

Capital Expenditures

   $ 550       $ 500       $ 749       $ 551       $ 489       $ 493       $ 443       $ 437   

 

   

The NYMEX forward curve pricing assumptions as of October 26, 2012 used in the model results in the table above were as follows:

 

     2013      2014      2015      2016      2017      2018      2019  

Natural Gas ($/MMbtu)

   $ 3.93       $ 4.23       $ 4.41       $ 4.60       $ 4.82       $ 5.06       $ 5.33   

WTI Crude Oil ($/barrel)

   $ 88.62       $ 88.41       $ 87.01       $ 86.11       $ 85.88       $ 85.97       $ 86.11   

 

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Under the same assumptions described above and based on a stable pricing case of $6/MMbtu and $100/barrel, the model results (which are net to MMR), including existing production and the ultra-deep drilling and development program are summarized in the table below:

 

($ in millions)

   2012E      2013E      2014E      2015E      2016E      2017E      2018E      2019E  

Production Volume (Bcfe)

     50.5         54.8         110.6         164.6         207.2         248.1         285.0         301.0   

Oil & Gas Revenues

   $ 367       $ 470       $ 813       $ 1,183       $ 1,447       $ 1,644       $ 1,889       $ 1,990   

EBITDAX

   $ 185       $ 308       $ 649       $ 1,019       $ 1,288       $ 1,512       $ 1,758       $ 1,847   

Capital Expenditures

   $ 550       $ 500       $ 749       $ 551       $ 489       $ 493       $ 443       $ 437   

 

   

The potential values from MMR’s entire interest in the ultra-deep prospects will vary depending on the amount of reserves recovered and other factors, including costs and commodity prices. Using the same assumptions described above, MMR provided Evercore and Credit Suisse with model results of potential values, depending on success, as shown in the table below. To develop the potential values indicated below, MMR assumed finding and development costs of $1.50 per mcfe as described above and varied the number of successful wells drilled. MMR calculated the potential value of 2 Tcfe (1 Tcfe net to MMR) or 10 ultra-deep wells. The amounts of net reserves were scaled pro rata to calculate the potential values as shown in the table below.

 

     Pre-tax PV-10% (in Billions)  

Net Reserves

   $ 4/Mcf       $ 6/Mcf       $ 8/Mcf   

5 Tcfe

   $ 5.1       $ 9.8       $ 14.5   

10 Tcfe

   $ 10.3       $ 19.6       $ 28.9   

20 Tcfe

   $ 20.5       $ 39.2       $ 57.9   

50 Tcfe

   $ 51.3       $ 98.0       $ 144.7   

The MMR models were not prepared with a view toward public disclosure, nor were they prepared with a view toward compliance with the published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts or generally accepted accounting principles in the United States, which are referred to herein as GAAP. Neither Ernst & Young LLP, MMR’s independent registered public accounting firm, which is referred to herein as Ernst & Young, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the MMR models contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the MMR models. The Ernst & Young report incorporated by reference in this proxy statement/prospectus relates to MMR’s historical financial information. It does not extend to the MMR models and should not be read to do so. The summary of the MMR models is being included in this proxy statement/prospectus not to influence your decision whether to vote for the merger proposal, but because the MMR models were made available to the MMR special committee, the special committee of the FCX board of directors and the respective financial advisors to the MMR and FCX special committees in connection with the merger.

While presented herein with numeric specificity, the information set forth in the summary of the MMR models contained herein was based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of MMR’s management, including, among others, an assumption that MMR would continue to operate as an integrated, standalone company and financing would be available to fund the exploration and development costs associated with the projected drilling program. In addition, since the MMR models cover multiple years, such information by its nature becomes less predictive with each successive year. MMR believes the assumptions in the MMR models were reasonable at the time the MMR models were prepared, given the information MMR had at the time. However, important factors that may affect actual results and cause the results reflected in the MMR models not to be achieved include, but are not limited to, risks and uncertainties relating to MMR’s business, industry performance, the regulatory environment, general business and economic conditions and other matters described under the section entitled “Cautionary Statement Regarding

 

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Forward-Looking Statements” beginning on page 107. The MMR models also reflect assumptions as to certain business decisions that are subject to change. As a result, actual results may differ materially from the results reflected in the MMR models. Accordingly, there can be no assurance that the results reflected in the MMR models will be realized.

