Freeport-McMoRan Inc. (FCX, NYSE)
Annual report, fiscal year 2018


## PROVEN ASSETS.
FUNDAMENTAL VALUE.

## 1

F&W FREEPORT-McMORAN

2018 ANNUAL REPORT



Freeport-McMoRan Inc. (FCX) is a leading international mining company with headquarters in Phoenix, Arizona. FCX operates large, long-lived, geographically diverse assets with significant proven and probable reserves of copper, gold and molybdenum. FCX is one of the world's largest publicly traded copper producers. FCX's portfolio of assets includes the Grasberg minerals district in Indonesia, one of the world's largest copper and gold deposits; and significant mining operations in North America and South America, including the large-scale Morenci minerals district in Arizona and the Cerro Verde operation in Peru.

FCX has a strong commitment to safety performance, environmental management and the communities where it operates. FCX is a founding member of the International Council on Mining and Metals (ICMM). Implementation of the ICMM Sustainable Development Framework across the company results in site-level sustainability programs that meet responsible sourcing objectives for the global marketplace.

Additional information on FCX is available at fcx.com.

## SUMMARY FINANCIAL HIGHLIGHTS

<table><tr><td>Years ended December 31,</td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>(In millions, except per share amounts)</td><td></td><td></td><td></td></tr><tr><td>Revenues</td><td>$ 18,628</td><td>$ 16,403</td><td>$ 14,830</td></tr><tr><td>Operating income (loss)</td><td>4,754</td><td>3,690</td><td>(2,729) \( ^{*} \)</td></tr><tr><td>Net income (loss) attributable to common stockholders</td><td>2,602</td><td>1,817</td><td>(4,154) \( ^{*} \)</td></tr><tr><td>Diluted net income (loss) per common share</td><td>1.78</td><td>1.25</td><td>(3.16) \( ^{*} \)</td></tr><tr><td>Dividends declared per common share</td><td>0.20</td><td>—</td><td>—</td></tr><tr><td>Operating cash flows</td><td>3,863</td><td>4,666</td><td>3,737</td></tr><tr><td>Capital expenditures</td><td>1,971</td><td>1,410</td><td>2,813</td></tr><tr><td>At December 31:</td><td></td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>4,217</td><td>4,526</td><td>4,262</td></tr><tr><td>Total assets</td><td>42,216</td><td>37,302</td><td>37,317</td></tr><tr><td>Total debt, including current portion</td><td>11,141</td><td>13,229</td><td>16,126</td></tr><tr><td>Total stockholders&#x27; equity</td><td>9,798</td><td>7,977</td><td>6,051</td></tr></table>

* Includes net charges to reduce the carrying value of oil and gas properties pursuant to full cost accounting rules totaling $4.3 billion ($4.3 billion to net loss attributable to common stockholders or $3.28 per share) in 2016.

## CAUTIONARY STATEMENT AND REGULATION G DISCLOSURE

This 2018 Annual Report contains forward-looking statements in which FCX discusses its potential future performance. FCX cautions readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. This report also includes statements regarding mineralized material and potential resources not included in proven and probable mineral reserves. Mineralized material is a mineralized body that has been delineated by appropriately spaced drilling and/or underground sampling to support the estimated tonnage and average metal grades. Such a deposit cannot qualify as recoverable proven and probable reserves until legal and economic feasibility is confirmed based upon a comprehensive evaluation. FCX's estimates of potential resources are based on geologically reasonable interpolation and extrapolation of more limited information than is used for mineralized material (measured and indicated) and require higher copper prices. Significant additional drilling is required and no assurance can be given that the potential quantities of metal will be produced. Accordingly, no assurances can be given that estimated mineralized material and potential resources will become proven and probable reserves. Please refer to the Cautionary Statement on page 62 of this report. This 2018 Annual Report also contains certain financial measures, such as unit net cash costs, which are not recognized under U.S. generally accepted accounting principles (GAAP). As required by U.S. Securities and Exchange Commission Regulation G, reconciliations of unit net cash costs to amounts reported in FCX's consolidated financial statements are available beginning on page 51 of this report.




## PROVEN ASSETS.
FUNDAMENTAL VALUE.

Freeport-McMoRan's premier portfolio of long-lived, geographically diverse copper assets provides value and opportunity. As our global team works to maximize value through cost management, productivity and technology, the global marketplace looks to our resources as a key element for economic growth and technological progress.

## TABLE OF CONTENTS

2 Mining Operations
4 Letter to Our Shareholders
6 Operational Overview
14 Mining Reserves and Mineralized Material
15 Financial Performance
16 Sustainable Development
18 Tailings Management and Stewardship
20 Board of Directors and Management
21 Financial and Operating Information
132 Performance Graph
133 Stockholder Information



Morenci, Arizona

Bagdad, Arizona

Sierrita, Arizona

Safford, Arizona

Miami, Arizona

Henderson, Colorado

Climax, Colorado

Chino, New Mexico

Tyrone, New Mexico

Cerro Verde, Peru

El Abra, Chile



## GEOGRAPHICALLY DIVERSE PORTFOLIO

Reserves
at 12/31/18

2018 Sales

NORTH AMERICA
Cu 49.9 billion lbs
Au 0.6 million ozs
Mo 3.06 billion lbs

Cu 1.4 billion lbs
Mo 94 million lbs*

SOUTH AMERICA
Cu 33.5 billion lbs
Mo 0.72 billion lbs

Cu 1.3 billion lbs

INDONESIA
Cu 36.2 billion lbs
Au 30.2 million ozs

Cu 1.1 billion lbs
Au 2.4 million ozs

CONSOLIDATED TOTALS
Cu 119.6 billion lbs
Au 30.8 million ozs
Mo 3.78 billion lbs

Cu 3.8 billion lbs
Au 2.4 million ozs
Mo 94 million lbs

* Includes sales of molybdenum produced at FCX's North America and South America copper mines.
Note: lbs= pounds; ozs= ounces.

Timok, Serbia (Undeveloped)

Grasberg, Indonesia

Kisanfu, Democratic Republic of Congo (Undeveloped)

Copper (Cu)

Gold (Au)

Molybdenum (Mo)



## DEAR FELLOW SHAREHOLDERS

We are pleased to present to you our Annual Report “Proven Assets. Fundamental Value.” As a leading global producer of copper, Freeport-McMoRan Inc. (Freeport-McMoRan) is focused on providing products necessary to support growing economies around the world in a cost-efficient, safe and environmentally responsible manner.

We operate a geographically diverse portfolio of high-quality copper assets with long-lived reserves and attractive future development opportunities, and we benefit from an experienced management team focused on shareholder value.

Our theme for this year’s annual report showcases our assets and the value these assets provide to stakeholders. We own and operate strategic copper mines around the world that are “Proven Assets,” including the Morenci mine in Arizona — North America’s largest copper mine, the Cerro Verde operation in Arequipa, Peru — the world’s largest mill concentrating facility, and the Grasberg minerals district in Papua, Indonesia — one of the world’s largest copper and gold mines. Seventy percent of our consolidated reserves are located in the Americas.

Our portfolio of copper assets would be difficult to replicate today. The implied replacement value of our current operating capacity, as measured by the costs to develop new greenfield projects, is substantially above our book value and the current public market value, illustrating the “Fundamental Value” of Freeport-McMoRan in the current marketplace, where large-scale, actionable projects are rare.

In recent years, our Board of Directors (Board) and management team have prioritized two major objectives to enhance long-term shareholder value — 1) to restore our balance sheet strength and 2) to reach a favorable agreement with the Indonesian government on PT Freeport Indonesia’s long-term mining rights for our world-class Grasberg asset. We are pleased to report that we successfully achieved both of these objectives — culminating with the completion of a positive transaction in December 2018 to provide long-term stability to our operations in Indonesia.

As we look forward, we are optimistic about the future that our asset base will provide for shareholders. Our strategy will focus on maximizing the value of our existing resource base through cost management, productivity and technology, executing our plan to successfully transition from open-pit mining to large-scale underground mining at Grasberg, generating cash flows to enhance shareholder returns and creating value organically from our large, undeveloped resource position.



The implied replacement value of our current operating capacity, as measured by the costs to develop new greenfield projects, is substantially above our book value and the current public market value, illustrating the “Fundamental Value” of Freeport-McMoRan in the current marketplace where large-scale, actionable projects are rare.



Our transition to underground mining at Grasberg is advancing according to plan and we are encouraged by recent milestones. A successful ramp up is important to our success in the years ahead and our experienced team is highly motivated to deliver.

In North America, we are advancing our Lone Star copper leach project in eastern Arizona. The project is on schedule and expected to begin production by the end of 2020. The sulfide drilling program at Lone Star continues to yield exciting results that bode well for the future potential of this district beyond the initial leachable project. Additionally, we have a large footprint of undeveloped sulfide resources in the Americas and our team is currently focused on ranking and prioritizing these longer-term investment opportunities.

The long-term fundamentals for copper are very positive, underpinned by the role of copper in the global economy, the trend toward copper-intensive renewable energy and electrification initiatives and limitations on new supply projects. We are strongly positioned to benefit from increasing copper prices with our large-scale asset base and undeveloped resource position.

During 2018, our global team achieved strong and safe operating results and continued to execute on operating and capital discipline. Our operating cash flow of $3.9 billion exceeded our capital spending of $2.0 billion. At year-end 2018, our debt, net of cash, had declined to $6.9 billion and our financial metrics were strong. In recognition of our company’s improved financial strength, in May 2018, our Board approved a policy to pay a quarterly $0.05 per share cash dividend on our common stock.
Fundamental to our operations and business strategy are our principles of accountability to communities and stakeholders and our commitment to sustainability and environmental management. We are committed to providing the necessary management and financial resources to ensure safety throughout all facets of the mining process and understand that operating safely and responsibly is paramount to our long-term success.

We appreciate the efforts of our global workforce for their many contributions to our success. Their commitment to our company is what makes Freeport-McMoRan strong. We would also like to thank our Board for their support and counsel during 2018. Collectively, our Board, management team and global workforce are focused on working together to realize the “Fundamental Value” from our “Proven Assets.”

Respectfully yours,



GERALD J. FORD
Non-Executive Chairman
of the Board



RICHARD C. ADKERSON
Vice Chairman of the Board,
President and Chief Executive Officer





March 27, 2019



## CONSOLIDATED RESULTS

FCX’s consolidated copper sales of 3.8 billion pounds in 2018 were higher than 3.7 billion pounds in 2017, primarily

reflecting higher mill rates at PT Freeport Indonesia (PT-FI). Consolidated copper sales for 2019, which reflect a transition year at PT-FI, are expected to approximate 3.3 billion pounds.

Consolidated gold sales of 2.4 million ounces in 2018 were higher than 1.6 million ounces in 2017, primarily reflecting higher ore grades at PT-FI. Consolidated gold sales for 2019 are expected to approximate 785 thousand ounces.

Consolidated molybdenum sales totaled 94 million pounds in 2018 and 95 million pounds in 2017. Consolidated molybdenum sales for 2019 are expected to approximate 94 million pounds.
During 2018, our global team achieved strong and safe operating results and continued to execute on operating and capital discipline. Our operating cash flow of $3.9 billion exceeded our capital spending of $2.0 billion.







## CONSOLIDATED UNIT NET CASH COSTS \( ^{*} \) 

<table><tr><td>$ per lb of copper</td><td>2018</td><td>2017</td></tr><tr><td>Site Production and Delivery</td><td>$ 1.76</td><td>$ 1.60</td></tr><tr><td>By-product Credits</td><td>(0.97)</td><td>(0.67)</td></tr><tr><td>Treatment Charges</td><td>0.18</td><td>0.19</td></tr><tr><td>Royalties and Export Duties</td><td>0.10</td><td>0.07</td></tr><tr><td>Unit Net Cash Costs</td><td>$ 1.07</td><td>$ 1.19</td></tr></table>

* Unit net cash costs per pound of copper is a non-GAAP financial measure. See Cautionary Statement.

CONSOLIDATED COPPER SALES
in billion lbs



CONSOLIDATED GOLD SALES
in million ozs



CONSOLIDATED MOLYBDENUM SALES
in million lbs










## NORTH AMERICA MINING

In North America, FCX operates seven open-pit copper mines — Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico; and two molybdenum mines – Henderson and Climax in Colorado. Molybdenum concentrate, gold and silver are also produced by certain of FCX’s North America copper mines.

In 2018, FCX commenced a project to develop the Lone Star leachable ores located near its Safford operation in Arizona,

The sulfide drilling program at Lone Star in eastern Arizona continues to yield exciting results that bode well for the future potential of this district beyond the initial leachable project.

America and a portfolio of potential long-term projects. Future investments will be undertaken based on the results of economic and technical feasibility studies, and are dependent on market conditions. FCX continues to study opportunities to reduce the capital intensity of its potential long-term development projects.

North America’s consolidated copper sales of 1.4 billion pounds in 2018 were lower than 1.5 billion pounds in 2017, primarily reflecting lower ore grades. FCX expects copper sales from its North America copper mines to approximate 1.4 billion pounds in 2019.

Consolidated molybdenum sales, including sales of molybdenum produced at FCX’s North America and South America copper mines, totaled 94 million pounds in 2018 and 95 million pounds in 2017. FCX expects consolidated molybdenum sales to approximate 94 million pounds in 2019.

## NORTH AMERICA UNIT NET CASH COSTS \( ^{*} \) 

<table><tr><td>$ per lb of copper</td><td>2018</td><td>2017</td></tr><tr><td>Site Production and Delivery</td><td>$ 1.94</td><td>$ 1.63</td></tr><tr><td>By-product Credits</td><td>(0.26)</td><td>(0.17)</td></tr><tr><td>Treatment Charges</td><td>0.11</td><td>0.10</td></tr><tr><td>Unit Net Cash Costs</td><td>$ 1.79</td><td>$ 1.56</td></tr></table>

* Unit net cash costs per pound of copper is a non-GAAP financial measure. See Cautionary Statement.

NORTH AMERICA COPPER SALES
in billion lbs



NORTH AMERICA MOLYBDENUM SALES \( ^{®} \) 
in million lbs



* Includes sales of molybdenum produced at FCX's North America and South America copper mines.

NORTH AMERICA COPPER RESERVES BY MINE
49.9 billion lbs








## SOUTH AMERICA UNIT NET CASH COSTS \( ^{*} \) 

<table><tr><td>$ per lb of copper</td><td>2018</td><td>2017</td></tr><tr><td>Site Production and Delivery</td><td>$ 1.79</td><td>$ 1.59</td></tr><tr><td>By-product Credits</td><td>(0.24)</td><td>(0.18)</td></tr><tr><td>Treatment Charges</td><td>0.19</td><td>0.22</td></tr><tr><td>Royalty on Metals</td><td>0.01</td><td>0.01</td></tr><tr><td>Unit Net Cash Costs</td><td>$ 1.75</td><td>$ 1.64</td></tr></table>

* Unit net cash costs per pound of copper is a non-GAAP financial measure. See Cautionary Statement.

## SOUTH AMERICA COPPER SALES
in billion lbs



## SOUTH AMERICA COPPER RESERVES BY MINE
33.5 billion lbs






## SOUTH AMERICA MINING

FCX operates two copper mines in South America — Cerro Verde in Peru and El Abra in Chile. In addition to copper, the Cerro Verde mine produces molybdenum concentrate and silver.

Cerro Verde’s expanded operations benefit from its large-scale, long-lived reserves and cost efficiencies. During 2018, Cerro

El Abra's large sulfide resource could potentially support a major mill project similar to facilities constructed at Cerro Verde.
Verde received a modified environmental permit allowing it to operate the existing concentrator facilities at rates up to 409,500 metric tons of ore per day. Cerro Verde's mill throughput rates for 2018 averaged 387,600 metric tons of ore per day.

FCX continues to evaluate a large-scale expansion at El Abra to process additional sulfide material and to achieve higher

recoveries. El Abra’s large sulfide resource could potentially support a major mill project similar to facilities constructed at Cerro Verde. Technical and economic studies are being advanced to determine the optimal scope and timing for the project.

Consolidated copper sales from FCX’s South America mines of 1.25 billion pounds in 2018 were slightly higher than 1.24 billion pounds in 2017. FCX expects copper sales from its South America mines to approximate 1.3 billion pounds in 2019.



## INDONESIA UNIT NET CASH (CREDITS) COSTS \( ^{*} \) 

<table><tr><td>$ per lb of copper</td><td colspan="2">2018</td><td colspan="2">2017</td></tr><tr><td>Site Production and Delivery</td><td>$</td><td>1.48 \(</td><td>$</td><td>1.57 \(</td></tr><tr><td>By-product Credits</td><td></td><td>(2.69)</td><td></td><td>(2.05)</td></tr><tr><td>Treatment Charges</td><td></td><td>0.26</td><td></td><td>0.27</td></tr><tr><td>Export Duties</td><td></td><td>0.16</td><td></td><td>0.12</td></tr><tr><td>Royalty on Metals</td><td></td><td>0.21</td><td></td><td>0.17</td></tr><tr><td>Unit Net Cash (Credits) Costs</td><td>$</td><td>(0.58)</td><td>$</td><td>0.08</td></tr></table>

* Unit net cash (credits) costs per pound of copper is a non-GAAP financial measure. See Cautionary Statement.

Excludes charges totaling $0.20 per pound of copper, primarily associated with disputed surface water and payroll withholding taxes, write-offs of capitalized project costs and prior period environmental permit fees, partly offset by inventory adjustments.

* Excludes costs totaling $0.12 per pound of copper associated with workforce reductions.

## INDONESIA COPPER SALES
in billion lbs



## INDONESIA MINING

Through its subsidiary, PT-FI, FCX mines one of the world’s largest copper and gold deposits in the Grasberg minerals district in Papua, Indonesia. In addition to copper and gold, PT-FI produces silver.

In December 2018, FCX completed the transaction with the Indonesian government regarding PT-FI’s long-term mining rights and share ownership. Concurrent with closing the transaction, the Indonesian government granted PT-FI a new special mining license (IUPK), which grants PT-FI an extension of mining rights through 2031, with rights to extend mining rights through 2041.

PT-FI is currently mining the final phase of the Grasberg open pit and expects to transition to the Grasberg Block Cave underground mine in the first half of 2019. PT-FI continues to advance several projects in the Grasberg minerals district related to the development of its large-scale, long-lived, high-grade underground ore bodies. In aggregate, these underground ore bodies are expected to produce large-scale quantities of copper and gold following the transition from the Grasberg open pit.

Consolidated sales from Indonesia mining of 1.1 billion pounds of copper and 2.4 million ounces of gold in 2018 were higher than 1.0 billion pounds of copper and 1.5 million ounces of gold in 2017. As PT-FI transitions mining from the open pit to underground, production is expected to be significantly lower in 2019 and 2020, compared to 2018. FCX expects consolidated sales from Indonesia mining to approximate 615 million pounds of copper and 785 thousand ounces of gold in 2019.








INDONESIA GOLD SALES
in million ozs

2.5
2.0
1.5
1.0
0.5

2017 2018

INDONESIA COPPER RESERVES
36.2 billion lbs



48% Grasberg Block Cave
22% Kucing Liar (undeveloped)
21% Deep Mill Level Zone
7% Big Gossan
2% Other



## MINING RESERVES AND MINERALIZED MATERIAL

FCX has significant reserves, resources and future development opportunities within its portfolio of mining assets. At December 31, 2018, estimated consolidated recoverable proven and probable mineral reserves included 119.6 billion pounds of copper, 30.8 million ounces of gold, 3.78 billion pounds of molybdenum and 393.1 million ounces of silver. These estimates were determined using $2.50 per pound for copper in North America and South America and $2.00 per pound for copper in Indonesia, $1,000 per ounce for gold, $10 per pound for molybdenum and $15 per ounce for silver.

FCX’s operating mines and other properties also contain mineralized material that it believes could be brought into production should market conditions warrant. At December 31, 2018, FCX identified estimated mineralized material totaling 134 billion pounds of incremental contained copper, which was assessed using $3.00 per pound.

Engineering innovation has improved operating efficiencies across the FCX operations. At FCX's Bagdad mine in Arizona, big data and artificial intelligence models helped to boost productivity without major capital spending.



CONSOLIDATED COPPER RESERVES
119.6 billion lbs



MINERALIZED MATERIAL
134 billion lbs



44% North America
22% South America
29% Indonesia
5% Other




In recognition of our company’s improved financial strength, in May 2018, our Board of Directors approved a policy to pay a quarterly $0.05 per share cash dividend on our common stock.

## FINANCIAL PERFORMANCE

Subject to future commodity prices, FCX expects estimated consolidated operating cash flows, plus available cash and availability under its credit facility, to be sufficient to fund its budgeted capital expenditures, cash dividends and other cash requirements for 2019.

## Operating Cash Flow and Liquidity

FCX generated operating cash flows of $3.9 billion in 2018. At December 31, 2018, FCX had consolidated cash of $4.2 billion, total debt of $11.1 billion and had no borrowings under its $3.5 billion revolving credit facility.

Based on current sales volume and costs estimates, and assuming average prices of $2.75 per pound of copper, $1,300 per ounce of gold and $12.00 per pound of molybdenum, FCX estimates consolidated operating cash flows would approximate $1.8 billion in 2019.

## Investing Activities

FCX’s capital expenditures totaled $2.0 billion in 2018, including $1.2 billion for major mining projects. Capital expenditures are expected to approximate $2.4 billion in 2019, including $1.5 billion for major mining projects, primarily associated with underground development activities in the Grasberg minerals district and development of the Lone Star leachable ore project.

## Financing Transactions

Net repayments of debt totaled $2.1 billion in 2018, primarily for the repayment of senior notes.

## BALANCED APPROACH TO FINANCIAL POLICY






In coordination with local governments and non-governmental organizations, FCX invests substantial resources to help communities in developing regions reduce public health risks.

A company-supported hospital in Papua, Indonesia

FCX's engagement and local investment objectives include tailored engagements with indigenous peoples in Indonesia and Chile, and Native Americans in the United States.






## SUSTAINABLE DEVELOPMENT

Our company operates a high-quality, global portfolio of long-lived copper assets that position us for fundamental value creation for the long-term. The importance of copper to a lower carbon economy is substantial. The “red metal” has the best electrical conductivity of any commercial metal and will continue to be a critical input into energy systems, including innovative renewable technologies.

We work to maintain acceptance to operate locally by conducting safe operations, respecting the rights of stakeholders, creating shared value, and through sound environmental stewardship. We recognize that our sustainability performance is important to meeting the responsible sourcing objectives of downstream customers and consumers. Maintaining robust sustainability programs enhances our ability to place our products into the global marketplace well into the future.

Collaboration with local stakeholders on projects to improve water quality and availability is core to FCX's social investment priorities. FCX spearheaded a partnership to provide clean drinking water and a wastewater collection and treatment program that benefits more than one million people in the Arequipa region of Peru.
Learn about FCX’s sustainable development programs and performance in its externally assured annual Working Toward Sustainable Development report, which is prepared in accordance with the Global Reporting Initiative and is available at fcx.com/sustainability.
2018 COMMUNITY INVESTMENT
$155 million



40% Trust Funds

15% Safety, Health and Environment

15% Economic Development and Infrastructure

15% Other \( ^{*} $ 

12% Education and Training

3% Administration

* Includes arts, culture, resettlement, mitigation, stakeholder engagement and employee programs, such as Matching Gifts and United Way.







Active Tailings Storage Facilities (TSFs) are continually monitored for embankment dam structural stability and environmental aspects, such as dust generation potential. Pictured: buttress construction to provide additional stability at the SierraT SF near Green Valley, Arizona



The compacted centerline TSFs at our Cerro Verde operations in Peru continue to be examples of good practice of TSF design and operations. Pictured: Linga TSF achieves robust structural stability and efficient water management




We reclaim inactive TSF's by regrading slopes, conveying and diverting storm water, capping with soil cover, and reseeding with native grasses and shrubs.
Pictured: Tyrone TSF's in New Mexico, after completing reclamation



## TALLINGS MANAGEMENT AND STEWARDSHIP

Affiliates of our company, Freeport-McMoRan Inc., currently operate 19 tailings storage facilities (TSFs) and manage 55 that are inactive or reclaimed. Our subsidiary, PT-FI, operates a controlled riverine tailings management system.
FCX’s tailings dams are designed, built, operated and monitored to minimize risk to employees, neighboring communities and the environment. We have a strong commitment from our Board of Directors and executive management team to commit the necessary resources to protect safety.
We recognize that the failure of tailings and other impoundments at any of our mining operations could cause severe, and in some cases catastrophic, property and environmental damage and loss of life. Many of our tailings impoundments are located in areas that have the potential to impact individual dwellings and communities. As a result, our programs take into account the significant consequences resulting from a potential failure, and we apply substantial financial resources and technical resources, both internal and external, to the safe management of all those facilities. Accountability and the importance of careful design, management and monitoring of large impoundments have been emphasized in recent years by large-scale tailings dam failures at

unaffiliated mines, which resulted in numerous fatalities and caused extensive property and environmental damage.

We believe our tailings management and stewardship program is robust and mitigates safety and environmental risks. We have a strong commitment from our Board of Directors and executive management team to commit the necessary resources to protect safety.

Learn more about FCX’s tailings stewardship, management and reclamation programs at fcx.com/sustainability in the Tailings Management section.



## BOARD OF DIRECTORS

Gerald J. Ford (1, 3, 9)
Non-Executive Chairman of the Board
Freepart-McMoRan Inc.
Chairman of the Board
Hilltop Holdings Inc.

Richard C. Adkerson
Vice Chairman of the Board,
President and Chief Executive Officer
Freepart-McMoRan Inc.

Lydia H. Kennard (1, 3, 4)
President and Chief Executive Officer
KDG Construction Consulting

## EXECUTIVE OFFICERS

Richard C. Adkerson
Vice Chairman of the Board,
President and Chief Executive Officer

Kathleen L. Quirk
Executive Vice President and
Chief Financial Officer

Harry M. “Red” Conger, IV
President and Chief Operating Officer —
Americas

## OPERATIONS

Richard E. Coleman
President – Freepart-McMoRan
Mining Company

Stephen T. Higgins
Senior Vice President and
Chief Administrative Officer

Mark J. Johnson
President – Freepart-McMoRan Indonesia

Michael J. Kendrick
President – Climax Molybdenum Co.

Javier Targhetta
President – Atlantic Copper, S.L.U.
Senior Vice President – FCX (Concentrates)

## EMERITUS MEMBERS:

James R. Moffett – Chairman Emeritus
Dr. Henry A. Kissinger – Director Emeritus

## BOARD COMMITTEES:

1) Audit Committee
2) Compensation Committee
3) Nominating and Corporate Governance Committee
4) Corporate Responsibility Committee
5) Executive Committee

## FINANCE AND ADMINISTRATION

Robert R. Boyce
Vice President and Treasurer

W. Russell King
Senior Vice President –
International Relations and
Federal Government Affairs

L. Richards McMillan, II
Senior Vice President and
General Counsel

C. Donald Whitmire, Jr.
Vice President and
Controller – Financial Reporting

Internal Auditors
Deloitte & Touche LLP



## PROVEN ASSETS.
FUNDAMENTAL VALUE.
Financial and Operating Information

## TABLE OF CONTENTS

22 Selected Financial and Operating Data
25 Management's Discussion and Analysis
63 Management's Report on Internal Control Over Financial Reporting
64 Report of Independent Registered Public Accounting Firm
65 Report of Independent Registered Public Accounting Firm
66 Consolidated Statements of Operations
67 Consolidated Statements of Comprehensive Income (Loss)
68 Consolidated Statements of Cash Flows
69 Consolidated Balance Sheets
70 Consolidated Statements of Equity
71 Notes to Consolidated Financial Statements



<table><tr><td>Years Ended December 31,</td><td>2018</td><td>2017</td><td>2016</td><td>2015</td><td>2014</td></tr><tr><td>(In millions, except per share amounts)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>CONSOLIDATED FINANCIAL DATA</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues</td><td>$18,628</td><td>$16,403</td><td>$14,830a</td><td>$ 14,607a</td><td>$20,001a</td></tr><tr><td>Operating income (loss)b</td><td>$ 4,754c,d</td><td>$ 3,690e</td><td>$ (2,729)f</td><td>$ (13,512)g</td><td>$ (298)b</td></tr><tr><td>Net income (loss) from continuing operations</td><td>$ 2,909g,i,k,l</td><td>$ 2,029g,i,k</td><td>$ (3,832)i,k</td><td>$ (12,180)f</td><td>$ (1,022)i,k</td></tr><tr><td>Net (loss) income from discontinued operationsm</td><td>$ (15)</td><td>$ 66</td><td>$ (193)</td><td>$ 91</td><td>$ 277</td></tr><tr><td>Net income (loss) attributable to common stock</td><td>$ 2,602</td><td>$ 1,817</td><td>$ (4,154)n</td><td>$ (12,236)</td><td>$ (1,308)</td></tr><tr><td>Diluted net income (loss) per share attributable to common stock:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Continuing operations</td><td>$ 1.79</td><td>$ 1.21</td><td>$ (2.96)</td><td>$ (11.32)</td><td>$ (1.37)</td></tr><tr><td>Discontinued operations</td><td>$ (0.01)</td><td>0.04</td><td>(0.20)</td><td>0.01</td><td>0.11</td></tr><tr><td></td><td>$ 1.78</td><td>$ 1.25</td><td>$ (3.16)</td><td>$ (11.31)</td><td>$ (1.26)</td></tr><tr><td>Weighted-average common shares outstanding:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>1,449</td><td>1,447</td><td>1,318</td><td>1,082</td><td>1,039</td></tr><tr><td>Diluted</td><td>1,458</td><td>1,454</td><td>1,318</td><td>1,082</td><td>1,039</td></tr><tr><td>Dividends declared per share of common stock</td><td>$ 0.20</td><td>$ —</td><td>$ —</td><td>$ 0.2605</td><td>$ 1.25</td></tr><tr><td>Operating cash flows</td><td>$ 3,863</td><td>$ 4,666</td><td>$ 3,737</td><td>$ 3,220</td><td>$ 5,631</td></tr><tr><td>Capital expenditures</td><td>$ 1,971</td><td>$ 1,410</td><td>$ 2,813</td><td>$ 6,353</td><td>$ 7,215</td></tr><tr><td>At December 31:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 4,217</td><td>$ 4,526</td><td>$ 4,262</td><td>$ 193</td><td>$ 315</td></tr><tr><td>Property, plant, equipment and mine development costs, net</td><td>$ 28,010</td><td>$22,994</td><td>$ 23,348</td><td>$ 24,245</td><td>$ 22,927</td></tr><tr><td>Oil and gas properties, net</td><td>—</td><td>$ —</td><td>$ 74</td><td>$ 7,093</td><td>$ 19,274</td></tr><tr><td>Assets held for sale, including current portiona</td><td>$ —</td><td>$ —</td><td>$ 5</td><td>$ 4,862</td><td>$ 4,829</td></tr><tr><td>Total assets</td><td>$ 42,216</td><td>$37,302</td><td>$37,317</td><td>$ 46,577</td><td>$58,674</td></tr><tr><td>Total debt, including current portion</td><td>$ 11,141</td><td>$13,229</td><td>$16,126</td><td>$ 20,428</td><td>$18,970</td></tr><tr><td>Redeemable noncontrolling interest</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ 764</td><td>$ 751</td></tr><tr><td>Total stockholders&#x27; equity</td><td>$ 9,798</td><td>$ 7,977</td><td>$ 6,051</td><td>$ 7,828</td><td>$18,287</td></tr></table>

The selected consolidated financial data shown above is derived from our audited consolidated financial statements. These historical results are not necessarily indicative of results that you can expect for any future period. You should read this data in conjunction with Items 7. and 7A. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risks (MD&A) and Item 8. Financial Statements and Supplementary Data thereto contained in our annual report on Form 10-K for the year ended December 31, 2018. All references to income or losses per share are on a diluted basis, unless otherwise noted.

a. Includes net noncash mark-to-market (losses) gains associated with crude oil and natural gas derivative contracts totaling $41 million ($41 million) to net loss attributable to common stock or $0.03 per share) in 2016, $319 million ($198 million) to net loss attributable to common stock or $0.18 per share) in 2015 and $627 million ($389 million) to net loss attributable to common stock or $0.37 per share) in 2014.

b. Includes net charges (credits) for adjustments to environmental obligations and related litigation reserves of $37 million ($57 million) to net income attributable to common stock or $0.04 per share) in 2018, $210 million ($210 million) to net income attributable to common stock or $0.14 per share) in 2017, $16 million ($16 million) to net loss attributable to common stock or $0.01 per share) in 2016, $43 million ($28 million) to net loss attributable to common stock or $0.03 per share) in 2015 and $76 million ($50 million) to net loss attributable to common stock or $0.05 per share) in 2014.

c. The year 2018 includes net credits totaling $96 million ($156 million) to net income attributable to common stock or $0.11 per share) consisting of gains on sales of assets totaling $208 million, partly offset by net charges of $69 million associated with Cerro Verde's collective labor agreement and $43 million mostly associated with depreciation expense at Freeport Cobalt for the period December 2016 through December 2017, which was suspended while it was classified as held for sale.

d. The year 2018 also includes net charges at PF Freeport (Indiana) (PF-T) totaling $232 million ($20 million) to net income attributable to common stock or $0.08 per share) consisting of $69 million for surface water taxes due plus when the local regional tax authority in Papua, Indonesia, $32 million for assessments of prior period permit fees with Indonesia's Ministry of Environment and Forestry, $72 million for disputed payroll withholding taxes for prior years and other tax settlements, and $62 million to write-off certain previously capitalized project costs for the new smelter in Indonesia, partly offset by inventory adjustments totaling $12 million.

e. The year 2017 includes net charges totaling $68 million to operating income ($12 million to net income attributable to common stock or $0.01 per share) consisting of charges totaling $125 million for workforce reductions at PT-FI and other net charges of $24 million mostly for asset impairments and metals inventory adjustments, partly offset by net gains on sales of assets totaling $81 million primarily associated with oil and gas transactions.

f. The year 2016 includes net charges totaling $4.9 billion to operating loss ($4.8 billion to net loss attributable to common stock or $3.67 per share) consisting of (i) $4.3 billion for impairment of oil and gas properties, (ii) $926 million for drilling setbacks/emissions/dil and grant contract termination costs, (iii) $196 million for other charges at oil and gas operations primarily associated with inventory adjustments, asset impairment and other restructuring charges and (iv) $69 million for charges at mining operations for metals inventory adjustments, PT-FI asset retirement and Cerro Verde social commitments, partly offset by (v) net gains on sales of assets totaling $649 million mostly associated with the Morenic and Timok transactions, and net of estimated losses associated with assets held for sale.

g. The year 2015 includes net charges totaling $13.8 billion to operating loss ($12.0 billion to net loss attributable to common stock or $11.0 per share) consisting of (i) $13.1 billion for impairment of oil and gas properties, (ii) $338 million for metals inventory adjustments, (iii) $188 million for charges at oil and gas operations primarily associated with other asset impairment and inventory adjustments, idle/terminated rig costs and prior year mineral tax assessments related to the California properties, (iv) $145 million for charges at mining operations primarily associated with asset impairment, restructuring and other net charges and (v) $18 million for executive retirement benefits, partly offset by (vi) a net gain of $39 million for the sale of our interest in the Luna Energy power facility.

h. The year 2014 includes net charges totaling $4.8 billion to operating loss ($3.6 billion to net loss attributable to common stock or $3.46 per share) consisting of (i) $3.7 billion for impairment of oil and gas properties, (ii) $1.7 billion to impair the full carrying value of goodwill, (iii) $46 million for charges at oil and gas operations primarily associated with idle/terminated rig costs and inventory adjustments and (iv) $6 million for adjustments to molybdenum inventories, partly offset by (v) net gains on sales of assets of $717 million primarily from the sale of our 80 percent interests in the Candelaria and Qios del Salado mining operations.

i. Includes net charges at Cerro Verde related to disputed royalty matters for prior years totaling $195 million to net income attributable to common stock ($0.13 per share) in 2018 and $186 million to net income attributable to common stock ($0.13 per share) in 2017. Net charges for 2018 consist of charges (credits) of $14 million to operating income, $370 million to interest expense and $22 million to other expense, net of $35 million of net income tax benefits and $176 million to noncontrolling interests. Net charges for 2017 consist of $203 million to operating income, $145 million to interest expense and $7 million to provision for income taxes, net of $169 million to noncontrolling interests. Refer to Note 12 for further discussion.

j. Includes after-tax net gains (losses) on early extinguishment and exchanges of debt totaling $7 million (less than $0.01 per share) in 2018, $21 million ($0.01 per share) in 2017, $26 million ($0.02 per share) in 2016 and $3 million (less than $0.01 per share) in 2014.

k. As further discussed in “Consolidated Results—Income Taxes” contained in MD&A, amounts include net tax credits (charges) of $632 million ($574 million net of noncontrolling interests or $0.39 per share) in 2018, $438 million ($0.30 per share) in 2017, $370 million ($374 million net of noncontrolling interests or $0.28 per share) in 2016 and $(121) million ($103 million net of noncontrolling interests or $0.10) per share) in 2014.

I. The year 2018 includes a gain of $19 million to net income attributable to common stock or $0.01 per share for interest received on tax refunds. The year 2015 includes a gain of $92 million to net loss attributable to common stock or $0.09 per share related to net proceeds received from insurance carriers and other third parties related to the shareholder derivative litigation settlement.



m. Discontinued operations reflects the results of TF Holdings Limited (TFHL), through which we held an interest in the Tenke Fungurume (Tenke) mine until it was sold on November 16, 2016, and includes charges for allocated interest expense associated with the portion of the term loan that was required to be repaid as a result of the sale. Net (loss) income from discontinued operations in 2018 and 2017 primarily reflect adjustments to the fair value of the potential contingent consideration related to the sale and will continue to be adjusted through December 31, 2019. The year 2016 also includes a net charge of $198 million for the loss on disposal.

n. Includes a gain on redemption of a redeemable noncontrolling interest of $199 million ($0.15 per share) associated with the settlement of a preferred stock obligation. Refer to Note 2 for further discussion.

o. In accordance with accounting guidelines, the assets and liabilities of TFHL have been presented as held for sale in the consolidated balance sheets for all periods presented.

<table><tr><td>Years Ended December 31,</td><td>2018</td><td>2017</td><td>2016</td><td>2015</td><td>2014</td></tr><tr><td>CONSOLIDATED MINING (CONTINUING OPERATIONS) \( ^{a,b} \)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Copper (millions of recoverable pounds)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Production</td><td>3,813</td><td>3,737</td><td>4,222</td><td>3,568</td><td>3,457</td></tr><tr><td>Sales, excluding purchases</td><td>3,811</td><td>3,700</td><td>4,227</td><td>3,603</td><td>3,463</td></tr><tr><td>Average realized price per pound</td><td>$ 2.91</td><td>$ 2.93</td><td>$ 2.28</td><td>$ 2.42</td><td>$ 3.09</td></tr><tr><td>Gold (thousands of recoverable ounces)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Production</td><td>2,439</td><td>1,577</td><td>1,088</td><td>1,257</td><td>1,214</td></tr><tr><td>Sales, excluding purchases</td><td>2,389</td><td>1,562</td><td>1,079</td><td>1,247</td><td>1,248</td></tr><tr><td>Average realized price per ounce</td><td>$ 1,254</td><td>$ 1,268</td><td>$ 1,238</td><td>$ 1,129</td><td>$ 1,231</td></tr><tr><td>Molybdenum (millions of recoverable pounds)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Production</td><td>95</td><td>92</td><td>80</td><td>92</td><td>95</td></tr><tr><td>Sales, excluding purchases</td><td>94</td><td>95</td><td>74</td><td>89</td><td>95</td></tr><tr><td>Average realized price per pound</td><td>$ 12.50</td><td>$ 9.33</td><td>$ 8.33</td><td>$ 8.70</td><td>$ 12.74</td></tr><tr><td>NORTH AMERICA COPPER MINES</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Operating Data, Net of Joint Venture Interests \( ^{c} \)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Copper (millions of recoverable pounds)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Production</td><td>1,404</td><td>1,518</td><td>1,831</td><td>1,947</td><td>1,670</td></tr><tr><td>Sales, excluding purchases</td><td>1,428</td><td>1,484</td><td>1,841</td><td>1,988</td><td>1,664</td></tr><tr><td>Average realized price per pound</td><td>$ 2.96</td><td>$ 2.85</td><td>$ 2.24</td><td>$ 2.47</td><td>$ 3.13</td></tr><tr><td>Molybdenum (millions of recoverable pounds)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Production</td><td>32</td><td>33</td><td>33</td><td>37</td><td>33</td></tr><tr><td>100% Operating Data</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Leach operations</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Leach ore placed in stockpiles (metric tons per day)</td><td>681,400</td><td>679,000</td><td>737,400</td><td>913,000</td><td>1,011,500</td></tr><tr><td>Average copper ore grade (percent)</td><td>0.24</td><td>0.28</td><td>0.31</td><td>0.26</td><td>0.25</td></tr><tr><td>Copper production (millions of recoverable pounds)</td><td>951</td><td>1,016</td><td>1,120</td><td>1,086</td><td>963</td></tr><tr><td>Mill operations</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Ore milled (metric tons per day)</td><td>301,000</td><td>299,500</td><td>300,500</td><td>312,100</td><td>273,800</td></tr><tr><td>Average ore grade (percent):</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Copper</td><td>0.35</td><td>0.39</td><td>0.47</td><td>0.49</td><td>0.45</td></tr><tr><td>Molybdenum</td><td>0.02</td><td>0.03</td><td>0.03</td><td>0.03</td><td>0.03</td></tr><tr><td>Copper recovery rate (percent)</td><td>87.8</td><td>86.4</td><td>85.5</td><td>85.4</td><td>85.8</td></tr><tr><td>Copper production (millions of recoverable pounds)</td><td>719</td><td>788</td><td>958</td><td>1,020</td><td>828</td></tr><tr><td>SOUTH AMERICA MINING \( ^{b} \)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Copper (millions of recoverable pounds)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Production</td><td>1,249</td><td>1,235</td><td>1,328</td><td>869</td><td>1,151</td></tr><tr><td>Sales</td><td>1,253</td><td>1,235</td><td>1,332</td><td>871</td><td>1,135</td></tr><tr><td>Average realized price per pound</td><td>$ 2.87</td><td>$ 2.97</td><td>$ 2.31</td><td>$ 2.38</td><td>$ 3.08</td></tr><tr><td>Molybdenum (millions of recoverable pounds)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Production</td><td>28</td><td>27</td><td>21</td><td>7</td><td>11</td></tr><tr><td>Leach operations</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Leach ore placed in stockpiles (metric tons per day)</td><td>195,200</td><td>142,800</td><td>149,100</td><td>208,400</td><td>246,400</td></tr><tr><td>Average copper ore grade (percent)</td><td>0.33</td><td>0.37</td><td>0.41</td><td>0.44</td><td>0.48</td></tr><tr><td>Copper production (millions of recoverable pounds)</td><td>287</td><td>255</td><td>328</td><td>430</td><td>491</td></tr><tr><td>Mill operations</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Ore milled (metric tons per day)</td><td>387,600</td><td>360,100</td><td>353,400</td><td>152,100</td><td>180,500</td></tr><tr><td>Average ore grade:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Copper (percent)</td><td>0.38</td><td>0.44</td><td>0.43</td><td>0.46</td><td>0.54</td></tr><tr><td>Molybdenum (percent)</td><td>0.01</td><td>0.02</td><td>0.02</td><td>0.02</td><td>0.02</td></tr><tr><td>Copper recovery rate (percent)</td><td>84.3</td><td>81.2</td><td>85.8</td><td>81.5</td><td>88.1</td></tr><tr><td>Copper production (millions of recoverable pounds)</td><td>962</td><td>980</td><td>1,000</td><td>439</td><td>660</td></tr></table>



<table><tr><td>Years Ended December 31,</td><td>2018</td><td>2017</td><td>2016</td><td>2015</td><td>2014</td></tr><tr><td>INDONESIA MINING</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Operating Data, Net of Rio Tinto Joint Venture Interests \( ^{d} \)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Copper (millions of recoverable pounds)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Production</td><td>1,160</td><td>984</td><td>1,063</td><td>752</td><td>636</td></tr><tr><td>Sales</td><td>1,130</td><td>981</td><td>1,054</td><td>744</td><td>664</td></tr><tr><td>Average realized price per pound</td><td>$ 2.89</td><td>$ 3.00</td><td>$ 2.32</td><td>$ 2.33</td><td>$ 3.01</td></tr><tr><td>Gold (thousands of recoverable ounces)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Production</td><td>2,416</td><td>1,554</td><td>1,061</td><td>1,232</td><td>1,130</td></tr><tr><td>Sales</td><td>2,366</td><td>1,540</td><td>1,054</td><td>1,224</td><td>1,168</td></tr><tr><td>Average realized price per ounce</td><td>$ 1,254</td><td>$ 1,268</td><td>$ 1,237</td><td>$ 1,129</td><td>$ 1,229</td></tr><tr><td>100% Operating Data</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Ore milled (metric tons per day)</td><td>178,100</td><td>140,400</td><td>165,700</td><td>162,500</td><td>120,500</td></tr><tr><td>Average ore grade:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Copper (percent)</td><td>0.98</td><td>1.01</td><td>0.91</td><td>0.67</td><td>0.79</td></tr><tr><td>Gold (grams per metric ton)</td><td>1.58</td><td>1.15</td><td>0.68</td><td>0.79</td><td>0.99</td></tr><tr><td>Recovery rates (percent):</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Copper</td><td>91.8</td><td>91.6</td><td>91.0</td><td>90.4</td><td>90.3</td></tr><tr><td>Gold</td><td>84.7</td><td>85.0</td><td>82.2</td><td>83.4</td><td>83.2</td></tr><tr><td>Production:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Copper (millions of recoverable pounds)</td><td>1,227</td><td>996</td><td>1,063</td><td>752</td><td>651</td></tr><tr><td>Gold (thousands of recoverable ounces)</td><td>2,697</td><td>1,554</td><td>1,061</td><td>1,232</td><td>1,132</td></tr><tr><td>MOLYBDENUM MINES</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Molybdenum production (millions of recoverable pounds)</td><td>35</td><td>32</td><td>26</td><td>48</td><td>51</td></tr><tr><td>Ore milled (metric tons per day)</td><td>27,900</td><td>22,500</td><td>18,300</td><td>34,800</td><td>39,400</td></tr><tr><td>Average molybdenum ore grade (percent)</td><td>0.18</td><td>0.20</td><td>0.21</td><td>0.2</td><td>0.19</td></tr><tr><td>OIL AND GAS OPERATIONS \( ^{e} \)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Sales Volumes:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Oil (million barrels)</td><td>1.4</td><td>1.8</td><td>34.4</td><td>35.3</td><td>40.1</td></tr><tr><td>Natural gas (billion cubic feet)</td><td>10.1</td><td>15.8</td><td>65.1</td><td>89.7</td><td>80.8</td></tr><tr><td>Natural gas liquids (NGLs) (million barrels)</td><td>0.1</td><td>0.2</td><td>1.8</td><td>2.4</td><td>3.2</td></tr><tr><td>Million barrels of oil equivalents</td><td>3.1</td><td>4.6</td><td>47.1</td><td>52.6</td><td>56.8</td></tr><tr><td>Average Realizations:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Oil (per barrel)</td><td>$ 54.13</td><td>$ 40.71</td><td>$ 39.13</td><td>$ 57.11</td><td>$ 90.00</td></tr><tr><td>Natural gas (per million British thermal units)</td><td>$ 3.15</td><td>$ 3.18</td><td>$ 2.38</td><td>$ 2.59</td><td>$ 4.23</td></tr><tr><td>NGLs (per barrel)</td><td>$ 44.11</td><td>$ 30.65</td><td>$ 18.11</td><td>$ 18.90</td><td>$ 39.73</td></tr></table>

a. Excludes the results from the Tenke mine, which is reported as discontinued operations.

b. Includes the results of the Candelaria and Ojos del Salado mines prior to their sale in November 2014.

c. Net of Morenci's joint venture interest; effective May 31, 2016, our undivided interest in Morenci was prospectively reduced from 85 percent to 72 percent. Refer to Note 2 for further discussion.

d. Prior to December 21, 2018, PT-FI had an unincorporated joint venture with Rio Tinto. Refer to Notes 2 and 3 for further discussion.

e. During the three years ended December 31, 2018, we completed sales of substantially all of our oil and gas assets. Refer to Note 2 for further discussion.



In Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk (MD&A), “we,” “us” and “our” refer to Freeport-McMoRan Inc. (FCX) and its consolidated subsidiaries. The results of operations reported and summarized below are not necessarily indicative of future operating results (refer to “Cautionary Statement” for further discussion). References to “Notes” are Notes included in our Notes to Consolidated Financial Statements. Throughout MD&A, all references to earnings or losses per share are on a diluted basis, unless otherwise noted. Additionally, in accordance with accounting guidelines, TF Holdings Limited (TFHL), through which we held a controlling interest in the Tenke Fungurume (Tenke) mine until it was sold on November 16, 2016, is reported as a discontinued operation for all periods presented.

## OVERVIEW

We are a leading international mining company with headquarters in Phoenix, Arizona. We operate large, long-lived, geographically diverse assets with significant proven and probable reserves of copper, gold and molybdenum. We are the world's largest publicly traded copper producer. Our portfolio of assets includes the Grasberg minerals district in Indonesia, one of the world's largest copper and gold deposits; and significant mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde operation in South America.

We believe that we have a high-quality portfolio of long-lived copper assets positioned to generate long-term value. We have commenced a project to develop the Lone Star oxide ores near the Safford operation in eastern Arizona, and PT Freeport Indonesia (PT-FI) has several projects in the Grasberg minerals district related to the development of its large-scale, long-lived, high-grade underground ore bodies (refer to “Operations—Indonesia Mining” for further discussion of PT-FI’s transition mining from the open pit to underground). We are also pursuing other opportunities to enhance our mines’ net present values, and we continue to advance studies for future development of our copper resources, the timing of which will be dependent on market conditions.

Net income (loss) attributable to common stock totaled $2.6 billion in 2018, $1.8 billion in 2017 and $4.2 billion in 2016. Our results in 2018, compared to 2017, benefited from higher copper and gold sales volumes, higher gains on sales of assets and lower adjustments to environmental obligations, partly offset by higher income tax expense mostly at our international operations. Our results for the year 2016 were unfavorably impacted by charges of $5.4 billion at oil and gas operations primarily for the impairment of oil and gas properties, drillship settlements and contract termination costs. Refer to “Consolidated Results” for discussion of items impacting our consolidated results for the three years ended December 31, 2018.

At December 31, 2018, we had $4.2 billion in consolidated cash and cash equivalents, $11.1 billion in total debt, and no borrowings and approximately $3.5 billion available under our revolving credit facility.

As further discussed in Note 2, in December 2018, we completed the transaction with the Indonesian government regarding PT-FI's long-term mining rights and share ownership. We expect our share of future cash flows of the expanded PT-FI asset base, combined with the cash proceeds received in the transaction, to be comparable to our share of anticipated future cash flows under PT-FI's former Contract of Work (COW) and joint venture arrangements with Rio Tinto plc (Rio Tinto Joint Venture).

As a result of the transaction, PT Indonesia Asahan Aluminium’s (Persero) (PT Inalum) and PT Indonesia Papua Metal Dan Mineral’s (PTI—formerly known as PT Indocopper Investama) collective share ownership of PT-FI totals 51.24 percent and our share ownership is 48.76 percent. The arrangements provide for us and the other pre-transaction PT-FI shareholders to retain the economics of the revenue and cost sharing arrangements under the former Rio Tinto Joint Venture. As a result, our economic interest in PT-FI is expected to approximate 81 percent from 2019 through 2022.

We, PT-FI, PTI and PT Inalum also entered into a shareholders agreement, which governs certain matters with respect to the governance and management of PT-FI in connection with their ownership of shares in PT-FI, and establishes our control over the management of PT-FI's operations. Concurrent with closing the transaction, the Indonesian government granted PT-FI a new special mining license (IUPK) to replace its former COW, enabling PT-FI to conduct operations in the Grasberg minerals district through 2041. Under the terms of the IUPK, PT-FI has been granted an extension of mining rights through 2031, with rights to extend mining rights through 2041, subject to PT-FI completing the construction of a new smelter in Indonesia within five years of closing the transaction and fulfilling its defined fiscal obligations to the Indonesian government. Refer to Note 13 and “Risk Factors” contained in Part I, Item 1A. of our annual report on Form 10-K for the year ended December 31, 2018, for further discussion of PT-FI’s IUPK.

We have significant mineral reserves, resources and future development opportunities within our portfolio of mining assets. At December 31, 2018, our estimated consolidated recoverable proven and probable mineral reserves totaled



119.6 billion pounds of copper, 30.8 million ounces of gold and 3.78 billion pounds of molybdenum. Refer to “Critical Accounting Estimates—Mineral Reserves” for further discussion.

During 2018, production from our mines totaled 3.8 billion pounds of copper, 2.4 million ounces of gold and 95 million pounds of molybdenum. Following is a summary of the geographic locations of our consolidated copper, gold and molybdenum production in 2018:

<table><tr><td></td><td>Copper</td><td>Gold</td><td>Molybdenum</td></tr><tr><td>North America</td><td>37%</td><td>1%</td><td>71% \( ^{a} \)</td></tr><tr><td>South America</td><td>33</td><td>—</td><td>29</td></tr><tr><td>Indonesia</td><td>30</td><td>99</td><td>—</td></tr><tr><td></td><td>100%</td><td>100%</td><td>100%</td></tr></table>

a. Our Henderson and Climax molybdenum mines produced 37 percent of consolidated molybdenum production, and our North America copper mines produced 34 percent.

Copper production from the Grasberg open-pit mine in Indonesia, Morenci mine in North America and Cerro Verde mine in Peru together totaled 76 percent of our consolidated copper production in 2018.

## OUTLOOK

We continue to view the long-term outlook for our business positively, supported by limitations on supplies of copper and by the requirements for copper in the world's economy. Our financial results vary as a result of fluctuations in market prices primarily for copper, gold and molybdenum, as well as other factors. World market prices for these commodities have fluctuated historically and are affected by numerous factors beyond our control. Refer to “Markets” for further discussion. Because we cannot control the price of our products, the key measures that management focuses on in operating our business are sales volumes, unit net cash costs, operating cash flow and capital expenditures.

Sales Volumes. Following are our projected consolidated sales volumes for 2019 (which reflects a transition year) and actual consolidated sales volumes for 2018:

<table><tr><td></td><td>2019 (Projected)</td><td>2018 (Actual)</td></tr><tr><td>Copper (millions of recoverable pounds):</td><td></td><td></td></tr><tr><td>North America copper mines</td><td>1,400</td><td>1,428</td></tr><tr><td>South America mining</td><td>1,270</td><td>1,253</td></tr><tr><td>Indonesia mining</td><td>615</td><td>1,130</td></tr><tr><td>Total</td><td>3,285</td><td>3,811</td></tr><tr><td>Gold (thousands of recoverable ounces)</td><td>785</td><td>2,389</td></tr><tr><td>Molybdenum (millions of recoverable pounds)</td><td>94 \( ^{a} \)</td><td>94</td></tr></table>

a. Projected molybdenum sales include 35 million pounds produced by our Molybdenum mines and 59 million pounds produced by our North America and South America copper mines.

Consolidated sales for first-quarter 2019 are expected to approximate 825 million pounds of copper, 255 thousand ounces of gold and 24 million pounds of molybdenum. As PT-FI transitions mining from the open pit to underground, its production is expected to be significantly lower in 2019 and 2020, compared to 2018. Metal production is expected to improve significantly by 2021 following a ramp-up period. Projected sales volumes for the year 2019 are dependent on operational performance, weather-related conditions, and other factors. For other important factors that could cause results to differ materially from projections, refer to “Cautionary Statement” and “Risk Factors” contained in Part I, Item 1A. of our annual report on Form 10-K for the year ended December 31, 2018.

Consolidated Unit Net Cash Costs. Assuming average prices of $1,300 per ounce of gold and $12.00 per pound of molybdenum for 2019 and achievement of current sales volume and cost estimates, consolidated unit net cash costs (net of by-product credits) for our copper mines are expected to average $1.73 per pound of copper in 2019. The impact of price changes on 2019 consolidated unit net cash costs would approximate $0.01 per pound for each $50 per ounce change in the average price of gold and $0.03 per pound for each $2 per pound change in the average price of molybdenum. Quarterly unit net cash costs vary with fluctuations in sales volumes and realized prices, primarily for gold and molybdenum. Refer to “Consolidated Results—Production and Delivery Costs” for further discussion of consolidated production costs for our mining operations.

Consolidated Operating Cash Flow. Our consolidated operating cash flows vary with sales volumes, prices realized from copper, gold and molybdenum sales, production costs, income taxes, other working capital changes and other factors. Based on current sales volume and cost estimates, and assuming average prices of $2.75 per pound of copper, $1,300 per ounce of gold and $12.00 per pound of molybdenum, our consolidated operating cash flows are estimated to approximate $1.8 billion (net of $0.2 billion in working capital uses and timing of other tax payments) for the year 2019. Estimated consolidated operating cash flows in 2019 also reflect a projected income tax provision of $0.5 billion (refer to “Consolidated Results—Income Taxes” for further discussion of our projected income tax rate for the year 2019). The impact of price changes during 2019 on operating cash flows would approximate $315 million for each $0.10 per pound change in the average price of copper, $40 million for each $50 per ounce change in the average price of gold and $130 million for each $2 per pound change in the average price of molybdenum.



Consolidated Capital Expenditures. Consolidated capital expenditures are expected to approximate $2.4 billion in 2019, including $1.5 billion for major mining projects primarily associated with underground development activities in the Grasberg minerals district and development of the Lone Star oxide project.

## MARKETS

World prices for copper, gold and molybdenum can fluctuate significantly. During the period from January 2009 through December 2018, the London Metal Exchange (LME) copper settlement price varied from a low of $1.38 per pound in 2009 to a record high of $4.60 per pound in 2011; the London Bullion Market Association (London) PM gold price fluctuated from a low of $810 per ounce in 2009 to a record high of $1,895 per ounce in 2011, and the Metals Week Molybdenum Dealer Oxide weekly average price ranged from a low of $4.46 per pound in 2015 to a high of $18.60 per pound in 2010. Copper, gold and molybdenum prices are affected by numerous factors beyond our control as described further in our “Risk Factors” contained in Part I, Item 1A. of our annual report on Form 10-K for the year ended December 31, 2018.

LME Copper Prices
Through December 31, 2018



LME Copper Prices

Exchange Stocks

This graph presents LME copper settlement prices and combined reported stocks of copper at the LME, Commodity Exchange Inc., a division of the New York Mercantile Exchange (NYMEX), and the Shanghai Futures Exchange from January 2009 through December 2018. Beginning in mid-2014, copper prices declined because of concerns about slowing growth rates in China, a stronger United States (U.S.) dollar and a broad-based decline in commodity prices, but improved throughout 2017. Beginning in second-quarter 2018, copper prices declined in response to global trade actions initiated by the U.S., lower economic growth in China and globally, and concerns about rising interest rates and a stronger U.S. dollar. For the year 2018, LME copper settlement prices ranged from a low of $2.64 per pound to a high of $3.29 per pound, averaged $2.96 per pound and closed at $2.71 per pound on December 31, 2018. The LME copper settlement price was $2.79 per pound on January 31, 2019.

We believe the underlying long-term fundamentals of the copper business remain positive, supported by the significant role of copper in the global economy and a challenging long-term supply environment attributable to difficulty in replacing existing large mines' output with new production sources. Future copper prices are expected to be volatile and are likely to be influenced by demand from China and emerging markets, as well as economic activity in the U.S. and other industrialized countries, the timing of the development of new supplies of copper and production levels of mines and copper smelters.

London Gold Prices
Through December 31, 2018



This graph presents London PM gold prices from January 2009 through December 2018. An improving economic outlook, stronger U.S. dollar and positive equity performance contributed to lower demand for gold since 2014. During 2018, London PM gold prices ranged from a low of $1,178 per ounce to a high of $1,355 per ounce, averaged $1,268 per ounce and closed at $1,279 per ounce on December 28, 2018 (there was no London PM gold price quote on December 31, 2018). The London PM gold price was $1,323 per ounce on January 31, 2019.



Metals Week Molybdenum Dealer Oxide Prices
Through December 31, 2018



This graph presents the Metals Week Molybdenum Dealer Oxide weekly average price from January 2009 through December 2018. Molybdenum prices have declined beginning in mid-2014 because of weaker demand from global steel and stainless steel producers, but rebounded starting in 2016. During 2018, the weekly average price for molybdenum ranged from a low of $10.67 per pound to a high of $12.97 per pound, averaged $11.93 per pound and was $11.88 per pound on December 31, 2018. The Metals Week Molybdenum Dealer Oxide weekly average price was $10.95 per pound on January 31, 2019.

## CRITICAL ACCOUNTING ESTIMATES

MD&A is based on our consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles (GAAP) in the U.S. The preparation of these statements requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base these estimates on historical experience and on assumptions that we consider reasonable under the circumstances; however, reported results could differ from those based on the current estimates under different assumptions or conditions. The areas requiring the use of management’s estimates are also discussed in Note 1 under the subheading “Use of Estimates.” Management has reviewed the following discussion of its development and selection of critical accounting estimates with the Audit Committee of our Board of Directors (the Board).
Mineral Reserves. Recoverable proven and probable reserves are the part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. The determination of reserves involves numerous uncertainties with respect to the ultimate geology of the ore bodies, including quantities, grades and recovery rates. Estimating the quantity and grade of mineral reserves requires us to determine the size, shape and depth of our ore bodies by analyzing geological data, such as samplings of drill holes, tunnels and other underground workings. In addition to the geology of our mines, assumptions are required to determine the economic feasibility of mining these reserves, including estimates of future commodity prices and demand, the mining methods we use and the related costs incurred to develop and mine our reserves. Our estimates of recoverable proven and probable mineral reserves are prepared by and are the responsibility of our employees. A majority of these estimates are reviewed annually and verified by independent experts in mining, geology and reserve determination.

At December 31, 2018, our consolidated estimated recoverable proven and probable reserves were assessed using long-term prices of $2.50 per pound for copper in North America and South America and $2.00 per pound of copper in Indonesia, $1,000 per ounce of gold and $10 per pound of molybdenum. Reserves for Indonesia would not significantly change if assessed under a long-term price of $2.50 per pound of copper as PT-FI’s reserve plan is mill-constrained by the term of its IUPK, which contains rights to extend mining rights through 2041. The following table summarizes changes in our estimated consolidated recoverable proven and probable copper, gold and molybdenum reserves during 2018 and 2017:

<table><tr><td></td><td>Copper \( ^{a} $  (billion pounds)</td><td>Gold (million ounces)</td><td>Molybdenum (billion pounds)</td></tr><tr><td>Consolidated reserves at December 31, 2016</td><td>86.8</td><td>26.1</td><td>2.95</td></tr><tr><td>Net additions (revisions)</td><td>3.6</td><td>(1.0)</td><td>(0.02)</td></tr><tr><td>Production</td><td>(3.7)</td><td>(1.6)</td><td>(0.09)</td></tr><tr><td>Consolidated reserves at December 31, 2017</td><td>86.7</td><td>23.5</td><td>2.84</td></tr><tr><td>PT-FI acquisition of Rio Tinto Joint Venture interest</td><td>13.0</td><td>10.1</td><td>—</td></tr><tr><td>Other net additions (revisions)</td><td>23.7 \( ^{b} \)</td><td>(0.4)</td><td>1.04 \( ^{c} \)</td></tr><tr><td>Production</td><td>(3.8)</td><td>(2.4)</td><td>(0.10)</td></tr><tr><td>Consolidated reserves at December 31, 2018</td><td>119.6</td><td>30.8</td><td>3.78</td></tr></table>

a. Includes estimated recoverable metals contained in stockpiles. See below for additional discussion of recoverable copper in stockpiles.

b. Primarily reflects an increase in the copper price assumption from $2.00 per pound to $2.50 per pound for determining reserves in North America and South America.

c. Primarily reflects an increase in molybdenum reserves at North America copper mines and the Cerro Verde mine in Peru.



