Edgar Filing: FREEPORT MCMORAN COPPER & GOLD INC

fcx3q10q.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from		to
Commission File Number: 001-11307-01



Freeport-McMoRan Copper & Gold Inc.
(Exact name of registrant as specified in its charter)

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

333 North Central Avenue
Phoenix, AZ	85004-4414
(Address of principal executive offices)	(Zip Code)

(602) 366-8100
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

R Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). R Yes o No

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

Large accelerated filer R Accelerated filer o Non-accelerated filer o Smaller reporting company o

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

On October 29, 2010, there were issued and outstanding 470,879,306 shares of the registrant’s common stock, par value $0.10 per share.

FREEPORT-McMoRan COPPER & GOLD INC.

TABLE OF CONTENTS


	Page

Part I. Financial Information	3

Item 1. Financial Statements:

Condensed Consolidated Balance Sheets (Unaudited)	3

Consolidated Statements of Income (Unaudited)	4

Consolidated Statements of Cash Flows (Unaudited)	5

Consolidated Statement of Equity (Unaudited)	6

Notes to Consolidated Financial Statements (Unaudited)	7

Report of Independent Registered Public Accounting Firm	20

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations	21

Item 3. Quantitative and Qualitative Disclosures About Market Risk	66

Item 4. Controls and Procedures	66

Part II. Other Information	67

Item 1. Legal Proceedings	67

Item 1A. Risk Factors	67

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	67

Item 5. Other Information	67

Item 6. Exhibits	68

Signature	69

Exhibit Index	E-1

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FREEPORT-McMoRan COPPER & GOLD INC.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

FREEPORT-McMoRan COPPER & GOLD INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

	September 30,			December 31,
	2010			2009
	(In Millions)

ASSETS
Current assets:
Cash and cash equivalents	$	3,720		$	2,656
Trade accounts receivable		1,860			1,517
Other accounts receivable		255			286
Inventories:
Product		1,127			1,110
Materials and supplies, net		1,108			1,093
Mill and leach stockpiles		800			667
Other current assets		208			104
Total current assets		9,078			7,433
Property, plant, equipment and development costs, net		16,461			16,195
Long-term mill and leach stockpiles		1,395			1,321
Intangible assets, net		330			347
Other assets		687			700
Total assets	$	27,951		$	25,996

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	2,404		$	2,038
Accrued income taxes		356			474
Current portion of reclamation and environmental obligations		193			214
Dividends payable		143			99
Current portion of long-term debt and short-term borrowings		98			16
Rio Tinto share of joint venture cash flows		78			161
Total current liabilities		3,272			3,002
Long-term debt, less current portion		4,681			6,330
Deferred income taxes		2,846			2,503
Reclamation and environmental obligations, less current portion		2,045			1,981
Other liabilities		1,386			1,423
Total liabilities		14,230			15,239
Equity:
FCX stockholders’ equity:
6¾% Mandatory Convertible Preferred Stock		–			2,875
Common stock		59			55
Capital in excess of par value		18,662			15,680
Accumulated deficit		(3,429	)		(5,805	)
Accumulated other comprehensive loss		(263	)		(273	)
Common stock held in treasury		(3,433	)		(3,413	)
Total FCX stockholders’ equity		11,596			9,119
Noncontrolling interests		2,125			1,638
Total equity		13,721			10,757
Total liabilities and equity	$	27,951		$	25,996

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

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FREEPORT-McMoRan COPPER & GOLD INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

	(In Millions, Except Per Share Amounts)

Revenues	$	5,152		$	4,144		$	13,379		$	10,430
Cost of sales:
Production and delivery		2,269			1,715			6,239			5,086
Depreciation, depletion and amortization		268			252			788			740
Lower of cost or market inventory adjustments		–			–			–			19
Total cost of sales		2,537			1,967			7,027			5,845
Selling, general and administrative expenses		81			74			277			225
Exploration and research expenses		35			19			104			73
Restructuring and other charges		–			–			–			23
Total costs and expenses		2,653			2,060			7,408			6,166
Operating income		2,499			2,084			5,971			4,264
Interest expense, net		(103	)		(162	)		(370	)		(451	)
Losses on early extinguishment of debt		–			(31	)		(77	)		(31	)
Other income (expense), net		(19	)		(7	)		2			(24	)
Income before income taxes and equity in
affiliated companies’ net earnings		2,377			1,884			5,526			3,758
Provision for income taxes		(845	)		(684	)		(1,956	)		(1,557	)
Equity in affiliated companies’ net earnings		1			3			10			21
Net income		1,533			1,203			3,580			2,222
Net income attributable to noncontrolling interests		(355	)		(224	)		(793	)		(492	)
Preferred dividends		–			(54	)		(63	)		(174	)
Net income attributable to FCX common
stockholders	$	1,178		$	925		$	2,724		$	1,556

Net income per share attributable to
FCX common stockholders:
Basic	$	2.50		$	2.23		$	6.01		$	3.80
Diluted	$	2.49		$	2.07		$	5.88		$	3.70

Weighted-average common shares outstanding:
Basic		471			416			453			409
Diluted		474			472			474			428

Dividends declared per share of common stock	$	0.30		$	–		$	0.75		$	–

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

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FREEPORT-McMoRan COPPER & GOLD INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended
	September 30,
	2010			2009
	(In Millions)