The inclusion of the MMR models in this proxy statement/prospectus should not be regarded as an indication that any of MMR, FCX or any of their respective affiliates, advisors, officers, directors, partners or representatives considered the MMR models to be material or predictive of actual future events, and the MMR models should not be relied upon as such. None of MMR, FCX or any of their respective affiliates, advisors, officers, directors, partners or representatives can give you any assurance that actual results will not differ from the results reflected in the MMR models, and none undertakes any obligation to update or otherwise revise or reconcile the MMR models to reflect circumstances existing after the date the MMR models were generated or to reflect the occurrence of future events in the event that any or all of the assumptions underlying the MMR models are shown to be in error. MMR does not intend to make publicly available any update or other revision to the MMR models. MMR has made publicly available its actual results of operations for the fiscal year ended December 31, 2012, and you should review carefully MMR’s Annual Report on Form 10-K for such period, which is incorporated by reference into this proxy statement/prospectus. None of MMR or its affiliates, advisors, officers, directors, partners or representatives has made or makes any representation to any stockholder or other person regarding MMR’s ultimate performance compared to the information contained in the MMR models or that model results will be achieved. MMR has made no representation to FCX, in the merger agreement or otherwise, concerning the MMR models.

THE MMR MODELS DO NOT REPRESENT PROJECTIONS, BUT RATHER POTENTIAL SCENARIOS BASED ON VARYING DEGREES OF SUCCESS. ACCORDINGLY, RESULTS ARE DEPENDENT ON THE OUTCOME OF FUTURE EXPLORATION AND DEVELOPMENT ACTIVITY, WHICH IS SUBJECT TO SIGNIFICANT RISK AND UNCERTAINTY. MMR DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE MMR MODELS TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN THE MMR MODELS WERE GENERATED OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS.

Opinion of Financial Advisor to the MMR Special Committee

In connection with the merger, on July 16, 2012, the MMR special committee retained Evercore Group L.L.C., which is referred to herein as Evercore, to act as a financial advisor to the MMR special committee. On December 5, 2012, at a meeting of the MMR special committee, Evercore rendered its oral opinion, subsequently confirmed by delivery of a written opinion later that day, that, as of December 5, 2012 and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set forth in its opinion, the merger consideration to be received by the holders of shares of MMR common stock pursuant to the merger agreement was fair, from a financial point of view, to the holders of shares of MMR common stock entitled to receive such merger consideration (other than PXP or any of its subsidiaries).

The full text of the written opinion of Evercore, dated as of December 5, 2012, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached as Annex C to this proxy statement/prospectus and is incorporated by reference in its entirety into this proxy statement/prospectus. You are urged to read the opinion carefully and in its entirety. Evercore’s opinion was addressed to, and provided for the information and benefit of, the MMR special committee (in its capacity as such) in connection with its evaluation of whether the merger consideration to be received by the holders of shares of MMR common stock was fair, from a financial point of view, to the holders of shares of MMR common stock entitled to receive such merger consideration (other than PXP or any of its subsidiaries) and did not address any other aspects or implications of the merger. Evercore’s opinion does not address the fairness of the proposed merger, or any consideration received in connection with the proposed merger, to the

 

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holders of any other securities, creditors or other constituencies of MMR, nor does it address the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of MMR, or any class of such persons, whether relative to the merger consideration or otherwise. Evercore assumed that any modification to the structure of the merger would not vary in any respect material to its analysis. Evercore’s opinion does not address the relative merits of the merger as compared to any other business or financial strategies that might be available to MMR, nor does it address the underlying business decision of MMR to engage in the merger. Evercore’s opinion does not constitute a recommendation to the MMR special committee or to any other persons in respect of the merger, including as to how any holder of shares of common stock of MMR should act or vote in respect of the merger. Finally, Evercore did not express any opinion as to the price at which shares of MMR capital stock or shares of FCX capital stock will trade at any time or as to the price at which the royalty trust units will trade at any time.

