Freeport-McMoRan Reports Q4 and Year Ended December 31, 2016 Results

PHOENIX--(BUSINESS WIRE)--Freeport-McMoRan Inc. (NYSE: FCX):

• Net income attributable to common stock totaled $292 million, $0.21 per share, for fourth-quarter 2016. After adjusting for net charges totaling $59 million, $0.04 per share, fourth-quarter 2016 adjusted net income attributable to common stock totaled $351 million, $0.25 per share.
• Consolidated sales (including volumes from Tenke Fungurume (Tenke) through November 16, 2016) totaled 1.2 billion pounds of copper, 405 thousand ounces of gold and 22 million pounds of molybdenum for fourth-quarter 2016 and 4.65 billion pounds of copper, 1.1 million ounces of gold and 74 million pounds of molybdenum for the year 2016.
• Consolidated sales for the year 2017 are expected to approximate 4.1 billion pounds of copper, 2.2 million ounces of gold and 92 million pounds of molybdenum, including 1.0 billion pounds of copper, 460 thousand ounces of gold and 23 million pounds of molybdenum for first-quarter 2017. (*)
• Average realized prices were $2.47 per pound for copper, $1,174 per ounce for gold and $8.27 per pound for molybdenum for fourth-quarter 2016.
• Average unit net cash costs were $1.20 per pound of copper for fourth-quarter 2016 and $1.26 per pound of copper for the year 2016. Unit net cash costs are expected to average $1.06 per pound of copper for the year 2017. (*)
• Operating cash flows totaled $1.1 billion (net of $406 million in working capital uses and changes in other tax payments) for fourth-quarter 2016 and $3.7 billion (including $57 million in working capital sources and changes in other tax payments) for the year 2016. Based on current sales volume and cost estimates and assuming average prices of $2.50 per pound for copper, $1,200 per ounce for gold and $7.00 per pound for molybdenum, operating cash flows for the year 2017 are expected to approximate $4.3 billion (including $1.0 billion in working capital sources and changes in other tax payments). (*)
• Capital expenditures totaled $504 million (including $405 million for mining operations) for fourth-quarter 2016 and $2.8 billion (including $1.6 billion for mining operations) for the year 2016. Capital expenditures for the year 2017 are expected to approximate $1.8 billion. (*)
• During fourth-quarter 2016, FCX completed $5.2 billion in asset sale transactions, including the sale of its interest in TF Holdings Limited (TFHL), through which FCX held an interest in the Tenke mine, and the sales of the Deepwater Gulf of Mexico (GOM) and onshore California oil and gas properties. During 2016, FCX completed its asset divestment program, which generated $6.6 billion in aggregate proceeds.
• In November 2016, FCX completed its registered at-the-market (ATM) offering of common stock announced in July 2016, which raised $1.5 billion in gross proceeds through the sale of 116.5 million shares of FCX common stock.
• At December 31, 2016, consolidated debt totaled $16.0 billion and consolidated cash totaled $4.2 billion, compared with consolidated debt of $20.3 billion and consolidated cash of $177 million at December 31, 2015. FCX had no borrowings and $3.5 billion available under its $3.5 billion revolving credit facility at year-end 2016.

(*) Projections for 2017 and forward looking statements in this release assume normal operating levels at PT Freeport Indonesia (PT-FI). Refer to page 8 for discussion of recent regulatory changes in Indonesia, which may impact future results.

Freeport-McMoRan Inc. (NYSE: FCX) reported net income attributable to common stock of $292 million ($0.21 per share) for fourth-quarter 2016 and net losses attributable to common stock of $4.2 billion ($3.16 per share) for the year 2016, $4.1 billion ($3.47 per share) for fourth-quarter 2015 and $12.2 billion ($11.31 per share) for the year 2015. FCX’s net income attributable to common stock for fourth-quarter 2016 includes net charges of $59 million ($0.04 per share) primarily reflecting estimated losses on assets held for sale and oil and gas restructuring-related charges, partly offset by a gain on redeemable noncontrolling interest. Fourth-quarter 2015 net loss attributable to common stock included net charges of $4.1 billion ($3.45 per share) primarily for the reduction of the carrying value of oil and gas properties. For further discussion of these amounts and net charges impacting the years 2016 and 2015, refer to the supplemental schedules, “Adjusted Net Income (Loss),” beginning on page IX, which is available on FCX’s website, fcx.com.