Refer to Note 20 and “Risk Factors” contained in Part I, Item 1A. of our annual report on Form 10-K for the year ended December 31, 2018, for further information regarding, and risks associated with, our estimated recoverable proven and probable mineral reserves.

As discussed in Note 1, we depreciate our life-of-mine mining and milling assets and values assigned to proven and probable mineral reserves using the unit-of-production (UOP) method based on our estimated recoverable proven and probable mineral reserves. Because the economic assumptions used to estimate mineral reserves may change from period to period and additional geological data is generated during the course of operations, estimates of reserves may change, which could have a significant impact on our results of operations, including changes to prospective depreciation rates and impairments of long-lived asset carrying values. Excluding impacts associated with changes in the levels of finished goods inventories and based on projected copper sales volumes, if estimated copper reserves at our mines were 10 percent higher at December 31, 2018, we estimate that our annual depreciation, depletion and amortization (DD&A) expense for 2019 would decrease by $44 million ($22 million to net income attributable to common stock), and a 10 percent decrease in copper reserves would increase DD&A expense by $53 million ($26 million to net income attributable to common stock). We perform annual assessments of our existing assets in connection with the review of mine operating and development plans. If it is determined that assigned asset lives do not reflect the expected remaining period of benefit, any change could affect prospective DD&A rates.

As discussed below and in Note 1, we review and evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amount of such assets may not be recoverable, and changes to our estimates of recoverable proven and probable mineral reserves could have an impact on our assessment of asset recoverability.

Recoverable Copper in Stockpiles. We record, as inventory, applicable costs for copper contained in mill and leach stockpiles that are expected to be processed in the future based on proven processing technologies. Mill and leach stockpiles are evaluated periodically to ensure that they are stated at the lower of weighted-average cost or net realizable value (refer to Note 4 and “Consolidated Results” for further discussion of inventory adjustments recorded for the three years ended December 31, 2018). Accounting for recoverable copper from mill and leach stockpiles represents a critical accounting estimate because (i) it is impracticable to determine copper contained in mill and leach stockpiles by physical count, thus requiring management to employ reasonable estimation methods and (ii) recovery rates from leach stockpiles can vary significantly. Refer to Note 1 for further discussion of our accounting policy for recoverable copper in stockpiles.

At December 31, 2018, estimated consolidated recoverable copper was 2.0 billion pounds in leach stockpiles (with a carrying value of $2.2 billion) and 0.6 billion pounds in mill stockpiles (with a carrying value of $0.5 billion).

Impairment of Long-Lived Assets. As discussed in Note 1, we assess the carrying values of our long-lived mining assets when events or changes in circumstances indicate that the related carrying amounts of such assets may not be recoverable. In evaluating our long-lived mining assets for recoverability, we use estimates of pre-tax undiscounted future cash flows of our individual mines. Estimates of future cash flows are derived from current business plans, which are developed using near-term metal price forecasts reflective of the current price environment and management's projections for long-term average metal prices. In addition to near- and long-term metal price assumptions, other key assumptions include estimates of commodity-based and other input costs; proven and probable mineral reserves estimates, including the timing and cost to develop and produce the reserves; value beyond proven and probable mineral reserve estimates (refer to Note 1); and the use of appropriate discount rates in the measurement of fair value. We believe our estimates and models used to determine fair value are similar to what a market participant would use. As quoted market prices are unavailable for our individual mining operations, fair value is determined through the use of after-tax discounted estimated future cash flows.

For the three years ended December 31, 2018, we concluded there were no events or changes in circumstances that would indicate that the carrying amount of our long-lived mining assets might not be recoverable.

In addition to decreases in future metal price assumptions, other events that could result in future impairment of our long-lived mining assets include, but are not limited to, decreases in estimated recoverable proven and probable mineral reserves and any event that might otherwise have a material adverse effect on mine site production levels



or costs. Refer to “Risk Factors” contained in Part I, Item 1A. of our annual report on Form 10-K for the year ended December 31, 2018.

Environmental Obligations. Our current and historical operating activities are subject to various national, state and local environmental laws and regulations that govern the protection of the environment, and compliance with those laws requires significant expenditures. Environmental expenditures are charged to expense or capitalized, depending upon their future economic benefits. The guidance provided by U.S. GAAP requires that liabilities for contingencies be recorded when it is probable that obligations have been incurred, and the cost can be reasonably estimated. At December 31, 2018, environmental obligations recorded in our consolidated balance sheet totaled $1.5 billion, which reflect obligations for environmental liabilities attributed to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) or analogous state programs and for estimated future costs associated with environmental matters. Refer to Notes 1 and 12 for further discussion of environmental obligations, including a summary of changes in our estimated environmental obligations for the three years ended December 31, 2018.

Accounting for environmental obligations represents a critical accounting estimate because changes to environmental laws and regulations and/or circumstances affecting our operations could result in significant changes to our estimates, which could have a significant impact on our results of operations. We perform a comprehensive annual review of our environmental obligations and also review changes in facts and circumstances associated with these obligations at least quarterly. Judgments and estimates are based upon currently available facts, existing technology, presently enacted laws and regulations, remediation experience, whether or not we are a potentially responsible party (PRP), the ability of other PRPs to pay their allocated portions and take into consideration reasonably possible outcomes. Our cost estimates can change substantially as additional information becomes available regarding the nature or extent of site contamination, updated cost assumptions (including increases and decreases to cost estimates), changes in the anticipated scope and timing of remediation activities, the settlement of environmental matters, required remediation methods and actions by or against governmental agencies or private parties.
Asset Retirement Obligations. We record the fair value of our estimated asset retirement obligations (AROs) associated with tangible long-lived assets in the period incurred. Fair value is measured as the present value of cash flow estimates after considering inflation and a market risk premium. Our cost estimates are reflected on a third-party cost basis and comply with our legal obligation to retire tangible long-lived assets in the period incurred. These cost estimates may differ from financial assurance cost estimates for reclamation activities because of a variety of factors, including obtaining updated cost estimates for reclamation activities, the timing of reclamation activities, changes in scope and the exclusion of certain costs not considered reclamation and closure costs. At December 31, 2018, AROs recorded in our consolidated balance sheet totaled $2.5 billion, including $0.5 billion associated with our remaining oil and gas operations. Refer to Notes 1 and 12 for further discussion of reclamation and closure costs, including a summary of changes in our AROs for the three years ended December 31, 2018.

Generally, ARO activities are specified by regulations or in permits issued by the relevant governing authority, and management judgment is required to estimate the extent and timing of expenditures. Accounting for AROs represents a critical accounting estimate because (i) we will not incur most of these costs for a number of years, requiring us to make estimates over a long period, (ii) reclamation and closure laws and regulations could change in the future and/or circumstances affecting our operations could change, either of which could result in significant changes to our current plans, (iii) the methods used or required to plug and abandon non-producing oil and gas wellbores, remove platforms, tanks, production equipment and flow lines, and restore the wellsite could change, (iv) calculating the fair value of our AROs requires management to estimate projected cash flows, make long-term assumptions about inflation rates, determine our credit-adjusted, risk-free interest rates and determine market risk premiums that are appropriate for our operations and (v) given the magnitude of our estimated reclamation, mine closure and wellsite abandonment and restoration costs, changes in any or all of these estimates could have a significant impact on our results of operations.

Taxes. In preparing our annual consolidated financial statements, we estimate the actual amount of income taxes currently payable or receivable as well as deferred income tax assets and liabilities attributable to temporary differences between the financial statement carrying amounts of existing



assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates or laws is recognized in income in the period in which such changes are enacted.

Our operations are in multiple jurisdictions where uncertainties arise in the application of complex tax regulations. Some of these tax regimes are defined by contractual agreements with the local government, while others are defined by general tax laws and regulations. We and our subsidiaries are subject to reviews of our income tax filings and other tax payments, and disputes can arise with the taxing authorities over the interpretation of our contracts or laws. Final taxes paid may be dependent upon many factors, including negotiations with taxing authorities. In certain jurisdictions, we must pay a portion of the disputed amount to the local government in order to formally appeal an assessment. Such payment is recorded as a receivable if we believe the amount is collectible.

A valuation allowance is provided for those deferred income tax assets for which the weight of available evidence suggests that the related benefits will not be realized. In determining the amount of the valuation allowance, we consider estimated future taxable income or loss as well as feasible tax planning strategies in each jurisdiction. If we determine that we will not realize all or a portion of our deferred income tax assets, we will increase our valuation allowance. Conversely, if we determine that we will ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced.

Our valuation allowances totaled $4.5 billion at December 31, 2018, which covered all of our U.S. foreign tax credits, U.S. federal net operating loss carryforwards, foreign net operating loss carryforwards, and substantially all of our U.S. state net operating losses. Refer to Note 11 for further discussion.



## CONSOLIDATED RESULTS

<table><tr><td>Years Ended December 31,</td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>SUMMARY FINANCIAL DATA (in millions, except per share amounts)</td><td></td><td></td><td></td></tr><tr><td>Revenues \( ^{a,b} \)</td><td>$ 18,628</td><td>$16,403</td><td>$14,830^{c}</td></tr><tr><td>Operating income (loss) \( ^{a,d,e} \)</td><td>$ 4,754 \( ^{f,g} \)</td><td>$ 3,690^{h} \)</td><td>$ (2,729)^{i} \)</td></tr><tr><td>Net income (loss) from continuing operations \( ^{j,k,l} \)</td><td>$ 2,909^{m,n} \)</td><td>$ 2,029^{n} \)</td><td>$ (3,832) \)</td></tr><tr><td>Net (loss) income from discontinued operations \( ^{o} \)</td><td>$ (15) \)</td><td>$ 66 \)</td><td>$ (193) \)</td></tr><tr><td>Net income (loss) attributable to common stock</td><td>$ 2,602 \)</td><td>$ 1,817 \)</td><td>$ (4,154)^{p} \)</td></tr><tr><td>Diluted net income (loss) per share attributable to common stock:</td><td></td><td></td><td></td></tr><tr><td>Continuing operations</td><td>$ 1.79</td><td>$ 1.21</td><td>$ (2.96) \)</td></tr><tr><td>Discontinued operations</td><td>(0.01)</td><td>0.04</td><td>(0.20)</td></tr><tr><td></td><td>$ 1.78 \)</td><td>$ 1.25 \)</td><td>$ (3.16) \)</td></tr><tr><td>Diluted weighted-average common shares outstanding</td><td>1,458</td><td>1,454</td><td>1,318</td></tr><tr><td>Operating cash flows \( ^{q} \)</td><td>$ 3,863 \)</td><td>$ 4,666 \)</td><td>$ 3,737 \)</td></tr><tr><td>Capital expenditures</td><td>$ 1,971 \)</td><td>$ 1,410 \)</td><td>$ 2,813 \)</td></tr><tr><td>At December 31:</td><td></td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 4,217 \)</td><td>$ 4,526 \)</td><td>$ 4,262 \)</td></tr><tr><td>Total debt, including current portion</td><td>$ 11,141 \)</td><td>$ 13,229 \)</td><td>$ 16,126 \)</td></tr></table>

a. Refer to Note 16 for a summary of revenues and operating income by operating division.

b. Includes adjustments to embedded derivatives for provisionally priced concentrate and cathode sales (refer to Note 14).

c. Includes net noncash mark-to-market losses associated with crude oil and natural gas derivative contracts totaling $41 million ($41 million to net loss attributable to common stock or $0.03 per share). Refer to Note 14 for further discussion.

d. Includes net gains on sales of assets totaling $208 million ($208 million to net income attributable to common stock or $0.14 per share) in 2018, $81 million ($81 million to net income attributable to common stock or $0.06 per share) in 2017 and $649 million ($649 million to net loss attributable to common stock or $0.49 per share) in 2016. Refer to Note 2 and "Net Gain on Sales of Assets" below for further discussion.

e. Includes net charges (credits) for adjustments to environmental obligations and related litigation reserves of $57 million ($57 million to net income attributable to common stock or $0.04 per share) in 2018, $210 million ($210 million to net income attributable to common stock or $0.14 per share) in 2017 and $(16) million ($16) million to net loss attributable to common stock or $0.01 per share) in 2016.

f. The year 2018 includes net charges of $112 million ($52 million to net income attributable to common stock or $0.04 per share) consisting of $69 million for Cerro Verde's new three-year collective labor agreement (CLA) and $43 million mostly associated with depreciation expense at Freeport Cobalt for the period December 2016 through December 2017, which was suspended while it was classified as held for sale.

g. The year 2018 also includes net charges at PT-FI of $223 million ($110 million to net income attributable to common stock or $0.08 per share) consisting of $69 million for surface water tax disputes with the local regional tax authority in Papua, Indonesia, $32 million for assessments of prior period permit fees with Indonesia's Ministry of Environment and Forestry (MOEF), $72 million for disputed payroll withholding taxes for prior years and other tax settlements, and $62 million to write-off certain previously capitalized project costs for the new smelter in Indonesia, partly offset by inventory adjustments totaling $12 million.

h. The year 2017 includes net charges of $149 million ($93 to net income attributable to common stock or $0.06 per share) mostly associated with workforce reductions at PT-FI.

i. The year 2016 includes charges of $5.5 billion ($5.5 billion to net loss attributable to common stock or $4.6 per share) consisting of (i) $4.3 billion to reduce the carrying value of oil and gas properties pursuant to full cost accounting rules, (ii) $1.1 billion of other net oil and gas charges, primarily for drilling shipletments/idle rig costs, the termination of contracts for support vessels and equipment, inventory adjustments, asset impairment and restructuring charges, and (iii) $69 million of net charges at mining operations primarily reflecting inventory adjustments, PT-FI asset retirement and Cerro Verde social commitments.

j. Includes net gains on early extinguishment and exchanges of debt totaling $7 million (less than $0.01 per share) in 2018, $21 million ($0.01 per share) in 2017 and $26 million ($0.02 per share) in 2016. Refer to Note 8 for further discussion.

k. Includes net tax credits of $632 million ($574 million net of noncontrolling interests or $0.39 per share) in 2018, $438 million ($0.30 per share) in 2017 and $370 million ($374 million net of noncontrolling interests or $0.28 per share) in 2016. Refer to “Income Taxes” below for further discussion.

I. We defer recognizing profits on intercompany sales until final sales to third parties occur. Refer to "Operations—Smelting & Refining" for a summary of net impacts from changes in these deferrals.

m. Includes interest received on tax refunds totaling $30 million ($19 million to net income attributable to common stock or $0.01 per share), mostly associated with the refund of PT-FI's prior years' tax receivables.

n. Includes net charges associated with disputed Cerro Verde royalties for prior years of $195 million to net income attributable to common stock ($0.13 per share) in 2018 and $166 million to net income attributable to common stock ($0.13 per share) in 2017. Net charges for the year 2018 consist of charges to production and delivery costs ($14 million), interest expense ($370 million) and other expense ($22 million), net of income tax benefits ($3.5 million) and noncontrolling interests ($17 million). Net charges for the year 2017 primarily reflect charges to production and delivery ($203 million), interest expense ($149 million) and income taxes ($7 million), net of noncontrolling interests ($169 million). Refer to Note 12 for further discussion.

o. Primarily reflects adjustments to the estimated fair value of contingent consideration related to the November 2016 sale of our interest in TFHL, which will continue to be adjusted through December 31, 2019. The year 2016 also includes a net charge of $198 million for the loss on disposal.

p. Includes a gain on redemption of noncontrolling interest of $199 million ($0.15 per share) for the settlement of a preferred stock obligation. Refer to Note 2 for further discussion.

q. Includes net working capital (uses) sources and timing of other tax payments of $(0.6) billion in 2018, $0.6 billion in 2017 and $87 million in 2016.



<table><tr><td>Years Ended December 31,</td><td>2018</td><td>2017</td><td>2016 \( ^{a} \)</td></tr><tr><td>SUMMARY OPERATING DATA</td><td></td><td></td><td></td></tr><tr><td>Copper (millions of recoverable pounds)</td><td></td><td></td><td></td></tr><tr><td>Production</td><td>3,813</td><td>3,737</td><td>4,222</td></tr><tr><td>Sales, excluding purchases</td><td>3,811</td><td>3,700</td><td>4,227</td></tr><tr><td>Average realized price per pound</td><td>$ 2.91</td><td>$ 2.93</td><td>$ 2.28</td></tr><tr><td>Site production and delivery costs per pound \( ^{b} \)</td><td>$ 1.76</td><td>$ 1.60</td><td>$ 1.42</td></tr><tr><td>Unit net cash costs per pound \( ^{b} \)</td><td>$ 1.07</td><td>$ 1.19</td><td>$ 1.26</td></tr><tr><td>Gold (thousands of recoverable ounces)</td><td></td><td></td><td></td></tr><tr><td>Production</td><td>2,439</td><td>1,577</td><td>1,088</td></tr><tr><td>Sales, excluding purchases</td><td>2,389</td><td>1,562</td><td>1,079</td></tr><tr><td>Average realized price per ounce</td><td>$1,254</td><td>$1,268</td><td>$1,238</td></tr><tr><td>Molybdenum (millions of recoverable pounds)</td><td></td><td></td><td></td></tr><tr><td>Production</td><td>95</td><td>92</td><td>80</td></tr><tr><td>Sales, excluding purchases</td><td>94</td><td>95</td><td>74</td></tr><tr><td>Average realized price per pound</td><td>$12.50</td><td>$ 9.33</td><td>$ 8.33</td></tr></table>

a. Excludes results from the Tenke mine, which is reported as a discontinued operation.

b. Reflects per pound weighted-average production and delivery costs and unit net cash costs (net of by-product credits) for all copper mines, before net noncash and other costs. For reconciliations of the per pound unit costs by operating division to production and delivery costs applicable to sales reported in our consolidated financial statements, refer to “Product Revenues and Production Costs.”

## Revenues

Consolidated revenues totaled $18.6 billion in 2018, $16.4 billion in 2017 and $14.8 billion in 2016. Our revenues primarily include the sale of copper concentrate, copper cathode, copper rod, gold in concentrate and molybdenum. Following is a summary of changes in our consolidated revenues between periods (in millions):**

<table><tr><td></td><td>2018</td><td>2017</td></tr><tr><td>Consolidated revenues - prior year</td><td>$16,403</td><td>$14,830</td></tr><tr><td>Mining operations:</td><td></td><td></td></tr><tr><td>Higher (lower) sales volumes:</td><td></td><td></td></tr><tr><td>Copper</td><td>326</td><td>(1,201)</td></tr><tr><td>Gold</td><td>1,049</td><td>598</td></tr><tr><td>Molybdenum</td><td>(9)</td><td>175</td></tr><tr><td>(Lower) higher averaged realized prices:</td><td></td><td></td></tr><tr><td>Copper</td><td>(76)</td><td>2,405</td></tr><tr><td>Gold</td><td>(33)</td><td>47</td></tr><tr><td>Molybdenum</td><td>299</td><td>95</td></tr><tr><td>Adjustments for prior year provisionally priced copper sales</td><td>(151)</td><td>76</td></tr><tr><td>Higher revenues from sales of purchased copper</td><td>264</td><td>361</td></tr><tr><td>Higher Atlantic Copper revenues</td><td>270</td><td>202</td></tr><tr><td>Higher royalties and export duties</td><td>(130)</td><td>(63)</td></tr><tr><td>Lower oil sales volumes</td><td>(17)</td><td>(1,269)</td></tr><tr><td>Other, including intercompany eliminations</td><td>433</td><td>147</td></tr><tr><td>Consolidated revenues - current year</td><td>$18,628</td><td>$16,403</td></tr></table>

## Mining Operations

Sales Volumes. Higher copper sales volumes in 2018, compared to 2017, primarily reflect higher operating rates in Indonesia. Lower copper sales volumes in 2017, compared to 2016, primarily reflect lower sales volumes in North America mainly caused by lower ore grades.

Higher gold sales volumes in 2018, compared with 2017, primarily reflect higher operating rates and ore grades at PT-FI. Higher gold sales volumes in 2017, compared with 2016, primarily reflect higher ore grades at PT-FI.

Consolidated molybdenum sales volumes in 2018 approximated 2017 sales volumes. Higher molybdenum sales volumes in 2017, compared with 2016, primarily reflect increased demand and higher production.

Refer to “Operations” for further discussion of sales volumes at our mining operations.

Realized Prices. Our consolidated revenues can vary significantly as a result of fluctuations in the market prices of copper, gold and molybdenum. In 2018, our average realized prices were 1 percent lower for copper and gold and 34 percent higher for molybdenum, compared with 2017. In 2017, our average realized prices were 29 percent higher for copper, 2 percent higher for gold and 12 percent higher for molybdenum, compared with 2016.

As discussed below and in “Disclosures About Market Risks—Commodity Price Risk,” substantially all of our copper concentrate and cathode sales contracts provide final copper pricing in a specified future month (generally one to four months from the shipment date). We record revenues and



invoice customers at the time of shipment based on then-current LME prices, which results in an embedded derivative on provisionally priced concentrate and cathode sales that is adjusted to fair value through earnings each period until final pricing on the date of settlement. Average realized copper prices include net adjustments to current period provisionally priced copper sales totaling 4(240) million for 2018, 408 million for 2017 and 257 million for 2016. Refer to Note 14 for a summary of total adjustments to prior period and current period provisionally priced sales.

Prior Year Provisionally Priced Copper Sales. Net adjustments to prior years' provisionally priced copper sales recorded in consolidated revenues totaled 4(70) million in 2018, 481 million in 2017 and 5 million in 2016. Refer to Note 14 for a summary of total adjustments to prior period and current period provisionally priced sales.

Purchased Copper. We purchase copper cathode primarily for processing by our Rod & Refining operations. Purchased copper volumes totaled 356 million pounds in 2018, 273 million pounds in 2017 and 188 million pounds in 2016.

Atlantic Copper Revenues. Atlantic Copper revenues totaled $2.3 billion in 2018, $2.0 billion in 2017 and $1.8 billion in 2016. Higher Atlantic Copper revenues in 2018, compared with 2017, primarily reflect higher copper and gold sales volumes. Higher Atlantic Copper revenues in 2017, compared with 2016, primarily reflect higher copper prices.

Royalties and Export Duties. Royalties are primarily for sales from PT-FI and vary with the volume of metal sold and the prices of copper and gold. PT-FI also pays export duties until development progress for the new smelter in Indonesia exceeds 50 percent. Refer to Note 13 for a summary of PT-FI's royalties and export duties.

## Oil & Gas Operations

Oil sales volumes totaled 1.4 million barrels (MMBbls) in 2018, 1.8 MMBbls in 2017 and 34.4 MMBbls in 2016. During the three years ended December 31, 2018, we completed the sales of substantially all of our oil and gas properties. As a result, oil sales volumes have significantly declined in 2018 and 2017, compared to 2016.

## Production and Delivery Costs

Consolidated production and delivery costs totaled $11.7 billion in 2018, $10.3 billion in 2017 and $10.7 billion in 2016. Higher production and delivery costs in 2018, compared to 2017, primarily reflected higher mining and milling costs in North America and South America and higher copper purchases at our Rod & Refining operations. Lower production and delivery costs in 2017, compared to 2016, primarily reflected lower costs related to our oil and gas operations because of the sale of substantially all of our oil and gas properties in late 2016.

The year 2018 included net charges at PT-FI totaling $223 million (refer to the “Summary Financial Data” table above for a summary of these charges) and charges at Cerro Verde totaling $69 million related to its new three-year CLA.

The year 2017 included charges totaling $203 million associated with disputed royalties at Cerro Verde for prior years and $120 million associated with workforce reductions at PT-FI.

The year 2016 included charges totaling $926 million associated with drillship settlements/idle rig and contract termination costs at U.S. oil and gas operations.

## Mining Unit Site Production and Delivery Costs

Site production and delivery costs for our copper mining operations primarily include labor, energy and commodity-based inputs, such as sulphuric acid, reagents, liners, tires and explosives. Consolidated unit site production and delivery costs (before net noncash and other costs) for our copper mines averaged $1.76 per pound of copper in 2018, $1.60 per pound in 2017 and $1.42 per pound in 2016. Higher consolidated unit site production and delivery costs in 2018, compared with 2017, primarily reflected higher mining and milling costs at our North America and South America mining operations as well as charges associated with Cerro Verde's new three-year CLA. Higher consolidated unit site production and delivery costs in 2017, compared with 2016, primarily reflected lower consolidated copper sales volumes and higher mining, milling and employee costs at our South America mining operations. Refer to "Operations—Unit Net Cash Costs" for further discussion of unit net cash costs associated with our operating divisions, and to "Product Revenues and Production Costs" for reconciliations of per pound costs by operating division to production and delivery costs applicable to sales reported in our consolidated financial statements.

Our copper mining operations require significant amounts of energy, principally diesel, electricity, coal and natural gas, most of which is obtained from third parties under long-term contracts. Energy represented approximately 20 percent of our copper mine site operating costs in 2018, including purchases of approximately 220 million gallons of diesel fuel; 8,150 gigawatt hours of electricity at our North America and South America copper mining operations (we generate all of our power at our Indonesia mining operation); 740 thousand metric tons of coal for our coal power plant in Indonesia; and 1 million MMBtu (million British thermal units) of natural gas at certain of our North America mines. Based on current cost estimates, energy will approximate 20 percent of our copper mine site operating costs for 2019.



## Depreciation, Depletion and Amortization

Depreciation will vary under the UOP method as a result of changes in sales volumes and the related UOP rates at our mining operations. Consolidated DD&A totaled $1.75 billion in 2018, $1.7 billion in 2017 and $2.5 billion in 2016. The year 2018 included $31 million of depreciation expense at Freeport Cobalt from December 2016 through December 2017 that was suspended while it was classified as held for sale. Lower DD&A in 2017, compared with 2016, primarily reflected the impact of the sale of substantially all of our oil and gas properties in late 2016.

## Impairment of Oil and Gas Properties

Under full cost accounting rules, we recognized impairment charges totaling $4.3 billion in 2016 primarily for U.S. oil and gas properties. Refer to Note 1 for further discussion.

## Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses totaled $443 million in 2018, $477 million in 2017 and $597 million in 2016. Selling, general and administrative expenses included oil and gas contract termination costs of $17 million in 2017 and $85 million for restructuring costs in 2016.

Consolidated selling, general and administrative expenses were net of capitalized general and administrative expenses at our oil and gas operations totaling $78 million in 2016; no such costs were capitalized in subsequent periods.

## Mining Exploration and Research Expenses

Consolidated exploration and research expenses for our mining operations totaled $105 million in 2018, $93 million in 2017 and $63 million in 2016. Our mining exploration activities are generally associated with our existing mines, focusing on opportunities to expand reserves and resources to support development of additional future production capacity. A drilling program to further delineate the Lone Star resource continues to indicate significant additional mineralization in this district, with higher ore grades than our other North America copper mines. Exploration results continue to indicate opportunities for significant future potential reserve additions in North America and South America. Exploration spending is expected to approximate $65 million in 2019.

## Environmental Obligations and Shutdown Costs

Environmental obligation costs reflect net revisions to our long-term environmental obligations, which vary from period to period because of changes to environmental laws and regulations, the settlement of environmental matters and/or circumstances affecting our operations that could result in significant changes in our estimates (refer to “Critical Accounting Estimates—Environmental Obligations” for further discussion). Shutdown costs include care-and-maintenance costs and any litigation, remediation or related expenditures associated with closed facilities or operations. Net charges for environmental obligations and shutdown costs totaled $89 million in 2018, $244 million in 2017 and $14 million in 2016. Higher costs in 2018 and 2017, compared with 2016, primarily reflect adjustments to environmental obligations resulting from revised cost estimates. Refer to Note 12 for environmental obligations and litigation matters.

## Net Gain on Sales of Assets

Net gain on sales of assets totaled $208 million in 2018, primarily reflecting gains on sales of assets, adjustments to the carrying value of assets no longer held for sale and fair value adjustments associated with contingent consideration related to the 2016 sale of onshore California oil and gas properties. Relative to 2018, we realized $50 million in contingent consideration related to the 2016 sale of oil and gas properties, which was received in 2019, and we would receive additional contingent consideration related to this transaction consisting of $50 million per year for 2019 and 2020 if the price of Brent crude oil averages over $70 per barrel in each of these calendar years.

Net gain on sales of assets totaled $81 million in 2017, primarily associated with oil and gas transactions and adjustments to assets held for sale.

Net gain on sales of assets totaled $649 million in 2016, primarily related to the gains recognized for the Morenci and Timok transactions, partly offset by estimated losses on assets held for sale. Net gain on sales of assets for the year 2016 also included $183 million for contingent consideration, including $150 million associated with the sale of the Deepwater Gulf of Mexico (GOM) oil and gas properties, and $33 million for the fair value of the potential $150 million in contingent consideration from the sale of the onshore California oil and gas properties discussed above.

Refer to Note 2 for further discussion of dispositions.



## Interest Expense, Net

Consolidated interest costs (before capitalization and excluding interest expense associated with disputed Cerro Verde royalties) totaled $671 million in 2018, $777 million in 2017 and $854 million in 2016. Lower interest expense in 2018 and 2017, compared to 2016, reflects a decrease in total debt. Interest expense associated with disputed Cerro Verde royalties (refer to Note 12 for further discussion) totaled $370 million in 2018 and $145 million in 2017.

Capitalized interest varies with the level of expenditures for our development projects and average interest rates on our borrowings, and totaled $96 million in 2018, $121 million in 2017 and $99 million in 2016. Refer to “Operations” and “Capital Resources and Liquidity—Investing Activities” for further discussion of current development projects. Net Gain on Early Extinguishment and Exchanges of Debt Net gain on early extinguishment and exchanges of debt totaled $7 million in 2018, $21 million in 2017 and $26 million in 2016. Refer to Note 8 for further discussion.

## Other Income (Expense), Net

Other income (expense), net primarily includes foreign currency translation adjustments and interest income, and totaled $76 million in 2018, ($8) million in 2017 and $14 million in 2016. The year 2018, compared to the year 2017, reflects higher interest income and $30 million of interest received on tax refunds, mostly associated with the refund of PT-FI's prior years' tax receivables.

## Income Taxes

Following is a summary of the approximate amounts used in the calculation of our consolidated income tax (provision) benefit from continuing operations for the years ended December 31 (in millions, except percentages):

<table><tr><td rowspan="2"></td><td colspan="3">2018</td><td colspan="3">2017</td><td colspan="3">2016</td></tr><tr><td>Income (Loss)a</td><td>Effective Tax Rate</td><td>Income Tax (Provision) Benefit</td><td>Income (Loss)a</td><td>Effective Tax Rate</td><td>Income Tax (Provision) Benefit</td><td>Effective Tax Rate</td><td>Income Tax (Provision) Benefit</td><td></td></tr><tr><td>U.S.</td><td>$ 352</td><td>7%</td><td>$ (24)b,c</td><td>$ 41</td><td>(156)%</td><td>$ 64d</td><td>$ (865)</td><td>41%</td><td>$ 357e</td></tr><tr><td>South America</td><td>706</td><td>43%</td><td>(303)</td><td>1,059</td><td>41%</td><td>(439)</td><td>501</td><td>43%</td><td>(216)f</td></tr><tr><td>Indonesia</td><td>3,027</td><td>42%</td><td>(1,284)g</td><td>2,033</td><td>43%</td><td>(869)</td><td>1,058</td><td>42%</td><td>(442)</td></tr><tr><td>U.S. tax reform</td><td>—</td><td>N/A</td><td>123h</td><td>—</td><td>N/A</td><td>393h</td><td>—</td><td>N/A</td><td>—</td></tr><tr><td>Cerro Verde royalty dispute</td><td>(406)</td><td>N/A</td><td>35i</td><td>(348)</td><td>N/A</td><td>(7)i</td><td>—</td><td>N/A</td><td>—</td></tr><tr><td>Change in PT-FI tax rates</td><td>—</td><td>N/A</td><td>504j</td><td>—</td><td>N/A</td><td>—</td><td>—</td><td>N/A</td><td>—</td></tr><tr><td>Impairment of oil and gas properties</td><td>—</td><td>N/A</td><td>—</td><td>—</td><td>N/A</td><td>—</td><td>(4,317)</td><td>N/A</td><td>—k</td></tr><tr><td>Eliminations and other</td><td>213</td><td>N/A</td><td>(42)</td><td>117</td><td>N/A</td><td>(25)</td><td>151</td><td>N/A</td><td>(70)</td></tr><tr><td>Consolidated FCX</td><td>$3,892</td><td>25%</td><td>$ (991)</td><td>$2,902</td><td>30%</td><td>$(883)</td><td>$ (3,472)</td><td>(11)%</td><td>$(371)</td></tr></table>

a. Represents income (loss) from continuing operations by geographic location before income taxes and equity in affiliated companies' net earnings.

b. Includes net tax credits of $9 million for changes in valuation allowances and a tax credit of $5 million associated with the settlement of a state income tax examination.

c. Also includes a tax charge of $29 million associated with adjustments to the calculation of transition tax resulting from recently released guidance by the U.S. Internal Revenue Service.

d. Includes net tax credits of $24 million for changes in valuation allowances and $21 million associated with alternative minimum tax (AMT) credit carryforwards, which are not related to the AMT credits resulting from U.S. tax reform that are presented separately in the above tables.

e. Includes tax credits of $357 million associated with AMT credits, changes to valuation allowances and net operating loss carryback claims.

f. Includes a net tax credit of $13 million ($17 million net of noncontrolling interests) related to changes in Peruvian tax rules.

g. Includes a tax credit of $20 million ($17 million net of noncontrolling interest) for adjustments to PT-FI's historical tax positions.

h. The Tax Cuts and Jobs Act (the Act), which was enacted on December 22, 2017, included significant modifications to U.S. tax laws and created many new complex tax provisions. In December 2018, we completed our analysis of the Act and recognized benefits totaling $123 million ($119 million net of noncontrolling interest) in 2018 associated with AMT credit refunds. During 2017, we recorded net tax benefits related to specific provisions of the Act totaling $393 million, reflecting the reversal of valuation allowances associated with anticipated refunds of AMT credits through 2021 ($272 million) and a decrease in corporate income tax rates ($121 million).

i. Refer to Note 12 for a summary of charges related to Cerro Verde's disputed royalties for prior years.

j. Reflects a tax credit of $504 million ($453 million net of noncontrolling interest) resulting from the change in PT-FI's tax rates in accordance with its IUPK.

k. As a result of the impairment to U.S. oil and gas properties, we recorded tax charges to establish valuation allowances against U.S. federal and state deferred tax assets that will not generate a future benefit.



Our consolidated effective income tax rate is a function of the combined effective tax rates for the jurisdictions in which we operate. Accordingly, variations in the relative proportions of jurisdictional income result in fluctuations to our consolidated effective income tax rate. Assuming achievement of current sales volume and cost estimates and average prices of $2.75 per pound for copper, $1,300 per ounce for gold and $12.00 per pound for molybdenum for 2019, we estimate our consolidated effective tax rate for the year 2019 would approximate 46 percent (comprised of an estimated effective rate of 0 percent on U.S. income, 38 percent on Indonesia income and 40 percent on South America income). Because of our U.S. tax position, we do not record a financial statement impact for income or losses generated in the U.S.; therefore, our consolidated effective rate is generally higher than the international rates at lower copper prices and lower than international rates at higher copper prices.

Refer to Note 11 for further discussion of income taxes.

## Net (Loss) Income from Discontinued Operations

In November 2016, we completed the sale of our interest in TFHL. In accordance with accounting guidelines, the results of TFHL have been reported as discontinued operations for all periods presented. Net (loss) income from discontinued operations totaled $ (15) $  million in 2018 and $66 million in 2017, primarily reflecting adjustments to the estimated fair value of contingent consideration related to the sale of our interest in TFHL, which will continue to be adjusted through December 31, 2019. Net loss from discontinued operations of $193 million in 2016 primarily reflected the loss on disposal. Refer to Note 2 for further discussion.

## Gain on Redemption and Preferred Dividends
Attributable to Redeemable Noncontrolling Interest

In connection with the December 2016 sale of the Deepwater GOM oil and gas properties, we settled a preferred stock obligation, which resulted in the recognition of a $199 million gain on redemption. Refer to Note 2 for further discussion.

## OPERATIONS

## North America Copper Mines

We operate seven open-pit copper mines in North America—Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico. All of the North America mining operations are wholly owned, except for Morenci.

We record our undivided joint venture interest in Morenci using the proportionate consolidation method. In May 2016, we completed the sale of an additional 13 percent undivided interest in Morenci. As a result of the transaction, our undivided interest in Morenci was prospectively reduced from 85 percent to 72 percent. Refer to Note 2 for further discussion.

The North America copper mines include open-pit mining, sulfide ore concentrating, leaching and solution extraction/electrowinning (SX/EW) operations. A majority of the copper produced at our North America copper mines is cast into copper rod by our Rod & Refining segment. The remainder of our North America copper sales is in the form of copper cathode or copper concentrate, a portion of which is shipped to Atlantic Copper (our wholly owned smelter). Molybdenum concentrate, gold and silver are also produced by certain of our North America copper mines.

Operating and Development Activities. We have significant undeveloped reserves and resources in North America and a portfolio of potential long-term development projects. Future investments will be undertaken based on the results of economic and technical feasibility studies, and are dependent on market conditions. We continue to study opportunities to reduce the capital intensity of our potential long-term development projects.

Through exploration drilling, we have identified a significant resource at our wholly owned Lone Star project located near the Safford operation in eastern Arizona. An initial project to develop the Lone Star oxide ores commenced in first-quarter 2018, with first production expected by the end of 2020. Initial production from the Lone Star oxide ores is expected to average approximately 200 million pounds of copper per year. Total capital costs, including mine equipment and pre-production stripping, are expected to approximate $850 million and will benefit from the utilization of existing infrastructure at the adjacent Safford operation. As of December 31, 2018, approximately $290 million has been incurred for this project. The project also advances exposure to a significant sulfide resource. We expect to incorporate recent positive drilling and ongoing results in our future development plans.



Operating Data. Following is summary operating data for the North America copper mines for the years ended December 31:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Operating Data, Net of Joint Venture Interests</td><td></td><td></td><td></td></tr><tr><td>Copper (millions of recoverable pounds)</td><td></td><td></td><td></td></tr><tr><td>Production</td><td>1,404</td><td>1,518</td><td>1,831</td></tr><tr><td>Sales, excluding purchases</td><td>1,428</td><td>1,484</td><td>1,841 \( ^{a} \)</td></tr><tr><td>Average realized price per pound</td><td>2.96</td><td>2.85</td><td>2.24</td></tr><tr><td>Molybdenum (millions of recoverable pounds)</td><td></td><td></td><td></td></tr><tr><td>Production \( ^{b} \)</td><td>32</td><td>33</td><td>33</td></tr><tr><td>100% Operating Data</td><td></td><td></td><td></td></tr><tr><td>Leach operations</td><td></td><td></td><td></td></tr><tr><td>Leach ore placed in stockpiles (metric tons per day)</td><td>681,400</td><td>679,000</td><td>737,400</td></tr><tr><td>Average copper ore grade (percent)</td><td>0.24</td><td>0.28</td><td>0.31</td></tr><tr><td>Copper production (millions of recoverable pounds)</td><td>951</td><td>1,016</td><td>1,120</td></tr><tr><td>Mill operations</td><td></td><td></td><td></td></tr><tr><td>Ore milled (metric tons per day)</td><td>301,000</td><td>299,500</td><td>300,500</td></tr><tr><td>Average ore grade (percent):</td><td></td><td></td><td></td></tr><tr><td>Copper</td><td>0.35</td><td>0.39</td><td>0.47</td></tr><tr><td>Molybdenum</td><td>0.02</td><td>0.03</td><td>0.03</td></tr><tr><td>Copper recovery rate (percent)</td><td>87.8</td><td>86.4</td><td>85.5</td></tr><tr><td>Copper production (millions of recoverable pounds)</td><td>719</td><td>788</td><td>958</td></tr></table>

a. Included approximately 60 million pounds of copper from the 13 percent undivided interest in Morenci that we sold in May 2016.

b. Refer to “Consolidated Results” for our consolidated molybdenum sales volumes, which include sales of molybdenum produced at the North America copper mines.

Copper sales volumes from our North America copper mines totaled 1.4 billion pounds in 2018, 1.5 billion pounds in 2017 and 1.8 billion pounds in 2016. The decreases in 2018 and 2017, compared with 2016, primarily reflect lower ore grades.

North America copper sales are estimated to approximate 1.4 billion pounds of copper in 2019. Refer to “Outlook” for projected molybdenum sales volumes.

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.

Gross Profit per Pound of Copper and Molybdenum. The following tables summarize unit net cash costs and gross profit per pound of copper at our North America copper mines for the three years ended December 31, 2018. Refer to “Product Revenues and Production Costs” for an explanation of the “by-product” and “co-product” methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.

<table><tr><td rowspan="3"></td><td rowspan="3">By-Product Method</td><td colspan="2">2018</td><td colspan="3">2017</td></tr><tr><td colspan="2">Co-Product Method</td><td rowspan="2">By-Product Method</td><td colspan="2">Co-Product Method</td></tr><tr><td>Copper</td><td>Molybdenum \( ^{a} \)</td><td>Copper</td><td>Molybdenum \( ^{a} \)</td></tr><tr><td>Revenues, excluding adjustments</td><td>2.96</td><td>2.96</td><td>2.96</td><td>2.85</td><td>2.85</td><td>2.85</td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1.94</td><td>1.77</td><td>9.03</td><td>1.63</td><td>1.52</td><td>5.75</td></tr><tr><td>By-product credits</td><td>(0.26)</td><td>—</td><td>—</td><td>(0.17)</td><td>—</td><td>—</td></tr><tr><td>Treatment charges</td><td>0.11</td><td>0.10</td><td>—</td><td>0.10</td><td>0.10</td><td>—</td></tr><tr><td>Unit net cash costs</td><td>1.79</td><td>1.87</td><td>9.03</td><td>1.56</td><td>1.62</td><td>5.75</td></tr><tr><td>DD&amp;A</td><td>0.25</td><td>0.23</td><td>0.73</td><td>0.29</td><td>0.27</td><td>0.54</td></tr><tr><td>Noncash and other costs, net</td><td>0.07</td><td>0.06</td><td>0.17</td><td>0.06</td><td>0.06</td><td>0.07</td></tr><tr><td>Total unit costs</td><td>2.11</td><td>2.16</td><td>9.93</td><td>1.91</td><td>1.95</td><td>6.36</td></tr><tr><td>Revenue adjustments, primarily for pricing on prior period open sales</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Gross profit per pound</td><td>0.85</td><td>0.80</td><td>1.71</td><td>0.94</td><td>0.90</td><td>1.44</td></tr><tr><td>Copper sales (millions of recoverable pounds)</td><td>1,426</td><td>1,426</td><td></td><td>1,481</td><td>1,481</td><td></td></tr><tr><td>Molybdenum sales (millions of recoverable pounds) \( ^{a} \)</td><td></td><td></td><td>32</td><td></td><td></td><td>33</td></tr></table>

a. Reflects sales of molybdenum produced by certain of the North America copper mines to our molybdenum sales company at market-based pricing.



Our North America copper mines have varying cost structures because of differences in ore grades and characteristics, processing costs, by-product credits and other factors. During 2018, average unit net cash costs (net of by-product credits) for the North America copper mines ranged from $1.55 per pound to $2.63 per pound at the individual mines and averaged $1.79 per pound. Higher average unit net cash costs (net of by-product credits) of $1.79 in 2018, compared with $1.56 per pound in 2017, primarily reflected higher mining and milling costs, partly offset by higher molybdenum credits.

Because certain assets are depreciated on a straight-line basis, North America’s average unit depreciation rate may vary with asset additions and the level of copper production and sales. North America’s average unit depreciation rate is expected to be lower in 2019, compared to 2018, as a result of reserve additions. See “Critical Accounting Estimates—Mineral Reserves” for further discussion.

Average unit net cash costs (net of by-product credits) for our North America copper mines are expected to approximate $1.86 per pound of copper in 2019, based on achievement of current sales volume and cost estimates and assuming an average molybdenum price of $12.00 per pound. North America’s average unit net cash costs in 2019 would change by approximately $0.04 per pound for each $2 per pound change in the average price of molybdenum.

<table><tr><td rowspan="3"></td><td colspan="3">2017</td><td colspan="3">2016</td></tr><tr><td colspan="2">Co-Product Method</td><td rowspan="2">By-Product Method</td><td colspan="2">Co-Product Method</td><td rowspan="2">Co-Product Method</td></tr><tr><td>By-Product Method</td><td>Copper</td><td>Molybdenuma</td><td>Copper</td><td>Molybdenuma</td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 2.85</td><td>$ 2.85</td><td>$7.80</td><td>$ 2.24</td><td>$ 2.24</td><td>$6.34</td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1.63</td><td>1.52</td><td>5.75</td><td>1.41</td><td>1.34</td><td>4.91</td></tr><tr><td>By-product credits</td><td>(0.17)</td><td>—</td><td>—</td><td>(0.12)</td><td>—</td><td>—</td></tr><tr><td>Treatment charges</td><td>0.10</td><td>0.10</td><td>—</td><td>0.11</td><td>0.10</td><td>—</td></tr><tr><td>Unit net cash costs</td><td>1.56</td><td>1.62</td><td>5.75</td><td>1.40</td><td>1.44</td><td>4.91</td></tr><tr><td>DD&amp;A</td><td>0.29</td><td>0.27</td><td>0.54</td><td>0.29</td><td>0.27</td><td>0.60</td></tr><tr><td>Noncash and other costs, net</td><td>0.06</td><td>0.06</td><td>0.07</td><td>0.04</td><td>0.04</td><td>0.06</td></tr><tr><td>Total unit costs</td><td>1.91</td><td>1.95</td><td>6.36</td><td>1.73</td><td>1.75</td><td>5.57</td></tr><tr><td>Revenue adjustments, primarily for pricing on prior period open sales</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Gross profit per pound</td><td>$ 0.94</td><td>$ 0.90</td><td>$1.44</td><td>$ 0.51</td><td>$ 0.49</td><td>$0.77</td></tr><tr><td>Copper sales (millions of recoverable pounds)</td><td>1,481</td><td>1,481</td><td></td><td>1,836</td><td>1,836</td><td></td></tr><tr><td>Molybdenum sales (millions of recoverable pounds)a</td><td></td><td></td><td>33</td><td></td><td></td><td>33</td></tr></table>

a. Reflects sales of molybdenum produced by certain of the North America copper mines to our molybdenum sales company at market-based pricing.

Unit net cash costs (net of by-product credits) for our North America copper mines increased to $1.56 per pound of copper in 2017, compared with $1.40 per pound in 2016, primarily reflecting lower copper sales volumes.

## South America Mining

We operate two copper mines in South America—Cerro Verde in Peru (in which we own a 53.56 percent interest) and El Abra in Chile (in which we own a 51 percent interest), which are consolidated in our financial statements.

South America mining includes open-pit mining, sulfide ore concentrating, leaching and SX/EW operations. Production from our South America mines is sold as copper concentrate or cathode under long-term contracts. Our South America mines also sell a portion of their copper concentrate production to Atlantic Copper. In addition to copper, the Cerro Verde mine produces molybdenum concentrate and silver.
Operating and Development Activities. Cerro Verde’s expanded operations benefit from its large-scale, long-lived reserves and cost efficiencies. Cerro Verde’s concentrator facilities have continued to perform well, with average mill throughput rates of 387,600 metric tons of ore per day for the year 2018. During 2018, Cerro Verde received a modified environmental permit allowing it to operate its existing concentrator facilities at rates up to 409,500 metric tons of ore per day.

We continue to evaluate a large-scale expansion at El Abra to process additional sulfide material and to achieve higher recoveries. El Abra’s large sulfide resource could potentially support a major mill project similar to facilities constructed at Cerro Verde. Technical and economic studies are being advanced to determine the optimal scope and timing of the project.



Operating Data. Following is summary operating data for our South America mining operations for the years ended December 31:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Copper (millions of recoverable pounds)</td><td></td><td></td><td></td></tr><tr><td>Production</td><td>1,249</td><td>1,235</td><td>1,328</td></tr><tr><td>Sales</td><td>1,253</td><td>1,235</td><td>1,332</td></tr><tr><td>Average realized price per pound</td><td>$ 2.87</td><td>$ 2.97</td><td>$ 2.31</td></tr><tr><td>Molybdenum (millions of recoverable pounds)</td><td></td><td></td><td></td></tr><tr><td>Production \( ^{a} \)</td><td>28</td><td>27</td><td>21</td></tr><tr><td>Leach operations</td><td></td><td></td><td></td></tr><tr><td>Leach ore placed in stockpiles (metric tons per day)</td><td>195,200</td><td>142,800</td><td>149,100</td></tr><tr><td>Average copper ore grade (percent)</td><td>0.33</td><td>0.37</td><td>0.41</td></tr><tr><td>Copper production (millions of recoverable pounds)</td><td>287</td><td>255</td><td>328</td></tr><tr><td>Mill operations</td><td></td><td></td><td></td></tr><tr><td>Ore milled (metric tons per day)</td><td>387,600</td><td>360,100</td><td>353,400</td></tr><tr><td>Average ore grade (percent):</td><td></td><td></td><td></td></tr><tr><td>Copper</td><td>0.38</td><td>0.44</td><td>0.43</td></tr><tr><td>Molybdenum</td><td>0.01</td><td>0.02</td><td>0.02</td></tr><tr><td>Copper recovery rate (percent)</td><td>84.3</td><td>81.2</td><td>85.8</td></tr><tr><td>Copper production (millions of recoverable pounds)</td><td>962</td><td>980</td><td>1,000</td></tr></table>

a. Refer to “Consolidated Results” for our consolidated molybdenum sales volumes, which include sales of molybdenum produced at Cerro Verde.

Consolidated copper sales volumes from South America of 1.25 billion pounds in 2018 were approximately 1 percent higher than 1.24 billion pounds in 2017, primarily reflecting higher mining and milling rates, partly offset by lower ore grades.

Lower consolidated copper sales volumes from South America of 1.24 billion pounds in 2017, compared with 1.33 billion pounds in 2016, primarily reflected lower recovery rates at Cerro Verde and lower ore grades at El Abra.

Copper sales from South America mines are expected to approximate 1.3 billion pounds of copper in 2019. Refer to “Outlook” for projected molybdenum sales volumes. Since late January 2019, our El Abra operation has experienced heavy rainfall and electrical storms, resulting in a suspension of operations since February 4, 2019. We have been unable to assess damages because of poor road conditions and inaccessible areas, and we do not currently know when normal operations will resume. We estimate the impact on 2019 production will approximate 8 million pounds of copper through mid-February 2019, and additional impacts of approximately 600 thousand pounds of copper per day are expected until normal operations resume.

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.

Gross Profit per Pound of Copper. The following tables summarize unit net cash costs and gross profit per pound of copper at our South America mining operations for the three years ended December 31, 2018. Unit net cash costs per pound of copper are reflected under the by-product and co-product methods as the South America mining operations also had sales of molybdenum and silver. Refer to “Product Revenues and Production Costs” for an explanation of the “by-product” and “co-product” methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.



<table><tr><td rowspan="2"></td><td colspan="2">2018</td><td colspan="2">2017</td><td colspan="2">2016</td></tr><tr><td>By-Product Method</td><td>Co-Product Method</td><td>By-Product Method</td><td>Co-Product Method</td><td>By-Product Method</td><td>By-Product Method</td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 2.87</td><td>$ 2.87</td><td>$ 2.97</td><td>$ 2.97</td><td>$ 2.31</td><td>$ 2.31</td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1.79a</td><td>1.65</td><td>1.59</td><td>1.49</td><td>1.26</td><td>1.20</td></tr><tr><td>By-product credits</td><td>(0.24)</td><td>—</td><td>(0.18)</td><td>—</td><td>(0.10)</td><td>—</td></tr><tr><td>Treatment charges</td><td>0.19</td><td>0.19</td><td>0.22</td><td>0.22</td><td>0.24</td><td>0.24</td></tr><tr><td>Royalty on metals</td><td>0.01</td><td>0.01</td><td>0.01</td><td>0.01</td><td>0.0</td><td>—</td></tr><tr><td>Unit net cash costs</td><td>1.75</td><td>1.85</td><td>1.64</td><td>1.72</td><td>1.41</td><td>1.44</td></tr><tr><td>DD&amp;A</td><td>0.44</td><td>0.40</td><td>0.43</td><td>0.39</td><td>0.41</td><td>0.39</td></tr><tr><td>Noncash and other costs, net</td><td>0.06b</td><td>0.06</td><td>0.19b</td><td>0.18</td><td>0.03</td><td>0.03</td></tr><tr><td>Total unit costs</td><td>2.25</td><td>2.31</td><td>2.26</td><td>2.29</td><td>1.85</td><td>1.86</td></tr><tr><td>Revenue adjustments, primarily for pricing on prior period open sales</td><td>(0.03)</td><td>(0.03)</td><td>0.03</td><td>0.03</td><td>0.01</td><td>0.01</td></tr><tr><td>Gross profit per pound</td><td>$ 0.59</td><td>$ 0.53</td><td>$ 0.74</td><td>$ 0.71</td><td>$ 0.47</td><td>$ 0.46</td></tr><tr><td>Copper sales (millions of recoverable pounds)</td><td>1,253</td><td>1,253</td><td>1,235</td><td>1,235</td><td>1,332</td><td>1,332</td></tr></table>

a. Includes $0.06 per pound of copper for the year 2018 associated with charges for Cerro Verde's new three-year CLA.

b. Includes charges totaling $0.01 per pound of copper for the year 2018 and $0.16 per pound of copper for the year 2017, associated with disputed Cerro Verde royalties for prior years (refer to Note 12 for further discussion).

During 2018, unit net cash costs (net of by-product credits) for the South America mines averaged $1.75 per pound, including $1.67 per pound of copper for the Cerro Verde mine and $2.13 per pound for the El Abra mine. Higher average unit net cash costs (net of by-product credits) for our South America mining operations in 2018, compared with $1.64 per pound in 2017, primarily reflected higher mining and milling costs and costs associated with Cerro Verde's new three-year CLA, partly offset by higher by-product credits.

Unit net cash costs (net of by-product credits) for our South America mining operations increased to $1.64 per pound of copper in 2017, compared with $1.41 per pound in 2016, primarily reflecting lower sales volumes and higher mining, milling and employee costs at Cerro Verde, partly offset by higher by-product credits.

Revenues from Cerro Verde’s concentrate sales are recorded net of treatment charges, which will vary with Cerro Verde’s sales volumes and the price of copper.

Because certain assets are depreciated on a straight-line basis, South America’s unit depreciation rate may vary with asset additions and the level of copper production and sales. South America’s average unit depreciation rate is expected to be lower in 2019, compared to 2018, as a result of reserve additions. See “Critical Accounting Estimates—Mineral Reserves” for further discussion.

Revenue adjustments primarily result from changes in prices on provisionally priced copper sales recognized in prior periods. Refer to “Consolidated Results—Revenues” for further discussion of adjustments to prior period provisionally priced copper sales.
Average unit net cash costs (net of by-product credits) for our South America mining operations are expected to approximate $1.66 per pound of copper in 2019, based on current sales volume and cost estimates and assuming average prices of $12.00 per pound of molybdenum in 2019.

## INDONESIA MINING

We operate PT-FI’s mining operations, in which we own a 48.76 percent interest and consolidate in our financial statements. PT-FI’s assets include one of the world’s largest copper and gold deposits at the Grasberg minerals district in Papua, Indonesia. PT-FI produces copper concentrate that contains significant quantities of gold and silver.

Substantially all of PT-FI’s copper concentrate is sold under long-term contracts, and in 2018, approximately 38 percent of PT-FI’s copper concentrate was sold to PT Smelting (PT-FI’s 25 percent-owned smelter and refinery in Gresik, Indonesia).

Regulatory Matters. On December 21, 2018, we completed the transaction with the Indonesian government regarding PT-FI’s long-term mining rights and share ownership. We expect our share of future cash flows of the expanded PT-FI asset base, combined with the cash proceeds received in the transaction, to be comparable to our share of anticipated future cash flows under PT-FI’s former COW and Rio Tinto Joint Venture.

In connection with the transaction, a 40 percent share ownership in PT-FI was issued to PT Inalum and PTI (which is expected to be owned by PT Inalum and the provincial/regional government in Papua) and the Rio Tinto Joint Venture interests were effectively merged into PT-FI. As a result, PT Inalum’s and PTI’s collective share ownership of PT-FI totals 51.24 percent and our share ownership is 48.76 percent. The arrangements provide for us and the other pre-transaction



PT-FI shareholders to retain the economics of the revenue and cost sharing arrangements under the former Rio Tinto Joint Venture. As a result, our economic interest in PT-FI is expected to approximate 81 percent from 2019 through 2022.

We, PT-FI, PTI and PT Inalum also entered into a shareholders agreement at closing, which includes provisions related to the governance and management of PT-FI, and establishes our control over the management of PT-FI's operations. As a result, we continue to consolidate PT-FI in our financial statements.

Refer to Note 2 for further discussion of the transaction.

Concurrent with closing the transaction, the Indonesian government granted PT-FI an IUPK to replace its former COW, enabling PT-FI to conduct operations in the Grasberg minerals district through 2041. Under the terms of the IUPK, PT-FI has been granted an extension of mining rights through 2031, with rights to extend mining rights through 2041, subject to PT-FI completing the construction of a new smelter in Indonesia within five years of closing the transaction and fulfilling its defined fiscal obligations to the Indonesian government. The IUPK, and related documentation, contains legal and fiscal terms and is legally enforceable through 2041. In addition, we, as a foreign investor, have rights to resolve investment disputes with the Indonesian government through international arbitration. Refer to Note 13 for further discussion of PT-FI's IUPK.

Refer to “Risk Factors” contained in Part I, Item 1A. of our annual report on Form 10-K for the year ended December 31, 2018, for further discussion of risks associated with our mining operations in Indonesia.

Operating and Development Activities. PT-FI is currently mining the final phase of the Grasberg open pit and expects to transition to the Grasberg Block Cave (GBC) underground mine in the first half of 2019.

PT-FI continues to advance several projects in the Grasberg minerals district related to the development of its large-scale, long-lived, high-grade underground ore bodies. In aggregate, these underground ore bodies are expected to produce large-scale quantities of copper and gold following the transition from the Grasberg open pit.

PT-FI’s estimated annual capital spending on underground mine development projects is expected to average $0.7 billion per year over the next four years, net of scheduled contributions from PT Inalum. In accordance with applicable accounting guidance, aggregate costs (before scheduled contributions from PT Inalum), which are expected to average $0.9 billion per year through 2022, will be reflected as an investing activity in FCX’s cash flow statement, and contributions from PT Inalum, which are expected to average approximately $0.17 billion per year through 2022, will be reflected as a financing activity. Considering the long-term nature and size of these projects, actual costs could vary from these estimates.

PT-FI has also committed to construct a new smelter in Indonesia by December 21, 2023. PT-FI has reviewed various process technologies and is initiating front-end engineering and design for the selected technology and intends to pursue financing, commercial and potential partner arrangements for this project, which has a preliminary estimated capital cost in the $3 billion range. The economics of PT-FI’s share of the new smelter will be borne by PT-FI’s shareholders according to their respective long-term share ownership percentages.

The following provides additional information on the continued development of the Common Infrastructure project, the GBC underground mine and the Deep Mill Level Zone (DMLZ) ore body that lies below the Deep Ore Zone (DOZ) underground mine.

Common Infrastructure and GBC Underground Mine. In 2004, PT-FI commenced its Common Infrastructure project to provide access to its large undeveloped underground ore bodies located in the Grasberg minerals district through a tunnel system located approximately 400 meters deeper than its existing underground tunnel system. In addition to providing access to our underground ore bodies, the tunnel system will enable PT-FI to conduct future exploration in prospective areas associated with currently identified ore bodies. The tunnel system was completed to the Big Gossan terminal, and development of the GBC and DMLZ underground mines is advancing using the Common Infrastructure project tunnels as access.

The GBC underground mine accounts for approximately half of our recoverable proven and probable reserves in Indonesia. Substantial progress has been made to prepare for the transition to mining of the GBC underground mine. First undercut blasting occurred in September 2018, first drawbell blasting occurred in December 2018 and cave production is scheduled for the first half of 2019. All underground mining levels and the ore flow system are being commissioned. Production rates over the next five years are expected to ramp up to 130,000 metric tons per day.

Mine development capital for the GBC underground mine and associated Common Infrastructure is expected to approximate $6.8 billion, including $3.9 billion incurred through December 31, 2018 ($0.6 billion during 2018).

DMLZ. The DMLZ ore body lies below the DOZ mine at the 2,590-meter elevation and represents the downward continuation of mineralization in the Ertberg East Skarn system and neighboring Ertberg porphyry. In September 2015, PT-FI initiated pre-commercial production that represented



ore extracted during the development phase for the purpose of obtaining access to the ore body. During third-quarter 2018, PT-FI commenced hydraulic fracturing activities to manage rock stresses and pre-condition the DMLZ underground mine for large-scale production following mining induced seismic activity experienced in 2017 and 2018. Results to date have been effective in managing rock stresses and pre-conditioning the cave. PT-FI expects to commence the ramp-up of production in the DMLZ underground mine by mid-2019 and to reach full production rates of 80,000 metric tons per day in 2022. Estimates of timing of future production continue to be reviewed and may be modified as additional information becomes available.

Mine development capital costs for the DMLZ underground mine are expected to approximate $3.3 billion, including $2.5 billion incurred through December 31, 2018 (approximately $0.4 billion during 2018).

Operating Data. Following is summary operating data for our Indonesia mining operations for the years ended December 31:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td colspan="4">Operating Data, Net of Rio Tinto Joint Venture Interest \( ^{a} \)</td></tr><tr><td colspan="4">Copper (millions of recoverable pounds)</td></tr><tr><td>Production</td><td>1,160</td><td>984</td><td>1,063</td></tr><tr><td>Sales</td><td>1,130</td><td>981</td><td>1,054</td></tr><tr><td>Average realized price per pound</td><td>$ 2.89</td><td>$ 3.00</td><td>$ 2.32</td></tr><tr><td colspan="4">Gold (thousands of recoverable ounces)</td></tr><tr><td>Production</td><td>2,416</td><td>1,554</td><td>1,061</td></tr><tr><td>Sales</td><td>2,366</td><td>1,540</td><td>1,054</td></tr><tr><td>Average realized price per ounce</td><td>$ 1,254</td><td>$ 1,268</td><td>$ 1,237</td></tr><tr><td colspan="4">100% Operating Data</td></tr><tr><td colspan="4">Ore milled (metric tons per day): \( ^{b} \)</td></tr><tr><td>Grasberg open pit</td><td>133,300</td><td>101,800</td><td>119,700</td></tr><tr><td>DOZ underground mine</td><td>33,800</td><td>31,200</td><td>38,000</td></tr><tr><td>DMLZ underground mine</td><td>3,200</td><td>3,200</td><td>4,400</td></tr><tr><td>GBC underground mine</td><td>4,000</td><td>3,600</td><td>2,700</td></tr><tr><td>Big Gossan underground mine</td><td>3,800</td><td>600</td><td>900</td></tr><tr><td>Total</td><td>178,100</td><td>140,400</td><td>165,700</td></tr><tr><td colspan="4">Average ore grade:</td></tr><tr><td>Copper (percent)</td><td>0.98</td><td>1.01</td><td>0.91</td></tr><tr><td>Gold (grams per metric ton)</td><td>1.58</td><td>1.15</td><td>0.68</td></tr><tr><td colspan="4">Recovery rates (percent):</td></tr><tr><td>Copper</td><td>91.8</td><td>91.6</td><td>91.0</td></tr><tr><td>Gold</td><td>84.7</td><td>85.0</td><td>82.2</td></tr><tr><td colspan="4">Production (recoverable):</td></tr><tr><td>Copper (millions of pounds)</td><td>1,227</td><td>996</td><td>1,063</td></tr><tr><td>Gold (thousands of ounces)</td><td>2,697</td><td>1,554</td><td>1,061</td></tr></table>

a. Operating data through December 21, 2018, is net of the former Rio Tinto Joint Venture interest. Refer to Note 2 for further discussion.

b. Amounts represent the approximate average daily throughput processed at PT-FI’s mill facilities from each producing mine and from development activities that result in metal production. Higher copper and gold sales volumes from our Indonesia mining operations of 1.1 billion pounds of copper and 2.4 million ounces of gold in 2018, compared with 1.0 billion pounds of copper and 1.5 million ounces of gold in 2017 primarily reflected higher milling rates and gold ore grades.