Cash flow from operating activities:
Net income	$	3,580		$	2,222
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization		788			740
Lower of cost or market inventory adjustments		–			19
Stock-based compensation		93			75
Charges for reclamation and environmental obligations, including accretion		117			150
Payments of reclamation and environmental obligations		(139	)		(76	)
Losses on early extinguishment of debt		77			31
Deferred income taxes		252			(32	)
Intercompany profit on PT Freeport Indonesia sales to PT Smelting		3			47
Increase in long-term mill and leach stockpiles		(73	)		(68	)
Changes in other assets and liabilities		16			136
Other, net		33			53
(Increases) decreases in working capital:
Accounts receivable		(391	)		(754	)
Inventories, and mill and leach stockpiles		(189	)		(176	)
Other current assets		(13	)		88
Accounts payable and accrued liabilities		156			(518	)
Accrued income and other taxes		(92	)		913
Net cash provided by operating activities		4,218			2,850

Cash flow from investing activities:
Capital expenditures:
North America copper mines		(140	)		(121	)
South America		(283	)		(129	)
Indonesia		(311	)		(186	)
Africa		(59	)		(577	)
Other		(84	)		(125	)
Proceeds from the sale of assets and other, net		20			(8	)
Net cash used in investing activities		(857	)		(1,146	)

Cash flow from financing activities:
Net proceeds from sale of common stock		–			740
Proceeds from debt		52			307
Repayments of debt		(1,678	)		(1,066	)
Cash dividends and distributions paid:
Common stock		(272	)		–
Preferred stock		(95	)		(181	)
Noncontrolling interests		(330	)		(149	)
Contributions from noncontrolling interests		24			54
Net payments for stock-based awards		(3	)		(9	)
Excess tax benefit from stock-based awards		5			2
Other		–			(5	)
Net cash used in financing activities		(2,297	)		(307	)

Net increase in cash and cash equivalents		1,064			1,397
Cash and cash equivalents at beginning of year		2,656			872
Cash and cash equivalents at end of period	$	3,720		$	2,269

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

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FREEPORT-McMoRan COPPER & GOLD INC.

CONSOLIDATED STATEMENT OF EQUITY (Unaudited)

FCX Stockholders’ Equity

Mandatory

Accumu-

Convertible

lated

Common Stock

Total

Preferred Stock

Common Stock

Other

Held in Treasury

FCX

Number

Capital in

Accumu-

Compre-

Number

Stock-

Non-

At Par

Excess of

lated

hensive

holders’

controlling

Total

Value

Par Value

Deficit

Loss

Cost

Equity

Interests

Equity

(In Millions)

Balance at December 31, 2009

2,875

552

15,680

(5,805

)

(273

)

122

(3,413

)

9,119

1,638

10,757

Conversions of 6¾% Mandatory

Convertible Preferred Stock

(29

)

(2,875

)

2,871

–

Conversions of 7% Convertible

Senior Notes

–

Exercised and issued stock-based

awards

–

Stock-based compensation

–

Tax benefit for stock-based awards

–

Tender of shares for stock-based

awards

–

(20

)

(20

)

–

(20

)

Dividends on common stock

–

(348

)

–

(348

)

–

(348

)

Dividends on preferred stock

–

(63

)

–

(63

)

–

(63

)

Dividends and distributions to

noncontrolling interests

–

(330

)

(330

)

Contributions from noncontrolling

interests

–

Comprehensive income:

Net income

–

2,787

–

2,787

793

3,580

Other comprehensive income,

net of taxes:

Unrealized losses on securities

–

)

–

)

–

)

Translation adjustment

–

Defined benefit plans:

Amortization of unrecognized

amounts

–

Other comprehensive income

–

Total comprehensive income

–

2,797

793

3,590

Balance at September 30, 2010

–

593

18,662

(3,429

)

(263

)

122

(3,433

)

11,596

2,125

13,721

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

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FREEPORT-McMoRan COPPER & GOLD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.	GENERAL INFORMATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by generally accepted accounting principles (GAAP) in the United States (U.S.). Therefore, this information should be read in conjunction with Freeport-McMoRan Copper & Gold Inc.’s (FCX) consolidated financial statements and notes contained in its 2009 Annual Report on Form 10-K. The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. All such adjustments are, in the opinion of management, of a normal recurring nature. Operating results for the three-month and nine-month periods ended September 30, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

2.	EARNINGS PER SHARE

FCX’s basic net income per share of common stock was calculated by dividing net income attributable to common stock by the weighted-average shares of common stock outstanding during the period. Following is a reconciliation of net income and weighted-average shares of common stock outstanding for purposes of calculating diluted net income per share (in millions, except per share amounts):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Net income	$	1,533		$	1,203		$	3,580		$	2,222
Net income attributable to noncontrolling interests		(355	)		(224	)		(793	)		(492	)
Preferred dividends		–			(54	)		(63	)		(174	)
Net income attributable to FCX common stockholders		1,178			925			2,724			1,556
Plus income impact of assumed conversion of:
6¾% Mandatory Convertible Preferred Stocka		–			48			63			–	b
5½% Convertible Perpetual Preferred Stockc		–			5			–			28
Diluted net income attributable to FCX common
stockholders	$	1,178		$	978		$	2,787		$	1,584

Weighted-average shares of common stock outstanding		471			416			453			409
Add stock issuable upon conversion, exercise or
vesting of:
6¾% Mandatory Convertible Preferred Stocka		–			39			17			–	b
5½% Convertible Perpetual Preferred Stockc		–			14			–			17
Dilutive stock options		2			2			3	d		1
Restricted stock		1			1			1			1
Weighted-average shares of common stock outstanding
for purposes of calculating diluted net income per share		474			472			474			428

Diluted net income per share attributable to
FCX common stockholders	$	2.49		$	2.07		$	5.88		$	3.70

a.	All outstanding 6¾% Mandatory Convertible Preferred Stock automatically converted on May 1, 2010, into FCX common stock at a conversion rate of 1.3716 shares of FCX common stock (refer to Note 6 for further discussion).

b.	Preferred dividends of $146 million and additional shares of FCX common stock of approximately 39 million shares for the 6¾% Mandatory Convertible Preferred Stock were excluded for the nine months ended September 30, 2009, because they were anti-dilutive.

c.	In September 2009, FCX redeemed the remaining outstanding shares of its 5½% Convertible Perpetual Preferred Stock.

d.	Potential additional shares of FCX common stock of approximately one million were anti-dilutive.

