Fitch Ratings has affirmed the Issuer Default Rating (IDR) of Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) at 'BBB', along with the outstanding debt of FCX and its subsidiary Freeport-McMoRan Corporation (FMC) formerly known as Phelps Dodge Corporation. A full list of ratings follows at the end of this release.
The Rating Outlook is Stable.
The ratings reflect the company's leading position in the industry, strong liquidity, and sound operational and financial management. Operations benefit from low average costs, large scale and long lived reserves. Long-term copper fundamentals benefit from short supply, modest inventories, strong demand from China and solid demand from developed nations.
The Stable Outlook reflects FCX's balanced approach to capital expenditures, dividends and financial leverage and Fitch's outlook on the copper market.
At Dec. 31, 2011, pro forma for the note issuance in February 2012 and redemption in March 2012, cash on hand was $4.6 billion of which $3.7 billion would be available to the parent company after non-controlling interests and withholding taxes. Pro forma total debt was $3.5 billion with scheduled maturities over the next five years of $4 million in 2012 and $500 million in 2015. The $1.5 billion revolver, maturing March 30, 2016, was fully available except for $44 million representing letters of credits issued at Dec. 31, 2011.
Guidance for 2012 operating cash flow is $4.7 billion including $800 million of working capital uses and assuming average realizations of copper at $3.50/lb., gold at $1,600/oz. and molybdenum at $13/lb. This compares to 2011 operating cash flow of $6.6 billion on average realizations of copper at $3.86/lb., gold at $1,583/oz., and molybdenum at $16.98/lb.
Guidance for annual average operating cash flows, excluding working capital changes, for 2013 and 2014, is between about $5 billion and $8 billion (assuming copper realizations between $3.00/lb. and $4.00/lb., gold at $1,200/oz. and molybdenum at $12/lb.) Guidance for capital expenditures is $4 billion in 2012 and $3.5 billion in 2013. Fitch estimates annual interest expense on pro forma debt levels to be about $140 million per year and ordinary common dividends of about $1.1 billion for 2012. Fitch expects free cash flow to be neutral to positive.
Operating EBITDA for 2011 was $10.6 billion and FCX guides to an annual range for 2013 and 2014 of between $7.4 billion and $11.6 billion for copper prices between $3.00/lb. and $4.00/lb. These levels correspond to a pro forma total debt to EBITDA range of 0.5 times (x) to 0.3x on a gross basis.
Fitch expects FFO adjusted leverage to remain under 1.5x over the next 24 months.
Fitch notes that earnings and cash flows are highly leveraged to metals prices and a $0.10/lb. decline in copper prices could cut EBITDA by $400 million over a 12-month period. In particular, FCX's average copper realizations were $3.86/lb. for the full year 2011 and $3.42/lb. for the fourth quarter of 2011. Average copper realizations were $2.60/lb. in 2009 and $3.59/lb in 2010.
Thirty-one percent of 2011 operating profits and 26% of copper reserves as of Dec. 31, 2011 are from Papua, Indonesia. Fitch rates Indonesia 'BBB-' with a Stable Outlook. FCX has been in this area for more than 40 years, and the mine is a significant exporter.
Fitch currently rates FCX as follows:
--Issuer Default Rating 'BBB';
--$1.5 billion unsecured bank revolver 'BBB';
--$500 million 1.40% senior notes due Feb. 13, 2015 'BBB';
--$500 million 2.15% senior notes due March 1, 2017 'BBB';
--$2 billion 3.55% senior notes due March 1, 2022 'BBB'.
--7.125% senior unsecured debentures due 2027 'BBB';
--9.50% senior unsecured notes due 2031 'BBB';
--6.125% senior unsecured notes due 2034 'BBB'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 13, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology