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Financial Instruments (Unaudited) | 9 Months Ended
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Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Instruments | FINANCIAL INSTRUMENTS FCX does not purchase, hold or sell derivative financial instruments unless there is an existing asset or obligation, or it anticipates a future activity that is likely to occur and will result in exposure to market risks, which FCX intends to offset or mitigate. 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 changes, foreign currency exchange rates and interest rates. Commodity Contracts. From time to time, FCX has entered into derivative 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, 2019, and December 31, 2018, FCX had no price protection contracts relating to its mine production. A discussion of FCX’s derivative contracts and programs follows. Derivatives Designated as Hedging Instruments – Fair Value Hedges Copper Futures and Swap Contracts. Some of FCX’s U.S. copper rod customers request a fixed market price instead of the Commodity Exchange Inc. (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 or swap contracts. Hedging gains or losses from these copper futures and swap contracts are recorded in revenues. FCX did not have any significant gains or losses resulting from hedge ineffectiveness during the nine-month periods ended September 30, 2019 and 2018. At September 30, 2019, FCX held copper futures and swap contracts that qualified for hedge accounting for 72 million pounds at an average contract price of $2.66 per pound, with maturities through August 2021. A summary of (losses) gains recognized in revenues for derivative financial instruments related to commodity contracts that are designated and qualify as fair value hedge transactions, including the unrealized gains (losses) on the related hedged item follows (in millions):
| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Copper futures and swap contracts: |  |  |  |  |  |  |
Unrealized (losses) gains: |  |  |  |  |  |  |
Derivative financial instruments | $ | (2 | ) |  | $ | 7 |  |  | $ | 3 |  |  | $ | (12 | )
Hedged item – firm sales commitments | 2 |  |  | (7 | ) |  | (3 | ) |  | 12 |
Realized losses: |  |  |  |  |  |  |
Matured derivative financial instruments | (8 | ) |  | (19 | ) |  | (9 | ) |  | (17 | )
Derivatives Not Designated as Hedging Instruments Embedded Derivatives. Certain FCX concentrate, copper cathode and gold sales contracts provide for provisional pricing primarily based on the London Metal Exchange (LME) copper price or the COMEX copper price and the London Bullion Market Association (LBMA) gold price at the time of shipment as specified in the contract. FCX receives market prices based on prices in the specified future month, which results in price fluctuations recorded in revenues until the date of settlement. FCX records revenues and invoices customers at the time of shipment based on then-current LME or COMEX copper prices and the LBMA gold prices as specified in the contracts, which results in an embedded derivative (i.e., a pricing mechanism that is finalized after the time of delivery) that is required to be bifurcated from the host contract. The host contract is the sale of the metals contained in the concentrate or cathode at the then-current LME or COMEX copper price, and the LBMA gold price. FCX applies the normal purchases and normal sales scope exception in accordance with derivatives and hedge accounting guidance to the host contract in its concentrate or cathode sales agreements since these contracts do not allow for net settlement and always result in physical delivery. The embedded derivative does not qualify for hedge accounting and is adjusted to fair value through earnings each period, using the period-end LME or COMEX copper forward prices and the adjusted LBMA gold prices, until the date of final pricing. Similarly, FCX purchases copper and cobalt under contracts that provide for provisional pricing. Mark-to-market price fluctuations from these embedded derivatives are recorded through the settlement date and are reflected in revenues for sales contracts and in inventory for purchase contracts. A summary of FCX’s embedded derivatives at September 30, 2019, follows:
| Open Positions |  | Average Price Per Unit |  | Maturities Through
|  | Contract |  | Market |
Embedded derivatives in provisional sales contracts: |  |  |  |  |  |  |
Copper (millions of pounds) | 424 |  |  | $ | 2.63 |  |  | $ | 2.59 |  |  | February 2020
Gold (thousands of ounces) | 150 |  |  | 1,510 |  |  | 1,491 |  |  | November 2019
Embedded derivatives in provisional purchase contracts: |  |  |  |  |  |  |
Copper (millions of pounds) | 97 |  |  | 2.63 |  |  | 2.59 |  |  | January 2020
Cobalt (millions of pounds) | 6 |  |  | 9.81 |  |  | 12.18 |  |  | December 2019
Copper Forward Contracts. Atlantic Copper, FCX’s wholly owned smelting and refining unit in Spain, enters into copper forward 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, 2019, Atlantic Copper held net copper forward purchase contracts for 1 million pounds at an average contract price of $2.65 per pound, with maturities through November 2019. Summary of (Losses) Gains. A summary of the realized and unrealized (losses) gains recognized in operating income for commodity contracts that do not qualify as hedge transactions, including embedded derivatives, follows (in millions):
| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Embedded derivatives in provisional sales contracts:a |  |  |  |  |  |  |
Copper | $ | (57 | ) |  | $ | (93 | ) |  | $ | (57 | ) |  | $ | (242 | )
Gold and other metals | 6 |  |  | (25 | ) |  | 17 |  |  | (37 | )
Copper forward contracts b | — |  |  | 9 |  |  | (3 | ) |  | 17 |
a. | Amounts recorded in revenues.
b. | Amounts recorded in cost of sales as production and delivery costs.