Richard C. Adkerson, President and Chief Executive Officer, said, “During 2016, we took aggressive actions in response to market conditions to restore our balance sheet strength. I am pleased to report that we were successful in reducing our net debt by over $8 billion during the year while completing a major expansion at our world class Cerro Verde mine. I am proud of our global team for their accomplishments in ‘Proving our Mettle.’ As we enter 2017, we are enthusiastic about opportunities to generate future values for shareholders through our portfolio of high-quality, long-lived copper resources. We remain focused on generating significant cash flows to complete our debt reduction plan and to build long-term values for shareholders.”

^a. For segment financial results, refer to the supplemental schedules, “Business Segments,” beginning on page XII, which are available on FCX’s website, fcx.com.

^b. Includes favorable (unfavorable) adjustments to provisionally priced concentrate and cathode copper sales recognized in prior periods totaling $129 million ($57 million to net income attributable to common stock from continuing operations or $0.04 per share) in fourth-quarter 2016, $(70) million ($(37) million to net loss attributable to common stock from continuing operations or $(0.03) per share) in fourth-quarter 2015, $5 million ($2 million to net loss attributable to common stock from continuing operations or less than $0.01 per share) for the year 2016 and $(100) million ($(50) million to net loss attributable to common stock from continuing operations or $(0.05) per share) for the year 2015. For further discussion, refer to the supplemental schedule, “Derivative Instruments,” beginning on page XI, which is available on FCX’s website, fcx.com.

^c. Reflects the results of TFHL through November 16, 2016, and includes charges for allocated interest expense associated with the portion of the FCX term loan that was required to be repaid as a result of the sale of FCX’s interest in TFHL. The fourth-quarter and year 2016 also include a net charge for the loss on disposal. For a summary of the components of net (loss) income from discontinued operations, refer to supplemental schedules on pages XXVIII to XXXI, which are available on FCX’s website, fcx.com.

^d. Includes net charges totaling $59 million ($0.04 per share) in fourth-quarter 2016, $4.1 billion ($3.45 per share) in fourth-quarter 2015, $4.5 billion ($3.39 per share) for the year 2016 and $12.1 billion ($11.22 per share) for the year 2015, which are described in the supplemental schedules, “Adjusted Net Income (Loss),” beginning on page IX, which is available on FCX’s website, fcx.com.

^e. FCX defers recognizing profits on intercompany sales until final sales to third parties occur. For a summary of net impacts from changes in these deferrals, refer to the supplemental schedule, “Deferred Profits,” on page XII, which is available on FCX’s website, fcx.com.

^f. Includes net working capital (uses) sources and changes in other tax payments of $(406) million for fourth-quarter 2016, $31 million for fourth-quarter 2015, $57 million for the year 2016 and $373 million for the year 2015.

DEBT REDUCTION INITIATIVES

During 2016, FCX took actions to restore its balance sheet strength through a combination of asset sale transactions, cash flow from operations and capital market transactions. During the year, FCX completed $6.6 billion in asset sale transactions (including $5.2 billion in fourth-quarter 2016) and $1.5 billion in ATM sales of its common stock. Consolidated debt, net of cash, was reduced by $8.4 billion during the year.

The following table summarizes FCX’s completed asset sales (in billions):

^a. Reflects aggregate cash consideration, before purchase price adjustments.

