FreeportMcMoRan(FCX)

WilliamThomson
4/27/2015

InvestmentThesis
RecommendedinvestorsbuyFreeportMcMoRan shareswithatargetpriceof$30;
anupsideof44%relativetocurrentpricing.
ThemarkethasseverelypenalizedFCXforthe2012/2013
mergerwithPlainsExploration(PXP)andMcMoRan Energy
(MMR)andthesubsequentfallincommoditypriceshas
occurredinthemiddleofacompanywideinvestmentcycle,
exacerbatingthemarketperceptionofthecompanyas
overextended.
Theminingoperationsareworth$18.62ashareinourbear
case(coppertradingat$2.15lbin2015)andincludesallmining
andcorporatedebt,minimizingdownside.
Managementshistoryofcapitalallocationdisciplineand
effectivemonetizationofdifficultassetsisbeingignoredbythe
market.Asisthesignificantopportunityembeddedinthe
Oil/NatGas assets.
AtcurrentpricesFCXpresentsinvestorswithacompellingrisk
rewardprofileasaresultoftheimprovingFCF,worldclass
managementandhighqualitydevelopedandexploratoryassets
inbothMiningandOil/NatGas.
Atatimewheneveryoneislookingforvalueinenergy,FCXisan
opportunitytobuythelargestpubliclytradedcopperminerin
theworld(atthevalueoftheminingassets)andsecurean
optiononhighvalueOil/NatGas assets.

CurrentCapitalization
SharePriceasof:
4/24/2015
Sharesoutstanding(mm)
EquityMarketCap(mm)
Add:Debt(mm)
Less:Cash(mm)
Add:MinorityInterest
TotalEnterpriseValue
TradingStatitics
52WeekRange
39.32
DividendYield
AverageDailyVolume(mm)
SummaryValuation
2015E
2016E
EV/EBIT
10.1
7.7
P/E
32.3
9.8
P/CFPS
4.3
3.1

$20.82
1,039
$21,632
$20,312
$549
$4,993
$46,388
16.43
1.0%
13.14
2017E
6.0
6.4
2.4

Catalysts
RecommendedinvestorsbuyFreeportMcMoRan shareswithaneartermtargetpriceof
$30ashareandathreetofiveyearpricetargetrangeof$55to$60ashare.
NearTermCatalysts
Grasberg:ConclusionofContractofWork(COW)negotiationswithGovernmentofIndonesia.
SecuringAdditionalFundingforOil/NatGasProjects:JVPartnersforGulfofMexico(GOM)Oil/NatGasprojectswill
helprampupproductionandleadtoselfsustainingOil/NatGasOperationswithgrowingFCFsoonerthancurrent
selffundingplan.
PartialCatalyst(goodforincrementalimprovementoffinancials) USDollarAppreciation:Unlikemostminingfirms,
FCXderivesnearly50%ofrevenuefromsalestoUScustomers,andassucharemoreinsultedfromthenegative
impactofarisingUSdollarthanmostminers,a10%strengtheningoftheUSDollarvstheChileanPeso,Indonesian
Rupiad,AustralianDollar,theEuroorthePeruvianSolequatestoacostbenefitof$145millioninEBITDAor$100
millioninoperatingcashflow.FCXprovidesmorethan40%ofdownstreamcopperintheUSmarket.
PartialCatalyst EconomicInstability: FlighttoGoldresultingfromEconomicInstability(every$50increaseinthe
priceofgoldadds$100millioninEBITDAand$60millioninoperatingcashflow).
CommodityPrices:Contrarytocurrentsupplysurplusforecasts,copperdemandwilllikelyexceedsupplythisyear
duetolowinvestmentandmineclosuresduetoweatherandpolitics
MediumtoLongTermCatalysts
OilPrices:AtcurrentpricesFCXisoneofthebestoptionsonoilpriceappreciationavailableinthemarket.FCXisthe
worldsleadingcopperminertradingatthefairvalueofthecompanysminingassetsbutitalsohassignificantoil
assets,whicharecurrentlyvaluedatpenniesonthedollar.
InboardLowerTertiary/Cretaceous:TheInboardLowerTertiary/CretaceousNaturalGas(ILTC)playholdsnaturalgas
assetsinexcessof1Tcf.FCXisaleadingplayerindevelopmentofthetrend.ThepotentialofILTCtrendisanexample
ofwhyanynegativeimpactoffuturefundingdecisionsfortheOil/NatGasassetswilllikelybeovershadowedby
astutecapitalallocationdecisions.
ContinuedSlowDevelopmentofCopperAssets: Miningfirmshavedelayedbrownfieldinvestmentsandnewmine
discoveriesarefewandfarbetween,withonlytwosignificantfindssince1988.TheoutlookforcopperintheLTis
oneofconstrainedsupply.
3

CompanyOverview
HighQualityAssetsSpreadAcrossMultipleAttractiveIndustries
FCXisthelargestpublicallytradedcopperminerintheworldwithsignificantOil/GasNat,Gold,
CobaltandMolybdenumassetsandrecentlyacquiredOil/NatGasassets.
ManagementhasgrowntheTangibleBookValuePerShareataCAGRof14.83%forthelast25Years.
Currentmanagementhasbeeninplaceformorethanadecade.

FreeportMcMoRan
FCXMining
PTFreeport
Indonesia
(90.94%)

FCXOil&Gas

Reserves:CU 29.0bn lbs,AU 28.2mmozs

Sales:CU 960mmlbs,AU 1.3mmozs

Sales(MBOEperday):2014 39,2013 39
Reserves(MMBOE):PD 89,PUD 79

California

North
America

Reserves:CU 35.6bn lbs,MO 2.4bn lbs

Sales:CU 1.9bn lbs,MO 2.4bn ozs

Sales(MBOEperday):2014 73,2013 72
Reserves(MMBOE):PD 89,PUD 79

Gulfof
Mexico

South
America

Reserves:CU 31.8bn lbs,MO 0.7bn lbs

Sales:CU 0.9bn lbs

Sales(MBOEperday):2014 44,2013 70
Reserves(MMBOE):PD 39,PUD 30

Haynesville
/Madden
/Other

Africa

Reserves:CU 7.1bn lbs,MO 0.85bn lbs

Sales:CU 445mmlbs,CO32mmlbs

Reserves
TotalProved
TotalProbable

Oil(MMBbls)
288
199
487

NatGas(Bcf)
610
278
888

Total(MMBOE)
390
245
635

CompanyOverview
ReviewofFY2014andFirstQuarter2015Results
FY2014Review
NetLossattributabletocommonstocktotaled$1.3billion,$1.26ashare.NormalizedNetIncomeattributableto
commonstocktotaled$2.0billion,$1.96ashare.
NormalizedNetIncomeexcludes$1.7billiongoodwillimpairmentandcertainitemsrelatedtothesaleof
Candelaria andOjosdelSaladoCopperMine.
NormalizedNetIncomeexcludes$2.3billioninassetwritedownsrelatedtothecarryingvalueofoilandgas
proprieties.
Operationalhighlightsinclude:PositiveexplorationresultsandwelltestsforGulfofMexico(GOM)assets,
completedsaleof80%ownershipinterestinCandelaria andOjosDelSaladocopperminefor$1.8billionincashand
completionofMorenciMillExpansionprojectinMay2014.
FirstQuarter2015Results
Netlossattributabletocommonstocktotal$2.5billion,$2.38ashare.NormalizedNetLossattributabletocommon
stocktotaled$60million,$0.06ashare.
NormalizedNetLossexcludes$2.4billioninassetwritedownsforreductiontothecarryingvalueofoiland
gasproperties.
Operationalhighlightsinclude:10%increaseinthevolumeofcoppersoldvs.1Q2014,initialstartofcommercial
productionatLuciusGOMfacility(25%FMO&Gworkinginterest)andHighlandernaturalgaswell.
FinancialSummary
($inmillions,exceptpersharedata)
Revenue
NetEarnings/(Loss)
Earnings/(LossperDilutedShare)
NormalizedEBITfromContinuingOps
CashFlowfromOperations
CapEx

FY2012
$18,010
3,041
3.20
5,755
3,774
3,494

FY2013
$20,921
2,658
2.65
5,468
6,139
5,286

4Q2014
$5,235
(2,851)
(2.74)
1,176
1,118
1,805

FY2014
$21,438
(1,308)
(1.26)
4,834
5,631
8,641

1Q2015
$4,153
(2,474)
(2.38)
102
717
1,867

QtoQ
Change
($1,082)
377
0.36
(1,074)
(401)
62

LTM
$20,606
(4,262)
(4.13)
3,825
5,147
8,896

ValuationConsiderations

AnOilProblem
WhatifFCXwasjustthelargestpublicallytradedCopperminerintheworld?

