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General Information (Unaudited) | 9 Months Ended
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Sep. 30, 2015
General Information [Abstract] |
General Information | GENERAL INFORMATION The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by generally accepted accounting principles (GAAP) in the United States (U.S.). Therefore, this information should be read in conjunction with Freeport-McMoRan Inc.'s (FCX) consolidated financial statements and notes contained in its annual report on Form 10-K for the year ended December 31, 2014. The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. With the exception of the oil and gas properties impairment discussed below and the related tax charges to establish a deferred tax valuation allowance (refer to Note 5), the Tyrone mine impairment and special retirement benefits and restructuring charges discussed below, and adjustments to inventories (refer to Note 4), all such adjustments are, in the opinion of management, of a normal recurring nature. Operating results for the quarter and nine months ended September 30, 2015, are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. Oil and Gas Properties. Under the U.S. Securities and Exchange Commission's (SEC) full cost accounting rules, FCX reviews the carrying value of its oil and gas properties each quarter on a country-by-country basis. Under these rules, capitalized costs of oil and gas properties (net of accumulated depreciation, depletion, amortization and impairment, and related deferred income taxes) for each cost center may not exceed a “ceiling” equal to:
• | the present value, discounted at 10 percent, of estimated future net cash flows from the related proved oil and natural gas reserves, net of estimated future income taxes; plus
• | the cost of the related unproved properties not being amortized; plus
• | the lower of cost or estimated fair value of the related unproved properties included in the costs being amortized (net of related tax effects).
These rules require that FCX price its future oil and gas production at the twelve-month average of the first-day-of-the-month historical reference prices as adjusted for location and quality differentials. FCX's reference prices are West Texas Intermediate (WTI) for oil and the Henry Hub spot price for natural gas. Such prices are utilized except where different prices are fixed and determinable from applicable contracts for the remaining term of those contracts. The reserve estimates exclude the effect of any crude oil derivatives FCX has in place. The estimated future net cash flows also exclude future cash outflows associated with settling asset retirement obligations included in the net book value of the oil and gas properties. The rules require an impairment if the capitalized costs exceed this “ceiling.” At September 30, 2015, and for the previous two quarters of 2015, net capitalized costs with respect to FCX's proved oil and gas properties exceeded the related ceiling test limitation; therefore, impairment charges of $3.7 billion in third-quarter 2015 and $9.4 billion for the first nine months of 2015 were recorded, primarily because of the lower twelve-month average of the first-day-of-the-month historical reference oil price and additional capitalized costs. The SEC requires that the twelve-month average of the first-day-of-the-month historical reference oil price be used in determining the ceiling amount under its full cost accounting rules. The twelve-month average price (using WTI as the reference oil price) was $59.21 per barrel at September 30, 2015, compared with $71.68 per barrel at June 30, 2015. FCX periodically (and at least annually) assesses the carrying value of its unevaluated properties to determine whether impairment has occurred. Following a review of the carrying values of unevaluated properties during third-quarter 2015, FCX determined that the carrying value of its unevaluated properties in the onshore California area was impaired, primarily resulting from declines in oil prices. As a result, $837 million of costs were transferred to the full cost pool, which was included in the September 30, 2015, ceiling test discussed above. The fair value estimates for the unevaluated properties in the onshore California area were based on expected future cash flows based on estimated crude oil and natural gas forward prices as of September 30, 2015; risk adjusted probable and possible reserve quantities; costs to produce and develop reserves; and appropriate discount rates. Crude oil prices and FCX's estimates of oil reserves at September 30, 2015, represented the most significant assumptions used in the evaluation of the carrying value of these unevaluated properties. Mining Operations. Because of the recent decline in commodity prices, FCX made adjustments to its operating plans for its mining operations in third-quarter 2015. Although FCX’s long-term strategy of developing its mining resources to their full potential remains in place, the decline in copper and molybdenum prices has limited FCX’s ability to invest in growth projects and caused FCX to make adjustments to its near-term plans. FCX responded to the decline in commodity prices by revising its near-term strategy to protect liquidity while preserving its mineral resources and growth options for the longer term. Accordingly, operating plans were revised primarily to reflect: (a) suspension of mining operations at the Miami mine in Arizona; (b) a 50 percent reduction in mining rates at the Tyrone mine in New Mexico; (c) adjustments to mining rates at other North America copper mines; (d) an approximate 50 percent reduction in mining and stacking rates at the El Abra mine in Chile; (e) a 35 percent reduction in molybdenum production volumes at the Henderson primary molybdenum mine in Colorado; (f) capital cost reductions, including project deferrals associated with future development and expansion opportunities at the Tenke Fungurume minerals district in the Democratic Republic of Congo in Africa; and (g) reductions in operating, administrative and exploration costs, including workforce reductions. During October 2015, FCX initiated a plan to reduce operating rates at its Sierrita mine in Arizona in response to low copper and molybdenum prices. Initially, the plan involves operating the Sierrita mine at 50 percent of its current operating rate. FCX is also evaluating the economics of a full shutdown. In connection with the decline in copper and molybdenum prices and the revised operating plans discussed above, FCX evaluated its long-lived assets, other than indefinite-lived intangible assets, for impairment as of September 30, 2015. Indefinite-lived intangible assets are evaluated annually as of December 31. FCX’s long-lived asset impairment evaluations required FCX to make several assumptions in determining estimates of future cash flows of its individual mining operations, including: near- and long-term metal price assumptions; estimates of commodity-based and other input costs; proven and probable mineral reserves estimates, including the timing and costs to develop and produce the reserves; and the use of appropriate current escalation and discount rates. Projected long-term average metal prices represented the most significant assumption used in the cash flow estimates. FCX’s evaluation of long-lived assets (other than indefinite-lived intangible assets) resulted in the recognition of a charge to production costs for the impairment of the Tyrone mine totaling $59 million in third-quarter 2015. As a result of the third-quarter 2015 revisions to its operating plans, FCX also recorded charges to production costs of $36 million in third-quarter 2015 related to special retirement benefits and restructuring charges, primarily for employee severance and benefit costs. Refer to Note 10 for long-lived asset impairments and restructuring charges by business segment.

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