^b. Includes $2.6 billion for the sales of the Deepwater GOM and onshore California oil and gas properties that were completed in December 2016. In connection with the Deepwater GOM transaction, FCX also settled a preferred stock obligation at its Plains Offshore Operations Inc. subsidiary for $582 million, which is not reflected in the aggregate cash consideration above.

^c. Excludes contingent consideration of up to $527 million, consisting of (i) up to $150 million related to the Deepwater GOM transaction, which is payable to FCX as the buyer realizes future cash flows in connection with a third-party production handling agreement, (ii) up to $150 million related to the onshore California transaction, consisting of $50 million per year for 2018, 2019 and 2020, if the price of Brent crude oil averages over $70 per barrel in that calendar year, (iii) up to $120 million related to the TFHL transaction, 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 for the 24-month period ending December 31, 2019, and (iv) up to $107 million related to the Timok transaction, which is payable to FCX in stages based upon achievement of defined development milestones.

During 2016, FCX agreed to negotiate exclusively with China Molybdenum Co., Ltd. (CMOC) until February 28, 2017, to enter into a definitive agreement to sell its interests in Freeport Cobalt for $100 million and the Kisanfu exploration project in the Democratic Republic of Congo (DRC) for $50 million in separate transactions.

The following table summarizes the change in FCX’s consolidated debt, net of cash, during 2016 (in millions):

FCX has a manageable debt maturity schedule, with maturities of $1.2 billion in 2017 and $1.5 billion in 2018 (excluding scheduled amortization of $0.8 billion in 2018 for the Cerro Verde credit facility).

FCX continues to manage production, exploration and administrative costs and capital spending and expects to generate cash flows for further debt reduction during 2017.

FCX has retained a high-quality portfolio of long-lived copper assets positioned to generate long-term values. In addition to debt reduction plans, FCX is pursuing opportunities to enhance net present values, and continues to advance studies for future development of its copper resources, the timing of which will be dependent on market conditions.

SUMMARY OPERATING DATA

^a. Includes production and sales volumes from the Tenke mine through November 16, 2016. Copper sales from Tenke totaled 59 million pounds in fourth-quarter 2016, 117 million pounds in fourth-quarter 2015, 424 million pounds for the year 2016 and 467 million pounds for the year 2015. Average realized copper prices (excluding Tenke) were $2.48 per pound in fourth-quarter 2016, $2.19 per pound in fourth-quarter 2015, $2.28 per pound for the year 2016 and $2.42 per pound for the year 2015.

^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. Excluding Tenke, mining unit net cash costs averaged $1.21 per pound in fourth-quarter 2016, $1.47 per pound in fourth-quarter 2015, $1.26 per pound for the year 2016 and 1.57 per pound for the year 2015. For reconciliations of per pound unit costs by operating division to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XV, which are available on FCX’s website, fcx.com.

^c. Includes 8.7 MMBOE (94 MBOE per day) from the Deepwater GOM and onshore California oil and gas properties that were sold in December 2016.

^d. Cash operating margin for oil and gas operations reflects realized revenues less cash production costs. Cash production costs exclude accretion and other costs. For reconciliations of realized revenues and cash production costs per BOE to revenues and production and delivery costs reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XV, which are available on FCX’s website, fcx.com.

^e. Includes realized cash gains on oil derivative contracts of $0.57 per BOE in fourth-quarter 2016, $7.76 per BOE in fourth-quarter 2015, $0.13 per BOE for the year 2016 and $7.72 per BOE for the year 2015. FCX does not have any oil and gas derivative contracts in place for future periods.

Consolidated Sales Volumes

Fourth-quarter 2016 copper sales (including sales from Tenke through November 16, 2016) of 1.2 billion pounds were lower than the October 2016 estimate of 1.3 billion pounds principally reflecting lower volumes from PT-FI and the impact of the November 2016 Tenke sale. Excluding the impact associated with the earlier than forecasted completion of the Tenke sale, copper sales volumes were approximately seven percent below the October 2016 estimates, reflecting lower mining and milling rates at PT-FI. Fourth-quarter 2016 copper sales were higher than fourth-quarter 2015 sales of 1.1 billion pounds, primarily reflecting higher volumes from Cerro Verde and PT-FI, partly offset by lower sales from North America primarily associated with reduced mining rates and lower ore grades, and the impact of the November 2016 Tenke sale.