FCXistwobusinesses:anexploratoryOil/NatGas
companyandaCopperfocusedminer.

Atthecurrenttime,theOil/NatGas businessand
theperceptionofthebalancesheetasweakare
ananchoronthestockprice.

AbsenttheOil/NatGas assetsbutincludingall
companydebt(includingthatassociatedwith
Oil/Gasoperations)FCXminingassetsareworth
anywherefrom$16.51ashareto$49.12a
share.(1)
FCXminingassetswillcontinuetoappreciatein
valueandgeneraterichfutureFCFas
managementcontinuestoinvestinworldclass
assetsaheadofcoppershortagedueto
decliningoregradesandlimitednewmines
comingonline.

FCXDerived71%ofRevenuefrom
Copperand80%ofNormalizedEBIT
fromMiningin2014
IndexLTMCopper,WTIandFCX
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00

Copper

FCX

WTI

IntheLTMCopperhastradeddown10%
while,FCXandWTIhavetradeddown37%
and44%,thestocknowcorrelatesbetter
withOilthenCopper

(1)BasedonaDCFModeloftheFCXMiningOperations,seepage31forbasecasemodelandaBullandBearScenariocommodity pricing,
7
seeAppendixA,page37.

AnOilOption
TheinclusionofnewOilandNaturalGasAssetsandthefallinthepriceofOilhasconfused
Investorsaboutthevalueproposition.

ThemarketiscurrentlyvaluingFCXOil/NatGas
assetsatclosetonothing.

Asastandaloneentitythenormalizedearnings
fortheOil/NatGasbusinessimplyavaluationof
$2.15ashareviaEBITMultipleDCFwith8.0x
multiple,andanetassetvalueof$8.85ashare
viaaPerpetuityGrowthDCFwitha2.5%
growthrate,bothataconservative$55oiland
productiongrowthassumptions.

TheportfolioofOil/NatGasassetsarerichin
possibilityandlocatedinareasoftheworldin
whichmanagementhassignificant
developmentexperience.FCX,withitsvaluable
miningassets,offersinvestorsoneofthebest
optionsonfutureOil/NatGasprice
appreciation.

TEV/EBIT
FY2014A FY2015E FY2016E
Anadarko
15.1x
Loss
39.9x
Apache
8.0x
Loss
30.0x
Hess
11.7x
Loss
174.8x
NobleEnergy
15.4x
46.0x
32.5x
Occidental
8.9x
55.9x
27.5x
8.5x
Loss
114.3x
Marathon
FreeportMcMoRan 10.8x
10.1x
7.7x

ComparedtoOil/NatGascompanieswith
similarreserveprofiles,FCXtradedata
slightdiscountin2014andlookstotrade
atasignificantdiscountgoingforward.

KeyTakeAway:Ifcommoditypricesremainweakthrough2019,andmanagementpoorly
(1) executesOil/NatGasassetdevelopment,FCXhasanintrinsicvaluefloorof$17and$20ashare

MiningOperations

MiningOperationalOverview
GivenFCXMiningOperations2014EBITof
approximately$3.87bnFCXEVistrading
at11.8xtheMiningOperationsLTMEBIT
vsminingpeerstradingat9.46x,aslight
premiuminadepressedsector.
FCXMiningassetshaveaverageROAof
11.7%overthelastfiveyearsvsmining
peerswhohaveaveraged9.4%.
2015miningCapExfocusedonbrownfield
miningprojectsthatoffersuperiorrisk
adjustedreturns.

MiningEBITbyGeographicSegment
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
FY2012

FY2014

NorthAmerica

FY2015

FY2016

SouthAmerica

FY2017

Africa

FY2018

FY2019

Indonesia

2014MiningRevenuebySource

KeyRisks:
o OperationalRisks Executionrisk
relatedtonewCapEx
o GeopoliticalRisk Indonesiaandthe
DemocraticRepublicofCongo
o CommodityPriceRisk

FY2013

1.67%

13.84%

5.91%
8.40%
70.18%

Copper

Gold

Molybenum

Cobalt

Refining&Smelting

KeyTakeAway:FCXminingassetsareworldclassandcapableofgeneratingindustry
leadingreturns.

10

MiningCapEx inFocus
IndustryProductionCostbyOreGrade

Managementcontinuestoinvestinhigh
qualityprojectsregardlessofthecommodity
cycle.
MiningCapExisfocusedongenerating
higherriskadjustedreturnsthrough
brownfieldinvestmentsinmineswithlong
livesandhighoregrades.
MiningCapExFocusedonmineswith
superiorcoppergradesvs.industryaverage
of0.5%forgreenfieldprojects:
o CerroVerde $700mn(OreGrade:0.39%)
o Grasberg$1.5bn(OreGrade:1.17%)
o Tenke $225mn(OreGrade:3.56%)
Focusonefficiencyandcostwillproduce
strongFCFgrowthincomingyears,evenat
lowercommodityprices.

LeveredFCFProjections
6,000
5,000
4,000
3,000
2,000
1,000
0
(1,000)

FY2015P

FY2016P

FY2017P

FY2018P

FY2019P

(2,000)
BearLFCF

BaseLFCF

BullLFCF

SpotLFCF

KeyTakeAway:MiningCapExisfocusedonincrementalimprovementandexpansionof
existingassets,generatinghigherreturnswithlowerriskandsuperiorFCF.

11

FCXanditsMiningPeers
FCXhassomeofthelowestallinsustainingcashcostsinthecopperminingindustry.

AmongthemajorcopperproducersFCXhassomeofthelowestcostminesandlowestaverageallin
sustainingcashcostsintheindustry(under$2/lb).Thisfacthelpsensurecopperproductionprofitability
cancontinueevenduringacopperpricedecline.

Q12015FCXmaintaineditsindustryleadingcombinationofproductionvolumeandcostminimization,
achievinganetcashcostperpoundofcopperof$1.64

Miningaccountsforthemostsignificantcostintheindustry(accountingfor80%ofcosts), whichmakes
recentFCXinvestmentsinimprovedmineproductionandefficiencyathighoregrademinesallthemore
important.

CapExinvestmentsinCerroVerde,Morencia,TenkeandGrasbergwilllikelylowerFCXallinsustaining
cashcostsfurther.ForwardlookingmanagementguidancefromQ12015isfor$1.53apound.The
lowestcostmineintheFCXPortfolio,Grasbergproducesataround$0.50apound.