FCX’s convertible instruments are excluded from the computation of diluted net income per share of common stock when including the assumed conversion of these instruments results in an anti-dilutive effect on earnings per share (see footnote b above).

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Outstanding stock options with exercise prices greater than the average market price of FCX’s common stock during the period also are excluded from the computation of diluted net income per share of common stock. Excluded amounts were approximately nine million stock options with a weighted-average exercise price of $75.56 for third-quarter 2010 and approximately seven million stock options with a weighted-average exercise price of $76.64 for the nine months ended September 30, 2010. Stock options for approximately seven million shares with a weighted-average exercise price of $75.58 were excluded for third-quarter 2009, and stock options for approximately eight million shares with a weighted-average exercise price of $71.37 were excluded for the nine months ended September 30, 2009.

3.	PENSION AND POSTRETIREMENT BENEFITS

The components of net periodic benefit costs for pension and postretirement benefits follow (in millions):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Service cost	$	8		$	8		$	26		$	25
Interest cost		27			28			80			83
Expected return on plan assets		(23	)		(19	)		(70	)		(59	)
Amortization of net actuarial loss		6			7			17			22
Curtailments		–			–			–			(4	)
Special retirement benefits		–			3			–			(2	)
Net periodic benefit costs	$	18		$	27		$	53		$	65

Net periodic benefit costs decreased by $9 million in third-quarter 2010, compared with third-quarter 2009, mainly as a result of an increase in the expected return on plan assets ($4 million) primarily because of the 2009 gains on plan assets as well as the absence of the 2009 special retirement benefits ($3 million).

Net periodic benefit costs decreased by $12 million in the first nine months of 2010, compared with the first nine months of 2009, mainly as a result of an increase in the expected return on plan assets ($11 million), a decrease in the amortization of actuarial losses ($5 million) primarily because of the 2009 gains on plan assets and the absence of the third-quarter 2009 special retirement benefits ($3 million). These decreases were partially offset by the absence of the first-quarter 2009 gains on special retirement benefits and curtailments ($9 million) caused by workforce reductions in connection with the fourth-quarter 2008 and first-quarter 2009 revised mine operating plans.

4.	INVENTORIES, AND MILL AND LEACH STOCKPILES

The components of inventories follow (in millions):

	September 30,		December 31,
	2010		2009
Mining Operations:
Raw materials	$	1	$	1
Work-in-process		88		108
Finished goodsa		583		588
Atlantic Copper, S.A. (Atlantic Copper):
Raw materials (concentrates)		275		171
Work-in-process		178		227
Finished goods		2		15
Total product inventories		1,127		1,110
Total materials and supplies, netb		1,108		1,093
Total inventories	$	2,235	$	2,203

a.	Primarily includes molybdenum and copper concentrates, anodes, cathodes and rod.

b.	Materials and supplies inventory is net of obsolescence reserves totaling $28 million at September 30, 2010, and $21 million at December 31, 2009.

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A summary of mill and leach stockpiles follows (in millions):

	September 30,		December 31,
	2010		2009
Current:
Mill stockpiles	$	46	$	46
Leach stockpiles		754		621
Total current mill and leach stockpiles	$	800	$	667

Long-terma:
Mill stockpiles	$	464	$	442
Leach stockpiles		931		879
Total long-term mill and leach stockpiles	$	1,395	$	1,321

a.	Metals in stockpiles not expected to be recovered within the next 12 months.

FCX recorded charges for lower of cost or market (LCM) molybdenum inventory adjustments totaling $19 million ($15 million to net income attributable to FCX common stockholders or $0.04 per diluted share) for the first nine months of 2009 resulting from lower molybdenum prices.

5.	INCOME TAXES

FCX’s income tax provision for the 2010 periods resulted from taxes on international operations ($772 million for the third quarter and $1.8 billion for the first nine months) and U.S. operations ($73 million for the third quarter and $205 million for the first nine months). FCX’s consolidated effective income tax rate was 35 percent for the first nine months of 2010.

FCX’s income tax provision for the 2009 periods resulted from taxes on international operations ($660 million for the third quarter and $1.5 billion for the first nine months) and U.S. operations ($24 million for the third quarter and $29 million for the first nine months). During the first nine months of 2009, FCX did not record a benefit for losses generated in the U.S., and those losses could not be used to offset income generated from international operations. These factors combined with the high proportion of income earned in Indonesia, which was taxed at an effective tax rate of 43 percent, caused FCX’s consolidated effective income tax rate of 41 percent for the first nine months of 2009 to be higher than the U.S. federal statutory rate of 35 percent.

6.	DEBT AND EQUITY TRANSACTIONS

During the first nine months of 2010, FCX purchased in the open market $218 million of its 8.25% Senior Notes for $237 million and $329 million of its 8.375% Senior Notes for $358 million, which resulted in losses on early extinguishment of debt totaling $55 million ($48 million to net income attributable to FCX common stockholders or $0.10 per diluted share).

On April 1, 2010, FCX redeemed all of its $1.0 billion of outstanding Senior Floating Rates Notes due 2015 for which holders received 101 percent of the principal amount together with accrued and unpaid interest. As a result of this redemption, FCX recorded a loss on early extinguishment of debt totaling $22 million ($19 million to net income attributable to FCX common stockholders or $0.04 per diluted share) for the first nine months of 2010.