Sales volumes from our Indonesia mining operations totaled 1.0 billion pounds of copper and 1.5 million ounces of gold in 2017, compared with 1.1 billion pounds of copper and 1.1 million ounces of gold in 2016. Lower copper sales volumes in 2017 primarily reflected the impact of regulatory restrictions on PT-FI's concentrate exports at the beginning of 2017, partly offset by higher copper ore grades. Higher gold sales volumes in 2017 primarily reflected higher gold ore grades.

As PT-FI transitions mining from the open pit to underground, production is expected to be significantly lower in 2019 and 2020, compared to 2018. Metal production is expected to improve significantly by 2021 following a ramp-up period. Consolidated sales volumes from Indonesia mining are expected to approximate 615 million pounds of copper and 785 thousand ounces of gold in 2019. Indonesia mining's projected sales volumes and unit net cash costs for the year 2019 are dependent on a number of factors, including operational performance, timing of shipments, workforce productivity and the Indonesian government's extension of PT-FI's export license. PTFI has applied for a one-year extension of its export license, which currently expires on February 16, 2019.

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metal mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.



Gross Profit per Pound of Copper and per Ounce of Gold. The following tables summarize the unit net cash (credits) costs and gross profit per pound of copper and per ounce of gold at our Indonesia mining operations for the three years ended December 31, 2018. Refer to “Product Revenues and Production Costs” for an explanation of “by-product” and “co-product” methods and a reconciliation of unit net cash (credits) costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.

<table><tr><td rowspan="3"></td><td colspan="3">2018</td><td colspan="3">2017</td></tr><tr><td rowspan="2">By-Product Method</td><td colspan="2">Co-Product Method</td><td rowspan="2">By-Product Method</td><td colspan="2">Co-Product Methodology</td></tr><tr><td>Copper</td><td>Gold</td><td>Copper</td><td>Gold</td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 2.89</td><td>$ 2.89</td><td>$1,254</td><td>$ 3.00</td><td>$ 3.00</td><td>$1,268</td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1.48</td><td>0.77</td><td>335</td><td>1.57</td><td>0.94</td><td>396</td></tr><tr><td>Gold and silver credits</td><td>(2.69)</td><td>—</td><td>—</td><td>(2.05)</td><td>—</td><td>—</td></tr><tr><td>Treatment charges</td><td>0.26</td><td>0.14</td><td>59</td><td>0.27</td><td>0.16</td><td>67</td></tr><tr><td>Export duties</td><td>0.16</td><td>0.08</td><td>36</td><td>0.12</td><td>0.07</td><td>30</td></tr><tr><td>Royalty on metals</td><td>0.21</td><td>0.11</td><td>48</td><td>0.17</td><td>0.10</td><td>47</td></tr><tr><td>Unit net cash (credits) costs</td><td>(0.58)</td><td>1.10</td><td>478</td><td>0.08</td><td>1.27</td><td>540</td></tr><tr><td>DD&amp;A</td><td>0.54</td><td>0.28</td><td>121</td><td>0.57</td><td>0.34</td><td>142</td></tr><tr><td>Noncash and other costs, net</td><td>0.21a</td><td>0.11</td><td>48</td><td>0.17b</td><td>0.10</td><td>42</td></tr><tr><td>Total unit costs</td><td>0.17</td><td>1.49</td><td>647</td><td>0.82</td><td>1.71</td><td>724</td></tr><tr><td>Revenue adjustments, primarily for pricing on prior period open sales</td><td>(0.03)</td><td>(0.03)</td><td>7</td><td>0.04</td><td>0.04</td><td>6</td></tr><tr><td>PT Smelting intercompany profit (loss)</td><td>0.04</td><td>0.03</td><td>12</td><td>(0.02)</td><td>(0.01)</td><td>(7)</td></tr><tr><td>Gross profit per pound/ounce</td><td>$ 2.73</td><td>$ 1.40</td><td>$ 626</td><td>$ 2.20</td><td>$ 1.32</td><td>$ 543</td></tr><tr><td>Copper sales (millions of recoverable pounds)</td><td>1,130</td><td>1,130</td><td></td><td>981</td><td>981</td><td></td></tr><tr><td>Gold sales (thousands of recoverable ounces)</td><td></td><td></td><td>2,366</td><td></td><td></td><td>1,540</td></tr></table>

a. Includes $0.20 per pound of copper primarily associated with PT-FI net charges (refer to “Consolidated Results” for a summary of these charges). b. Includes $0.12 per pound of copper of costs charged directly to production and delivery costs as a result of workforce reductions.

A significant portion of PT-FI’s costs are fixed, and unit costs vary depending on volumes and other factors. As a result of higher gold and silver credits and sales volumes, Indonesia had unit net cash (credits) costs (including gold and silver credits) of $0.58 per pound of copper in 2018, compared with $0.08 per pound in 2017.

Treatment charges vary with the volume of metals sold and the price of copper, and royalties vary with the volume of metals sold and the prices of copper and gold.

PT-FI’s export duties totaled $180 million in 2018, $115 million in 2017 and $96 million in 2016, and PT-FI’s royalties totaled $238 million in 2018, $173 million in 2017 and $131 million in 2016. Refer to Note 13 for further discussion of PT-FI’s export duties and royalties.

Revenue adjustments primarily result from changes in prices on provisionally priced copper sales recognized in prior periods. Refer to “Consolidated Results—Revenues” for further discussion of adjustments to prior period provisionally priced copper sales.
PT Smelting intercompany profit (loss) represents the change in the deferral of 25 percent of PT-FI’s profit on sales to PT Smelting. Refer to “Operations—Smelting & Refining” for further discussion.

Because of the fixed nature of a large portion of Indonesia’s costs, unit net cash costs vary from quarter to quarter depending on copper and gold volumes. Assuming an average gold price of $1,300 per ounce for 2019 and achievement of current sales volume and cost estimates, unit net cash costs (net of gold and silver credits) for Indonesia mining are expected to approximate $1.55 per pound of copper in 2019. Unit net cash costs are expected to decline significantly following the ramp up of production. Indonesia mining’s unit net cash costs for the year 2019 would change by approximately $0.06 per pound for each $50 per ounce change in the average price of gold.



<table><tr><td rowspan="3"></td><td colspan="3">2017</td><td colspan="3">2016</td></tr><tr><td rowspan="2">By-Product Method</td><td colspan="2">Co-Product Method</td><td rowspan="2">By-Product Method</td><td colspan="2">Co-Product Methodology</td></tr><tr><td>Copper</td><td>Gold</td><td>Copper</td><td>Gold</td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 3.00</td><td>$ 3.00</td><td>$1,268</td><td>$ 2.32</td><td>$ 2.32</td><td>$1,237</td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1.57</td><td>0.94</td><td>396</td><td>1.61</td><td>1.04</td><td>553</td></tr><tr><td>Gold and silver credits</td><td>(2.05)</td><td>—</td><td>—</td><td>(1.30)</td><td>—</td><td>—</td></tr><tr><td>Treatment charges</td><td>0.27</td><td>0.16</td><td>67</td><td>0.28</td><td>0.18</td><td>97</td></tr><tr><td>Export duties</td><td>0.12</td><td>0.07</td><td>30</td><td>0.09</td><td>0.06</td><td>31</td></tr><tr><td>Royalty on metals</td><td>0.17</td><td>0.10</td><td>47</td><td>0.13</td><td>0.07</td><td>47</td></tr><tr><td>Unit net cash costs</td><td>0.08</td><td>1.27</td><td>540</td><td>0.81</td><td>1.35</td><td>728</td></tr><tr><td>DD&amp;A</td><td>0.57</td><td>0.34</td><td>142</td><td>0.36</td><td>0.24</td><td>125</td></tr><tr><td>Noncash and other costs, net</td><td>0.17a</td><td>0.10</td><td>42</td><td>0.05</td><td>0.03</td><td>17</td></tr><tr><td>Total unit costs</td><td>0.82</td><td>1.71</td><td>724</td><td>1.22</td><td>1.62</td><td>870</td></tr><tr><td>Revenue adjustments, primarily for pricing on prior period open sales</td><td>0.04</td><td>0.04</td><td>6</td><td>—</td><td>—</td><td>16</td></tr><tr><td>PT Smelting intercompany loss</td><td>(0.02)</td><td>(0.01)</td><td>(7)</td><td>(0.02)</td><td>(0.02)</td><td>(8)</td></tr><tr><td>Gross profit per pound/ounce</td><td>$ 2.20</td><td>$ 1.32</td><td>$ 543</td><td>$ 1.08</td><td>$ 0.68</td><td>$ 375</td></tr><tr><td>Copper sales (millions of recoverable pounds)</td><td>981</td><td>981</td><td></td><td>1,054</td><td>1,054</td><td></td></tr><tr><td>Gold sales (thousands of recoverable ounces)</td><td></td><td></td><td>1,540</td><td></td><td></td><td>1,054</td></tr></table>

a. Includes $0.12 per pound of copper of costs charged directly to production and delivery costs as a result of workforce reductions.

Unit net cash costs (net of gold and silver credits) for our Indonesia mining operations of $0.08 per pound of copper in 2017 were lower than unit net cash costs of $0.81 per pound in 2016, primarily reflecting higher gold and silver credits.

Higher DD&A in 2017, compared with 2016, primarily related to higher amortization of asset retirement costs associated with revised estimates at the end of 2016 for an overburden stockpile. Because certain assets are depreciated on a straight-line basis, PT-FI’s unit depreciation rate varies with the level of copper production and sales.

## Molybdenum Mines

We have two wholly owned molybdenum mines—the Henderson underground mine and the Climax open-pit mine, both in Colorado. The Henderson and Climax mines produce high-purity, chemical-grade molybdenum concentrate, which is typically further processed into value-added molybdenum chemical products. The majority of the molybdenum concentrate produced at the Henderson and Climax mines, as well as from our North America and South America copper mines, is processed at our own conversion facilities.

Operating and Development Activities. Production from the Molybdenum mines totaled 35 million pounds of molybdenum in 2018, 32 million pounds in 2017 and 26 million pounds in 2016. Refer to “Consolidated Results” for our consolidated molybdenum operating data, which includes sales of molybdenum produced at our Molybdenum mines, and from our North America and South America copper mines, and refer to “Outlook” for projected consolidated molybdenum sales volumes.
Unit Net Cash Costs Per Pound of Molybdenum. Unit net cash costs per pound of molybdenum is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.

Average unit net cash costs for our molybdenum mines totaled $8.77 per pound of molybdenum in 2018, $7.71 per pound in 2017 and $8.28 per pound in 2016. The increase in the average unit net cash costs for molybdenum in 2018, compared to 2017, primarily reflected higher operating rates and lower ore grades. The decrease in the average unit net cash costs for molybdenum in 2017, compared to 2016, primarily reflected higher sales volumes. Based on current sales volume and cost estimates, average unit net cash costs for the Molybdenum mines are expected to approximate $8.90 per pound of molybdenum for the year 2019. Refer to “Product Revenues and Production Costs” for a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.



## Smelting & Refining

We wholly own and operate a smelter in Arizona (Miami smelter), a refinery in Texas (El Paso refinery) and a smelter and refinery in Spain (Atlantic Copper). Additionally, PT-FI owns 25 percent of a smelter and refinery in Gresik, Indonesia (PT Smelting). Treatment charges for smelting and refining copper concentrate consist of a base rate per pound of copper and per ounce of gold and are generally fixed. Treatment charges represent a cost to our mining operations and income to Atlantic Copper and PT Smelting. Thus, higher treatment charges benefit our smelter operations and adversely affect our mining operations. Our North America copper mines are less significantly affected by changes in treatment charges because these operations are largely integrated with our Miami smelter and El Paso refinery. Through this form of downstream integration, we are assured placement of a significant portion of our concentrate production.

Atlantic Copper smelts and refines copper concentrate and markets refined copper and precious metals in slimes. Following is a summary of Atlantic Copper’s concentrate purchases from unaffiliated third parties and our copper mining operations for the three years ended December 31, 2018:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Third parties</td><td>77%</td><td>67%</td><td>77%</td></tr><tr><td>North America copper mines</td><td>14</td><td>18</td><td>13</td></tr><tr><td>South America mining</td><td>5</td><td>15</td><td>7</td></tr><tr><td>Indonesia mining</td><td>4</td><td>—</td><td>3</td></tr><tr><td></td><td>100%</td><td>100%</td><td>100%</td></tr></table>

PT-FI’s contract with PT Smelting provides for PT-FI to supply 100 percent of the copper concentrate requirements (subject to a minimum or maximum treatment charge rate) necessary for PT Smelting to produce 205,000 metric tons of copper annually on a priority basis. PT-FI may also sell copper concentrate to PT Smelting at market rates for quantities in excess of 205,000 metric tons of copper annually. PT-FI supplied 90 percent of PT Smelting’s concentrate requirements in 2018, 93 percent in 2017 and 88 percent in 2016. PT Smelting processed 38 percent in 2018, 46 percent in 2017 and 42 percent in 2016 of PT-FI’s concentrate production.

PT Smelting produced 258,800 metric tons of copper anode from its smelter and 257,600 metric tons of copper cathode from its refinery in 2018; 245,800 metric tons of copper anode from its smelter and 247,800 metric tons of copper cathode from its refinery in 2017; and 255,700 metric tons of copper anode from its smelter and 241,700 metric tons of copper cathode from its refinery in 2016.

In early 2017, the Indonesian government issued new regulations to address exports of unrefined metals, including copper concentrate and anode slimes, and other matters related to the mining sector. These regulations permit the export of anode slimes, which is necessary for PT Smelting to continue operating. As a result of labor disturbances and a delay in the renewal of its export license for anode slimes, PT Smelting's operations were shut down from mid-January 2017 until early March 2017. PT Smelting has applied for a one-year extension of its anode slimes export license, which currently expires February 26, 2019.

PT Smelting’s maintenance turnarounds (which range from two weeks to a month to complete) typically are expected to occur approximately every two years, with short-term maintenance turnarounds in the interim. PT Smelting completed a 25-day maintenance turnaround during 2016, and a 30-day maintenance turnaround during 2018. In addition to its scheduled annual maintenance in November 2018, PT Smelting also experienced downtime in December 2018 caused by unscheduled maintenance at its sole-source oxygen supplier. This resulted in a temporary shutdown of PT Smelting’s operations in December 2018. The next major maintenance turnaround is scheduled for 2020.

We defer recognizing profits on sales from our mining operations to Atlantic Copper and on 25 percent of PT-FI's sales to PT Smelting until final sales to third parties occur. Changes in these deferrals attributable to variability in intercompany volumes resulted in net additions (reductions) to net income attributable to common stock of $42 million ($0.03 per share) in 2018, $ (21) $  million ($0.01) per share) in 2017 and $ (8) $  million ($0.01) per share) in 2016. Our net deferred profits on our inventories at Atlantic Copper and PT Smelting to be recognized in future periods' net income attributable to common stock totaled $31 million at December 31, 2018. Net additions to net income attributable to common stock for fourth-quarter 2018 totaled $46 million; based on current projections, we don't expect any significant adjustments in first-quarter 2019. Quarterly variations in ore grades, the timing of intercompany shipments and changes in product prices will result in variability in our net deferred profits and quarterly earnings.

## CAPITAL RESOURCES AND LIQUIDITY

Our consolidated operating cash flows vary with prices realized from copper, gold and molybdenum; our sales volumes; production costs; income taxes; other working capital changes; and other factors. We believe that we have a high-quality portfolio of long-lived copper assets positioned to generate long-term value. We have commenced a project to develop the Lone Star oxide ores near the Safford operation in eastern Arizona, and PT-FI has several projects in the Grasberg minerals district related to the development of its large-scale, long-lived, high-grade underground ore bodies (refer to “Operations—Indonesia Mining” for further discussion



of PT-FI’s transition mining from the open pit to underground). We are also pursuing other opportunities to enhance net present values, and we continue to advance studies for future development of our copper resources, the timing of which will be dependent on market conditions.

As presented in “Outlook,” our projected capital expenditures for 2019 are approximately $0.6 billion higher than projected operating cash flows. A large portion of the capital expenditures relate to projects that are expected to add significant production and cash flow in future periods, enabling us to generate operating cash flows exceeding capital expenditures in future years. We have cash on hand and the financial flexibility to fund these expenditures and will continue to be disciplined in deploying capital. Subject to future commodity prices for copper, gold and molybdenum, we expect estimated consolidated operating cash flows in 2019, plus available cash and availability under our credit facility, to be sufficient to fund our budgeted capital expenditures, cash dividends, noncontrolling interest distributions and other cash requirements for the year.

Refer to “Outlook” for further discussion of projected operating cash flows for 2019.

## Cash

Following is a summary of the U.S. and international components of consolidated cash and cash equivalents available to the parent company, net of noncontrolling interests' share, taxes and other costs at December 31, 2018 (in billions):

<table><tr><td>Cash at domestic companies</td><td>$ 3.2</td></tr><tr><td>Cash at international operations</td><td>1.0</td></tr><tr><td>Total consolidated cash and cash equivalents</td><td>4.2</td></tr><tr><td>Noncontrolling interests&#x27; share</td><td>(0.4)</td></tr><tr><td>Cash, net of noncontrolling interests&#x27; share</td><td>3.8</td></tr><tr><td>Withholding taxes and other</td><td>—a</td></tr><tr><td>Net cash available</td><td>$ 3.8</td></tr></table>

## a. Rounds to less than $0.1 billion.

Cash held at our international operations is generally used to support our foreign operations' capital expenditures, operating expenses, debt repayments, working capital and other tax payments, or other cash needs. Management believes that sufficient liquidity is available in the U.S. from cash balances and availability from our revolving credit facility. We have not elected to permanently reinvest earnings from our foreign subsidiaries, and we have recorded deferred tax liabilities for foreign earnings that are available to be repatriated to the U.S. From time to time, our foreign subsidiaries distribute earnings to the U.S. through dividends that are subject to applicable withholding taxes and noncontrolling interests' share.

## Debt

At December 31, 2018, consolidated debt totaled $11.1 billion, with a related weighted-average interest rate of 4.55 percent. We had no borrowings, $13 million in letters of credit issued and approximately $3.5 billion available under our revolving credit facility at December 31, 2018. Refer to “Financing Activities” below and Note 8 for further discussion of debt.

## Operating Activities

We generated consolidated operating cash flows of $3.9 billion in 2018 (net of $0.6 billion in working capital uses and timing of other tax payments), $4.7 billion in 2017 (including $0.6 billion in working capital sources and timing of other tax payments) and $3.7 billion in 2016 (including $87 million in working capital sources and timing of other tax payments).

Lower operating cash flows for 2018, compared with 2017, primarily reflected an increase in working capital uses mostly because of timing of international income tax payments. Higher operating cash flows for 2017, compared with 2016, primarily reflected the impact of higher copper prices and an increase in working capital sources from income tax refunds and other tax receivable collections, partly offset by increases in inventories.

## Investing Activities

Capital Expenditures. Capital expenditures, including capitalized interest, totaled $2.0 billion in 2018, including $1.2 billion for major mining projects; $1.4 billion in 2017, including $0.9 billion for major mining projects; and $2.8 billion in 2016, consisting of $1.6 billion for mining operations (including $1.2 billion for major projects) and $1.2 billion for oil and gas operations.

Higher capital expenditures in 2018, compared with 2017, primarily reflected development of Safford's Lone Star oxide project. Lower capital expenditures in 2017, compared with 2016, primarily reflected a decrease in oil and gas exploration and development activities as a result of the sale of substantially all of our oil and gas properties in late 2016.

Refer to “Outlook” for further discussion of projected capital expenditures for 2019.

Acquisitions and Dispositions. In December 2018, we completed the transaction with the Indonesian government regarding PT-FI’s long-term mining rights and share ownership. In connection with the transaction, PT-FI acquired Rio Tinto’s Joint Venture interests for $3.5 billion. In addition, we received proceeds of $350 million for the sale of 100 percent of our interests in PTI and $107 million from Rio Tinto for its share of the 2018 joint venture cash flows.



In 2016, proceeds, net of closing adjustments, from asset sales totaled $6.4 billion, primarily associated with the sales of our interest in TFHL; oil and gas properties; an additional 13 percent undivided interest in Morenci; and an interest in the Timok exploration project in Serbia.

Refer to Note 2 for further discussion of acquisitions and dispositions.

## Financing Activities

Debt Transactions. Net repayments of debt in 2018 totaled $2.1 billion, primarily consisting of $1.4 billion for senior notes due March 2018 and $454 million for senior notes due in 2022 and 2023.

Net repayments of debt in 2017 totaled $2.9 billion, primarily for the redemption and repayment of senior notes.

Net repayments of debt in 2016 totaled $3.9 billion, primarily for the repayment of an unsecured bank term loan and payments on the Cerro Verde credit facility.

Refer to Note 8 for further discussion of debt transactions.

Equity Transactions. In December 2018, an aggregate 40 percent share ownership in PT-FI was issued to PT Inalum and PTI, for $3.5 billion. See Note 2 for further discussion.

In 2016, net proceeds from the sale of common stock totaled $1.5 billion, reflecting sales of our common stock under registered at-the-market equity offerings. Refer to Note 10 for further discussion of equity transactions.
Dividends. In February 2018, the Board reinstated a cash dividend on our common stock. We paid dividends on our common stock totaling $218 million in 2018. On December 19, 2018, we declared a quarterly cash dividend of $0.05 per share on our common stock, which was paid on February 1, 2019, to shareholders of record as of January 15, 2019. The declaration of dividends is at the discretion of our Board and will depend upon our financial results, cash requirements, future prospects and other factors deemed relevant by our Board.

Dividends paid on our common stock totaling $2 million in 2017 and $6 million in 2016 related to accumulated dividends paid for vested stock-based compensation.

Cash dividends and other distributions paid to noncontrolling interests totaled $278 million in 2018, $174 million in 2017 and $693 million in 2016 (including $582 million for the redemption of a redeemable noncontrolling interest). These payments will vary based on the operating results and cash requirements of our consolidated subsidiaries.

## CONTRACTUAL OBLIGATIONS

We have contractual and other long-term obligations, including debt maturities based on principal amounts, which we expect to fund with available cash, projected operating cash flows, availability under our revolving credit facility or future financing transactions, if necessary. Following is a summary of these various obligations at December 31, 2018 (in millions):

<table><tr><td></td><td>Total</td><td>2019</td><td>2020 to 2021</td><td>2022 to 2023</td><td>Thereafter</td></tr><tr><td>Debt maturities</td><td>$11,152</td><td>$ 17</td><td>$2,124</td><td>$5,074</td><td>$ 3,937</td></tr><tr><td>Scheduled interest payment obligations \( ^{a} \)</td><td>4,867</td><td>508</td><td>969</td><td>661</td><td>2,729</td></tr><tr><td>ARO and environmental obligations \( ^{b} \)</td><td>8,069</td><td>449</td><td>809</td><td>532</td><td>6,279</td></tr><tr><td>Take-or-pay contracts \( ^{c} \)</td><td>2,920</td><td>2,144</td><td>381</td><td>94</td><td>301</td></tr><tr><td>Operating lease obligations</td><td>365</td><td>53</td><td>80</td><td>61</td><td>171</td></tr><tr><td>Total \( ^{d} \)</td><td>$27,373</td><td>$3,171</td><td>$4,363</td><td>$6,422</td><td>$13,417</td></tr></table>

a. Scheduled interest payment obligations were calculated using stated coupon rates for fixed-rate debt and interest rates applicable at December 31, 2018, for variable-rate debt.

b. Represents estimated cash payments, on an undiscounted and unsecalated basis, associated with ARO and environmental activities (including $476 million for our oil and gas operations). The timing and the amount of these payments could change as a result of changes in regulatory requirements, changes in scope and timing of ARO activities, the settlement of environmental matters and as actual spending occurs. Refer to Note 12 for additional discussion of environmental and ARO matters.

c. Represents contractual obligations for purchases of goods or services agreements enforceable and legally binding and that specify all significant terms, and primarily include the procurement of copper concentrate ($1.5 billion), cobalt ($0.5 billion), electricity ($0.4 billion) and transportation services ($0.3 billion). Some of our take-or-pay contracts are settled based on the prevailing market rate for the service or commodity purchased, and in some cases, the amount of the actual obligation may change over time because of market conditions. Obligations for copper concentrate provide for deliveries of specified volumes to Atlantic Copper at market-based prices. Obligations for cobalt hydroxide intermediate provide for deliveries of specified volumes to Freeport Cobalt at market-based prices. Electricity obligations are primarily for long-term power purchase agreements in North America and contractual minimum demand at the South America mines. Transportation obligations are primarily for South America contracted ocean freight.

d. This table excludes certain other obligations in our consolidated balance sheets, such as estimated funding for pension, postretirement and other employee benefit obligations as the funding may vary from year to year based on changes in the fair value of plan assets and actuarial assumptions, commitments and contingencies totaling $97 million and unrecognized tax benefits totaling $230 million where the timing of settlement is not determinable, and other less significant amounts. This table also excludes purchase orders for inventory and other goods and services, as purchase orders typically represent authorizations to purchase rather than binding agreements.

In addition to our debt maturities and other contractual obligations discussed above, we have other commitments, which we expect to fund with available cash, projected operating cash flows, available credit facilities or future financing transactions, if necessary. These include (i) PT-FI's commitment to provide one percent of its annual revenue for the development of the local people in its area of operations through the Freeport Partnership Fund for Community



Development, (ii) Cerro Verde’s scheduled installment payments for disputed mining royalty assessments and (iii) other commercial commitments, including standby letters of credit, surety bonds and guarantees. Refer to Notes 12 and 13 for further discussion of these commitments.

## CONTINGENCIES

## Environmental

The cost of complying with environmental laws is a fundamental and substantial cost of our business. At December 31, 2018, we had $1.5 billion recorded in our consolidated balance sheet for environmental obligations attributed to CERCLA or analogous state programs and for estimated future costs associated with environmental obligations that are considered probable based on specific facts and circumstances.

We incurred environmental capital expenditures and other environmental costs (including our joint venture partners' shares) to comply with applicable environmental laws and regulations that affect our operations totaling $0.4 billion in 2018, $0.5 billion in 2017 and $0.4 billion in 2016. For 2019, we expect to incur approximately $0.5 billion of aggregate environmental capital expenditures and other environmental costs. The timing and amount of estimated payments could change as a result of changes in regulatory requirements, changes in scope and timing of reclamation and plug and abandonment activities, the settlement of environmental matters and the rate at which actual spending occurs on continuing matters.

Refer to Note 12 and “Risk Factors” contained in Part I, Item 1A. of our annual report on Form 10-K for the year ended December 31, 2018, for further information about environmental regulation, including significant environmental matters.

## Asset Retirement Obligations

We recognize AROs as liabilities when incurred, with the initial measurement at fair value. These obligations, which are initially estimated based on discounted cash flow estimates, are accreted to full value over time through charges to cost of sales. Mine reclamation costs for disturbances are recorded as an ARO and as a related asset retirement cost (ARC) (included in property, plant, equipment and mine development costs) in the period of disturbance. Oil and gas plugging and abandonment costs are recognized as an ARO and as a related ARC (included in oil and gas properties) in the period in which the well is drilled or acquired. For non-operating properties without reserves, changes to the ARO are recorded in earnings. Our cost estimates are reflected on a third-party cost basis and comply with our legal obligation to retire tangible, long-lived assets. At December 31, 2018, we had $2.5 billion recorded in our consolidated balance sheet for AROs, including $0.5 billion related to our oil and gas properties. Spending on AROs totaled $160 million in 2018, $71 million in 2017 and $188 million in 2016 (including $83 million in 2018, $30 million in 2017 and $133 million in 2016 for our oil and gas operations). For 2019, we expect to incur approximately $0.3 billion in aggregate ARO payments (including $114 million for our oil and gas operations). Refer to Note 12 for further discussion.

## Litigation and Other Contingencies

Refer to Notes 2 and 12, and “Legal Proceedings” contained in Part I, Item 3. of our annual report on Form 10-K for the year ended December 31, 2018, for further discussion of contingencies associated with legal proceedings and other matters.

## DISCLOSURES ABOUT MARKET RISKS

## Commodity Price Risk

Our consolidated revenues from our mining operations include the sale of copper concentrate, copper cathode, copper rod, gold, molybdenum and other metals by our North America and South America mines, the sale of copper concentrate (which also contains significant quantities of gold and silver) by our Indonesia mining operations, the sale of molybdenum in various forms by our molybdenum operations, and the sale of copper cathode, copper anode and gold in anode and slimes by Atlantic Copper. Our financial results will vary with fluctuations in the market prices of the commodities we produce, primarily copper and gold, and to a lesser extent molybdenum and silver. For projected sensitivities of our operating cash flow to changes in commodity prices, refer to "Outlook." World market prices for these commodities have fluctuated historically and are affected by numerous factors beyond our control. Refer to "Risk Factors" contained in Part I, Item 1A. of our annual report on Form 10-K for the year ended December 31, 2018, for further discussion of financial risks associated with fluctuations in the market prices of the commodities we sell.

During 2018, our mined copper was sold 59 percent in concentrate, 21 percent as cathode and 20 percent as rod from North America operations. Substantially all of our copper concentrate and cathode sales contracts provide final copper pricing in a specified future month (generally one to four months from the shipment date) based primarily on quoted LME monthly average copper settlement prices. We receive market prices based on prices in the specified future period, which results in price fluctuations recorded through revenues until the date of settlement. We record revenues and invoice



customers at the time of shipment based on then-current LME prices, which results in an embedded derivative on our provisionally priced concentrate and cathode sales that is adjusted to fair value through earnings each period, using the period-end forward prices, until final pricing on the date of settlement. To the extent final prices are higher or lower than what was recorded on a provisional basis, an increase or decrease to revenues is recorded each reporting period until the date of final pricing. Accordingly, in times of rising copper prices, our revenues benefit from adjustments to the final pricing of provisionally priced sales pursuant to contracts entered into in prior periods; in times of falling copper prices, the opposite occurs.

Following are the (unfavorable) favorable impacts of net adjustments to the prior years’ provisionally priced copper sales for the years ended December 31 (in millions, except per share amounts):

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Revenues</td><td>$ (70)</td><td>$ 81</td><td>$ 5</td></tr><tr><td>Net income attributable to common stock</td><td>$ (31)</td><td>$ 34</td><td>$ 2</td></tr><tr><td>Net income per share attributable to common stock</td><td>$ (0.02)</td><td>$0.02</td><td>$—</td></tr></table>

At December 31, 2018, we had provisionally priced copper sales at our copper mining operations totaling 308 million pounds of copper (net of intercompany sales and noncontrolling interests) recorded at an average price of $2.71 per pound, subject to final pricing over the next several months. We estimate that each $0.05 change in the price realized from the December 31, 2018, provisional price recorded would have an approximate $10 million effect on 2019 net income attributable to common stock. The LME copper settlement price closed at $2.79 per pound on January 31, 2019.

## Foreign Currency Exchange Risk

The functional currency for most of our operations is the U.S. dollar. Substantially all of our revenues and a significant portion of our costs are denominated in U.S. dollars; however, some costs and certain asset and liability accounts are denominated in local currencies, including the Indonesian rupiah, Australian dollar, Peruvian sol, Chilean peso and euro. We recognized foreign currency translation gains (losses) on balances denominated in foreign currencies totaling $14 million in 2018, $5 million in 2017 and $32 million in 2016, primarily at our Indonesia and South America mines. Generally, our operating results are positively affected when the U.S. dollar strengthens in relation to those foreign currencies and are adversely affected when the U.S. dollar weakens in relation to those foreign currencies.

Following is a summary of estimated annual payments and the impact of changes in foreign currency rates on our annual operating costs:

<table><tr><td rowspan="2"></td><td colspan="3">Exchange Rate per $1 at December 31,</td><td colspan="2">Estimated Annual Payments</td><td colspan="2">10% Change in Exchange Rate (in millions of U.S. dollars) \( ^{a} \)</td></tr><tr><td>2018</td><td>2017</td><td>2016</td><td>(in local currency)</td><td>(in millions of U.S. dollars) \( ^{b} \)</td><td>Increase</td><td>Decrease</td></tr><tr><td>Indonesia</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Rupiah</td><td>14,409</td><td>13,480</td><td>13,369</td><td>9.6 trillion</td><td>$666</td><td>$(61)</td><td>$74</td></tr><tr><td>Australian dollar</td><td>1.41</td><td>1.28</td><td>1.39</td><td>311 million</td><td>$221</td><td>$(20)</td><td>$25</td></tr><tr><td>South America</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Peruvian sol</td><td>3.38</td><td>3.25</td><td>3.36</td><td>2.3 billion</td><td>$667</td><td>$(61)</td><td>$74</td></tr><tr><td>Chilean peso</td><td>695</td><td>615</td><td>670</td><td>179 billion</td><td>$258</td><td>$(23)</td><td>$29</td></tr><tr><td>Atlantic Copper</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Euro</td><td>0.87</td><td>0.83</td><td>0.95</td><td>137 million</td><td>$157</td><td>$(14)</td><td>$17</td></tr></table>

a. Reflects the estimated impact on annual operating costs assuming a 10 percent increase or decrease in the exchange rate reported at December 31, 2018.
b. Based on exchange rates at December 31, 2018.



## Interest Rate Risk

At December 31, 2018, we had total debt maturities based on principal amounts of $11.2 billion, of which approximately 10 percent was variable-rate debt with interest rates based on the London Interbank Offered Rate. Refer to “Risk Factors” contained in Part I, Item 1A. of our annual report on Form 10-K for the year ended December 31, 2018. The table below presents average interest rates for our scheduled maturities of principal for our outstanding debt (excluding fair value adjustments) and the related fair values at December 31, 2018 (in millions, except percentages):

<table><tr><td></td><td>2019</td><td>2020</td><td>2021</td><td>2022</td><td>2023</td><td>Thereafter</td><td>Fair Value</td></tr><tr><td>Fixed-rate debt</td><td>$ 5</td><td>$1,004</td><td>$614</td><td>$1,897</td><td>$2,653</td><td>$3,812</td><td>$9,076</td></tr><tr><td>Average interest rate</td><td>0.8%</td><td>3.1%</td><td>3.9%</td><td>3.5%</td><td>4.7%</td><td>5.4%</td><td>4.5%</td></tr><tr><td>Variable-rate debt</td><td>$12</td><td>—</td><td>$505</td><td>$ 525</td><td>—</td><td>$ 125</td><td>$1,163</td></tr><tr><td>Average interest rate</td><td>1.7%</td><td>—</td><td>4.4%</td><td>4.4%</td><td>—</td><td>6.3%</td><td>4.6%</td></tr></table>

## NEW ACCOUNTING STANDARDS

Refer to Note 1 for discussion of recently issued accounting standards and their projected impact on our future financial statements and disclosures.

## OFF-BALANCE SHEET ARRANGEMENTS

Refer to Note 13 for discussion of off-balance sheet arrangements.

## PRODUCT REVENUES AND PRODUCTION COSTS

## Mining Product Revenues and Unit Net Cash Costs

Unit net cash costs per pound of copper and molybdenum are measures intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for the respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. These measures are presented by other metals mining companies, although our measures may not be comparable to similarly titled measures reported by other companies.

We present gross profit per pound of copper in the following tables using both a “by-product” method and a “co-product” method. We use the by-product method in our presentation of gross profit per pound of copper because (i) the majority of our revenues are copper revenues, (ii) we mine ore, which contains copper, gold, molybdenum and other metals, (iii) it is not possible to specifically assign all of our costs to revenues from the copper, gold, molybdenum and other metals we produce, (iv) it is the method used to compare mining operations in certain industry publications and (v) it is the method used by our management and the Board to monitor operations and to compare mining operations in certain industry publications. In the co-product method presentations, shared costs are allocated to the different products based on their relative revenue values, which will vary to the extent our metals sales volumes and realized prices change.

We show revenue adjustments for prior period open sales as separate line items. Because these adjustments do not result from current period sales, these amounts have been reflected separately from revenues on current period sales. Noncash and other costs, which are removed from site production and delivery costs in the calculation of unit net cash costs, consist of items such as stock-based compensation costs, start-up costs, inventory adjustments, long-lived asset impairments, restructuring and/or unusual charges. As discussed above, gold, molybdenum and other metal revenues at copper mines are reflected as credits against site production and delivery costs in the by-product method. The following schedules are presentations under both the by-product and co-product methods together with reconciliations to amounts reported in our consolidated financial statements.



## North America Copper Mines Product Revenues, Production Costs and Unit Net Cash Costs

<table><tr><td rowspan="2">Year Ended December 31, 2018</td><td rowspan="2">By-Product Method</td><td colspan="4">Co-Product Method</td></tr><tr><td>Copper</td><td>Molybdenuma</td><td>Otherb</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 4,217</td><td>$ 4,217</td><td>$ 376</td><td>$90</td><td>$4,683</td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>2,766</td><td>2,522</td><td>291</td><td>52</td><td>2,865</td></tr><tr><td>By-product credits</td><td>(367)</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Treatment charges</td><td>150</td><td>144</td><td>—</td><td>6</td><td>150</td></tr><tr><td>Net cash costs</td><td>2,549</td><td>2,666</td><td>291</td><td>58</td><td>3,015</td></tr><tr><td>DD&amp;A</td><td>359</td><td>327</td><td>24</td><td>8</td><td>359</td></tr><tr><td>Noncash and other costs, net</td><td>94</td><td>87</td><td>6</td><td>1</td><td>94</td></tr><tr><td>Total costs</td><td>3,002</td><td>3,080</td><td>321</td><td>67</td><td>3,468</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>(5)</td><td>(5)</td><td>—</td><td>—</td><td>(5)</td></tr><tr><td>Gross profit</td><td>$ 1,210</td><td>$ 1,132</td><td>$ 55</td><td>$23</td><td>$1,210</td></tr><tr><td>Copper sales (millions of recoverable pounds)</td><td>1,426</td><td>1,426</td><td></td><td></td><td></td></tr><tr><td>Molybdenum sales (millions of recoverable pounds)a</td><td></td><td></td><td>32</td><td></td><td></td></tr><tr><td>Gross profit per pound of copper/molybdenum:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 2.96</td><td>$ 2.96</td><td>$11.64</td><td></td><td></td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1.94</td><td>1.77</td><td>9.03</td><td></td><td></td></tr><tr><td>By-product credits</td><td>(0.26)</td><td>—</td><td>—</td><td></td><td></td></tr><tr><td>Treatment charges</td><td>0.11</td><td>0.10</td><td>—</td><td></td><td></td></tr><tr><td>Unit net cash costs</td><td>1.79</td><td>1.87</td><td>9.03</td><td></td><td></td></tr><tr><td>DD&amp;A</td><td>0.25</td><td>0.23</td><td>0.73</td><td></td><td></td></tr><tr><td>Noncash and other costs, net</td><td>0.07</td><td>0.06</td><td>0.17</td><td></td><td></td></tr><tr><td>Total unit costs</td><td>2.11</td><td>2.16</td><td>9.93</td><td></td><td></td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>—</td><td>—</td><td>—</td><td></td><td></td></tr><tr><td>Gross profit per pound</td><td>$ 0.85</td><td>$ 0.80</td><td>$ 1.71</td><td></td><td></td></tr></table>

Reconciliation to Amounts Reported

<table><tr><td></td><td>Revenues</td><td>Production and Delivery</td><td>DD&amp;A</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Totals presented above</td><td>$ 4,683</td><td>$ 2,865</td><td>$ 359</td></tr><tr><td>Treatment charges</td><td>(30)</td><td>120</td><td>—</td></tr><tr><td>Noncash and other costs, net</td><td>—</td><td>94</td><td>—</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>(5)</td><td>—</td><td>—</td></tr><tr><td>Eliminations and other</td><td>46</td><td>49</td><td>1</td></tr><tr><td>North America copper mines</td><td>4,694</td><td>3,128</td><td>360</td></tr><tr><td>Other miningc</td><td>17,060</td><td>11,853</td><td>1,269</td></tr><tr><td>Corporate, other &amp; eliminations</td><td>(3,126)</td><td>(3,290)</td><td>125</td></tr><tr><td>As reported in FCX&#x27;s consolidated financial statements</td><td>$18,628</td><td>$11,691</td><td>$1,754</td></tr></table>

a. Reflects sales of molybdenum produced by certain of the North America copper mines to our molybdenum sales company at market-based pricing.

b. Includes gold and silver product revenues and production costs.

c. Represents the combined total for our other mining operations as presented in Note 16.



## North America Copper Mines Product Revenues, Production Costs and Unit Net Cash Costs (continued)

<table><tr><td rowspan="2">Year Ended December 31, 2017</td><td rowspan="2">By-Product Method</td><td colspan="4">Co-Product Method</td></tr><tr><td>Copper</td><td>Molybdenuma</td><td>Otherb</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 4,215</td><td>$ 4,215</td><td>$ 254</td><td>$90</td><td>$4,559</td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>2,406</td><td>2,256</td><td>187</td><td>51</td><td>2,494</td></tr><tr><td>By-product credits</td><td>(256)</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Treatment charges</td><td>157</td><td>150</td><td>—</td><td>7</td><td>157</td></tr><tr><td>Net cash costs</td><td>2,307</td><td>2,406</td><td>187</td><td>58</td><td>2,651</td></tr><tr><td>DD&amp;A</td><td>423</td><td>397</td><td>18</td><td>8</td><td>423</td></tr><tr><td>Noncash and other costs, net</td><td>89</td><td>86</td><td>2</td><td>1</td><td>89</td></tr><tr><td>Total costs</td><td>2,819</td><td>2,889</td><td>207</td><td>67</td><td>3,163</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>4</td><td>4</td><td>—</td><td>—</td><td>4</td></tr><tr><td>Gross profit</td><td>$ 1,400</td><td>$ 1,330</td><td>$ 47</td><td>$23</td><td>$1,400</td></tr><tr><td>Copper sales (millions of recoverable pounds)</td><td>1,481</td><td>1,481</td><td></td><td></td><td></td></tr><tr><td>Molybdenum sales (millions of recoverable pounds)a</td><td></td><td></td><td>33</td><td></td><td></td></tr><tr><td>Gross profit per pound of copper/molybdenum:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 2.85</td><td>$ 2.85</td><td>$ 7.80</td><td></td><td></td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1.63</td><td>1.52</td><td>5.75</td><td></td><td></td></tr><tr><td>By-product credits</td><td>(0.17)</td><td>—</td><td>—</td><td></td><td></td></tr><tr><td>Treatment charges</td><td>0.10</td><td>0.10</td><td>—</td><td></td><td></td></tr><tr><td>Unit net cash costs</td><td>1.56</td><td>1.62</td><td>5.75</td><td></td><td></td></tr><tr><td>DD&amp;A</td><td>0.29</td><td>0.27</td><td>0.54</td><td></td><td></td></tr><tr><td>Noncash and other costs, net</td><td>0.06</td><td>0.06</td><td>0.07</td><td></td><td></td></tr><tr><td>Total unit costs</td><td>1.91</td><td>1.95</td><td>6.36</td><td></td><td></td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>—</td><td>—</td><td>—</td><td></td><td></td></tr><tr><td>Gross profit per pound</td><td>$ 0.94</td><td>$ 0.90</td><td>$ 1.44</td><td></td><td></td></tr></table>

## Reconciliation to Amounts Reported

<table><tr><td></td><td>Revenues</td><td>Production and Delivery</td><td>DD&amp;A</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Totals presented above</td><td>$ 4,559</td><td>$ 2,494</td><td>$ 423</td></tr><tr><td>Treatment charges</td><td>(52)</td><td>105</td><td>—</td></tr><tr><td>Noncash and other costs, net</td><td>—</td><td>89</td><td>—</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>4</td><td>—</td><td>—</td></tr><tr><td>Eliminations and other</td><td>54</td><td>57</td><td>2</td></tr><tr><td>North America copper mines</td><td>4,565</td><td>2,745</td><td>425</td></tr><tr><td>Other miningc</td><td>14,921</td><td>10,639</td><td>1,195</td></tr><tr><td>Corporate, other &amp; eliminations</td><td>(3,083)</td><td>(3,118)</td><td>94</td></tr><tr><td>As reported in FCX&#x27;s consolidated financial statements</td><td>$16,403</td><td>$10,266</td><td>$1,714</td></tr></table>

a. Reflects sales of molybdenum produced by certain of the North America copper mines to our molybdenum sales company at market-based pricing.

b. Includes gold and silver product revenues and production costs.

c. Represents the combined total for our other mining operations as presented in Note 16.



## North America Copper Mines Product Revenues, Production Costs and Unit Net Cash Costs (continued)

<table><tr><td rowspan="2">Year Ended December 31, 2016</td><td rowspan="2">By-Product Method</td><td colspan="4">Co-Product Method</td></tr><tr><td>Copper</td><td>Molybdenuma</td><td>Otherb</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 4,113</td><td>$ 4,113</td><td>$ 213</td><td>$94</td><td>$4,420</td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>2,596</td><td>2,458</td><td>165</td><td>58</td><td>2,681</td></tr><tr><td>By-product credits</td><td>(222)</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Treatment charges</td><td>193</td><td>185</td><td>—</td><td>8</td><td>193</td></tr><tr><td>Net cash costs</td><td>2,567</td><td>2,643</td><td>165</td><td>66</td><td>2,874</td></tr><tr><td>DD&amp;A</td><td>527</td><td>496</td><td>20</td><td>11</td><td>527</td></tr><tr><td>Noncash and other costs, net</td><td>85</td><td>83</td><td>2</td><td>—</td><td>85</td></tr><tr><td>Total costs</td><td>3,179</td><td>3,222</td><td>187</td><td>77</td><td>3,486</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>(1)</td><td>(1)</td><td>—</td><td>—</td><td>(1)</td></tr><tr><td>Gross profit</td><td>$ 933</td><td>$ 890</td><td>$ 26</td><td>$17</td><td>$ 933</td></tr><tr><td>Copper sales (millions of recoverable pounds)</td><td>1,836</td><td>1,836</td><td></td><td></td><td></td></tr><tr><td>Molybdenum sales (millions of recoverable pounds)a</td><td></td><td></td><td>33</td><td></td><td></td></tr><tr><td>Gross profit per pound of copper/molybdenum:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 2.24</td><td>$ 2.24</td><td>$ 6.34</td><td></td><td></td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1.41</td><td>1.34</td><td>4.91</td><td></td><td></td></tr><tr><td>By-product credits</td><td>(0.12)</td><td>—</td><td>—</td><td></td><td></td></tr><tr><td>Treatment charges</td><td>0.11</td><td>0.10</td><td>—</td><td></td><td></td></tr><tr><td>Unit net cash costs</td><td>1.40</td><td>1.44</td><td>4.91</td><td></td><td></td></tr><tr><td>DD&amp;A</td><td>0.29</td><td>0.27</td><td>0.60</td><td></td><td></td></tr><tr><td>Noncash and other costs, net</td><td>0.04</td><td>0.04</td><td>0.06</td><td></td><td></td></tr><tr><td>Total unit costs</td><td>1.73</td><td>1.75</td><td>5.57</td><td></td><td></td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>—</td><td>—</td><td>—</td><td></td><td></td></tr><tr><td>Gross profit per pound</td><td>$ 0.51</td><td>$ 0.49</td><td>$ 0.77</td><td></td><td></td></tr></table>

Reconciliation to Amounts Reported

<table><tr><td></td><td>Revenues</td><td>Production and Delivery</td><td>DD&amp;A</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Totals presented above</td><td>$ 4,420</td><td>$ 2,681</td><td>$ 527</td></tr><tr><td>Treatment charges</td><td>(90)</td><td>103</td><td>—</td></tr><tr><td>Noncash and other costs, net</td><td>—</td><td>85</td><td>—</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>(1)</td><td>—</td><td>—</td></tr><tr><td>Eliminations and other</td><td>45</td><td>45</td><td>3</td></tr><tr><td>North America copper mines</td><td>4,374</td><td>2,914</td><td>530</td></tr><tr><td>Other miningc</td><td>12,111</td><td>9,290</td><td>1,044</td></tr><tr><td>Corporate, other &amp; eliminations</td><td>(1,655)</td><td>(1,517)</td><td>956</td></tr><tr><td>As reported in FCX&#x27;s consolidated financial statements</td><td>$14,830</td><td>$10,687</td><td>$2,530</td></tr></table>

a. Reflects sales of molybdenum produced by certain of the North America copper mines to our molybdenum sales company at market-based pricing.

b. Includes gold and silver product revenues and production costs.

c. Represents the combined total for our other mining operations as presented in Note 16.



## South America Mining Product Revenues, Production Costs and Unit Net Cash Costs

<table><tr><td rowspan="2">Year Ended December 31, 2018</td><td rowspan="2">By-Product Method</td><td colspan="3">Co-Product Method</td></tr><tr><td>Copper</td><td>Othera</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 3,593</td><td>$ 3,593</td><td>$ 352</td><td>$3,945</td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>2,244b</td><td>2,065</td><td>226</td><td>2,291</td></tr><tr><td>By-product credits</td><td>(305)</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Treatment charges</td><td>243</td><td>243</td><td>—</td><td>243</td></tr><tr><td>Royalty on metals</td><td>8</td><td>7</td><td>1</td><td>8</td></tr><tr><td>Net cash costs</td><td>2,190</td><td>2,315</td><td>227</td><td>2,542</td></tr><tr><td>DD&amp;A</td><td>546</td><td>499</td><td>47</td><td>546</td></tr><tr><td>Noncash and other costs, net</td><td>79c</td><td>75</td><td>4</td><td>79</td></tr><tr><td>Total costs</td><td>2,815</td><td>2,889</td><td>278</td><td>3,167</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>(37)</td><td>(37)</td><td>—</td><td>(37)</td></tr><tr><td>Gross profit</td><td>$ 741</td><td>$ 667</td><td>$ 74</td><td>$ 741</td></tr><tr><td>Copper sales (millions of recoverable pounds)</td><td>1,253</td><td>1,253</td><td></td><td></td></tr><tr><td>Gross profit per pound of copper:</td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 2.87</td><td>$ 2.87</td><td></td><td></td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1.79b</td><td>1.65</td><td></td><td></td></tr><tr><td>By-product credits</td><td>(0.24)</td><td>—</td><td></td><td></td></tr><tr><td>Treatment charges</td><td>0.19</td><td>0.19</td><td></td><td></td></tr><tr><td>Royalty on metals</td><td>0.01</td><td>0.01</td><td></td><td></td></tr><tr><td>Unit net cash costs</td><td>1.75</td><td>1.85</td><td></td><td></td></tr><tr><td>DD&amp;A</td><td>0.44</td><td>0.40</td><td></td><td></td></tr><tr><td>Noncash and other costs, net</td><td>0.06c</td><td>0.06</td><td></td><td></td></tr><tr><td>Total unit costs</td><td>2.25</td><td>2.31</td><td></td><td></td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>(0.03)</td><td>(0.03)</td><td></td><td></td></tr><tr><td>Gross profit per pound</td><td>$ 0.59</td><td>$ 0.53</td><td></td><td></td></tr></table>

<table><tr><td>(In millions)</td><td>Revenues</td><td>Production and Delivery</td><td>DD&amp;A</td></tr><tr><td>Totals presented above</td><td>$ 3,945</td><td>$ 2,291</td><td>$ 546</td></tr><tr><td>Treatment charges</td><td>(243)</td><td>—</td><td>—</td></tr><tr><td>Royalty on metals</td><td>(8)</td><td>—</td><td>—</td></tr><tr><td>Noncash and other costs, net</td><td>—</td><td>79</td><td>—</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>(37)</td><td>—</td><td>—</td></tr><tr><td>Eliminations and other</td><td>(2)</td><td>(5)</td><td>—</td></tr><tr><td>South America mining</td><td>3,655</td><td>2,365</td><td>546</td></tr><tr><td>Other miningd</td><td>18,099</td><td>12,616</td><td>1,083</td></tr><tr><td>Corporate, other &amp; eliminations</td><td>(3,126)</td><td>(3,290)</td><td>125</td></tr><tr><td>As reported in FCX&#x27;s consolidated financial statements</td><td>$18,628</td><td>$11,691</td><td>$1,754</td></tr></table>

a. Includes silver sales of 4.5 million ounces ($15.20 per ounce average realized price). Also reflects sales of molybdenum produced by Cerro Verde to our molybdenum sales company at market-based pricing.

b. Includes charges totaling $69 million ($0.06 per pound of copper) for Cerro Verde's three-year CLA.

c. Includes charges totaling $14 million ($0.01 per pound of copper) at Cerro Verde associated with disputed royalties for prior years.

d. Represents the combined total for our other mining operations as presented in Note 16.



## South America Mining Product Revenues, Production Costs and Unit Net Cash Costs (continued)

<table><tr><td rowspan="2">Year Ended December 31, 2017</td><td rowspan="2">By-Product Method</td><td colspan="3">Co-Product Method</td></tr><tr><td>Copper</td><td>Othera</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 3,668</td><td>$ 3,668</td><td>$ 267</td><td>$3,935</td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1,960</td><td>1,838</td><td>171</td><td>2,009</td></tr><tr><td>By-product credits</td><td>(218)</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Treatment charges</td><td>272</td><td>272</td><td>—</td><td>272</td></tr><tr><td>Royalty on metals</td><td>8</td><td>7</td><td>1</td><td>8</td></tr><tr><td>Net cash costs</td><td>2,022</td><td>2,117</td><td>172</td><td>2,289</td></tr><tr><td>DD&amp;A</td><td>525</td><td>489</td><td>36</td><td>525</td></tr><tr><td>Noncash and other costs, net</td><td>241b</td><td>224</td><td>17</td><td>241</td></tr><tr><td>Total costs</td><td>2,788</td><td>2,830</td><td>225</td><td>3,055</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>41</td><td>41</td><td>—</td><td>41</td></tr><tr><td>Gross profit</td><td>$ 921</td><td>$ 879</td><td>$ 42</td><td>$ 921</td></tr><tr><td>Copper sales (millions of recoverable pounds)</td><td>1,235</td><td>1,235</td><td></td><td></td></tr><tr><td>Gross profit per pound of copper:</td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 2.97</td><td>$ 2.97</td><td></td><td></td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1.59</td><td>1.49</td><td></td><td></td></tr><tr><td>By-product credits</td><td>(0.18)</td><td>—</td><td></td><td></td></tr><tr><td>Treatment charges</td><td>0.22</td><td>0.22</td><td></td><td></td></tr><tr><td>Royalty on metals</td><td>0.01</td><td>0.01</td><td></td><td></td></tr><tr><td>Unit net cash costs</td><td>1.64</td><td>1.72</td><td></td><td></td></tr><tr><td>DD&amp;A</td><td>0.43</td><td>0.39</td><td></td><td></td></tr><tr><td>Noncash and other costs, net</td><td>0.19b</td><td>0.18</td><td></td><td></td></tr><tr><td>Total unit costs</td><td>2.26</td><td>2.29</td><td></td><td></td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>0.03</td><td>0.03</td><td></td><td></td></tr><tr><td>Gross profit per pound</td><td>$ 0.74</td><td>$ 0.71</td><td></td><td></td></tr></table>

Reconciliation to Amounts Reported

<table><tr><td></td><td>Revenues</td><td>Production and Delivery</td><td>DD&amp;A</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Totals presented above</td><td>$ 3,935</td><td>$ 2,009</td><td>$ 525</td></tr><tr><td>Treatment charges</td><td>(272)</td><td>—</td><td>—</td></tr><tr><td>Royalty on metals</td><td>(8)</td><td>—</td><td>—</td></tr><tr><td>Noncash and other costs, net</td><td>—</td><td>241</td><td>—</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>41</td><td>—</td><td>—</td></tr><tr><td>Eliminations and other</td><td>(2)</td><td>(6)</td><td>—</td></tr><tr><td>South America mining</td><td>3,694</td><td>2,244</td><td>525</td></tr><tr><td>Other miningc</td><td>15,792</td><td>11,140</td><td>1,095</td></tr><tr><td>Corporate, other &amp; eliminations</td><td>(3,083)</td><td>(3,118)</td><td>94</td></tr><tr><td>As reported in FCX&#x27;s consolidated financial statements</td><td>$16,403</td><td>$10,266</td><td>$1,714</td></tr></table>

a. Includes silver sales of 3.8 million ounces ($16.74 per ounce average realized price). Also reflects sales of molybdenum produced by Cerro Verde to our molybdenum sales company at market-based pricing.
b. Includes charges totaling $203 million ($0.16 per pound of copper) at Cerro Verde associated with disputed royalties for prior years.
c. Represents the combined total for our other mining operations as presented in Note 16.



## South America Mining Product Revenues, Production Costs and Unit Net Cash Costs (continued)

<table><tr><td rowspan="2">Year Ended December 31, 2016</td><td rowspan="2">By-Product Method</td><td colspan="3">Co-Product Method</td></tr><tr><td>Copper</td><td>Othera</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 3,077</td><td>$ 3,077</td><td>$ 176</td><td>$3,253</td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1,681</td><td>1,601</td><td>120</td><td>1,721</td></tr><tr><td>By-product credits</td><td>(136)</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Treatment charges</td><td>320</td><td>320</td><td>—</td><td>320</td></tr><tr><td>Royalty on metals</td><td>7</td><td>6</td><td>1</td><td>7</td></tr><tr><td>Net cash costs</td><td>1,872</td><td>1,927</td><td>121</td><td>2,048</td></tr><tr><td>DD&amp;A</td><td>552</td><td>523</td><td>29</td><td>552</td></tr><tr><td>Noncash and other costs, net</td><td>40</td><td>38</td><td>2</td><td>40</td></tr><tr><td>Total costs</td><td>2,464</td><td>2,488</td><td>152</td><td>2,640</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>11</td><td>11</td><td>—</td><td>11</td></tr><tr><td>Gross profit</td><td>$ 624</td><td>$ 600</td><td>$ 24</td><td>$ 624</td></tr><tr><td>Copper sales (millions of recoverable pounds)</td><td>1,332</td><td>1,332</td><td></td><td></td></tr><tr><td>Gross profit per pound of copper:</td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 2.31</td><td>$ 2.31</td><td></td><td></td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1.26</td><td>1.20</td><td></td><td></td></tr><tr><td>By-product credits</td><td>(0.10)</td><td>—</td><td></td><td></td></tr><tr><td>Treatment charges</td><td>0.24</td><td>0.24</td><td></td><td></td></tr><tr><td>Royalty on metals</td><td>0.01</td><td>—</td><td></td><td></td></tr><tr><td>Unit net cash costs</td><td>1.41</td><td>1.44</td><td></td><td></td></tr><tr><td>DD&amp;A</td><td>0.41</td><td>0.39</td><td></td><td></td></tr><tr><td>Noncash and other costs, net</td><td>0.03</td><td>0.03</td><td></td><td></td></tr><tr><td>Total unit costs</td><td>1.85</td><td>1.86</td><td></td><td></td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>0.01</td><td>0.01</td><td></td><td></td></tr><tr><td>Gross profit per pound</td><td>$ 0.47</td><td>$ 0.46</td><td></td><td></td></tr></table>

Reconciliation to Amounts Reported

<table><tr><td></td><td>Revenues</td><td>Production and Delivery</td><td>DD&amp;A</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Totals presented above</td><td>$ 3,253</td><td>$ 1,721</td><td>$ 552</td></tr><tr><td>Treatment charges</td><td>(320)</td><td>—</td><td>—</td></tr><tr><td>Royalty on metals</td><td>(7)</td><td>—</td><td>—</td></tr><tr><td>Noncash and other costs, net</td><td>—</td><td>40</td><td>—</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>11</td><td>—</td><td>—</td></tr><tr><td>Eliminations and other</td><td>1</td><td>(3)</td><td>1</td></tr><tr><td>South America mining</td><td>2,938</td><td>1,758</td><td>553</td></tr><tr><td>Other miningb</td><td>13,547</td><td>10,446</td><td>1,021</td></tr><tr><td>Corporate, other &amp; eliminations</td><td>(1,655)</td><td>(1,517)</td><td>956</td></tr><tr><td>As reported in FCX&#x27;s consolidated financial statements</td><td>$14,830</td><td>$10,687</td><td>$2,530</td></tr></table>

a. Includes silver sales of 3.7 million ounces ($18.05 per ounce average realized price). Also reflects sales of molybdenum produced by Cerro Verde to our molybdenum sales company at market-based pricing.
b. Represents the combined total for all other mining operations as presented in Note 16.



## Indonesia Mining Product Revenues, Production Costs and Unit Net Cash (Credits) Costs

<table><tr><td rowspan="2">Year Ended December 31, 2018</td><td rowspan="2">By-Product Method</td><td colspan="4">Co-Product Method</td></tr><tr><td>Copper</td><td>Gold</td><td>Silvera</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 3,264</td><td>$ 3,264</td><td>$2,967</td><td>$57</td><td>$6,288</td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1,678</td><td>871</td><td>792</td><td>15</td><td>1,678</td></tr><tr><td>Gold and silver credits</td><td>(3,041)</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Treatment charges</td><td>294</td><td>153</td><td>139</td><td>2</td><td>294</td></tr><tr><td>Export duties</td><td>180</td><td>93</td><td>85</td><td>2</td><td>180</td></tr><tr><td>Royalty on metals</td><td>238</td><td>122</td><td>114</td><td>2</td><td>238</td></tr><tr><td>Net cash (credits) costs</td><td>(651)</td><td>1,239</td><td>1,130</td><td>21</td><td>2,390</td></tr><tr><td>DD&amp;A</td><td>606</td><td>314</td><td>286</td><td>6</td><td>606</td></tr><tr><td>Noncash and other costs, net</td><td>242b</td><td>126</td><td>114</td><td>2</td><td>242</td></tr><tr><td>Total costs</td><td>197</td><td>1,679</td><td>1,530</td><td>29</td><td>3,238</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>(34)</td><td>(34)</td><td>17</td><td>—</td><td>(17)</td></tr><tr><td>PT Smelting intercompany profit</td><td>56</td><td>29</td><td>27</td><td>—</td><td>56</td></tr><tr><td>Gross profit</td><td>$ 3,089</td><td>$ 1,580</td><td>$1,481</td><td>$28</td><td>$3,089</td></tr><tr><td>Copper sales (millions of recoverable pounds)</td><td>1,130</td><td>1,130</td><td></td><td></td><td></td></tr><tr><td>Gold sales (thousands of recoverable ounces)</td><td></td><td></td><td>2,366</td><td></td><td></td></tr><tr><td>Gross profit per pound of copper/per ounce of gold:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 2.89</td><td>$ 2.89</td><td>$1,254</td><td></td><td></td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1.48</td><td>0.77</td><td>335</td><td></td><td></td></tr><tr><td>Gold and silver credits</td><td>(2.69)</td><td>—</td><td>—</td><td></td><td></td></tr><tr><td>Treatment charges</td><td>0.26</td><td>0.14</td><td>59</td><td></td><td></td></tr><tr><td>Export duties</td><td>0.16</td><td>0.08</td><td>36</td><td></td><td></td></tr><tr><td>Royalty on metals</td><td>0.21</td><td>0.11</td><td>48</td><td></td><td></td></tr><tr><td>Unit net cash (credits) costs</td><td>(0.58)</td><td>1.10</td><td>478</td><td></td><td></td></tr><tr><td>DD&amp;A</td><td>0.54</td><td>0.28</td><td>121</td><td></td><td></td></tr><tr><td>Noncash and other costs, net</td><td>0.21b</td><td>0.11</td><td>48</td><td></td><td></td></tr><tr><td>Total unit costs</td><td>0.17</td><td>1.49</td><td>647</td><td></td><td></td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>(0.03)</td><td>(0.03)</td><td>7</td><td></td><td></td></tr><tr><td>PT Smelting intercompany profit</td><td>0.04</td><td>0.03</td><td>12</td><td></td><td></td></tr><tr><td>Gross profit per pound/ounce</td><td>$ 2.73</td><td>$ 1.40</td><td>$ 626</td><td></td><td></td></tr></table>

## Reconciliation to Amounts Reported

<table><tr><td></td><td>Revenues</td><td>Production and Delivery</td><td>DD&amp;A</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Totals presented above</td><td>$ 6,288</td><td>$ 1,678</td><td>$ 606</td></tr><tr><td>Treatment charges</td><td>(294)</td><td>—</td><td>—</td></tr><tr><td>Export duties</td><td>(180)</td><td>—</td><td>—</td></tr><tr><td>Royalty on metals</td><td>(238)</td><td>—</td><td>—</td></tr><tr><td>Noncash and other costs, net</td><td>—</td><td>242</td><td>—</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>(17)</td><td>—</td><td>—</td></tr><tr><td>PT Smelting intercompany profit</td><td>—</td><td>(56)</td><td>—</td></tr><tr><td>Indonesia mining</td><td>5,559</td><td>1,864</td><td>606</td></tr><tr><td>Other miningc</td><td>16,195</td><td>13,117</td><td>1,023</td></tr><tr><td>Corporate, other &amp; eliminations</td><td>(3,126)</td><td>(3,290)</td><td>125</td></tr><tr><td>As reported in FCX&#x27;s consolidated financial statements</td><td>$18,628</td><td>$11,691</td><td>$1,754</td></tr></table>

a. Includes silver sales of 3.8 million ounces ($15.24 per ounce average realized price).

b. Includes net charges of $223 million ($0.20 per pound of copper). Refer to “Consolidated Results—Summary Financial Data” for a summary of these charges.

c. Represents the combined total for our other mining operations as presented in Note 16.



