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Fair Value Measurement | 6 Months Ended
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Jun. 30, 2018
Fair Value Disclosures [Abstract] |
Fair Value Measurements | FAIR VALUE MEASUREMENT Fair value accounting guidance includes a 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) and the lowest priority to unobservable inputs (Level 3). FCX recognizes transfers between levels at the end of the reporting period. FCX did not have any significant transfers in or out of Level 1, 2 or 3 during second-quarter 2018. FCX’s financial instruments are recorded on the consolidated balance sheets at fair value except for contingent consideration associated with the sale of the Deepwater Gulf of Mexico (GOM) oil and gas properties (which was recorded under the loss recovery approach) and debt. A summary of the carrying amount and fair value of FCX’s financial instruments (including those measured at net asset value (NAV) as a practical expedient), other than cash and cash equivalents, restricted cash, restricted cash equivalents, accounts receivable, accounts payable and accrued liabilities, and dividends payable (refer to Note 6) follows (in millions):
| At June 30, 2018
| Carrying |  | Fair Value
| Amount |  | Total |  | NAV |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |  |  |  |  |
Investment securities:a,b |  |  |  |  |  |  |  |  |  |  |
U.S. core fixed income fund | $ | 24 |  |  | $ | 24 |  |  | $ | 24 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Equity securities | 5 |  |  | 5 |  |  | — |  |  | 5 |  |  | — |  |  | — |
Total | 29 |  |  | 29 |  |  | 24 |  |  | 5 |  |  | — |  |  | — |
Legally restricted funds:a |  |  |  |  |  |  |  |  |  |  |
U.S. core fixed income fund | 54 |  |  | 54 |  |  | 54 |  |  | — |  |  | — |  |  | — |
Government bonds and notes | 37 |  |  | 37 |  |  | — |  |  | — |  |  | 37 |  |  | — |
Government mortgage-backed securities | 31 |  |  | 31 |  |  | — |  |  | — |  |  | 31 |  |  | — |
Corporate bonds | 29 |  |  | 29 |  |  | — |  |  | — |  |  | 29 |  |  | — |
Asset-backed securities | 14 |  |  | 14 |  |  | — |  |  | — |  |  | 14 |  |  | — |
Collateralized mortgage-backed securities | 8 |  |  | 8 |  |  | — |  |  | — |  |  | 8 |  |  | — |
Money market funds | 4 |  |  | 4 |  |  | — |  |  | 4 |  |  | — |  |  | — |
Municipal bonds | 1 |  |  | 1 |  |  | — |  |  | — |  |  | 1 |  |  | — |
Total | 178 |  |  | 178 |  |  | 54 |  |  | 4 |  |  | 120 |  |  | — |
Derivatives: |  |  |  |  |  |  |  |  |  |  |
Embedded derivatives in provisional copper and gold |  |  |  |  |  |  |  |  |  |  |
sales/purchase contracts in a gross asset position c,d | 17 |  |  | 17 |  |  | — |  |  | — |  |  | 17 |  |  | — |
Copper forward contracts c | 6 |  |  | 6 |  |  | — |  |  | 3 |  |  | 3 |  |  | — |
Contingent consideration for the sales of |  |  |  |  |  |  |  |  |  |  |
TF Holdings Limited (TFHL) and onshore |  |  |  |  |  |  |  |  |  |  |
California oil and gas properties a | 151 |  |  | 151 |  |  | — |  |  | — |  |  | 151 |  |  | — |
Total | 174 |  |  | 174 |  |  | — |  |  | 3 |  |  | 171 |  |  | — |
Contingent consideration for the sale of the |  |  |  |  |  |  |  |  |  |  |
Deepwater GOM oil and gas properties a | 150 |  |  | 132 |  |  | — |  |  | — |  |  | — |  |  | 132 |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Derivatives:c |  |  |  |  |  |  |  |  |  |  |
Embedded derivatives in provisional copper and gold |  |  |  |  |  |  |  |  |  |  |
sales/purchase contracts in a gross liability position | $ | 73 |  |  | $ | 73 |  |  | $ | — |  |  | $ | — |  |  | $ | 73 |  |  | $ | — |
Copper futures and swap contracts | 8 |  |  | 8 |  |  | — |  |  | 7 |  |  | 1 |  |  | — |
Total | 81 |  |  | 81 |  |  | — |  |  | 7 |  |  | 74 |  |  | — |
Long-term debt, including current portion e | 11,127 |  |  | 10,662 |  |  | — |  |  | — |  |  | 10,662 |  |  | — |