In connection with rendering its opinion and performing its related financial analysis, Evercore, among other things:

 

   

reviewed certain publicly-available business and financial information relating to MMR that Evercore deemed to be relevant, including publicly-available research analysts’ estimates;

 

   

reviewed and discussed with the management of MMR certain non-public projected financial and operating data relating to MMR prepared and furnished to Evercore by the management of MMR;

 

   

discussed past and current operations, financial projections and current financial condition of MMR with the management of MMR (including their views on the risks and uncertainties of achieving such projections);

 

   

reviewed and discussed two reports regarding MMR’s proved, probable and possible reserves prepared by Ryder Scott Company, L.P., which Evercore treated as one reserve report because there is no overlap in the properties covered and because both reports were prepared as of July 1, 2012 (as a result of which they are referred to herein together as the Ryder Scott reserve report);

 

   

reviewed and discussed with MMR’s technical personnel MMR’s unrisked resource potential from its inventory of subsalt ultra-deep assets prepared and furnished to Evercore by the management of MMR;

 

   

developed risking assumptions of MMR’s resource potential from its ultra-deep assets utilizing Evercore’s technical team, which Evercore discussed with MMR’s technical personnel, who deemed the assumptions reasonable;

 

   

reviewed the impact of different commodity price assumptions on the net asset value of MMR’s proved, probable and possible reserves, as well as the resources potential of the ultra-deep assets, using customary adjustments to reflect an October 1, 2012 effective date for this analysis;

 

   

reviewed the reported prices and the historical trading activity of MMR common stock;

 

   

compared the financial performance of MMR and its stock market trading multiples with those of certain other publicly-traded companies that Evercore deemed relevant;

 

   

compared the financial performance of MMR and the valuation multiples implied by the merger with those of certain other transactions that Evercore deemed relevant;

 

   

reviewed a draft of the merger agreement dated December 4, 2012; and

 

   

performed such other analyses and examinations and considered such other factors that Evercore deemed appropriate.

For purposes of its analysis and opinion, Evercore assumed and relied upon, without undertaking any independent verification of, the accuracy and completeness of all of the information publicly available, and all of the information supplied or otherwise made available to, discussed with, or reviewed by Evercore, and Evercore

 

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assumed no liability therefor. With respect to the projected financial data relating to MMR referred to above, Evercore assumed that such data had been reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of MMR as to the future financial performance of MMR under the alternative business assumptions reflected therein.

Evercore expressed no view as to any projected financial data relating to MMR or the assumptions on which they were based. Evercore assumed that the Ryder Scott reserve report and MMR-provided information on the ultra-deep assets were a reasonable basis upon which to evaluate the proved, probable and possible reserves and the resource potential of MMR. Evercore expressed no view as to any reserve or resource data relating to MMR or the assumptions on which they were based.

For purposes of rendering its opinion, Evercore assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the merger agreement were true and correct, that each party will perform all of the covenants and agreements required to be performed by it under the merger agreement and that all conditions to the consummation of the merger will be satisfied without material waiver or modification thereof. Evercore further assumed that all governmental, regulatory or other consents, approvals or releases necessary for the consummation of the merger will be obtained without any material delay, limitation, restriction or condition that would have an adverse effect on MMR or the consummation of the merger or materially reduce the benefits of the merger to the holders of shares of MMR common stock.