## Indonesia Mining Product Revenues, Production Costs and Unit Net Cash Costs (continued)

<table><tr><td rowspan="2">Year Ended December 31, 2017</td><td rowspan="2">By-Product Method</td><td colspan="4">Co-Product Method</td></tr><tr><td>Copper</td><td>Gold</td><td>Silvera</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 2,945</td><td>$ 2,945</td><td>$1,952</td><td>$49</td><td>$4,946</td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1,544</td><td>919</td><td>609</td><td>16</td><td>1,544</td></tr><tr><td>Gold and silver credits</td><td>(2,010)</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Treatment charges</td><td>261</td><td>156</td><td>103</td><td>2</td><td>261</td></tr><tr><td>Export duties</td><td>115</td><td>68</td><td>46</td><td>1</td><td>115</td></tr><tr><td>Royalty on metals</td><td>173</td><td>98</td><td>73</td><td>2</td><td>173</td></tr><tr><td>Net cash costs</td><td>83</td><td>1,241</td><td>831</td><td>21</td><td>2,093</td></tr><tr><td>DD&amp;A</td><td>556</td><td>331</td><td>220</td><td>5</td><td>556</td></tr><tr><td>Noncash and other costs, net</td><td>163b</td><td>97</td><td>64</td><td>2</td><td>163</td></tr><tr><td>Total costs</td><td>802</td><td>1,669</td><td>1,115</td><td>28</td><td>2,812</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>39</td><td>39</td><td>9</td><td>—</td><td>48</td></tr><tr><td>PT Smelting intercompany loss</td><td>(28)</td><td>(17)</td><td>(11)</td><td>—</td><td>(28)</td></tr><tr><td>Gross profit</td><td>$ 2,154</td><td>$ 1,298</td><td>$ 835</td><td>$21</td><td>$2,154</td></tr><tr><td>Copper sales (millions of recoverable pounds)</td><td>981</td><td>981</td><td></td><td></td><td></td></tr><tr><td>Gold sales (thousands of recoverable ounces)</td><td></td><td></td><td>1,540</td><td></td><td></td></tr><tr><td>Gross profit per pound of copper/per ounce of gold:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 3.00</td><td>$ 3.00</td><td>$1,268</td><td></td><td></td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1.57</td><td>0.94</td><td>396</td><td></td><td></td></tr><tr><td>Gold and silver credits</td><td>(2.05)</td><td>—</td><td>—</td><td></td><td></td></tr><tr><td>Treatment charges</td><td>0.27</td><td>0.16</td><td>67</td><td></td><td></td></tr><tr><td>Export duties</td><td>0.12</td><td>0.07</td><td>30</td><td></td><td></td></tr><tr><td>Royalty on metals</td><td>0.17</td><td>0.10</td><td>47</td><td></td><td></td></tr><tr><td>Unit net cash costs</td><td>0.08</td><td>1.27</td><td>540</td><td></td><td></td></tr><tr><td>DD&amp;A</td><td>0.57</td><td>0.34</td><td>142</td><td></td><td></td></tr><tr><td>Noncash and other costs, net</td><td>0.17b</td><td>0.10</td><td>42</td><td></td><td></td></tr><tr><td>Total unit costs</td><td>0.82</td><td>1.71</td><td>724</td><td></td><td></td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>0.04</td><td>0.04</td><td>6</td><td></td><td></td></tr><tr><td>PT Smelting intercompany loss</td><td>(0.02)</td><td>(0.01)</td><td>(7)</td><td></td><td></td></tr><tr><td>Gross profit per pound/ounce</td><td>$ 2.20</td><td>$ 1.32</td><td>$ 543</td><td></td><td></td></tr></table>

<table><tr><td></td><td>Revenues</td><td>Production and Delivery</td><td>DD&amp;A</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Totals presented above</td><td>$ 4,946</td><td>$ 1,544</td><td>$ 556</td></tr><tr><td>Treatment charges</td><td>(261)</td><td>—</td><td>—</td></tr><tr><td>Export duties</td><td>(115)</td><td>—</td><td>—</td></tr><tr><td>Royalty on metals</td><td>(173)</td><td>—</td><td>—</td></tr><tr><td>Noncash and other costs, net</td><td>—</td><td>163</td><td>—</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>48</td><td>—</td><td>—</td></tr><tr><td>PT Smelting intercompany loss</td><td>—</td><td>28</td><td>—</td></tr><tr><td>Indonesia mining</td><td>4,445</td><td>1,735</td><td>556</td></tr><tr><td>Other miningc</td><td>15,041</td><td>11,649</td><td>1,064</td></tr><tr><td>Corporate, other &amp; eliminations</td><td>(3,083)</td><td>(3,118)</td><td>94</td></tr><tr><td>As reported in FCX&#x27;s consolidated financial statements</td><td>$16,403</td><td>$10,266</td><td>$1,714</td></tr></table>

a. Includes silver sales of 3.0 million ounces ($16.56 per ounce average realized price).

b. Includes $120 million ($0.12 per pound of copper) of costs charged directly to production and delivery costs as a result of workforce reductions.

c. Represents the combined total for our other mining operations as presented in Note 16.



## Indonesia Mining Product Revenues, Production Costs and Unit Net Cash Costs (continued)

<table><tr><td rowspan="2">Year Ended December 31, 2016</td><td rowspan="2">By-Product Method</td><td colspan="4">Co-Product Method</td></tr><tr><td>Copper</td><td>Gold</td><td>Silver \( ^{a} \)</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 2,448</td><td>$ 2,448</td><td>$1,304</td><td>$50</td><td>$3,802</td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1,698</td><td>1,094</td><td>582</td><td>22</td><td>1,698</td></tr><tr><td>Gold and silver credits</td><td>(1,371)</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Treatment charges</td><td>297</td><td>191</td><td>102</td><td>4</td><td>297</td></tr><tr><td>Export duties</td><td>96</td><td>62</td><td>33</td><td>1</td><td>96</td></tr><tr><td>Royalty on metals</td><td>131</td><td>79</td><td>50</td><td>2</td><td>131</td></tr><tr><td>Net cash costs</td><td>851</td><td>1,426</td><td>767</td><td>29</td><td>2,222</td></tr><tr><td>DD&amp;A</td><td>384</td><td>247</td><td>132</td><td>5</td><td>384</td></tr><tr><td>Noncash and other costs, net</td><td>51</td><td>33</td><td>17</td><td>1</td><td>51</td></tr><tr><td>Total costs</td><td>1,286</td><td>1,706</td><td>916</td><td>35</td><td>2,657</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>—</td><td>—</td><td>17</td><td>—</td><td>17</td></tr><tr><td>PT Smelting intercompany loss</td><td>(26)</td><td>(17)</td><td>(9)</td><td>—</td><td>(26)</td></tr><tr><td>Gross profit</td><td>$ 1,136</td><td>$ 725</td><td>$ 396</td><td>$15</td><td>$1,136</td></tr><tr><td>Copper sales (millions of recoverable pounds)</td><td>1,054</td><td>1,054</td><td></td><td></td><td></td></tr><tr><td>Gold sales (thousands of recoverable ounces)</td><td></td><td></td><td>1,054</td><td></td><td></td></tr><tr><td>Gross profit per pound of copper/per ounce of gold:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments</td><td>$ 2.32</td><td>$ 2.32</td><td>$1,237</td><td></td><td></td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>1.61</td><td>1.04</td><td>553</td><td></td><td></td></tr><tr><td>Gold and silver credits</td><td>(1.30)</td><td>—</td><td>—</td><td></td><td></td></tr><tr><td>Treatment charges</td><td>0.28</td><td>0.18</td><td>97</td><td></td><td></td></tr><tr><td>Export duties</td><td>0.09</td><td>0.06</td><td>31</td><td></td><td></td></tr><tr><td>Royalty on metals</td><td>0.13</td><td>0.07</td><td>47</td><td></td><td></td></tr><tr><td>Unit net cash costs</td><td>0.81</td><td>1.35</td><td>728</td><td></td><td></td></tr><tr><td>DD&amp;A</td><td>0.36</td><td>0.24</td><td>125</td><td></td><td></td></tr><tr><td>Noncash and other costs, net</td><td>0.05</td><td>0.03</td><td>17</td><td></td><td></td></tr><tr><td>Total unit costs</td><td>1.22</td><td>1.62</td><td>870</td><td></td><td></td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>—</td><td>—</td><td>16</td><td></td><td></td></tr><tr><td>PT Smelting intercompany loss</td><td>(0.02)</td><td>(0.02)</td><td>(8)</td><td></td><td></td></tr><tr><td>Gross profit per pound/ounce</td><td>$ 1.08</td><td>$ 0.68</td><td>$ 375</td><td></td><td></td></tr></table>

<table><tr><td>(In millions)</td><td>Revenues</td><td>Production and Delivery</td><td>DD&amp;A</td></tr><tr><td>Totals presented above</td><td>$ 3,802</td><td>$ 1,698</td><td>$ 384</td></tr><tr><td>Treatment charges</td><td>(297)</td><td>—</td><td>—</td></tr><tr><td>Export duties</td><td>(96)</td><td>—</td><td>—</td></tr><tr><td>Royalty on metals</td><td>(131)</td><td>—</td><td>—</td></tr><tr><td>Noncash and other costs, net</td><td>—</td><td>51</td><td>—</td></tr><tr><td>Other revenue adjustments, primarily for pricing on prior period open sales</td><td>17</td><td>—</td><td>—</td></tr><tr><td>PT Smelting intercompany loss</td><td>—</td><td>26</td><td>—</td></tr><tr><td>Indonesia mining</td><td>3,295</td><td>1,775</td><td>384</td></tr><tr><td>Other mining \( ^{b} \)</td><td>13,190</td><td>10,429</td><td>1,190</td></tr><tr><td>Corporate, other &amp; eliminations</td><td>(1,655)</td><td>(1,517)</td><td>956</td></tr><tr><td>As reported in FCX&#x27;s consolidated financial statements</td><td>$14,830</td><td>$10,687</td><td>$2,530</td></tr></table>

a. Includes silver sales of 2.9 million ounces ($17.09 per ounce average realized price).

b. Represents the combined total for our other mining operations as presented in Note 16.



Molybdenum Mines Product Revenues, Production Costs and Unit Net Cash Costs

<table><tr><td>Years Ended December 31,</td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments \( ^{a} \)</td><td>$ 440</td><td>$ 295</td><td>$ 208</td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>282</td><td>220</td><td>193</td></tr><tr><td>Treatment charges and other</td><td>30</td><td>27</td><td>22</td></tr><tr><td>Net cash costs</td><td>312</td><td>247</td><td>215</td></tr><tr><td>DD&amp;A</td><td>79</td><td>76</td><td>68</td></tr><tr><td>Noncash and other costs, net</td><td>7</td><td>7</td><td>19</td></tr><tr><td>Total costs</td><td>398</td><td>330</td><td>302</td></tr><tr><td>Gross profit (loss)</td><td>$ 42</td><td>$ (35)</td><td>$ (94)</td></tr><tr><td>Molybdenum sales (millions of recoverable pounds) \( ^{a} \)</td><td>35</td><td>32</td><td>26</td></tr><tr><td>Gross profit (loss) per pound of molybdenum:</td><td></td><td></td><td></td></tr><tr><td>Revenues, excluding adjustments \( ^{a} \)</td><td>$ 12.36</td><td>$ 9.22</td><td>$ 8.02</td></tr><tr><td>Site production and delivery, before net noncash and other costs shown below</td><td>7.92</td><td>6.86</td><td>7.42</td></tr><tr><td>Treatment charges and other</td><td>0.85</td><td>0.85</td><td>0.86</td></tr><tr><td>Unit net cash costs</td><td>8.77</td><td>7.71</td><td>8.28</td></tr><tr><td>DD&amp;A</td><td>2.21</td><td>2.39</td><td>2.62</td></tr><tr><td>Noncash and other costs, net</td><td>0.19</td><td>0.23</td><td>0.73</td></tr><tr><td>Total unit costs</td><td>11.17</td><td>10.33</td><td>11.63</td></tr><tr><td>Gross profit (loss) per pound</td><td>$ 1.19</td><td>$ (1.11)</td><td>$ (3.61)</td></tr></table>

Reconciliation to Amounts Reported

<table><tr><td></td><td>Revenues</td><td>Production and Delivery</td><td>DD&amp;A</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Year Ended December 31, 2018</td><td></td><td></td><td></td></tr><tr><td>Totals presented above</td><td>$ 440</td><td>$ 282</td><td>$ 79</td></tr><tr><td>Treatment charges and other</td><td>(30)</td><td>—</td><td>—</td></tr><tr><td>Noncash and other costs, net</td><td>—</td><td>7</td><td>—</td></tr><tr><td>Molybdenum mines</td><td>410</td><td>289</td><td>79</td></tr><tr><td>Other miningb</td><td>21,344</td><td>14,692</td><td>1,550</td></tr><tr><td>Corporate, other &amp; eliminations</td><td>(3,126)</td><td>(3,290)</td><td>125</td></tr><tr><td>As reported in FCX&#x27;s consolidated financial statements</td><td>$18,628</td><td>$11,691</td><td>$1,754</td></tr><tr><td>Year Ended December 31, 2017</td><td></td><td></td><td></td></tr><tr><td>Totals presented above</td><td>$ 295</td><td>$ 220</td><td>$ 76</td></tr><tr><td>Treatment charges and other</td><td>(27)</td><td>—</td><td>—</td></tr><tr><td>Noncash and other costs, net</td><td>—</td><td>7</td><td>—</td></tr><tr><td>Molybdenum mines</td><td>268</td><td>227</td><td>76</td></tr><tr><td>Other miningb</td><td>19,218</td><td>13,157</td><td>1,544</td></tr><tr><td>Corporate, other &amp; eliminations</td><td>(3,083)</td><td>(3,118)</td><td>94</td></tr><tr><td>As reported in FCX&#x27;s consolidated financial statements</td><td>$16,403</td><td>$10,266</td><td>$1,714</td></tr><tr><td>Year Ended December 31, 2016</td><td></td><td></td><td></td></tr><tr><td>Totals presented above</td><td>$ 208</td><td>$ 193</td><td>$ 68</td></tr><tr><td>Treatment charges and other</td><td>(22)</td><td>—</td><td>—</td></tr><tr><td>Noncash and other costs, net</td><td>—</td><td>19</td><td>—</td></tr><tr><td>Molybdenum mines</td><td>186</td><td>212</td><td>68</td></tr><tr><td>Other miningb</td><td>16,299</td><td>11,992</td><td>1,506</td></tr><tr><td>Corporate, other &amp; eliminations</td><td>(1,655)</td><td>(1,517)</td><td>956</td></tr><tr><td>As reported in FCX&#x27;s consolidated financial statements</td><td>$14,830</td><td>$10,687</td><td>$2,530</td></tr></table>

a. Reflects sales of the Molybdenum mines' production to the molybdenum sales company at market-based pricing. On a consolidated basis, realizations are based on the actual contract terms for sales to third parties; as a result, our consolidated average realized price per pound of molybdenum will differ from the amounts reported in this table.

b. Represents the combined total for our other mining operations as presented in Note 16. Also includes amounts associated with the molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North America and South America copper mines.



## CAUTIONARY STATEMENT

Our discussion and analysis contains forward-looking statements in which we discuss our potential future performance. Forward-looking statements are all statements other than statements of historical facts, such as projections or expectations relating to ore grades and milling rates, production and sales volumes, unit net cash costs, operating cash flows, capital expenditures, our expectations regarding our share of PT-FI's future cash flows through 2022, PT-FI's development, financing, construction and completion of a new smelter in Indonesia, PT-FI's compliance with environmental standards under the new framework established by the MOEF, exploration efforts and results, development and production activities, rates and costs, liquidity, tax rates, export duties, the impact of copper, gold and molybdenum price changes, the impact of deferred intercompany profits on earnings, reserve estimates, and future dividend payments, share purchases and sales. The words "anticipates", "may", "can", "plans", "believes", "estimates", "expects", "projects", "targets", "intends", "likely", "will", "should", "to be", "potential" and any similar expressions are intended to identify those assertions as forward-looking statements. The declaration of dividends is at the discretion of the Board and will depend on our financial results, cash requirements, future prospects, and other factors deemed relevant by the Board.

We caution readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, expected, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, supply of and demand for, and prices of, copper, gold and molybdenum; mine sequencing; production rates; timing of shipments; results of feasibility studies; potential inventory adjustments; potential impairment of long-lived mining assets; the potential effects of violence in Indonesia generally and in the province of Papua; the Indonesian government's extension of PT-FI's export license after February 16, 2019; risks associated with underground mining; satisfaction of requirements in accordance with PT-FI's IUPK to extend mining rights from 2031 through 2041; industry risks; regulatory changes; political risks; labor relations; weather- and climate-related risks; environmental risks; litigation results; cybersecurity incidents; and other factors described in more detail in Part I, Item 1A. "Risk Factors" of our annual report on Form 10-K for the year ended December 31, 2018.

Investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the forward-looking statements are made, including for example commodity prices, which we cannot control, and production volumes and costs, some aspects of which we may not be able to control. Further, we may make changes to our business plans that could affect our results. We caution investors that we do not intend to update forward-looking statements more frequently than quarterly notwithstanding any changes in our assumptions, changes in business plans, actual experience or other changes, and we undertake no obligation to update any forward-looking statements.



Freeport-McMoRan Inc.'s (the Company's) management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, including our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of the end of the fiscal year covered by this annual report on Form 10-K. In making this assessment, our management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Based on its assessment, management concluded that, as of December 31, 2018, our Company’s internal control over financial reporting is effective based on the COSO criteria.

Ernst & Young LLP, an independent registered public accounting firm, who audited the Company’s consolidated financial statements included in this Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting, which is included herein.



Richard C. Adkerson
Vice Chairman of the Board,
President and
Chief Executive Officer
Kathleen L. Quirk
Executive Vice President and
Chief Financial Officer






## TO THE BOARD OF DIRECTORS AND
STOCKHOLDERS OF FREEPORT-McMoRan INC.

## Opinion on Internal Control over Financial Reporting

We have audited Freeport-McMoRan Inc.'s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Freeport-McMoRan Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Freeport-McMoRan Inc. as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes of the Company and our report dated February 15, 2019 expressed an unqualified opinion thereon.

## Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

## Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

## ERNST & YOUNG LLP

Phoenix, Arizona

February 15, 2019



## TO THE BOARD OF DIRECTORS AND
STOCKHOLDERS OF FREEPORT-McMoRan INC.

## Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Freeport-McMoRan Inc. (the Company) as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2018 and 2017, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 15, 2019 expressed an unqualified opinion thereon.

## Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

## ERNST & YOUNG LLP

We have served as the Company’s auditor since 2002.

Phoenix, Arizona

February 15, 2019



<table><tr><td>Years Ended December 31,</td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>(In millions, except per share amounts)</td><td></td><td></td><td></td></tr><tr><td>Revenues</td><td>$18,628</td><td>$16,403</td><td>$14,830</td></tr><tr><td>Cost of sales:</td><td></td><td></td><td></td></tr><tr><td>Production and delivery</td><td>11,691</td><td>10,266</td><td>10,687</td></tr><tr><td>Depreciation, depletion and amortization</td><td>1,754</td><td>1,714</td><td>2,530</td></tr><tr><td>Impairment of oil and gas properties</td><td>—</td><td>—</td><td>4,317</td></tr><tr><td>Total cost of sales</td><td>13,445</td><td>11,980</td><td>17,534</td></tr><tr><td>Selling, general and administrative expenses</td><td>443</td><td>477</td><td>597</td></tr><tr><td>Mining exploration and research expenses</td><td>105</td><td>93</td><td>63</td></tr><tr><td>Environmental obligations and shutdown costs</td><td>89</td><td>244</td><td>14</td></tr><tr><td>Net gain on sales of assets</td><td>(208)</td><td>(81)</td><td>(649)</td></tr><tr><td>Total costs and expenses</td><td>13,874</td><td>12,713</td><td>17,559</td></tr><tr><td>Operating income (loss)</td><td>4,754</td><td>3,690</td><td>(2,729)</td></tr><tr><td>Interest expense, net</td><td>(945)</td><td>(801)</td><td>(755)</td></tr><tr><td>Net gain on early extinguishment and exchanges of debt</td><td>7</td><td>21</td><td>26</td></tr><tr><td>Other income (expense), net</td><td>76</td><td>(8)</td><td>(14)</td></tr><tr><td>Income (loss) from continuing operations before income taxes and equity in affiliated companies&#x27; net earnings</td><td>3,892</td><td>2,902</td><td>(3,472)</td></tr><tr><td>Provision for income taxes</td><td>(991)</td><td>(883)</td><td>(371)</td></tr><tr><td>Equity in affiliated companies&#x27; net earnings</td><td>8</td><td>10</td><td>11</td></tr><tr><td>Net income (loss) from continuing operations</td><td>2,909</td><td>2,029</td><td>(3,832)</td></tr><tr><td>Net (loss) income from discontinued operations</td><td>(15)</td><td>66</td><td>(193)</td></tr><tr><td>Net income (loss)</td><td>2,894</td><td>2,095</td><td>(4,025)</td></tr><tr><td>Net income attributable to noncontrolling interests:</td><td></td><td></td><td></td></tr><tr><td>Continuing operations</td><td>(292)</td><td>(274)</td><td>(227)</td></tr><tr><td>Discontinued operations</td><td>—</td><td>(4)</td><td>(63)</td></tr><tr><td>Gain on redemption and preferred dividends attributable to redeemable noncontrolling interest</td><td>—</td><td>—</td><td>161</td></tr><tr><td>Net income (loss) attributable to common stockholders</td><td>$ 2,602</td><td>$ 1,817</td><td>$ (4,154)</td></tr><tr><td>Basic net income (loss) per share attributable to common stockholders:</td><td></td><td></td><td></td></tr><tr><td>Continuing operations</td><td>$ 1.80</td><td>$ 1.21</td><td>$ (2.96)</td></tr><tr><td>Discontinued operations</td><td>(0.01)</td><td>0.04</td><td>(0.20)</td></tr><tr><td></td><td>$ 1.79</td><td>$ 1.25</td><td>$ (3.16)</td></tr><tr><td>Diluted net income (loss) per share attributable to common stockholders:</td><td></td><td></td><td></td></tr><tr><td>Continuing operations</td><td>$ 1.79</td><td>$ 1.21</td><td>$ (2.96)</td></tr><tr><td>Discontinued operations</td><td>(0.01)</td><td>0.04</td><td>(0.20)</td></tr><tr><td></td><td>$ 1.78</td><td>$ 1.25</td><td>$ (3.16)</td></tr><tr><td>Weighted-average common shares outstanding:</td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>1,449</td><td>1,447</td><td>1,318</td></tr><tr><td>Diluted</td><td>1,458</td><td>1,454</td><td>1,318</td></tr><tr><td>Dividends declared per share of common stock</td><td>$ 0.20</td><td>$ —</td><td>$ —</td></tr></table>

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.



<table><tr><td>Years Ended December 31,</td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Net income (loss)</td><td>$2,894</td><td>$2,095</td><td>$(4,025)</td></tr><tr><td>Other comprehensive income (loss), net of taxes:</td><td></td><td></td><td></td></tr><tr><td>Unrealized gains on securities</td><td>—</td><td>1</td><td>2</td></tr><tr><td>Defined benefit plans:</td><td></td><td></td><td></td></tr><tr><td>Actuarial (losses) gains arising during the period, net of taxes</td><td>(77)</td><td>14</td><td>(88)</td></tr><tr><td>Prior service costs arising during the period</td><td>(4)</td><td>—</td><td>—</td></tr><tr><td>Amortization or curtailment of unrecognized amounts included in net periodic benefit costs</td><td>48</td><td>54</td><td>44</td></tr><tr><td>Foreign exchange losses</td><td>(1)</td><td>—</td><td>(1)</td></tr><tr><td>Other comprehensive (loss) income</td><td>(34)</td><td>69</td><td>(43)</td></tr><tr><td>Total comprehensive income (loss)</td><td>2,860</td><td>2,164</td><td>(4,068)</td></tr><tr><td>Total comprehensive income attributable to noncontrolling interests</td><td>(291)</td><td>(286)</td><td>(292)</td></tr><tr><td>Gain on redemption and preferred dividends attributable to redeemable noncontrolling interest</td><td>—</td><td>—</td><td>161</td></tr><tr><td>Total comprehensive income (loss) attributable to common stockholders</td><td>$2,569</td><td>$1,878</td><td>$(4,199)</td></tr></table>

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.



<table><tr><td>Years Ended December 31,</td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Cash flow from operating activities:</td><td></td><td></td><td></td></tr><tr><td>Net income (loss)</td><td>$ 2,894</td><td>$ 2,095</td><td>$(4,025)</td></tr><tr><td>Adjustments to reconcile net income (loss) to net cash provided by operating activities:</td><td></td><td></td><td></td></tr><tr><td>Depreciation, depletion and amortization</td><td>1,754</td><td>1,714</td><td>2,610</td></tr><tr><td>U.S. tax reform benefit</td><td>(123)</td><td>(393)</td><td>—</td></tr><tr><td>Net charges for Cerro Verde royalty dispute</td><td>371</td><td>355</td><td>—</td></tr><tr><td>Payments for Cerro Verde royalty dispute</td><td>(56)</td><td>(53)</td><td>(30)</td></tr><tr><td>Impairment of oil and gas properties</td><td>—</td><td>—</td><td>4,317</td></tr><tr><td>Oil and gas noncash drillship settlement costs and other adjustments</td><td>—</td><td>(33)</td><td>803</td></tr><tr><td>Net gain on sales of assets</td><td>(208)</td><td>(81)</td><td>(649)</td></tr><tr><td>Stock-based compensation</td><td>76</td><td>71</td><td>86</td></tr><tr><td>Net charges for environmental and asset retirement obligations, including accretion</td><td>262</td><td>383</td><td>191</td></tr><tr><td>Payments for environmental and asset retirement obligations</td><td>(239)</td><td>(131)</td><td>(242)</td></tr><tr><td>Net charges for defined pension and postretirement plans</td><td>81</td><td>120</td><td>113</td></tr><tr><td>Pension plan contributions</td><td>(75)</td><td>(174)</td><td>(57)</td></tr><tr><td>Net gain on early extinguishment and exchanges of debt</td><td>(7)</td><td>(21)</td><td>(26)</td></tr><tr><td>Deferred income taxes</td><td>(404)</td><td>76</td><td>239</td></tr><tr><td>Loss (gain) on disposal of discontinued operations</td><td>15</td><td>(57)</td><td>198</td></tr><tr><td>Decrease in long-term mill and leach stockpiles</td><td>94</td><td>224</td><td>10</td></tr><tr><td>Other, net</td><td>16</td><td>(2)</td><td>112</td></tr><tr><td>Changes in working capital and other tax payments, excluding disposition amounts:</td><td></td><td></td><td></td></tr><tr><td>Accounts receivable</td><td>649</td><td>427</td><td>(175)</td></tr><tr><td>Inventories</td><td>(631)</td><td>(393)</td><td>117</td></tr><tr><td>Other current assets</td><td>(28)</td><td>(28)</td><td>37</td></tr><tr><td>Accounts payable and accrued liabilities</td><td>(106)</td><td>110</td><td>(28)</td></tr><tr><td>Accrued income taxes and timing of other tax payments</td><td>(472)</td><td>457</td><td>136</td></tr><tr><td>Net cash provided by operating activities</td><td>3,863</td><td>4,666</td><td>3,737</td></tr><tr><td>Cash flow from investing activities:</td><td></td><td></td><td></td></tr><tr><td>Capital expenditures:</td><td></td><td></td><td></td></tr><tr><td>North America copper mines</td><td>(601)</td><td>(167)</td><td>(102)</td></tr><tr><td>South America</td><td>(237)</td><td>(115)</td><td>(382)</td></tr><tr><td>Indonesia</td><td>(1,001)</td><td>(875)</td><td>(1,025)</td></tr><tr><td>Molybdenum mines</td><td>(9)</td><td>(5)</td><td>(2)</td></tr><tr><td>Other, including oil and gas operations</td><td>(123)</td><td>(248)</td><td>(1,302)</td></tr><tr><td>Acquisition of PT Rio Tinto Indonesia</td><td>(3,500)</td><td>—</td><td>—</td></tr><tr><td>Proceeds from sales of:</td><td></td><td></td><td></td></tr><tr><td>Tenke Fungurume mine</td><td>—</td><td>—</td><td>2,664</td></tr><tr><td>Deepwater Gulf of Mexico and onshore California oil and gas properties</td><td>—</td><td>—</td><td>2,272</td></tr><tr><td>Additional interest in Morenci joint venture</td><td>—</td><td>—</td><td>996</td></tr><tr><td>PT Indonesia Papua Metal Dan Mineral</td><td>457</td><td>—</td><td>—</td></tr><tr><td>Other assets</td><td>93</td><td>72</td><td>423</td></tr><tr><td>Other, net</td><td>(97)</td><td>17</td><td>11</td></tr><tr><td>Net cash (used in) provided by investing activities</td><td>(5,018)</td><td>(1,321)</td><td>3,553</td></tr><tr><td>Cash flow from financing activities:</td><td></td><td></td><td></td></tr><tr><td>Proceeds from debt</td><td>632</td><td>955</td><td>3,681</td></tr><tr><td>Repayments of debt</td><td>(2,717)</td><td>(3,812)</td><td>(7,625)</td></tr><tr><td>Proceeds from sale of PT Freeport Indonesia shares</td><td>3,500</td><td>—</td><td>—</td></tr><tr><td>Net proceeds from sale of common stock</td><td>—</td><td>—</td><td>1,515</td></tr><tr><td>Cash dividends and distributions paid:</td><td></td><td></td><td></td></tr><tr><td>Common stock</td><td>(218)</td><td>(2)</td><td>(6)</td></tr><tr><td>Noncontrolling interests, including redemption</td><td>(278)</td><td>(174)</td><td>(693)</td></tr><tr><td>Other, net</td><td>(19)</td><td>(22)</td><td>(38)</td></tr><tr><td>Net cash provided by (used in) financing activities</td><td>900</td><td>(3,055)</td><td>(3,166)</td></tr><tr><td>Net (decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents</td><td>(255)</td><td>290</td><td>4,124</td></tr><tr><td>Increase in cash and cash equivalents in assets held for sale</td><td>—</td><td>—</td><td>(45)</td></tr><tr><td>Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year</td><td>4,710</td><td>4,420</td><td>341</td></tr><tr><td>Cash, cash equivalents, restricted cash and restricted cash equivalents at end of year</td><td>$ 4,455</td><td>$ 4,710</td><td>$ 4,420</td></tr></table>

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.



<table><tr><td>December 31,</td><td>2018</td><td>2017</td></tr><tr><td>(In millions, except par value)</td><td></td><td></td></tr><tr><td>ASSETS</td><td></td><td></td></tr><tr><td>Current assets:</td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 4,217</td><td>$ 4,526</td></tr><tr><td>Trade accounts receivable</td><td>829</td><td>1,322</td></tr><tr><td>Income and other tax receivables</td><td>493</td><td>343</td></tr><tr><td>Inventories:</td><td></td><td></td></tr><tr><td>Materials and supplies, net</td><td>1,528</td><td>1,323</td></tr><tr><td>Mill and leach stockpiles</td><td>1,453</td><td>1,422</td></tr><tr><td>Product</td><td>1,778</td><td>1,404</td></tr><tr><td>Other current assets</td><td>422</td><td>286</td></tr><tr><td>Total current assets</td><td>10,720</td><td>10,626</td></tr><tr><td>Property, plant, equipment and mine development costs, net</td><td>28,010</td><td>22,994</td></tr><tr><td>Long-term mill and leach stockpiles</td><td>1,314</td><td>1,409</td></tr><tr><td>Other assets</td><td>2,172</td><td>2,273</td></tr><tr><td>Total assets</td><td>$42,216</td><td>$37,302</td></tr><tr><td>LIABILITIES AND EQUITY</td><td></td><td></td></tr><tr><td>Current liabilities:</td><td></td><td></td></tr><tr><td>Accounts payable and accrued liabilities</td><td>$ 2,625</td><td>$ 2,497</td></tr><tr><td>Accrued income taxes</td><td>165</td><td>583</td></tr><tr><td>Current portion of environmental and asset retirement obligations</td><td>449</td><td>420</td></tr><tr><td>Dividends payable</td><td>73</td><td>—</td></tr><tr><td>Current portion of debt</td><td>17</td><td>1,414</td></tr><tr><td>Total current liabilities</td><td>3,329</td><td>4,914</td></tr><tr><td>Long-term debt, less current portion</td><td>11,124</td><td>11,815</td></tr><tr><td>Deferred income taxes</td><td>4,032</td><td>3,663</td></tr><tr><td>Environmental and asset retirement obligations, less current portion</td><td>3,609</td><td>3,602</td></tr><tr><td>Other liabilities</td><td>2,230</td><td>2,012</td></tr><tr><td>Total liabilities</td><td>24,324</td><td>26,006</td></tr><tr><td>Equity:</td><td></td><td></td></tr><tr><td>Stockholders&#x27; equity:</td><td></td><td></td></tr><tr><td>Common stock, par value $0.10, 1,579 shares and 1,578 shares issued, respectively</td><td>158</td><td>158</td></tr><tr><td>Capital in excess of par value</td><td>26,013</td><td>26,751</td></tr><tr><td>Accumulated deficit</td><td>(12,041)</td><td>(14,722)</td></tr><tr><td>Accumulated other comprehensive loss</td><td>(605)</td><td>(487)</td></tr><tr><td>Common stock held in treasury - 130 shares, at cost</td><td>(3,727)</td><td>(3,723)</td></tr><tr><td>Total stockholders&#x27; equity</td><td>9,798</td><td>7,977</td></tr><tr><td>Noncontrolling interests (refer to Note 2)</td><td></td><td></td></tr><tr><td>Total equity</td><td>17,892</td><td>11,296</td></tr><tr><td>Total liabilities and equity</td><td>$42,216</td><td>$37,302</td></tr></table>

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.



<table><tr><td rowspan="2"></td><td colspan="9">Stockholders&#x27; Equity</td></tr><tr><td>Common Stock Number of Shares</td><td>At Par Value</td><td>Capital in Excess of Par Value</td><td>Accumulated Other Comprehensive Loss</td><td>Accumulated Other Comprehensive Loss</td><td>Common Stock Held in Treasury Number of Shares</td><td>At Cost</td><td>Total Stockholders&#x27; Equity</td><td>Noncontrolling Interests</td><td>Total Equity</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Balance at January 1, 2016</td><td>1,374</td><td>$137</td><td>$24,283</td><td>$ (12,387)</td><td>$(503)</td><td>128</td><td>$ (3,702)</td><td>$ 7,828</td><td>$ 4,216</td><td>$12,044</td></tr><tr><td>Issuance of common stock</td><td>197</td><td>20</td><td>2,346</td><td>—</td><td>—</td><td>—</td><td>—</td><td>2,366</td><td>—</td><td>2,366</td></tr><tr><td>Exercised and issued stock-based awards</td><td>3</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>——</td><td>—</td></tr><tr><td>Stock-based compensation, including tax reserve and the tender of shares</td><td>—</td><td>—</td><td>61</td><td>—</td><td>—</td><td>1</td><td>(6)</td><td>55</td><td>—</td><td>55</td></tr><tr><td>Dividends, including forfeited dividends</td><td>—</td><td>—</td><td>—</td><td>1</td><td>—</td><td>—</td><td>—</td><td>1</td><td>(90)</td><td>(89)</td></tr><tr><td>Changes in noncontrolling interests</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(6)</td><td>(6)</td><td>(6)</td></tr><tr><td>Sale of interest in TF Holdings Limited</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(1,206)</td><td>(1,206)</td><td>(1,206)</td></tr><tr><td>Net loss attributable to common stockholders</td><td>—</td><td>—</td><td>—</td><td>(4,154)</td><td>—</td><td>—</td><td>—</td><td>(4,154)</td><td>—</td><td>(4,154)</td></tr><tr><td>Net income attributable to noncontrolling interests, including discontinued operations</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>290</td><td>290</td><td>290</td></tr><tr><td>Other comprehensive (loss) income</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(45)</td><td>—</td><td>—</td><td>(45)</td><td>2</td><td>(43)</td></tr><tr><td>Balance at December 31, 2016</td><td>1,574</td><td>157</td><td>26,690</td><td>(16,540)</td><td>(548)</td><td>129</td><td>(3,708)</td><td>6,051</td><td>3,206</td><td>9,257</td></tr><tr><td>Exercised and issued stock-based awards</td><td>4</td><td>1</td><td>5</td><td>—</td><td>—</td><td>—</td><td>—</td><td>6</td><td>—</td><td>6</td></tr><tr><td>Stock-based compensation, including the tender of shares</td><td>—</td><td>—</td><td>56</td><td>—</td><td>—</td><td>1</td><td>(15)</td><td>41</td><td>1</td><td>42</td></tr><tr><td>Dividends, including forfeited dividends</td><td>—</td><td>—</td><td>—</td><td>1</td><td>—</td><td>—</td><td>—</td><td>1</td><td>(174)</td><td>(173)</td></tr><tr><td>Net income attributable to common stockholders</td><td>—</td><td>—</td><td>—</td><td>1,817</td><td>—</td><td>—</td><td>—</td><td>1,817</td><td>—</td><td>1,817</td></tr><tr><td>Net income attributable to noncontrolling interests, including discontinued operations</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>278</td><td>278</td><td>278</td></tr><tr><td>Other comprehensive income</td><td>—</td><td>—</td><td>—</td><td>—</td><td>61</td><td>—</td><td>—</td><td>61</td><td>8</td><td>69</td></tr><tr><td>Balance at December 31, 2017</td><td>1,578</td><td>158</td><td>26,751</td><td>(14,722)</td><td>(487)</td><td>130</td><td>(3,723)</td><td>7,977</td><td>3,319</td><td>11,296</td></tr><tr><td>Exercised and issued stock-based awards</td><td>1</td><td>—</td><td>8</td><td>—</td><td>—</td><td>—</td><td>—</td><td>8</td><td>—</td><td>8</td></tr><tr><td>Stock-based compensation, including the tender of shares</td><td>—</td><td>—</td><td>70</td><td>—</td><td>—</td><td>—</td><td>(4)</td><td>66</td><td>—</td><td>66</td></tr><tr><td>Dividends</td><td>—</td><td>—</td><td>(291)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(291)</td><td>(278)</td><td>(569)</td></tr><tr><td>Adoption of new accounting standard for reclassification of income taxes</td><td>—</td><td>—</td><td>—</td><td>79</td><td>(79)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Sale of interest in PT Freeport Indonesia (refer to Note 2)</td><td>—</td><td>—</td><td>(525)</td><td>—</td><td>(6)</td><td>—</td><td>—</td><td>(531)</td><td>4,762</td><td>4,231</td></tr><tr><td>Net income attributable to common stockholders</td><td>—</td><td>—</td><td>—</td><td>2,602</td><td>—</td><td>—</td><td>—</td><td>2,602</td><td>—</td><td>2,602</td></tr><tr><td>Net income attributable to noncontrolling interests</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>292</td><td>292</td><td>292</td></tr><tr><td>Other comprehensive loss</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(33)</td><td>—</td><td>—</td><td>(33)</td><td>(1)</td><td>(34)</td></tr><tr><td>Balance at December 31, 2018</td><td>1,579</td><td>$158</td><td>$26,013</td><td>$ (12,041)</td><td>$ (605)</td><td>130</td><td>$ (3,727)</td><td>$ 9,798</td><td>$ 8,094</td><td>$17,892</td></tr></table>

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.



## NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation. The consolidated financial statements of Freeport-McMoRan Inc. (FCX) include the accounts of those subsidiaries where it directly or indirectly has more than 50 percent of the voting rights and/or has control over the subsidiary. As of December 31, 2018, the most significant entities that FCX consolidates include its 48.76 percent-owned subsidiary PT Freeport Indonesia (PT-FI), and the following wholly owned subsidiaries: Freeport Minerals Corporation (FMC) and Atlantic Copper, S.L.U. (Atlantic Copper). Refer to Notes 2 and 3 for further discussion, including FCX's conclusion to consolidate PT-FI.

During 2016, FCX completed sales of its Africa mining operation held by FMC and substantially all of its oil and gas operations. Refer to Note 2 for further discussion.

FCX’s unincorporated joint ventures are reflected using the proportionate consolidation method (refer to Note 3 for further discussion). Investments in unconsolidated companies owned 20 percent or more are recorded using the equity method. Investments in companies owned less than 20 percent, and for which FCX does not exercise significant influence, are recorded using the cost method. All significant intercompany transactions have been eliminated. Dollar amounts in tables are stated in millions, except per share amounts.

Business Segments. FCX has organized its mining operations into four primary divisions—North America copper mines, South America mining, Indonesia mining and Molybdenum mines, and operating segments that meet certain thresholds are reportable segments. FCX’s reportable segments include the Morenci, Cerro Verde and Grasberg (Indonesia mining) copper mines, the Rod & Refining operations and Atlantic Copper Smelting & Refining. Refer to Note 16 for further discussion.

Use of Estimates. The preparation of FCX’s financial statements in conformity with accounting principles generally accepted in the United States (U.S.) requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. The more significant areas requiring the use of management estimates include minerals reserve estimation; asset lives for depreciation, depletion and amortization; environmental obligations; asset retirement obligations; estimates of recoverable copper in mill and leach stockpiles; deferred taxes and valuation allowances; reserves for contingencies and litigation; asset acquisitions and impairment, including estimates used to derive future cash flows associated with those assets; pension benefits; and valuation of derivative instruments. Actual results could differ from those estimates.

Functional Currency. The functional currency for the majority of FCX’s foreign operations is the U.S. dollar. For foreign subsidiaries whose functional currency is the U.S. dollar, monetary assets and liabilities denominated in the local currency are translated at current exchange rates, and non-monetary assets and liabilities, such as inventories, property, plant, equipment and mine development costs, are translated at historical rates. Gains and losses resulting from translation of such account balances are included in other income, net, as are gains and losses from foreign currency transactions. Foreign currency gains (losses) totaled $14 million in 2018, ($5) million in 2017 and $32 million in 2016.

Cash Equivalents. Highly liquid investments purchased with maturities of three months or less are considered cash equivalents.

Restricted Cash and Restricted Cash Equivalents. FCX’s restricted cash and restricted cash equivalents are primarily related to PT-FI’s commitment for the development of a new smelter in Indonesia; guarantees and commitments for certain mine closure and reclamation obligations, and customs duty taxes; and funds held as cash collateral for surety bonds related to plugging and abandonment obligations of certain oil and gas properties. Restricted cash and restricted cash equivalents are classified as a current or long-term asset based on the timing and nature of when or how the cash is expected to be used or when the restrictions are expected to lapse. Restricted cash and restricted cash equivalents are comprised of time deposits and money market funds.

Inventories. Inventories include materials and supplies, mill and leach stockpiles, and product inventories. Inventories are stated at the lower of weighted-average cost or net realizable value (NRV).

Mill and Leach Stockpiles. Mill and leach stockpiles are work-in-process inventories for FCX’s mining operations. Mill and leach stockpiles contain ore that has been extracted from an ore body and is available for metal recovery. Mill stockpiles contain sulfide ores, and recovery of metal is through milling, concentrating and smelting and refining or, alternatively, by concentrate leaching. Leach stockpiles contain oxide ores and certain secondary sulfide ores and recovery of metal is through exposure to acidic solutions that dissolve contained copper and deliver it in solution to



extraction processing facilities (i.e., solution extraction and electrowinning (SX/EW)). The recorded cost of mill and leach stockpiles includes mining and haulage costs incurred to deliver ore to stockpiles, depreciation, depletion, amortization and site overhead costs. Material is removed from the stockpiles at a weighted-average cost per pound.

Because it is impracticable to determine copper contained in mill and leach stockpiles by physical count, reasonable estimation methods are employed. The quantity of material delivered to mill and leach stockpiles is based on surveyed volumes of mined material and daily production records. Sampling and assaying of blasthole cuttings determine the estimated copper grade of the material delivered to mill and leach stockpiles.

Expected copper recovery rates for mill stockpiles are determined by metallurgical testing. The recoverable copper in mill stockpiles, once entered into the production process, can be produced into copper concentrate almost immediately.

Expected copper recovery rates for leach stockpiles are determined using small-scale laboratory tests, small- to large-scale column testing (which simulates the production process), historical trends and other factors, including mineralogy of the ore and rock type. Total copper recovery in leach stockpiles can vary significantly from a low percentage to more than 90 percent depending on several variables, including processing methodology, processing variables, mineralogy and particle size of the rock. For newly placed material on active stockpiles, as much as 80 percent of the total copper recovery may occur during the first year, and the remaining copper may be recovered over many years.

Processes and recovery rates for mill and leach stockpiles are monitored regularly, and recovery rate estimates are adjusted periodically as additional information becomes available and as related technology changes. Adjustments to recovery rates will typically result in a future impact to the value of the material removed from the stockpiles at a revised weighted-average cost per pound of recoverable copper.

Product. Product inventories include raw materials, work-in-process and finished goods. Raw materials are primarily unprocessed concentrate at Atlantic Copper's smelting and refining operations. Work-in-process inventories are primarily copper concentrate at various stages of conversion into anode and cathode at Atlantic Copper's operations. Atlantic Copper's in-process inventories are valued at the weighted-average cost of the material fed to the smelting and refining process plus in-process conversion costs. Finished goods for mining operations represent salable products (e.g., copper and molybdenum concentrate, copper anode, copper cathode, copper rod, copper wire, molybdenum oxide, and high-purity molybdenum chemicals and other metallurgical products). Finished goods are valued based on the weighted-average cost of source material plus applicable conversion costs relating to associated process facilities. Costs of finished goods and work-in-process (i.e., not raw materials) inventories include labor and benefits, supplies, energy, depreciation, depletion, amortization, site overhead costs and other necessary costs associated with the extraction and processing of ore, including, depending on the process, mining, haulage, milling, concentrating, smelting, leaching, solution extraction, refining, roasting and chemical processing. Corporate general and administrative costs are not included in inventory costs.

Property, Plant, Equipment and Mine Development Costs. Property, plant, equipment and mine development costs are carried at cost. Mineral exploration costs, as well as drilling and other costs incurred for the purpose of converting mineral resources to proven and probable reserves or identifying new mineral resources at development or production stage properties, are charged to expense as incurred. Development costs are capitalized beginning after proven and probable mineral reserves have been established. Development costs include costs incurred resulting from mine pre-production activities undertaken to gain access to proven and probable reserves, including shafts, adits, drifts, ramps, permanent excavations, infrastructure and removal of overburden. Additionally, interest expense allocable to the cost of developing mining properties and to constructing new facilities is capitalized until assets are ready for their intended use.

Expenditures for replacements and improvements are capitalized. Costs related to periodic scheduled maintenance (i.e., turnarounds) are charged to expense as incurred. Depreciation for mining and milling life-of-mine assets, infrastructure and other common costs is determined using the unit-of-production (UOP) method based on total estimated recoverable proven and probable copper reserves (for primary copper mines) and proven and probable molybdenum reserves (for primary molybdenum mines). Development costs and acquisition costs for proven and probable mineral reserves that relate to a specific ore body are depreciated using the UOP method based on estimated



recoverable proven and probable mineral reserves for the ore body benefited. Depreciation, depletion and amortization using the UOP method is recorded upon extraction of the recoverable copper or molybdenum from the ore body, at which time it is allocated to inventory cost and then included as a component of cost of goods sold. Other assets are depreciated on a straight-line basis over estimated useful lives of up to 40 years for buildings and three to 30 years for machinery and equipment, and mobile equipment.

Included in property, plant, equipment and mine development costs is value beyond proven and probable mineral reserves (VBPP), primarily resulting from FCX's acquisition of FMC in 2007. The concept of VBPP may be interpreted differently by different mining companies. FCX's VBPP is attributable to (i) mineralized material, which includes measured and indicated amounts, that FCX believes could be brought into production with the establishment or modification of required permits and should market conditions and technical assessments warrant, (ii) inferred mineral resources and (iii) exploration potential.

Carrying amounts assigned to VBPP are not charged to expense until the VBPP becomes associated with additional proven and probable mineral reserves and the reserves are produced or the VBPP is determined to be impaired. Additions to proven and probable mineral reserves for properties with VBPP will carry with them the value assigned to VBPP at the date acquired, less any impairment amounts. Refer to Note 5 for further discussion.

Impairment of Long-Lived Mining Assets. FCX assesses the carrying values of its long-lived mining assets for impairment when events or changes in circumstances indicate that the related carrying amounts of such assets may not be recoverable. In evaluating long-lived mining assets for recoverability, estimates of pre-tax undiscounted future cash flows of FCX's individual mines are used. An impairment is considered to exist if total estimated undiscounted future cash flows are less than the carrying amount of the asset. Once it is determined that an impairment exists, an impairment loss is measured as the amount by which the asset carrying value exceeds its fair value. The estimated undiscounted cash flows used to assess recoverability of long-lived assets and to measure the fair value of FCX's mining operations are derived from current business plans, which are developed using near-term price forecasts reflective of the current price environment and management's projections for long-term average metal prices. In addition to near- and long-term metal price assumptions, other key assumptions include estimates of commodity-based and other input costs; proven and probable mineral reserves estimates, including the timing and cost to develop and produce the reserves; VBPP estimates; and the use of appropriate discount rates in the measurement of fair value. FCX believes its estimates and models used to determine fair value are similar to what a market participant would use. As quoted market prices are unavailable for FCX's individual mining operations, fair value is determined through the use of after-tax discounted estimated future cash flows (i.e., Level 3 measurement).

Oil and Gas Properties. FCX follows the full cost method of accounting specified by the U.S. Securities and Exchange Commission’s (SEC) rules whereby all costs associated with oil and gas property acquisition, exploration and development activities are capitalized into a cost center on a country-by-country basis. Such costs include internal general and administrative costs, such as payroll and related benefits and costs directly attributable to employees engaged in acquisition, exploration and development activities. General and administrative costs associated with production, operations, marketing and general corporate activities are charged to expense as incurred. Capitalized costs, along with estimated future costs to develop proved reserves and asset retirement costs that are not already included in oil and gas properties, net of related salvage value, are amortized to expense under the UOP method using engineers’ estimates of the related, by-country proved oil and natural gas reserves.

The costs of unproved oil and gas properties were excluded from amortization until the properties were evaluated. Costs were transferred into the amortization base on an ongoing basis as the properties were evaluated and proved oil and natural gas reserves were established or if impairment was determined. Unproved oil and gas properties were assessed periodically, at least annually, to determine whether impairment had occurred. FCX assessed unproved oil and gas properties for impairment on an individual basis or as a group if properties were individually insignificant. The assessment considered the following factors, among others: intent to drill, remaining lease term, geological and geophysical evaluations, drilling results and activity, the assignment of proved reserves, the economic viability of development if proved reserves were assigned and other current market conditions. During any period in which these factors indicated an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs were transferred to the full cost pool and were then subject to amortization. Including amounts determined to be impaired, FCX transferred $4.9 billion of



costs associated with unevaluated properties to the full cost pool in 2016. The transfer of costs into the amortization base involved a significant amount of judgment. Costs not subject to amortization consisted primarily of capitalized costs incurred for undeveloped acreage and wells in progress pending determination, together with capitalized interest for these projects. Following the completion of the sales of oil and gas properties discussed in Note 2, FCX had no unproved oil and gas properties in the consolidated balance sheets at December 31, 2018 or 2017. Interest costs totaling $7 million in 2016 were capitalized on oil and gas properties not subject to amortization and in the process of development.

Proceeds from the sale of oil and gas properties are accounted for as reductions to capitalized costs unless the reduction causes a significant change in proved reserves, which, absent other factors, is generally described as a 25 percent or greater change, and significantly alters the relationship between capitalized costs and proved reserves attributable to a cost center, in which case a gain or loss is recognized.

Impairment of Oil and Gas Properties. Under the SEC full cost accounting rules, FCX reviewed the carrying value of its oil and gas properties in the full cost pool for impairment 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 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 and natural gas 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.”

In 2016, net capitalized costs with respect to FCX’s proved oil and gas properties exceeded the related ceiling test limitation; therefore, impairment charges of $4.3 billion were recorded primarily because of the lower twelve-month average of the first-day-of-the-month historical reference oil price and reserve revisions.

Deferred Mining Costs. Stripping costs (i.e., the costs of removing overburden and waste material to access mineral deposits) incurred during the production phase of a mine are considered variable production costs and are included as a component of inventory produced during the period in which stripping costs are incurred. Major development expenditures, including stripping costs to prepare unique and identifiable areas outside the current mining area for future production that are considered to be pre-production mine development, are capitalized and amortized using the UOP method based on estimated recoverable proven and probable reserves for the ore body benefited. However, where a second or subsequent pit or major expansion is considered to be a continuation of existing mining activities, stripping costs are accounted for as a current production cost and a component of the associated inventory.

Environmental Obligations. Environmental expenditures are charged to expense or capitalized, depending upon their future economic benefits. Accruals for such expenditures are recorded when it is probable that obligations have been incurred and the costs can be reasonably estimated. Environmental obligations attributed to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) or analogous state programs are considered probable when a claim is asserted, or is probable of assertion, and FCX, or any of its subsidiaries, have been associated with the site. Other environmental remediation obligations are considered probable based on specific facts and circumstances. FCX’s estimates of these costs are based on an evaluation of various factors, including currently available facts, existing technology, presently enacted laws and regulations, remediation experience, whether or not FCX is a potentially responsible party (PRP) and the ability of other PRPs to pay their allocated portions. With the exception of those obligations assumed in the acquisition of FMC that were initially recorded at estimated fair values (refer to Note 12 for further discussion), environmental obligations are



recorded on an undiscounted basis. Where the available information is sufficient to estimate the amount of the obligation, that estimate has been used. Where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range has been used. Possible recoveries of some of these costs from other parties are not recognized in the consolidated financial statements until they become probable. Legal costs associated with environmental remediation (such as fees to outside law firms for work relating to determining the extent and type of remedial actions and the allocation of costs among PRPs) are included as part of the estimated obligation.

Environmental obligations assumed in the acquisition of FMC, which were initially recorded at fair value and estimated on a discounted basis, are accreted to full value over time through charges to interest expense. Adjustments arising from changes in amounts and timing of estimated costs and settlements may result in increases and decreases in these obligations and are calculated in the same manner as they were initially estimated. Unless these adjustments qualify for capitalization, changes in environmental obligations are charged to operating income when they occur.

FCX performs a comprehensive review of its environmental obligations annually and also reviews changes in facts and circumstances associated with these obligations at least quarterly.

Asset Retirement Obligations. FCX records the fair value of estimated asset retirement obligations (AROs) associated with tangible long-lived assets in the period incurred. Retirement obligations associated with long-lived assets are those for which there is a legal obligation to settle under existing or enacted law, statute, written or oral contract or by legal construction. These obligations, which are initially estimated based on discounted cash flow estimates, are accreted to full value over time through charges to cost of sales. In addition, asset retirement costs (ARCs) are capitalized as part of the related asset's carrying value and are depreciated over the asset's respective useful life.

For mining operations, reclamation costs for disturbances are recognized as an ARO and as a related ARC in the period of the disturbance and depreciated primarily on a UOP basis. FCX's AROs for mining operations consist primarily of costs associated with mine reclamation and closure activities. These activities, which are site specific, generally include costs for earthwork, revegetation, water treatment and demolition.
For oil and gas properties, the fair value of the legal obligation is recognized as an ARO and as a related ARC in the period in which the well is drilled or acquired and is amortized on a UOP basis together with other capitalized costs. Substantially all of FCX's oil and gas leases require that, upon termination of economic production, the working interest owners plug and abandon non-producing wellbores; remove platforms, tanks, production equipment and flow lines; and restore the wellsite.

For non-operating properties without reserves, changes to the ARO are recorded in earnings.

At least annually, FCX reviews its ARO estimates for changes in the projected timing of certain reclamation and closure/restoration costs, changes in cost estimates and additional AROs incurred during the period. Refer to Note 12 for further discussion.

Revenue Recognition. Effective January 1, 2018, FCX adopted the new revenue recognition accounting standard, which did not result in any financial statement impacts or changes to FCX's revenue recognition policies or processes as revenue is primarily derived from arrangements in which the transfer of control coincides with the fulfillment of performance obligations.

FCX recognizes revenue for all of its products upon transfer of control in an amount that reflects the consideration it expects to receive in exchange for those products. Transfer of control is in accordance with the terms of customer contracts, which is generally upon shipment or delivery of the product. While payment terms vary by contract, terms generally include payment to be made within 30 days, but not longer than 60 days. Certain of FCX's concentrate and cathode sales contracts also provide for provisional pricing, which is accounted for as an embedded derivative (refer to Note 14 for further discussion). For provisionally priced sales, 90 percent to 100 percent of the provisional payment is made upon shipment or within 20 days, and final balances are settled in a contractually specified future month (generally one to four months from the shipment date) based on quoted monthly average copper settlement prices on the London Metal Exchange (LME) or the Commodity Exchange Inc. (COMEX), a division of the New York Mercantile Exchange, and quoted monthly average London Bullion Market Association (LBMA) gold settlement prices.



FCX’s product revenues are also recorded net of treatment charges, royalties and export duties. Moreover, because a portion of the metals contained in copper concentrate is unrecoverable as a result of the smelting process, FCX’s revenues from concentrate sales are also recorded net of allowances based on the quantity and value of these unrecoverable metals. These allowances are a negotiated term of FCX’s contracts and vary by customer. Treatment and refining charges represent payments or price adjustments to smelters and refiners that are generally fixed. Refer to Note 16 for a summary of revenue by product type.

Gold sales are priced according to individual contract terms, generally the average LBMA gold settlement price for a specified month near the month of shipment.

The majority of FCX’s molybdenum sales are priced based on the average published Metals Week price, plus conversion premiums for products that undergo additional processing, such as ferromolybdenum and molybdenum chemical products, for the month prior to the month of shipment.

Stock-Based Compensation. Compensation costs for share-based payments to employees are measured at fair value and charged to expense over the requisite service period for awards that are expected to vest. The fair value of stock options is determined using the Black-Scholes-Merton option valuation model. The fair value for stock-settled restricted stock units (RSUs) is based on FCX’s stock price on the date of grant. Shares of common stock are issued at the vesting date for stock-settled RSUs. The fair value of performance share units (PSUs) are determined using FCX’s stock price and a Monte-Carlo simulation model. The fair value for liability-classified awards (i.e., cash-settled stock appreciation rights (SARs), cash-settled RSUs and cash-settled PSUs) is remeasured each reporting period using the Black-Scholes-Merton option valuation model for SARs and FCX’s stock price for cash-settled RSUs and cash-settled PSUs. FCX has elected to recognize compensation costs for stock option awards and SARs that vest over several years on a straight-line basis over the vesting period, and for RSUs and cash-settled PSUs on the graded-vesting method over the vesting period. Refer to Note 10 for further discussion.

Earnings Per Share. FCX calculates its basic net income (loss) per share of common stock under the two-class method and calculates its diluted net income (loss) per share of common stock using the more dilutive of the two-class method or the treasury-stock method. Basic net income (loss) per share of common stock was computed by dividing net income (loss) attributable to common stockholders (after deducting accumulated dividends and undistributed earnings to participating securities) by the weighted-average shares of common stock outstanding during the year. Diluted net income (loss) per share of common stock was calculated by including the basic weighted-average shares of common stock outstanding adjusted for the effects of all potential dilutive shares of common stock, unless their effect would be anti-dilutive.

Reconciliations of net income (loss) and weighted-average shares of common stock outstanding for purposes of calculating basic and diluted net income (loss) per share for the years ended December 31 follow:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Net income (loss) from continuing operations</td><td>$2,909</td><td>$2,029</td><td>$ (3,832) \)</td></tr><tr><td>Net income from continuing operations attributable to noncontrolling interests</td><td>(292)</td><td>(274)</td><td>(227)</td></tr><tr><td>Gain on redemption and preferred dividends attributable to redeemable noncontrolling interest</td><td>—</td><td>—</td><td>161</td></tr><tr><td>Accumulated dividends and undistributed earnings allocated to participating securities</td><td>(4)</td><td>(4)</td><td>(3)</td></tr><tr><td>Net income (loss) from continuing operations attributable to common stockholders</td><td>2,613</td><td>1,751</td><td>(3,901)</td></tr><tr><td>Net (loss) income from discontinued operations</td><td>(15)</td><td>66</td><td>(193)</td></tr><tr><td>Net income from discontinued operations attributable to noncontrolling interests</td><td>—</td><td>(4)</td><td>(63)</td></tr><tr><td>Net (loss) income from discontinued operations attributable to common stockholders</td><td>(15)</td><td>62</td><td>(256)</td></tr><tr><td>Net income (loss) attributable to common stockholders</td><td>$2,598</td><td>$1,813</td><td>$ (4,157) \)</td></tr><tr><td>Basic weighted-average shares of common stock outstanding (millions)</td><td>1,449</td><td>1,447</td><td>1,318</td></tr><tr><td>Add shares issuable upon exercise or vesting of dilutive stock options and RSUs (millions)</td><td>9a</td><td>7</td><td>—a</td></tr><tr><td>Diluted weighted-average shares of common stock outstanding (millions)</td><td>1,458</td><td>1,454</td><td>1,318</td></tr><tr><td>Basic net income (loss) per share attributable to common stockholders:</td><td></td><td></td><td></td></tr><tr><td>Continuing operations</td><td>$ 1.80</td><td>$ 1.21</td><td>$ (2.96) \)</td></tr><tr><td>Discontinued operations</td><td>(0.01)</td><td>0.04</td><td>(0.20)</td></tr><tr><td></td><td>$ 1.79</td><td>$ 1.25</td><td>$ (3.16) \)</td></tr><tr><td>Diluted net income (loss) per share attributable to common stockholders:</td><td></td><td></td><td></td></tr><tr><td>Continuing operations</td><td>$ 1.79</td><td>$ 1.21</td><td>$ (2.96) \)</td></tr><tr><td>Discontinued operations</td><td>(0.01)</td><td>0.04</td><td>(0.20)</td></tr><tr><td></td><td>$ 1.78</td><td>$ 1.25</td><td>$ (3.16) \)</td></tr></table>

a. Excludes approximately 1 million in 2018 and 12 million in 2016 associated with outstanding stock options with exercise prices less than the average market price of FCX's common stock and RSUs that were anti-dilutive.