Consolidated interest expense (before capitalization) totaled $126 million in third-quarter 2010, $172 million in third-quarter 2009, $409 million for the first nine months of 2010 and $520 million for the first nine months of 2009. Capitalized interest expense totaled $23 million in third-quarter 2010, $10 million in third-quarter 2009, $39 million for the first nine months of 2010 and $69 million for the first nine months of 2009. Lower capitalized interest in the first nine months of 2010 compared to the first nine months of 2009 primarily reflects the completion of development activities for the initial project at FCX’s Tenke Fungurume mine, which commenced initial copper production in March 2009.

During April 2010, holders of FCX’s 6¾% Mandatory Convertible Preferred Stock elected to convert 787,158 preferred shares into 1,079,615 shares of FCX common stock (conversion rate equal to 1.3716 shares of FCX common stock). On May 1, 2010, the remaining 27,504,512 shares of FCX’s 6¾% Mandatory Convertible Preferred Stock were automatically converted into 37,725,139 shares of FCX common stock (conversion rate equal to 1.3716 shares of FCX common stock). For the first nine months of 2010, a total of 28,749,560

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outstanding shares of FCX’s 6¾% Mandatory Convertible Preferred Stock were converted into 39,432,793 shares of FCX common stock (conversion rate equal to 1.3716 shares of FCX common stock).

In April 2010, FCX’s Board of Directors (Board) authorized an increase in the annual cash dividend on its common stock from $0.60 per share to $1.20 per share. On September 29, 2010, FCX declared a quarterly dividend of $0.30 per share, which was paid on November 1, 2010, to common shareholders of record at the close of business on October 15, 2010.

During third-quarter 2009 and the first nine months of 2009, FCX purchased in the open market $99 million of its 8.25% Senior Notes for $107 million and $92 million of its 8.375% Senior Notes for $99 million. Additionally, FCX redeemed $340 million of its 6⅞% Senior Notes for $352 million (plus accrued and unpaid interest). These transactions resulted in losses on early extinguishment of debt totaling $31 million ($28 million to net income attributable to FCX common stockholders or $0.06 per diluted share for third-quarter 2009 and $0.07 per diluted share for the first nine months of 2009).

Total comprehensive income attributable to FCX common stockholders totaled $1,183 million in third-quarter 2010, $986 million in third-quarter 2009, $2,797 million for the first nine months of 2010 and $1,811 million (including a $61 million gain related to the remeasurement of certain defined benefit plans during the first quarter of 2009) for the first nine months of 2009.

7.	FINANCIAL INSTRUMENTS

FCX does not purchase, hold or sell derivative financial instruments unless there is an existing asset or obligation or if it anticipates a future activity that is likely to occur and will result in exposure to market risks and FCX intends to offset or mitigate such risks. FCX does not enter into any derivative financial instruments for speculative purposes, but has entered into derivative financial instruments in limited instances to achieve specific objectives. These objectives principally relate to managing risks associated with commodity price, foreign currency and interest rate risks. The fair values of FCX’s derivative financial instruments are based on widely published market prices.

A summary of unrealized gains (losses) recognized in income before income taxes and equity in affiliated companies’ net earnings for derivative financial instruments that are designated and qualify as fair value hedge transactions, along with the unrealized (losses) gains on the related hedged item (firm sales commitments) follows (in millions):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Commodity contracts:
Freeport-McMoRan Corporation’s (FMC)
copper futures and swap contractsa
Derivative financial instruments	$	19		$	1		$	1		$	8
Hedged item		(19	)		(1	)		(1	)		(8	)

a.	Amounts recorded in revenues.

FCX realized gains, which are recorded in revenues, of $15 million during third-quarter 2010, $18 million during third-quarter 2009, $16 million during the first nine months of 2010 and $36 million during the first nine months of 2009 from matured derivative financial instruments that qualified for hedge accounting.

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A summary of the realized and unrealized gains (losses) recognized in income before income taxes and equity in affiliated companies’ net earnings for derivative financial instruments, including embedded derivatives, which do not qualify as hedge transactions follows (in millions):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Commodity contracts:
Embedded derivatives in provisional sales contractsa	$	376		$	421		$	177		$	1,017
Embedded derivatives in provisional purchase
contractsb		–			(4	)		(1	)		(5	)
PT Freeport Indonesia’s copper forward contractsa		–			(7	)		–			(104	)
Atlantic Copper’s copper forward contractsb		(10	)		–			(8	)		4
FMC’s copper futures and swap contractsa		1			12			–			61

a.	Amounts recorded in revenues.

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

A summary of the fair values of unsettled derivative financial instruments recorded on the consolidated balance sheets follows (in millions):

	September 30,			December 31,
	2010			2009
Derivatives designated as hedging instruments
Commodity contracts:
FMC’s copper futures and swap contracts:
Asset positiona	$	12		$	11

Derivatives not designated as hedging instruments
Commodity contracts:
Embedded derivatives in provisional sales/purchases contracts:b
Asset position	$	252		$	235
Liability position		(97	)		(70	)
Atlantic Copper’s copper forward contracts:
Asset positiona		1			1
FMC’s copper futures and swap contracts:c
Asset positiona		–			2

a.	Amounts recorded in other current assets.

b.	Amounts recorded either as a net accounts receivable or a net accounts payable.

c.	At September 30, 2010, and December 31, 2009, FCX had received $6 million from brokers associated with margin requirements (recorded in accounts payable and accrued liabilities).

Commodity Contracts. From time to time, FCX has entered into forward, futures and swap contracts to hedge the market risk associated with fluctuations in the prices of commodities it purchases and sells. Derivative financial instruments used by FCX to manage its risks do not contain credit risk-related contingent provisions. As of September 30, 2010, FCX had no price protection contracts relating to its mine production. A discussion of FCX’s derivative commodity contracts and programs follows.