Evercore did not make or assume any responsibility for making any independent valuation or appraisal of the assets or liabilities of MMR, nor was Evercore furnished with any such valuation or appraisal. Evercore did not evaluate the solvency or fair value of MMR under any state or federal laws relating to bankruptcy, insolvency or similar matters. Evercore’s opinion was necessarily based upon information made available to it as of the date of the opinion and financial, economic, market and other conditions as they existed and as could be evaluated on the date of the opinion. Evercore’s opinion noted that subsequent developments may affect Evercore’s opinion and that Evercore does not have any obligation to update, revise or reaffirm its opinion.

Evercore was not asked to opine upon, and expressed no opinion with respect to, any matter other than the fairness of the merger consideration to the holders of shares of MMR common stock entitled to receive the merger consideration (other than PXP or any of its subsidiaries), from a financial point of view. Evercore did not express any view on, and its opinion did not address, the fairness of the proposed merger to, or any consideration received in connection therewith by, the holders of any other securities, creditors or other constituencies of MMR, or the fairness of the amount or nature of any compensation to be paid or payable to any of the directors, officers or employees of MMR, or any class of such persons, whether relative to the merger consideration or otherwise. Evercore assumed that any modification to the structure of the merger would not vary in any respect material to its analysis. Evercore’s opinion did not address the relative merits of the merger as compared to other business or financial strategies that might be available to MMR, nor did it address the underlying business decision of MMR to engage in the merger. Evercore’s opinion did not constitute a recommendation to the MMR special committee or to any other persons in respect of the merger, including as to how any holder of shares of MMR common stock should vote or act in respect of the merger. Evercore expressed no opinion as to the price at which shares of MMR common stock or shares of FCX common stock will trade at any time. Furthermore, Evercore expressed no opinion as to the price at which the royalty trust units will trade at any time. Evercore is not a legal, regulatory, accounting or tax expert and assumed the accuracy and completeness of assessments by MMR and its advisors with respect to legal, regulatory, accounting and tax matters.

Set forth below is a summary of the material financial analyses performed and reviewed by Evercore with the MMR special committee in connection with rendering its oral opinion on December 5, 2012 and the preparation of its written opinion letter dated December 5, 2012. Each analysis was provided to the MMR special committee. In connection with arriving at its opinion, Evercore considered all of its analyses as a whole and the order of the analyses described and the results of these analyses do not represent any relative importance or particular weight given to these analyses by Evercore. Except as otherwise noted, the following quantitative

 

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information, to the extent that it is based on market data, is based on market data (including the closing price for MMR common stock) that existed on December 3, 2012, and is not necessarily indicative of current market conditions.

The following summary of financial analyses includes information presented in tabular format. These tables must be read together with the text of each summary in order to fully understand the financial analyses performed by Evercore. The tables alone do not constitute a complete description of the financial analyses performed by Evercore. Considering the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Evercore’s financial analyses.

Valuation Analyses

Evercore performed a series of analyses to derive an indicative valuation range of the per share merger consideration, which includes cash and royalty trust units by utilizing the following methodologies to value MMR’s assets. The royalty trust units represent, in the aggregate, a beneficial interest in a 5% gross overriding royalty interest, which are referred to herein as the royalty interests, in hydrocarbons saved and produced from certain of MMR’s shallow water Gulf of Mexico and onshore Gulf Coast ultra-deep exploration prospects, which are referred to herein as the subject interests.