Outstanding stock options with exercise prices greater than the average market price of FCX’s common stock during the year are excluded from the computation of diluted net income (loss) per share of common stock. Stock options for 37 million shares of common stock were excluded in 2018, 41 million in 2017 and 46 million in 2016.

New Accounting Standards. Following is a discussion of new accounting standards.

Revenue Recognition. In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) related to revenue recognition. FCX adopted this standard effective January 1, 2018, under the modified retrospective approach applied to contracts that remain in force at the adoption date. The adoption of this standard did not result in any financial statement impacts or changes to FCX's revenue recognition policies or processes as revenue is primarily derived from arrangements in which the transfer of control coincides with the fulfillment of performance obligations (refer to Revenue Recognition policy in this note). In connection with the adoption of the standard and consistent with FCX's policy prior to adoption of the standard, FCX has elected to account for shipping and handling activities performed after control of goods has been transferred to a customer as a fulfillment cost recorded in production and delivery costs on the consolidated statements of operations.

Financial Instruments. In January 2016, FASB issued an ASU that amends the guidance on the classification and measurement of financial instruments. This ASU makes limited changes to prior guidance and amends certain disclosure requirements. FCX adopted this ASU effective January 1, 2018, and adoption did not have a material impact on its financial statements.

In June 2016, FASB issued an ASU that requires entities to estimate all expected credit losses for most financial assets held at the reporting date based on an expected loss model, which requires consideration of historical experience, current conditions, and reasonable and supportable forecasts. This ASU also requires enhanced disclosure requirements to enable users of financial statements to understand the entity's assumptions, models and methods for estimating expected credit losses. For public companies, this ASU is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. FCX is currently evaluating the impact this ASU will have on its financial statements.

Leases. In February 2016, FASB issued an ASU that will require lessees to recognize most leases on the balance sheet. FCX adopted this ASU effective January 1, 2019, and elected the practical expedient allowing it to apply the provisions of the updated lease guidance at the January 1, 2019, effective date, without adjusting the comparative periods presented. FCX also elected an accounting policy to not recognize a lease asset and liability for leases with a term of 12 months or less and a purchase option that is not expected to be exercised. FCX completed an assessment of its lease portfolio, implemented a new information technology system, and designed processes and controls to account for its leases in accordance with the new standard. FCX has concluded that the adoption of this ASU did not have a material impact on its financial statements. FCX will begin making the required lease disclosures under the ASU beginning with its March 31, 2019, quarterly report on Form 10-Q.

Statement of Cash Flows. In November 2016, FASB issued an ASU that changes the classification and presentation of restricted cash and restricted cash equivalents on the statement of cash flows. The ASU requires that a statement of cash flows include the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. FCX adopted this ASU effective January 1, 2018, and adjusted its consolidated statement of cash flows for the years ended December 31, 2017 and 2016, to include restricted cash and restricted cash equivalents with cash and cash equivalents.



The impact of adopting this ASU for the years ended December 31 follows:

<table><tr><td rowspan="2"></td><td colspan="3">2017</td></tr><tr><td>Previously Reported</td><td>Impact of Adoption</td><td>After Adoption \( ^{a} \)</td></tr><tr><td>Accrued income taxes and changes in other tax payments included in cash flow from operating activities</td><td>$ 473</td><td>$ (16)</td><td>$ 457</td></tr><tr><td>Net cash provided by operating activities</td><td>4,682</td><td>(16)</td><td>4,666</td></tr><tr><td>Other, net included in cash flow from investing activities</td><td>(25)</td><td>42</td><td>17</td></tr><tr><td>Net cash used in investing activities</td><td>(1,363)</td><td>42</td><td>(1,321)</td></tr><tr><td>Net increase in cash, cash equivalents, restricted cash and restricted cash equivalents</td><td>264</td><td>26</td><td>290</td></tr><tr><td>Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year</td><td>4,245</td><td>158</td><td>4,403</td></tr><tr><td>Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period</td><td>4,447</td><td>184</td><td>4,631</td></tr><tr><td></td><td></td><td colspan="2">2016</td></tr><tr><td></td><td>Previously Reported</td><td>Impact of Adoption</td><td>After Adoption \( ^{a} \)</td></tr><tr><td>Other, net included in cash flow from operating activities</td><td>$ 48</td><td>$ 8</td><td>$ 56</td></tr><tr><td>Net cash provided by operating activities</td><td>3,729</td><td>8</td><td>3,737</td></tr><tr><td>Other, net included in cash flow from investing activities</td><td>8</td><td>3</td><td>11</td></tr><tr><td>Net cash provided by investing activities</td><td>3,550</td><td>3</td><td>3,553</td></tr><tr><td>Net increase in cash, cash equivalents, restricted cash and restricted cash equivalents</td><td>4,113</td><td>11</td><td>4,124</td></tr><tr><td>Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year</td><td>177</td><td>147</td><td>324</td></tr><tr><td>Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period</td><td>4,245</td><td>158</td><td>4,403</td></tr></table>

a. Excludes the reclassification of assets held for sale and other adjustments to conform with the current year presentation.

Net Periodic Pension and Postretirement Benefit Cost. In March 2017, FASB issued an ASU that changes how entities with defined benefit pension or other postretirement benefit plans present net periodic benefit cost in the income statement. This ASU requires the service cost component of net periodic benefit cost to be presented in the same income statement line item or items as other compensation costs for those employees who are receiving the benefit. In addition, only the service cost component is eligible for capitalization when applicable (i.e., as a cost of inventory or an internally constructed asset). The other components of net periodic benefit cost are required to be presented separately from the service cost component and outside of operating income. These other components of net periodic benefit cost are not eligible for capitalization, and FCX elected to include these other components in other income (expense), net. FCX adopted this ASU effective January 1, 2018, and adjusted its presentation in the consolidated statements of operations for the years ended December 31, 2017 and 2016, to conform with the new guidance. The impact of adopting this ASU for the years ended December 31 follows:

<table><tr><td rowspan="2"></td><td colspan="3">2017</td><td colspan="3">2016</td></tr><tr><td>Previously Reported</td><td>Impact of Adoption</td><td>Current Presentation</td><td>Previously Reported</td><td>Impact of Adoption</td><td>Current Presentation</td></tr><tr><td>Production and delivery</td><td>$10,308a</td><td>$(42)</td><td>$10,266</td><td>$10,733a</td><td>$(46)</td><td>$10,687</td></tr><tr><td>Total cost of sales</td><td>12,022</td><td>(42)</td><td>11,980</td><td>17,580</td><td>(46)</td><td>17,534</td></tr><tr><td>Selling, general and administrative expenses</td><td>484</td><td>(7)</td><td>477</td><td>607</td><td>(10)</td><td>597</td></tr><tr><td>Mining exploration and research expenses</td><td>94</td><td>(1)</td><td>93</td><td>64</td><td>(1)</td><td>63</td></tr><tr><td>Environmental obligations and shutdown costs</td><td>251</td><td>(7)</td><td>244</td><td>20</td><td>(6)</td><td>14</td></tr><tr><td>Total costs and expenses</td><td>12,770</td><td>(57)</td><td>12,713</td><td>17,622</td><td>(63)</td><td>17,559</td></tr><tr><td>Operating income (loss)</td><td>3,633</td><td>57</td><td>3,690</td><td>(2,792)</td><td>63</td><td>(2,729)</td></tr><tr><td>Other income (expense), net</td><td>49</td><td>(57)</td><td>(8)</td><td>49</td><td>(63)</td><td>(14)</td></tr></table>

a. Includes $8 million for inventory adjustments in 2017 and $36 million in 2016.



Tax Reform Reclassification. In February 2018, FASB issued an ASU that allows entities to elect to reclassify the stranded income tax effects caused by the December 2017 Tax Cuts and Jobs Act (the Act) in accumulated other comprehensive income (AOCI) to retained earnings. This election applies to the U.S. federal income tax rate change from 35 percent to 21 percent. FCX elected to early adopt this standard effective July 1, 2018, which resulted in a one-time reclassification totaling 79 million from AOCI to retained earnings in third-quarter 2018. FCX has not elected to reclassify other “indirect” income tax effects of the Act stranded in AOCI. Any additional income tax effects stranded in AOCI will continue to pass through earnings in future periods as specific classes of AOCI items are reversed.

Fair Value Measurement. In August 2018, FASB issued an ASU in connection with the disclosure framework project that modifies the disclosure requirements on fair value measurements. FCX early adopted this ASU in third-quarter 2018, which did not have a material impact on its financial statements.

Defined Benefit Plans. In August 2018, FASB issued an ASU in connection with the disclosure framework project that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. FCX early adopted this ASU in fourth-quarter 2018, which did not have a material impact on its financial statements.

Reclassifications. As a result of adopting new accounting standards in 2018 (refer to New Accounting Standards in this note) and the reclassification of assets held for sale (refer to Note 2), certain prior year amounts have been reclassified to conform with the current year presentation.

## NOTE 2. ACQUISITIONS AND DISPOSITIONS

PT-FI Divestment. On December 21, 2018, FCX completed the transaction with the Indonesian government regarding PT-FI’s long-term mining rights and share ownership.

Pursuant to the previously announced divestment agreement and related documents, PT Indonesia Asahan Aluminium (Persero) (PT Inalm), an Indonesian state-owned enterprise, acquired for cash consideration of $3.85 billion all of Rio Tinto plc's (Rio Tinto) interests associated with its joint venture with PT-FI (the former Rio Tinto Joint Venture) and 100 percent of FCX's interests in PT Indonesia Papua Metal Dan Mineral (PTI—formerly known as PT Indocopper Investama), which at the time owned 9.36 percent of PT-FI. Of the $3.85 billion in cash consideration, Rio Tinto received $3.5 billion, and FCX received $350 million. In addition, Rio Tinto paid FCX $107 million for its share of the 2018 joint venture cash flows.
In connection with the transaction, an aggregate 40 percent share ownership in PT-FI was issued to PT Inalm and PTI (which is expected to be owned by PT Inalm and the provincial/regional government in Papua). Based on a subscription of PT Inalm's rights to acquire for cash consideration of $3.5 billion all of Rio Tinto's interests in the former Rio Tinto Joint Venture, PT-FI acquired all of the common stock of the entity (PT Rio Tinto Indonesia) that held Rio Tinto's interest. After the transaction, PT Inalm's (26.24 percent) and PTI's (25.00 percent) collective share ownership of PT-FI totals 51.24 percent and FCX's share ownership totals 48.76 percent. The arrangements provide for FCX and the other pre-transaction PT-FI shareholders (i.e., PT Inalm and PTI) to retain the economics of the revenue and cost sharing arrangements under the former Rio Tinto Joint Venture. As a result, FCX's economic interest in PT-FI is expected to approximate 81 percent from 2019 through 2022.

The divestment agreement provides that FCX will indemnify PT Inalm and PTI from any losses (reduced by receipts) arising from any tax disputes of PT-FI disclosed to PT Inalm in a Jakarta, Indonesia tax court letter limited to PTI's respective percentage share at the time the loss is finally incurred. Any net obligations arising from any tax settlement would be paid on December 21, 2025.

FCX, PT-FI, PTI and PT Inalm entered into a shareholders agreement (the PT-FI Shareholders Agreement), which includes provisions related to the governance and management of PT-FI. FCX considered the terms of the PT-FI Shareholders Agreement and related governance structure, including whether PT Inalm has substantive participating rights, and concluded that it has retained control and would continue to consolidate PT-FI in its financial statements following the transaction. Among other terms, the governance arrangements under the PT-FI Shareholders Agreement transfers control over the management of PT-FI's mining operations to an operating committee, which is controlled by FCX. Additionally, as discussed above, the existing PT-FI shareholders will retain the economics of the revenue and cost sharing arrangements under the former Rio Tinto Joint Venture, so that FCX's economic interest in the project through 2041 will not be significantly affected by the transaction. FCX believes its conclusion to continue to consolidate PT-FI in its financial statements is in accordance with SEC Regulation S-X, Rule 3A-02 (a), which provides for situations in which consolidation of an entity, notwithstanding the lack of majority ownership, is necessary to present fairly the financial position and results of operations of the



registrant, because of the existence of a parent-subsidiary relationship by means other than record ownership of voting stock.

FCX also analyzed PT-FI’s acquisition of the Rio Tinto Joint Venture interests and concluded the transaction should be accounted for as an asset acquisition as substantially all of the fair value of the gross assets acquired is concentrated in mineral reserves and related long-lived mining assets. The acquisition was a single asset because substantially all of the acquired assets are linked to each other and cannot be physically removed without causing a significant diminution to the fair value of the other assets. PT-FI allocated the $3.5 billion purchase price to the assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. The fair value estimates were based on, but not limited to, long-term metal price assumptions of $3.00 per pound of copper and $1,300 per ounce of gold; expected future cash flows based on estimated reserve quantities; costs to produce and develop the related reserves; current replacement cost for similar capacity for certain fixed assets; and appropriate discount rates using an estimated international cost of capital of 14 percent. The estimates were primarily based on significant inputs not observable in the market (as discussed above) and thus represent Level 3 measurements.

The following table summarizes the allocation of the purchase price:

<table><tr><td>Current assets</td><td>$ 25</td></tr><tr><td>Property, plant, equipment and mine development costs:</td><td></td></tr><tr><td>Mineral reserves</td><td>3,056</td></tr><tr><td>Mine development, infrastructure and other</td><td>1,559</td></tr><tr><td>Liabilities other than taxes</td><td>(77)</td></tr><tr><td>Deferred income taxes, net</td><td>(1,063) \( ^{a} \)</td></tr><tr><td>Total purchase price</td><td>$3,500</td></tr></table>

a. Deferred income taxes have been recognized on the fair value adjustments to net assets using an Indonesia corporate income tax rate of 25 percent.

Under applicable accounting guidance, changes in ownership that do not result in a change in control are accounted for as equity transactions with no impact on net income. The following table summarizes the consolidated impact of the transaction discussed above on FCX’s consolidated balance sheet as of December 21, 2018:

<table><tr><td>Cash</td><td>$ 458</td></tr><tr><td>Other current assets</td><td>23</td></tr><tr><td>Property, plant, equipment and mine development costs:</td><td></td></tr><tr><td>Mineral reserves</td><td>3,056</td></tr><tr><td>Mine development, infrastructure and other</td><td>1,559</td></tr><tr><td>Liabilities other than taxes</td><td>(77)</td></tr><tr><td>Deferred income taxes, net</td><td>(788)</td></tr><tr><td>Noncontrolling interests</td><td>(4,762) \( ^{a} \)</td></tr><tr><td>Capital in excess of par value</td><td>531</td></tr></table>

a. Primarily reflects the approximate 40 percent economic interest in the former Rio Tinto Joint Venture for the period from 2023 through 2041, which was acquired by PT and PT Inalum.

FCX considered if the adjustment to capital in excess of par value was an indicator of impairment and after considering other factors, such as PT-FI’s historical results and projected undiscounted cash flows, concluded that it did not indicate a potential impairment at PT-FI.

TF Holdings Limited—Discontinued Operations. On November 16, 2016, FCX completed the sale of its 70 percent interest in TF Holdings Limited (TFHL) to China Molybdenum Co., Ltd. (CMOC) for $2.65 billion in cash (before closing adjustments) and 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. One-half of the proceeds from this transaction was used to repay borrowings under FCX’s unsecured bank term loan.

The contingent consideration is considered a derivative, and the fair value will be adjusted through December 31, 2019. The fair value of the contingent consideration derivative (included in other assets in the consolidated balance sheets) was $57 million at December 31, 2018, and $74 million at December 31, 2017. (Losses) gains resulting from changes in the fair value of the contingent consideration derivative ($17) million in 2018, $61 million in 2017 and $13 million in 2016) are included in net (loss) income from discontinued operations and primarily resulted from fluctuations in cobalt and copper prices. Future changes in the fair value of the contingent consideration derivative will continue to be recorded in discontinued operations.



In accordance with accounting guidance, FCX reported the results of operations of TFHL as discontinued operations in the consolidated statements of operations because the disposal represents a strategic shift that had a major effect on operations. The consolidated statements of comprehensive income (loss) were not impacted by discontinued operations as TFHL did not have any other comprehensive income (loss), and the consolidated statements of cash flows are reported on a combined basis without separately presenting discontinued operations.

Net (loss) income from discontinued operations in the consolidated statements of operations consists of the following:

<table><tr><td>Years Ended December 31,</td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Revenues \( ^{a} \)</td><td>$ - \)</td><td>$ 13</td><td>$ 959</td></tr><tr><td>Costs and expenses:</td><td></td><td></td><td></td></tr><tr><td>Production and delivery costs</td><td>-</td><td>-</td><td>833</td></tr><tr><td>Depreciation, depletion and amortization</td><td>-</td><td>-</td><td>80 \( ^{b} \)</td></tr><tr><td>Interest expense allocated from parent</td><td>-</td><td>-</td><td>39 \( ^{c} \)</td></tr><tr><td>Other costs and expenses, net</td><td>-</td><td>-</td><td>10</td></tr><tr><td>Income (loss) before income taxes and net (loss) gain on disposal</td><td>-</td><td>13</td><td>(3)</td></tr><tr><td>Net (loss) gain on disposal</td><td>(15) \( ^{d} \)</td><td>57 \( ^{d} \)</td><td>(198) \( ^{e} \)</td></tr><tr><td>Net (loss) income before income taxes</td><td>(15)</td><td>70</td><td>(201)</td></tr><tr><td>(Provision for) benefit from income taxes</td><td>-</td><td>(4)</td><td>8</td></tr><tr><td>Net (loss) income from discontinued operations</td><td>$ (15) \)</td><td>$ 66 \)</td><td>$ (193) \)</td></tr></table>

a. In accordance with accounting guidance, amounts are net of recognition (eliminations) of intercompany sales totaling $13 million in 2017 and $157 million in 2016.

b. In accordance with accounting guidance, depreciation, depletion and amortization was suspended subsequent to classification as assets held for sale, which occurred in May 2016.

c. In accordance with accounting guidance, interest associated with FCX’s unsecured bank term loan that was required to be repaid as a result of the sale of TFHL has been allocated to discontinued operations.

d. Includes a (loss) gain of $17 million in 2018 and $61 million in 2017 associated with the change in the fair value of contingent consideration.

e. Includes a charge of $33 million associated with the settlement agreement entered into with Gécamines, partly offset by a gain of $13 million for the fair value of contingent consideration. Cash flows from discontinued operations included in the consolidated statements of cash flows for the year ended December 31, 2016, follow:

<table><tr><td>Net cash provided by operating activities</td><td>$ 241</td></tr><tr><td>Net cash used in investing activities</td><td>(73)</td></tr><tr><td>Net cash used in financing activities</td><td>(123)</td></tr><tr><td>Increase in cash and cash equivalents</td><td>$ 45</td></tr></table>

Assets Held for Sale. As a result of the 2016 sale of TFHL, FCX planned to sell its effective 56 percent interest in Freeport Cobalt and its wholly owned Kisanfu exploration project. Freeport Cobalt includes the large-scale cobalt refinery in Kokkola, Finland, and the related sales and marketing business. Kisanfu is a copper and cobalt exploration project, located near Tenke in the Democratic Republic of Congo (DRC). The assets and liabilities of Freeport Cobalt and Kisanfu were previously classified as held for sale in the consolidated balance sheet at December 31, 2017, and a $110 million estimated loss on disposal was recognized in 2016 when these assets were classified as held for sale (included in net gain on sales of assets in the consolidated statements of operations).

FCX is continuing to assess opportunities for its Kisanfu copper and cobalt exploration project, including development of the project on its own or a sale of all or a minority stake in the project. In 2017, a gain of $13 million was recorded to adjust the Kisanfu assets to their carrying value when they were initially classified as held for sale. In second-quarter 2018, management concluded it no longer believes that it is probable an outright sale will occur in the near term and the related assets and liabilities should no longer be classified as held for sale. Because of this conclusion, revisions to the consolidated balance sheet as of December 31, 2017, included a $90 million increase to property, plant, equipment and mine development costs, net, with an offsetting reduction in current assets held for sale, and a $27 million increase to deferred income taxes, with an offsetting reduction in current liabilities held for sale.

FCX continues to market the Freeport Cobalt assets, but concluded that they no longer qualified as held for sale as of December 31, 2018. In accordance with applicable accounting guidance, during 2018, FCX recorded a gain of $97 million to adjust the Freeport Cobalt assets to their carrying value



when they were initially classified as held for sale. During fourth-quarter 2018, FCX also recorded $48 million of depreciation, depletion and amortization expense that was suspended while the assets were held for sale from December 2016 through September 2018. The carrying amounts of Freeport Cobalt's major classes of assets and liabilities, which were reclassified from held for sale in the consolidated balance sheet at December 31, 2017, follow:

<table><tr><td colspan="2">Assets</td></tr><tr><td>Cash and cash equivalents</td><td>$ 79</td></tr><tr><td>Trade receivables</td><td>76</td></tr><tr><td>Inventories</td><td>256</td></tr><tr><td>Other receivables and current assets</td><td>20</td></tr><tr><td>Property, plant, equipment and mine development costs, net</td><td>60</td></tr><tr><td>Other assets</td><td>3</td></tr><tr><td>Total previously included in current assets held for sale</td><td>$ 494</td></tr><tr><td colspan="2">Liabilities</td></tr><tr><td>Accounts payable and accrued liabilities</td><td>$ 176</td></tr><tr><td>Accrued income taxes</td><td>18</td></tr><tr><td>Long-term debt</td><td>112</td></tr><tr><td>Deferred income taxes and asset retirement obligations</td><td>17</td></tr><tr><td>Total previously included in current liabilities held for sale</td><td>$ 323</td></tr></table>

Morenci. In May 2016, FCX sold a 13 percent undivided interest in its Morenci unincorporated joint venture to SMM Morenci, Inc. for $1.0 billion in cash. FCX recorded a $576 million gain on the transaction and used losses to offset cash taxes on the transaction. A portion of the proceeds from the transaction was used to repay borrowings under FCX's unsecured bank term loan and revolving credit facility.

The Morenci unincorporated joint venture was owned 85 percent by FCX and 15 percent by Sumitomo Metal Mining Arizona, Inc. (Sumitomo). As a result of the transaction, the unincorporated joint venture is owned 72 percent by FCX, 15 percent by Sumitomo and 13 percent by SMM Morenci, Inc. (an affiliate of Sumitomo Metal Mining Co, Ltd.).

Timok. In May 2016, FMC sold an interest in the Timok exploration project in Serbia to Global Reservoir Minerals Inc. (now known as Nevsun Resources, Ltd.) for consideration of $135 million in cash and contingent consideration of up to $107 million payable to FCX in stages upon achievement of defined development milestones. As a result of this transaction, FCX recorded a gain of $133 million in 2016, and no amounts were recorded for contingent consideration under the loss recovery approach. A portion of the proceeds from the transaction was used to repay borrowings under FCX's unsecured bank term loan.
Oil and Gas Operations. In 2018, FCX Oil & Gas LLC (FM O&G) disposed of certain property interests that resulted in the recognition of a gain of $27 million, primarily associated with the abandonment obligations that were assumed by the acquirer. In 2017, FM O&G sold certain property interests for cash consideration of $80 million (before closing adjustments). Under the full cost accounting rules, the sales resulted in the recognition of gains of $49 million in 2017.

In December 2016, FM O&G completed the sale of its onshore California oil and gas properties to Sentinel Peak Resources California LLC (Sentinel) for cash consideration of $592 million (before closing adjustments from the July 1, 2016, effective date) and 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. The contingent consideration is considered a derivative, and the fair value will be adjusted through the year 2020. The fair value of the contingent consideration derivative (included in other assets in the consolidated balance sheets) was $16 million at December 31, 2018, and $34 million at December 31, 2017. The contingent consideration of $50 million for 2018 was realized because the average Brent crude oil price exceeded $70 per barrel for the year and was included in other current assets in the consolidated balance sheet at December 31, 2018. Future changes in the fair value of the contingent consideration derivative will continue to be recorded in operating income. Sentinel assumed abandonment obligations associated with the properties.

In December 2016, FM O&G completed the sale of its Deepwater Gulf of Mexico (GOM) oil and gas properties to Anadarko Petroleum Corporation (Anadarko) for cash consideration of $2.0 billion (before closing adjustments from the August 1, 2016, effective date) and up to $150 million in contingent payments. The contingent payments were recorded under the loss recovery approach, whereby contingent gains are recorded up to the amount of any loss on the sale, and reduced the loss on the sale in 2016. The contingent payments were included in other current assets ($27 million) and other assets ($116 million) at December 31, 2018, and in other current assets ($24 million) and other assets ($126 million) at December 31, 2017, in the consolidated balance sheets. The contingent payments will be received over time ($7 million was collected in 2018) as Anadarko realizes future cash flows in connection with a third-party production handling agreement for an offshore platform. Anadarko assumed abandonment obligations associated with these properties. A portion of the proceeds from this transaction was used to repay FCX's remaining outstanding borrowings under its unsecured bank term loan.



Under the full cost accounting rules, the sales of the Deepwater GOM and onshore California oil and gas properties required gain (loss) recognition (net loss of $9 million in 2016, which was net of $150 million for contingent payments associated with the Deepwater GOM sale and $33 million for the fair value of contingent consideration from the onshore California sale) because of their significance to the full cost pool.

In connection with the sale of the Deepwater GOM oil and gas properties, FM O&G entered into an agreement to amend the terms of the Plains Offshore Operations Inc. Preferred Stock that was reported as redeemable noncontrolling interest on FCX's financial statements. The amendment provided FM O&G the right to call these securities for $582 million. FM O&G exercised this option in December 2016 and recorded a $199 million gain on redemption to retained earnings.

In July 2016, FM O&G sold its Haynesville shale assets for cash consideration of $87 million, before closing adjustments. In June 2016, FM O&G sold certain oil and gas royalty interests to Black Stone Minerals, L.P. for cash consideration of $102 million, before closing adjustments. Under the full cost accounting rules, the proceeds from these transactions were recorded as a reduction of capitalized oil and gas properties, with no gain or loss recognition in 2016 because the reserves were not significant to the full cost pool.

## NOTE 3. OWNERSHIP IN SUBSIDIARIES AND JOINT VENTURES

Ownership in Subsidiaries. FMC produces copper and molybdenum, with mines in North America and South America. At December 31, 2018, 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 a 72 percent interest (subsequent to the sale of a 13 percent undivided interest on May 31, 2016) in Morenci (refer to "Joint Ventures—Sumitomo and SMM Morenci, Inc.") and owns 100 percent of the other North America mines. At December 31, 2018, operating mines in South America were Cerro Verde (53.56 percent owned) located in Peru and El Abra (51 percent owned) located in Chile. At December 31, 2018, FMC's net assets totaled $16.0 billion and its accumulated deficit totaled $14.0 billion. FCX had no loans outstanding to FMC at December 31, 2018.
FCX’s direct share ownership in PT-FI totaled 81.28 percent through December 21, 2018, and 48.76 percent thereafter. PTI owned 9.36 percent of PT-FI through December 21, 2018, and FCX owned 100 percent of PTI through December 21, 2018. Refer to Note 2 for a discussion of the PT-FI divestment. Refer to “Joint Ventures—Former Rio Tinto Joint Venture” for discussion of PT-FI’s unincorporated joint venture. At December 31, 2018, PT-FI’s net assets totaled $10.5 billion and its retained earnings totaled $6.6 billion. FCX had $76 million in intercompany loans to PT-FI outstanding at December 31, 2018.

FCX owns 100 percent of the outstanding Atlantic Copper common stock. At December 31, 2018, Atlantic Copper's net liabilities totaled $23 million and its accumulated deficit totaled $436 million. FCX had $434 million in intercompany loans to Atlantic Copper outstanding at December 31, 2018.

FCX owns 100 percent of FM O&G, which, as of December 31, 2018, has oil and gas assets that primarily include natural gas production onshore in South Louisiana and oil production offshore California. At December 31, 2018, FM O&G's net liabilities totaled $14.2 billion and its accumulated deficit totaled $25.8 billion. FCX had $10.6 billion in intercompany loans to FM O&G outstanding at December 31, 2018, which were fully impaired.

Joint Ventures. FCX has the following unincorporated joint ventures.

Former Rio Tinto Joint Venture. On December 21, 2018, PT-FI acquired Rio Tinto's interest in the joint venture and is consolidating 100 percent of the Indonesia operations (refer to Note 2 for discussion of the PT-FI divestment). Pursuant to Rio Tinto's previous joint venture agreement with PT-FI, Rio Tinto had a 40 percent interest in certain assets and future production exceeding specified annual amounts of copper, gold and silver through 2022 in Block A of PT-FI's former Contract of Work (COW), and, after 2022, a 40 percent interest in all production from Block A. The amount due Rio Tinto for its share of joint venture cash flows was $30 million at December 31, 2017.

Sumitomo and SMM Morenci, Inc. FMC owns a 72 percent undivided interest in Morenci via an unincorporated joint venture. The remaining 28 percent is owned by Sumitomo (15 percent) and SMM Morenci, Inc. (13 percent). Each partner takes in kind its share of Morenci's production. FMC purchased 178 million pounds of Morenci's copper cathode from Sumitomo and SMM Morenci, Inc. at market prices for $519 million during 2018. FMC had receivables from Sumitomo and SMM Morenci, Inc. totaling $13 million at December 31, 2018, and $18 million at December 31, 2017.



## NOTE 4. INVENTORIES, INCLUDING LONG-TERM MILL AND LEACH STOCKPILES

The components of inventories follow:

<table><tr><td>December 31,</td><td>2018</td><td>2017</td></tr><tr><td>Current inventories:</td><td></td><td></td></tr><tr><td>Total materials and supplies, net \( ^{a} \)</td><td>1,528</td><td>1,323</td></tr><tr><td>Mill stockpiles</td><td>$ 282</td><td>$ 360</td></tr><tr><td>Leach stockpiles</td><td>1,171</td><td>1,062</td></tr><tr><td>Total current mill and leach stockpiles</td><td>1,453</td><td>1,422</td></tr><tr><td>Raw materials (primarily concentrate)</td><td>$ 260</td><td>$ 265</td></tr><tr><td>Work-in-process</td><td>192</td><td>154</td></tr><tr><td>Finished goods</td><td>1,326</td><td>985</td></tr><tr><td>Total product inventories</td><td>1,778</td><td>1,404</td></tr><tr><td>Long-term inventories:</td><td></td><td></td></tr><tr><td>Mill stockpiles</td><td>$ 265</td><td>$ 300</td></tr><tr><td>Leach stockpiles</td><td>1,049</td><td>1,109</td></tr><tr><td>Total long-term inventories \( ^{b} \)</td><td>1,314</td><td>1,409</td></tr></table>

a. Materials and supplies inventory was net of obsolescence reserves totaling $24 million at December 31, 2018, and $29 million at December 31, 2017.

b. Estimated metals in stockpiles not expected to be recovered within the next 12 months.

FCX recorded charges for adjustments to metals inventory carrying values of $4 million in 2018, $8 million in 2017 and $36 million in 2016 (primarily for molybdenum inventories).

## NOTE 5. PROPERTY, PLANT, EQUIPMENT AND MINE DEVELOPMENT COSTS, NET

The components of net property, plant, equipment and mine development costs follow:

<table><tr><td>December 31,</td><td>2018</td><td>2017</td></tr><tr><td>Proven and probable mineral reserves</td><td>$ 7,089</td><td>$ 3,974</td></tr><tr><td>VBPP</td><td>477</td><td>536</td></tr><tr><td>Mine development and other</td><td>8,195</td><td>6,213</td></tr><tr><td>Buildings and infrastructure</td><td>8,051</td><td>7,553</td></tr><tr><td>Machinery and equipment</td><td>12,985</td><td>12,330</td></tr><tr><td>Mobile equipment</td><td>4,010</td><td>3,766</td></tr><tr><td>Construction in progress</td><td>3,006</td><td>2,971</td></tr><tr><td>Oil and gas properties</td><td>27,292</td><td>27,453</td></tr><tr><td>Total</td><td>71,105</td><td>64,796</td></tr><tr><td>Accumulated depreciation, depletion, and amortization \( ^{a} \)</td><td>(43,095)</td><td>(41,802)</td></tr><tr><td>Property, plant, equipment and mine development costs, net</td><td>$ 28,010</td><td>$ 22,994</td></tr></table>

a. Includes accumulated amortization of $273 billion and $274 billion for oil and gas properties at December 31, 2018 and 2017, respectively.

In 2018, FCX recorded $4.6 billion for proven and probable mineral reserves and other property, plant, equipment and mine development costs associated with the acquisition of PT Rio Tinto Indonesia (refer to Note 2 for further discussion).
FCX recorded $1.7 billion for VBPP in connection with the FMC acquisition in 2007 (excluding $544 million associated with mining operations that were sold) and transferred $59 million to proven and probable mineral reserves during 2018 and $752 million prior to 2018 ($112 million in 2017). Cumulative impairments of VBPP total $485 million, which were primarily recorded in 2008.

Capitalized interest, which primarily related to FCX’s mining operations’ capital projects, totaled $96 million in 2018, $121 million in 2017 and $92 million in 2016.

During 2017 and 2018, FCX concluded there were no events or changes in circumstances that would indicate that the carrying amount of its long-lived mining assets might not be recoverable.

## NOTE 6. OTHER ASSETS

The components of other assets follow:

<table><tr><td>December 31,</td><td>2018</td><td>2017</td></tr><tr><td>Disputed tax assessments: \( ^{a} \)</td><td></td><td></td></tr><tr><td>PT-FI</td><td>$ 493</td><td>$ 417</td></tr><tr><td>Cerro Verde</td><td>183</td><td>185</td></tr><tr><td>Long-term receivable for taxes \( ^{b} \)</td><td>260</td><td>445</td></tr><tr><td>Intangible assets \( ^{c} \)</td><td>398</td><td>307</td></tr><tr><td>Investments:</td><td></td><td></td></tr><tr><td>Assurance bond \( ^{d} \)</td><td>126</td><td>123</td></tr><tr><td>PT Smelting \( ^{e} \)</td><td>125</td><td>61</td></tr><tr><td>Fixed income and equity securities</td><td>29</td><td>30</td></tr><tr><td>Other</td><td>36</td><td>48</td></tr><tr><td>Contingent consideration associated with sales of assets \( ^{f} \)</td><td>189</td><td>234</td></tr><tr><td>Legally restricted funds \( ^{g} \)</td><td>181</td><td>189</td></tr><tr><td>Rio Tinto’s share of ARO</td><td>—</td><td>68</td></tr><tr><td>Long-term employee receivables</td><td>20</td><td>20</td></tr><tr><td>Other</td><td>132</td><td>146</td></tr><tr><td>Total other assets</td><td>$2,172</td><td>$2,273</td></tr></table>

a. Refer to Note 12 for further discussion.

b. Includes tax overpayments and refunds not expected to be realized within the next 12 months (primarily associated with U.S. tax reform, refer to Note 11).

c. Indefinite-lived intangible assets totaled $215 million at December 31, 2018 and 2017. Accumulated amortization of definite-lived intangible assets totaled $51 million at December 31, 2018, and $46 million at December 31, 2017.

d. Relates to PT-FI’s commitment for the development of a new smelter in Indonesia (refer to Note 13 for further discussion).

e. PT-FI’s 25 percent ownership in PT Smelting (smelter and refinery in Gresik, Indonesia) is recorded using the equity method. Amounts were reduced by unrecognized profits on sales from PT-FI to PT Smelting totaling $11 million at December 31, 2018, and $68 million at December 31, 2017. Trade accounts receivable from PT Smelting totaled $176 million at December 31, 2018, and $308 million at December 31, 2017.

f. Refer to Note 2 for further discussion.

g. Includes $180 million at December 31, 2018 and 2017, held in trusts for AROs related to properties in New Mexico (refer to Note 12 for further discussion).



## NOTE 7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The components of accounts payable and accrued liabilities follow:

<table><tr><td>December 31,</td><td>2018</td><td>2017</td></tr><tr><td>Accounts payable</td><td>$1,661</td><td>$1,546</td></tr><tr><td>Salaries, wages and other compensation</td><td>273</td><td>241</td></tr><tr><td>Accrued interest \( ^{a} \)</td><td>183</td><td>168</td></tr><tr><td>PT-FI contingencies \( ^{b} \)</td><td>162</td><td>—</td></tr><tr><td>Accrued taxes, other than income taxes</td><td>109</td><td>129</td></tr><tr><td>Pension, postretirement, postemployment and other employee benefits \( ^{c} \)</td><td>78</td><td>114</td></tr><tr><td>Deferred revenue</td><td>35</td><td>91</td></tr><tr><td>Accrued mining royalties</td><td>29</td><td>68</td></tr><tr><td>Other</td><td>95</td><td>140</td></tr><tr><td>Total accounts payable and accrued liabilities</td><td>$2,625</td><td>$2,497</td></tr></table>

a. Third-party interest paid, net of capitalized interest, was $500 million in 2018, $565 million in 2017 and $743 million in 2016.

b. Refer to Note 12 for further discussion.

c. Refer to Note 9 for long-term portion.

## NOTE 8. DEBT

FCX’s debt at December 31, 2018, included additions of $58 million ($97 million at December 31, 2017) for unamortized fair value adjustments (primarily from the 2013 oil and gas acquisitions), and is net of reductions of $69 million ($85 million at December 31, 2017) for unamortized net discounts and unamortized debt issuance costs. The components of debt follow:

<table><tr><td>December 31,</td><td>2018</td><td>2017</td></tr><tr><td>Revolving credit facility</td><td>$ -</td><td>$ -</td></tr><tr><td>Cerro Verde credit facility</td><td>1,023</td><td>1,269</td></tr><tr><td>Senior notes and debentures:</td><td></td><td></td></tr><tr><td>Issued by FCX:</td><td></td><td></td></tr><tr><td>2.375% Senior Notes due 2018</td><td>-</td><td>1,408</td></tr><tr><td>3.100% Senior Notes due 2020</td><td>999</td><td>997</td></tr><tr><td>4.00% Senior Notes due 2021</td><td>597</td><td>596</td></tr><tr><td>6.75% Senior Notes due 2022</td><td>-</td><td>427</td></tr><tr><td>3.55% Senior Notes due 2022</td><td>1,886</td><td>1,884</td></tr><tr><td>6%% Senior Notes due 2023</td><td>768</td><td>776</td></tr><tr><td>3.875% Senior Notes due 2023</td><td>1,915</td><td>1,914</td></tr><tr><td>4.55% Senior Notes due 2024</td><td>845</td><td>845</td></tr><tr><td>5.40% Senior Notes due 2034</td><td>741</td><td>740</td></tr><tr><td>5.450% Senior Notes due 2043</td><td>1,843</td><td>1,842</td></tr><tr><td>Issued by FMC:</td><td></td><td></td></tr><tr><td>7%% Debentures due 2027</td><td>115</td><td>115</td></tr><tr><td>9%% Senior Notes due 2031</td><td>126</td><td>127</td></tr><tr><td>6%% Senior Notes due 2034</td><td>117</td><td>116</td></tr><tr><td>Issued by Freeport-McMoRan Oil &amp; Gas LLC (FM O&amp;G LLC):</td><td></td><td></td></tr><tr><td>6%% Senior Notes due 2023</td><td>-</td><td>54</td></tr><tr><td>Other</td><td>166</td><td>119</td></tr><tr><td>Total debt</td><td>11,141</td><td>13,229</td></tr><tr><td>Less current portion of debt</td><td>(17)</td><td>(1,414)</td></tr><tr><td>Long-term debt</td><td>$11,124</td><td>$11,815</td></tr></table>

Revolving Credit Facility. At December 31, 2018, there were no borrowings outstanding and $13 million in letters of credit issued under FCX's revolving credit facility, resulting in availability of approximately $3.5 billion, of which approximately $1.5 billion could be used for additional letters of credit.

In April 2018, FCX, PT-FI and FM O&G LLC entered into a new $3.5 billion, five-year, unsecured revolving credit facility, which replaced FCX's prior revolving credit facility (scheduled to mature on May 31, 2019). The new revolving credit facility is available until April 20, 2023, with $500 million available to PT-FI, and up to $1.5 billion available in letters of credit, and has a substantially similar structure and terms as the prior revolving credit facility. Interest on loans made under the new revolving credit facility is, at the option of FCX, determined based on the adjusted London Interbank Offered rate (LIBOR) or the alternate base rate (each as defined in the new revolving credit facility) plus a spread to be determined by reference to FCX's credit ratings.

Cerro Verde Credit Facility. In March 2014, Cerro Verde entered into a five-year, $1.8 billion senior unsecured credit facility that is nonrecourse to FCX and the other shareholders of Cerro Verde. In June 2017, Cerro Verde's credit facility was amended (balance outstanding at the time of amendment was $1.275 billion) to increase the commitment by $225 million to $1.5 billion, to modify the amortization schedule and to extend the maturity date to June 19, 2022. The amended credit facility amortizes in four installments, with $225 million due on December 31, 2020 (of which $5 million was prepaid during 2018 and $220 million was prepaid during 2017), $225 million due on June 30, 2021 (which was fully prepaid during 2018), $525 million due on December 31, 2021 (of which $20 million was prepaid during 2018), and the remaining balance due on the maturity date of June 19, 2022. All other terms, including the interest rates, remain the same. Interest under the term loan is based on LIBOR plus a spread based on Cerro Verde's total net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio as defined in the agreement. The interest rate on Cerro Verde's credit facility was 4.42 percent at December 31, 2018.

Cerro Verde Shareholder Loans. In December 2014, Cerro Verde entered into loan agreements with three of its shareholders for borrowings up to $800 million. In June 2017, Cerro Verde used the proceeds from its amended credit facility plus available cash to repay the balance of its outstanding shareholder loans. The remaining availability for borrowings under these agreements totals $200 million.



Senior Notes issued by FCX. In December 2016, FCX completed an exchange offer and consent solicitation associated with FM O&G LLC senior notes. Holders representing 89 percent of the outstanding FM O&G LLC senior notes tendered their notes and received new FCX senior notes. Each series of newly issued FCX senior notes have an interest rate that is identical to the interest rate of the applicable series of FM O&G LLC senior notes. The newly issued FCX senior notes are senior unsecured obligations of FCX and rank equally in right of payment with all other existing and future senior unsecured indebtedness of FCX. A summary of the tenders follows:

<table><tr><td></td><td>Principal Amount Outstanding</td><td>Principal Amount Tendered</td><td>Book Value of New FCX Senior Notes</td></tr><tr><td>6.125% Senior Notes due 2019</td><td>$ 237</td><td>$ 179</td><td>$ 186</td></tr><tr><td>6½% Senior Notes due 2020</td><td>617</td><td>552</td><td>583</td></tr><tr><td>6.625% Senior Notes due 2021</td><td>261</td><td>228</td><td>242</td></tr><tr><td>6.75% Senior Notes due 2022</td><td>449</td><td>404</td><td>432</td></tr><tr><td>6½% Senior Notes due 2023</td><td>778</td><td>728</td><td>785</td></tr><tr><td></td><td>$ 2,342</td><td>$ 2,091</td><td>$ 2,228</td></tr></table>

The principal amounts were increased by $151 million to reflect the remaining unamortized acquisition-date fair market value adjustments associated with the 2013 oil and gas acquisitions. In addition, FCX paid $14 million in cash consideration for FM O&G LLC's senior notes that were tendered, which reduced the book value of the new FCX senior notes. All of these senior notes, except the 6.75% Senior Notes due 2022 and the 6% Senior Notes due 2023, were redeemed during 2017 and the 6.75% Senior Notes due 2022 were redeemed during 2018 (refer to Early Extinguishment and Exchanges of Debt in this note). The 6% Senior Notes due 2023 are redeemable in whole or in part, at the option of FCX, at a make-whole redemption price prior to February 15, 2020, and at a specified redemption price thereafter. As of December 31, 2018, the book value of these senior notes totaled $768 million, which reflects the remaining unamortized acquisition-date fair market value adjustments ($46 million) and the cash consideration ($6 million) that are being amortized over the term of these senior notes and recorded as a net reduction of interest expense.

In November 2014, FCX sold $750 million of 2.30% Senior Notes due 2017 (which matured and were repaid in 2017), $600 million of 4.00% Senior Notes due 2021, $850 million of 4.55% Senior Notes due 2024 and $800 million of 5.40% Senior Notes due 2034 for total net proceeds of $2.97 billion.
In March 2013, in connection with the financing of the 2013 oil and gas acquisitions, FCX issued $6.5 billion of unsecured senior notes in four tranches. FCX sold $1.5 billion of 2.375% Senior Notes due March 2018 (which matured and were repaid in 2018), $1.0 billion of 3.100% Senior Notes due March 2020, $2.0 billion of 3.875% Senior Notes due March 2023 and $2.0 billion of 5.450% Senior Notes due March 2043 for total net proceeds of $6.4 billion.

In February 2012, FCX sold $500 million of 2.15% Senior Notes due 2017 (which matured and were repaid in 2017) and $2.0 billion of 3.55% Senior Notes due 2022 for total net proceeds of $2.47 billion.

The 3.100% Senior Notes due 2020 and 4.00% Senior Notes due 2021 are redeemable in whole or in part, at the option of FCX, at a make-whole redemption price. The senior notes listed below are redeemable in whole or in part, at the option of FCX, at a make-hole redemption price prior to the dates stated below, and beginning on the dates stated below at 100 percent of principal.

<table><tr><td>Debt Instrument</td><td>Date</td></tr><tr><td>3.55% Senior Notes due 2022</td><td>December 1, 2021</td></tr><tr><td>3.875% Senior Notes due 2023</td><td>December 15, 2022</td></tr><tr><td>4.55% Senior Notes due 2024</td><td>August 14, 2024</td></tr><tr><td>5.40% Senior Notes due 2034</td><td>May 14, 2034</td></tr><tr><td>5.450% Senior Notes due 2043</td><td>September 15, 2042</td></tr></table>

These senior notes rank equally with FCX’s other existing and future unsecured and unsubordinated indebtedness.

Early Extinguishment and Exchanges of Debt. During 2018, FCX redeemed in full certain senior notes, and holders received the principal amounts together with the redemption premiums and accrued and unpaid interest up to the redemption date. A summary of these redemptions follows:

<table><tr><td></td><td>Principal Amount</td><td>Net Adjustments</td><td>Book Value</td><td>Redemption Value</td><td>Gain</td></tr><tr><td>FCX 6.75% Senior Notes due 2022</td><td>$404</td><td>$22</td><td>$426</td><td>$418</td><td>$ 8</td></tr><tr><td>FM 0&amp;G LLC 6%% Senior Notes due 2023</td><td>50</td><td>4</td><td>54</td><td>52</td><td>2</td></tr><tr><td></td><td>$454</td><td>$26</td><td>$480</td><td>$470</td><td>$10</td></tr></table>

Partially offsetting the $10 million gain were losses of $3 million, primarily associated with Cerro Verde's prepayments in 2018 and entering into the new revolving credit facility in April 2018.



During 2017, FCX redeemed in full or purchased in open-market transactions certain senior notes. A summary of these debt extinguishments follows:

<table><tr><td></td><td>Principal Amount</td><td>Net Adjustments</td><td>Book Value</td><td>Redemption Value</td><td>Gain</td></tr><tr><td>2.375% Senior Notes due 2018</td><td>$ 74</td><td>$ —</td><td>$ 74</td><td>$ 74</td><td>$ —</td></tr><tr><td>FCX 6.125% Senior Notes due 2019</td><td>179</td><td>5</td><td>184</td><td>182</td><td>2</td></tr><tr><td>FM 0&amp;G LLC 6.125%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Senior Notes due 2019</td><td>58</td><td>2</td><td>60</td><td>59</td><td>1</td></tr><tr><td>FCX 6½% Senior Notes due 2020</td><td>552</td><td>23</td><td>575</td><td>562</td><td>13</td></tr><tr><td>FM 0&amp;G LLC 6½%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Senior Notes due 2020</td><td>65</td><td>3</td><td>68</td><td>66</td><td>2</td></tr><tr><td>FCX 6.625% Senior Notes due 2021</td><td>228</td><td>12</td><td>240</td><td>234</td><td>6</td></tr><tr><td>FM 0&amp;G LLC 6.625%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Senior Notes due 2021</td><td>33</td><td>2</td><td>35</td><td>34</td><td>1</td></tr><tr><td>FM 0&amp;G LLC 6.750%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Senior Notes due 2022</td><td>45</td><td>2</td><td>47</td><td>46</td><td>1</td></tr><tr><td></td><td>$1,234</td><td>$49</td><td>$1,283</td><td>$1,257</td><td>$26</td></tr></table>

Partially offsetting the $26 million gain was a net loss of $5 million, primarily associated with the modification of Cerro Verde's credit facility in June 2017 and Cerro Verde's prepayment in December 2017.

During 2016, FCX redeemed certain senior notes in exchange for its common stock (refer to Note 10 for further discussion) and purchased certain senior notes in open-market transactions. A summary of these transactions follows:

<table><tr><td></td><td>Principal Amount</td><td>Net Adjustments</td><td>Book Value</td><td>Redemption Value</td><td>Gain</td></tr><tr><td>2.30% Senior Notes due 2017</td><td>$ 20</td><td>$ —</td><td>$ 20</td><td>$ 20</td><td>$ —</td></tr><tr><td>2.375% Senior Notes due 2018</td><td>18</td><td>—</td><td>18</td><td>18</td><td>—</td></tr><tr><td>3.55% Senior Notes due 2022</td><td>108</td><td>(1)</td><td>107</td><td>96</td><td>11</td></tr><tr><td>3.875% Senior Notes due 2023</td><td>77</td><td>—</td><td>77</td><td>68</td><td>9</td></tr><tr><td>5.40% Senior Notes due 2034</td><td>50</td><td>(1)</td><td>49</td><td>41</td><td>8</td></tr><tr><td>5.450% Senior Notes due 2043</td><td>134</td><td>(2)</td><td>132</td><td>106</td><td>26</td></tr><tr><td></td><td>$407</td><td>$ (4)</td><td>$403</td><td>$349</td><td>$54</td></tr></table>

Partially offsetting the $54 million gain was $28 million in losses, primarily related to deferred debt issuance costs for an unsecured bank term loan that was repaid and costs associated with the December 2016 senior note exchange offer and consent solicitation.

Guarantees. Refer to Note 17 for a discussion of FCX’s senior notes guaranteed by FM O&G LLC.

Restrictive Covenants. FCX’s revolving credit facility contains customary affirmative covenants and representations, and also contains a number of negative covenants that, among other things, restrict, subject to certain exceptions, the ability of FCX’s subsidiaries that are not borrowers or guarantors to incur additional indebtedness (including guarantee obligations) and FCX’s or its subsidiaries’ abilities to: create liens on assets; enter into sale and leaseback transactions; engage in mergers, liquidations and dissolutions; and sell assets. FCX’s revolving credit facility also contains financial ratios governing maximum total leverage and minimum interest expense coverage. FCX’s leverage ratio (ratio of total debt to consolidated EBITDA, as defined in the credit agreement) cannot exceed 3.75x, and the minimum interest expense coverage ratio (ratio of consolidated EBITDA to consolidated cash interest expense, as defined in the credit agreement) is 2.25x. FCX’s senior notes contain limitations on liens. At December 31, 2018, FCX was in compliance with all of its covenants.

Maturities. Maturities of debt instruments based on the principal amounts and terms outstanding at December 31, 2018, total $17 million in 2019, $1.0 billion in 2020, $1.1 billion in 2021, $2.4 billion in 2022, $2.7 billion in 2023 and $3.9 billion thereafter.

## NOTE 9. OTHER LIABILITIES, INCLUDING EMPLOYEE BENEFITS

The components of other liabilities follow:

<table><tr><td>December 31,</td><td>2018</td><td>2017</td></tr><tr><td>Pension, postretirement, postemployment and other employment benefits \( ^{a} \)</td><td>1,174</td><td>1,154</td></tr><tr><td>Cerro Verde royalty dispute</td><td>631</td><td>368</td></tr><tr><td>Provision for tax positions</td><td>230</td><td>291</td></tr><tr><td>Other</td><td>195</td><td>199</td></tr><tr><td>Total other liabilities</td><td>2,230</td><td>2,012</td></tr></table>

a. Refer to Note 7 for current portion.

Pension Plans. Following is a discussion of FCX’s pension plans.

FMC Plans. FMC has U.S. trusted, non-contributory pension plans covering substantially all of its U.S. employees and some employees of its international subsidiaries hired before 2007. The applicable FMC plan design determines the manner in which benefits are calculated for any particular group of employees. Benefits are calculated based on final average monthly compensation and years of service or based on a fixed amount for each year of service. Non-bargained FMC employees hired after December 31, 2006, are not eligible to participate in the FMC U.S. pension plan.

FCX’s funding policy for these plans provides that contributions to pension trusts shall be at least equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974, as amended, for U.S. plans; or, in the case of international plans, the minimum legal requirements that may be applicable in the various countries. Additional contributions also may be made from time to time.

FCX’s policy for determining asset-mix targets for the FMC plan assets held in a master trust (Master Trust) includes the periodic development of asset allocation studies and review of the liabilities to determine expected long-term



rates of return and expected risk for various investment portfolios. FCX's retirement plan administration and investment committee considers these studies in the formal establishment of asset-mix targets defined in the investment policy. FCX's investment objective emphasizes diversification through both the allocation of the Master Trust assets among various asset classes and the selection of investment managers whose various styles are fundamentally complementary to one another and serve to achieve satisfactory rates of return. Diversification, by asset class and by investment manager, is FCX's principal means of reducing volatility and exercising prudent investment judgment. FCX's present target asset allocation approximates 41 percent equity investments (primarily global equities), 51 percent fixed income (primarily long-term treasury STRIPS or "separate trading or registered interest and principal securities"; long-term U.S. treasury/agency bonds; global fixed income securities; long-term, high-credit quality corporate bonds; high-yield and emerging markets fixed income securities; and fixed income debt securities) and 8 percent alternative investments (private real estate, real estate investment trusts and private equity).

The expected rate of return on plan assets is evaluated at least annually, taking into consideration asset allocation, historical and expected future performance on the types of assets held in the Master Trust, and the current economic environment. Based on these factors, FCX expects the pension assets will earn an average of 6.5 percent per annum beginning January 1, 2019. The 6.5 percent estimation was based on a passive return on a compound basis of 6.0 percent and a premium for active management of 0.5 percent reflecting the target asset allocation and current investment array.

For estimation purposes, FCX assumes the long-term asset mix for these plans generally will be consistent with the current mix. Changes in the asset mix could impact the amount of recorded pension costs, the funded status of the plans and the need for future cash contributions. A lower-than-expected return on assets also would decrease plan assets and increase the amount of recorded pension costs in future years. When calculating the expected return on plan assets, FCX uses the market value of assets.

Among the assumptions used to estimate the pension benefit obligation is a discount rate used to calculate the present value of expected future benefit payments for service to date. The discount rate assumption for FCX's U.S. plans is designed to reflect yields on high-quality, fixed-income investments for a given duration. The determination of the discount rate for these plans is based on expected future benefit payments for service to date together with the Mercer Pension Discount Curve—Above Mean Yield. The Mercer Pension Discount Curve—Above Mean Yield is constructed from the bonds in the Mercer Pension Discount Curve that have a yield higher than the regression mean yield curve. The Mercer Pension Discount Curve consists of spot (i.e., zero coupon) interest rates at one-half-year increments for each of the next 30 years and is developed based on pricing and yield information for high-quality corporate bonds. Changes in the discount rate are reflected in FCX's benefit obligation and, therefore, in future pension costs.

SERP Plan. FCX has an unfunded Supplemental Executive Retirement Plan (SERP) for its chief executive officer. The SERP provides for retirement benefits payable in the form of a joint and survivor annuity, life annuity or an equivalent lump sum, which is determined on January 1 of the year in which the participant completed 25 years of credited service. The annuity will equal a percentage of the participant's highest average compensation for any consecutive three-year period during the five years immediately preceding the completion of 25 years of credited service. The SERP benefit will be reduced by the value of all benefits from current and former retirement plans (qualified and nonqualified) sponsored by FCX, by FM Services Company, FCX's wholly owned subsidiary, or by any predecessor employer (including FCX's former parent company), except for benefits produced by accounts funded exclusively by deductions from the participant's pay.

PT-FI Plan. PT-FI has a defined benefit pension plan denominated in Indonesian rupiah covering substantially all of its Indonesian national employees. PT-FI funds the plan and invests the assets in accordance with Indonesian pension guidelines. The pension obligation was valued at an exchange rate of 14,409 rupiah to one U.S. dollar on December 31, 2018, and 13,480 rupiah to one U.S. dollar on December 31, 2017. Indonesian labor laws require that companies provide a minimum level of benefits to employees upon employment termination based on the reason for termination and the employee's years of service. PT-FI's pension benefit obligation includes benefits related to this law. PT-FI's expected rate of return on plan assets is evaluated at least annually, taking into consideration its long-range estimated return for the plan based on the asset mix. Based on these factors, PT-FI expects its pension assets will earn an average of 7.75 percent per annum beginning January 1, 2019. The discount rate assumption for PT-FI's plan is based on the Mercer Indonesian zero coupon bond yield curve derived from the Indonesian Government Security Yield Curve. Changes in the discount rate are reflected in PT-FI's benefit obligation and, therefore, in future pension costs.



Plan Information. FCX uses a measurement date of December 31 for its plans. Information for those plans where the projected benefit obligations and the accumulated benefit obligations exceed the fair value of plan assets follows:

<table><tr><td rowspan="2"></td><td colspan="2">December 31,</td></tr><tr><td>2018</td><td>2017</td></tr><tr><td>Projected benefit obligation</td><td>$2,177</td><td>$2,287</td></tr><tr><td>Accumulated benefit obligation</td><td>2,048</td><td>2,163</td></tr><tr><td>Fair value of plan assets</td><td>1,373</td><td>1,521</td></tr></table>

Information on the FCX (FMC and SERP plans) and PT-FI plans as of December 31 follows:

<table><tr><td rowspan="2"></td><td colspan="2">FCX</td><td colspan="2">PT-FI</td></tr><tr><td>2018</td><td>2017</td><td>2018</td><td>2017</td></tr><tr><td>Change in benefit obligation:</td><td></td><td></td><td></td><td></td></tr><tr><td>Benefit obligation at beginning of year</td><td>$2,343</td><td>$2,135</td><td>$240</td><td>$374</td></tr><tr><td>Service cost</td><td>44</td><td>44</td><td>13</td><td>20</td></tr><tr><td>Interest cost</td><td>84</td><td>91</td><td>14</td><td>23</td></tr><tr><td>Actuarial (gains) losses</td><td>(124)</td><td>188</td><td>(19)</td><td>(61)</td></tr><tr><td>Plan amendments</td><td>4</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Foreign exchange (gains) losses</td><td>(1)</td><td>3</td><td>(15)</td><td>(2)</td></tr><tr><td>Curtailment \( ^{a} \)</td><td>—</td><td>—</td><td>—</td><td>(62)</td></tr><tr><td>Benefits and administrative expenses paid</td><td>(120)</td><td>(118)</td><td>(13)</td><td>(52)</td></tr><tr><td>Benefit obligation at end of year</td><td>2,230</td><td>2,343</td><td>220</td><td>240</td></tr><tr><td>Change in plan assets:</td><td></td><td></td><td></td><td></td></tr><tr><td>Fair value of plan assets at beginning of year</td><td>1,588</td><td>1,329</td><td>269</td><td>284</td></tr><tr><td>Actual return on plan assets</td><td>(104)</td><td>230</td><td>(5)</td><td>11</td></tr><tr><td>Employer contributions \( ^{b} \)</td><td>70</td><td>145</td><td>4</td><td>28</td></tr><tr><td>Foreign exchange (losses) gains</td><td>(1)</td><td>2</td><td>(17)</td><td>(2)</td></tr><tr><td>Benefits and administrative expenses paid</td><td>(120)</td><td>(118)</td><td>(13)</td><td>(52)</td></tr><tr><td>Fair value of plan assets at end of year</td><td>1,433</td><td>1,588</td><td>238</td><td>269</td></tr><tr><td>Funded status</td><td>$ (797)</td><td>$ (755)</td><td>$ 18</td><td>$ 29</td></tr><tr><td>Accumulated benefit obligation</td><td>$2,101</td><td>$2,218</td><td>$181</td><td>$194</td></tr><tr><td>Weighted-average assumptions used to determine benefit obligations:</td><td></td><td></td><td></td><td></td></tr><tr><td>Discount rate</td><td>4.40%</td><td>3.70%</td><td>8.25%</td><td>6.75%</td></tr><tr><td>Rate of compensation increase</td><td>3.25%</td><td>3.25%</td><td>4.00%</td><td>4.00%</td></tr><tr><td>Balance sheet classification of funded status:</td><td></td><td></td><td></td><td></td></tr><tr><td>Other assets</td><td>$ 7</td><td>$ 11</td><td>$ 18</td><td>$ 29</td></tr><tr><td>Accounts payable and accrued liabilities</td><td>(4)</td><td>(4)</td><td>—</td><td>—</td></tr><tr><td>Other liabilities</td><td>(800)</td><td>(762)</td><td>—</td><td>—</td></tr><tr><td>Total</td><td>$ (797)</td><td>$ (755)</td><td>$ 18</td><td>$ 29</td></tr></table>

a. Resulted from the 2017 PT-FI reductions in workforce (refer to Restructuring Charges in this note for further discussion).

b. Employer contributions for 2019 are expected to approximate $74 million for the FCX plans and $2 million for the PT-FI plan (based on a December 31, 2018, exchange rate of 14,409 Indonesian rupiah to one U.S. dollar).
During 2018, the actuarial gain of $124 million for the FCX pension plans primarily resulted from the increase in the discount rate from 3.70 percent to 4.40 percent ($205 million), partially offset by new census data incorporated into the valuations ($33 million) and updated demographic assumptions ($49 million) mainly resulting from mortality updates. During 2017, the actuarial loss of $188 million for the FCX pension plans primarily resulted from the decrease in the discount rate from 4.40 percent to 3.70 percent and the update to the actuarial basis for lump sum conversions.

During 2018, the actuarial gain of $19 million for the PT-FI pension plan primarily resulted from the increase in the discount rate from 6.75 percent to 8.25 percent and demographic experience gains. During 2017, the actuarial gain of $61 million resulted primarily because of the workforce reduction during 2017, experience gains and a decline in the rate of compensation increase, partially offset by the decrease in the discount rate from 8.25 percent to 6.75 percent.

The weighted-average assumptions used to determine net periodic benefit cost and the components of net periodic benefit cost for FCX’s pension plans for the years ended December 31 follow:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Weighted-average assumptions \( ^{a} \)</td><td></td><td></td><td></td></tr><tr><td>Discount rate</td><td>3.70%</td><td>4.40%</td><td>4.60%</td></tr><tr><td>Expected return on plan assets</td><td>6.50%</td><td>7.00%</td><td>7.25%</td></tr><tr><td>Rate of compensation increase</td><td>3.25%</td><td>3.25%</td><td>3.25%</td></tr><tr><td>Service cost</td><td>$ 44</td><td>$ 44</td><td>$ 27</td></tr><tr><td>Interest cost</td><td>84</td><td>91</td><td>93</td></tr><tr><td>Expected return on plan assets</td><td>(101)</td><td>(93)</td><td>(96)</td></tr><tr><td>Amortization of net actuarial losses</td><td>49</td><td>49</td><td>42</td></tr><tr><td>Net periodic benefit cost</td><td>$ 76</td><td>$ 91</td><td>$ 66</td></tr></table>

a. The assumptions shown relate only to the FMC plans.

The weighted-average assumptions used to determine net periodic benefit cost and the components of net periodic benefit cost for PT-FI’s pension plan for the years ended December 31 follow:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Weighted-average assumptions:</td><td></td><td></td><td></td></tr><tr><td>Discount rate</td><td>6.75%</td><td>8.25%</td><td>9.00%</td></tr><tr><td>Expected return on plan assets</td><td>6.75%</td><td>7.75%</td><td>7.75%</td></tr><tr><td>Rate of compensation increase</td><td>4.00%</td><td>8.00%</td><td>9.40%</td></tr><tr><td>Service cost</td><td>$ 13</td><td>$ 20</td><td>$ 27</td></tr><tr><td>Interest cost</td><td>14</td><td>23</td><td>29</td></tr><tr><td>Expected return on plan assets</td><td>(19)</td><td>(21)</td><td>(17)</td></tr><tr><td>Amortization of prior service cost</td><td>2</td><td>2</td><td>3</td></tr><tr><td>Amortization of net actuarial (gain) loss</td><td>(1)</td><td>—</td><td>5</td></tr><tr><td>Curtailment loss</td><td>—</td><td>4</td><td>—</td></tr><tr><td>Net periodic benefit cost</td><td>$ 9</td><td>$ 28</td><td>$ 47</td></tr></table>



Included in accumulated other comprehensive loss are the following amounts that have not been recognized in net periodic pension cost as of December 31:

<table><tr><td rowspan="2"></td><td colspan="2">2018</td><td colspan="2">2017</td></tr><tr><td>Before Taxes</td><td>After Taxes and Noncontrolling Interests</td><td>Before Taxes</td><td>After Taxes and Noncontrolling Interests</td></tr><tr><td>Net actuarial loss</td><td>$659</td><td>$539</td><td>$620</td><td>$412</td></tr><tr><td>Prior service costs</td><td>13</td><td>8</td><td>10</td><td>6</td></tr><tr><td></td><td>$672</td><td>$547</td><td>$630</td><td>$418</td></tr></table>

Plan assets are classified within a fair value 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), then to significant observable inputs (Level 2) and the lowest priority to significant unobservable inputs (Level 3).

A summary of the fair value for pension plan assets, including those measured at net asset value (NAV) as a practical expedient, associated with the FCX plans follows:

<table><tr><td rowspan="2"></td><td colspan="5">Fair Value at December 31, 2018</td></tr><tr><td>Total</td><td>NAV</td><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Commingled/collective funds:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Global equity</td><td>$ 291</td><td>$291</td><td>$ -</td><td>$ -</td><td>$ -</td></tr><tr><td>Fixed income securities</td><td>144</td><td>144</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Global fixed income securities</td><td>108</td><td>108</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Emerging markets equity</td><td>71</td><td>71</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Real estate property</td><td>55</td><td>55</td><td>-</td><td>-</td><td>-</td></tr><tr><td>U.S. small-cap equity</td><td>54</td><td>54</td><td>-</td><td>-</td><td>-</td></tr><tr><td>International small-cap equity</td><td>47</td><td>47</td><td>-</td><td>-</td><td>-</td></tr><tr><td>U.S. real estate securities</td><td>41</td><td>41</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Short-term investments</td><td>15</td><td>15</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Fixed income:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Government bonds</td><td>224</td><td>-</td><td>-</td><td>224</td><td>-</td></tr><tr><td>Corporate bonds</td><td>211</td><td>-</td><td>-</td><td>211</td><td>-</td></tr><tr><td>Global large-cap equity securities</td><td>94</td><td>-</td><td>94</td><td>-</td><td>-</td></tr><tr><td>Private equity investments</td><td>15</td><td>15</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Other investments</td><td>61</td><td>-</td><td>16</td><td>45</td><td>-</td></tr><tr><td>Total investments</td><td>1,431</td><td>$841</td><td>$110</td><td>$480</td><td>$ -</td></tr><tr><td>Cash and receivables</td><td>32</td><td></td><td></td><td></td><td></td></tr><tr><td>Payables</td><td>(30)</td><td></td><td></td><td></td><td></td></tr><tr><td>Total pension plan net assets</td><td>$1,433</td><td></td><td></td><td></td><td></td></tr></table>

<table><tr><td rowspan="2"></td><td colspan="5">Fair Value at December 31, 2017</td></tr><tr><td>Total</td><td>NAV</td><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Commingled/collective funds:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Global equity</td><td>$ 404</td><td>$ 404</td><td>$ -</td><td>$ -</td><td>$ -</td></tr><tr><td>Fixed income securities</td><td>154</td><td>154</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Global fixed income securities</td><td>115</td><td>115</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Emerging markets equity</td><td>87</td><td>87</td><td>-</td><td>-</td><td>-</td></tr><tr><td>International small-cap equity</td><td>72</td><td>72</td><td>-</td><td>-</td><td>-</td></tr><tr><td>U.S. small-cap equity</td><td>67</td><td>67</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Real estate property</td><td>50</td><td>50</td><td>-</td><td>-</td><td>-</td></tr><tr><td>U.S. real estate securities</td><td>45</td><td>45</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Short-term investments</td><td>12</td><td>12</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Fixed income:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Government bonds</td><td>208</td><td>-</td><td>-</td><td>208</td><td>-</td></tr><tr><td>Corporate bonds</td><td>168</td><td>-</td><td>-</td><td>168</td><td>-</td></tr><tr><td>Global large-cap equity securities</td><td>119</td><td>-</td><td>119</td><td>-</td><td>-</td></tr><tr><td>Private equity investments</td><td>20</td><td>20</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Other investments</td><td>62</td><td>-</td><td>19</td><td>43</td><td>-</td></tr><tr><td>Total investments</td><td>1,583</td><td>$1,026</td><td>$138</td><td>$419</td><td>$ -</td></tr><tr><td>Cash and receivables</td><td>21</td><td></td><td></td><td></td><td></td></tr><tr><td>Payables</td><td>(16)</td><td></td><td></td><td></td><td></td></tr><tr><td>Total pension plan net assets</td><td>$1,588</td><td></td><td></td><td></td><td></td></tr></table>

Following is a description of the pension plan asset categories and the valuation techniques used to measure fair value. There have been no changes to the techniques used to measure fair value.

Commingled/collective funds are managed by several fund managers and are valued at the NAV per unit of the fund. For most of these funds, the majority of the underlying assets are actively traded securities. These funds (except the real estate property fund) require up to a 60-day notice for redemptions. The real estate property fund is valued at NAV using information from independent appraisal firms, who have knowledge and expertise about the current market values of real property in the same vicinity as the investments. Redemptions of the real estate property fund are allowed once per quarter, subject to available cash.

Fixed income investments include government and corporate bonds held directly by the Master Trust. Fixed income securities are valued using a bid-evaluation price or a mid-evaluation price and, as such, are classified within Level 2 of the fair value hierarchy. 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.



Common stocks included in global large-cap equity securities and preferred stocks included in other investments 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.

Private equity investments are valued at NAV using information from general partners and have inherent restrictions on redemptions that may affect the ability to sell the investments at their NAV in the near term.

A summary of the fair value hierarchy for pension plan assets associated with the PT-FI plan follows:

<table><tr><td rowspan="2"></td><td colspan="4">Fair Value at December 31, 2018</td></tr><tr><td>Total</td><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Government bonds</td><td>$ 72</td><td>$ 72</td><td>$ —</td><td>$ —</td></tr><tr><td>Common stocks</td><td>72</td><td>72</td><td>—</td><td>—</td></tr><tr><td>Mutual funds</td><td>20</td><td>20</td><td>—</td><td>—</td></tr><tr><td>Total investments</td><td>164</td><td>$164</td><td>$ —</td><td>$ —</td></tr><tr><td>Cash and receivables \( ^{a} \)</td><td>75</td><td></td><td></td><td></td></tr><tr><td>Payables</td><td>(1)</td><td></td><td></td><td></td></tr><tr><td>Total pension plan net assets</td><td>$238</td><td></td><td></td><td></td></tr></table>

<table><tr><td rowspan="2"></td><td colspan="4">Fair Value at December 31, 2017</td></tr><tr><td>Total</td><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Government bonds</td><td>$ 81</td><td>$ 81</td><td>$ —</td><td>$ —</td></tr><tr><td>Common stocks</td><td>78</td><td>78</td><td>—</td><td>—</td></tr><tr><td>Mutual funds</td><td>16</td><td>16</td><td>—</td><td>—</td></tr><tr><td>Total investments</td><td>175</td><td>$175</td><td>$ —</td><td>$ —</td></tr><tr><td>Cash and receivables \( ^{a} \)</td><td>94</td><td></td><td></td><td></td></tr><tr><td>Total pension plan net assets</td><td>$269</td><td></td><td></td><td></td></tr></table>

a. Cash consists primarily of short-term time deposits.

Following is a description of the valuation techniques used for pension plan assets measured at fair value associated with the PT-FI plan. There have been no changes to the techniques used to measure fair value.

Common stocks, government bonds and mutual funds 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.

The techniques described above may produce a fair value calculation that may not be indicative of NRV or reflective of future fair values. Furthermore, while FCX believes its valuation techniques are appropriate and consistent with those used by other market participants, the use of different techniques or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The expected benefit payments for FCX’s and PT-FI’s pension plans follow:

<table><tr><td></td><td>FCX</td><td>PT-FI \( ^{a} \)</td></tr><tr><td>2019</td><td>$117</td><td>$ 45</td></tr><tr><td>2020</td><td>160</td><td>11</td></tr><tr><td>2021</td><td>123</td><td>19</td></tr><tr><td>2022</td><td>126</td><td>22</td></tr><tr><td>2023</td><td>128</td><td>30</td></tr><tr><td>2024 through 2028</td><td>664</td><td>160</td></tr></table>

a. Based on a December 31, 2018, exchange rate of 14,409 Indonesian rupiah to one U.S. dollar.

Postretirement and Other Benefits. FCX also provides post-retirement medical and life insurance benefits for certain U.S. employees and, in some cases, employees of certain international subsidiaries. These postretirement benefits vary among plans, and many plans require contributions from retirees. The expected cost of providing such postretirement benefits is accrued during the years employees render service.

The benefit obligation (funded status) for the postretirement medical and life insurance benefit plans consisted of a current portion of $13 million (included in accounts payable and accrued liabilities) and a long-term portion of $115 million (included in other liabilities) at December 31, 2018, and a current portion of $14 million and a long-term portion of $129 million at December 31, 2017. The discount rate used to determine the benefit obligation for these plans, which was determined on the same basis as FCX's pension plans, was 4.20 percent at December 31, 2018, and 3.50 percent at December 31, 2017. Expected benefit payments for these plans total $13 million for 2019, $13 million for 2020, $13 million for 2021, $12 million for 2022, $11 million for 2023 and $47 million for 2024 through 2028.

The net periodic benefit cost charged to operations for FCX’s postretirement benefits (primarily for interest costs) totaled $5 million in 2018, $5 million in 2017 and $4 million in 2016. The discount rate used to determine net periodic benefit cost and the components of net periodic benefit cost for FCX’s postretirement benefits was 3.50 percent in 2018, 3.80 percent in 2017 and 4.10 percent in 2016. The medical-care trend rates assumed the first year trend rate was 7.75 percent at December 31, 2018, which declines over the next 15 years with an ultimate trend rate of 4.25 percent.

FCX has a number of postemployment plans covering severance, long-term disability income, continuation of health and life insurance coverage for disabled employees or other welfare benefits. The accumulated postemployment benefit consisted of a current portion of $6 million (included



in accounts payable and accrued liabilities) and a long-term portion of $39 million (included in other liabilities) at December 31, 2018, and a current portion of $5 million and a long-term portion of $38 million at December 31, 2017.

FCX also sponsors savings plans for the majority of its U.S. employees. The plans allow employees to contribute a portion of their pre-tax income in accordance with specified guidelines. These savings plans are principally qualified 401(k) plans for all U.S. salaried and non-bargained hourly employees. In these plans, participants exercise control and direct the investment of their contributions and account balances among various investment options. FCX contributes to these plans at varying rates and matches a percentage of employee pre-tax deferral contributions up to certain limits, which vary by plan. For employees whose eligible compensation exceeds certain levels, FCX provides an unfunded defined contribution plan, which had a liability balance of $45 million at December 31, 2018, and $46 million at December 31, 2017, all of which was included in other liabilities.

The costs charged to operations for employee savings plans totaled $75 million in 2018 (none of which was capitalized), $65 million in 2017 (none of which was capitalized) and $78 million in 2016 (of which $4 million was capitalized to oil and gas properties). FCX has other employee benefit plans, certain of which are related to FCX's financial results, which are recognized in operating costs.

Restructuring Charges. As a result of the first-quarter 2017 regulatory restrictions and uncertainties regarding long-term investment stability, PT-FI took actions to adjust its cost structure, reduce its workforce and slow investments in its underground development projects and new smelter. These actions included workforce reductions through furlough and voluntary retirement programs. Following the furlough and voluntary retirement programs, a significant number of employees and contractors elected to participate in an illegal strike action beginning in May 2017, and were subsequently deemed to have voluntarily resigned under the existing Indonesian laws and regulations. As a result, PT-FI recorded charges in 2017 to production costs of $120 million, and selling, general and administrative costs of $5 million for employee severance and related costs, and a pension curtailment loss of $4 million in production costs.
In early 2016, FCX restructured its oil and gas business to reduce costs, and in late 2016, FCX sold substantially all of its remaining oil and gas properties. As a result, FCX recorded charges of $85 million to selling, general and administrative expenses and $6 million to production costs for net restructuring-related costs in 2016.

## NOTE 10. STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION

FCX’s authorized shares of capital stock total 3.05 billion shares, consisting of 3.0 billion shares of common stock and 50 million shares of preferred stock.

Common Stock. In November 2016, FCX completed a $1.5 billion registered at-the-market equity offering of common stock that was announced on July 27, 2016. FCX sold 116.5 million shares of its common stock at an average price of $12.87 per share, which generated gross proceeds of $1.5 billion (net proceeds of $1.48 billion after $15 million of commissions and expenses).

During 2016, FCX issued 48.1 million shares of its common stock (with a value of $540 million, excluding $5 million of commissions paid by FCX) in connection with the settlement of two drilling rig contracts. Also during 2016, FCX negotiated private exchange transactions exempt from registration under the Securities Act of 1933, as amended, whereby 27.7 million shares of FCX's common stock were issued (with an aggregate value of $311 million), in exchange for $369 million principal amount of FCX's senior notes.

From January 1, 2016, through January 5, 2016, FCX sold 4.3 million shares of its common stock, which generated proceeds of $29 million (after $0.3 million of commissions and expenses). FCX used the proceeds to repay indebtedness.

In February 2018, FCX’s Board of Directors (the Board) reinstated a cash dividend on FCX’s common stock with an annual rate of $0.20 per share. The declaration of dividends is at the discretion of the Board and will depend on FCX’s financial results, cash requirements, future prospects and other factors deemed relevant by the Board.



Accumulated Other Comprehensive Loss. A summary of changes in the balances of each component of accumulated other comprehensive loss, net of tax, follows:

<table><tr><td></td><td>Defined Benefit Plans</td><td>Unrealized Losses on Securities</td><td>Translation Adjustment</td><td>Total</td></tr><tr><td>Balance at January 1, 2016</td><td>$ (507)</td><td>$ (6)</td><td>$10</td><td>$ (503)</td></tr><tr><td>Amounts arising during the period \( ^{a,b} \)</td><td>(91)</td><td>2</td><td>—</td><td>(89)</td></tr><tr><td>Amounts reclassified \( ^{c} \)</td><td>44</td><td>—</td><td>—</td><td>44</td></tr><tr><td>Balance at December 31, 2016</td><td>(554)</td><td>(4)</td><td>10</td><td>(548)</td></tr><tr><td>Amounts arising during the period \( ^{a,b} \)</td><td>7</td><td>1</td><td>—</td><td>8</td></tr><tr><td>Amounts reclassified \( ^{c} \)</td><td>53</td><td>—</td><td>—</td><td>53</td></tr><tr><td>Balance at December 31, 2017</td><td>(494)</td><td>(3)</td><td>10</td><td>(487)</td></tr><tr><td>Adoption of new accounting standard for reclassification of income taxes (refer to Note 1)</td><td>(79)</td><td>—</td><td>—</td><td>(79)</td></tr><tr><td>Amounts arising during the period \( ^{a,b} \)</td><td>(84)</td><td>—</td><td>—</td><td>(84)</td></tr><tr><td>Amounts reclassified \( ^{c} \)</td><td>48</td><td>3</td><td>—</td><td>51</td></tr><tr><td>Sale of interest in PT-FI (refer to Note 2)</td><td>(6)</td><td>—</td><td>—</td><td>(6)</td></tr><tr><td>Balance at December 31, 2018</td><td>$ (615)</td><td>$ —</td><td>$10</td><td>$ (605)</td></tr></table>

a. Includes net actuarial (losses) gains, net of noncontrolling interest, totaling $79 million for 2016, $52 million for 2017 and $87 million for 2018.

b. Includes tax provision totaling $11 million for 2016, $45 million for 2017 and $4 million for 2018.

c. Includes amortization primarily related to actuarial losses, net of taxes of $4 million for 2016, $5 million for 2017 and none for 2018.

Stock Award Plans. FCX currently has awards outstanding under various stock-based compensation plans. The stockholder-approved 2016 Stock Incentive Plan (the 2016 Plan) provides for the issuance of stock options, SARs, restricted stock, RSUs, PSUs and other stock-based awards for up to 72 million common shares. As of December 31, 2018, 58.6 million shares were available for grant under the 2016 Plan, and no shares were available under other plans.

Stock-Based Compensation Cost. Compensation cost charged against earnings for stock-based awards for the years ended December 31 follows:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Selling, general and administrative expenses</td><td>$62</td><td>$55</td><td>$69</td></tr><tr><td>Production and delivery</td><td>12</td><td>16</td><td>16</td></tr><tr><td>Capitalized costs</td><td>—</td><td>—</td><td>4</td></tr><tr><td>Total stock-based compensation</td><td>74</td><td>71</td><td>89</td></tr><tr><td>Less capitalized costs</td><td>—</td><td>—</td><td>(4)</td></tr><tr><td>Tax benefit and noncontrolling interests&#x27; share</td><td>(4) \( ^{a} \)</td><td>(4) \( ^{a} \)</td><td>(3) \( ^{a} \)</td></tr><tr><td>Impact on net income (loss) from continuing operations</td><td>$70</td><td>$67</td><td>$82</td></tr></table>

a. Charges in the U.S. are not expected to generate a future tax benefit.

Stock Options. Stock options granted under the plans generally expire 10 years after the date of grant. Stock options granted prior to 2018 generally vest in 25 percent annual increments; beginning in 2018, awards granted vest in 33 percent annual increments beginning one year from the date of grant. The award agreements provide that participants will receive the following year's vesting upon retirement. Therefore, on the date of grant, FCX accelerates one year of amortization for retirement-eligible employees. Stock options provide for accelerated vesting only upon certain qualifying terminations of employment within one year following a change of control.

A summary of stock options outstanding as of December 31, 2018, and activity during the year ended December 31, 2018, follows:

<table><tr><td></td><td>Number of Options</td><td>Weighted-Average Exercise Price Per Share</td><td>Weighted-Average Remaining Contractual Term (years)</td><td>Aggregate Intrinsic Value</td></tr><tr><td>Balance at January 1</td><td>48,014,688</td><td>$28.63</td><td></td><td></td></tr><tr><td>Granted</td><td>3,315,000</td><td>18.74</td><td></td><td></td></tr><tr><td>Exercised</td><td>(801,706)</td><td>10.05</td><td></td><td></td></tr><tr><td>Expired/Forfeited</td><td>(3,721,618)</td><td>39.26</td><td></td><td></td></tr><tr><td>Balance at December 31</td><td>46,806,364</td><td>27.40</td><td>4.5</td><td>$ 38</td></tr><tr><td>Vested and exercisable at December 31</td><td>39,919,885</td><td>29.80</td><td>3.8</td><td>$ 26</td></tr></table>

The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option valuation model. Expected volatility is based on implied volatilities from traded options on FCX's common stock and historical volatility of FCX's common stock. FCX uses historical data to estimate future option exercises, forfeitures and expected life. When appropriate, separate groups of employees who have similar historical exercise behavior are considered separately for valuation purposes. The expected dividend rate is calculated using the annual dividend (excluding supplemental dividends) at the date of grant. The risk-free interest rate is based on Federal Reserve rates in effect for bonds with maturity dates equal to the expected term of the option.



Information related to stock options during the years ended December 31 follows:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Weighted-average assumptions used to value stock option awards:</td><td></td><td></td><td></td></tr><tr><td>Expected volatility</td><td>46.1%</td><td>51.4%</td><td>71.6%</td></tr><tr><td>Expected life of options (in years)</td><td>5.92</td><td>5.70</td><td>5.34</td></tr><tr><td>Expected dividend rate</td><td>1.2%</td><td>—</td><td>—</td></tr><tr><td>Risk-free interest rate</td><td>2.6%</td><td>2.0%</td><td>1.3%</td></tr><tr><td>Weighted-average grant-date fair value (per share)</td><td>$7.84</td><td>$7.61</td><td>$2.64</td></tr><tr><td>Intrinsic value of options exercised</td><td>$ 7</td><td>$ 5</td><td>$ —</td></tr><tr><td>Fair value of options vested</td><td>$ 24</td><td>$ 25</td><td>$ 43</td></tr></table>

a. Rounds to less than $1 million.

As of December 31, 2018, FCX had $23 million of total unrecognized compensation cost related to unvested stock options expected to be recognized over a weighted-average period of approximately 1.4 years.

Stock-Settled PSUs and RSUs. Beginning in 2014, FCX’s executive officers were granted PSUs that vest after three years. For the PSUs granted in 2017 and 2016, the final number of shares to be issued to the executive officers will be determined based on (i) FCX’s achievement of certain financial and operational performance metrics and (ii) FCX’s total shareholder return compared to the shareholder return of a peer group. The total grant date target shares related to the PSU grants were 0.6 million for 2017 and 1.5 million for 2016, of which the executive officers will earn (i) between 0 percent and 175 percent of the target shares based on achievement of financial and operating metrics and (ii) +/- 25 percent of the target shares based on FCX’s total shareholder return compared to a peer group. For the PSUs granted in 2018, the final number of shares to be issued to the executive officers will be determined based on (i) FCX’s achievement of certain financial metrics and (ii) FCX’s total shareholder return compared to the shareholder return of a peer group. The total grant date target shares related to the PSU grants were 0.5 million for 2018, of which the executive officers will earn (i) between 0 percent and 200 percent of the target shares based on achievement of financial metrics and (ii) +/- 25 percent of the target shares based on FCX’s total shareholder return compared to a peer group.

All of FCX’s executive officers are retirement eligible, and their PSU awards are therefore non-forfeitable. As such, FCX charges the estimated fair value of the PSU awards to expense at the time the financial and operational, if applicable, metrics are established.
FCX grants RSUs that vest over a period of three years to certain employees. FCX also grants RSUs to its directors. Beginning in December 2015, RSUs granted to directors vest on the first anniversary of the grant. Prior to December 2015, RSUs granted to directors generally vest over a period of four years. The fair value of the RSUs is amortized over the vesting period or the period until the director becomes retirement eligible, whichever is shorter. Upon a director’s retirement, all of their unvested RSUs immediately vest. For retirement-eligible directors, the fair value of RSUs is recognized in earnings on the date of grant.

The award agreements provide for accelerated vesting of all RSUs held by directors if there is a change of control (as defined in the award agreements) and for accelerated vesting of all RSUs held by employees if they experience a qualifying termination within one year following a change of control.

Dividends attributable to RSUs and PSUs accrue and are paid if the award vests. A summary of outstanding stock-settled RSUs and PSUs as of December 31, 2018, and activity during the year ended December 31, 2018, follows:

<table><tr><td></td><td>Number of Awards</td><td>Weighted-Average Grant-Date Fair Value Per Award</td><td>Aggregate Intrinsic Value</td></tr><tr><td>Balance at January 1</td><td>5,206,624</td><td>$18.48</td><td></td></tr><tr><td>Granted</td><td>2,127,785 \( ^{a} \)</td><td>19.11</td><td></td></tr><tr><td>Vested</td><td>(753,806)</td><td>15.53</td><td></td></tr><tr><td>Forfeited</td><td>(775,966)</td><td>11.91</td><td></td></tr><tr><td>Balance at December 31</td><td>5,804,637</td><td>19.97</td><td>$60</td></tr></table>

a. Excludes 187 thousand PSUs related to 2017 grants for which the performance metrics have not yet been established.

The total fair value of stock-settled RSUs and PSUs granted was $41 million during 2018, $32 million during 2017 and $37 million during 2016. The total intrinsic value of stock-settled RSUs vested was $14 million during 2018, $45 million during 2017 and $22 million during 2016. As of December 31, 2018, FCX had $6 million of total unrecognized compensation cost related to unvested stock-settled RSUs expected to be recognized over approximately 1.1 years.

Cash-Settled RSUs and PSUs. Cash-settled RSUs are similar to stock-settled RSUs, but are settled in cash rather than in shares of common stock. These cash-settled RSUs generally vest over three years of service. The award agreements for cash-settled RSUs provide for accelerated vesting upon certain qualifying terminations of employment within one year following a change of control (as defined in the award agreements).



In 2015, certain members of FM O&G’s senior management were granted cash-settled PSUs that vested over three years. The total grant date target shares related to the 2015 cash-settled PSU grants were 582 thousand shares, of which FM O&G’s senior management earned a total of 487 thousand shares at maturity during 2018 based on the achievement of applicable performance goals.

The cash-settled RSUs and PSUs are classified as liability awards, and the fair value of these awards is remeasured each reporting period until the vesting dates.

Dividends attributable to cash-settled RSUs and PSUs accrue and are paid if the award vests. A summary of outstanding cash-settled RSUs and PSUs as of December 31, 2018, and activity during the year ended December 31, 2018, follows:

<table><tr><td></td><td>Number of Awards</td><td>Weighted-Average Grant-Date Fair Value Per Award</td><td>Aggregate Intrinsic Value</td></tr><tr><td>Balance at January 1</td><td>1,307,235</td><td>13.32</td><td></td></tr><tr><td>Granted</td><td>870,312</td><td>17.91</td><td></td></tr><tr><td>Vested</td><td>(666,975)</td><td>14.12</td><td></td></tr><tr><td>Forfeited</td><td>(23,706)</td><td>15.92</td><td></td></tr><tr><td>Balance at December 31</td><td>1,486,866</td><td>15.61</td><td>15.61</td></tr></table>

The total grant-date fair value of cash-settled RSUs was $16 million during 2018, $10 million during 2017 and $4 million during 2016. The intrinsic value of cash-settled RSUs and PSUs vested was $12 million during 2018, $27 million during 2017 and $15 million during 2016. The accrued liability associated with cash-settled RSUs consisted of a current portion of $7 million (included in accounts payable and accrued liabilities) and a long-term portion of $3 million (included in other liabilities) at December 31, 2018, and a current portion of $11 million and a long-term portion of $5 million at December 31, 2017.

Other Information. The following table includes amounts related to exercises of stock options and vesting of RSUs during the years ended December 31:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>FCX shares tendered to pay the exercise price and/or the minimum required taxes \( ^{a} \)</td><td>195,322</td><td>1,041,937</td><td>906,120</td></tr><tr><td>Cash received from stock option exercises</td><td>$ 8</td><td>$ 5</td><td>$ —^{b}</td></tr><tr><td>Actual tax benefit realized for tax deductions</td><td>$ 3</td><td>$ 1</td><td>$ —^{b}</td></tr><tr><td>Amounts FCX paid for employee taxes</td><td>$ 4</td><td>$ 15</td><td>$ 6</td></tr></table>

a. Under terms of the related plans, upon exercise of stock options and vesting of stock-settled RSUs, employees may tender FCX shares to pay the exercise price and/or the minimum required taxes.
b. Rounds to less than $1 million.

## NOTE 11. INCOME TAXES

Geographic sources of income (losses) before income taxes and equity in affiliated companies' net earnings for the years ended December 31 consist of the following:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>U.S.</td><td>$ 390</td><td>$ 20</td><td>$(5,179)</td></tr><tr><td>Foreign</td><td>3,502</td><td>2,882</td><td>1,707</td></tr><tr><td>Total</td><td>$3,892</td><td>$2,902</td><td>$(3,472)</td></tr></table>

Income taxes are provided on the earnings of FCX’s material foreign subsidiaries under the assumption that these earnings will be distributed. FCX has not provided deferred income taxes for other differences between the book and tax carrying amounts of its investments in material foreign subsidiaries as FCX considers its ownership positions to be permanent in duration, and quantification of the related deferred tax liability is not practicable.

FCX’s (provision for) benefit from income taxes for the years ended December 31 consist of the following:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Current income taxes:</td><td></td><td></td><td></td></tr><tr><td>Federal</td><td>$ 46^{a}</td><td>$ (3)</td><td>$ 164</td></tr><tr><td>State</td><td>1</td><td>(10)</td><td>17</td></tr><tr><td>Foreign</td><td>(1,445) \( ^{a} \)</td><td>(1,426)</td><td>(352)</td></tr><tr><td>Total current</td><td>(1,398)</td><td>(1,439)</td><td>(171)</td></tr><tr><td>Deferred income taxes:</td><td></td><td></td><td></td></tr><tr><td>Federal</td><td>(106)</td><td>64</td><td>137</td></tr><tr><td>State</td><td>(8)</td><td>10</td><td>41</td></tr><tr><td>Foreign</td><td>(102)</td><td>89</td><td>(451)</td></tr><tr><td>Total deferred</td><td>(216)</td><td>163</td><td>(273)</td></tr><tr><td>Adjustments</td><td>504 \( ^{b} \)</td><td>393 \( ^{c} \)</td><td>13 \( ^{d} \)</td></tr><tr><td>Operating loss carryforwards</td><td>119</td><td>—</td><td>60</td></tr><tr><td>Provision for income taxes</td><td>$ (991)</td><td>$ (883)</td><td>$(371)</td></tr></table>

a. In 2018, FCX completed its analysis of the Act and recognized benefits totaling $123 million ($76 million to the U.S. tax provision and $47 million to PT-FI’s tax provision) associated with alternative minimum tax (AMT) credit refunds.

b. Includes net tax credits totaling $504 million resulting from the reduction in PT-FI’s statutory tax rates in accordance with PT-FI’s new special mining license (IUPK).

c. Includes net tax credits totaling $393 million associated with the Act, including $272 million for the reversal of valuation allowances associated with AMT credit refunds and $121 million for a decrease in corporate income tax rates.

d. Benefit related to changes in Peruvian tax rules.



A reconciliation of the U.S. federal statutory tax rate to FCX's effective income tax rate for the years ended December 31 follows:

<table><tr><td rowspan="2"></td><td colspan="2">2018</td><td colspan="2">2017</td><td colspan="2">2016</td></tr><tr><td>Amount</td><td>Percent</td><td>Amount</td><td>Percent</td><td>Amount</td><td>Percent</td></tr><tr><td>U.S. federal statutory tax rate</td><td>$ (817)</td><td>(21)%</td><td>$ (1,016)</td><td>(35)%</td><td>$ 1,215</td><td>(35)%</td></tr><tr><td>Valuation allowance, net</td><td>129 \( ^{a} \)</td><td>3</td><td>28</td><td>1</td><td>(1,680) \( ^{b} \)</td><td>48</td></tr><tr><td>Foreign tax credit limitation</td><td>(195)</td><td>(5)</td><td>(159)</td><td>(5)</td><td>(598)</td><td>17</td></tr><tr><td>U.S. tax reform \( ^{c} \)</td><td>123</td><td>3</td><td>393</td><td>14</td><td>—</td><td>—</td></tr><tr><td>Cerro Verde royalty dispute \( ^{d} \)</td><td>(55)</td><td>(1)</td><td>(129)</td><td>(5)</td><td>—</td><td>—</td></tr><tr><td>Change in PT-FI tax rates</td><td>504</td><td>13</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Impairment of oil and gas properties</td><td>—</td><td>—</td><td>—</td><td>—</td><td>520 \( ^{e} \)</td><td>(15)</td></tr><tr><td>Percentage depletion</td><td>141</td><td>4</td><td>227</td><td>8</td><td>211</td><td>(6)</td></tr><tr><td>Withholding and other impacts on foreign earnings</td><td>(232)</td><td>(6)</td><td>(216)</td><td>(7)</td><td>(93)</td><td>3</td></tr><tr><td>Effect of foreign rates different than the U.S. federal statutory rate</td><td>(494)</td><td>(13)</td><td>17</td><td>1</td><td>45</td><td>(1)</td></tr><tr><td>State income taxes</td><td>7</td><td>1</td><td>(5)</td><td>(1)</td><td>46 \( ^{b} \)</td><td>(1)</td></tr><tr><td>Other items, net</td><td>(102)</td><td>(3)</td><td>(23)</td><td>(1)</td><td>(37)</td><td>1</td></tr><tr><td>Provision for income taxes</td><td>$ (991)</td><td>(25)%</td><td>$ (883)</td><td>(30)%</td><td>$ (371)</td><td>11%</td></tr></table>

a. Refer to “Valuation Allowance” below for discussion of changes.

b. Includes tax charges totaling $1.6 billion in 2016 as a result of the impairment to U.S. oil and gas properties to establish valuation allowances against U.S. federal and state deferred tax assets that will not generate a future benefit.

c. Refer to discussion of 2017 U.S. Tax Reform below.

d. Refer to Note 12 for further discussion of the Cerro Verde royalty dispute.

e. Reflects a loss under U.S. federal income tax law related to the impairment of investments in oil and gas properties.

FCX paid federal, state and foreign income taxes totaling $2 billion in 2018, $702 million in 2017 and $203 million in 2016 (including $27 million for discontinued operations). FCX received refunds of federal, state and foreign income taxes of $108 million in 2018, $329 million in 2017 and $247 million in 2016.

The components of deferred taxes follow:

<table><tr><td>December 31,</td><td>2018</td><td>2017</td></tr><tr><td>Deferred tax assets:</td><td></td><td></td></tr><tr><td>Foreign tax credits</td><td>$ 1,814</td><td>$ 2,129</td></tr><tr><td>Accrued expenses</td><td>881</td><td>789</td></tr><tr><td>Oil and gas properties</td><td>—</td><td>236</td></tr><tr><td>Net operating losses</td><td>2,235</td><td>2,043</td></tr><tr><td>Employee benefit plans</td><td>245</td><td>248</td></tr><tr><td>Other</td><td>212</td><td>260</td></tr><tr><td>Deferred tax assets</td><td>5,387</td><td>5,705</td></tr><tr><td>Valuation allowances</td><td>(4,507)</td><td>(4,575)</td></tr><tr><td>Net deferred tax assets</td><td>880</td><td>1,130</td></tr><tr><td>Deferred tax liabilities:</td><td></td><td></td></tr><tr><td>Property, plant, equipment and mine development costs</td><td>(4,200)</td><td>(3,754)</td></tr><tr><td>Undistributed earnings</td><td>(578)</td><td>(811)</td></tr><tr><td>Other</td><td>(130)</td><td>(223)</td></tr><tr><td>Total deferred tax liabilities</td><td>(4,908)</td><td>(4,788)</td></tr><tr><td>Net deferred tax liabilities</td><td>(4,028)</td><td>(3,658)</td></tr></table>

Tax Attributes. At December 31, 2018, FCX had (i) U.S. foreign tax credits of $1.8 billion that will expire between 2019 and 2027, (ii) U.S. federal net operating losses of $6.0 billion that expire between 2036 and 2037, (iii) U.S. state net operating losses of $10.5 billion that expire between 2019 and 2038, (iv) Spanish net operating losses of $537 million that can be carried forward indefinitely and (v) Indonesian net operating losses of $975 million that expire between 2020 and 2025.

Valuation Allowance. On the basis of available information at December 31, 2018, including positive and negative evidence, FCX has provided valuation allowances for certain of its deferred tax assets where it believes it is more likely than not that some portion or all of such assets will not be realized. Valuation allowances totaled $4.5 billion at December 31, 2018, and $4.6 billion at December 31, 2017, and covered all of FCX's U.S. foreign tax credits, U.S. federal net operating losses, foreign net operating losses and substantially all of its U.S. state net operating losses. FCX's valuation allowances at December 31, 2017, also covered all of its U.S. federal capital losses.

The valuation allowance related to FCX’s U.S. foreign tax credits totaled $1.8 billion at December 31, 2018. FCX has operations in tax jurisdictions where statutory income taxes and withholding taxes are in excess of the U.S. federal income tax rate. Valuation allowances are recorded on foreign tax credits for which no benefit is expected to be realized.



The valuation allowance related to FCX’s U.S. federal, state and foreign net operating losses and foreign deferred tax assets totaled $2.2 billion and $458 million, respectively, at December 31, 2018. Net operating losses and deferred tax assets represent future deductions for which a benefit will only be realized to the extent these deductions offset future income. FCX develops an estimate of which future tax deductions will be realized and provides a valuation allowance to the extent these deductions are not expected to be realized in future periods.

Valuation allowances will continue to be carried on U.S. foreign tax credits, U.S. federal, state and foreign net operating losses and U.S. federal, state and foreign deferred tax assets, until such time that (i) FCX generates taxable income against which any of the assets, credits or net operating losses can be used, (ii) forecasts of future income provide sufficient positive evidence to support reversal of the valuation allowances or (iii) FCX identifies a prudent and feasible means of securing the benefit of the assets, credits or net operating losses that can be implemented.

The $68 million net decrease in the valuation allowances during 2018 primarily related to decreases totaling $315 million in U.S. foreign tax credits associated with expirations and 2017 tax reform adjustments and $45 million in U.S. federal net operating losses associated with 2018 usage and 2017 tax reform adjustments, partly offset by a $244 million increase in foreign net operating losses for which no benefit is expected to be realized.

2017 U.S. Tax Reform. The Act, which was enacted on December 22, 2017, included significant modifications to then-existing U.S. tax laws and created many new complex tax provisions. The Act reduced the corporate income tax rate to 21 percent, eliminated the corporate AMT, provided for a refund of AMT credits, maintained hard minerals percentage depletion, allowed for immediate expensing of certain qualified property and generally broadened the tax base. The Act also created a territorial tax system (with a one-time mandatory tax on previously deferred foreign earnings), created anti-base erosion rules that require companies to pay a minimum tax on foreign earnings and may disallow certain payments from U.S. corporations to foreign related parties.

In December 2018, FCX completed its analysis of the Act and recognized benefits totaling $123 million associated with AMT credit refunds. In 2017, FCX recorded net tax benefits related to specific provisions of the Act totaling $393 million, reflecting the reversal of valuation allowances associated with anticipated refunds of AMT credits through 2021 ($272 million) and a decrease in corporate income tax rates ($121 million).

Elimination of Corporate AMT and Refund of AMT Credits. For tax years beginning after December 31, 2017, the corporate AMT was repealed. FCX has historically incurred an AMT liability in excess of regular tax liability, resulting in accumulated AMT credits totaling $490 million as of December 31, 2017. The Act allows the use of existing corporate AMT credits to offset regular tax liability for tax years after December 31, 2017. AMT credits in excess of regular liability are refundable on tax returns for the years 2018 through 2021.

Prior to the Act, FCX recognized a $110 million benefit for AMT credits expected to be refunded. As a result of the Act, FCX recognized a provisional net benefit of $272 million in 2017, consisting of a $380 million tax benefit for historical AMT credits expected to be refunded, partially offset by a $108 million tax charge to establish a reserve for uncertain tax positions. At December 31, 2018, FCX recognized an additional $123 million net benefit for historical AMT credits consisting of $51 million in additional refundable credits and $72 million in reduction to reserves.

Reduction in Corporate Income Tax Rate. The Act reduced the U.S. federal corporate income tax rate from 35 percent to 21 percent. While applicable for years after December 31, 2017, existing income tax accounting guidance requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. In fourth-quarter 2017, FCX recognized this change in the federal statutory rate and recorded a provisional net benefit of $121 million, consisting of a $1.1 billion tax benefit associated with changes in related valuation allowances, partly offset by a $975 million tax charge related to existing net U.S. federal deferred tax assets and liabilities. In fourth-quarter 2018, FCX finalized the impact of this change in federal statutory rate resulting in a net zero impact, consisting of a $32 million tax benefit associated with changes in related valuation allowances offset by a $32 million tax charge related to existing net U.S. federal deferred tax assets and liabilities.

Transition Tax on Previously Deferred Foreign Earnings. Under the Act, U.S. shareholders owning at least 10 percent of a foreign subsidiary generally must recognize taxable income equal to the shareholder's pro rata share of accumulated post-1986 historical Earnings and Profits (E&P). The portion of any E&P associated with cash or cash equivalents is taxed



at a rate of 15.5 percent, while any remaining E&P is taxed at a reduced rate of 8 percent. The resulting tax liability (Transition Tax) may be reduced by available foreign tax credits. Because FCX operates in foreign jurisdictions with statutory tax rates in excess of the U.S. historical statutory tax rate of 35 percent, the December 31, 2017, Transition Tax was fully offset by foreign tax credits generated in 2017. During fourth-quarter 2018, additional guidance was released by the Internal Revenue Service clarifying the computation of Transition Tax liability. As a result of this additional guidance, FCX recognized a $29 million tax charge related to Transition Tax for 2018.

Anti-Base Erosion Rules. For tax years that begin after December 31, 2017, applicable taxpayers are required to pay the Base Erosion Anti-Abuse Tax (BEAT). BEAT is an alternative tax calculation that disallows deduction of certain amounts paid or accrued by a U.S. taxpayer to a foreign related party. The BEAT provisions do not currently impact FCX’s computation of U.S. federal taxable income.

The Act also included provisions to tax a new class of income called Global Intangible Low-Taxed Income (GILTI). Under the new GILTI provisions, FCX will use U.S. federal net operating loss carryforwards in current and future tax years against income that would otherwise not generate a net tax liability absent the availability of net operating losses. As a result, FCX does not consider GILTI to be a source of income against which a benefit for U.S. federal net operating losses can be realized. Under U.S. generally accepted accounting principles, FCX is allowed to make an accounting policy choice of either (i) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred or (ii) factoring such amounts into the measurement of deferred taxes. FCX has elected to treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred.

Executive Compensation Limitation. For tax years beginning after December 31, 2017, tax deductible compensation of covered employees is limited to $1 million. In addition, the definition of covered employees is revised to include the principal executive officer, the principal financial officer, and the three other highest paid officers. If an individual is a covered employee for a tax year beginning after December 31, 2016, the individual remains a covered employee for all future years. Under a transition rule, the changes do not apply to any remuneration under specified contracts in effect on November 2, 2017. During fourth-quarter 2018, FCX determined that only immaterial adjustments were needed in relation to future disallowance of deferred executive compensation balances as of December 31, 2017.

Other. As of December 31, 2018, FCX has offset $5.4 billion of foreign source income with U.S. source losses. Under existing U.S. tax law, FCX has the ability to re-characterize $5.4 billion of future U.S. source income into foreign source income. While utilization of U.S. foreign tax credits is dependent upon FCX generating future U.S. tax liabilities within the carryforward period, this re-sourcing may permit FCX to utilize up to $1.1 billion of the $1.8 billion foreign tax credits that would otherwise expire unused.

Other Events. On December 21, 2018, FCX completed the transaction with the Indonesian government regarding PT-FI’s long-term mining rights and share ownership. Concurrent with closing the transaction, the Indonesian government granted PT-FI an IUPK to replace its former COW. Under the terms of the IUPK, PT-FI is subject to a 25 percent corporate income tax rate and a 10 percent profits tax on net income beginning in 2019. As a result of the change in statutory tax rate applicable to deferred income tax liabilities, during fourth-quarter 2018, FCX recognized a tax credit of $504 million.

SUNAT, the Peru national tax authority, has assessed mining royalties on ore processed by the Cerro Verde concentrator for the period December 2006 to December 2013, which Cerro Verde has contested on the basis that its 1998 stability agreement exempts from royalties all minerals extracted from its mining concessions, irrespective of the method used for processing those minerals. Refer to Note 12 for further discussion of the Cerro Verde royalty dispute and net charges recorded in 2018 and 2017.

In December 2016, the Peruvian parliament passed tax legislation that, in part, modified the applicable tax rates established in its December 2014 tax legislation, which progressively decreased the corporate income tax rate from 30 percent in 2014 to 26 percent in 2019 and thereafter, and also increased the dividend tax rate on distributions from 4.1 percent in 2014 to 9.3 percent in 2019 and thereafter. Under the tax legislation, which was effective January 1, 2017, the corporate income tax rate was 29.5 percent, and the dividend tax rate on distributions of earnings was 5 percent. Cerro Verde’s current mining stability agreement subjects FCX to a stable income tax rate of 32 percent through the expiration of the agreement on December 31, 2028. The tax rate on dividend distributions is not stabilized by the agreement.



In September 2014, the Chilean legislature approved a tax reform package that implemented a dual tax system, which was amended in January 2016. Under previous rules, FCX's share of income from Chilean operations was subject to an effective 35 percent tax rate allocated between income taxes and dividend withholding taxes. Under the amended tax reform package, FCX's Chilean operation is subject to the "Partially-Integrated System," resulting in FCX's share of income from El Abra being subject to progressively increasing effective tax rates of 35 percent through 2019 and 44.5 percent in 2020 and thereafter. In November 2017, the progression of increasing tax rates was delayed by the Chilean legislature so that the 35 percent rate continues through 2021 increasing to 44.5 percent in 2022 and thereafter.

In 2010, the Chilean legislature approved an increase in mining royalty taxes to help fund earthquake reconstruction activities, education and health programs. Mining royalty taxes at FCX's El Abra mine were 4 percent for the years 2013 through 2017. Beginning in 2018, and through 2023, rates moved to a sliding scale of 5 to 14 percent (depending on a defined operational margin).

Uncertain Tax Positions. FCX accounts for uncertain income tax positions using a threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FCX's policy associated with uncertain tax positions is to record accrued interest in interest expense and accrued penalties in other income and expense rather than in the provision for income taxes. A summary of the activities associated with FCX's reserve for unrecognized tax benefits for the years ended December 31 follows:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Balance at beginning of year</td><td>$390</td><td>$101</td><td>$110</td></tr><tr><td>Additions:</td><td></td><td></td><td></td></tr><tr><td>Prior year tax positions</td><td>100</td><td>302</td><td>5</td></tr><tr><td>Current year tax positions</td><td>14</td><td>6</td><td>28</td></tr><tr><td>Decreases:</td><td></td><td></td><td></td></tr><tr><td>Prior year tax positions</td><td>(86)</td><td>(1)</td><td>(3)</td></tr><tr><td>Settlements with taxing authorities</td><td>(9)</td><td>(17)</td><td>—</td></tr><tr><td>Lapse of statute of limitations</td><td>(5)</td><td>(1)</td><td>(39)</td></tr><tr><td>Balance at end of year</td><td>$404</td><td>$390</td><td>$101</td></tr></table>

The total amount of accrued interest and penalties associated with unrecognized tax benefits included in the consolidated balance sheets was $186 million at December 31, 2018, primarily relating to unrecognized tax benefits associated with royalties and other related mining taxes, $22 million at December 31, 2017, and $19 million at December 31, 2016.
The reserve for unrecognized tax benefits of $404 million at December 31, 2018, included $296 million ($147 million net of income tax benefits and valuation allowances) that, if recognized, would reduce FCX's provision for income taxes. Changes to the reserve for unrecognized tax benefits associated with current year tax positions were primarily related to uncertainties associated with FCX's tax treatment of social welfare payments and cost recovery methods. Changes in the reserve for unrecognized tax benefits associated with prior year tax positions were primarily related to uncertainties associated with royalties and other related mining taxes and AMT credit refunds. Changes to the reserve for unrecognized tax benefits associated with the lapse of statute of limitations were primarily related to social welfare payments. There continues to be uncertainty related to the timing of settlements with taxing authorities, but if additional settlements are agreed upon during 2019, FCX could experience a change in its reserve for unrecognized tax benefits.

FCX or its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The tax years for FCX's major tax jurisdictions that remain subject to examination are as follows:

<table><tr><td>Jurisdiction</td><td>Years Subject to Examination</td><td>Additional Open Years</td></tr><tr><td>U.S. Federal</td><td>N/A</td><td>2014-2018</td></tr><tr><td>Indonesia</td><td>2008, 2011-2016</td><td>2017-2018</td></tr><tr><td>Peru</td><td>2012-2013</td><td>2014-2018</td></tr><tr><td>Chile</td><td>2016-2017</td><td>2018</td></tr></table>

## NOTE 12. CONTINGENCIES

Environmental. FCX subsidiaries are subject to various national, state and local environmental laws and regulations that govern emissions of air pollutants; discharges of water pollutants; generation, handling, storage and disposal of hazardous substances, hazardous wastes and other toxic materials; and remediation, restoration and reclamation of environmental contamination. FCX subsidiaries that operate in the U.S. also are subject to potential liabilities arising under CERCLA and similar state laws that impose responsibility on current and previous owners and operators of a facility for the remediation of hazardous substances released from the facility into the environment, including damages to natural resources, in some cases irrespective of when the damage to the environment occurred or who caused it. Remediation liability also extends to persons who arranged for the disposal of hazardous substances or transported the hazardous substances to a disposal site



selected by the transporter. These liabilities are often shared on a joint and several basis, meaning that each responsible party is fully responsible for the remediation, if some or all of the other historical owners or operators no longer exist, do not have the financial ability to respond or cannot be found. As a result, because of FCX's acquisition of FMC in 2007, many of the subsidiary companies FCX now owns are responsible for a wide variety of environmental remediation projects throughout the U.S., and FCX expects to spend substantial sums annually for many years to address those remediation issues. Certain FCX subsidiaries have been advised by the U.S. Environmental Protection Agency (EPA), the Department of the Interior, the Department of Agriculture and various state agencies that, under CERCLA or similar state laws and regulations, they may be liable for costs of responding to environmental conditions at a number of sites that have been or are being investigated to determine whether releases of hazardous substances have occurred and, if so, to develop and implement remedial actions to address environmental concerns. FCX is also subject to claims where the release of hazardous substances is alleged to have damaged natural resources (NRD) and to litigation by individuals allegedly exposed to hazardous substances. As of December 31, 2018, FCX had more than 100 active remediation projects, including NRD claims, in 26 U.S. states.

A summary of changes in estimated environmental obligations for the years ended December 31 follows:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Balance at beginning of year</td><td>$1,439</td><td>$1,221</td><td>$1,215</td></tr><tr><td>Accretion expense \( ^{a} \)</td><td>100</td><td>84</td><td>81</td></tr><tr><td>Additions \( ^{b} \)</td><td>56</td><td>241</td><td>26</td></tr><tr><td>Reductions \( ^{b} \)</td><td>—</td><td>(43)</td><td>(43)</td></tr><tr><td>Spending</td><td>(84)</td><td>(64)</td><td>(58)</td></tr><tr><td>Balance at end of year</td><td>1,511</td><td>1,439</td><td>1,221</td></tr><tr><td>Less current portion</td><td>(132)</td><td>(134)</td><td>(129)</td></tr><tr><td>Long-term portion</td><td>$1,379</td><td>$1,305</td><td>$1,092</td></tr></table>

a. Represents accretion of the fair value of environmental obligations assumed in the 2007 acquisition of FMC, which were determined on a discounted cash flow basis.

b. Adjustments to environmental obligations that do not provide future economic benefits are charged to operating income. Reductions primarily reflect revisions for changes in the anticipated scope and timing of projects and other noncash adjustments.

Estimated future environmental cash payments (on an undiscounted and unsecalated basis) total $132 million in 2019, $117 million in 2020, $119 million in 2021, $88 million in 2022, $100 million in 2023 and $2.7 billion thereafter. The amount and timing of these estimated payments will change as a result of changes in regulatory requirements, changes in scope and timing of remediation activities, the settlement of environmental matters and as actual spending occurs.

At December 31, 2018, FCX’s environmental obligations totaled $1.5 billion, including $1.4 billion recorded on a discounted basis for those obligations assumed in the FMC acquisition at fair value. On an undiscounted and unsecalated basis, these obligations totaled $3.3 billion. FCX estimates it is reasonably possible that these obligations could range between $2.7 billion and $3.7 billion on an undiscounted and unsecalated basis.

At December 31, 2018, the most significant environmental obligations were associated with the Pinal Creek site in Arizona; the Newtown Creek site in New York City; historical smelter sites principally located in Arizona, Indiana, Kansas, Missouri, New Jersey, Oklahoma and Pennsylvania; and uranium mining sites in the western U.S. The recorded environmental obligations for these sites totaled $1.3 billion at December 31, 2018. FCX may also be subject to litigation brought by private parties, regulators and local governmental authorities related to these historical sites. A discussion of these sites follows.

Pinal Creek. The Pinal Creek site was listed under the Arizona Department of Environmental Quality’s (ADEQ) Water Quality Assurance Revolving Fund program in 1989 for contamination in the shallow alluvial aquifers within the Pinal Creek drainage near Miami, Arizona. Since that time, environmental remediation has been performed by members of the Pinal Creek Group, consisting of Freeport-McMoRan Miami Inc. (Miami), an indirect wholly owned subsidiary of FCX, and two other companies. Pursuant to a 2010 settlement agreement, Miami agreed to take full responsibility for future groundwater remediation at the Pinal Creek site, with limited exceptions. Remediation work consisting of groundwater extraction and treatment plus source control capping are expected to continue for many years in the future.

Newtown Creek. From the 1930s until 1964, Phelps Dodge Refining Corporation (PDRC), an indirect wholly owned subsidiary of FCX, operated a copper smelter, and from the 1930s until 1984 operated a copper refinery, on the banks of Newtown Creek (the creek), which is a 3.5-mile-long waterway that forms part of the boundary between Brooklyn and Queens in New York City. Heavy industrialization along the banks of the creek and discharges from the City of New York’s sewer system over more than a century resulted



in significant environmental contamination of the waterway. In 2010, EPA notified PDRC, four other companies and the City of New York that EPA considers them to be PRPs under CERCLA. The notified parties began working with EPA to identify other PRPs. In 2010, EPA designated the creek as a Superfund site, and in 2011, PDRC and five other parties entered an Administrative Order on Consent (AOC) to perform a remedial investigation/feasibility study (RI/FS) to assess the nature and extent of environmental contamination in the creek and identify potential remedial options. The parties' RI/FS work under the AOC and their efforts to identify other PRPs are ongoing. EPA recently identified eight additional parties as PRPs for the creek. The draft RI was submitted to EPA in November 2016, and the draft FS is expected to be submitted to EPA by the end of 2020. EPA is not expected to propose a final remedy until after the RI/FS is completed, but has recently considered allowing for interim remedial measures as suggested by the PRPs. EPA's remedial decision could be made in 2021 and remedial design could begin in 2022, with the actual remediation construction starting several years later. The actual costs of fulfilling this remedial obligation and the allocation of costs among PRPs are uncertain and subject to change based on the results of the RI/FS, the remedy ultimately selected by EPA and related allocation determinations. The overall cost and the portion ultimately allocated to PDRC could be material to FCX. During 2017, FCX recorded charges of $138 million for revised cost estimates for the Newtown Creek environmental obligation.

Historical Smelter Sites. FCX subsidiaries and their predecessors at various times owned or operated copper, zinc and lead smelters or refineries in states including Arizona, Indiana, Kansas, Missouri, New Jersey, Oklahoma and Pennsylvania. For some of these former processing sites, certain FCX subsidiaries have been advised by EPA or state agencies that they may be liable for costs of investigating and, if appropriate, remediating environmental conditions associated with these former processing facilities. At other sites, certain FCX subsidiaries have entered into state voluntary remediation programs to investigate and, if appropriate, remediate onsite and offsite conditions associated with the facilities. The historical processing sites are in various stages of assessment and remediation. At some of these sites, disputes with local residents and elected officials regarding alleged health effects or the effectiveness of remediation efforts have resulted in litigation of various types, and similar litigation at other sites is possible.
From 1920 until 1986, United States Metals Refining Company (USMR), an indirect wholly owned subsidiary of FCX, owned and operated a copper smelter and refinery in the Borough of Carteret, New Jersey. Since the early 1980s, the site has been the subject of environmental investigation and remediation, under the direction and supervision of the New Jersey Department of Environmental Protection. On January 30, 2017, a class action titled Juan Duarte, Betsy Duarte and N.D., Infant, by Parents and Natural Guardians Juan Duarte and Betsy Duarte, Leroy Nobles and Betty Nobles, on behalf of themselves and all others similarly situated v. United States Metals Refining Company, Freeport-McMoRan Copper & Gold Inc. and Amax Realty Development, Inc., Docket No. 734-17, was filed in the Superior Court of New Jersey against USMR, FCX, and Amax Realty Development, Inc. The defendants removed this litigation to the U.S. District Court for the District of New Jersey, where it remains pending. In December 2017, the plaintiffs amended their complaint and FCX was dismissed as a defendant and FMC was added as a defendant to the lawsuit. The suit alleges that USMR generated and disposed of smelter waste at the site and allegedly released contaminants onsite and offsite through discharges to surface water and air emissions over a period of decades and seeks unspecified damages for economic losses, including loss of property value, medical monitoring, punitive damages and other damages. In October 2018, the magistrate judge denied the plaintiffs' July 2018 request to amend the complaint to rejoin FCX as a defendant, and the plaintiffs have appealed that decision. FCX continues to vigorously defend this matter.

As a result of off-site soil sampling in public and private areas near the former Carteret smelter, FCX increased its associated environmental obligation for known and potential off-site environmental remediation by recording a $59 million charge to operating income in 2017. Additional sampling and analysis occurred through 2018 and is ongoing and could result in additional adjustments to the related environmental remediation obligation in future periods.

Uranium Mining Sites. During a period between 1940 and the early 1970s, certain FCX subsidiaries and their predecessors were involved in uranium exploration and mining in the western U.S., primarily on federal and tribal lands in the Four Corners region of the southwest. Similar exploration and mining activities by other companies have also caused environmental impacts warranting remediation. In January 2017,



the Department of Justice, EPA, Navajo Nation, and two FCX subsidiaries reached an agreement regarding the financial contribution of the U.S. Government and the FCX subsidiaries and the scope of the environmental investigation and remediation work for 94 former uranium mining sites on tribal lands. The settlement terms are outlined in a Consent Decree that was filed on January 17, 2017, in the U.S. District Court for the District of Arizona. Under the Consent Decree, which the U.S. Government valued at over $600 million, the U.S. contributed $335 million into a trust fund to cover the government's initial share of the costs, and FCX's subsidiaries are proceeding with the environmental investigation and remediation work at the 94 sites. The program is expected to take more than 20 years to complete. Based on updated cash flow and timing estimates, FCX reduced its associated obligation by recording a $41 million credit to operating income in 2017 after receiving court approval of the Consent Decree. In addition to uranium activities on tribal lands, FCX is conducting site surveys of historical uranium mining claims associated with FCX subsidiaries on non-tribal federal lands in the Four Corners region. Under a memorandum of understanding with the U.S. Bureau of Land Management (BLM), site surveys are being performed on over 10,000 mining claims, ranging from undisturbed claims to claims with mining features. Based on these surveys, BLM may provide no further action determinations for undisturbed claims or requests for additional assessment or reclamation activities for others.

AROs. FCX’s ARO estimates are reflected on a third-party cost basis and are based on FCX’s legal obligation to retire tangible, long-lived assets. A summary of changes in FCX’s AROs for the years ended December 31 follows:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Balance at beginning of year</td><td>$2,583</td><td>$2,638</td><td>$2,774</td></tr><tr><td>Liabilities incurred</td><td>1</td><td>14</td><td>12</td></tr><tr><td>Settlements and revisions to cash flow estimates, net</td><td>50</td><td>(112)</td><td>529 \( ^{a} \)</td></tr><tr><td>Accretion expense</td><td>110</td><td>124</td><td>137</td></tr><tr><td>Dispositions \( ^{b} \)</td><td>(37)</td><td>(10)</td><td>(626)</td></tr><tr><td>Spending</td><td>(160)</td><td>(71)</td><td>(188)</td></tr><tr><td>Balance at end of year</td><td>2,547</td><td>2,583</td><td>2,638</td></tr><tr><td>Less current portion</td><td>(317)</td><td>(286)</td><td>(240)</td></tr><tr><td>Long-term portion</td><td>$2,230</td><td>$2,297</td><td>$2,398</td></tr></table>

a. Revisions to cash flow estimates were primarily related to revised estimates for an overburden stockpile in Indonesia and at certain oil and gas properties.

b. Primarily reflects the sale of certain oil and gas properties.

ARO costs may increase or decrease significantly in the future as a result of changes in regulations, changes in engineering designs and technology, permit modifications or updates, changes in mine plans, settlements, inflation or other factors and as reclamation (concurrent with mining operations or post mining) spending occurs. ARO activities and expenditures for mining operations generally are made over an extended period of time commencing near the end of the mine life; however, certain reclamation activities may be accelerated if legally required or if determined to be economically beneficial. The methods used or required to plug and abandon non-producing oil and gas wellbores; remove platforms, tanks, production equipment and flow lines; and restore wellsites could change over time.

Financial Assurance. New Mexico, Arizona, Colorado and other states, as well as federal regulations governing mine operations on federal land, require financial assurance to be provided for the estimated costs of mine reclamation and closure, including groundwater quality protection programs. FCX has satisfied financial assurance requirements by using a variety of mechanisms, primarily involving parent company performance guarantees and financial capability demonstrations, but also including trust funds, surety bonds, letters of credit and other collateral. The applicable regulations specify financial strength tests that are designed to confirm a company’s or guarantor’s financial capability to fund estimated reclamation and closure costs. The amount of financial assurance FCX subsidiaries are required to provide will vary with changes in laws, regulations, reclamation and closure requirements, and cost estimates. At December 31, 2018, FCX’s financial assurance obligations associated with these U.S. mine closure and reclamation/restoration costs totaled $1.2 billion, of which $703 million was in the form of guarantees issued by FCX and FMC. At December 31, 2018, FCX had trust assets totaling $180 million (included in other assets), which are legally restricted to be used to satisfy its financial assurance obligations for its mining properties in New Mexico. In addition, FCX subsidiaries have financial assurance obligations for its oil and gas properties associated with plugging and abandoning wells and facilities totaling $545 million. Where oil and gas guarantees associated with the Bureau of Ocean Energy Management do not include a stated cap, the amounts reflect management’s estimates of the potential exposure.

New Mexico Environmental and Reclamation Programs. FCX’s New Mexico operations are regulated under the New Mexico Water Quality Act and regulations adopted by the Water Quality Control Commission (WQCC). In connection with



discharge permits, the New Mexico Environment Department (NMED) has required each of these operations to submit closure plans for NMED's approval. The closure plans must include measures to assure meeting applicable groundwater quality standards following the closure of discharging facilities and to abate groundwater or surface water contamination to meet applicable standards. In 2013, the WQCC adopted Supplemental Permitting Requirements for Copper Mining Facilities, which became effective on December 1, 2013, and specify closure requirements for copper mine facilities. The rules were adopted after an extensive stakeholder process in which FCX participated and were jointly supported by FCX and NMED. The New Mexico Supreme Court upheld the rules in 2018, following a challenge by certain environmental organizations and the New Mexico Attorney General. Finalized closure plans that meet the requirements of these rules will be submitted in 2019 and will result in material increases in closure costs for FCX's New Mexico operations.

