Freeport-McMoRan 2012 Annual Report Download - page 81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
America copper mines also produce molybdenum concentrates,
gold and silver. At December 31, 2012, FMC owned an effective
56 percent interest in the Tenke minerals district in the DRC (refer
to Note 14 for discussion of the change in ownership interest
in 2012). In addition to copper, the Tenke minerals district also
produces cobalt hydroxide. At December 31, 2012, FMC’s net
assets totaled $18.2 billion and its accumulated deficit totaled
$10.5 billion. FCX had $27 million in intercompany loans outstanding
to FMC at December 31, 2012.
FCX’s direct ownership in PT Freeport Indonesia totals
81.28 percent (refer to "Joint Ventures – Rio Tinto"). PT Indocopper
Investama, an Indonesian company, owns 9.36 percent of
PT Freeport Indonesia, and FCX owns 100 percent of PT Indocopper
Investama. At December 31, 2012, PT Freeport Indonesia’s
net assets totaled $4.1 billion and its retained earnings totaled
$3.9 billion. As of December 31, 2012, FCX had no loans
outstanding to PT Freeport Indonesia.
FCX owns 100 percent of the outstanding Atlantic Copper
common stock. At December 31, 2012, Atlantic Copper’s net
liabilities totaled $57 million and its accumulated deficit totaled
$451 million. FCX had $434 million in intercompany loans
outstanding to Atlantic Copper at December 31, 2012.
FCX owns an 85.71 percent interest in PT Puncakjaya Power
(Puncakjaya Power), the owner of assets supplying power to
PT Freeport Indonesia’s operations, including the 3x65 megawatt
coal-fired power facilities. PT Freeport Indonesia purchases power
from Puncakjaya Power under infrastructure asset financing
arrangements. At December 31, 2012, FCX did not have any loans
outstanding to Puncakjaya Power, PT Freeport Indonesia had
infrastructure asset financing obligations payable to Puncakjaya
Power totaling $71 million, and Puncakjaya Power had a
receivable from PT Freeport Indonesia for $91 million, including
Rio Tinto’s share. FCX consolidates PT Freeport Indonesia and
Puncakjaya Power. FCX’s consolidated balance sheets reflect
receivables of $20 million ($3 million in other accounts receivable
and $17 million in long-term receivables) at December 31, 2012,
and $23 million ($3 million in other accounts receivable and
$20 million in long-term receivables) at December 31, 2011, for
Rio Tinto’s share of Puncakjaya Power’s receivable from
PT Freeport Indonesia as provided for in FCX’s joint venture
agreement with Rio Tinto.
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 Freeport Indonesia’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 Freeport Indonesia’s Contract of
Work, and, after 2021, a 40 percent interest in all production from
Block A. All of PT Freeport Indonesia’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 Freeport Indonesia and Rio
Tinto based on the ratio of (i) the incremental revenues from
production from PT Freeport Indonesia’s expansion completed in
1998 to (ii) total revenues from production from Block A, including
production from PT Freeport Indonesia’s previously existing
reserves. PT Freeport Indonesia 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 Freeport Indonesia 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 Freeport Indonesia’s concentrate pipelines.
As a result of these incidents, the 2011 specified amounts, before
smelter recoveries, attributable 100 percent to PT Freeport
Indonesia 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 $4 million at December 31,
2012, and $45 million at December 31, 2011.
Under the joint venture arrangements, Rio Tinto funded
$100 million in 1996 for approved exploration costs in the areas
covered by Contracts of Work held by FCX subsidiaries. Agreed-
upon exploration costs in the joint venture areas are shared
60 percent by FCX and 40 percent by Rio Tinto. Since September
2008, Rio Tinto is no longer participating in exploration joint
ventures in the PT Nabire Bakti Mining and PT Irja Eastern
Minerals Contract of Work areas in Indonesia. As a result, as long
as Rio Tinto continues not to fund these exploration projects, FCX
has the option to fund 100 percent of future exploration costs in
these areas and Rio Tinto’s interest in these areas will decline over
time in accordance with the joint venture agreement. Rio Tinto
has the option to resume participation in PT Irja Eastern Minerals
on a monthly basis and in PT Nabire Bakti Mining on an annual
basis. Rio Tinto continues to participate in exploration joint
ventures in PT Freeport Indonesia’s Contract of Work areas.
Sumitomo. FCX owns an 85 percent undivided interest in
Morenci via an unincorporated joint venture. The remaining
15 percent is owned by Sumitomo, a jointly owned subsidiary of
Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation.
Each partner takes in kind its share of Morenci’s production. FMC
purchased 69 million pounds of Morenci’s copper cathode from
Sumitomo for $250 million during 2012. FCX had a receivable from
Sumitomo of $49 million at December 31, 2012, and $12 million
at December 31, 2011.
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