| At December 31, 2017
| Carrying |  | Fair Value
| Amount |  | Total |  | NAV |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |  |  |  |  |
Investment securities:a,b |  |  |  |  |  |  |  |  |  |  |
U.S. core fixed income fund | $ | 25 |  |  | $ | 25 |  |  | $ | 25 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Equity securities | 5 |  |  | 5 |  |  | — |  |  | 5 |  |  | — |  |  | — |
Total | 30 |  |  | 30 |  |  | 25 |  |  | 5 |  |  | — |  |  | — |
Legally restricted funds:a |  |  |  |  |  |  |  |  |  |  |
U.S. core fixed income fund | 55 |  |  | 55 |  |  | 55 |  |  | — |  |  | — |  |  | — |
Government bonds and notes | 40 |  |  | 40 |  |  | — |  |  | — |  |  | 40 |  |  | — |
Corporate bonds | 32 |  |  | 32 |  |  | — |  |  | — |  |  | 32 |  |  | — |
Government mortgage-backed securities | 27 |  |  | 27 |  |  | — |  |  | — |  |  | 27 |  |  | — |
Asset-backed securities | 15 |  |  | 15 |  |  | — |  |  | — |  |  | 15 |  |  | — |
Money market funds | 11 |  |  | 11 |  |  | — |  |  | 11 |  |  | — |  |  | — |
Collateralized mortgage-backed securities | 8 |  |  | 8 |  |  | — |  |  | — |  |  | 8 |  |  | — |
Municipal bonds | 1 |  |  | 1 |  |  | — |  |  | — |  |  | 1 |  |  | — |
Total | 189 |  |  | 189 |  |  | 55 |  |  | 11 |  |  | 123 |  |  | — |
Derivatives: |  |  |  |  |  |  |  |  |  |  |
Embedded derivatives in provisional copper and gold |  |  |  |  |  |  |  |  |  |  |
sales/purchase contracts in a gross asset position c | 155 |  |  | 155 |  |  | — |  |  | — |  |  | 155 |  |  | — |
Copper futures and swap contracts c | 11 |  |  | 11 |  |  | — |  |  | 9 |  |  | 2 |  |  | — |
Copper forward contracts c | 1 |  |  | 1 |  |  | — |  |  | — |  |  | 1 |  |  | — |
Contingent consideration for the sales of TFHL |  |  |  |  |  |  |  |  |  |  |
and onshore California oil and gas properties a | 108 |  |  | 108 |  |  | — |  |  | — |  |  | 108 |  |  | — |
Total | 275 |  |  | 275 |  |  | — |  |  | 9 |  |  | 266 |  |  | — |
Contingent consideration for the sale of the |  |  |  |  |  |  |  |  |  |  |
Deepwater GOM oil and gas properties a | 150 |  |  | 134 |  |  | — |  |  | — |  |  | — |  |  | 134 |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Derivatives:c |  |  |  |  |  |  |  |  |  |  |
Embedded derivatives in provisional copper and gold |  |  |  |  |  |  |  |  |  |  |
sales/purchase contracts in a gross liability position d | $ | 31 |  |  | $ | 31 |  |  | $ | — |  |  | $ | — |  |  | $ | 31 |  |  | $ | — |
Copper forward contracts | 2 |  |  | 2 |  |  | — |  |  | 1 |  |  | 1 |  |  | — |
Total | 33 |  |  | 33 |  |  | — |  |  | 1 |  |  | 32 |  |  | — |
Long-term debt, including current portion e | 13,117 |  |  | 13,269 |  |  | — |  |  | — |  |  | 13,269 |  |  | — |
a. | Current portion included in other current assets and long-term portion included in other assets.
b. | Excludes time deposits (which approximated fair value) included in (i) other current assets of $120 million at June 30, 2018, and $52 million at December 31, 2017, primarily associated with PT-FI’s mine closure and reclamation guarantees and its disputed incremental export duty and (ii) other assets of $126 million at June 30, 2018, and $123 million at December 31, 2017, primarily associated with an assurance bond to support PT-FI’s commitment for smelter development in Indonesia.
c. | Refer to Note 6 for further discussion and balance sheet classifications.
d. | Excludes embedded derivatives in provisional cobalt purchase contracts of $31 million at June 30, 2018, and $24 million at December 31, 2017 (refer to Note 6 for further discussion).
e. | Recorded at cost except for debt assumed in acquisitions, which were recorded at fair value at the respective acquisition dates. In addition, debt excludes $150 million at June 30, 2018, and $112 million at December 31, 2017, related to assets held for sale (which approximated fair value).