FCX's New Mexico operations also are subject to regulation under the 1993 New Mexico Mining Act (the Mining Act) and the related rules that are administered by the Mining and Minerals Division (MMD) of the New Mexico Energy, Minerals and Natural Resources Department. Under the Mining Act, mines are required to obtain approval of plans describing the reclamation to be performed following cessation of mining operations. At December 31, 2018, FCX had accrued reclamation and closure costs of $450 million for its New Mexico operations. Additional accruals may be required based on the state's periodic review of FCX's updated closure plans and any resulting permit conditions, and the amount of those accruals could be material.

Arizona Environmental and Reclamation Programs. FCX's Arizona properties are subject to regulatory oversight in several areas. ADEQ has adopted regulations for its aquifer protection permit (APP) program that require permits for, among other things, certain facilities, activities and structures used for mining, leaching, concentrating and smelting, and require compliance with aquifer water quality standards at an applicable point of compliance well or location during both operations and closure. The APP program also may require mitigation and discharge reduction or elimination of some discharges.

An application for an APP requires a proposed closure strategy that will meet applicable groundwater protection requirements following cessation of operations and an estimate of the cost to implement the closure strategy. An APP application specifies closure obligations, including post-closure monitoring and maintenance. A more detailed closure plan must be submitted within 90 days after a permitted entity notifies ADEQ of its intent to cease operations. A permit applicant must demonstrate its financial ability to meet the closure costs approved by ADEQ. In 2014, the state enacted legislation requiring closure costs for facilities covered by APPs to be updated no more frequently than every six years and financial assurance mechanisms to be updated no more frequently than every two years. In 2016, ADEQ approved a closure plan update for Sierrita, which resulted in increased closure costs. FCX will continue updating its closure strategy and closure cost estimates at other Arizona sites and intends to submit an updated tailings dam system closure cost for Morenci in April 2019. FCX expects to update the closure strategy and closure costs for Morenci's stockpiles in 2020. FCX intends to update Bagdad closure costs in 2021. FCX has also proposed a closure strategy and closure costs for a former leach stockpile at Bisbee (a discontinued operation), which is currently under review by ADEQ.

Portions of Arizona mining facilities that operated after January 1, 1986, also are subject to the Arizona Mined Land Reclamation Act (AMLRA). AMLRA requires reclamation to achieve stability and safety consistent with post-mining land use objectives specified in a reclamation plan. Reclamation plans must be approved by the State Mine Inspector and must include an estimate of the cost to perform the reclamation measures specified in the plan along with financial assurance. During 2017, Safford submitted an update to its reclamation plan to include the Lone Star expansion, which increased its reclamation costs. FCX will continue to evaluate options for future reclamation and closure activities at its operating and non-operating sites, which are likely to result in adjustments to FCX's AROs, and those adjustments could be material. At December 31, 2018, FCX had accrued reclamation and closure costs of $367 million for its Arizona operations.

Colorado Reclamation Programs. FCX’s Colorado operations are regulated by the Colorado Mined Land Reclamation Act (Reclamation Act) and regulations promulgated thereunder. Under the Reclamation Act, mines are required to obtain approval of plans for reclamation of lands affected by mining operations to be performed during mining or upon cessation of mining operations. During 2016, at the request of the Colorado Division of Reclamation Mining & Safety, the Climax



mine submitted a revised cost estimate for its current reclamation plan, which did not materially change the closure plan cost. In 2017, Henderson began considering alternatives for the closure of the tailings facility and, in 2018, began evaluating potential options for long-term water treatment, which are likely to result in adjustments to FCX's AROs, and those adjustments could be material. As of December 31, 2018, FCX had accrued reclamation and closure costs of $61 million for its Colorado operations. In 2019, a bill has been introduced in the Colorado legislature that requires financial assurance for long-term water management and eliminates the potential for future permits for mining sites that include long-term water management as part of the closure strategy. The long-term water management component of the bill will apply to Climax and Henderson operations and AROs.

Chilean Reclamation and Closure Programs. In July 2011, the Chilean senate passed legislation regulating mine closure, which established new requirements for closure plans. In compliance with the requirement for five-year updates, in November 2018, FCX's El Abra operation submitted an updated plan with closure cost estimates based on the existing approved closure plan. Approval is expected in 2019. This update will not result in a material increase to closure costs. At December 31, 2018, FCX had accrued reclamation and closure costs of $63 million for its El Abra operation.

Peruvian Reclamation and Closure Programs. Cerro Verde is subject to regulation under the Mine Closure Law administered by the Peruvian Ministry of Energy and Mines. Under the closure regulations, mines must submit a closure plan that includes the reclamation methods, closure cost estimates, methods of control and verification, closure and post-closure plans, and financial assurance. In compliance with the five-year closure plan and cost update required by the Mine Closure Law, the latest closure plan and cost estimate for the Cerro Verde mine expansion were submitted to the Peruvian regulatory authorities in 2017 and approved in February 2018. This update did not result in a material increase to closure costs. At December 31, 2018, FCX had accrued reclamation and closure costs of $105 million for its Cerro Verde operation.

Indonesian Reclamation and Closure Programs. The ultimate amount of reclamation and closure costs to be incurred at PT-FI's operations will be determined based on applicable laws and regulations and PT-FI's assessment of appropriate remedial activities in the circumstances, after consultation with governmental authorities, affected local residents and other affected parties and cannot currently be projected with precision. Some reclamation costs will be incurred during mining activities, while the remaining reclamation costs will be incurred at the end of mining activities, which are currently estimated to continue through 2041. At the end of 2016, PT-FI revised its estimates for an overburden stockpile to address ongoing erosion that occurred during 2016, a design change that increased the volume and updated cost estimates reflecting more recent productivity and costs at the overburden stockpile, which resulted in an increase in the ARO of $372 million. At December 31, 2018, FCX had accrued reclamation and closure costs of $991 million for its PT-FI operations. PT-FI is currently mining in the final phase of the Grasberg open pit and expects to transition to the underground mine in the first half of 2019. As a result, beginning in 2019, any adjustments to the costs for the overburden stockpile will impact earnings.

In December 2009, PT-FI submitted its revised mine closure plan to the Department of Energy and Mineral Resources for review and addressed comments received during the course of this review process. In December 2010, the Indonesian government issued a regulation regarding mine reclamation and closure, which requires a company to provide a mine closure guarantee in the form of a time deposit placed in a state-owned bank in Indonesia. In December 2018, PT-FI, in conjunction with the issuance of the IUPK, submitted a revised mine closure plan to reflect the extension of operations to 2041. At December 31, 2018, PT-FI funded $90 million into a restricted time deposit account for mine closure guarantees and $11 million for reclamation guarantees.

In October 2017, Indonesia’s Ministry of Environment and Forestry (the MOEF) notified PT-FI of administrative sanctions related to certain activities the MOEF indicated are not reflected in its environmental permit. The MOEF also notified PT-FI that certain operational activities were inconsistent with factors set forth in its environmental permitting studies and that additional monitoring and improvements need to be undertaken related to air quality, water drainage, treatment and handling of certain wastes, and tailings management. In December 2018, the MOEF issued a revised environmental permit to PT-FI to address many of the operational activities that it alleged were inconsistent with earlier studies. The remaining administrative sanctions are being resolved through adoption of revised practices and, in a few situations, PT-FI has agreed with the MOEF on an appropriate multi-year work plan, including the closure of an overburden stockpile.

PT-FI and the MOEF also established a new framework for continuous improvement in environmental practices in PT-FI's operations, including initiatives that PT-FI will pursue to increase tailings retention and to evaluate large-scale beneficial uses of tailings within Indonesia. The MOEF issued



a new decree that incorporates various initiatives and studies to be completed by PT-FI that would target continuous improvement in a manner that would not impose new technical risks or significant long-term costs to PT-FI's operations. The new framework enables PT-FI to maintain compliance with site-specific standards and provides for ongoing monitoring by the MOEF. In 2018, PT-FI recorded a $32 million charge for assessments of prior period permit fees with the MOEF.

Oil and Gas Properties. Substantially all of FM O&G’s oil and gas leases require that, upon termination of economic production, the working interest owners plug and abandon non-producing wellbores, remove equipment and facilities from leased acreage, and restore land in accordance with applicable local, state and federal laws. Following several sales transactions in 2016, 2017 and 2018, FM O&G’s remaining operating areas include offshore California and onshore in South Louisiana as of December 31, 2018. FM O&G AROs cover approximately 210 wells and 120 platforms and other structures. At December 31, 2018, FM O&G had accrued $476 million associated with its AROs.

Litigation. FCX is involved in numerous legal proceedings that arise in the ordinary course of business or are associated with environmental issues as discussed in this note under “Environmental.” FCX is also involved periodically in reviews, inquiries, investigations and other proceedings initiated by or involving government agencies, some of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Management does not believe, based on currently available information, that the outcome of any legal proceeding will have a material adverse effect on FCX’s financial condition, although individual or cumulative outcomes could be material to FCX’s operating results for a particular period, depending on the nature and magnitude of the outcome and the operating results for the period.

FM O&G LLC, an indirect wholly owned subsidiary of FCX, is a defendant in a purported class action titled David Garcia v. Freeport-McMoRan Oil & Gas LLC filed on April 1, 2016, in the Superior Court of the State of California for the County of Santa Barbara (Case No. 16CVO1305) and subsequently removed to the U.S. District Court for the Central District of California (the District Court). The plaintiff, a former FM O&G LLC employee who worked on offshore production platforms in federal waters, alleged violations of various California wage and hour laws and sought relief for past wages, overtime, penalties, interest and attorney's fees. The case was dismissed by the District Court on the basis that federal law, not state law, applied, and the complaint alleged no violations of federal law. The dismissal was appealed by the plaintiff to the U.S. Court of Appeals for the Ninth Circuit where the case is currently stayed in deference to the ongoing appeal of a similar case. Based on recent developments, FCX has concluded that its exposure in the Garcia case is not material to its consolidated financial statements.

Asbestos and Talc Claims. Since approximately 1990, various FCX affiliates have been named as defendants in a large number of lawsuits alleging personal injury from exposure to asbestos or talc allegedly contained in industrial products such as electrical wire and cable, raw materials such as paint and joint compounds, talc-based lubricants used in rubber manufacturing or from asbestos contained in buildings and facilities located at properties owned or operated by affiliates of FCX. Many of these suits involve a large number of codefendants. Based on litigation results to date and facts currently known, FCX believes there is a reasonable possibility that losses may have been incurred related to these matters; however, FCX also believes that the amounts of any such losses, individually or in the aggregate, are not material to its consolidated financial statements. There can be no assurance that future developments will not alter this conclusion.

There has been a recent significant increase in the number of cases alleging the presence of asbestos contamination in talc-based personal care products and in cases alleging exposure to talc products that are not alleged to be contaminated with asbestos. In these cases, plaintiffs allege serious health risks and often fatal diseases, including mesothelioma and ovarian cancer, allegedly caused by long-term use of talc-based cosmetic and personal care products. Nationwide trial results in these cases have ranged from outright dismissals to large jury awards of both compensatory and punitive damages. The primary targets have been the producers of those products but defendants in many of these cases also include talc miners. Cyprus Amax Minerals Company (CAMC), an indirect wholly owned subsidiary of FCX, is one of those targets. One of CAMC’s wholly owned subsidiaries, Cyprus Mines Corporation, was involved in talc mining until 1992 when it exited that business. CAMC has contractual indemnification rights, subject to limited reservations, against the ultimate successor to the business, which has acknowledged those indemnification obligations, and has taken responsibility for all cases tendered to it to date. However, on February 13, 2019, the indemnitor filed for Chapter 11 bankruptcy protection, and CAMC is in the very early stages of evaluating the potential implications of that filing. To date, no judgments have been rendered against CAMC, and FCX believes that CAMC has strong defenses. Accordingly, FCX currently believes the losses, if any, related to these cases, individually or in the aggregate, are not



material to its consolidated financial statements. There can be no assurance that future developments will not alter this conclusion.

Tax and Other Matters. FCX’s operations are in multiple jurisdictions where uncertainties arise in the application of complex tax regulations. Some of these tax regimes are defined by contractual agreements with the local government, while others are defined by general tax laws and regulations. FCX and its subsidiaries are subject to reviews of its income tax filings and other tax payments, and disputes can arise with the taxing authorities over the interpretation of its contracts or laws. The final taxes paid may be dependent upon many factors, including negotiations with taxing authorities. In certain jurisdictions, FCX must pay a portion of the disputed amount to the local government in order to formally appeal the assessment. Such payment is recorded as a receivable if FCX believes the amount is collectible.

Cerro Verde Royalty Dispute. SUNAT has assessed mining royalties on ore processed by the Cerro Verde concentrator, which commenced operations in late 2006, for the period December 2006 to December 2013. Cerro Verde has contested each of these assessments because it believes that its 1998 stability agreement exempts from royalties all minerals extracted from its mining concession, irrespective of the method used for processing such minerals. No assessments can be issued for years after 2013, as Cerro Verde began paying royalties on all of its production in January 2014 under its new 15-year stability agreement. Since 2014, Cerro Verde has been paying the disputed assessments for the period from December 2006 through December 2008 under an installment program ($188 million paid by Cerro Verde through December 31, 2018). Cerro Verde will also begin making monthly payments beginning in second-quarter 2019 under a 66-month payment plan related to assessments for the period January 2009 through September 2011.

In October 2017, the Peruvian Supreme Court issued a ruling in favor of SUNAT that the assessments of royalties for the year 2008 on ore processed by the Cerro Verde concentrator were proper under Peruvian law. As a result of the unfavorable Peruvian Supreme Court ruling, Cerro Verde recorded net charges of $186 million in 2017 (consisting of pre-tax charges of $348 million and $7 million of net tax charges, net of $169 million of noncontrolling interests) primarily for royalty assessments for the period December 2006 through the year 2013, penalties and interest related to assessments for the period December 2006 through the year 2008, and other related items that Cerro Verde would have incurred under the view that its concentrator was not stabilized.
In September 2018, the Peruvian Tax Tribunal denied Cerro Verde’s request to waive penalties and interest for the period January 2009 through September 2011. In December 2018, Cerro Verde elected not to appeal the Peruvian Tax Tribunal’s decisions and is continuing to evaluate alternative strategies to defend its rights, including international arbitration. As a result, Cerro Verde recorded net charges of $211 million in 2018 (consisting of pre-tax charges of $420 million, net of $18 million of tax benefits and $191 million of noncontrolling interests) primarily for penalties and interest related to assessments for the years 2009 through 2013 and other related items.

Cerro Verde also recognized a net gain of $16 million (consisting of pre-tax gains of $14 million and net tax benefits of $17 million, net of $15 million in noncontrolling interests) in 2018 for refunds received for the overpayment of special (voluntary) levies (GEM) for the period October 2012 through the year 2013. Cerro Verde has also submitted a refund request for the remainder of the GEM assessments for the period October 2011 through September 2012 totaling $57 million, but will not record a receivable for this amount until the request is granted by SUNAT.

As of December 31, 2018, Cerro Verde has recorded all of its exposure associated with its royalty dispute with the Peruvian tax authorities and will continue to record interest charges until all obligations are settled. Any future recoveries would be recorded when collected.

A summary of the charges recorded in 2018 and 2017 for the Cerro Verde royalty dispute follows:

<table><tr><td></td><td>2018a</td><td>2017</td><td>Total</td></tr><tr><td>Royalty and related assessment charges:</td><td></td><td></td><td></td></tr><tr><td>Production and delivery</td><td>$ 14</td><td>$ 203b</td><td>$ 217</td></tr><tr><td>Interest expense, net</td><td>370</td><td>145</td><td>515</td></tr><tr><td>Other expense</td><td>22</td><td>—</td><td>22</td></tr><tr><td>(Benefit from) provision for income taxes</td><td>(35)</td><td>7c</td><td>(28)</td></tr><tr><td>Net loss attributable to noncontrolling interests</td><td>(176)</td><td>(169)</td><td>(345)</td></tr><tr><td></td><td>$ 195</td><td>$ 186</td><td>$ 381</td></tr></table>

a. Amounts are net of gains from the refund of GEM for the period October 2012 through the year 2013.
b. Includes $175 million related to disputed royalty assessments for the period from December 2006 to September 2011 (when royalties were determined based on revenues).

c. Includes tax charges of $136 million for disputed royalties ($69 million) and other related mining taxes ($67 million) for the period October 2011 through the year 2013 when royalties were determined based on operating income, mostly offset by a tax benefit of $129 million associated with disputed royalties and other related mining taxes for the period December 2006 through December 2013.

Other Peruvian Tax Matters. Cerro Verde has also received assessments from SUNAT for additional taxes, penalties and interest related to various audit exceptions for income and



other taxes. Cerro Verde has filed or will file objections to the assessments because it believes it has properly determined and paid its taxes. A summary of these assessments follows:

<table><tr><td>Tax Year</td><td>Tax Assessment</td><td>Penalty and Interest Assessment</td><td>Total</td></tr><tr><td>2003 to 2008</td><td>$ 56</td><td>$130</td><td>$186</td></tr><tr><td>2009</td><td>57</td><td>51</td><td>108</td></tr><tr><td>2010</td><td>63</td><td>105</td><td>168</td></tr><tr><td>2011</td><td>49</td><td>65</td><td>114</td></tr><tr><td>2014 to 2018</td><td>32</td><td>—</td><td>32</td></tr><tr><td></td><td>$257</td><td>$351</td><td>$608</td></tr></table>

As of December 31, 2018, Cerro Verde had paid $386 million on these disputed tax assessments. A reserve has been applied against these payments totaling $203 million, resulting in a net receivable of $183 million (included in other assets), which Cerro Verde believes is collectible.

Indonesia Tax Matters. PT-FI has received assessments from the Indonesian tax authorities for additional taxes and interest related to various audit exceptions for income and other taxes. PT-FI has filed objections to the assessments because it believes it has properly determined and paid its taxes. Excluding surface water and withholding tax assessments discussed below and the Indonesian government’s previous imposition of a 7.5 percent export duty that PT-FI paid under protest during the period April 2017 to December 21, 2018 (refer to Note 13), a summary of these assessments follows:

<table><tr><td>Tax Year</td><td>Tax Assessment</td><td>Interest Assessment</td><td>Total</td></tr><tr><td>2005</td><td>$ 73</td><td>$ 35</td><td>$ 108</td></tr><tr><td>2007</td><td>47</td><td>23</td><td>70</td></tr><tr><td>2008, 2010 to 2011</td><td>55</td><td>37</td><td>92</td></tr><tr><td>2012</td><td>124</td><td>—</td><td>124</td></tr><tr><td>2013</td><td>154</td><td>74</td><td>228</td></tr><tr><td>2014</td><td>139</td><td>6</td><td>145</td></tr><tr><td>2015</td><td>158</td><td>—</td><td>158</td></tr><tr><td>2016</td><td>266</td><td>113</td><td>379</td></tr><tr><td></td><td>$1,016</td><td>$288</td><td>$1,304</td></tr></table>

As of December 31, 2018, PT-FI had paid $493 million (included in other assets) on disputed tax assessments, which it believes is collectible.

PT-FI received assessments from the local regional tax authority in Papua, Indonesia, for additional taxes and penalties related to surface water taxes for the period from January 2011 through December 2018. PT-FI has filed or will file appeals of these assessments with the Indonesia Tax Court. During the first half of 2018 and in fourth-quarter 2018, the Indonesia Tax Court ruled partially in favor of PT-FI with respect to assessments for the period January 2016 through April 2017 by reducing these assessments from $80 million, including penalties, to $48 million, including penalties (based on the exchange rate at December 31, 2018), or an approximate 40 percent reduction.

During 2017, PT-FI filed reconsideration request petitions to the Indonesia Supreme Court with respect to assessments for the period from January 2011 through December 2015; and in second-quarter 2018, filed reconsideration request petitions with respect to the Indonesia Tax Court decisions related to the assessments for the period from January 2016 through April 2016. In second-quarter 2018, the Indonesia Supreme Court issued favorable decisions relating to surface water tax assessments for the period January 2011 through July 2015. The Indonesia Supreme Court ruling concluded that PT-FI and the Indonesian government are bound by PT-FI’s former COW, which is lex specialis, and prevails as the law for the parties to the former COW that should be carried out in good faith. As a result, FCX estimates the total amount of the assessments, including penalties, (based on the exchange rate at December 31, 2018) for the period from August 2015 through December 2018 totals $174 million, including $87 million in penalties. In accordance with its IUPK discussed in Note 13, PT-FI is obligated to pay surface water taxes of $15 million annually, beginning in 2019. In addition, PT-FI has offered to pay one trillion rupiah ($69 million based on the exchange rate as of December 31, 2018) to settle historical disputes regarding surface water taxes, which was charged to production and delivery costs in December 2018.

In September 2018, PT-FI received an unfavorable decision from the Indonesian Tax Court with respect to its appeal of disallowed items on its 2012 corporate income tax return. The most significant disallowed item relates to the tax treatment of mine development costs. A similar decision on PT-FI’s 2014 corporate income tax return was announced in October 2018. PT-FI has filed or will file appeals related to these decisions to the Indonesian Supreme Court because it believes the former COW is explicit about the tax treatment associated with mine development costs. No adjustments have been recorded for this matter as of December 31, 2018, because FCX believes PT-FI has properly determined and paid its taxes. As of December 31, 2018, PT-FI had long-term receivables totaling approximately $350 million related to this matter, and no reserves have been recorded for these receivables. FCX estimates the potential exposure for penalties for the years 2013, 2016 and 2017, in which the Indonesian tax authorities may assert that PT-FI has underpaid income taxes, totals $251 million based on the exchange rate as of December 31, 2018.

In April 2017, PT-FI entered into a memorandum of understanding with the Indonesian government (the 2017 MOU) confirming that the former COW would continue to



be valid and honored until replaced by a mutually agreed IUPK and investment stability agreement. In the 2017 MOU, PT-FI agreed to continue to pay a 5 percent export duty during this period. Subsequently, the Customs Office of the Minister of Finance refused to recognize the 5 percent export duty agreed to under the 2017 MOU and imposed a 7.5 percent export duty under the Ministry of Finance regulations, which PT-FI paid under protest during the period April 2017 to December 21, 2018. PT-FI is disputing the incremental 2.5 percent export duty while the matter is pending in Indonesia Tax Court proceedings, and amounts paid are being held in a restricted cash account or in a current or long-term receivable in the consolidated balance sheets ($144 million at December 31, 2018, consisting of $15 million in income and other tax receivables, $7 million in other current assets and $122 million in other assets; and $38 million at December 31, 2017, consisting of $22 million in other current assets and $16 million in other assets) that PT-FI expects to have released or refunded in full once the matter is resolved. In December 2018, the Indonesia Tax Court announced a ruling in favor of PT-FI related to $15 million of the disputed export duties, which PT-FI expects to collect in 2019. Under the terms of the IUPK, PT-FI is subject to an export duty until smelter development reaches 50 percent, at which time the export duty will be eliminated (refer to Note 13 for export duty rates).

In January 2019, PT-FI noted that the Indonesian Supreme Court posted on its website an unfavorable decision related to a PT-FI 2005 withholding tax matter. PT-FI had also received an unfavorable Indonesian Supreme Court decision in November 2017 and has other pending cases at the Indonesian Supreme Court related to withholding taxes for employees and other service providers for the year 2005 and the year 2007, which total approximately $61 million (based on the exchange rate as of December 31, 2018), including penalties and interest. As a result of the January 2019 ruling, PT-FI concluded a loss on all outstanding withholding tax matters is probable under applicable accounting guidance, and it recorded a charge of $61 million in 2018.

Letters of Credit, Bank Guarantees and Surety Bonds. Letters of credit and bank guarantees totaled $528 million at December 31, 2018, primarily for environmental and asset retirement obligations, the Cerro Verde royalty dispute (refer to discussion above), workers' compensation insurance programs, tax and customs obligations, and other commercial obligations. In addition, FCX had surety bonds totaling $342 million at December 31, 2018, primarily associated with environmental and asset retirement obligations.
Insurance. FCX purchases a variety of insurance products to mitigate potential losses, which typically have specified deductible amounts or self-insured retentions and policy limits. FCX generally is self-insured for U.S. workers' compensation, but purchases excess insurance up to statutory limits. An actuarial analysis is performed twice a year on the various casualty insurance programs covering FCX's U.S.-based mining operations, including workers' compensation, to estimate expected losses. At December 31, 2018, FCX's liability for expected losses under these insurance programs totaled $60 million, which consisted of a current portion of $11 million (included in accounts payable and accrued liabilities) and a long-term portion of $49 million (included in other liabilities). In addition, FCX has receivables of $15 million (a current portion of $2 million included in other accounts receivable and a long-term portion of $13 million included in other assets) for expected claims associated with these losses to be filed with insurance carriers.

FCX’s oil and gas operations are subject to all of the risks normally incident to the production of oil and gas, including well blowouts, cratering, explosions, oil spills, releases of gas or well fluids, fires, pollution and releases of toxic gas, each of which could result in damage to or destruction of oil and gas wells, production facilities or other property, or injury to persons. While FCX is not fully insured against all risks related to its oil and gas operations, its insurance policies provide limited coverage for losses or liabilities relating to pollution, with broader coverage for sudden and accidental occurrences. FCX is self-insured for named windstorms in the GOM.

## NOTE 13. COMMITMENTS AND GUARANTEES

Operating Leases. FCX leases various types of properties, including offices and equipment. Future minimum rentals under non-cancelable leases at December 31, 2018, total $53 million in 2019, $42 million in 2020, $38 million in 2021, $32 million in 2022, $29 million in 2023 and $171 million thereafter. Minimum payments under operating leases have not been reduced by aggregate minimum sublease rentals, which are minimal. Total aggregate rental expense under operating leases was $80 million in 2018, $59 million in 2017 and $71 million 2016.

Contractual Obligations. At December 31, 2018, based on applicable prices on that date, FCX has unconditional purchase obligations of $2.9 billion, primarily comprising the procurement of copper concentrate ($1.5 billion), cobalt ($0.5 billion), electricity ($0.4 billion) and transportation services ($0.3 billion). Some of FCX's unconditional purchase obligations are settled based on the prevailing market rate



for the service or commodity purchased. In some cases, the amount of the actual obligation may change over time because of market conditions. Obligations for copper concentrate provide for deliveries of specified volumes to Atlantic Copper at market-based prices. Obligations for cobalt hydroxide intermediate provide for deliveries of specified volumes to Freeport Cobalt at market-based prices. Electricity obligations are primarily for long-term power purchase agreements in North America and contractual minimum demand at the South America mines. Transportation obligations are primarily for South America contracted ocean freight.

FCX’s unconditional purchase obligations by year total $2.1 billion in 2019, $234 million in 2020, $147 million in 2021, $50 million in 2022, $44 million in 2023 and $301 million thereafter. During the three-year period ended December 31, 2018, FCX fulfilled its minimum contractual purchase obligations.

Special Mining License (IUPK)—Indonesia. As discussed in Note 2, on December 21, 2018, FCX completed the transaction with the Indonesian government regarding PT-FI’s long-term mining rights and share ownership. Concurrent with the closing of the transaction, the Indonesian government granted PT-FI an IUPK to replace its former COW, enabling PT-FI to conduct operations in the Grasberg minerals district through 2041. Under the terms of the IUPK, PT-FI has been granted an extension of mining rights through 2031, with rights to extend mining rights through 2041, subject to PT-FI completing the construction of a new smelter in Indonesia within five years of closing the transaction and fulfilling its defined fiscal obligations to the Indonesian government. The IUPK, and related documentation, contains legal and fiscal terms and is legally enforceable through 2041. In addition, FCX, as a foreign investor, has rights to resolve investment disputes with the Indonesian government through international arbitration.

The key fiscal terms set forth in the IUPK include a 25 percent corporate income tax rate, a 10 percent profits tax on net income, and royalty rates of 4 percent for copper, 3.75 percent for gold and 3.25 percent for silver. PT-FI’s royalties totaled $238 million in 2018, $173 million in 2017 and $131 million in 2016.

The IUPK also requires PT-FI to pay export duties of 5 percent, declining to 2.5 percent when smelter development progress exceeds 30 percent and eliminated when smelter progress exceeds 50 percent. PT-FI had previously agreed to and has been paying export duties since July 2014 (refer to Note 12 for further discussion of disputed export duties for the period April 2017 to December 21, 2018). PT-FI’s export duties charged against revenues totaled $180 million in 2018, $115 million in 2017 and $95 million in 2016.

The IUPK also requires PT-FI to pay surface water taxes of $15 million annually, beginning in 2019.

In connection with a memorandum of understanding previously entered into with the Indonesian government in July 2014, PT-FI provided an assurance bond at that time to support its commitment to construct a new smelter in Indonesia ($126 million based on exchange rate as of December 31, 2018).

PT-FI has applied for a one-year extension of its export license, which currently expires on February 16, 2019.

Other. In 2016, FCX negotiated the termination and settlement of FM O&G’s drilling rig contracts with Noble Drilling (U.S.) LLC (Noble) and Rowan Companies plc (Rowan). Under the settlement with Noble, FCX issued 48.1 million shares of its common stock (representing a value of $540 million) during second-quarter 2016, and Noble immediately sold these shares. Under the settlement with Rowan, FCX paid $215 million in cash during 2016. FCX also agreed to provide contingent payments of up to $75 million to Noble and up to $30 million to Rowan, depending on the average price of crude oil over the 12-month period ending June 30, 2017. In January 2017, FCX paid $6 million to early settle a portion of the Rowan contingent payments and no additional payments were due when the contingency period ended on June 30, 2017. As a result of the settlements, FM O&G was released from a total of $1.1 billion in payment obligations under its three drilling rig contracts.

Community Development Programs. FCX has adopted policies that govern its working relationships with the communities where it operates. These policies are designed to guide its practices and programs in a manner that respects and promotes basic human rights and the culture of the local people impacted by FCX’s operations. FCX continues to make significant expenditures on community development, education, training and cultural programs.

In 1996, PT-FI established the Freeport Partnership Fund for Community Development (Partnership Fund) through which PT-FI has made available funding and technical assistance to support community development initiatives in the areas of health, education, economic development and local infrastructure of the area. PT-FI has committed through June 30, 2019, to provide one percent of its annual revenue for the development of the local communities in its area of operations through the Partnership Fund. PT-FI charged $55 million in 2018, $44 million in 2017 and $33 million in 2016 to cost of sales for this commitment.



Guarantees. FCX provides certain financial guarantees (including indirect guarantees of the indebtedness of others) and indemnities.

Prior to its acquisition by FCX, FMC and its subsidiaries have, as part of merger, acquisition, divestiture and other transactions, from time to time, indemnified certain sellers, buyers or other parties related to the transaction from and against certain liabilities associated with conditions in existence (or claims associated with actions taken) prior to the closing date of the transaction. As part of these transactions, FMC indemnified the counterparty from and against certain excluded or retained liabilities existing at the time of sale that would otherwise have been transferred to the party at closing. These indemnity provisions generally now require FCX to indemnify the party against certain liabilities that may arise in the future from the pre-closing activities of FMC for assets sold or purchased. The indemnity classifications include environmental, tax and certain operating liabilities, claims or litigation existing at closing and various excluded liabilities or obligations. Most of these indemnity obligations arise from transactions that closed many years ago, and given the nature of these indemnity obligations, it is not possible to estimate the maximum potential exposure. Except as described in the following sentence, FCX does not consider any of such obligations as having a probable likelihood of payment that is reasonably estimable, and accordingly, has not recorded any obligations associated with these indemnities. With respect to FCX's environmental indemnity obligations, any expected costs from these guarantees are accrued when potential environmental obligations are considered by management to be probable and the costs can be reasonably estimated.

## NOTE 14. 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 a result of the acquisition of the oil and gas business in 2013, FCX assumed a variety of crude oil and natural gas commodity derivatives to hedge the exposure to the volatility of crude oil and natural gas commodity prices, all of which had matured by December 31, 2015. As of December 31, 2018 and 2017, 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 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 during the three years ended December 31, 2018, resulting from hedge ineffectiveness. At December 31, 2018, FCX held copper futures and swap contracts that qualified for hedge accounting for 68 million pounds at an average contract price of $2.77 per pound, with maturities through June 2020.

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 for the years ended December 31 follows:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Copper futures and swap contracts:</td><td></td><td></td><td></td></tr><tr><td>Unrealized (losses) gains:</td><td></td><td></td><td></td></tr><tr><td>Derivative financial instruments</td><td>$ (20)</td><td>$ 4</td><td>$ 16</td></tr><tr><td>Hedged item - firm sales commitments</td><td>20</td><td>(4)</td><td>(16)</td></tr><tr><td>Realized (losses) gains:</td><td></td><td></td><td></td></tr><tr><td>Matured derivative financial instruments</td><td>(22)</td><td>30</td><td>1</td></tr></table>

## 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 LME copper price or the COMEX copper price and the LMBA 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 to revenues until



the date of settlement. FCX records revenues and invoices customers at the time of shipment based on then-current LME or COMEX prices, 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 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 forward 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 December 31, 2018, follows:

<table><tr><td></td><td>Open Positions</td><td colspan="2">Average Price Per Unit</td><td>Maturities Through</td></tr><tr><td></td><td></td><td>Contract</td><td>Market</td><td></td></tr><tr><td>Embedded derivatives in provisional sales contracts:</td><td></td><td></td><td></td><td></td></tr><tr><td>Copper (millions of pounds)</td><td>489</td><td>$ 2.78</td><td>$ 2.70</td><td>May 2019</td></tr><tr><td>Gold (thousands of ounces)</td><td>119</td><td>1,229</td><td>1,286</td><td>April 2019</td></tr><tr><td>Embedded derivatives in provisional purchase contracts:</td><td></td><td></td><td></td><td></td></tr><tr><td>Copper (millions of pounds)</td><td>117</td><td>2.79</td><td>2.71</td><td>May 2019</td></tr><tr><td>Cobalt (millions of pounds)</td><td>9</td><td>19.58</td><td>19.25</td><td>March 2019</td></tr></table>

Crude Oil and Natural Gas Contracts. FCX had no outstanding crude oil or natural gas derivative contracts as of December 31, 2018 or 2017. As part of the terms of the agreement to sell its onshore California oil and gas properties, FM O&G entered into derivative contracts during October 2016. Sentinel assumed these contracts at the time of the sale in December 2016. These derivative contracts were not designated as hedges for accounting purposes, and were recorded at fair value with the mark-to-market gains and losses recorded in revenues (oil contracts) and production costs (natural gas contracts).
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 December 31, 2018, Atlantic Copper held net copper forward sales contracts for 8 million pounds at an average contract price of $2.76 per pound, with maturities through February 2019.

Summary of (Losses) Gains. A summary of the realized and unrealized (losses) gains recognized in operating income (loss) for commodity contracts that do not qualify as hedge transactions, including embedded derivatives, for the years ended December 31 follows:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Embedded derivatives in provisional sales contracts \( ^{a} \)</td><td></td><td></td><td></td></tr><tr><td>Copper</td><td>($310)</td><td>$489</td><td>$262</td></tr><tr><td>Gold and other</td><td>(7)</td><td>26</td><td>4</td></tr><tr><td>Crude oil options and swaps \( ^{a} \)</td><td>—</td><td>—</td><td>(35)</td></tr><tr><td>Copper forward contracts \( ^{b} \)</td><td>18</td><td>(15)</td><td>5</td></tr></table>

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:

<table><tr><td>December 31,</td><td>2018</td><td>2017</td></tr><tr><td>Commodity Derivative Assets:</td><td></td><td></td></tr><tr><td>Derivatives designated as hedging instruments:</td><td></td><td></td></tr><tr><td>Copper futures and swap contracts</td><td>$ -</td><td>$ 11</td></tr><tr><td>Derivatives not designated as hedging instruments:</td><td></td><td></td></tr><tr><td>Embedded derivatives in provisional copper, gold and cobalt sales/purchase contracts</td><td>23</td><td>155</td></tr><tr><td>Copper forward contracts</td><td>—</td><td>1</td></tr><tr><td>Total derivative assets</td><td>$ 23</td><td>$ 167</td></tr><tr><td>Commodity Derivative Liabilities:</td><td></td><td></td></tr><tr><td>Derivatives designated as hedging instruments:</td><td></td><td></td></tr><tr><td>Copper futures and swap contracts</td><td>$ 9</td><td>$ -</td></tr><tr><td>Derivatives not designated as hedging instruments:</td><td></td><td></td></tr><tr><td>Embedded derivatives in provisional copper, gold and cobalt sales/purchase contracts</td><td>39</td><td>55</td></tr><tr><td>Copper forward contracts</td><td>—</td><td>2</td></tr><tr><td>Total derivative liabilities</td><td>$ 48</td><td>$ 57</td></tr></table>



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 sheet follows:

<table><tr><td rowspan="2">December 31,</td><td colspan="2">Assets</td><td colspan="2">Liabilities</td></tr><tr><td>2018</td><td>2017</td><td>2018</td><td>2017</td></tr><tr><td>Gross amounts recognized:</td><td></td><td></td><td></td><td></td></tr><tr><td>Commodity contracts:</td><td></td><td></td><td></td><td></td></tr><tr><td>Embedded derivatives in provisional sales/purchase contracts</td><td>$23</td><td>$155</td><td>$39</td><td>$55</td></tr><tr><td>Copper derivatives</td><td>—</td><td>12</td><td>9</td><td>2</td></tr><tr><td></td><td>23</td><td>167</td><td>48</td><td>57</td></tr><tr><td>Less gross amounts of offset:</td><td></td><td></td><td></td><td></td></tr><tr><td>Commodity contracts:</td><td></td><td></td><td></td><td></td></tr><tr><td>Embedded derivatives in provisional sales/purchase contracts</td><td>7</td><td>—</td><td>7</td><td>—</td></tr><tr><td>Copper derivatives</td><td>—</td><td>1</td><td>—</td><td>1</td></tr><tr><td></td><td>7</td><td>1</td><td>7</td><td>1</td></tr><tr><td>Net amounts presented in balance sheet:</td><td></td><td></td><td></td><td></td></tr><tr><td>Commodity contracts:</td><td></td><td></td><td></td><td></td></tr><tr><td>Embedded derivatives in provisional sales/purchase contracts</td><td>16</td><td>155</td><td>32</td><td>55</td></tr><tr><td>Copper derivatives</td><td>—</td><td>11</td><td>9</td><td>1</td></tr><tr><td></td><td>$16</td><td>$166</td><td>$41</td><td>$56</td></tr><tr><td>Balance sheet classification:</td><td></td><td></td><td></td><td></td></tr><tr><td>Trade accounts receivable</td><td>$ 3</td><td>$151</td><td>$24</td><td>$ —</td></tr><tr><td>Other current assets</td><td>—</td><td>11</td><td>—</td><td>—</td></tr><tr><td>Accounts payable and accrued liabilities</td><td>13</td><td>4</td><td>17</td><td>56</td></tr><tr><td></td><td>$16</td><td>$166</td><td>$41</td><td>$56</td></tr></table>

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 December 31, 2018, the maximum amount of credit exposure associated with derivative transactions was $16 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 $2.3 billion at December 31, 2018, and $2.9 billion at December 31, 2017), 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 15 for the fair values of investment securities, legally restricted funds and long-term debt).

In addition, as of December 31, 2018, FCX has contingent consideration assets related to certain 2016 asset sales (refer to Note 15 for the related fair value and to Note 2 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 to the components presented in the consolidated balance sheets:

<table><tr><td>December 31,</td><td>2018</td><td>2017</td></tr><tr><td>Balance sheet components:</td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 4,217</td><td>$4,526</td></tr><tr><td>Restricted cash and restricted cash equivalents included in:</td><td></td><td></td></tr><tr><td>Other current assets</td><td>110</td><td>52</td></tr><tr><td>Other assets</td><td>128</td><td>132</td></tr><tr><td>Total cash, cash equivalents, restricted cash and restricted cash equivalents presented in the consolidated statements of cash flows</td><td>$ 4,455</td><td>$4,710</td></tr></table>

## NOTE 15. 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 did not have any significant transfers in or out of Level 3 for 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 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 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 14) follows:

<table><tr><td rowspan="3"></td><td colspan="6">At December 31, 2018</td></tr><tr><td rowspan="2">Carrying Amount</td><td colspan="5">Fair Value</td></tr><tr><td>Total</td><td>NAV</td><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Assets</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investment securities:a,b</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. core fixed income fund</td><td>$ 25</td><td>$ 25</td><td>$25</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Equity securities</td><td>4</td><td>4</td><td>—</td><td>4</td><td>—</td><td>—</td></tr><tr><td>Total</td><td>29</td><td>29</td><td>25</td><td>4</td><td>—</td><td>—</td></tr><tr><td>Legally restricted funds:a</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. core fixed income fund</td><td>55</td><td>55</td><td>55</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Government mortgage-backed securities</td><td>38</td><td>38</td><td>—</td><td>—</td><td>38</td><td>—</td></tr><tr><td>Government bonds and notes</td><td>36</td><td>36</td><td>—</td><td>—</td><td>36</td><td>—</td></tr><tr><td>Corporate bonds</td><td>28</td><td>28</td><td>—</td><td>—</td><td>28</td><td>—</td></tr><tr><td>Asset-backed securities</td><td>11</td><td>11</td><td>—</td><td>—</td><td>11</td><td>—</td></tr><tr><td>Collateralized mortgage-backed securities</td><td>7</td><td>7</td><td>—</td><td>—</td><td>7</td><td>—</td></tr><tr><td>Money market funds</td><td>5</td><td>5</td><td>—</td><td>5</td><td>—</td><td>—</td></tr><tr><td>Municipal bonds</td><td>1</td><td>1</td><td>—</td><td>—</td><td>1</td><td>—</td></tr><tr><td>Total</td><td>181</td><td>181</td><td>55</td><td>5</td><td>121</td><td>—</td></tr><tr><td>Derivatives:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Embedded derivatives in provisional copper, gold and cobalt</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>sales/purchase contracts in a gross asset positionc</td><td>23</td><td>23</td><td>—</td><td>—</td><td>23</td><td>—</td></tr><tr><td>Contingent consideration for the sales of TFHL and onshore California oil and gas propertiesa</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total</td><td>73</td><td>73</td><td>—</td><td>—</td><td>73</td><td>—</td></tr><tr><td>Contingent consideration for the sale of the Deepwater GOM oil and gas propertiesa</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total</td><td>143</td><td>127</td><td>—</td><td>—</td><td>—</td><td>127</td></tr><tr><td>Liabilities</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Derivatives:c</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Embedded derivatives in provisional copper, gold and cobalt</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>sales/purchase contracts in a gross liability position</td><td>$ 39</td><td>$ 39</td><td>$ —</td><td>$ —</td><td>$ 39</td><td>$ —</td></tr><tr><td>Copper futures and swap contracts</td><td>9</td><td>9</td><td>—</td><td>7</td><td>2</td><td>—</td></tr><tr><td>Total</td><td>48</td><td>48</td><td>—</td><td>7</td><td>41</td><td>—</td></tr><tr><td>Long-term debt, including current portiond</td><td>11,141</td><td>10,238</td><td>—</td><td>—</td><td>10,238</td><td>—</td></tr></table>



<table><tr><td rowspan="3"></td><td colspan="6">At December 31, 2017</td></tr><tr><td rowspan="2">Carrying Amount</td><td colspan="5">Fair Value</td></tr><tr><td>Total</td><td>NAV</td><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Assets</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investment securities:a,b</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. core fixed income fund</td><td>$ 25</td><td>$ 25</td><td>$25</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Equity securities</td><td>5</td><td>5</td><td>—</td><td>5</td><td>—</td><td>—</td></tr><tr><td>Total</td><td>30</td><td>30</td><td>25</td><td>5</td><td>—</td><td>—</td></tr><tr><td>Legally restricted funds:a</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. core fixed income fund</td><td>55</td><td>55</td><td>55</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Government bonds and notes</td><td>40</td><td>40</td><td>—</td><td>—</td><td>40</td><td>—</td></tr><tr><td>Corporate bonds</td><td>32</td><td>32</td><td>—</td><td>—</td><td>32</td><td>—</td></tr><tr><td>Government mortgage-backed securities</td><td>27</td><td>27</td><td>—</td><td>—</td><td>27</td><td>—</td></tr><tr><td>Asset-backed securities</td><td>15</td><td>15</td><td>—</td><td>—</td><td>15</td><td>—</td></tr><tr><td>Money market funds</td><td>11</td><td>11</td><td>—</td><td>11</td><td>—</td><td>—</td></tr><tr><td>Collateralized mortgage-backed securities</td><td>8</td><td>8</td><td>—</td><td>—</td><td>8</td><td>—</td></tr><tr><td>Municipal bonds</td><td>1</td><td>1</td><td>—</td><td>—</td><td>1</td><td>—</td></tr><tr><td>Total</td><td>189</td><td>189</td><td>55</td><td>11</td><td>123</td><td>—</td></tr><tr><td>Derivatives:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Embedded derivatives in provisional copper, gold and cobalt</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>sales/purchase contracts in a gross asset positionc</td><td>155</td><td>155</td><td>—</td><td>—</td><td>155</td><td>—</td></tr><tr><td>Copper futures and swap contractsc</td><td>11</td><td>11</td><td>—</td><td>9</td><td>2</td><td>—</td></tr><tr><td>Copper forward contractsc</td><td>1</td><td>1</td><td>—</td><td>—</td><td>1</td><td>—</td></tr><tr><td>Contingent consideration for the sales of TFHL and onshore California</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>oil and gas propertiesa</td><td>108</td><td>108</td><td>—</td><td>—</td><td>108</td><td>—</td></tr><tr><td>Total</td><td>275</td><td>275</td><td>—</td><td>9</td><td>266</td><td>—</td></tr><tr><td>Contingent consideration for the sale of the Deepwater GOM</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>oil and gas propertiesa</td><td>150</td><td>134</td><td>—</td><td>—</td><td>—</td><td>134</td></tr><tr><td>Liabilities</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Derivatives:c</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Embedded derivatives in provisional copper, gold and cobalt</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>sales/purchase contracts in a gross liability position</td><td>$ 55</td><td>$ 55</td><td>$ —</td><td>$ —</td><td>$ 55</td><td>$ —</td></tr><tr><td>Copper forward contracts</td><td>2</td><td>2</td><td>—</td><td>1</td><td>1</td><td>—</td></tr><tr><td>Total</td><td>57</td><td>57</td><td>—</td><td>1</td><td>56</td><td>—</td></tr><tr><td>Long-term debt, including current portiond</td><td>13,229</td><td>13,381</td><td>—</td><td>—</td><td>13,381</td><td>—</td></tr></table>

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 $109 million at December 31, 2018, and $52 million at December 31, 2017, and (ii) other assets of $126 million at December 31, 2018, and $123 million at December 31, 2017, primarily associated with an assurance bond to support PT-FI's commitment for the development of a new smelter in Indonesia (refer to Note 13 for further discussion) and PT-FI's closure and reclamation guarantees (refer to Note 12 for further discussion).

c. Refer to Note 14 for further discussion and balance sheet classifications.

d. Recorded at cost except for debt assumed in acquisitions, which are recorded at fair value at the respective acquisition dates.



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. 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 only 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 14 for further discussion); however, FCX’s contracts themselves are not traded on an exchange. FCX’s embedded derivatives on provisional cobalt purchases 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. As a result, these derivatives are classified within Level 2 of the fair value hierarchy.

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 14 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.
The fair value of contingent consideration for the sales of TFHL and onshore California oil and gas properties (refer to Note 2 for further discussion) is 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.

The fair value of contingent consideration for the sale of Deepwater GOM oil and gas properties (refer to Note 2 for further discussion) is 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 NRV or reflective of future fair values. Furthermore, while FCX believes its valuation techniques are appropriate and consistent with those used by 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 December 31, 2018.

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, for the years ended December 31 follows:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Balance at beginning of year</td><td>$134</td><td>$135</td><td>$ -</td></tr><tr><td>Net unrealized (losses) gains related to assets still held at the end of the year</td><td>-</td><td>(1)</td><td>135</td></tr><tr><td>Settlements</td><td>(7)</td><td>-</td><td>-</td></tr><tr><td>Balance at the end of the year</td><td>$127</td><td>$134</td><td>$135</td></tr></table>

Refer to Notes 1, 2 and 5 for a discussion of the fair value estimates associated with other assets acquired and liabilities assumed related to the PT-FI divestment, which were determined based on inputs not observable in the market and thus represent Level 3 measurements.



## NOTE 16. BUSINESS SEGMENT INFORMATION

Product Revenues. FCX’s revenues attributable to the products it sold for the years ended December 31 follow:

<table><tr><td></td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Copper:</td><td></td><td></td><td></td></tr><tr><td>Concentrate</td><td>$ 6,180</td><td>$ 5,604</td><td>$ 5,048</td></tr><tr><td>Cathode</td><td>4,366</td><td>3,759</td><td>3,495</td></tr><tr><td>Rod, and other refined copper products</td><td>2,396</td><td>2,387</td><td>2,082</td></tr><tr><td>Purchased copper \( ^{a} \)</td><td>1,053</td><td>789</td><td>428</td></tr><tr><td>Gold</td><td>3,231</td><td>2,126</td><td>1,592</td></tr><tr><td>Molybdenum</td><td>1,190</td><td>896</td><td>659</td></tr><tr><td>Other \( ^{b} \)</td><td>1,490</td><td>1,159</td><td>2,145</td></tr><tr><td>Adjustments to revenues:</td><td></td><td></td><td></td></tr><tr><td>Treatment charges</td><td>(535)</td><td>(536)</td><td>(652)</td></tr><tr><td>Royalty expense \( ^{c} \)</td><td>(246)</td><td>(181)</td><td>(138)</td></tr><tr><td>Export duties \( ^{d} \)</td><td>(180)</td><td>(115)</td><td>(95)</td></tr><tr><td>Revenues from contracts with customers</td><td>18,945</td><td>15,888</td><td>14,564</td></tr><tr><td>Embedded derivatives \( ^{e} \)</td><td>(317)</td><td>515</td><td>266</td></tr><tr><td>Total consolidated revenues</td><td>$18,628</td><td>$16,403</td><td>$14,830</td></tr></table>

a. FCX purchases copper cathode primarily for processing by its Rod & Refining operations.

b. Primarily includes revenues associated with cobalt, silver, oil, gas and natural gas liquids.

c. Reflects royalties for sales from PT-FI and Cerro Verde that will vary with the volume of metal sold and the prices of copper and gold.

d. Refer to Note 13 for discussion of PT-FI export duties.

e. Refer to Note 14 for discussion of embedded derivatives related to FCX’s provisionally priced concentrate and cathode sales contracts.

Geographic Area. Information concerning financial data by geographic area follows:

<table><tr><td>December 31,</td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Long-lived assets: \( ^{a} \)</td><td></td><td></td><td></td></tr><tr><td>Indonesia</td><td>$14,025</td><td>$ 8,938</td><td>$ 8,794</td></tr><tr><td>U.S.</td><td>8,208</td><td>8,312</td><td>8,282</td></tr><tr><td>Peru</td><td>7,274</td><td>7,485</td><td>7,981</td></tr><tr><td>Chile</td><td>1,128</td><td>1,221</td><td>1,269</td></tr><tr><td>Other</td><td>458</td><td>408</td><td>378</td></tr><tr><td>Total</td><td>$31,093</td><td>$26,364</td><td>$26,704</td></tr></table>

a. Excludes deferred tax assets and intangible assets.

<table><tr><td>Years Ended December 31,</td><td>2018</td><td>2017</td><td>2016</td></tr><tr><td>Revenues: \( ^{a} \)</td><td></td><td></td><td></td></tr><tr><td>U.S.</td><td>$ 5,790</td><td>$ 5,344</td><td>$ 5,896</td></tr><tr><td>Switzerland</td><td>2,941</td><td>1,200</td><td>1,147</td></tr><tr><td>Indonesia</td><td>2,226</td><td>2,023</td><td>1,402</td></tr><tr><td>Japan</td><td>1,946</td><td>1,882</td><td>1,350</td></tr><tr><td>Spain</td><td>1,070</td><td>1,086</td><td>878</td></tr><tr><td>China</td><td>873</td><td>1,136</td><td>1,125</td></tr><tr><td>India</td><td>389</td><td>782</td><td>553</td></tr><tr><td>United Kingdom</td><td>296</td><td>226</td><td>204</td></tr><tr><td>Chile</td><td>294</td><td>248</td><td>250</td></tr><tr><td>Belgium</td><td>278</td><td>39</td><td>87</td></tr><tr><td>Korea</td><td>269</td><td>364</td><td>219</td></tr><tr><td>Germany</td><td>256</td><td>161</td><td>162</td></tr><tr><td>France</td><td>255</td><td>122</td><td>80</td></tr><tr><td>Philippines</td><td>221</td><td>378</td><td>261</td></tr><tr><td>Bermuda</td><td>207</td><td>226</td><td>273</td></tr><tr><td>Other</td><td>1,317</td><td>1,186</td><td>943</td></tr><tr><td>Total</td><td>$18,628</td><td>$16,403</td><td>$14,830</td></tr></table>

a. Revenues are attributed to countries based on the location of the customer.

Major Customers and Affiliated Companies. Copper concentrate sales to PT Smelting totaled 12 percent of FCX’s consolidated revenues for both the years ended December 31, 2018 and 2017, which is the only customer that accounted for 10 percent or more of FCX’s consolidated revenues during the three years ended December 31, 2018.

Consolidated revenues include sales to the noncontrolling interest owners of FCX’s South America mining operations totaling $1.2 billion in 2018, $1.1 billion in 2017 and $1.0 billion in 2016, and PT-FI’s sales to PT Smelting totaling $2.2 billion in 2018, $2.0 billion in 2017 and $1.4 billion in 2016.

Labor Matters. As of December 31, 2018, approximately 37 percent of FCX’s global labor force was covered by collective bargaining agreements, and approximately 21 percent was covered by agreements that expired and are currently being negotiated or will expire within one year.

Business Segments. FCX has organized its mining operations into four primary divisions—North America copper mines, South America mining, Indonesia mining and Molybdenum mines, and operating segments that meet certain thresholds are reportable segments. Separately disclosed in the following tables are FCX’s reportable segments, which include the Morenci, Cerro Verde and Grasberg (Indonesia Mining) copper mines, the Rod & Refining operations and Atlantic Copper Smelting & Refining.



Intersegment sales between FCX’s business segments are based on terms similar to arms-length transactions with third parties at the time of the sale. Intersegment sales may not be reflective of the actual prices ultimately realized because of a variety of factors, including additional processing, timing of sales to unaffiliated customers and transportation premiums.

FCX defers recognizing profits on sales from its mines to other divisions, including Atlantic Copper (FCX’s wholly owned smelter and refinery in Spain) and on 25 percent of PT-FI’s sales to PT Smelting (PT-FI’s 25-percent-owned smelter and refinery in Indonesia), until final sales to third parties occur. Quarterly variations in ore grades, the timing of intercompany shipments and changes in product prices result in variability in FCX’s net deferred profits and quarterly earnings.

FCX allocates certain operating costs, expenses and capital expenditures to its operating divisions and individual segments. However, not all costs and expenses applicable to an operation are allocated. U.S. federal and state income taxes are recorded and managed at the corporate level (included in Corporate, Other & Eliminations), whereas foreign income taxes are recorded and managed at the applicable country level. In addition, most mining exploration and research activities are managed on a consolidated basis, and those costs, along with some selling, general and administrative costs, are not allocated to the operating divisions or individual segments. Accordingly, the following Financial Information by Business Segment reflects management determinations that may not be indicative of what the actual financial performance of each operating division or segment would be if it was an independent entity.

North America Copper Mines. FCX operates seven open-pit copper mines in North America—Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico. The North America copper mines include open-pit mining, sulfide ore concentrating, leaching and SX/EW operations. A majority of the copper produced at the North America copper mines is cast into copper rod by FCX's Rod & Refining segment. In addition to copper, certain of FCX's North America copper mines also produce molybdenum concentrate, gold and silver.

The Morenci open-pit mine, located in southeastern Arizona, produces copper cathode and copper concentrate. In addition to copper, the Morenci mine also produces molybdenum concentrate. The Morenci mine produced 49 percent of FCX's North America copper during 2018.

South America Mining. South America mining includes two operating copper mines—Cerro Verde in Peru and El Abra in Chile. These operations include open-pit mining, sulfide ore concentrating, leaching and SX/EW operations.
The Cerro Verde open-pit copper mine, located near Arequipa, Peru, produces copper cathode and copper concentrate. In addition to copper, the Cerro Verde mine also produces molybdenum concentrate and silver. The Cerro Verde mine produced 84 percent of FCX's South America copper during 2018.

Indonesia Mining. Indonesia mining includes PT-FI's Grasberg minerals district that produces copper concentrate that contains significant quantities of gold and silver.

Molybdenum Mines. Molybdenum mines include the wholly owned Henderson underground mine and Climax open-pit mine, both in Colorado. The Henderson and Climax mines produce high-purity, chemical-grade molybdenum concentrate, which is typically further processed into value-added molybdenum chemical products.

Rod & Refining. The Rod & Refining segment consists of copper conversion facilities located in North America, and includes a refinery, three rod mills and a specialty copper products facility, which are combined in accordance with segment reporting aggregation guidance. These operations process copper produced at FCX's North America copper mines and purchased copper into copper cathode, rod and custom copper shapes. At times these operations refine copper and produce copper rod and shapes for customers on a toll basis. Toll arrangements require the tolling customer to deliver appropriate copper-bearing material to FCX's facilities for processing into a product that is returned to the customer, who pays FCX for processing its material into the specified products.

Atlantic Copper Smelting & Refining. Atlantic Copper smelters and refines copper concentrate and markets refined copper and precious metals in slimes. During 2018, Atlantic Copper purchased 14 percent of its concentrate requirements from the North America copper mines, 5 percent from the South America mining operations and 4 percent from the Indonesia mining operations, with the remainder purchased from unaffiliated third parties.

Corporate, Other & Eliminations. Corporate, Other & Eliminations consists of FCX's other mining and eliminations, oil and gas operations and other corporate and elimination items. Other mining and eliminations include the Miami smelter (a smelter at FCX's Miami, Arizona, mining operation), Freeport Cobalt, molybdenum conversion facilities in the U.S. and Europe, five non-operating copper mines in North America (Ajo, Bisbee, Tohono, Twin Buttes and Christmas in Arizona) and other mining support entities.



## FINANCIAL INFORMATION BY BUSINESS SEGMENT

<table><tr><td rowspan="2"></td><td colspan="4">North America Copper Mines</td><td colspan="4">South America</td><td rowspan="2">Atlantic Copper Smelting &amp; Refining</td><td rowspan="2">Corporate, Other &amp; Eliminations</td><td rowspan="2">FCX Total</td></tr><tr><td>Morenic</td><td>Other</td><td>Total</td><td>Cerro Verde</td><td>Other</td><td>Total</td><td>Indonesia Mining</td><td>Molybdenum Mines</td></tr><tr><td>Year Ended December 31, 2018</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Unaffiliated customers</td><td>$ 90</td><td>$ 54</td><td>$ 144</td><td>$2,709</td><td>$ 594</td><td>$ 3,303</td><td>$ 5,446</td><td>$ —</td><td>$5,103</td><td>$2,299</td><td>$ 2,333a</td><td>$18,628</td><td></td></tr><tr><td>Intersegment</td><td>2,051</td><td>2,499</td><td>4,550</td><td>352</td><td>—</td><td>352</td><td>113</td><td>410</td><td>31</td><td>3</td><td>(5,459)</td><td>—</td><td></td></tr><tr><td>Production and delivery</td><td>1,183</td><td>1,945</td><td>3,128</td><td>1,887b,c</td><td>478</td><td>2,365</td><td>1,864d</td><td>289</td><td>5,117</td><td>2,218</td><td>(3,290)</td><td>11,691</td><td></td></tr><tr><td>Depreciation, depletion and amortization</td><td>176</td><td>184</td><td>360</td><td>456</td><td>90</td><td>546</td><td>606</td><td>79</td><td>11</td><td>27</td><td>125e</td><td>1,754</td><td></td></tr><tr><td>Selling, general and administrative expenses</td><td>3</td><td>3</td><td>6</td><td>9</td><td>—</td><td>9</td><td>123</td><td>—</td><td>—</td><td>21</td><td>284</td><td>443</td><td></td></tr><tr><td>Mining exploration and research expenses</td><td>—</td><td>3</td><td>3</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>102</td><td>105</td><td></td></tr><tr><td>Environmental obligations and shutdown costs</td><td>—</td><td>2</td><td>2</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>87</td><td>89</td><td></td></tr><tr><td>Net gain on sales of assets</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>——</td><td>—</td><td>—</td><td>(208)f</td><td>(208)</td><td></td></tr><tr><td>Operating income (loss)</td><td>779</td><td>416</td><td>1,195</td><td>709</td><td>26</td><td>735</td><td>2,966</td><td>42</td><td>6</td><td>36</td><td>(226)</td><td>4,754</td><td></td></tr><tr><td>Interest expense, net</td><td>3</td><td>1</td><td>4</td><td>429e</td><td>—</td><td>429</td><td>1</td><td>—</td><td>—</td><td>25</td><td>486</td><td>945</td><td></td></tr><tr><td>Provision for (benefit from) income taxes</td><td>—</td><td>—</td><td>—</td><td>253c</td><td>15</td><td>268</td><td>755g</td><td>—</td><td>—</td><td>1</td><td>(33)h</td><td>991</td><td></td></tr><tr><td>Total assets at December 31, 2018</td><td>2,922</td><td>4,608</td><td>7,530</td><td>8,524</td><td>1,707</td><td>10,231</td><td>15,646</td><td>1,796</td><td>233</td><td>773</td><td>6,007</td><td>42,216</td><td></td></tr><tr><td>Capital expenditures</td><td>216</td><td>385</td><td>601</td><td>220</td><td>17</td><td>237</td><td>1,001</td><td>9</td><td>5</td><td>16</td><td>102</td><td>1,971</td><td></td></tr><tr><td>Year Ended December 31, 2017</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Unaffiliated customers</td><td>$ 228</td><td>$ 180</td><td>$ 408</td><td>$2,811</td><td>$ 498</td><td>$ 3,309</td><td>$ 4,445</td><td>$ —</td><td>$4,456</td><td>$2,031</td><td>$ 1,754a</td><td>$16,403</td><td></td></tr><tr><td>Intersegment</td><td>1,865</td><td>2,292</td><td>4,157</td><td>385</td><td>—</td><td>385</td><td>—</td><td>268</td><td>26</td><td>1</td><td>(4,837)</td><td>—</td><td></td></tr><tr><td>Production and delivery</td><td>1,043</td><td>1,702</td><td>2,745</td><td>1,878e</td><td>366</td><td>2,244</td><td>1,735i</td><td>227</td><td>4,467</td><td>1,966</td><td>(3,118)</td><td>10,266i</td><td></td></tr><tr><td>Depreciation, depletion and amortization</td><td>178</td><td>247</td><td>425</td><td>441</td><td>84</td><td>525</td><td>556</td><td>76</td><td>10</td><td>28</td><td>94</td><td>1,714</td><td></td></tr><tr><td>Selling, general and administrative expenses</td><td>2</td><td>2</td><td>4</td><td>9</td><td>—</td><td>9</td><td>126i</td><td>—</td><td>—</td><td>18</td><td>320</td><td>477</td><td></td></tr><tr><td>Mining exploration and research expenses</td><td>—</td><td>2</td><td>2</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>91</td><td>93</td><td></td></tr><tr><td>Environmental obligations and shutdown costs</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>——</td><td>—</td><td>—</td><td>244</td><td>244</td><td></td></tr><tr><td>Net gain on sales of assets</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>——</td><td>—</td><td>—</td><td>(81)f</td><td>(81)</td><td></td></tr><tr><td>Operating income (loss)</td><td>870</td><td>519</td><td>1,389</td><td>868</td><td>48</td><td>916</td><td>2,028</td><td>(35)</td><td>5</td><td>20</td><td>(633)</td><td>3,690</td><td></td></tr><tr><td>Interest expense, net</td><td>3</td><td>1</td><td>4</td><td>212e</td><td>—</td><td>212</td><td>4</td><td>—</td><td>—</td><td>18</td><td>563</td><td>801</td><td></td></tr><tr><td>Provision for (benefit from) income taxes</td><td>—</td><td>—</td><td>—</td><td>436e</td><td>10</td><td>446</td><td>869</td><td>—</td><td>—</td><td>5</td><td>(437)h</td><td>883</td><td></td></tr><tr><td>Total assets at December 31, 2017</td><td>2,861</td><td>4,241</td><td>7,102</td><td>8,878</td><td>1,702</td><td>10,580</td><td>10,911</td><td>1,858</td><td>277</td><td>822</td><td>5,752</td><td>37,302</td><td></td></tr><tr><td>Capital expenditures</td><td>114</td><td>53</td><td>167</td><td>103</td><td>12</td><td>115</td><td>875</td><td>5</td><td>4</td><td>41</td><td>203</td><td>1,410</td><td></td></tr></table>

a. includes revenues from FX's molybdenum sales component, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North America and South America copper mines.

b. Includes charges totaling $69 million associated with Cerro Verde's new three-year collective labor agreement.

c. Includes net charges totaling $14 million in production and delivery costs in 2018 and $203 million in 2017, $370 million in interest expense in 2018 and $145 million in 2017, and $35 million of net tax benefits in provision for income taxes in 2018 and $7 million of net tax charges in 2017 associated with disputed royalties for prior years.

d. Includes net charges of $223 million primarily associated with surface water tax disputes with the local regional tax authority in Papua, assessments of prior period permit fees with the MOEF, disputed payroll withholding taxes for prior years and other tax settlements, and to write-off certain previously capitalized project costs for the new smelter in Indonesia, partially offset by inventory adjustments.

e. Includes $31 million of depreciation expense at Freeport Cobalt from December 2016 through December 2017 that was suspended while it was classified as held for sale.

f. Includes net gains in 2018 totaling $97 million associated with a favorable adjustment to the estimated fair value less costs to sell for Freeport Cobalt and fair value adjustments of $31 million associated with potential contingent consideration related to the 2016 sale of onshore California oil and gas properties; and net gains in 2017, primarily associated with sales of oil and gas properties of $49 million and a favorable adjustment of $13 million associated with the estimated fair value less costs to sell for the Kisantu exploration project. Refer to Note 2 for further discussion.

g. Includes tax credits totaling $571 million related to the change in PT-FI's tax rates in accordance with its IUPK ($504 million), U.S. tax reform ($47 million) and adjustment to PT-FI's historical tax positions ($20 million).
h. Includes net tax credits totaling $76 million in 2018 and $438 million in 2017 primarily related to U.S. tax reform. Refer to Note 11 for further discussion.

i. Includes net charges at PT-FI associated with workforce reductions totaling $120 million in production and delivery costs and $5 million in selling, general and administrative expenses.

j. Includes a $42 million decrease related to the adoption of the new guidance for the presentation of net periodic benefit cost for pension and other postretirement benefit plans (refer to Note 1 for further discussion).