Derivatives Designated as Hedging Instruments – Fair Value Hedges

Copper Futures and Swap Contracts. Some of FMC’s U.S. copper rod customers request a fixed market price instead of the New York Mercantile Exchange (COMEX) average copper price in the month of shipment. FCX hedges this price exposure in a manner that allows it to receive the COMEX average price in the month of shipment while the customers pay the fixed price they requested. FCX accomplishes this by entering into copper futures and swap contracts and then liquidating the copper futures contracts and settling the copper swap contracts during the month of shipment, which generally results in FCX receiving the COMEX average copper price in the month of shipment. Hedge gains or losses from these copper futures and swap contracts are recorded in revenues. FCX did not have any significant gains or losses during the three-month and nine-month periods ended September 30, 2010 and 2009, resulting from hedge ineffectiveness. At September 30, 2010, FCX held copper futures and swap contracts that qualified for hedge accounting for 34 million pounds at an average price of $3.29 per pound, with maturities through October 2011.

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Derivatives Not Designated as Hedging Instruments

Embedded derivatives and derivative financial instruments that do not meet the criteria to qualify for hedge accounting are discussed below.

Embedded Derivatives. As described in Note 1 to FCX’s 2009 Annual Report on Form 10-K under “Revenue Recognition,” certain FCX copper concentrate, copper cathode and gold sales contracts provide for provisional pricing primarily based on London Metal Exchange (LME), COMEX or London Bullion Market Association prices at the time of shipment as specified in the contract. Similarly, FCX purchases copper and molybdenum under contracts that provide for provisional pricing (molybdenum purchases are generally based on an average Metals Week Molybdenum Oxide price). FCX applies the normal purchases and normal sales scope exception in accordance with derivatives and hedge accounting guidance to the host sales agreements since the contracts do not allow for net settlement and always result in physical delivery. Sales and purchases with a provisional sales price contain an embedded derivative (i.e., the price settlement mechanism that is settled after the time of delivery) that is required to be bifurcated from the host contract. The host contract is the sale or purchase of the metals contained in the concentrates or cathodes at the then-current LME or COMEX price (copper), London Bullion Market Association price (gold) or the average Metals Week Molybdenum Oxide price (molybdenum) as defined in the contract. Mark-to-market price fluctuations recorded through the settlement date are reflected in revenues for sales contracts and in cost of sales as production and delivery costs for purchase contracts. A summary of FCX’s embedded derivatives at September 30, 2010, follows:

		Average Price
	Open	Per Unit				Maturities
	Positions	Contract		Market		Through
Embedded derivatives in provisional
sales contracts:
Copper (millions of pounds)	622	$	3.25	$	3.63	February 2011
Gold (thousands of ounces)	230		1,240		1,310	December 2010
Embedded derivatives in provisional
purchase contracts:
Copper (millions of pounds)	266		3.27		3.63	December 2010
Molybdenum (thousands of pounds)	238		14.59		14.69	October 2010

Copper Forward Contracts. Atlantic Copper enters into forward copper contracts designed to hedge its copper price risk whenever its physical purchases and sales pricing periods do not match. These economic hedge transactions are intended to hedge against changes in copper prices, with the mark-to-market hedging gains or losses recorded in cost of sales. At September 30, 2010, Atlantic Copper held net forward copper purchases contracts for eight million pounds at an average price of $3.58 per pound, with maturities through November 2010.

In April 2009, FCX entered into copper forward sales contracts to lock in prices at an average of $1.86 per pound on 355 million pounds of PT Freeport Indonesia’s provisionally priced copper sales at March 31, 2009, which final priced from April 2009 through July 2009. These economic hedge transactions were intended to reduce short-term price volatility in earnings and cash flows. Gains and losses for these economic hedge transactions were recorded in revenues. FCX has not entered into additional forward sales contracts since April 2009 for its provisionally priced copper sales, but may enter into future transactions to lock in pricing on provisionally priced sales from time to time. However, FCX does not intend to change its long-standing policy of not hedging future copper production.

Copper Futures and Swap Contracts. In addition to the contracts discussed above that qualify for fair value hedge accounting, FCX also has similar contracts with FMC’s U.S. copper rod customers that do not qualify for hedge accounting because of certain terms in the sales contracts. Gains and losses for these economic hedge transactions are recorded in revenues. At September 30, 2010, FCX held copper futures and swap contracts for less than 0.5 million pounds at an average price of $2.95 per pound, with maturities through December 2010.

Foreign Currency Exchange Contracts. As a global company, FCX transacts business in many countries and in many currencies. Foreign currency transactions at FCX’s international subsidiaries increase its risks because exchange rates can change between the time agreements are made and the time foreign currency transactions are settled. FCX may hedge or protect its international subsidiaries’ foreign currency transactions from time to time by entering into forward exchange contracts to lock in or minimize the effects of fluctuations in exchange rates. FCX had no outstanding foreign currency exchange contracts at September 30, 2010.

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Interest Rate Swap Contracts. From time to time, FCX or its subsidiaries may enter into interest rate swaps to manage its exposure to interest rate changes and to achieve a desired proportion of fixed-rate versus floating-rate debt based on current and projected market conditions. FCX may enter into interest rate swap contracts to lock in an interest rate considered to be favorable in order to protect against its exposure to variability in future interest payments attributable to increases in interest rates of the designated floating-rate debt. In some situations, FCX may enter into fixed-to-floating interest rate swap contracts to protect against changes in the fair value of the underlying fixed-rate debt that result from market interest rate changes and to take advantage of lower interest rates. FCX had no outstanding interest rate swap contracts at September 30, 2010.