AllinSustainingCashCostsbyProducer

CostsbySource
Refining
15%
Freight
5%

Mining
80%

12

RiskstoMiningOperationValue
MiningOperationsatFCXareexposedtoseveralimportantrisksbesidescommodityprices.
Geopolitical/PoliticalRisk

GrasbergMineRisks

Tenke:Currentgovernmentisseekingtoimprove OperatingRisks:Allfuturedevelopmentat
Grasbergisunderground,andcopperwillbe
theattractivenessofminingsectorwithrevision
minedviaBlockCaving.FCXhasoutlinedan
toregulationsscheduledforearly2015.
aggressivetimelineforrampup(onaverage50%
Revisionsappearslatedtoimproveregulatory
quickerthanmostblockcaveminingtimelines).
environmentbutmayalsoincreasetaxationand
PoliticalRisks:Negotiationswithrecently
royalties.
elected(July2014)Gov.ofIndonesiaarein
UnderstandingPolRisk:Politicalriskexistsfor
process,withmanagementpositiveabout
FCXateverymineitowns,andUSminesareno
conclusionofdiscussionsthisyear.Accordingto
exception.Theriskexistsintherelationship
Q12015callmostmajorpointshavebeen
betweencompanyandgovernment,notthe
workedout,suchasnewroyaltiesandtaxes.A
countryitselfthough.EmergingMarketriskis
fewissuesremaintobefinalized,suchas
likelyoverstated,anddevelopedworldrisklikely
timelinefordivestitureofbetween10%and20%
goesunrecognized.
ofFMIndonesiaintheIndonesianStockMarket,
andcontinuationofoperationspost2021.
OperationalRisks
TheSmelter:AspartofthenegotiationsFCXhas
Tenke:Powersupplyandqualityofworkforce.
agreedtoexpandcapacityatitsexistingsmelter.
CerroVerde:Watersupply.
Expenseswillnotbeginuntilpost2016period,
expectedcost(sharedwithsmelterpartners)of
$2billion.
13

MiningOperationValuation
Theimpactofrecentmetalpriceerosioniscompensatedforwithtimelyproductiongrowth
arisingfromforwardlookinginvestmentsbymanagementinexistingassets.
NegativeRiskstoValuation

PositiveRiskstoValuation

FCXiscurrentlytradingatornearthevalueof
theminingbusinessinthebearcase,butat10
yearcommoditycyclelow($1.26copper),not
evenlowcostFCXassetsareprofitable.
OngoingGeopoliticalRisks.
Failuretoproperlyexecuterampupof
productionfromnewCapEx.

Reboundincommodityprices.
ConclusionofGrasbergCOW
ConclusionofCapExandrampupofnew
investmentstofullproduction.
Addedincrementalgainsfromnonecoremining
assets:Example CobaltChemicalRefinery
purchasedin2013,Molybdenum,Gold,Silver.

Revenue
EBITMargin
EBIT
EBITDA
NOPAT
ETR
NetIncome
EPS

2013A
$18,305
32.3%
5,909.2
6,334
3,841
35%
3,089
$2.97

Mining Operation Financials

2014A
2015P
2016P
$16,728
$15,872
$19,693
26.8%
24.6%
26.7%
4,478.8
3,908.4
5,260.5
5,445
5,517
7,058
2,911
2,540
3,419
35%
35%
35%
2,323
2,151
3,030
$2.24
$2.07
$2.92

FairValue
TEV/EBITMultiple(NTM)
EVofSegment
EquityValue
ValuePerShare
NAVofSegment(DCF@8%)
PerShare

Bear
12.2x
35,637
19,235
$18.51
20,754.2
$19.98

Base
11.8x
46,096
29,694
$28.58
33,615.3
$32.35

Bull
11.3x
64,297
47,895
$46.10
53,596.3
$51.58

2017P
$22,015
27.8%
6,111.4
7,995
3,972
35%
3,583
$3.45

2018P
$19,455
27.3%
5,313.8
6,961
3,454
35%
3,065
$2.95

2019P
$22,132
28.2%
6,236.0
7,952
4,053
35%
3,664
$3.53

Copper
Gold
Molybdnum
Cobalt

Base
$2.5
$1,200.0
$57.0
$10.0

Spot
$2.7
$1,175.0
$57.2
$7.7

14

OilandNaturalGas

AnExcellentOptiononOil
FCXhasproducingreservesinCaliforniaandHaynesville,premierDeepWaterGOM
producing/exploratoryassets,andpotentiallygamechangingacreageintheInboardLower
Tertiary/Cretaceousnaturalgastrend.
80%of2015Oil/NatGas CapEx directedtothehighestreturnGOMopportunities.
FCXassetshaveanestimatedfindinganddevelopmentcostof$26/BOEoverthenext5years.
Managementforecaststhatby2025ownedacreagecouldbeproducingasmuchas600MBOE/dayvs.2015E
of143MBOE/day withexpectedallincostsof$46abarrel.
1Q2015Highlights
ThreeprojectscommencedproductioninQ12015totaling25MBOEperdaybytheendofMarch.
$100millioninnetoilhedgingrealizationsinQ12015.
86%ofremaining2015oilproductionishedged,providingasmuchas$13/bbl ofpremium.
CurrentDeepwaterGOMacreagehas145potentialprojectswithIRRsgreaterthan20%atcurrentforward
strippricing.

2014Sales 56.8MMBOE

California
25%

Haynesville/
Other
18%

Gas
26%

Other
13%
Eagle
Ford
15%

ProvedReserves:ByRegionandCommodity(6:1Ratio)

GoM
47%

NGLs
3%

Oil
71%

California
39%

GoM
43%

16

GulfofMexicoAssets
FCXhasseveralprojectsnearingproduction,includingseveraltiebackopportunitieswhich
offershorterdevelopmentcyclesandhigherIRRthangreenfieldfinds.
TheUSGOMremainsoneofthemostattractiveplacestobeintheupstreamworld,withanestimated5BN
BOEdiscoveredinthelastfewyears.43%ofFCXProvedReservesareintheGOM.
DespitetechnologicalchallengesassociatedwithDeepwaterGOM,theampleaccesstounderutilizedexisting
infrastructure(bothpipelinesandrigs)andlowtaxtakehelpscompensateforrelativelyhighdevelopment
costs.
WeightedProjectIRRbyRegion

40%
30%

29.50%

25.50%

23.00%

22.60%

21.00%

20%

18.80%

15.70%

15.40%

14.30%

Russia

CanadianOil
Sands

Australian
LNG

10%
0%
Brazil

GOM

Other

Angola

Nigeria

Source:CreditSuisse,"USGulfofMexico:AllYouNeedtoKnowabouttheGOM"

Norway

In201580%ofFCXOil/NatGas CapEx isdirectedtowardsthehighestreturnGOMopportunities.

FocusondevelopmentofCopper,HolsteinDeep,Dorado,KOQVandKingtiebackopportunities,allofwhich
requirelowerCapEx investments,shorterdevelopmentcycles,andofferfastermonetizationofresources
thangreenfielddevelopmentsastheyleverageexistinginfrastructure.
Expected1st productionfromHolsteinDeepandCoppertiebacksin2016.
GOMtiebackoffermuchhigherreturns(43%averageIRR)thanlargergreenfield(25%IRR)projectsas
theyleverageexistinginfrastructure.
FCXGOMAcreageincludes145potentialprojectswithIRRsgreaterthan20%atcurrentfuturesstrip
pricing.