Fourth-quarter 2016 gold sales of 405 thousand ounces were lower than the October 2016 estimate of 590 thousand ounces primarily reflecting lower mining and milling rates at PT-FI, but were higher than fourth-quarter 2015 sales of 338 thousand ounces primarily reflecting higher mining and milling rates and higher ore grades at PT-FI.

Fourth-quarter 2016 molybdenum sales of 22 million pounds were slightly higher than the October 2016 estimate of 21 million pounds and fourth-quarter 2015 sales of 20 million pounds.

Sales volumes for the year 2017 are expected to approximate 4.1 billion pounds of copper, 2.2 million ounces of gold and 92 million pounds of molybdenum, including 1.0 billion pounds of copper, 460 thousand ounces of gold and 23 million pounds of molybdenum in first-quarter 2017. Estimated sales volumes assume the resumption of concentrate exports by PT-FI in February 2017 and the renewal of PT Smelting’s export license. For each month of delay in obtaining approval to export, PT-FI’s share of production is projected to be reduced by approximately 70 million pounds of copper and 100 thousand ounces of gold. Refer to page 8 for discussion of recent regulatory changes in Indonesia, which may have a significant impact on future results.

Consolidated Unit Costs

Consolidated average unit net cash costs (net of by-product credits) for FCX’s copper mines (including Tenke) of $1.20 per pound of copper in fourth-quarter 2016 were lower than unit net cash costs of $1.45 per pound in fourth-quarter 2015, primarily reflecting higher by-product credits and higher sales volumes from Cerro Verde and PT-FI.

Assuming average prices of $1,200 per ounce of gold and $7.00 per pound of molybdenum for 2017 and achievement of current sales volume and cost estimates (including normal operations at PT-FI), consolidated unit net cash costs (net of by-product credits) for copper mines are expected to average $1.06 per pound of copper for the year 2017. The impact of price changes on 2017 consolidated unit net cash costs would approximate $0.025 per pound for each $50 per ounce change in the average price of gold and $0.025 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.

MINING OPERATIONS

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. In addition to copper, molybdenum concentrate, gold and silver are also produced by certain of FCX’s North America copper mines.

All of the North America mining operations are wholly owned, except for Morenci. FCX records its 72 percent undivided joint venture interest in Morenci using the proportionate consolidation method.

Operating and Development Activities. FCX has 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 market conditions.

In response to market conditions, beginning in the second half of 2015 FCX took actions to reduce operating and capital costs and adjusted production to reflect market conditions. These operating plans will continue to be reviewed and additional adjustments may be made as market conditions warrant.

Operating Data. Following is summary consolidated operating data for the North America copper mines for the fourth quarters and years ended 2016 and 2015:

^a. The impact of the May 2016 sale of a 13 percent undivided interest in Morenci was a decrease of 34 million pounds of copper for fourth-quarter 2016, compared with fourth-quarter 2015, and 84 million pounds of copper for the year 2016, compared with the year 2015.

^b. Refer to summary operating data on page 4 for FCX’s consolidated molybdenum sales, which includes sales of molybdenum produced at the North America copper mines.

^c. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XV, which are available on FCX’s website, fcx.com.

North America’s consolidated copper sales volumes of 416 million pounds in fourth-quarter 2016 were lower than fourth-quarter 2015 sales of 547 million pounds, primarily reflecting reduced mining rates, lower ore grades and the impact of the May 2016 sale of a portion of FCX’s interest in Morenci. North America copper sales are estimated to approximate 1.5 billion pounds for the year 2017, compared with 1.8 billion pounds in 2016.