Unsettled Derivative Financial Instruments A summary of the fair values of unsettled commodity derivative financial instruments follows (in millions):
|  | September 30, 2019 |  | December 31, 2018
Commodity Derivative Assets: |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |
Copper futures and swap contracts |  | $ | — |  |  | $ | — |
Derivatives not designated as hedging instruments: |  |  |  |
Embedded derivatives in provisional copper, gold and cobalt |  |  |  |
sales/purchase contracts |  | 6 |  |  | 23 |
Total derivative assets |  | $ | 6 |  |  | $ | 23 |
Commodity Derivative Liabilities: |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |
Copper futures and swap contracts |  | $ | 6 |  |  | $ | 9 |
Derivatives not designated as hedging instruments: |  |  |  |
Embedded derivatives in provisional copper, gold and cobalt |  |  |  |
sales/purchase contracts |  | 36 |  |  | 39 |
Total derivative liabilities |  | $ | 42 |  |  | $ | 48 |
FCX’s commodity contracts have netting arrangements with counterparties with which the right of offset exists, and it is FCX’s policy to generally offset balances by contract on its balance sheet. FCX’s embedded derivatives on provisional sales/purchase contracts are netted with the corresponding outstanding receivable/payable balances. A summary of these unsettled commodity contracts that are offset in the balance sheets follows (in millions):
|  | Assets |  | Liabilities
|  | September 30, 2019 |  | December 31, 2018 |  | September 30, 2019 |  | December 31, 2018
Gross amounts recognized: |  |  |  |  |  |  |  |
Embedded derivatives in provisional |  |  |  |  |  |  |  |
sales/purchase contracts |  | $ | 6 |  |  | $ | 23 |  |  | $ | 36 |  |  | $ | 39 |
Copper derivatives |  | — |  |  | — |  |  | 6 |  |  | 9 |
|  | 6 |  |  | 23 |  |  | 42 |  |  | 48 |
Less gross amounts of offset: |  |  |  |  |  |  |  |
Embedded derivatives in provisional |  |  |  |  |  |  |  |
sales/purchase contracts |  | 1 |  |  | 7 |  |  | 1 |  |  | 7 |
Copper derivatives |  | — |  |  | — |  |  | — |  |  | — |
|  | 1 |  |  | 7 |  |  | 1 |  |  | 7 |
Net amounts presented in balance sheet: |  |  |  |  |  |  |  |
Embedded derivatives in provisional |  |  |  |  |  |  |  |
sales/purchase contracts |  | 5 |  |  | 16 |  |  | 35 |  |  | 32 |
Copper derivatives |  | — |  |  | — |  |  | 6 |  |  | 9 |
|  | $ | 5 |  |  | $ | 16 |  |  | $ | 41 |  |  | $ | 41 |
Balance sheet classification: |  |  |  |  |  |  |  |
Trade accounts receivable |  | $ | — |  |  | $ | 3 |  |  | $ | 17 |  |  | $ | 24 |
Accounts payable and accrued liabilities |  | 5 |  |  | 13 |  |  | 24 |  |  | 17 |
|  | $ | 5 |  |  | $ | 16 |  |  | $ | 41 |  |  | $ | 41 |
Credit Risk. FCX is exposed to credit loss when financial institutions with which it has entered into derivative transactions (commodity, foreign exchange and interest rate swaps) are unable to pay. To minimize the risk of such losses, FCX uses counterparties that meet certain credit requirements and periodically reviews the creditworthiness of these counterparties. FCX does not anticipate that any of the counterparties it deals with will default on their obligations. As of September 30, 2019, the maximum amount of credit exposure associated with derivative transactions was $5 million. Other Financial Instruments. Other financial instruments include cash and cash equivalents, restricted cash, restricted cash equivalents, accounts receivable, investment securities, legally restricted funds, accounts payable and accrued liabilities, dividends payable and long-term debt. The carrying value for cash and cash equivalents (which included time deposits of $1.3 billion at September 30, 2019, and $2.3 billion at December 31, 2018), restricted cash, restricted cash equivalents, accounts receivable, accounts payable and accrued liabilities, and dividends payable approximates fair value because of their short-term nature and generally negligible credit losses (refer to Note 7 for the fair values of investment securities, legally restricted funds and long-term debt). In addition, as of September 30, 2019, FCX has contingent consideration assets related to the 2016 asset sales of TF Holdings Limited (TFHL), onshore California oil and gas properties and Deepwater Gulf of Mexico (GOM) oil and gas properties (refer to Note 7 for the related fair values and to Note 2 of FCX’s 2018 Form 10-K for further discussion of these instruments). Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents. The following table provides a reconciliation of total cash, cash equivalents, restricted cash and restricted cash equivalents presented in the consolidated statements of cash flows (in millions):
|  | September 30, 2019 |  | December 31, 2018
Balance sheet components: |  |  |  |
Cash and cash equivalents |  | $ | 2,247 |  |  | $ | 4,217 |
Restricted cash and restricted cash equivalents included in: |  |  |  |
Other current assets |  | 100 |  |  | 110 |
Other assets |  | 165 |  |  | 128 |
Total cash, cash equivalents, restricted cash and restricted cash equivalents presented in the consolidated statements of cash flows |  | $ | 2,512 |  |  | $ | 4,455 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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