Credit Risk. FCX is exposed to counterparty risk when financial institutions with which FCX has entered into derivative transactions (commodity, foreign exchange and interest rate swaps) are unable to pay. To minimize this risk, FCX uses highly rated financial institutions that meet certain requirements. FCX also periodically reviews the creditworthiness of these institutions to ensure that they are maintaining their credit ratings. FCX does not anticipate that any of the financial institutions it deals with will default on their obligations. At September 30, 2010, FCX did not have any significant credit exposure associated with derivative transactions.

Other Financial Instruments. Other financial instruments include cash and cash equivalents, accounts receivable, trust assets, available-for-sale securities, accounts payable and accrued liabilities, dividends payable, Rio Tinto share of joint venture cash flows and long-term debt. Refer to Note 8 for the fair values of these financial instruments.

Agreement to Invest in McMoRan Exploration Co. (MMR). In September 2010, FCX entered into an agreement to purchase 500,000 shares of MMR’s 5¾% Convertible Perpetual Preferred Stock (the Preferred Stock) for an aggregate purchase price of $500 million. The Preferred Stock will initially be convertible into 62.5 shares of MMR common stock per share of Preferred Stock (an aggregate of 31.25 million shares of MMR common stock), or an initial conversion price of $16 per share of MMR common stock. FCX expects to account for this investment under the cost method. Closing of the investment is expected by year-end 2010 and is conditioned on the concurrent completion of MMR’s proposed oil and gas property acquisition from Plains Explorations & Production Company, MMR shareholder approval of the issuance of the securities to FCX and other customary closing conditions.

8.	FAIR VALUE MEASUREMENT

Fair value accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). The three levels of the fair value hierarchy are described below:

Level 1

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2

Quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data by correlation or other means; and

Level 3

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

A summary of FCX’s financial assets and liabilities measured at fair value on a recurring basis follows (in millions):

	Fair Value at September 30, 2010
	Total		Level 1		Level 2		Level 3
Assets
Cash equivalents:
Money market funds	$	3,608	$	3,608	$	–	$	–
Time deposits		52		52		–		–
Total cash equivalents	$	3,660	$	3,660	$	–	$	–

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	Fair Value at September 30, 2010
	Total			Level 1			Level 2		Level 3
Trust assets (current and long-term):
U.S. core fixed income fund	$	43		$	–		$	43	$	–
Government mortgage-backed securities		42			–			42		–
Corporate bonds		23			–			23		–
Asset-backed securities		15			–			15		–
Government bonds and notes		12			–			12		–
Money market funds		17			17			–		–
Agency bonds		1			–			1		–
Total trust assets		153			17			136		–

Available-for-sale securities:
Time deposits		37			37			–		–
Money market funds		5			5			–		–
Equity securities		5			5			–		–
Total available-for-sale securities		47			47			–		–

Derivatives:
Embedded derivatives in provisional sales/purchases
contracts		252			252			–		–
Copper futures and swap contracts		12			12			–		–
Copper forward contracts		1			1			–		–
Total derivatives		265			265			–		–

Total assets	$	4,125		$	3,989		$	136	$	–

Liabilities
Derivatives:
Embedded derivatives in provisional sales/purchases
contracts	$	(97	)	$	(97	)	$	–	$	–

Valuation Techniques

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

Fixed income securities (government and agency securities, corporate bonds, asset-backed securities and U.S. core fixed income fund) are valued using a bid evaluation or a mid evaluation. A bid evaluation is an estimated price at which a dealer would pay for a security. A mid evaluation is the average of the estimated price at which a dealer would sell a security and the estimated price at which a dealer would pay for a security. These evaluations are based on quoted prices, if available, or models that use observable inputs and, as such, are classified within Level 2 of the fair value hierarchy.

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

FCX’s embedded derivatives on provisional copper concentrate, copper cathode and gold purchases and sales are valued using quoted market prices based on the forward LME or COMEX prices (copper) and the London Bullion Market Association price (gold) and, as such, are classified within Level 1 of the fair value hierarchy. FCX’s embedded derivatives on provisional molybdenum purchases are valued based on the latest average weekly Metals Week Molybdenum Dealer Oxide prices and, as such, are classified within Level 1 of the fair value hierarchy.

FCX’s derivative financial instruments for copper futures and swap contracts and forward contracts are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets (refer to Note 7 for further discussion).

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The carrying value for certain FCX financial instruments, (i.e., accounts receivable, accounts payable and accrued liabilities, dividends payable, and Rio Tinto share of joint venture cash flows) approximate fair value, and therefore, have been excluded from the table below. A summary of the carrying amount and fair value of FCX’s other financial instruments follows (in millions):

	At September 30, 2010						At December 31, 2009
	Carrying			Fair			Carrying			Fair
	Amount			Value			Amount			Value
Cash and cash equivalentsa	$	3,720		$	3,720		$	2,656		$	2,656
Derivatives included in accounts receivablea		251			251			235			235
Trust assets (current and long-term)a, b		153			153			146			146
Available-for-sale securities (current and
long-term)a, b		47			47			74			74
Derivative assetsa, c		13			13			14			14
Derivatives included in accounts payable and
accrued liabilitiesa		(96	)		(96	)		(70	)		(70	)
Long-term debt (including amounts due
within one year)d		(4,779	)		(5,221	)		(6,346	)		(6,735	)

a.	Recorded at fair value.

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

c.	Included in other current assets.

d.	Recorded at cost except for long-term debt acquired in the Phelps Dodge Corporation acquisition, which was recorded at fair value at the acquisition date. Fair value of substantially all of FCX’s long-term debt is estimated based on quoted market prices.