Average unit net cash costs (net of by-product credits) for the North America copper mines of $1.44 per pound of copper in fourth-quarter 2016 were lower than unit net cash costs of $1.53 per pound in fourth-quarter 2015, primarily reflecting higher by-product credits and cost reduction initiatives.

Average unit net cash costs (net of by-product credits) for the North America copper mines are expected to approximate $1.55 per pound of copper for the year 2017, based on achievement of current sales volume and cost estimates and assuming an average molybdenum price of $7.00 per pound. North America’s average unit net cash costs for the year 2017 would change by approximately $0.04 per pound for each $2 per pound change in the average price of molybdenum.

South America Mining. FCX operates two copper mines in South America - Cerro Verde in Peru (in which FCX owns a 53.56 percent interest) and El Abra in Chile (in which FCX owns a 51 percent interest). These operations are consolidated in FCX’s financial statements. In addition to copper, the Cerro Verde mine produces molybdenum concentrate and silver.

Operating and Development Activities. The Cerro Verde expansion project commenced operations in September 2015 and achieved capacity operating rates during first-quarter 2016. Cerro Verde’s expanded operations benefit from its large-scale, long-lived reserves and cost efficiencies. The project expanded the concentrator facilities from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day and is on track to provide incremental annual production of approximately 600 million pounds of copper and 15 million pounds of molybdenum. Cerro Verde’s copper production totaled 1.1 billion pounds for the year 2016, compared with 545 million pounds for the year 2015.

In response to market conditions, in the second half of 2015 FCX adjusted operations at its El Abra mine to reduce mining and stacking rates by approximately 50 percent to achieve lower operating and labor costs, defer capital expenditures and extend the life of the existing operations.

FCX continues to evaluate a potential large-scale milling operation at El Abra to process additional sulfide material and to achieve higher recoveries. Exploration results in recent years at El Abra indicate a significant sulfide resource, which could potentially support a major mill project. Future investments will depend on technical studies, economic factors and market conditions.

Operating Data. Following is summary consolidated operating data for the South America mining operations for the fourth quarters and years ended 2016 and 2015:

^a. Refer to summary operating data on page 4 for FCX’s consolidated molybdenum sales, which includes sales of molybdenum produced at Cerro Verde.

^b. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XV, which are available on FCX’s website, fcx.com.

South America’s consolidated copper sales volumes of 359 million pounds in fourth-quarter 2016 were higher than fourth-quarter 2015 sales of 286 million pounds, reflecting Cerro Verde’s expanded operations. Sales from South America mining are expected to approximate 1.3 billion pounds of copper for the year 2017, compared with 1.3 billion pounds of copper in 2016.

Average unit net cash costs (net of by-product credits) for South America mining of $1.51 per pound of copper in fourth-quarter 2016 were lower than unit net cash costs of $1.61 per pound in fourth-quarter 2015, primarily reflecting higher copper sales volumes and efficiencies associated with the Cerro Verde expansion and higher by-product credits. Average unit net cash costs (net of by-product credits) for South America mining are expected to approximate $1.61 per pound of copper for the year 2017, based on current sales volume and cost estimates and assuming an average price of $7.00 per pound of molybdenum.

Indonesia Mining. Through its 90.64 percent owned and consolidated subsidiary PT-FI, FCX’s assets include one of the world’s largest copper and gold deposits at the Grasberg minerals district in Papua, Indonesia. PT-FI operates a proportionately consolidated joint venture, which produces copper concentrates that contain significant quantities of gold and silver.

Regulatory Matters. PT-FI continues to engage with Indonesian government officials regarding its long-term operating rights under its Contract of Work (COW), and its rights to export concentrate without restriction.