Net Asset Valuation Analysis

Evercore performed a net asset valuation analysis of MMR’s assets to determine indicative values of MMR common stock based on the present value of the future after-tax cash flows expected to be generated from MMR’s proved and non-proved reserves based on the Ryder Scott reserve report rolled forward to October 1, 2012 and MMR’s resource potential estimates for its ultra-deep assets. The term “resource potential” refers to estimated ranges of recoverable oil and gas volumes, assuming such volumes can be discovered and developed. The term “unrisked resource potential” refers to the portion of resource potential that cannot be classified as proved, probable or possible reserves. In calculating the future revenue streams from MMR’s assets for purposes of applying the applicable discount rates for the net asset valuation analysis, Evercore developed geologic and mechanical risking assumptions of MMR’s resource potential from its ultra-deep assets utilizing Evercore’s technical team. “Risking assumptions” are industry standard geologic and mechanical methodologies that estimate the probability of success for discovering oil and gas volumes that can be recovered. Evercore discussed these risking assumptions with MMR’s technical personnel, who deemed the assumptions reasonable. “Risked resources” refers to the application of those industry standard risking assumptions to the unrisked resource potential. Evercore did not apply any risk weighting to MMR’s conventional assets, which are covered by the Ryder Scott reserve report.

Evercore evaluated four scenarios in which the principal variables were oil and gas prices. The four pricing scenarios represent long-term price cases for MMR’s Gulf of Mexico offshore and onshore assets. One scenario was based on the annual average of oil and gas futures contract prices quoted on the New York Mercantile Exchange as of December 3, 2012 through 2017 and then held flat thereafter. Benchmark prices for the other three scenarios were projected to be fixed prices of $75.00, $90.00, and $105.00 per barrel of oil, respectively, and $3.00, $4.00, and $5.00 per million British thermal units for gas, respectively. Applying various after-tax discount rates ranging from 8% to 40%, depending on reserve category, to the after-tax cash flows of the proved and non-proved reserve estimates, and adjusting for the present value of future estimated general and administrative, insurance and sulfur reclamation expenses, Evercore calculated the following implied equity value ranges per share of MMR common stock:

 

      NYMEX Strip (12/3/12)      $75.00 Oil & $3.00 Gas      $90.00 Oil & $4.00 Gas      $105.00 Oil & $5.00 Gas  
      Low      High      Low     High      Low      High      Low      High  

Implied Equity Value $/Share

   $ 12.61       $ 17.25       ($ 2.72   $ 0.26       $ 8.33       $ 13.14       $ 17.59       $ 22.35   

 

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Peer Group Trading Analysis

Evercore performed a peer group trading analysis of MMR by reviewing the market values and trading multiples of the following four publicly-traded companies that Evercore deemed to be similar to MMR in one or more respects, which included the nature of assets, particularly those comparable to MMR’s conventional assets, the size of the company and the location of the assets:

Peer Group:

Energy XXI (Bermuda) Limited

W&T Offshore, Inc.

Stone Energy Corporation

EPL Oil & Gas, Inc.

In addition, Evercore reviewed the market value and trading multiples of Cobalt International Energy, Inc., which Evercore deemed to have assets comparable to MMR’s ultra-deep assets. Because MMR’s ultra-deep assets are not yet producing, Evercore did not include in its peer group trading analysis any companies that had mature, producing deepwater assets.

Although the peer group was compared to MMR for purposes of this analysis, no entity included in the peer group analysis is identical to MMR because of differences between the business mix of MMR and other characteristics of the peer group and MMR. In evaluating the peer group, Evercore relied on publicly-available filings and equity research analyst estimates. These estimates are based in part on judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters. Many of these matters are beyond the control of MMR, such as the impact of competition on the business of MMR, as well as on the industry, generally, industry growth and the absence of any adverse material change in the financial condition and prospects of MMR or the industry or in the markets generally.

All peer group multiples were based on closing stock prices on December 3, 2012. For each of the peer group entities with conventional assets, Evercore calculated the following:

 

   

Enterprise Value/Proved Reserves, which is defined as market value of equity, plus debt and preferred stock, less cash, which is referred to herein as enterprise value, divided by proved reserves as of latest published reserve report, adjusted for subsequent acquisitions and divestitures;

 

   

Enterprise Value/Current Production, which is defined as enterprise value divided by the latest quarter’s average daily production;

 

   

Enterprise Value/2013E Production, which is defined as enterprise value divided by projected average daily 2013 production;

 

   

Enterprise Value/2012E EBITDAX, which is defined enterprise value divided by estimated earnings before interest, taxes, depreciation and amortization, and exploration expense, which is referred to herein as EBITDAX, for the calendar year 2012;

 

   

Enterprise Value/2013E EBITDAX, which is defined as enterprise value divided by estimated EBITDAX for the calendar year 2013;

 

   

Price/2012E CFPS, which is defined as the share price of MMR common stock divided by cash flow from operations per share, which is referred to herein as CFPS, for the calendar year 2012; and

 

   

Price/2013E CFPS, which is defined as the share price of MMR common stock divided by CFPS for the calendar year 2013.