## FINANCIAL INFORMATION BY BUSINESS SEGMENT (continued)

<table><tr><td rowspan="2"></td><td colspan="3">North America Copper Mines</td><td colspan="8">South America</td><td rowspan="2">Atlantic Copper Smelting &amp; Refining</td><td rowspan="2">Corporate, Other &amp; Eliminations</td><td rowspan="2">FCX Total</td></tr><tr><td>Morenci</td><td>Other</td><td>Total</td><td>Cerro Verde</td><td>Other</td><td>Total</td><td>Indonesia Mining</td><td>Molybdenum Mines</td><td>Rod &amp; Refining</td><td></td></tr><tr><td>Year Ended December 31, 2016</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Unaffiliated customers</td><td>$ 444</td><td>$ 240</td><td>$ 684</td><td>$2,241</td><td>$ 510</td><td>$ 2,751</td><td>$ 3,233</td><td>$ —</td><td>$3,833</td><td>$1,825</td><td>$ 2,504^{a,b}</td><td>$14,830</td><td></td></tr><tr><td>Intersegment</td><td>1,511</td><td>2,179</td><td>3,690</td><td>187</td><td>—</td><td>187</td><td>62</td><td>186</td><td>29</td><td>5</td><td>(4,159)</td><td>—</td><td></td></tr><tr><td>Production and delivery</td><td>1,162</td><td>1,752</td><td>2,914</td><td>1,351</td><td>407</td><td>1,758</td><td>1,775</td><td>212</td><td>3,833</td><td>1,712</td><td>(1,517)^{c}</td><td>10,687^{d}</td><td></td></tr><tr><td>Depreciation, depletion and amortization</td><td>217</td><td>313</td><td>530</td><td>443</td><td>110</td><td>553</td><td>384</td><td>68</td><td>10</td><td>29</td><td>956</td><td>2,530</td><td></td></tr><tr><td>Impairment of oil and gas properties</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td></td><td>—</td><td>—</td><td>4,317</td><td>4,317</td><td></td></tr><tr><td>Selling, general and administrative expenses</td><td>2</td><td>3</td><td>5</td><td>8</td><td>1</td><td>9</td><td>88</td><td>—</td><td>—</td><td>17</td><td>478^{e}</td><td>597</td><td></td></tr><tr><td>Mining exploration and research expenses</td><td>—</td><td>3</td><td>3</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>60</td><td>63</td><td></td></tr><tr><td>Environmental obligations and shutdown costs</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td></td><td>—</td><td>—</td><td>14</td><td>14</td><td></td></tr><tr><td>Net gain on sales of assets</td><td>(576)</td><td>—</td><td>(576)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(73)</td><td>(649)</td><td></td></tr><tr><td>Operating income (loss)</td><td>1,150</td><td>348</td><td>1,498</td><td>626</td><td>(8)</td><td>618</td><td>1,048</td><td>(94)</td><td>19</td><td>72</td><td>(5,890)</td><td>(2,729)</td><td></td></tr><tr><td>Interest expense, net</td><td>3</td><td>1</td><td>4</td><td>82</td><td>—</td><td>82</td><td>—</td><td>—</td><td>—</td><td>15</td><td>654</td><td>755</td><td></td></tr><tr><td>Provision for (benefit from) income taxes</td><td>—</td><td>—</td><td>—</td><td>222</td><td>(6)</td><td>216</td><td>442</td><td>—</td><td>—</td><td>9</td><td>(296)</td><td>371</td><td></td></tr><tr><td>Total assets at December 31, 2016</td><td>2,863</td><td>4,448</td><td>7,311</td><td>9,076</td><td>1,533</td><td>10,609</td><td>10,493</td><td>1,934</td><td>220</td><td>658</td><td>6,092</td><td>37,317</td><td></td></tr><tr><td>Capital expenditures</td><td>77</td><td>25</td><td>102</td><td>380</td><td>2</td><td>382</td><td>1,025</td><td>2</td><td>1</td><td>17</td><td>1,284^{a}</td><td>2,813</td><td></td></tr></table>

a. Includes revenues from FCX's molybdenum sales company, which included sales of molybdenum produced by the Molybdenum mines and by certain of the North America and South America copper mines.
b. Includes net mark-to-market losses totaling $35 million associated with oil derivative contracts, which were entered into as part of the terms to sell the onshore California oil and gas properties in 2016.
c. Includes net charges for oil and gas operations totaling $1.0 billion in production and delivery costs, primarily for drillship settlements/idle rig and contract termination costs, inventory adjustments, asset impairments and other net charges, and $85 million in selling, general and administrative expenses for net restructuring charges.

d. Includes a $46 million decrease related to the adoption of the new guidance for the presentation of net periodic benefit cost for pension and other postretirement benefit plans (refer to Note 1 for further discussion).
e. Includes $1.2 billion associated with oil and gas operations and $73 million associated with discontinued operations. Refer to Note 2 for a summary of the results of discontinued operations.

## NOTE 17. GUARANTOR FINANCIAL STATEMENTS

All of the senior notes issued by FCX and discussed in Note 8 are fully and unconditionally guaranteed on a senior basis jointly and severally by FM O&G LLC, as guarantor, which is a 100-percent-owned subsidiary of FM O&G and FCX. The guarantee is an unsecured obligation of the guarantor and ranks equal in right of payment with all existing and future indebtedness of FM O&G LLC, including indebtedness under FCX's revolving credit facility. The guarantee ranks senior in right of payment with all of FM O&G LLC's future subordinated obligations and is effectively subordinated in right of payment to any debt of FM O&G LLC's subsidiaries. The indentures provide that FM O&G LLC's guarantee may be released or terminated for certain obligations under the following circumstances: (i) all or substantially all of the equity interests or assets of FM O&G LLC are sold to a third party; or (ii) FM O&G LLC no longer has any obligations under any FM O&G senior notes or any refinancing thereof and no longer guarantees any obligations of FCX under the revolving credit facility or any other senior debt or, in each case, any refinancing thereof.



The following condensed consolidating financial information includes information regarding FCX, as issuer, FM O&G LLC, as guarantor, and all other non-guarantor subsidiaries of FCX. Included are the condensed consolidating balance sheets at December 31, 2018 and

## CONDENSED CONSOLIDATING BALANCE SHEETS

## ASSETS

Current assets

Property, plant, equipment and mine development costs, net

Investments in consolidated subsidiaries

Other assets

Total assets

## LIABILITIES AND EQUITY

Current liabilities

Long-term debt, less current portion

Deferred income taxes

Environmental and asset retirement obligations, less current portion

Investments in consolidated subsidiary

Other liabilities

Total liabilities

Equity:

Stockholders' equity

Noncontrolling interests

Total equity

Total liabilities and equity

a. All U.S.-related deferred income taxes are recorded at the parent company.
2017, and the related condensed consolidating statements of comprehensive income (loss) and the condensed consolidating statements of cash flows for the three years ended December 31, 2018, which should be read in conjunction with FCX's notes to the consolidated financial statements.

<table><tr><td rowspan="2"></td><td colspan="5">December 31, 2018</td></tr><tr><td>FCX Issuer</td><td>FM O&amp;G LLC Guarantor</td><td>Non-guarantor Subsidiaries</td><td>Eliminations</td><td>Consolidated FCX</td></tr><tr><td>$ 309</td><td>$ 620</td><td>$10,376</td><td>$ (585)</td><td>$10,720</td><td></td></tr><tr><td>19</td><td>7</td><td>27,984</td><td>-</td><td>28,010</td><td></td></tr><tr><td>19,064</td><td>-</td><td>-</td><td>(19,064)</td><td>-</td><td></td></tr><tr><td>880</td><td>23</td><td>3,218</td><td>(635)</td><td>3,486</td><td></td></tr><tr><td>$20,272</td><td>$ 650</td><td>$41,578</td><td>$ (20,284)</td><td>$42,216</td><td></td></tr><tr><td>$ 245</td><td>$ 34</td><td>$ 3,667</td><td>$ (617)</td><td>$ 3,329</td><td></td></tr><tr><td>9,594</td><td>6,984</td><td>5,649</td><td>(11,103)</td><td>11,124</td><td></td></tr><tr><td>524 \( ^{a} \)</td><td>-</td><td>3,508</td><td>-</td><td>4,032</td><td></td></tr><tr><td>-</td><td>227</td><td>3,382</td><td>-</td><td>3,609</td><td></td></tr><tr><td>-</td><td>578</td><td>10,513</td><td>(11,091)</td><td>-</td><td></td></tr><tr><td>111</td><td>3,340</td><td>2,265</td><td>(3,486)</td><td>2,230</td><td></td></tr><tr><td>10,474</td><td>11,163</td><td>28,984</td><td>(26,297)</td><td>24,324</td><td></td></tr><tr><td>9,798</td><td>(10,513)</td><td>9,912</td><td>601</td><td>9,798</td><td></td></tr><tr><td>-</td><td>-</td><td>2,682</td><td>5,412</td><td>8,094</td><td></td></tr><tr><td>9,798</td><td>(10,513)</td><td>12,594</td><td>6,013</td><td>17,892</td><td></td></tr><tr><td>$20,272</td><td>$ 650</td><td>$41,578</td><td>$ (20,284)</td><td>$42,216</td><td></td></tr></table>



## CONDENSED CONSOLIDATING BALANCE SHEETS (continued)

<table><tr><td rowspan="2"></td><td colspan="5">December 31, 2017</td></tr><tr><td>FCX Issuer</td><td>FM O&amp;G LLC Guarantor</td><td>Non-guarantor Subsidiaries</td><td>Eliminations</td><td>Consolidated FCX</td></tr><tr><td>ASSETS</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Current assets</td><td>$ 75</td><td>$ 671</td><td>$10,670</td><td>$ (790)</td><td>$10,626</td></tr><tr><td>Property, plant, equipment and mine development costs, net</td><td>14</td><td>11</td><td>22,979</td><td>(10)</td><td>22,994</td></tr><tr><td>Investments in consolidated subsidiaries</td><td>19,570</td><td>—</td><td>—</td><td>(19,570)</td><td>—</td></tr><tr><td>Other assets</td><td>943</td><td>48</td><td>3,182</td><td>(491)</td><td>3,682</td></tr><tr><td>Total assets</td><td>$20,602</td><td>$ 730</td><td>$36,831</td><td>$(20,861)</td><td>$37,302</td></tr><tr><td>LIABILITIES AND EQUITY</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Current liabilities</td><td>$ 1,683</td><td>$ 220</td><td>$ 3,949</td><td>$ (938)</td><td>$ 4,914</td></tr><tr><td>Long-term debt, less current portion</td><td>10,021</td><td>6,512</td><td>5,552</td><td>(10,270)</td><td>11,815</td></tr><tr><td>Deferred income taxes</td><td>748a</td><td>—</td><td>2,915</td><td>—</td><td>3,663</td></tr><tr><td>Environmental and asset retirement obligations, less current portion</td><td>—</td><td>201</td><td>3,401</td><td>—</td><td>3,602</td></tr><tr><td>Investments in consolidated subsidiary</td><td>—</td><td>853</td><td>10,397</td><td>(11,250)</td><td>—</td></tr><tr><td>Other liabilities</td><td>173</td><td>3,340</td><td>1,987</td><td>(3,488)</td><td>2,012</td></tr><tr><td>Total liabilities</td><td>12,625</td><td>11,126</td><td>28,201</td><td>(25,946)</td><td>26,006</td></tr><tr><td>Equity:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Stockholders&#x27; equity</td><td>7,977</td><td>(10,396)</td><td>5,916</td><td>4,480</td><td>7,977</td></tr><tr><td>Noncontrolling interests</td><td>—</td><td>—</td><td>2,714</td><td>605</td><td>3,319</td></tr><tr><td>Total equity</td><td>7,977</td><td>(10,396)</td><td>8,630</td><td>5,085</td><td>11,296</td></tr><tr><td>Total liabilities and equity</td><td>$20,602</td><td>$ 730</td><td>$36,831</td><td>$(20,861)</td><td>$37,302</td></tr></table>

a. All U.S.-related deferred income taxes are recorded at the parent company.



## CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

<table><tr><td rowspan="2"></td><td colspan="5">Year Ended December 31, 2018</td></tr><tr><td>FCX Issuer</td><td>FM O&amp;G LLC Guarantor</td><td>Non-guarantor Subsidiaries</td><td>Eliminations</td><td>Consolidated FCX</td></tr><tr><td>Revenues</td><td>$  58</td><td>$ 59</td><td>$ 18,569</td><td>$  18,628</td><td></td></tr><tr><td>Total costs and expenses</td><td>28</td><td>58</td><td>13,798</td><td>(10)</td><td>13,874</td></tr><tr><td>Operating (loss) income</td><td>(28)</td><td>1</td><td>4,771</td><td>10</td><td>4,754</td></tr><tr><td>Interest expense, net</td><td>(388)</td><td>(301)</td><td>(734)</td><td>478</td><td>(945)</td></tr><tr><td>Net gain (loss) on early extinguishment of debt</td><td>7</td><td>2</td><td>(2)</td><td>—</td><td>7</td></tr><tr><td>Other income (expense), net</td><td>477</td><td>—</td><td>77</td><td>(478)</td><td>76</td></tr><tr><td>Income (loss) before income taxes and equity in affiliated companies&#x27; net earnings (losses)</td><td>68</td><td>(298)</td><td>4,112</td><td>10</td><td>3,892</td></tr><tr><td>(Provision for) benefit from income taxes</td><td>(176)</td><td>61</td><td>(874)</td><td>(2)</td><td>(991)</td></tr><tr><td>Equity in affiliated companies&#x27; net earnings (losses)</td><td>2,710</td><td>10</td><td>(219)</td><td>(2,493)</td><td>8</td></tr><tr><td>Net income (loss) from continuing operations</td><td>2,602</td><td>(227)</td><td>3,019</td><td>(2,485)</td><td>2,909</td></tr><tr><td>Net loss from discontinued operations</td><td>—</td><td>—</td><td>(15)</td><td>—</td><td>(15)</td></tr><tr><td>Net income (loss)</td><td>2,602</td><td>(227)</td><td>3,004</td><td>(2,485)</td><td>2,894</td></tr><tr><td>Net income attributable to noncontrolling interests</td><td>—</td><td>—</td><td>(68)</td><td>(224)</td><td>(292)</td></tr><tr><td>Net income (loss) attributable to common stockholders</td><td>$2,602</td><td>$ (227)</td><td>$ 2,936</td><td>$ (2,709)</td><td>$ 2,602</td></tr><tr><td>Other comprehensive (loss) income</td><td>(33)</td><td>—</td><td>(33)</td><td>33</td><td>(33)</td></tr><tr><td>Total comprehensive income (loss)</td><td>$2,569</td><td>$ (227)</td><td>$ 2,903</td><td>$ (2,676)</td><td>$ 2,569</td></tr></table>

<table><tr><td></td><td>FCX Issuer</td><td>FM O&amp;G LLC Guarantor</td><td>Non-guarantor Subsidiaries</td><td>Eliminations</td><td>Consolidated FCX</td></tr><tr><td>Revenues</td><td>$  52</td><td>$ 52</td><td>$ 16,351</td><td>$   —</td><td>$ 16,403</td></tr><tr><td>Total costs and expenses</td><td>39</td><td>78</td><td>12,586</td><td>10</td><td>12,713</td></tr><tr><td>Operating (loss) income</td><td>(39)</td><td>(26)</td><td>3,765</td><td>(10)</td><td>3,690</td></tr><tr><td>Interest expense, net</td><td>(467)</td><td>(227)</td><td>(455)</td><td>348</td><td>(801)</td></tr><tr><td>Net gain (loss) on early extinguishment of debt</td><td>22</td><td>5</td><td>(6)</td><td>—</td><td>21</td></tr><tr><td>Other income (expense), net</td><td>336</td><td>—</td><td>4</td><td>(348)</td><td>(8)</td></tr><tr><td>(Loss) income before income taxes and equity in affiliated companies&#x27; net earnings (losses)</td><td>(148)</td><td>(248)</td><td>3,308</td><td>(10)</td><td>2,902</td></tr><tr><td>Benefit from (provision for) income taxes</td><td>220</td><td>(108)</td><td>(998)</td><td>3</td><td>(883)</td></tr><tr><td>Equity in affiliated companies&#x27; net earnings (losses)</td><td>1,745</td><td>10</td><td>(337)</td><td>(1,408)</td><td>10</td></tr><tr><td>Net income (loss) from continuing operations</td><td>1,817</td><td>(346)</td><td>1,973</td><td>(1,415)</td><td>2,029</td></tr><tr><td>Net income from discontinued operations</td><td>—</td><td>—</td><td>66</td><td>—</td><td>66</td></tr><tr><td>Net income (loss)</td><td>1,817</td><td>(346)</td><td>2,039</td><td>(1,415)</td><td>2,095</td></tr><tr><td>Net income attributable to noncontrolling interests:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Continuing operations</td><td>—</td><td>—</td><td>(150)</td><td>(124)</td><td>(274)</td></tr><tr><td>Discontinued operations</td><td>—</td><td>—</td><td>(4)</td><td>—</td><td>(4)</td></tr><tr><td>Net income (loss) attributable to common stockholders</td><td>$1,817</td><td>$ (346)</td><td>$ 1,885</td><td>$ (1,539)</td><td>$ 1,817</td></tr><tr><td>Other comprehensive income (loss)</td><td>61</td><td>—</td><td>61</td><td>(61)</td><td>61</td></tr><tr><td>Total comprehensive income (loss)</td><td>$1,878</td><td>$ (346)</td><td>$ 1,946</td><td>$ (1,600)</td><td>$ 1,878</td></tr></table>



## CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (continued)

<table><tr><td rowspan="2"></td><td colspan="5">Year Ended December 31, 2016</td></tr><tr><td>FCX Issuer</td><td>FM 0&amp;G LLC Guarantor</td><td>Non-guarantor Subsidiaries</td><td>Eliminations</td><td>Consolidated FCX</td></tr><tr><td>Revenues</td><td>$ —</td><td>$ 379</td><td>$ 14,451</td><td>$ —</td><td>$ 14,830</td></tr><tr><td>Total costs and expenses</td><td>72</td><td>3,074a</td><td>14,403a</td><td>10</td><td>17,559</td></tr><tr><td>Operating (loss) income</td><td>(72)</td><td>(2,695)</td><td>48</td><td>(10)</td><td>(2,729)</td></tr><tr><td>Interest expense, net</td><td>(534)</td><td>(56)</td><td>(498)</td><td>333</td><td>(755)</td></tr><tr><td>Net gain on early extinguishment of debt</td><td>26</td><td>—</td><td>—</td><td>—</td><td>26</td></tr><tr><td>Other income (expense), net</td><td>268</td><td>—</td><td>10</td><td>(292)</td><td>(14)</td></tr><tr><td>(Loss) income before income taxes and equity in affiliated companies&#x27; net (losses) earnings</td><td>(312)</td><td>(2,751)</td><td>(440)</td><td>31</td><td>(3,472)</td></tr><tr><td>(Provision for) benefit from income taxes</td><td>(2,233)</td><td>1,053</td><td>821</td><td>(12)</td><td>(371)</td></tr><tr><td>Equity in affiliated companies&#x27; net (losses) earnings</td><td>(1,609)</td><td>(3,101)</td><td>(4,790)</td><td>9,511</td><td>11</td></tr><tr><td>Net (loss) income from continuing operations</td><td>(4,154)</td><td>(4,799)</td><td>(4,409)</td><td>9,530</td><td>(3,832)</td></tr><tr><td>Net income from discontinued operations</td><td>—</td><td>—</td><td>(154)</td><td>(39)</td><td>(193)</td></tr><tr><td>Net (loss) income</td><td>(4,154)</td><td>(4,799)</td><td>(4,563)</td><td>9,491</td><td>(4,025)</td></tr><tr><td>Net income and gain on redemption and preferred dividends attributable to noncontrolling interests:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Continuing operations</td><td>—</td><td>—</td><td>—</td><td>(66)</td><td>(66)</td></tr><tr><td>Discontinued operations</td><td>—</td><td>—</td><td>(63)</td><td>—</td><td>(63)</td></tr><tr><td>Net (loss) income attributable to common stockholders</td><td>(4,154)</td><td>(4,799)</td><td>(4,626)</td><td>(9,425</td><td>(4,154)</td></tr><tr><td>Other comprehensive (loss) income</td><td>(45)</td><td>—</td><td>(45)</td><td>45</td><td>(45)</td></tr><tr><td>Total comprehensive (loss) income</td><td>(4,199)</td><td>(4,799)</td><td>(4,671)</td><td>(9,470</td><td>(4,199)</td></tr></table>

a. Includes impairment charges totaling $1.5 billion at the FM 0&G LLC Guarantor and $2.8 billion at the non-guarantor subsidiaries related to ceiling test impairment charges for FCX's oil and gas properties pursuant to full cost accounting rules and a goodwill impairment charge.



## CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

<table><tr><td rowspan="2"></td><td colspan="5">Year Ended December 31, 2018</td></tr><tr><td>FCX Issuer</td><td>FM O&amp;G LLC Guarantor</td><td>Non-guarantor Subsidiaries</td><td>Eliminations</td><td>Consolidated FCX</td></tr><tr><td>Net cash (used in) provided by operating activities</td><td>$ (40)</td><td>$ (487)</td><td>$ 4,390</td><td>$ —</td><td>$ 3,863</td></tr><tr><td>Cash flow from investing activities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Capital expenditures</td><td>(2)</td><td>—</td><td>(1,969)</td><td>—</td><td>(1,971)</td></tr><tr><td>Acquisition of PT Rio Tinto Indonesia</td><td>—</td><td>—</td><td>(3,500)</td><td>—</td><td>(3,500)</td></tr><tr><td>Intercompany loans</td><td>(832)</td><td>—</td><td>—</td><td>832</td><td>—</td></tr><tr><td>Dividends from (investments in) consolidated subsidiaries</td><td>2,475</td><td>—</td><td>84</td><td>(2,559)</td><td>—</td></tr><tr><td>Asset sales and other, net</td><td>460</td><td>6</td><td>(13)</td><td>—</td><td>453</td></tr><tr><td>Net cash provided by (used in) investing activities</td><td>2,101</td><td>6</td><td>(5,398)</td><td>(1,727)</td><td>(5,018)</td></tr><tr><td>Cash flow from financing activities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Proceeds from debt</td><td>—</td><td>—</td><td>632</td><td>—</td><td>632</td></tr><tr><td>Repayments of debt</td><td>(1,826)</td><td>(53)</td><td>(838)</td><td>—</td><td>(2,717)</td></tr><tr><td>Intercompany loans</td><td>—</td><td>526</td><td>306</td><td>(832)</td><td>—</td></tr><tr><td>Proceeds from sale of PT Freeport Indonesia shares</td><td>—</td><td>—</td><td>3,710</td><td>(210)</td><td>3,500</td></tr><tr><td>Cash dividends paid and distributions received, net</td><td>(217)</td><td>—</td><td>(3,032)</td><td>2,753</td><td>(496)</td></tr><tr><td>Other, net</td><td>(18)</td><td>—</td><td>(17)</td><td>16</td><td>(19)</td></tr><tr><td>Net cash (used in) provided by financing activities</td><td>(2,061)</td><td>473</td><td>761</td><td>1,727</td><td>900</td></tr><tr><td>Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents</td><td>—</td><td>(8)</td><td>(247)</td><td>—</td><td>(255)</td></tr><tr><td>Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year</td><td>—</td><td>8</td><td>4,702</td><td>—</td><td>4,710</td></tr><tr><td>Cash, cash equivalents, restricted cash and restricted cash equivalents at end of year</td><td>$ —</td><td>$ —</td><td>$ 4,455</td><td>$ —</td><td>$ 4,455</td></tr></table>

<table><tr><td rowspan="2"></td><td colspan="5">Year Ended December 31, 2017</td></tr><tr><td>FCX Issuer</td><td>FM O&amp;G LLC Guarantor</td><td>Non-guarantor Subsidiaries</td><td>Eliminations</td><td>Consolidated FCX</td></tr><tr><td>Net cash (used in) provided by operating activities</td><td>$ (156)</td><td>$ (467)</td><td>$ 5,289</td><td>$ —</td><td>$ 4,666</td></tr><tr><td>Cash flow from investing activities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Capital expenditures</td><td>—</td><td>(25)</td><td>(1,385)</td><td>—</td><td>(1,410)</td></tr><tr><td>Intercompany loans</td><td>(777)</td><td>—</td><td>—</td><td>777</td><td>—</td></tr><tr><td>Dividends from (investments in) consolidated subsidiaries</td><td>3,226</td><td>(15)</td><td>120</td><td>(3,331)</td><td>—</td></tr><tr><td>Asset sales and other, net</td><td>—</td><td>57</td><td>32</td><td>—</td><td>89</td></tr><tr><td>Net cash provided by (used in) investing activities</td><td>2,449</td><td>17</td><td>(1,233)</td><td>(2,554)</td><td>(1,321)</td></tr><tr><td>Cash flow from financing activities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Proceeds from debt</td><td>—</td><td>—</td><td>955</td><td>—</td><td>955</td></tr><tr><td>Repayments of debt</td><td>(2,281)</td><td>(205)</td><td>(1,326)</td><td>—</td><td>(3,812)</td></tr><tr><td>Intercompany loans</td><td>—</td><td>663</td><td>114</td><td>(777)</td><td>—</td></tr><tr><td>Cash dividends and distributions paid</td><td>(2)</td><td>—</td><td>(3,440)</td><td>3,266</td><td>(176)</td></tr><tr><td>Other, net</td><td>(10)</td><td>(10)</td><td>(67)</td><td>65</td><td>(22)</td></tr><tr><td>Net cash (used in) provided by financing activities</td><td>(2,293)</td><td>448</td><td>(3,764)</td><td>2,554</td><td>(3,055)</td></tr><tr><td>Net (decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents</td><td>—</td><td>(2)</td><td>292</td><td>—</td><td>290</td></tr><tr><td>Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year</td><td>—</td><td>10</td><td>4,410</td><td>—</td><td>4,420</td></tr><tr><td>Cash, cash equivalents, restricted cash and restricted cash equivalents at end of year</td><td>$ —</td><td>$ 8</td><td>$ 4,702</td><td>$ —</td><td>$ 4,710</td></tr></table>



## CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (continued)

<table><tr><td rowspan="2"></td><td colspan="5">Year Ended December 31, 2016</td></tr><tr><td>FCX Issuer</td><td>FM O&amp;G LLC Guarantor</td><td>Non-guarantor Subsidiaries</td><td>Eliminations</td><td>Consolidated FCX</td></tr><tr><td>Net cash (used in) provided by operating activities</td><td>$ (137)</td><td>$ (263)</td><td>$ 4,135</td><td>$ 2</td><td>$ 3,737</td></tr><tr><td>Cash flow from investing activities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Capital expenditures</td><td>—</td><td>(567)</td><td>(2,248)</td><td>2</td><td>(2,813)</td></tr><tr><td>Intercompany loans</td><td>481</td><td>(346)</td><td>—</td><td>(135)</td><td>—</td></tr><tr><td>Dividends from (investments in) consolidated subsidiaries</td><td>1,469</td><td>(45)</td><td>176</td><td>(1,600)</td><td>—</td></tr><tr><td>Asset sales and other, net</td><td>2</td><td>1,673</td><td>4,695</td><td>(4)</td><td>6,366</td></tr><tr><td>Net cash provided by (used in) investing activities</td><td>1,952</td><td>715</td><td>2,623</td><td>(1,737)</td><td>3,553</td></tr><tr><td>Cash flow from financing activities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Proceeds from debt</td><td>1,721</td><td>—</td><td>1,960</td><td>—</td><td>3,681</td></tr><tr><td>Repayments of debt</td><td>(5,011)</td><td>—</td><td>(2,614)</td><td>—</td><td>(7,625)</td></tr><tr><td>Intercompany loans</td><td>—</td><td>(332)</td><td>197</td><td>135</td><td>—</td></tr><tr><td>Net proceeds from sale of common stock</td><td>1,515</td><td>—</td><td>3,388</td><td>(3,388)</td><td>1,515</td></tr><tr><td>Cash dividends and distributions paid, including redemptions</td><td>(6)</td><td>(107)</td><td>(5,555)</td><td>4,969</td><td>(699)</td></tr><tr><td>Other, net</td><td>(34)</td><td>(3)</td><td>(20)</td><td>19</td><td>(38)</td></tr><tr><td>Net cash (used in) provided by financing activities</td><td>(1,815)</td><td>(442)</td><td>(2,644)</td><td>1,735</td><td>(3,166)</td></tr><tr><td>Net increase in cash, cash equivalents, restricted cash and restricted cash equivalents</td><td>—</td><td>10</td><td>4,114</td><td>—</td><td>4,124</td></tr><tr><td>Increase in cash and cash equivalents in assets held for sale</td><td>—</td><td>—</td><td>(45)</td><td>—</td><td>(45)</td></tr><tr><td>Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year</td><td>—</td><td>—</td><td>341</td><td>—</td><td>341</td></tr><tr><td>Cash, cash equivalents, restricted cash and restricted cash equivalents at end of year</td><td>$ —</td><td>$ 10</td><td>$ 4,410</td><td>$ —</td><td>$ 4,420</td></tr></table>

## NOTE 18. SUBSEQUENT EVENTS

FCX evaluated events after December 31, 2018, and through the date the financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financial statements.



## NOTE 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<table><tr><td></td><td>First Quarter</td><td>Second Quarter</td><td>Third Quarter</td><td>Fourth Quarter</td><td>Year</td></tr><tr><td>2018</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues</td><td>$4,868</td><td>$5,168</td><td>$4,908</td><td>$3,684</td><td>$18,628</td></tr><tr><td>Operating income</td><td>1,459</td><td>1,664</td><td>1,315</td><td>316</td><td>4,754</td></tr><tr><td>Net income from continuing operations</td><td>828</td><td>1,039</td><td>668</td><td>374</td><td>2,909</td></tr><tr><td>Net (loss) income from discontinued operations</td><td>(11)</td><td>(4)</td><td>(4)</td><td>4</td><td>(15)</td></tr><tr><td>Net income</td><td>817</td><td>1,035</td><td>664</td><td>378</td><td>2,894</td></tr><tr><td>Net (income) loss attributable to noncontrolling interests from continuing operations</td><td>(125)</td><td>(166)</td><td>(108)</td><td>107</td><td>(292)</td></tr><tr><td>Net income attributable to common stockholders</td><td>692</td><td>869</td><td>556</td><td>485</td><td>2,602</td></tr><tr><td>Basic net income (loss) per share attributable to common stockholders:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Continuing operations</td><td>$0.48</td><td>$0.60</td><td>$0.38</td><td>$0.33</td><td>$1.80</td></tr><tr><td>Discontinued operations</td><td>(0.01)</td><td>—</td><td>—</td><td>—</td><td>(0.01)</td></tr><tr><td></td><td>$0.47</td><td>$0.60</td><td>$0.38</td><td>$0.33</td><td>$1.79</td></tr><tr><td>Basic weighted-average shares outstanding</td><td>1,449</td><td>1,449</td><td>1,450</td><td>1,450</td><td>1,449</td></tr><tr><td>Diluted net income (loss) per share attributable to common stockholders:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Continuing operations</td><td>$0.48</td><td>$0.59</td><td>$0.38</td><td>$0.33</td><td>$1.79</td></tr><tr><td>Discontinued operations</td><td>(0.01)</td><td>—</td><td>—</td><td>—</td><td>(0.01)</td></tr><tr><td></td><td>$0.47</td><td>$0.59</td><td>$0.38</td><td>$0.33</td><td>$1.78</td></tr><tr><td>Diluted weighted-average shares outstanding</td><td>1,458</td><td>1,458</td><td>1,458</td><td>1,457</td><td>1,458</td></tr></table>

Following summarizes significant charges (credits) included in FCX’s net income attributable to common stockholders for the 2018 quarters:

• Net charges at Cerro Verde related to Peruvian government claims for disputed royalties (refer to Note 12 for further discussion) totaled $195 million to net income attributable to common stockholders or $0.13 per share for the year (consisting of $14 million to production and delivery costs, $370 million to interest expense and $22 million to other expense, net of income tax benefits of $35 million and noncontrolling interests of $176 million), most of which was recorded in the fourth quarter.

• Net charges at PT-FI totaled $223 million ($110 million to net income attributable to common stockholders or $0.08 per share) consisting of charges to production and delivery of $69 million for surface water tax disputes with the local regional tax authority in Papua, Indonesia, $32 million for assessments of prior period permit fees with the MOEF, $72 million for disputed payroll withholding taxes for prior years and other tax settlements, and $62 million to write-off certain previously capitalized project costs for the new smelter in Indonesia in fourth quarter, partly offset by inventory adjustments of $12 million recorded in second quarter. The fourth quarter also included $43 million of inventory adjustments at PT-FI related to prior 2018 quarterly periods.

• Net charges at Cerro Verde related to Cerro Verde’s new three-year collective bargaining agreement totaled $69 million ($22 million to net income attributable to common stockholders or $0.02 per share) for the year, which was recorded in the third quarter.

• Net adjustments to environmental obligations and related litigation reserves totaled $57 million to operating income and net income attributable to common stockholders ($0.04 per share) for the year, most of which was recorded in the second quarter.

• Net gains on sales of assets for the year totaled $208 million to operating income and net income attributable to common stockholders ($0.14 per share), mostly associated with adjustments to assets no longer classified as held for sale, adjustments to the fair value of contingent consideration related to the 2016 sale of onshore California oil and gas properties (which will continue to be adjusted through December 31, 2020) and the sale of Port Carteret (assets held for sale), and included $11 million in the first quarter, $45 million in the second quarter, $70 million in the third quarter and $82 million in the fourth quarter. Refer to Note 2 for further discussion of asset dispositions.

• Other net charges for the year totaled $50 million ($30 million to net income attributable to common stockholders or $0.02 per share), including prior period depreciation expense at Freeport Cobalt that was suspended while it was classified as held for sale ($48 million in the fourth quarter and $31 million for the year).

• Net tax credits for the year totaled $632 million ($574 million net of noncontrolling interest or $0.39 per share), primarily associated with a reduction in PT-FI’s statutory rates in accordance with the IUPK ($504 million) and benefits



associated with U.S. tax reform ($123 million), most of which was recorded in the fourth quarter. Refer to Note 11 for further discussion.

• In November 2016, FCX completed the sale of its interest in TFHL (refer to Note 2 for further discussion), and, in accordance with accounting guidance, reported the results

<table><tr><td>2017</td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues</td><td>$3,341</td><td>$3,711</td><td>$4,310</td><td>$5,041</td></tr><tr><td>Operating income</td><td>597</td><td>686</td><td>928</td><td>1,479</td></tr><tr><td>Net income from continuing operations</td><td>268</td><td>326</td><td>242</td><td>1,193</td></tr><tr><td>Net income from discontinued operations</td><td>38</td><td>9</td><td>3</td><td>16</td></tr><tr><td>Net income</td><td>306</td><td>335</td><td>245</td><td>1,209</td></tr><tr><td>Net (income) loss attributable to noncontrolling interests:</td><td></td><td></td><td></td><td></td></tr><tr><td>Continuing operations</td><td>(75)</td><td>(66)</td><td>35</td><td>(168)</td></tr><tr><td>Discontinued operations</td><td>(3)</td><td>(1)</td><td>—</td><td>—</td></tr><tr><td>Net income attributable to common stockholders</td><td>228</td><td>268</td><td>280</td><td>1,041</td></tr><tr><td>Basic net income per share attributable to common stockholders:</td><td></td><td></td><td></td><td></td></tr><tr><td>Continuing operations</td><td>$ 0.13</td><td>$ 0.18</td><td>$ 0.19</td><td>$ 0.71</td></tr><tr><td>Discontinued operations</td><td>0.03</td><td>—</td><td>—</td><td>0.01</td></tr><tr><td></td><td>$ 0.16</td><td>$ 0.18</td><td>$ 0.19</td><td>$ 0.72</td></tr><tr><td>Basic weighted-average shares outstanding</td><td>1,446</td><td>1,447</td><td>1,448</td><td>1,447</td></tr><tr><td>Diluted net income per share attributable to common stockholders:</td><td></td><td></td><td></td><td></td></tr><tr><td>Continuing operations</td><td>$ 0.13</td><td>$ 0.18</td><td>$ 0.19</td><td>$ 0.70</td></tr><tr><td>Discontinued operations</td><td>0.03</td><td>—</td><td>—</td><td>0.01</td></tr><tr><td></td><td>$ 0.16</td><td>$ 0.18</td><td>$ 0.19</td><td>$ 0.71</td></tr><tr><td>Diluted weighted-average shares outstanding</td><td>1,454</td><td>1,453</td><td>1,454</td><td>1,454</td></tr></table>

Following summarizes significant charges (credits) included in FCX’s net income attributable to common stockholders for the 2017 quarters:

- Net charges at Cerro Verde related to Peruvian government claims for disputed royalties (refer to Note 12 for further discussion) totaled $186 million to net income attributable to common stockholders or $0.13 per share for the year (consisting of $203 million to operating income, $145 million to interest expense and $7 million to provision for income taxes, net of $169 million to noncontrolling interests), most of which was recorded in the third quarter.

- Net charges associated with PT-FI workforce reductions for the year totaled $125 million to operating income ($66 million to net income attributable to common stockholders or $0.04 per share) and included $21 million in the first quarter, $87 million in the second quarter, $9 million in the third quarter and $8 million in the fourth quarter.

- Net adjustments to environmental obligations and related litigation reserves totaled $210 million to operating income and net income attributable to common stockholders ($0.14 per share) for the year, and included net charges (credits) of $19 million in the first quarter, $3 million in the second quarter, $64 million in the third quarter and $157 million in the fourth quarter.

- Net gains on sales of assets totaled $81 million to operating income and net income attributable to common stockholders ($0.06 per share) for the year, mostly associated with sales of oil and gas properties, and included $23 million in the first quarter, $10 million in the second quarter, $33 million in the third quarter and $15 million in the fourth quarter. Refer to Note 2 for further discussion of asset dispositions.

- Net tax credits totaled $438 million to net income attributable to common stockholders ($0.30 per share) for the year, primarily associated with provisional tax credits associated with U.S. tax reform ($393 million), which were recorded in the fourth quarter. Refer to Note 11 for further discussion.

- Net income from discontinued operations for the 2017 periods primarily reflected adjustments to the fair value of the potential contingent consideration related to the 2016 TFHL sale.



## NOTE 20. SUPPLEMENTARY MINERAL RESERVE INFORMATION (UNAUDITED)

Recoverable proven and probable reserves have been calculated as of December 31, 2018, in accordance with Industry Guide 7 as required by the Securities Exchange Act of 1934. FCX's proven and probable reserves may not be comparable to similar information regarding mineral reserves disclosed in accordance with the guidance in other countries. Proven and probable reserves were determined by the use of mapping, drilling, sampling, assaying and evaluation methods generally applied in the mining industry, as more fully discussed below. The term "reserve," as used in the reserve data presented here, means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. The term "proven reserves" means reserves for which (i) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; (ii) grade and/or quality are computed from the results of detailed sampling; and (iii) the sites for inspection, sampling and measurements are spaced so closely and the geologic character is sufficiently defined that size, shape, depth and mineral content of reserves are well established. The term "probable reserves" means reserves for which quantity and grade are computed from information similar to that used for proven reserves but the sites for sampling are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.

FCX’s reserve estimates are based on the latest available geological and geotechnical studies. FCX conducts ongoing studies of its ore bodies to optimize economic values and to manage risk. FCX revises its mine plans and estimates of proven and probable mineral reserves as required in accordance with the latest available studies.

Estimated recoverable proven and probable reserves at December 31, 2018, were determined using $2.50 per pound for copper in North America and South America and $2.00 per pound for copper in Indonesia, $1,000 per ounce for gold and $10 per pound for molybdenum. Reserves for Indonesia would not significantly change if assessed under a long-term price of $2.50 per pound of copper as PT-FI's reserve plan is mill-constrained by the term of its IUPK, which contains rights to extend mining rights through 2041.
For the three-year period ended December 31, 2018, LME copper settlement prices averaged $2.65 per pound, LBMA gold prices averaged $1,259 per ounce and the weekly average price for molybdenum quoted by Metals Week averaged $8.85 per pound.

The recoverable proven and probable reserves presented in the table below represent the estimated metal quantities from which FCX expects to be paid after application of estimated metallurgical recovery rates and smelter recovery rates, where applicable. Recoverable reserves are that part of a mineral deposit that FCX estimates can be economically and legally extracted or produced at the time of the reserve determination.

Estimated Recoverable Proven and Probable Mineral Reserves at December 31, 2018

<table><tr><td></td><td>Copper \( ^{a} $  (billion pounds)</td><td>Gold (million ounces)</td><td>Molybdenum (billion pounds)</td></tr><tr><td>North America</td><td>49.9</td><td>0.6</td><td>3.06</td></tr><tr><td>South America</td><td>33.5</td><td>—</td><td>0.72</td></tr><tr><td>Indonesia</td><td>36.2 \( ^{b} \)</td><td>30.2 \( ^{b} \)</td><td>—</td></tr><tr><td>Consolidated \( ^{c} \)</td><td>119.6</td><td>30.8</td><td>3.78</td></tr><tr><td>Net equity interest \( ^{d} \)</td><td>86.8</td><td>17.0</td><td>3.44</td></tr></table>

a. Estimated consolidated recoverable copper reserves included 2.0 billion pounds in leach stockpiles and 0.6 billion pounds in mill stockpiles.

b. Includes 13.0 billion pounds of copper and 10.1 million ounces of gold associated with PT-FI's acquisition of the Rio Tinto Joint Venture interest. Estimated recoverable proven and probable reserves from Indonesia reflect estimates of minerals that can be recovered through 2041. Refer to Note 13 for discussion of PT-FI's IUPK.

c. Consolidated reserves represent estimated metal quantities after reduction for joint venture partner interests at the Morenci mine in North America (refer to Note 3 for further discussion). Excluded from the table above were FCX's estimated recoverable proven and probable reserves of 393.1 million ounces of silver, which were determined using $15 per ounce and include 55.7 million ounces associated with PT-FI's acquisition of the Rio Tinto Joint Venture interest.

d. Net equity interest reserves represent estimated consolidated metal quantities further reduced for noncontrolling interest ownership (refer to Note 3 for further discussion of FCX's ownership in subsidiaries). FCX's net equity interest for estimated metal quantities in Indonesia reflects approximately 81 percent from 2019 through 2022 and 48.76 percent from 2023 through 2041. Excluded from the table above were FCX's estimated recoverable proven and probable reserves of 269.3 million ounces of silver.



Estimated Recoverable Proven and Probable Mineral Reserves at December 31, 2018

<table><tr><td rowspan="2"></td><td rowspan="2">Ore \( ^{a} \) 
(million metric tons)</td><td colspan="3">Average Ore Grade
Per Metric Ton \( ^{a} \)</td><td colspan="3">Recoverable Proven and
Probable Reserves \( ^{b} \)</td></tr><tr><td>Copper
(%)</td><td>Gold
(grams)</td><td>Molybdenum
(%)</td><td>Copper
(billion
pounds)</td><td>Gold
(million
ounces)</td><td>Molybdenum
(billion
pounds)</td></tr><tr><td>North America</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Developed and producing:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Morenci</td><td>4,619</td><td>0.24</td><td>—</td><td>— \( ^{c} \)</td><td>15.6</td><td>—</td><td>0.18</td></tr><tr><td>Sierrita</td><td>3,369</td><td>0.23</td><td>— \( ^{c} \)</td><td>0.02</td><td>14.0</td><td>0.2</td><td>1.42</td></tr><tr><td>Bagdad</td><td>2,426</td><td>0.32</td><td>— \( ^{c} \)</td><td>0.02</td><td>14.7</td><td>0.1</td><td>0.74</td></tr><tr><td>Safford, including Lone Star \( ^{d} \)</td><td>839</td><td>0.44</td><td>—</td><td>—</td><td>6.2</td><td>—</td><td>—</td></tr><tr><td>Chino, including Cobre</td><td>395</td><td>0.46</td><td>0.03</td><td>0.01</td><td>3.4</td><td>0.3</td><td>0.01</td></tr><tr><td>Climax</td><td>168</td><td>—</td><td>—</td><td>0.15</td><td>—</td><td>—</td><td>0.52</td></tr><tr><td>Henderson</td><td>71</td><td>—</td><td>—</td><td>0.17</td><td>—</td><td>—</td><td>0.24</td></tr><tr><td>Tyrone</td><td>55</td><td>0.25</td><td>—</td><td>—</td><td>0.3</td><td>—</td><td>—</td></tr><tr><td>Miami</td><td>—</td><td>—</td><td>—</td><td>—</td><td>0.1</td><td>—</td><td>—</td></tr><tr><td>South America</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Developed and producing:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Cerro Verde</td><td>4,324</td><td>0.35</td><td>—</td><td>0.01</td><td>29.6</td><td>—</td><td>0.72</td></tr><tr><td>El Abra</td><td>705</td><td>0.42</td><td>—</td><td>—</td><td>3.9</td><td>—</td><td>—</td></tr><tr><td>Indonesia \( ^{e} \)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Developed and producing:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Deep Mill Level Zone</td><td>432</td><td>0.92</td><td>0.76</td><td>—</td><td>7.6</td><td>8.4</td><td>—</td></tr><tr><td>Deep Ore Zone</td><td>51</td><td>0.50</td><td>0.57</td><td>—</td><td>0.5</td><td>0.8</td><td>—</td></tr><tr><td>Big Gossan</td><td>57</td><td>2.30</td><td>1.02</td><td>—</td><td>2.6</td><td>1.3</td><td>—</td></tr><tr><td>Grasberg open pit</td><td>5</td><td>1.26</td><td>1.98</td><td>—</td><td>0.2</td><td>0.4</td><td>—</td></tr><tr><td>Under development:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Grasberg Block Cave</td><td>963</td><td>0.96</td><td>0.72</td><td>—</td><td>17.2</td><td>14.1</td><td>—</td></tr><tr><td>Undeveloped:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Kucing Liar</td><td>349</td><td>1.24</td><td>1.03</td><td>—</td><td>8.1</td><td>5.2</td><td>—</td></tr><tr><td>Total 100% basis</td><td>18,828</td><td></td><td></td><td></td><td>124.0</td><td>30.8</td><td>3.83</td></tr><tr><td>Consolidated \( ^{f} \)</td><td></td><td></td><td></td><td></td><td>119.6</td><td>30.8</td><td>3.78</td></tr><tr><td>FCX&#x27;s equity share \( ^{g} \)</td><td></td><td></td><td></td><td></td><td>86.8</td><td>17.0</td><td>3.44</td></tr></table>

a. Excludes material contained in stockpiles.

b. Includes estimated recoverable metals contained in stockpiles.

c. Amounts not shown because of rounding.

d. The Lone Star oxide project is under development.

e. Estimated recoverable proven and probable reserves from Indonesia reflect estimates of minerals that can be recovered through 2041. Refer to Note 13 for discussion of PT-FI's IUPK.

f. Consolidated reserves represent estimated metal quantities after reduction for joint venture partner interests at the Morenci mine in North America. Refer to Note 3 for further discussion.

g. Net equity interest reserves represent estimated consolidated metal quantities further reduced for noncontrolling interest ownership. FCX's net equity interest for estimated metal quantities in Indonesia reflects an approximate 81 percent from 2019 through 2022 and 48.76 percent from 2023 through 2041. Refer to Note 3 for further discussion of FCX's ownership in subsidiaries.



## NOTE 21. SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED)

Following the sales of substantially all of FCX’s oil and gas properties, including the sale of its Deepwater GOM, onshore California and Haynesville oil and gas properties in 2016, along with the sales of its property interests in the Madden area in central Wyoming and certain property interests in the GOM Shelf in 2017 and 2018, FCX’s oil and gas producing activities are not considered significant beginning in 2017. Refer to Note 2 for further discussion.

Costs Incurred. A summary of the costs incurred for FCX’s oil and gas acquisition, exploration and development activities for the year ended December 31, 2016, follows:

<table><tr><td>Property acquisition costs for unproved properties</td><td>$ 7</td></tr><tr><td>Exploration costs</td><td>22</td></tr><tr><td>Development costs</td><td>749</td></tr><tr><td></td><td>$778</td></tr></table>

These amounts included increases in AROs of $37 million, capitalized general and administrative expenses of $78 million, and capitalized interest of $7 million.

Capitalized Costs. The aggregate capitalized costs subject to amortization for oil and gas properties and the aggregate related accumulated amortization as of December 31, 2016, follow:

<table><tr><td>Properties subject to amortization</td><td>$ 27,507</td></tr><tr><td>Accumulated amortization \( ^{a} \)</td><td>(27,433)</td></tr><tr><td></td><td>$ 74</td></tr></table>

a. Includes charges of $4.3 billion in 2016 to reduce the carrying value of oil and gas properties pursuant to full cost accounting rules.

The average amortization rate per barrel of oil equivalents (BOE) was $17.58 in 2016.

Costs Not Subject to Amortization. Including amounts determined to be impaired, FCX transferred $4.9 billion of costs associated with unevaluated properties to the full cost pool in 2016. Sales of unevaluated properties totaled $1.6 billion in 2016. Following FCX's disposition of its Deepwater GOM and onshore California oil and gas properties in fourth-quarter 2016, the carrying value of all of FCX's remaining oil and gas properties was included in the amortization base at December 31, 2018 and 2017.
Results of Operations for Oil and Gas Producing Activities. The results of operations from oil and gas producing activities for the year ended December 31, 2016, presented below, exclude non-oil and gas revenues, general and administrative expenses, interest expense and interest income. Income tax benefit was determined by applying the statutory rates to pre-tax operating results:

<table><tr><td>Revenues from oil and gas producing activities</td><td>$ 1,513</td></tr><tr><td>Production and delivery costs \( ^{a} \)</td><td>(1,829)</td></tr><tr><td>Depreciation, depletion and amortization</td><td>(839)</td></tr><tr><td>Impairment of oil and gas properties</td><td>(4,317)</td></tr><tr><td>Income tax benefit (based on FCX’s U.S. federal statutory tax rate) \( ^{b} \)</td><td>—</td></tr><tr><td>Results of operations from oil and gas producing activities</td><td>$(5,472)</td></tr></table>

a. Includes $926 million in charges related to drillship settlements/idle rig and contract termination costs.
b. FCX has provided a full valuation allowance on losses associated with oil and gas activities.

Proved Oil and Natural Gas Reserve Information. The following information summarizes the net proved reserves of oil (including condensate and natural gas liquids (NGLs)), and natural gas and the standardized measure as described below for the year ended December 31, 2016. All of FCX's oil and natural gas reserves are located in the U.S.

Management believes the reserve estimates presented herein are reasonable and prepared in accordance with guidelines established by the SEC as prescribed in Regulation S-X, Rule 4-10. However, there are numerous uncertainties inherent in estimating quantities and values of proved reserves and in projecting future rates of production and the amount and timing of development expenditures, including many factors beyond FCX's control. Reserve engineering is a subjective process of estimating the recovery from underground accumulations of oil and natural gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Because all oil and natural gas reserve estimates are to some degree subjective, the quantities of oil and natural gas that are ultimately recovered, production and operating costs, the amount and timing of future development expenditures, and future crude oil and natural gas sales prices may all differ from those assumed in these estimates. In addition, different reserve engineers may make different estimates of reserve quantities and cash flows based upon the same available data. Therefore, the standardized measure of discounted future net cash flows (Standardized Measure) shown below represents estimates only and should not be



construed as the current market value of the estimated reserves attributable to FCX’s oil and gas properties. In this regard, the information set forth in the following tables includes revisions of reserve estimates attributable to proved properties acquired in the 2013 oil and gas acquisitions, and reflects additional information from subsequent development activities, production history of the properties involved and any adjustments in the projected economic life of such properties resulting from changes in product prices.

Estimated Quantities of Oil and Natural Gas Reserves. The following table sets forth certain data pertaining to proved, proved developed and proved undeveloped reserves, all of which are in the U.S., for the year ended December 31, 2016.

<table><tr><td></td><td>Oil (MMBbls) \( ^{a,b} \)</td><td>Gas (Bcf) \( ^{a} \)</td><td>Total (MMBOE) \( ^{a} \)</td></tr><tr><td>Proved reserves:</td><td></td><td></td><td></td></tr><tr><td>Balance at beginning of year</td><td>207</td><td>274</td><td>252</td></tr><tr><td>Extensions and discoveries</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Acquisitions of reserves in-place</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Revisions of previous estimates</td><td>1</td><td>—</td><td>1</td></tr><tr><td>Sale of reserves in-place</td><td>(168)</td><td>(118)</td><td>(187)</td></tr><tr><td>Production</td><td>(36)</td><td>(69)</td><td>(48)</td></tr><tr><td>Balance at end of year</td><td>4</td><td>87</td><td>18</td></tr><tr><td>Proved developed reserves at December 31, 2016</td><td>4</td><td>87</td><td>18</td></tr><tr><td>Proved undeveloped reserves at December 31, 2016</td><td>—</td><td>—</td><td>—</td></tr></table>

a. MMBbls = million barrels; Bcf = billion cubic feet; MMBOE = million BOE

b. Includes NGL proved reserves of 1 MMBbls (all developed) at December 31, 2016.

The average realized sales prices used in FCX’s reserve reports as of December 31, 2016, were $34.26 per barrel of crude oil and $2.40 per one thousand cubic feet (Mcf) of natural gas.

For the year ended December 31, 2016, FCX sold reserves in-place totaling 187 MMBOE, primarily representing all of its Deepwater GOM, onshore California and Haynesville properties.

Standardized Measure. The Standardized Measure (discounted at 10 percent) from production of proved oil and natural gas reserves has been developed in accordance with SEC guidelines. FCX estimated the quantity of proved oil and natural gas reserves and the future periods in which they were expected to be produced based on year-end economic conditions. Estimates of future net revenues from FCX's proved oil and gas properties and the present value thereof were made using the twelve-month average of the first-day-of-the-month historical reference prices as adjusted for location and quality differentials, which were held constant throughout the life of the oil and gas properties, except where such guidelines permit alternate treatment, including the use of fixed and determinable contractual price escalations (excluding the impact of crude oil derivative contracts). Future gross revenues were reduced by estimated future operating costs (including production and ad valorem taxes) and future development and abandonment costs, all of which were based on current costs in effect at December 31, 2016, and held constant throughout the life of the oil and gas properties. Future income taxes were calculated by applying the statutory federal and state income tax rate to pre-tax future net cash flows, net of the tax basis of the respective oil and gas properties and utilization of FCX's available tax carryforwards related to its oil and gas operations.

The Standardized Measure related to proved oil and natural gas reserves as of December 31, 2016, follows:

<table><tr><td>Future cash inflows</td><td>$ 345</td></tr><tr><td>Future production expense</td><td>(175)</td></tr><tr><td>Future development costs \( ^{a} \)</td><td>(439)</td></tr><tr><td>Future income tax expense</td><td>—</td></tr><tr><td>Future net cash flows</td><td>(269)</td></tr><tr><td>Discounted at 10% per year</td><td>32</td></tr><tr><td>Standardized Measure</td><td>$(237)</td></tr></table>

a. Includes estimated asset retirement costs of $0.4 billion at December 31, 2016.

A summary of the principal sources of changes in the Standardized Measure for the year ended December 31, 2016, follows:

<table><tr><td>Balance at beginning of year</td><td>$ 1,392</td></tr><tr><td>Changes during the year:</td><td></td></tr><tr><td>Sales, net of production expenses</td><td>(831)</td></tr><tr><td>Net changes in sales and transfer prices, net of production expenses</td><td>(341)</td></tr><tr><td>Extensions, discoveries and improved recoveries</td><td>—</td></tr><tr><td>Changes in estimated future development costs, including timing and other</td><td>146</td></tr><tr><td>Previously estimated development costs incurred during the year</td><td>295</td></tr><tr><td>Sales of reserves in-place</td><td>(1,049)</td></tr><tr><td>Revisions of quantity estimates</td><td>12</td></tr><tr><td>Accretion of discount</td><td>139</td></tr><tr><td>Net change in income taxes</td><td>—</td></tr><tr><td>Total changes</td><td>(1,629)</td></tr><tr><td>Balance at end of year</td><td>$ (237)</td></tr></table>



The following graph compares the change in the cumulative total stockholder return on our common stock with the cumulative total return of the S&P 500 Stock Index, the S&P 500 Materials Index, and the S&P Metals and Mining Select Industry Index from 2014 through 2018. In addition to the S&P Materials Index used in previous years, we have added the S&P Metals and Mining Select Industry Index, which comprises stocks in the S&P Total Market Index that are classified in the metals and mining sub-industry. This comparison assumes $100 invested on December 31, 2013, in Freeport-McMoRan Inc. common stock and each index (with the reinvestment of all dividends).

## Comparison of 5 Year Cumulative Total Return

Among Freeport-McMoRan Inc., S&P 500 Stock Index, S&P 500 Materials Index, and S&P Metals and Mining Select Industry Index



<table><tr><td rowspan="2"></td><td colspan="6">December 31,</td></tr><tr><td>2013</td><td>2014</td><td>2015</td><td>2016</td><td>2017</td><td>2018</td></tr><tr><td>Freeport-McMoRan Inc.</td><td>$100.00</td><td>$ 64.20</td><td>$ 19.19</td><td>$ 37.38</td><td>$ 53.74</td><td>$ 29.50</td></tr><tr><td>- - - S&amp;P 500 Stock Index</td><td>100.00</td><td>113.69</td><td>115.26</td><td>129.05</td><td>157.22</td><td>150.33</td></tr><tr><td>... - - S&amp;P 500 Materials Index</td><td>100.00</td><td>106.91</td><td>97.95</td><td>114.30</td><td>141.55</td><td>120.74</td></tr><tr><td>- - - S&amp;P 500 Materials and Mining Select Industry Index</td><td>100.00</td><td>74.37</td><td>36.60</td><td>75.11</td><td>90.61</td><td>67.00</td></tr></table>



## INVESTOR INQUIRIES

The Investor Relations Department is pleased to receive any inquiries about the company. Our Principles of Business Conduct and our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (SEC), which includes certifications of our Chief Executive Officer and Chief Financial Officer, are available on our website. Additionally, copies will be furnished, without charge, to any stockholder of the company entitled to vote at the annual meeting, upon written request. The Investor Relations Department can be contacted as follows:

Freeport-McMoRan Inc.
Investor Relations Department
333 North Central Avenue
Phoenix, AZ 85004
Telephone 602.366.8400
fcx.com

## TRANSFER AGENT

Questions about lost certificates, lost or missing dividend checks, or notifications of change of address should be directed to our transfer agent, registrar and dividend disbursement agent:

Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202

Telephone 800.953.2493

https://www-us.computershare.com/investor/Contact

## NOTICE OF ANNUAL MEETING

The annual meeting of stockholders will be held June 12, 2019. Notice of the annual meeting will be sent to stockholders. In accordance with SEC rules, we will report the voting results of our annual meeting on a Form 8-K, which will be available on our website (fcx.com).

## FCX COMMON STOCK

FCX’s common stock trades on the New York Stock Exchange (NYSE) under the symbol “FCX.” As of March 15, 2019, the number of holders of record of FCX’s common stock was 12,381.

NYSE composite tape common share price ranges during 2018 and 2017 were:

<table><tr><td></td><td colspan="2">2018</td><td colspan="2">2017</td></tr><tr><td></td><td>High</td><td>Low</td><td>High</td><td>Low</td></tr><tr><td>First Quarter</td><td>$ 20.25</td><td>$ 16.51</td><td>$ 17.06</td><td>$ 11.91</td></tr><tr><td>Second Quarter</td><td>19.70</td><td>14.64</td><td>13.83</td><td>11.05</td></tr><tr><td>Third Quarter</td><td>18.14</td><td>12.18</td><td>15.75</td><td>11.71</td></tr><tr><td>Fourth Quarter</td><td>14.28</td><td>9.60</td><td>19.45</td><td>13.22</td></tr></table>

## COMMON STOCK DIVIDENDS

In December 2015, our Board of Directors suspended the annual common stock dividend; accordingly, there were no common stock dividends paid in 2017. In February 2018, our Board of Directors reinstated a cash dividend on FCX’s common stock. Below is a summary of FCX’s common stock dividends for 2018:

<table><tr><td rowspan="2"></td><td colspan="3">2018</td></tr><tr><td>Amount per Share</td><td>Record Date</td><td>Payment Date</td></tr><tr><td>First Quarter</td><td>$ 0.05</td><td>Apr. 13, 2018</td><td>May 1, 2018</td></tr><tr><td>Second Quarter</td><td>0.05</td><td>July 13, 2018</td><td>Aug. 1, 2018</td></tr><tr><td>Third Quarter</td><td>0.05</td><td>Oct. 15, 2018</td><td>Nov. 1, 2018</td></tr><tr><td>Fourth Quarter</td><td>0.05</td><td>Jan. 15, 2019</td><td>Feb. 1, 2019</td></tr></table>

The declaration of dividends is at the discretion of our Board of Directors and will depend upon our financial results, cash requirements, future prospects and other factors deemed relevant.



333 North Central Avenue

Phoenix, Arizona 85004

602.366.8100

fcx.com