In July 2014, PT-FI and the Indonesian government entered into a Memorandum of Understanding (MOU), in which subject to concluding an agreement to extend PT-FI’s operations beyond 2021 on acceptable terms, PT-FI agreed to construct new smelter capacity in Indonesia and to divest an additional 20.64 percent interest in PT-FI at fair market value. PT-FI also agreed to pay higher royalties and to pay export duties until certain smelter development milestones were met. In January 2015, the MOU was extended to July 25, 2015, and it expired on that date. The increased royalty rates, export duties and smelter assurance bond have remained in effect.

In October 2015, the Indonesian government provided a letter of assurance to PT-FI indicating that it would revise regulations allowing it to approve the extension of operations beyond 2021, and provide the same rights and the same level of legal and fiscal certainty provided under its current COW.

In January 2017, the Indonesian government issued new regulations to address exports of unrefined metals, including copper concentrates and anode slimes, and other matters related to the mining sector. The new regulations permit the continuation of copper concentrate exports for a five year period through January 2022, subject to various conditions, including conversion from a contract of work to a special operating license (an IUPK), commitment to completion of smelter construction in five years and payment of export duties to be determined by the Ministry of Finance. In addition, the new regulations enable application for extension of operating rights five years before expiration of the IUPK and require foreign IUPK holders to divest 51 percent to Indonesian interests no later than the tenth year of production. Export licenses would be valid for one-year periods, subject to review every six months, depending on smelter construction progress.

The January 2017 regulations permit the export of anode slimes, which is necessary for PT Smelting (PT-FI’s 25 percent owned copper smelter and refinery located in Gresik, Indonesia) to continue operating. PT Smelting is engaged in discussions with the Indonesian government related to the renewal of its anode slimes export license.

Following the issuance of the January 2017 regulations and discussions with the government, PT-FI advised the Indonesian government that it would convert its COW to an IUPK, subject to obtaining an investment stability agreement providing the same rights and the same level of legal and fiscal certainty enumerated under its COW. PT-FI also committed to constructing a new smelter during a five year timeframe after approval of the extension of its operating rights. The COW would remain in effect until it is replaced by a mutually satisfactory alternative.

PT-FI has requested that concentrate exports be permitted while the new license and stability agreement are negotiated. PT-FI is discussing the applicability of export duties and divestment requirements with the Indonesian government. Under its COW, PT-FI is not required to pay export duties on concentrate or to conduct further divestments.

As of January 25, 2017, PT-FI has not obtained approval to export concentrate. PT-FI has advised the Indonesian government that if it is prohibited from exporting copper concentrate it would be required to reduce production to match available capacity at PT Smelting or approximately 40 percent of PT-FI’s capacity (assuming that PT Smelting’s export license is approved). Under this scenario, PT-FI would be required to take near-term actions to reduce its workforce, significantly reduce costs and suspend future investments on its underground development projects and new smelter.

Under its COW, PT-FI has rights to export copper concentrate without restriction or payment of export duties. If necessary, PT-FI may consider legal action to enforce its contractual rights should it fail to reach a mutually satisfactory agreement with the Indonesian government.

In January 2017, the Indonesia Tax Court issued a ruling against PT-FI with respect to 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 July 2015 in the amount of $376 million (based on exchange rates at December 31, 2016, and including $227 million in penalties). The aggregate amount of assessments received from August 2015 through December 2016 was an additional $93 million, including penalties. No amounts have been recorded at this time for these assessments because PT-FI’s COW exempts it from these payments. PT-FI has the right to contest these assessments by appeal to the Indonesia Supreme Court and/or institute dispute resolution proceedings under the COW. Under Indonesian law, payment is required approximately 30 days after written receipt of the ruling. PT-FI expects to challenge this decision and is evaluating its options.

Operating and Development Activities. PT-FI is currently mining the final phase of the Grasberg open pit, which contains high copper and gold ore grades. PT-FI expects to mine high-grade ore over the next several quarters prior to transitioning to the Grasberg Block Cave underground mine during 2018.