 

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The maximum, minimum, mean and median trading multiples are set forth below.

 

Benchmark

   Max      Min      Mean      Median  

EV/Proved Reserves ($/Mcfe)

   $ 5.26       $ 2.24       $ 3.25       $ 2.75   

EV/Current Production ($/Mcfed)

   $ 16,864       $ 6,516       $ 11,846       $ 12,003   

EV/2013E Production ($/Mcfed)

   $ 10,721       $ 5,883       $ 7,571       $ 6,840   

EV/2012E EBITDAX

     4.2x         2.6x         3.6x         3.8x   

EV/2013E EBITDAX

     3.5x         2.2x         2.9x         2.9x   

Price/2012E CFPS

     3.4x         1.7x         2.7x         3.0x   

Price/2013 CFPS

     2.6x         1.7x         2.1x         2.1x   

With respect to Cobalt International Energy’s assets, Evercore calculated a trading multiple for its risked resources (based on the average of street research estimates) by dividing the estimated enterprise value by its risked resources. To provide a comparable trading multiple, Evercore converted Cobalt International Energy’s oil resources into their gas equivalent on an economic equivalent basis (instead of an energy-equivalent basis of 6:1) using the average forward strip pricing quoted on the New York Mercantile Exchange as of December 3, 2012 for WTI Oil and HHUB gas for the next 60 months, which resulted in a ratio of 21.13 thousand cubic feet of gas to 1 barrel of oil. With respect to assets located in the Gulf of Mexico that Evercore deemed similar to MMR’s ultra-deep assets, Evercore’s calculations resulted in a trading multiple range between $0.10 and $0.18 per thousand cubic feet equivalent of gas.

The following table includes implied enterprise value ranges for MMR selected by Evercore based on the resulting range of multiples.

 

Benchmark

  

Reference Range

  

Implied MMR Value
Range ($MM)

Conventional Assets:

     

EV/Proved Reserves ($/Mcfe)

   $2.50 – $3.25    $521 – $678

EV/Latest Quarterly Production ($/Mcfed)

   $6,500 –$7,000    $870 – $937

EV/2012E EBITDAX ($MM)

   3.5x – 4.2x    $557 – $668

Ultra-Deep Assets:

     

EV/Net Risked Resources ($/Mcfe (Converted on a 21.13:1 basis as described above))

   $0.10 – $0.18    $1,789 – $3,220

Evercore applied the relevant multiples to MMR’s proved reserves, latest quarterly production and 2012E EBITDAX and selected an asset value range of $550 million to $675 million for MMR’s conventional assets. This value was increased for MMR’s ultra-deep assets, resulting in an implied enterprise value range of $2,339 million to $3,895 million. Evercore then adjusted for net debt and preferred shares, as appropriate, to determine an implied equity value range of $7.68 to $16.33 per share of MMR common stock.

Precedent M&A Transaction Analysis

Evercore reviewed selected publicly-available information for transactions announced between December 2009 and November 2012 that included oil and gas assets in the Gulf of Mexico shelf and onshore Gulf Coast that had a transaction value greater than $20 million. In addition, Evercore reviewed selected publicly-available information for oil and gas transactions that included assets in the Gulf of Mexico deepwater and ultra-deep shelf. Evercore reviewed all transactions with publicly-available information that it deemed to have certain characteristics that are similar to those of MMR, which transactions included assets in the Gulf of Mexico shelf since 2010 and onshore Gulf Coast since 2011, in each case, with a transaction value greater than $20 million, and transactions involving assets in the Gulf of Mexico deepwater and ultra-deep shelf since December 2009 with a transaction value in excess of $20 million, although Evercore noted that none of the reviewed transactions or the companies that participated in the reviewed transactions (other than five transactions in which MMR participated) were directly comparable to the merger or MMR.