17

DeepwaterGOMProjects
Capacity
(BOPD)

Utilization

Capacity
(MCFD)

Region

First
Production

DevelopmentPlan

EstimatedReserves

Operator/Working
Interest

OperatingAssets
FMO&GOperated
with100%WI
FMO&GOperated
with100%WI

Marlin

40%

60,000

235,000

MississippiCanyon

2000

HornMtn

12%

75,000

72,000

MississippiCanyon

2002

Holstein

12%

113,500

142,300

GreenCanyon

2004

7Wells(20142016)

Opportuntiesforupto
75MBOEperdayby2020

80,000

450,000

KeathleyCanyon

4Q2014

6WellDevelopment
Program

295MMBOE

PositiveDrillingResults

54MMBOE

FMO&GOperated
with100%WI

DevelopmentAssets
Lucius
PowerNap

MississippiCanyon

Vito

MississippiCanyon

Heidelberg

80,000

300MMBOE

GreenCanyon

2016

6WellInitialProgram

300MMBOE

Copper

GreenCanyon

2016

1WellBeingDrilled

35MMBOE

HolsteinDeep

GreenCanyon

2016

9ProposedWells

FMO&G25.1%WI
AnadarkoOperated
FMO&G50%WI
ShellOperated
FMO&G50%WI
ShellOperated
FMO&G12.5%WI
AnadarkoOperated

TiebackOpportunities

Dorado

MarlinTieback

MississippiCanyon

KOQV

HornMtn
Tieback

MississippiCanyon

King

MarlinTieback

MississippiCanyon

1stProduction
AchievedinMarch
DevelopmentDrilling
2H2015
CompletionOperations
Underway
ShellPreparingtostart
drilling

DeepSleep

FMO&GOperated
with100%WI
FMO&GOperated
with100%WI
FMO&GOperated
with100%WI
FMO&GOperated
with100%WI
FMO&GOperated
with100%WI
FMO&G50.0%WIShell
Operated

InboardLowerTertiary/Cretaceous
Highlander

SouthLouisiana

FarthestGateWest
Source:CompanyFilings,CreditSuisseEstimates,BankofAmericaEstimates

2015

1stProduction
AchievedinQ12015
DrillingCommenced
Oct2014

FMO&G72.0%WI

18

InboardLowerTertiary/Cretaceous
Industryleadingpositioninthedevelopingnaturalgasplay.
FCXbegancommercialproductionatitsHighlanderdiscoverylocatedonshoreinSouthLouisianainthe
InboardLowerTertiary/Cretaceoustrendinthe1st Qtr 2015.Theproductiontestindicatedaflowrateof
approximately75MMcf/d.
UltraDeepWells(whichrunasdeepat30,000feet)aresignificanttechnologicalchallengeswithreservoir
temperaturesexceeding440degreesandbottomholepressureashighas27,000PSI(4xthepressureit
takestolaunchthespaceshuttle).
TheUltraDeepInboardLowerTertiary/CretaceoustrendliesbelowthesaltweldthatcutsthroughtheGulf
Coastsedimentlayers.ThusfarmostGOMOil/NatGas hasbeenfoundinreservesabovethesaltweld.

ThetrendintheLowerTertiary/Cretaceouslayerarepartofthesamegeologicalstructuresthathavebeenso
profitableforoilcompaniesexceptthattheyhavebeenisolatedandbisectedbythesaltweld.
JamesMoffett,ChairmanoftheBoardofFCXbelievesthatthatInboardLowerTertiary/Cretaceoustrend
holdsreservesinexcessof1TcfofNaturalGas.ThepotentialoftheLowerTertiary/Cretaceousacreagethat
FCXhastitletoisnotyetrepresentedonthebalancesheetasreserves.
19

TheFundingQuestion
FCXOilandNatGas assetsofferthepotentialofrichrewardsforthecompanyandinvestors
regardlessofadditionalfunding,butadditionalfundingwillhelprampupproductionquicker.
ThefocusontiebackopportunitiesintheGOMandonsustainingproductioninallotheroilfieldswill
generatecashflowtohelpdevelopprojectsinthelongterm,atthemomentFCXissearchingfor
(1)
additionaloutsidefunding(JVpartners)whichcanrampupthespeedatwhichassetsaredeveloped.
Existing,validatedGOMacreageisproducing130,000to140,000MBOE/Day,withoutadditionalfunding
managementprojectsthatnumbercouldreach173MBOE/Dayby2017,withadditionalfundingthat
numbercouldbe217MBOE/Dayby2017.

150

$2.9

100

$2.9

50

$2.8

Production

$3.0

CapEx

Production

200

250

$4.0

200

$3.0

150

2015e

2016e

Production(MBOE/Day)

2017e

2015e
2016e
Production(MBOE/Day)

CapEx($inBil)

CurrentFundingEBITDA($inbil)
$2.5

$1.0

50

$2.8

$2.0

100

CapEx

WithAdditionalFunding

CurrentProductionandCapExPlan

$0.0
2017e
CapEx($inBil)

AditionalFundingEBITDA($inbil)
$3.5
$3.0
$2.5
$2.0
$1.5
$1.0
$0.5
$0.0

$2.0
$1.5
$1.0
$0.5
$0.0
2015e

(1)SeeAppendixB:PossiblePEPartners.

2016e

2017e

2015e

2016e

2017e

20

Oil/NatGas OperationValuation
ThedeclineinthepriceofoilhasnegativelyimpactedneartermvalueofFCXassets,but
hedgeswillhelpblunt2015impact.Longtermpotentialisveryreal,andsellingatadiscount.
Oil/NatGasoperationsdonotlooktoreachpositiveleveredFCFuntil2018underBaseCaseCommodity
pricingandconservativeproductiongrowthassumptions.InbasecaseOil/NatGasoperationslooktotrade
atasignificantdiscounttoNetAssetValuecalculatedviaDCFwithadiscountrateof8%.

NegativeRiskstoValuation

PositiveSurprisestoValuation

Continuederosioninthepriceofoil.
FallinOilDemand.
Failuretofindadditionalfundingwillslow
development.

Reboundinoilprices.
SecuringJVPartnersforadditionalfunding.
SignificantreservesnotyetaddedtoBalance
sheet.

Revenue
EBITMargin
EBIT
EBITDA
NOPAT
ETR
NetIncome
EPS

2013A
$2,616
69.3%
450
1,814
293
35%
112
$0.11

Oil/NatGasFinancials
2014A
2015P
2016P
$4,710
$3,017
$3,061
69.3%
69.3%
69.3%
975
572
580
3,266
2,092
2,122
634
372
377
35%
35%
35%
393
201
206
$0.38
$0.19
$0.20

FairValue
TEV/EBITMultiple(NTM)
EVofSegment
EquityValue
ValuePerShare
NAVofSegment(DCF@8%)
PerShare

Bear
1.8x
1,733
835
$0.80
(531.6)
($0.51)

Base
5.0x
4,845
2,277
$2.19
9,174.6
$8.83

Bull
8.1x
7,880
5,312
$5.11
19,765.2
$19.02

2017P
$3,694
69.3%
700
2,562
455
35%
284
$0.27

WTI
NatGas

2018P
$4,834
69.3%
916
3,352
595
35%
425
$0.41

2019P
$4,908
69.3%
930
3,403
605
35%
434
$0.42

Base
$55.0
$3.3

Spot
$57.2
$2.6

KeyTakeAway:Buyagreatcopperminerandgetagreatoptiononreboundingoilprices.

21

CapitalStructure

Challenges,ButNoProblems
Managementfocusedonstrengtheningbalancesheetwithoutimperilinglongtermvalue.

AmpleLiquiditytoAddressNearTermChallenges:FCXhas$5.3billioninuntappedcreditlinesandimprovingcash
flow.

ActiveResponsebyManagementtoMarketConditions:Managementhasactivelyrespondedtoshiftsin
commoditypricesbystrategicallyprioritizingMiningCapExtoincreasevolumeandreducecost,andfocused
Oil/NatGasCapExonprojectswithneartermreturns.CapExreductionsof$1.2and$1.7billionin2015and2016.

LeveragePastExperience:FCXmanagementhasbeguntoexplore3rd partydevelopmentfundingarrangements
whichithasemployedsuccessfullyinthepastinbothminingandOil/NatGas.FCXmanagementalwayslooksto
investinqualityprojectsregardlessofcommoditycycleandcurrentprofitability.

