10-KPeriod: FY2007

FREEPORT-MCMORAN INC Annual Report, Year Ended Dec 31, 2007

Filed February 29, 2008For Securities:FCX

Summary

Freeport-McMoRan Inc. (FCX) reported robust operational performance in its 2007 10-K filing, highlighted by the significant acquisition of Phelps Dodge Corporation in March 2007. This strategic move substantially expanded FCX's global copper and molybdenum reserves and production capacity, integrating mines across North and South America, as well as development projects like Tenke Fungurume in the DRC. The company's principal asset remains the Grasberg minerals district in Indonesia, which boasts the world's largest recoverable copper and gold reserves. Financially, the report reflects the substantial impact of the Phelps Dodge acquisition, including the substantial debt incurred to finance it, and the subsequent deleveraging efforts. While the acquisition significantly boosted revenues and production volumes, it also led to substantial purchase accounting adjustments, primarily affecting depreciation, depletion, and amortization expenses. The company's financial outlook is closely tied to commodity prices, particularly copper, gold, and molybdenum, with significant sensitivity noted for fluctuations in these markets.

Financial Highlights

27 data points
Beta

Net Income

$2.77B

EPS (Diluted)

$3.75

Cash & Equivalents

$1.63B

Free Cash Flow

$6.22B

Financial Statements
Beta
Cost of Revenue$9.77B
SG&A Expenses$466.00M
Operating Expenses$10.38B
Operating Income$6.55B
Net Income$2.77B
EPS (Basic)$4.06
EPS (Diluted)$3.75
Shares Outstanding (Basic)682.00M
Shares Outstanding (Diluted)794.00M

Key Highlights

  • 1Acquisition of Phelps Dodge Corporation for approximately $26 billion in March 2007, significantly expanding global copper and molybdenum operations and reserves.
  • 2Grasberg minerals district in Indonesia recognized as the company's principal asset, holding the world's largest recoverable copper and gold reserves.
  • 3Consolidated recoverable reserves as of December 31, 2007, totaled 93.2 billion pounds of copper, 41.0 million ounces of gold, and 2.0 billion pounds of molybdenum.
  • 4Significant capital expenditure plans for development and expansion projects, including Tenke Fungurume in the DRC, Safford mine in Arizona, and underground ore bodies in the Grasberg district.
  • 5Reported robust copper prices, averaging $3.23 per pound (LME) in 2007, driven by strong global demand, particularly from Asia, and low inventory levels.
  • 6Gold prices also showed strength in 2007, supported by a weak U.S. dollar, investment demand, and geopolitical tensions, averaging $696 per ounce.
  • 7Management's commitment to debt reduction post-acquisition, with significant repayments made against the term loans used to finance the Phelps Dodge transaction.

Frequently Asked Questions

The acquisition of Phelps Dodge significantly expanded Freeport-McMoRan's global footprint, doubling its copper and molybdenum production capacity and substantially increasing its reserve base. Financially, it led to a significant increase in revenues, operating income, and assets, but also resulted in a substantial increase in debt and significant purchase accounting adjustments affecting depreciation, depletion, and amortization expenses.

In 2007, copper prices remained strong and volatile, averaging $3.23 per pound (LME), supported by robust global demand, particularly from Asia, and historically low inventory levels. Freeport-McMoRan considered the underlying supply and demand conditions positive and expressed confidence in expanding production. The company projected continued strength in copper prices, influenced by Chinese demand, global economic activity, and new supply developments.

Freeport-McMoRan had several major development projects underway or planned, including the Tenke Fungurume project in the DRC, the ramp-up of the Safford mine in Arizona, the development of large-scale underground ore bodies in the Grasberg district in Indonesia, and the planned restart of the Climax molybdenum mine in Colorado. The company projected significant capital expenditures for these projects, totaling approximately $2.4 billion for 2008.

Following the acquisition of Phelps Dodge, Freeport-McMoRan incurred substantial debt. The company prioritized debt reduction, fully repaying the $10 billion in term loans by the end of 2007 through a combination of equity proceeds and internally generated cash flows. The company also managed its revolving credit facilities and had a strong focus on maintaining financial flexibility.