 

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Precedent Transactions – Gulf of Mexico shelf

 

Date
Announced

  

Buyer

  

Seller

10/18/2012    NGP/Northstar    Undisclosed Private
09/26/2012    Arena Energy    McMoRan
09/17/2012    EPL    Hilcorp
09/07/2012    Renaissance    McMoRan
05/15/2012    EPL    W&T
02/02/2012    SandRidge    Dynamic/Riverstone
12/01/2011    KNOC/SCL/STX/Samhully    NGP/Northstar
11/01/2011    Apache    Stone
11/01/2011    EPL    Stone
08/25/2011    Dynamic Offshore    Moreno/SPN
07/29/2011    Dynamic Offshore    Exxon Mobil
05/01/2011    Dynamic Offshore    Gryphon/Woodside
04/07/2011    TRT/Tana    Maritech/TETRA
03/09/2011    Undisclosed    National Fuel/Seneca
01/13/2011    EPL    Anglo-Suisse
11/21/2010    Energy XXI (Bermuda)    Exxon Mobil
09/20/2010    McMoRan    Plains
11/03/2010    W&T    Shell

Precedent Transactions – Gulf Coast onshore

 

Date
Announced

  

Buyer

  

Seller

10/12/2012    Texas Petr.    Forest
10/04/2012    Undisclosed    Carrizo
03/19/2012    Undisclosed    Comstock
11/04/2011    Undisclosed    Plains
08/31/2011    Encore Energy Part.    Undisclosed
08/17/2011    EnergyQuest II    Swift
06/06/2011    Linc Energy Ltd.    ERG
05/13/2011    Undisclosed Private    Energy XXI (Bermuda)
03/03/2011    Legend Nat. Gas    Smith
01/18/2011    Gulf Coast Energy    Cypress
01/17/2011    Undisclosed    Strike

Precedent Transactions – Gulf of Mexico deepwater

 

Date
Announced

  

Buyer

  

Seller

07/02/2012    INPEX    Anadarko
10/01/2010    Hess    BP
12/22/2009    Maersk/Various    Devon

Precedent Transactions – Gulf of Mexico ultra-deep shelf

 

Date
Announced

  

Buyer

  

Seller

09/20/2010    McMoRan    Plains
09/08/2011    McMoRan    Whitney

 

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Based on the multiples implied by these transactions and Evercore’s judgment on the comparability of each comparable transaction versus MMR’s assets, Evercore applied relevant transaction multiples to MMR’s assets to calculate implied equity value ranges per share of MMR common stock. With respect to MMR’s Gulf of Mexico shelf assets, Evercore applied transaction multiples ranging from $2.50 to $3.50 per thousand cubic feet equivalent of proved reserves and $5,000 to $7,000 per average daily produced thousand cubic feet equivalent. With respect to MMR’s Gulf Coast onshore assets, Evercore applied transaction multiples ranging from $2.50 to $4.00 per thousand cubic feet equivalent of proved reserves and $3,500 to $5,000 per average daily produced thousand cubic feet equivalent. With respect to MMR’s ultra-deep assets, Evercore applied various transaction multiples based on the prospects included in the ultra-deep assets and the nature of MMR’s interest in such prospects to calculate an implied value for MMR’s net risked resources. Based on the application of these transaction multiples, Evercore selected an asset value range of $550 million to $775 million for MMR’s conventional assets. This value was increased for MMR’s ultra-deep assets, resulting in an implied enterprise value range of $3,306 million to $4,943 million. Evercore then adjusted for net debt and preferred shares, as appropriate, to determine an implied equity value range of $13.49 to $20.83 per share of MMR.