ForwardLookingFCXLiquidityMap
$20,000
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
FY2012
DebtMaturities

FY2013
Interest

FY2014
Dividends

FY2015
CapEx

FY2016

Exploration/DrillingCosts

FY2017
CFO

CFO+Cash

FY2018

FY2019

CFO+Cash+UndrawnRevolvers

23

ManagementTrackRecord

KeyManagement
JamesMoffettisChairmenofFCX,PresidentofPRFreeportIndonesiaandleadsexplorationprogramsforFCX.He
hasworkedforthecompanyinsomecapacitysince1964.HeservedastheChairmanofMcMoRanExploration
from1984to2007andwasthedrivingforcebehindthedevelopmentofGrasbergmineinIndonesia.Between
1984and2003Mr.MoffettwastheChairmanandCEOofFCX.WhenaskedtocommentonMr.Moffettstrack
recordintheE&PbusinesslegendaryoilinvestorT.BoonePickenscommentedthat:Youjudgeatrapperbyhis
pelts,andoldJimBobsgotalotofpelts.
RichardAdkersonhasservedasCEOofFCXsince2003andhasworkedwiththecompanyinvariousrolesof
increasingresponsibilitysince1980.Mr.AdkersonandMr.Moffetthavealonghistorytogetherthatdatesbackto
the1970s.Mr.AdkersonservedasPresidentofFCXunderMr.MoffettduringhistenorasCEO.Mr.Adkersonhas
alsoservedinvariousseniormanagementpositionswithPTFreeportIndonesiaandoversawthemergerofFCX
withPhelpsDodge,creatingthelargestpublicallytradedcoppercompanyintheworld.

JamesFloresistheViceChairmanoftheBoardandPresident/CEOofFreeportMcMoRanOilandGas.Priorto
joiningFCX,Mr.FloreswastheCEOofPlainsExplorationandProductionsincethecompanysinception.Hehas
workedinOilandGasforover25yearsservingastheCEOoffourdifferentpublicallytradedoilandgasE&Ps
duringhiscareer.

FollowingthemergerwithPlainsExplorationandMcMoRanExploration,managementreworkedcorporategovernance
andcompensationincentivestobetteraligninterestswiththoseofshareholders.Highlightsinclude:
o Additionoffournewindependentdirectorstotheboard.
o Compensationcommitteestaffedwithindependentdirectorsonly.
o Basesalaryofthreekeydirectorsreducedto$1.25millionwithtotalAnnualIncentivecappedat$7.5million.
o Additionalcompensationinexcessofbasesalarydrivenbyoperatingcashflownetofworkingcap(50%),copperand
oilequivalentproductionvolumes(25%)withtheremaindertiedtoSafetyandEnvironmentalvariables.
KeycompensationdriversalignreasonablywellwithoperatingaccomplishmentsnecessaryforLTgrowthinshareholder
value.
25

AnEnviableTrackRecord
ManagementTrackRecord
Duringtheperiodfrom1990to2000FCXfocusedonthe
developmentoftwoworldclassassetsGrasbergandthe
MainPasssulfuroilgasdeposit.Duringtheperiod
managementdevelopedbothprojectsdespiteunrivaled
technicalchallenges,depressedcopperprices(averaging
$0.92perlb)andacapitalstructurethatwas53%debt.
FocusonGrasbergandMainPass

From2000to2006FCXmanagementnavigatedcopper
pricevolatility($1.25to$4.62),theendofSuharto
regimeinIndonesia,andclosureofMainPass.FCX
paiddowndebtandpositionedthemselvesto
successfullybuyPhelpsDodgein2007,whichquickly
provedasmartinvestment.
BenefitsofLTCapExFocus
Accrue

Cyclerepeatedwith
purchaseofPhelpsDodge

12000

40

10000

30

8000
6000

20

4000

10

2000
0

2000

10

4000
6000

CapEx

UnleveredFCF

NetDebt

TBVPerShare

ROA

20

KeyTakeAway:FCXhastheresourcestomanagebalancesheetconcernsinacommodity
downcycleandahistoryofbuildingassetsthroughcommoditycycletroughstotake
advantageofcyclepeaks.

26

M&AHistory
Successfulmanagementdoesnotalwaysmaketherightdecisions,buttheyalwaysmake
theirdecisionright.

ThepurchaseofPlainsEnergywaswidelycriticized(withscepticsclaimingvictoryinthewakeofthe1st
Qtr2015statementofapossiblepartialIPOofapercentageofFMO&G)buthindsightisalways20/20.
Anyfocusontherightorwrongofthemergerismisplaced,themoneyhasbeenspentandthecostis
sunk,allthatmattersisthepathforwardandhowFCXmanagementintendstomonetizetheassetsfor
thebenefitofshareholdersinthefuture,whichhistorysuggeststheyarecapableof.
PhelpsDodgeCaseStudy
CaseStudy:1988FCXCaseStudy
$26billionacquisitionin2007
Transformationaltransaction,bothassetandgeographic
diversification
Reserveadditions:+46billionlbs Cu
Effectivelymanagedthrough2008/2009Economiccrisis
RapidDeleveraging($inbns)
$20

$4

$15

$3

$10

$2

$5

$1

$0

$0
AtTimeofPD
Acquisistionin
March2007
Debt

Dec07

12/31/2012

ConsolidatedCash

ValuationOverview(USDMM)
CashOfferperShare
PremiumPerShareOffer(1Day)
Premium(30Days)
ImpliedEquityValue
NetDebt
ImpliedEnterpriseValue
LTMEBITDA
ImpliedEV/EBITDA
NetIncome
ImpliedEquityValue/NetInc
TotalDebt/EBITDA
NetDebt/EBITDA

126.46
33.1%
28.0%
25,604.2
-3,164.5
23,867.0
3,922.5
6.1x
1,882.5
13.6x
0.2x
-0.8x

FCXCaseStudy
Althoughmostinvestorsdontknowit,FCXwas
originallyaspinofffromFreeportMcMoRanInc,
asFreeportMcMoRan CopperandGoldinorder
toseparateminingassetsfromsulfur&fertilizer
businessesandtosecureadditionalcapitalto
developGrasbarg andMainPassprojects.
ThespinoffwastheideaofcurrentChairmenof
theBoardJamesMoffett,andremained73%
controlledbyFreeportMcMoRanInc.(likethe
proposedFMOilandGasspinoff).
ThespinoffwasmajoritycontrolledbyFreeport
McMoRanInc.untilitbecamemoresuccessful
thantheparentandwasfullyspunoffin1995.
In2014FreeportMcMoRanCopperandGold
completedthetransition,takingthenameofits
formerparent,FreeportMcMoRanInc.
27

CommodityPrices

FCXManagementThinkingonCopper
FCXwillcontinuetoclosetheproductiongapbetweenitselfandthelargestcopperminer
intheworld(Codelco)asaresultofcontinuedexpansionofexistingmines.
BearArgument:IncreasedproductionisilladvisedasChina(theworldslargestcopperconsumer)shiftstoa
consumerdriveneconomy,threateningdemand.Paincurrentlyfeltbyironoreminersisjustaroundthecornerfor
copperproducers.
Counter:Thecomparisondemonstratesalackofunderstandingofthedifferencesbetweenminingcopperandiron
ore.Copperismorecomplicatedthanironore(by2018morecopperwillbeminedfromundergroundminesthan
openpit)butrequiresmorevolumethangoldordiamonds.
Gold
Diamonds

Copper

LowVolumes

ProductionVolume

HighlyTechnicalMining

TechnicalMiningComplication

IronOre
Coal
HighVolumes
InfrastructureChallenge

Counter:Supplyisconstrainedinthelongterm(evenwithdecreasedChinademand)bythetimenecessarytobring
acomplexmineonlineandbythelackofeconomicdiscoveriesofuntappedresources.Onlytwonewsignificant
copperdiscoverieshavebeenmadebytheminingindustrysincethe1988FCXdiscoveryofGrasberginIndonesia.
Counter:Thesupplysituationintheshorttermismoreconstrainedthanbelieved,asminers(forexampleAnglo
AmericanandTeckResources)haveannouncedpostponementofinvestmentsneededtoincreaseproductionat
existingmines.Thousandsoftonsof2015productionhavealsobeenlostduetofloodsintheAtacamaDesertin
Chileearlierthisyear.

KeyTakeAway:Ifcopperdemandgrowsat2.5%ayearoverthenexttenyears,the
industrywillneedtoexpandby10millionmetrictons,orbyover50%ofitsglobalinstalled
capacitytomeetthatrateandaccountfordepletionatagingmines.(1)
(1)Source:Bloomberg FreeportBetsCoppersNoOilWithGrowthtoGrabTopSpot

29

CommodityPrices/FCXSensitivities
FCXSensitivity CommodityMarketDrivers

Positive(+),Negative()orUnknownRisk(?)toCommodityPrice
Copper
(?):Chinademandhasbeenmixed,economicslowdowncouldleadtodecreaseddemand,
DemandgrowthinChina
butincreasedfocusonpowersectorcouldfillthegap.Additionally,Chinareexportsfinished
productswithcopper.
(+/)$0.10/lb
GlobalDemand(USandEUMarketsstill
():ThusfarEUrecoveryhasbeenweakandUSrecoveryismixedwithsignificantquestions
EBITDA:$500
important
aboutthefalloutofexperimentalfiscalpolicybycentralbanks
CFO:$350
ChinahasbeendestockingCopperthroughmost (+):StrongrestockingthroughthesupplychainaccordingtoWallStreetBanks
of2014,restockingsuppliesmayliftimports
MineSupplyvs.GlobalDemand
(+):Longtermsupplydeficitandslowstartto2015production
Gold
EmergingMarket(EM)Demand
(+):EMDemand,especiallyChinaandIndiaremainsstrong
(+/)$50.00/oz
Concernsoverassetpricesandequitymarket
(+):Globalconcernsaboutthenatureofeconomicrecoveriespost2008remain.Hotmarkets
EBITDA:$100
stokefearsaboutcorrection.
correction
CFO:$60
InterestRates
(?):ExperimentalFiscalPolicy.Whoknowshowitends?
Molybdenum
():DemandforMolyisheavilytiedtosteel,demandfromsteelproducingcountrieslikley
(+/)$1.00/ozSteelProduction
lowerin2015.
EBITDA:$100
(?):Increasedsecondarysupplyfromcopperminesinrecentyearswithlowerprimarymoly
CFO:$80
MineSupply
minesupply.
Oil/NatGas
():ShakyrecoveryintheUS,QuestionsaboutChinaandEU,andFallingdemandinDM.
Oil(+/) GlobalDemand
(+/?):ContinuedshiftinEUmarketfromOilIndexedpricingofNatGastospotmarket,goodfor
$5.00/bbl
EUNatGasPriceIndexation
overalindustry/marketstructure,neartermpricingimplicationsareunknown.
EBITDA:$190
():SignificantsupplybuildGloballylikelytokeeppricesrelativlylow
CFO:$150 MarketStructure
(?):Traditionalrolekeepingsupplyanddemandinbalancehasbeenabandoned,forthe
NatGas(+/) OPEC
moment.
$0.50/MCF
(?):ChangetoUSCrudeOilexportpolicycouldresultinfloodofUSinventoryintomarket,
EBITDA:$35
changewouldbebadforpricingintheneartermbutlongtermimpactisdifficultto
USExportPolicy
CFO:$28
anticipate,asislikelyhoodofchange.

30

ChinaandCommodityPrices
FCXhaslimiteddirectexposuretoChinabutstillhassignificantindirectexposureviaprices.
ThereismoretocopperthanChina,afewideasworththinkingabout

FCXprovidesover40%ofdownstreamcopperforthe
USMarket.
Moreimportantthantheofftakeofanyindividual
playerforcopperpricingistheoverallglobalgrowthin
demand.
Copperdemandindifferentregionshasshifted
regularlyoverthelastthirtyyears:

Inthe80sgrowthwasdrivenbythedeveloped
world(DM).

Inthe90sgrowthwasspiltattimesdrivenby
theDWandattimesbyEMs.

Since2000EMdemandhasdrivenglobal
demand.

Althoughdifficulttopinpointexactlyintermsof
volumes,EMdemandinrecentyearshasasignificant
outsourcingcomponent(importedcopperintoChina,
reexportedinfinalproducts).
ThelackofdirectsalestoChinaoffersFCXample
opportunitytoexpandsalesintoChina,acountrythat
will,regardlessofanyeconomicmissteps,still
consumesignificantquantitiesofcopper,evenin
recessionordepression.

FCXRevenuebyCustomerLocation
12000
10000
8000
6000
4000
2000
0

2012

2013

2014

CopperSupplyandConsumption
30000
25000
20000
15000
10000
5000
0
2011

2012

2013

2014

WorldSupplyRefinedSupply(kt)

2015F

2016F

2017F

2018F

WorldRefinedConsumption(kt)

ChinaConsumption(kt)

31

Valuation

DCFofMiningAssets
BaseCase

FiscalYearEnded
2012
2013
2014
$18,010
$18,305
$16,728
(10,382) (11,158) (10,667)
7,628
7,147
6,061
(635)
(813)
(616)
6,993
6,334
5,445

USDInMillions

Sales
Costofgoodssold
GrossProfit
SG&A
EBITDA
EBITDAMargin

Less:DD&A
EBIT
Less:Taxes(35%)
NOPAT
Plus:Depreciationandamortization
Less:Capitalexpenditures
Less:Intersest
(Increase)/decreaseinworkingcapital
LeveredFreeCashFlow

2015
$15,872
(9,655)
6,217
(700)
5,517

35%

33%

35%

36%

36%

36%

36%

1,179
5,814
(2,035)
3,779

1,433
4,901
(1,715)
3,186
1,433
(3,794)
(337)
275
763

1,572
3,873
(1,356)
2,517
1,572
(3,988)
(389)
(113)
(401)

1,609
3,908
(1,368)
2,540
1,609
(3,700)
(678)
(141)
(370)

1,797
5,261
(1,841)
3,419
1,797
(2,800)
(669)
413
2,160

1,884
6,111
(2,139)
3,972
1,884
(2,400)
(611)
468
3,313

1,647
5,314
(1,860)
3,454
1,647
(2,400)
(499)
(163)
2,039

1,716
6,236
(2,183)
4,053
1,716
(2,400)
(484)
436
3,321

(370)
2,160
1.0
2.0
8.0%
8.0%
0.926
0.857
$(342) $1,852

3,313
3.0
8.0%
0.794
$2,630

2,039
4.0
8.0%
0.735
$1,499

3,321
5.0
8.0%
0.681
$2,260

EBITMultipleMethod
Weightedaveragecostofcapital:
Netpresentvalueoffreecashflow
Terminalmultiple
Terminalvalue
Presentvalueoftheterminalvalue

46,095.6
(16,402.0)
29,693.6

Terminal
Multiple

Dilutedshares:
EquityValuePerShare
Currentshareprice:
MarginofSafety:

7.0x
8.0x
9.0x
10.0x
11.0x

PerpetuityGrowthMethod
Weightedaveragecostofcapital:
Netpresentvalueoffreecashflow
TerminalGrowthRate
Terminalvalue
Presentvalueoftheterminalvalue

8.0%
7,898.3
9.0x
56,124.4
38,197.3

WACC
8.00%
$20.41
$24.49
$28.58
$32.66
$36.75

9.00%
$18.87
$22.77
$26.67
$30.58
$34.48

10.00%
$17.42
$21.14
$24.87
$28.60
$32.32

AssetValue
Less:Netdebt
NetAssetValue

1,039
28.58
20.82
7.76

0.5%
1.5%
2.5%
3.5%
4.5%

20142019
CAGR
5.8%
7.5%
7.9%

8.0%
7,898.3
2.5%
61,886.6
42,119.0
50,017.3
(16,402.0)
33,615.3

Dilutedshares:
NetAssetValuePerShare
Currentshareprice:
MarginofSafety:

Terminal
GrowthRate

Enterprisevalue
Less:Netdebt
Equityvalue

7.00%
$22.03
$26.31
$30.59
$34.87
$39.15

2019
$22,132
(13,443)
8,689
(738)
7,952

39%

LeveredFreeCashFlow
Discountperiod
WACC
Discountfactor
PresentvalueofeachLeveredFreeCashFlow

6.00%
$23.74
$28.23
$32.71
$37.20
$41.68

ProjectedYearEnding
2016
2017
2018
$19,693
$22,015
$19,455
(11,889) (13,252) (11,790)
7,805
8,763
7,665
(747)
(768)
(704)
7,058
7,995
6,961

6.00%
$24.35
$29.64
$36.86
$47.28
$63.66

7.00%
$22.61
$27.66
$34.54
$44.49
$60.11

WACC
8.00%
$20.96
$25.78
$32.35
$41.85
$56.76

1,039
32.35
20.82
11.53

9.00%
$19.40
$24.00
$30.28
$39.34
$53.59

10.00%
$17.92
$22.32
$28.31
$36.97
$50.58

33

DCFofOil/NatGasAssets
BaseCase

FiscalYearEnded
2012
2013
2014
$2,616
$4,710
(682)
(1,237)
1,934
3,473
(120)
(207)
1,814
3,266

USDinMillions

Sales
Costofgoodssold
GrossProfit
SG&A
EBITDA
EBITDAMargin

Less:DD&A
EBIT
Less:Taxes(35%)
NOPAT
Plus:Depreciationandamortization
Less:Capitalexpenditures
Less:Interest
(Increase)/decreaseinworkingcapital
LeveredFreeCashFlow

2015
$3,017
(789)
2,227
(135)
2,092

69%

69%

69%

69%

69%

69%

1,364
450
(158)
293
1,364
(1,436)
(181)
275
315

2,291
975
(341)
634
2,291
(3,205)
(241)
(113)
(634)

1,520
572
(200)
372
1,520
(2,800)
(171)
(141)
(1,220)

1,542
580
(203)
377
1,542
(2,300)
(171)
413
(139)

1,861
700
(245)
455
1,861
(2,400)
(171)
468
214

2,436
916
(321)
595
2,436
(2,400)
(171)
(163)
298

2,473
930
(326)
605
2,473
(2,400)
(171)
436
943

(1,220.4)
1.0
8.0%
0.926
(1,130.0)

(138.7)
2.0
8.0%
0.857
(118.9)

213.6
3.0
8.0%
0.794
169.6

297.6
4.0
8.0%
0.735
218.7

943.1
5.0
8.0%
0.681
641.8

EBITMultipleMethod
Weightedaveragecostofcapital:
Netpresentvalueoffreecashflow
Terminalmultiple
Terminalvalue
Presentvalueoftheterminalvalue

4,845.4
(2,568.0)
2,277.4

Terminal
Multiple

Dilutedshares:
EquityValuePerShare
Currentshareprice:
MarginofSafety:

6.0x
7.0x
8.0x
9.0x
10.0x

8.0%
(218.8)
8.0x
7,440.9
5,064.2

WACC
8.00%
$1.18
$1.79
$2.40
$3.01
$3.62

9.00%
$1.02
$1.60
$2.18
$2.76
$3.35

10.00%
$0.86
$1.42
$1.98
$2.53
$3.09

PerpetuityGrowthMethod
Weightedaveragecostofcapital:
Netpresentvalueoffreecashflow
Terminalmultiple
Terminalvalue
Presentvalueoftheterminalvalue

8.0%
(218.8)
2.5%
17,575.2
11,961.4

AssetValue
Less:Netdebt
NetAssetValue

11,742.6
(2,568.0)
9,174.6

1,039
2.19
20.82
(18.63)

Terminal
GrowthRate

Enterprisevalue
Less:Netdebt
Equityvalue

7.00%
$1.36
$2.00
$2.63
$3.27
$3.91

2019
$4,908
(1,284)
3,624
(220)
3,403

69%

LeveredFreeCashFlow
Discountperiod
WACC
Discountfactor
PresentvalueofeachLeveredFreeCashFlow

6.00%
$1.54
$2.21
$2.88
$3.55
$4.22

ProjectedYearEnding
2016
2017
2018
$3,061
$3,694
$4,834
(801)
(967)
(1,265)
2,260
2,727
3,569
(137)
(166)
(217)
2,122
2,562
3,352

0.5%
1.5%
2.5%
3.5%
4.5%

Dilutedshares:
NetAssetValuePerShare
Currentshareprice:
MarginofSafety:

1,039
8.83
20.82
(11.99)

WACC
8.00%
$5.60
$6.96
$8.83
$11.53
$15.76

9.00%
$5.19
$6.50
$8.28
$10.86
$14.90

6.00%
$6.47
$7.97
$10.02
$12.98
$17.63

7.00%
$6.02
$7.45
$9.41
$12.23
$16.67

20142019
CAGR
0.8%
0.9%
0.8%

10.00%
$4.82
$6.06
$7.77
$10.23
$14.09

34

CombinedDCF
BaseCase

FiscalYearEnded
2012
2013
2014
$18,010
$20,921
$21,438
(10,382) (11,840) (11,904)
7,628
9,081
9,534
(635)
(933)
(823)
6,993
8,148
8,711

USDInMillions

Sales
Costofgoodssold
GrossProfit
SG&A
EBITDA
EBITDAMargin

Less:DD&A
EBIT
Less:Taxes(35%)
NOPAT
Plus:Depreciationandamortization
Less:Capitalexpenditures
Less:Intersest
(Increase)/decreaseinworkingcapital
LeveredFreeCashFlow

2015
$18,888
(10,444)
8,444
(835)
7,609

39%

41%

40%

40%

41%

42%

42%

1,179
5,814
(2,035)
3,779

2,797
5,351
(1,873)
3,478
2,797
(5,230)
(518)
275
802

3,863
4,848
(1,697)
3,151
3,863
(7,193)
(630)
(113)
(922)

3,129
4,480
(1,568)
2,912
3,129
(6,500)
(849)
(141)
(1,449)

3,340
5,841
(2,044)
3,796
3,340
(5,100)
(840)
413
1,609

3,745
6,811
(2,384)
4,427
3,745
(4,800)
(782)
468
3,059

4,083
6,230
(2,180)
4,049
4,083
(4,800)
(670)
(163)
2,499

4,189
7,166
(2,508)
4,658
4,189
(4,800)
(655)
436
3,828

(1,449)
1,609
1.0
2.0
8.0%
8.0%
0.926
0.857
$(1,342) $1,379

3,059
3.0
8.0%
0.794
$2,428

2,499
4.0
8.0%
0.735
$1,837

3,828
5.0
8.0%
0.681
$2,605

EBITMultipleMethod
Weightedaveragecostofcapital:
Netpresentvalueoffreecashflow
Terminalmultiple
Terminalvalue
Presentvalueoftheterminalvalue

45,925.2
(18,970.0)
26,955.2

Terminal
Multiple

Dilutedshares:
EquityValuePerShare
Currentshareprice:
MarginofSafety:

6.0x
7.0x
8.0x
9.0x
10.0x

PerpetuityGrowthMethod
Weightedaveragecostofcapital:
Netpresentvalueoffreecashflow
TerminalGrowthRate
Terminalvalue
Presentvalueoftheterminalvalue

8.0%
6,907.8
8.0x
57,329.3
39,017.3

WACC
8.00%
$16.56
$21.25
$25.94
$30.64
$35.33

9.00%
$15.03
$19.52
$24.00
$28.48
$32.96

10.00%
$13.59
$17.87
$22.16
$26.44
$30.72

AssetValue
Less:Netdebt
NetAssetValue

1,039
25.94
20.82
5.12

0.5%
1.5%
2.5%
3.5%
4.5%

20142019
CAGR
4.8%
5.2%
5.4%

8.0%
6,907.8
2.5%
71,333.9
48,548.6
55,456.5
(18,970.0)
36,486.5

Dilutedshares:
NetAssetValuePerShare
Currentshareprice:
MarginofSafety:

Terminal
GrowthRate

Enterprisevalue
Less:Netdebt
Equityvalue

7.00%
$18.16
$23.08
$28.00
$32.91
$37.83

2019
$27,040
(14,727)
12,313
(958)
11,355

39%

LeveredFreeCashFlow
Discountperiod
WACC
Discountfactor
PresentvalueofeachLeveredFreeCashFlow

6.00%
$19.86
$25.01
$30.17
$35.32
$40.47

ProjectedYearEnding
2016
2017
2018
$22,754
$25,709
$24,289
(12,690) (14,218) (13,055)
10,065
11,490
11,234
(884)
(934)
(921)
9,180
10,557
10,313

6.00%
$25.82
$31.92
$40.24
$52.25
$71.13

7.00%
$23.85
$29.67
$37.61
$49.07
$67.08

WACC
8.00%
$21.99
$27.54
$35.12
$46.06
$63.25

1,039
35.12
20.82
14.30

9.00%
$20.22
$25.53
$32.76
$43.21
$59.63

10.00%
$18.55
$23.62
$30.53
$40.51
$56.19

35

RelativeValuation
AcrossmostmetricsFCXtradesatadiscounttoitspeers.

FCXtradesatadiscounttobothcopperpeersanddiversifiedminingfirms.

FCStradesatasignificantdiscounttoE&Pswithsimilarreserveprofiles.
2015E
27.2

PE
2016E
10.0

2017E
6.4

2015E
10.1

EV/EBIT
2016E
7.7

2017E
5.9

2015E
3.7

CFPS
2016E
3.0

2017E
2.5

11.14
13.61
3.50
32.05
30.00
4.15

18.0
19.6
NM
9.1
20.6
10.7
15.6

14.7
8.0
17.4
9.5
15.1
9.3
12.4

12.1
5.1
4.8
7.6
10.6
6.2
7.7

9.0
24.0
30.7
8.3
13.6
9.5
15.9

6.8
9.1
8.4
8.3
9.9
9.2
8.6

5.5
5.8
4.1
6.7
7.2
7.1
6.1

8.2
6.6
16.1
5.5
13.9
4.3
9.1

6.3
3.8
5.0
6.6
11.7
4.2
6.3

5.9
3.1
2.2
5.4
8.1
3.7
4.7

GBpUSD
AUDUSD
GBpUSD
USD
CAD
GBpUSD

15.48
23.02
42.87
5.87
13.86
4.52

12.1
15.9
14.6
NM
16.3
18.1
15.4

9.0
19.2
11.7
3.8
12.1
11.6
11.2

6.6
14.3
10.6
3.4
8.1
9.4
8.7

9.9
10.6
11.9
14.4
11.6
19.2
12.9

7.9
12.7
10.3
9.4
8.8
13.3
10.4

6.0
9.7
8.9
6.1
6.7
11.3
8.1

3.7
6.7
7.2
3.2
4.6
5.1
5.1

3.3
6.8
6.1
4.1
3.9
4.9
4.9

2.6
6.0
5.4
NM
3.4
4.4
4.4

USD
USD
USD
USD
USD

93.30
66.96
75.26
49.90
79.72

NM
NM
NM
122.9
67.7
95.3

155.0
93.0
NM
66.7
26.4
85.3

43.4
30.2
90.2
31.6
24.6
44.0

NM
NM
NM
46.0
55.9
50.9

39.9
30.0
174.8
32.5
27.5
60.9

19.7
21.3
31.7
18.7
15.2
21.3

10.5
5.8
6.8
8.5
11.2
8.6

7.5
4.6
4.9
7.0
8.1
6.4

6.9
4.6
4.8
6.5
7.4
6.0

MktCap
Currency
($bn)
21.48
USD

Ticker

Name

NYSE:FCX

FreeportMcMoRan

Copper
LSE:ANTO
TSX:FM
LSE:KAZ
WSE:KGH
NYSE:SCCO
TSX:LUN
Average(simple)

Antofagasta
FirstQuantumMinerals
KAZMinerals
KGHMPolskaMiedz
SouthernCopperCorp
LundinMining

10.99
8.17
1.56
6.41
24.20
2.98

GBpUSD
CADUSD
GBpUSD
PLNUSD
USD
CADUSD

DiversifiedMining
LSE:AAL
ASX:BHP
LSE:RIO
NYSE:VALE
TSX:TCK.B
LSE:GLEN
Average(simple)

AngloAmerican
BHPBilliton
RioTinto
Vale
TeckResources
Glencore

21.71
122.48
78.61
28.07
8.00
58.43

47.76
24.99
21.62
19.59
61.40

Exploration&Production
NYSE:APC
AnadarkoPetroleum
NYSE:APA
Apache
NYSE:HES
Hess
NYSE:NBL
NobleEnergy
NYSE:OXY
Occidental
Average(simple)

Share
Price
20.66

36

Appendix

AppendixA:CommodityPriceDeck
Commoditypricedeckbasedonfutures,CreditSuisseandBankofAmericaEstimates.
CommodityForecast
Copper
Gold
WTI
Molybdnum
Cobalt

$perLB
$perOz
$perbbl
$perLB
$perLB

Bear
2.15
1,000
45
7
9

FY2015
Base
2.5
1,200
57
10
14

Bull
3.22
1,550
76
14
17

Bear
2.3
1,000
52
7
9

FY2016
Base
2.65
1,250
67
11
13

Bull
3.5
1,650
85
15
15

Bear
2.65
950
53
9
10

FY2017
Base
2.95
1,250
72
11
13

Bull
4
1,500
94
16
16

Bear
2.6
900
63
8
10

FY2018
Base
2.95
1,250
78
12
13

Bull
4
1,500
95
16
16

Bear
2.95
950
64
8
11

FY2019
Base
3.27
1,300
81
12
13

Bull
4
1,500
97
16
16

38

AppendixB:PossiblePEPartners
AlthoughlargeamountsofcapitalhavebeenraisedbyenergyfocusedPEfirms,verylittle
hasactuallybeendeployed.
PEFocusedEnergyFundsAlreadyRaised
Company Fund
Vintage FundSize CapitalCalled(%) TotalValue
APO ApolloNaturalResources 2012
1,300
45%
568
BX
EnergyPartners
2011
2,500
51%
1875
EnergyII
2003
1,100
96%
212
EnergyIII
2005
3,800
100%
1527
CG
EnergyIV
2008
5,980
93%
3322
NGPX
2012
3,586
73%
3037
InterationalEnergy
2013
1,780
11%
147
KKRNaturalResources
2010
1,250
81%
629
KKR
EnergyandIncome
2013
2,000
18%
359
Various 1,028
12%
76
KKRGlobalEnergy
PowerOppsI
2000
454
85%
0
PowerOppsII
2005
1,020
56%
75
OAK
HighstarCapital
2007
3,500
112%
3769
PowerOppsIII
2010
1,040
50%
550

PEEnergyFocusedFundsBeingRaised
Company Fund
Vintage Target ExpectedCompletion
APO EnergyCreditOpps
2015
600
Apr15
NaturalResourceII
2016 2,500
Jun16
EnergyPartnersI
2015 4,500
Jan15
BX
GSODistressedEnergy 2015 3,000
Dec15
InternationalEnergyII 2015 2,500
Jan15
PowerII
215
1,250
Sep15
CG
NGPXI
2015 5,300
Jan15
EnergyMezzII
2015 2,500
Jun15
KKR
SpecialSitsII
2016 2,750
Mar16
OAK PowerOppsIV
2015 1,000
Mar15

Source:Prequin,CompanyData,CreditSuisseEstimates

39