Valuation Techniques. The U.S. core fixed income fund is valued at NAV. The fund strategy seeks total return consisting of income and capital appreciation primarily by investing in a broad range of investment-grade debt securities, including U.S. government obligations, corporate bonds, mortgage-backed securities, asset-backed securities and money market instruments. There are no restrictions on redemptions (which are usually within one business day of notice). Money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. 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. Fixed income securities (government securities, corporate bonds, asset-backed securities, collateralized mortgage-backed securities and municipal bonds) are valued using a bid-evaluation price or a mid-evaluation price. A bid-evaluation price is an estimated price at which a dealer would pay for a security. A mid-evaluation price 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. FCX’s embedded derivatives on provisional copper concentrate, copper cathode and gold purchases and sales are valued using quoted monthly LME or COMEX copper forward prices and the adjusted LBMA gold prices at each reporting date based on the month of maturity (refer to Note 6 for further discussion); however, FCX’s contracts themselves are not traded on an exchange. As a result, these derivatives are classified within Level 2 of the fair value hierarchy. FCX’s embedded derivatives on provisional cobalt purchases, included in liabilities held for sale, are valued using quoted monthly LME cobalt forward prices or average published Metals Bulletin cobalt prices, subject to certain adjustments as specified by the terms of the contracts, at each reporting date based on the month of maturity (Level 2). FCX’s derivative financial instruments for copper futures and swap contracts and copper forward contracts that are traded on the respective exchanges are classified within Level 1 of the fair value hierarchy because they are valued using quoted monthly COMEX or LME prices at each reporting date based on the month of maturity (refer to Note 6 for further discussion). Certain of these contracts are traded on the over-the-counter market and are classified within Level 2 of the fair value hierarchy based on COMEX and LME forward prices. As reported in Note 2 of FCX’s annual report on Form 10-K for the year ended December 31, 2017, in November 2016, FCX’s sale of its interest in TFHL included contingent consideration of up to $120 million in cash, consisting of $60 million if the average copper price exceeds $3.50 per pound and $60 million if the average cobalt price exceeds $20 per pound, both during the 24-month period beginning January 1, 2018. Also in 2016, FCX Oil & Gas LLC’s (FM O&G) sale of its onshore California oil and gas properties included contingent consideration of up to $150 million, consisting of $50 million per year for 2018, 2019 and 2020 if the price of Brent crude oil averages over $70 per barrel in each of these calendar years. Future changes in the fair value of the contingent consideration derivative for the sale of TFHL will continue to be recorded in discontinued operations and for the onshore California oil and gas properties will continue to be recorded in operating income. The fair value of the contingent consideration derivative was (i) $61 million at June 30, 2018, and $74 million at December 31, 2017, associated with the sale of TFHL and (ii) $90 million at June 30, 2018, and $34 million at December 31, 2017, associated with the sale of the onshore California oil and gas properties. The contingent consideration derivative was included in other assets in the consolidated balance sheets except for $44 million included in other current assets at June 30, 2018. These fair values were calculated based on average commodity price forecasts through applicable maturity dates using a Monte Carlo simulation model. The models use various observable inputs, including Brent crude oil forward prices, historical copper and cobalt prices, volatilities, discount rates and settlement terms. As a result, these contingent consideration assets are classified within Level 2 of the fair value hierarchy. As reported in Note 2 of FCX’s annual report on Form 10-K for the year ended December 31, 2017, in December 2016, FM O&G’s sale of its Deepwater GOM oil and gas properties included up to $150 million in contingent consideration that was recorded at the total amount under the loss recovery approach. The contingent consideration will be received over time as future cash flows are realized in connection with a third-party production handling agreement for an offshore platform. The contingent consideration included in (i) other current assets totaled $28 million at June 30, 2018, and $24 million at December 31, 2017, and (ii) other assets totaled $122 million at June 30, 2018, and $126 million at December 31, 2017. The fair value of this contingent consideration was calculated based on a discounted cash flow model using inputs that include third-party estimates for reserves, production rates and production timing, and discount rates. Because significant inputs are not observable in the market, the contingent consideration is classified within Level 3 of the fair value hierarchy. Long-term debt, including current portion, is valued using available market quotes and, as such, is classified within Level 2 of the fair value hierarchy. The techniques described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while FCX believes its valuation techniques are appropriate and consistent with other market participants, the use of different techniques or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the techniques used at June 30, 2018, as compared to those techniques used at December 31, 2017. A summary of the changes in the fair value of FCX’s Level 3 instrument, contingent consideration for the sale of the Deepwater GOM oil and gas properties, during the first six months of 2018 follows (in millions):
Fair value at January 1, 2018 | $ | 134 |  |
Net unrealized loss related to assets still held at the end of the period | (2 | ) |
Fair value at June 30, 2018 | $ | 132 |  |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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