PT-FI has several projects in progress 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. From 2017 to 2021, estimated aggregate capital spending on these projects is currently expected to average $1.0 billion per year ($0.8 billion per year net to PT-FI). Considering the long-term nature and size of these projects, actual costs could vary from these estimates. In response to market conditions and Indonesian regulatory uncertainty, the timing of these expenditures continues to be reviewed.

Operating Data. Following is summary consolidated operating data for the Indonesia mining operations for the fourth quarters and years ended 2016 and 2015:

^a. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XV, which are available on FCX’s website, fcx.com.

Indonesia’s consolidated sales of 352 million pounds of copper and 401 thousand ounces of gold in fourth-quarter 2016 were higher than fourth-quarter 2015 sales of 195 million pounds of copper and 333 thousand ounces of gold, primarily reflecting higher ore grades.

Indonesia’s fourth-quarter 2016 sales were below October 2016 estimates by approximately 120 million pounds of copper and 190 thousand ounces of gold, principally reflecting lower mining rates in the Grasberg open pit, which affected the timing of its copper and gold production resulting in a deferral of volumes to future periods. Various initiatives are under way to improve productivity levels in the open pit.

At the Grasberg mine, the sequencing of mining areas with varying ore grades causes fluctuations in quarterly and annual production of copper and gold. Consolidated sales volumes from Indonesia mining operations (assuming normal operations, including the resumption of concentrate exports in February 2017 and the renewal of PT Smelting’s export license) are expected to approximate 1.3 billion pounds of copper and 2.2 million ounces of gold for the year 2017, compared with 1.05 billion pounds of copper and 1.05 million ounces of gold for the year 2016. For each month of delay in obtaining approval to export, PT-FI’s share of production is projected to be reduced by approximately 70 million pounds of copper and 100 thousand ounces of gold.

A significant portion of PT-FI’s costs are fixed and unit costs vary depending on production volumes and other factors. Indonesia’s unit net cash costs (including gold and silver credits) of $0.65 per pound of copper in fourth-quarter 2016 were lower than unit net cash costs of $1.09 per pound in fourth-quarter 2015, primarily reflecting higher sales volumes.

Anticipated higher ore grades from the Grasberg mine are expected to result in lower unit net cash costs in 2017. Assuming an average gold price of $1,200 per ounce for 2017 and achievement of current sales volume and cost estimates (assuming normal operations), unit net cash credits (net of gold and silver credits) for Indonesia mining are expected to approximate $0.03 per pound of copper for the year 2017. Indonesia mining’s unit net cash credits for the year 2017 would change by approximately $0.075 per pound for each $50 per ounce change in the average price of gold. Because of the fixed nature of a large portion of Indonesia’s costs, unit costs vary from quarter to quarter depending on copper and gold volumes.

Indonesia mining’s projected sales volumes are dependent on a number of factors, including operational performance, the timing of shipments and its ability to continue to export copper concentrate.

Africa Mining. In November 2016, FCX completed the sale of its interest in TFHL, through which FCX held an effective 56 percent interest in the Tenke copper and cobalt mining concessions in the Southeast region of the DRC. In accordance with accounting guidelines, the operating results of Africa mining have been separately reported as discontinued operations in FCX’s consolidated statements of operations for all periods presented.

The fourth-quarter 2016 loss on disposal of discontinued operations of $16 million includes a charge of $33 million for FCX’s share of the settlement agreement entered into with La Générale des Carrières et des Mines (Gécamines), which is wholly owned by the DRC government, resulting in a resolution of all claims brought by Gécamines against FCX, including the action brought before the International Chamber of Commerce (ICC) International Arbitration Court, related to the sale of FCX’s interest in TFHL to CMOC. The parties to the settlement are FCX, CMOC, Lundin Mining Corporation, TFHL, Tenke Fungurume Mining S.A., BHR Newwood Investment Management Limited and Gécamines. Partly offsetting this charge is a gain of $13 million recognized for the fair value of contingent consideration, which in accordance with accounting guidelines will continue to be adjusted through December 31, 2019.

Operating Data. Following is summary consolidated operating data for the Africa mining operations for the fourth quarters and years ended 2016 and 2015:

^a. Includes the results of Tenke through November 16, 2016.

^b. Includes point-of-sale transportation costs as negotiated in customer contracts.

^c. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in net (loss) income from discontinued operations in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XV, which are available on FCX’s website, fcx.com.

^d. Net of cobalt downstream processing and freight costs.

Molybdenum Mines. FCX has two wholly owned molybdenum mines in North America - 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 molybdenum concentrate produced at the Henderson and Climax mines, as well as from FCX’s North and South America copper mines, is processed at FCX’s conversion facilities.

Operating and Development Activities. In response to market conditions, the Henderson molybdenum mine operated at reduced rates during 2016, resulting in an approximate 65 percent reduction in its annual production volumes. During 2016, FCX incorporated changes in the commercial pricing structure for its chemical products to enable continuation of chemical-grade production.

Production from the Molybdenum mines totaled 7 million pounds of molybdenum in fourth-quarter 2016, 9 million pounds in fourth-quarter 2015, 26 million pounds in the year 2016 and 48 million pounds in the year 2015. Refer to summary operating data on page 4 for FCX’s consolidated molybdenum sales, which includes sales of molybdenum produced at the Molybdenum mines, and from FCX’s North and South America copper mines.

Average unit net cash costs for the Molybdenum mines of $8.26 per pound of molybdenum in fourth-quarter 2016 were higher than $7.15 per pound in fourth-quarter 2015, primarily reflecting lower volumes. Based on current sales volume and cost estimates, unit net cash costs for the Molybdenum mines are expected to average approximately $7.75 per pound of molybdenum for the year 2017.

For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XV, which are available on FCX’s website, fcx.com.

Mining Exploration Activities. FCX’s mining exploration activities are generally associated with its existing mines, focusing on opportunities to expand reserves and resources to support development of additional future production capacity. Exploration results continue to indicate opportunities for significant future potential reserve additions in North and South America. Exploration spending continues to be constrained by market conditions and is expected to approximate $47 million for the year 2017, compared to $44 million in 2016.

Preliminary Recoverable Proven and Probable Mineral Reserves. FCX has significant reserves, resources and future development opportunities within its portfolio of mining assets. FCX’s preliminary estimated consolidated recoverable proven and probable reserves from its mines at December 31, 2016, include 86.8 billion pounds of copper, 26.1 million ounces of gold and 2.95 billion pounds of molybdenum, which were determined using long-term average prices of $2.00 per pound for copper, $1,000 per ounce for gold and $10.00 per pound for molybdenum. The preliminary recoverable proven and probable mining 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 reserve volumes are those which FCX estimates can be economically and legally extracted or produced at the time of the reserve determination.

^a. Consolidated reserves represent estimated metal quantities after reduction for joint venture partner interests at the Morenci mine in North America and the Grasberg minerals district in Indonesia. Excluded from the table above were FCX’s estimated recoverable proven and probable reserves of 281.8 million ounces of silver, which was determined using a long-term average price of $15 per ounce.

^b. Net equity interest reserves represent estimated consolidated metal quantities further reduced for noncontrolling interest ownership. Excluded from the table above were FCX’s estimated recoverable proven and probable reserves of 226.0 million ounces of silver.

The following table summarizes changes in FCX’s preliminary estimated consolidated recoverable proven and probable copper, gold and molybdenum reserves during 2016:

^a. Includes copper production of 0.4 billion pounds from the Tenke mine.

In addition to the preliminary consolidated recoverable proven and probable reserves, FCX’s preliminary estimated mineralized material (assessed using a long-term average copper price of $2.20 per pound for copper) totaled 102 billion pounds of incremental contained copper as of December 31, 2016. FCX continues to pursue opportunities to convert this material into reserves, future production volumes and cash flow.