9.	NEW ACCOUNTING STANDARDS

Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements. In January 2010, the Financial Accounting Standards Board (FASB) issued accounting guidance intended to improve disclosures related to fair value measurements. This guidance requires significant transfers in and out of Level 1 and Level 2 fair value measurements to be disclosed separately along with the reasons for the transfers. Additionally, in the reconciliation for the fair value measurements using significant unobservable inputs (Level 3), information about purchases, sales, issuances and settlements must be presented separately (cannot net as one number). This guidance also provides clarification for existing disclosures on (i) level of disaggregation and (ii) inputs and valuation techniques. In addition, this guidance includes conforming amendments for employers’ disclosure of postretirement benefit plan assets. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the rollforward of activity in Level 3 fair value measurements. Those disclosures are required for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

10.	SUBSEQUENT EVENTS

FCX evaluated events after September 30, 2010, and through the date the consolidated financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these consolidated financial statements.

In October 2010, FCX’s Board authorized an increase in the cash dividend on common stock from an annual rate of $1.20 per share to $2.00 per share ($0.50 per share quarterly), with the first quarterly dividend expected to be paid on February 1, 2011.

In October 2010, the government of the Democratic Republic of Congo (DRC) announced the conclusion of the review of Tenke Fungurume’s mining contracts. The conclusion of the review process confirmed that Tenke Fungurume’s existing mining contracts are in good standing and acknowledged the rights and benefits granted under those contracts. Tenke Fungurume’s key fiscal terms, including a 30 percent income tax rate, a 2 percent mining royalty rate and a 1 percent export fee, will continue to apply and are consistent with the rates in the DRC’s current Mining Code. In connection with the review, Tenke Fungurume made several commitments, which it expects to be reflected in amendments to its mining contracts, including (1) an increase in the ownership interest of La Générale des Carrières et des Mines’ (Gécamines), which is wholly owned by the government of the DRC, from 17.5 percent (non-dilutable) to 20.0 percent (non-dilutable), resulting in a decrease of FCX’s effective ownership interest from 57.75 percent to 56.0 percent and Lundin Mining Corporation’s effective ownership interest from 24.75 percent to 24.0 percent; (2) an additional royalty of $1.2 million for each 100,000 metric tons of proven and probable copper reserves above 2.5 million metric tons at the time new reserves are established by

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FCX; (3) additional payments totaling $30 million to be paid in six equal installments of $5 million upon reaching certain production milestones; (4) conversion of $50 million in intercompany loans to equity; (5) a payment of $5 million for surface area fees and ongoing surface area fees of approximately $0.8 million annually; (6) incorporating clarifying language stating that Tenke Fungurume’s rights and obligations are governed by its Amended and Restated Mining Convention; and (7) expanding Gécamines’ participation in Tenke Fungurume management. FCX has also reiterated its commitment to the use of local services and Congolese employment. In connection with the agreed modifications, the annual interest rate on advances from Tenke Fungurume shareholders would increase from the current rate of LIBOR plus 2 percent to LIBOR plus 6 percent. Tenke Fungurume’s existing mining contracts will continue in full force and effect until the revised terms noted above are incorporated into those contracts, including the Amended and Restated Mining Convention and Amended and Restated Shareholders’ Agreement, both entered into in 2005.

During October 2010, FCX made open-market purchases of $18 million of its 9½% Senior Notes for $26 million. FCX expects to record an approximate $4 million loss on early extinguishment of debt in fourth-quarter 2010 in connection with these open-market purchases.

In October 2010, PT Freeport Indonesia received an assessment for additional tax payments from the Indonesian tax authorities related to various audit exceptions for the year 2005. PT Freeport Indonesia is reviewing the assessment and will work with the Indonesian tax authorities to resolve disputed audit exceptions.

11.	BUSINESS SEGMENTS

FCX has organized its operations into five primary divisions – North America copper mines, South America mining, Indonesia mining, Africa mining and Molybdenum operations. Notwithstanding this structure, FCX internally reports information on a mine-by-mine basis. Therefore, FCX concluded that its operating segments include individual mines. Operating segments that meet certain thresholds are reportable segments. Further discussion of the reportable segments included in FCX’s primary operating divisions, as well as FCX’s other reportable segments – Rod & Refining and Atlantic Copper Smelting & Refining – follows.

North America Copper Mines. FCX has seven operating copper mines in North America – Morenci, Sierrita, Bagdad, Safford and Miami in Arizona, and Tyrone and Chino in New Mexico. The North America copper mines include open-pit mining, sulfide ore concentrating, leaching, and solution extraction and electrowinning (SX/EW) operations. A majority of the copper produced at the North America copper mines is cast into copper rod by FCX’s Rod & Refining operations. The North America copper mines include the Morenci copper mine as a reportable segment.

Morenci. The Morenci open-pit mine, located in southeastern Arizona, produces copper cathodes and copper concentrates. FCX owns an 85 percent undivided interest in Morenci through an unincorporated joint venture. During the first nine months of 2010, the Morenci mine produced 41 percent of FCX’s North America copper.

Other Mines. Other mines include FCX’s other operating southwestern U.S. copper mines – Sierrita, Bagdad, Safford, Miami, Tyrone and Chino. In addition to copper, the Sierrita and Bagdad mines produce molybdenum concentrates as a by-product.

South America. South America mining includes four operating copper mines – Cerro Verde in Peru, and Candelaria, Ojos del Salado and El Abra in Chile. These operations include open-pit and underground mining, sulfide ore concentrating, leaching and SX/EW operations. South America mining includes the Cerro Verde copper mine as a reportable segment.

Cerro Verde. The Cerro Verde open-pit copper mine, located near Arequipa, Peru, produces copper cathodes and copper concentrates. In addition to copper, the Cerro Verde mine produces molybdenum concentrates as a by-product. FCX owns a 53.56 percent interest in Cerro Verde. During the first nine months of 2010, the Cerro Verde mine produced 49 percent of FCX’s South America copper.