Evercore also reviewed transactions with publicly-available information for oil and gas corporate transactions announced between September 2005 and November 2012 with a transaction value in excess of $100 million in which the acquired or target company was an exploration and production company with exploration and production assets in the United States, although Evercore noted that none of the reviewed transactions or the companies involved in the reviewed transactions were directly comparable to the merger or MMR.

 

Date

Announced

  

Buyer

  

Target

04/25/2012

   Halcon    GeoResources

10/17/2011

   Statoil ASA    Brigham Exploration

07/15/2011

   BHP Billiton    Petrohawk

11/09/2010

   Chevron    Atlas Energy

06/02/2010

   SandRidge Energy    Arena Resources

04/15/2010

   Apache    Mariner Energy

12/14/2009

   Exxon Mobil    XTO

11/01/2009

   Denbury Resources    Encore Acquisition Co.

04/27/2009

   Atlas Energy, Inc.    Atlas Energy Resources

04/30/2008

   Stone Energy    Bois d’Arc Energy

07/17/2007

   Plains E&P    Pogo Producing Co.

01/07/2007

   Forest Oil    Houston Exploration

06/23/2006

   Anadarko    Western Gas Res.

06/23/2006

   Anadarko    Kerr-McGee

04/21/2006

   Petrohawk    KCS Energy

01/23/2006

   Helix    Remington

12/12/2005

   ConocoPhillips    Burlington Resources

10/13/2005

   Occidental Petroleum    Vintage Petroleum

09/19/2005

   Norsk Hydro ASA    Spinnaker Exploration

Based on the multiples applied by these transactions and Evercore’s judgment on the comparability of each comparable transaction versus MMR’s assets, Evercore calculated implied equity value ranges for MMR. Evercore applied relevant transaction multiples ranging from 14.5x to 18.0x 2012E Cash Flow, 10.0x to 15.0x the forward year Cash Flow, 14.5x to 17.0x 2012E EBITDAX, 12.0x to 15.5x the forward year EBITDAX, $8.00 to $12.00 per thousand cubic feet equivalent of proved reserves, and $20,000 to $25,000 per average daily produced thousand cubic feet equivalent. Based on the application of these transaction multiples, Evercore selected an enterprise value range of $2,500 million to $3,000 million. Evercore then adjusted for net debt and preferred shares, as appropriate, to determine an implied equity value range of $8.66 to $11.67 per share of MMR common stock.

 

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Evercore also reviewed transactions with publicly-available information for corporate takeover transactions announced or closed between January 1, 2012 and December 3, 2012 that included 100% cash consideration and had a transaction value between $1.0 billion and $10.0 billion, although Evercore noted that none of the reviewed transactions or the companies involved in the reviewed transactions were directly comparable to the merger or MMR.

 

Date

Announced

  

Buyer

  

Target

11/27/2012

   Ralcorp Holdings Inc.    ConAgra Foods, Inc.

11/15/2012

   Schiff Nutrition International Inc.    Reckitt Benckiser LLC

11/09/2012

   Titanium Metals Corporation    Precision Castparts Corp.

11/01/2012

   JDA Software Group Inc.    RedPrairie Corporation

10/25/2012

   PSS World Medical Inc.    McKesson Corporation

10/22/2012

   Ancestry.com Inc.    Permira/Spectrum

10/18/2012

   Orient-Express Hotels Ltd.    The Indian Hotels Company Limited

10/11/2012

   Oshkosh Corporation    Carl C. Icahn

10/08/2012

   TPC Group Inc    Innospec Inc.

09/27/2012

   Sealy Corporation    Tempur-Pedic International Inc.

09/13/2012

   Citizens Republic Bancorp, Inc    FirstMerit Corporation

09/06/2012

   American Realty Capital Trust, Inc.  &