Freeport-McMoRan 2013 Annual Report Download - page 96

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
94 | FREEPORT-McMoRan
FCX’s direct ownership in PT-FI totals 81.28 percent. PT Indocopper
Investama, an Indonesian company, owns 9.36 percent of PT-FI,
and FCX owns 100 percent of PT Indocopper Investama. Refer to
“Joint Ventures — Rio Tinto” for discussion of the unincorporated
joint ventures. At December 31, 2013, PT-FI’s net assets totaled
$4.9 billion and its retained earnings totaled $4.7 billion. As of
December 31, 2013, FCX had no loans outstanding to PT-FI.
FCX owns 100 percent of the outstanding Atlantic Copper
common stock. At December 31, 2013, Atlantic Copper’s net
liabilities totaled $148 million and its accumulated deficit totaled
$543 million. FCX had $642 million in intercompany loans
outstanding to Atlantic Copper at December 31, 2013.
FCX owns 100 percent of FM O&G, which has a portfolio of oil
and gas assets. At December 31, 2013, FM O&G’s net assets
totaled $9.8 billion and its retained earnings totaled $265 million.
FCX had $3.4 billion in intercompany loans to FM O&G at
December 31, 2013.
Joint Ventures. FCX has the following unincorporated joint
ventures with third parties.
Rio Tinto. FCX and Rio Tinto have established certain
unincorporated joint ventures. Under the joint venture
arrangements, Rio Tinto has a 40 percent interest in PT-FI’s
Contract of Work and the option to participate in 40 percent of any
other future exploration projects in Papua, Indonesia.
Pursuant to the joint venture agreement, Rio Tinto has a 40
percent interest in certain assets and future production exceeding
specified annual amounts of copper, gold and silver through 2021
in Block A of PT-FI’s Contract of Work, and, after 2021, a 40
percent interest in all production from Block A. All of PT-FI’s
proven and probable reserves and its mining operations are
located in the Block A area. Operating, nonexpansion capital and
administrative costs are shared proportionately between PT-FI
and Rio Tinto based on the ratio of (i) the incremental revenues
from production from PT-FI’s expansion completed in 1998 to
(ii) total revenues from production from Block A, including
production from PT-FI’s previously existing reserves. PT-FI will
continue to receive 100 percent of the cash flow from specified
annual amounts of copper, gold and silver through 2021 calculated
by reference to its proven and probable reserves as of December
31, 1994, and 60 percent of all remaining cash flow. The agreement
provides for adjustments to the specified annual amounts of
copper, gold and silver attributable 100 percent to PT-FI upon the
occurrence of certain events that cause an interruption in
production to occur, including events such as the business
interruption and property damage relating to the 2011 incidents
affecting PT-FI’s concentrate pipelines. As a result of these
incidents, the 2011 specified amounts, before smelter recoveries,
attributable 100 percent to PT-FI were reduced by 228 million
pounds for copper and 224 thousand ounces for gold, which will
be offset by identical increases in future periods. The payable to
Rio Tinto for its share of joint venture cash flows was $33 million at
December 31, 2013, and $4 million at December 31, 2012.
had the events reflected herein occurred on the date indicated.
The most significant pro forma adjustments to income from
continuing operations for the year ended December 31, 2013, were
to exclude $519 million of acquisition-related costs, the net tax
benefit of $199 million of acquisition-related adjustments and the
$128 million gain on the investment in MMR and to include them
in the year ended December 31, 2012. Additionally, for the year
ended December 31, 2013, the pro forma consolidated information
excluded a $77 million gain on the sale of oil and gas properties
reflected in MMR’s results of operations prior to the acquisition
because of the application of the full cost accounting method.
Cobalt Chemical Refinery Business. On March 29, 2013, FCX,
through a newly formed consolidated joint venture, completed the
acquisition of a cobalt chemical refinery in Kokkola, Finland, and
the related sales and marketing business. The acquisition provides
direct end-market access for the cobalt hydroxide production at
Tenke. The joint venture operates under the name Freeport
Cobalt, and FCX is the operator with an effective 56 percent
ownership interest. The remaining effective ownership interest is
held by FCX’s partners in TFM, including 24 percent by Lundin
Mining Corporation (Lundin) and 20 percent by La Générale des
Carrières et des Mines (Gécamines). Consideration paid was
$382 million, which included $34 million for cash acquired, and
was funded 70 percent by FCX and 30 percent by Lundin. Under
the terms of the acquisition agreement, there is also the
potential for additional consideration of up to $110 million over a
period of three years, contingent upon the achievement of
revenue-based performance targets. As of December 31, 2013,
no amount was recorded for this contingency because these
targets are not expected to be achieved.
NOTE 3. OWNERSHIP IN SUBSIDIARIES
AND JOINT VENTURES
Ownership in Subsidiaries. FMC is a fully integrated producer of
copper and molybdenum, with mines in North America, South
America and the Tenke minerals district in the DRC. At December 31,
2013, FMC’s operating mines in North America were Morenci,
Bagdad, Safford, Sierrita and Miami located in Arizona; Tyrone
and Chino located in New Mexico; and Henderson and Climax
located in Colorado. FCX has an 85 percent interest in Morenci
(refer to “Joint Ventures — Sumitomo”) and owns 100 percent of
the other North America mines. At December 31, 2013, operating
mines in South America were Cerro Verde (53.56 percent owned)
located in Peru, and El Abra (51 percent owned), Candelaria
(80 percent owned) and Ojos del Salado (80 percent owned)
located in Chile. At December 31, 2013, FMC owned an effective
56 percent interest in the Tenke minerals district in the DRC (refer
to Note 13 for discussion of the change in ownership interest in
2012). At December 31, 2013, FMC’s net assets totaled $20.3 billion
and its accumulated deficit totaled $9.0 billion. FCX had no loans
outstanding to FMC at December 31, 2013.