Other Mines. Other mines include FCX’s Chilean copper mines – Candelaria, Ojos del Salado and El Abra. In addition to copper, the Candelaria and Ojos del Salado mines produce gold and silver as by-products. FCX owns an 80 percent interest in both the Candelaria and Ojos del Salado mines, and owns a 51 percent interest in the El Abra mine.

Indonesia. Indonesia mining includes PT Freeport Indonesia’s Grasberg minerals district. PT Freeport Indonesia produces copper concentrates, which contain significant quantities of gold and silver. FCX owns 90.64 percent of

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PT Freeport Indonesia, including 9.36 percent owned through PT Indocopper Investama. FCX has established certain unincorporated joint ventures with Rio Tinto, under which Rio Tinto has a 40 percent interest in certain assets and future production exceeding specified annual amounts of copper, gold and silver.

Africa. Africa mining includes the Tenke Fungurume copper and cobalt mining concessions in the Katanga province of the DRC. The Tenke Fungurume mine includes open-pit mining, leaching and SX/EW operations. In addition to copper, the Tenke Fungurume mine produces cobalt hydroxide. Copper cathode production commenced in March 2009, and the first copper cathode was sold in second-quarter 2009. FCX owned an effective 57.75 percent interest in Tenke Fungurume at September 30, 2010 (refer to Note 10 for discussion of a proposed change in FCX’s ownership interest).

Molybdenum. The Molybdenum segment is an integrated producer of molybdenum, with mining, sulfide ore concentrating, roasting and processing facilities that produce high-purity, molybdenum-based chemicals, molybdenum metal powder and metallurgical products, which are sold to customers around the world, and includes the wholly owned Henderson molybdenum mine in Colorado and related conversion facilities. The Henderson underground mine produces high-purity, chemical-grade molybdenum concentrates, which are typically further processed into value-added molybdenum chemical products. This segment also includes a sales company that purchases and sells molybdenum from the Henderson mine as well as from FCX’s North and South America copper mines that produce molybdenum as a by-product. In addition, at times this segment roasts and/or processes material on a toll basis. Toll arrangements require the tolling customer to deliver appropriate molybdenum-bearing material to FCX’s facilities for processing into a product that is returned to the customer, who pays FCX for processing its material into the specified products.

The Molybdenum segment also includes FCX’s wholly owned Climax molybdenum mine in Colorado, which has been on care-and-maintenance status since 1995. FCX is advancing construction activities at the Climax molybdenum mine and is monitoring market conditions to determine the timing for startup of mining and milling activities.

Rod & Refining. The Rod & Refining segment consists of copper conversion facilities located in North America, and includes a refinery, three rod mills and a specialty copper products facility. These operations process copper produced at FCX’s North America mines and purchased copper into copper cathode, rod and custom copper shapes. At times these operations refine copper and produce copper rod and shapes for customers on a toll basis. Toll arrangements require the tolling customer to deliver appropriate copper-bearing material to FCX’s facilities for processing into a product that is returned to the customer, who pays FCX for processing its material into the specified products.

Atlantic Copper Smelting & Refining. Atlantic Copper, FCX’s wholly owned smelting unit in Spain, smelts and refines copper concentrates and markets refined copper and precious metals in slimes. PT Freeport Indonesia sells copper concentrate and the South America copper mines sell copper concentrate and cathode to Atlantic Copper.

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

Allocations. FCX allocates certain operating costs, expenses and capital expenditures to the operating divisions and individual segments. However, not all costs and expenses applicable to a mine or operation are allocated. All U.S. federal and state income taxes are recorded and managed at the corporate level, whereas foreign income taxes are recorded and managed at the applicable mine or operation. In addition, most exploration and research activities are managed at the corporate level, and those costs along with some selling, general and administrative costs are not allocated to the operating divisions or segments. Accordingly, the following segment information reflects management determinations that may not be indicative of what the actual financial performance of each operating division or segment would be if it was an independent entity.

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Business Segments

(In Millions)	North America Copper Mines						South America						Indonesia			Africa
																						Atlantic			Corporate,
																						Copper			Other &
			Other				Cerro		Other									Molyb-		Rod &		Smelting			Elimi-			FCX
	Morenci		Mines		Total		Verde		Mines		Total		Grasberg			Tenke		denum		Refining		& Refining			nations			Total
Three Months Ended September 30, 2010
Revenues:
Unaffiliated customers	$	10	$	15	$	25	$	606	$	696	$	1,302	$	1,458	a	$	307	$	293	$	1,174	$	592		$	1		$	5,152
Intersegment		364		601		965		84		79		163		416			–		–		7		3			(1,554	)		–
Production and delivery		185		343		528		194		268		462		528			141		199		1,173		590			(1,352	)		2,269
Depreciation, depletion and amortization		33		34		67		42		24		66		72			34		13		2		9			5			268
Selling, general and administrative expenses		–		–		–		–		–		–		25			–		2		–		4			50			81
Exploration and research expenses		–		–		–		–		–		–		–			–		1		–		–			34			35
Operating income (loss)		156		239		395		454		483		937		1,249			132		78		6		(8	)		(290	)		2,499

Interest expense, net		1		2		3		–		–		–		–			2		–		–		2			96			103
Provision for income taxes		–		–		–		147		151		298		499			32		–		–		–			16			845
Total assets at September 30, 2010		1,919		4,271		6,190		4,308		3,245		7,553		5,712			3,540		1,837		335		1,201			1,583			27,951
Capital expenditures		13		46		59		32		97		129		116			9		22		2		4			9			350


Three Months Ended September 30, 2009
Revenues: