New York, December 09, 2020 -- Moody's Investors Service, ("Moody's") changed
the outlooks for Freeport-McMoRan Inc (FCX) and Freeport Minerals
Corporation to stable from negative. Moody's also affirmed
FCX's Ba1 Corporate Family Rating (CFR), Ba1-PD probability
of default rating, its Ba1 senior unsecured notes rating and its
(P)Ba1 shelf rating for senior unsecured notes. The Baa2 guaranteed
senior unsecured notes rating for Freeport Minerals Corporation was also
affirmed. The Speculative Liquidity Grade rating remains SGL-1.
"The change in outlook to stable reflects the significant improvement
in FCX's performance in the second half of 2020 on the strong recovery
in copper prices, high gold prices, which have contributed
to an improved cost position in Indonesia, continued improvement
in copper and gold production and sales as the transition to underground
mining in Indonesia continues to ramp up, and the restoration of
production at Cerro Verde following the Peruvian government mandated curtailment
in March 2020 due to the coronavirus" said Carol Cowan, Moody's
Senior Vice President and lead analyst for FCX. "The continued
maintenance of an excellent liquidity profile also supports the outlook
change and the rating affirmation" added Cowan.
Affirmations:
..Issuer: Freeport Minerals Corporation
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa2 (LGD2)
..Issuer: Freeport-McMoRan Inc.
.... Corporate Family Rating, Affirmed
Ba1
.... Probability of Default Rating,
Affirmed Ba1-PD
....Senior Unsecured Shelf, Affirmed
(P)Ba1
....Senior Unsecured Regular Bond/Debenture,
Affirmed Ba1 (LGD4)
..Issuer: Freeport Minerals Corporation
....Outlook, Changed To Stable From
Negative
..Issuer: Freeport-McMoRan Inc.
....Outlook, Changed To Stable From
Negative
RATINGS RATIONALE
FCX's credit profile incorporates its 1) leading position in the
global copper market as a low cost producer, 2) the scale of its
cost competitive copper mines, 3) the significant gold mineralization
and increasing production profile at the Indonesian operations as underground
mining ramps up and 4) its geographic footprint with operations in the
US, South America, and Indonesia. While metrics were
stretched in 2019 due largely to the transition to underground mining
in Indonesia and then in the first half of 2020 due to the impact of the
coronavirus, the better than expected improvement in the second
half of 2020 on a solid rebound in copper prices on the earlier economic
recovery in China relative to the rest of the world, strong gold
prices on geopolitical concerns and weak economic growth in the world
outside China, and continued performance improvement expected in
2021 as Grasberg continues to ramp up support the rating.
Higher sales volumes together with the recovery in copper prices (currently
over $3.00/lb up from the low point reached in mid-March
of roughly $2.10/lb contributed to revenue improvement.
Importantly, with the continued successful ramp of the Grasberg
mine, gold sales in the third quarter increased roughly 27%
sequentially to 234,000/ozs. This was a contributing factor
in the decrease in unit cash costs to $1.32/lb from $1.47/lb
in the 2nd quarter and in conjunction with the improved revenue generation
resulted in operating income advancing over 100% sequentially to
$880 million and turning positive on a nine month basis from the
operating loss reported for the six months ended June 30, 2020.
While we believe copper prices are somewhat overheated on trading activity
and economic growth expectations, they are expected to remain solid
while gold prices will also continue to show strength on global economic,
political and trading concerns. Additionally, copper remains
well positioned from a demand perspective over the medium to longer term
on growth in Battery Electric Vehicle production and required infrastructure
requirements, as well as an expected copper deficit position on
new market demands. The performance in the 4th quarter is expected
replicate the improvement seen in the 3rd quarter and FCX is now expected
to be free cash flow generative in the 4th quarter and for the year.
Based upon an average copper price of $2.73/lb and gold
price of $1,400/oz in 2020, EBITDA is expected to be
approximately $3.5 billion and using the high end of our
sensitivity range of $2.75/lb for copper and $1,400/oz
for gold, increase to around $5 billion in 2021 on a higher
production and sales profile for both copper and gold, not only
from the continued ramp up in Indonesia but also from the recently completed
Lone Star copper leach project in Arizona, and an overall lower
cost position, largely due to the increased gold production from
Indonesia.
Consequently, debt protection metrics are expected to improve with
debt/EBITDA improving to around 3.3x in 2020 from 4.1x on
a Moody's adjusted basis for the twelve months through September
30, 2020 and strengthen further in 2021.
The SGL-1 speculative grade liquidity rating considers FCX's
excellent liquidity including its $2.4 billion cash position
at September 30, 2020 and borrowing availability of approximately
$3.48 billion ($13 million in letters of credit issued)
under its $3.5 billion unsecured revolving credit facility
(RCF - $3.28 billion matures April 20, 2024
and $220 million maturing April 20, 2023).
Financial covenants were amended in June 2020 to provide flexibility and
included the suspension of the total leverage ratio through June 2021
with a ratio of 5.25x commencing in the quarter ending September
30, 2021 and stepping down to 3.75x beginning January 1,
2022. In addition, there was a reduction in the interest
expense coverage ratio to a minimum of 2.00x through December 2021
with a 2.25x requirement commencing January 1, 2022.
A minimum liquidity requirement was implemented at $1.0
billion quarterly through June 30, 2021. Restrictions were
also placed on common stock dividend payments. FCX has the option
to revert to the prior covenants if this additional flexibility is no
longer perceived to be needed.
During 2020 FCX improved its debt maturity profile and reduced debt towers
through new debt issuances in March, which were used to purchase
and redeem notes due in 2021 and 2022 as well as in July, proceeds
of which were used to purchase notes due in 2022, 2023 and 2024
and for general corporate purposes.
By the nature of its business, FCX faces a number of ESG risks typical
for a company in the mining industry, including, but not limited,
to wastewater discharges, site remediation and mine closure,
waste rock and tailings management, air emissions, and social
responsibility given its often fairly remote operating locations.
FCX has detailed protocols in place to manage its environmental risks.
The company is subject to many environmental laws and regulations in the
areas in which it operates all of which vary significantly. The
mining sector overall is viewed as a very high-risk sector for
soil/water pollution and land use restrictions and a high risk sector
for water shortages and natural and man-made hazards. In
2019 approximately 82% of FCX's water usage requirements
were from recycled and reused sources. The company has spent between
$400 million and $500 million on environmental capital expenditures
and other environmental costs in each of the last several years.
The Ba1 rating on the FCX unsecured notes, at the same level as
the CFR, reflects the absence of secured debt in the capital structure
and the parity of instruments. The Baa2 rating of Freeport Minerals
Corporation (FMC) reflects the fact that this debt is at the company holding
all the North and South American assets and benefits from a downstream
guarantee from FCX.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade to the ratings could be considered once the underground expansion
at Grasberg is completed and the production profile at this mining site
returns to sustainable higher copper and gold levels. Additionally,
an upgrade would require better clarity on the company's financial
policy and strategic growth objectives, particularly post 2022 when
Inalum's 51.24% economic interest becomes applicable
with respect to earnings and cash flow. Quantitatively, an
upgrade would be considered if the company can sustain EBIT/interest of
at least 5x, debt/EBITDA under 2.5x and (CFO-dividends)/debt
of at least 40% through various price points for copper and gold.
Clarity on the construction of the required smelter in Indonesia and costs
and financing of construction would also be a consideration.
A downgrade would result should liquidity materially contract, (CFO-dividends)/debt
be sustained below 20% or leverage increase and be sustained above
3.5x post 2020.
FCX, a Phoenix, Arizona based mining company, is predominately
involved in copper mining and related by-product credits from the
mining operations (principally gold and molybdenum). The company's
global footprint includes copper mining operations in Indonesia,
the United States, Chile, and Peru. Revenues for the
12 months ended September 30, 2020 were $13.6 billion.
The principal methodology used in these ratings was Mining published in
September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1089739.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Carol Cowan
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Glenn B. Eckert
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
