NEW YORK--(BUSINESS WIRE)--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 (see the full list of rating actions below).
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, 2010, cash on hand was $3.7 billion of which $3.1 billion would be available to the parent company after non-controlling interests and withholding taxes. Debt at Dec. 31, 2010 was $4.8 billion with scheduled maturities of $95 million in 2011, $1 million in 2012, $1 million in 2013, $1 million in 2014 and $1.1 billion in 2015.
On Feb. 24, 2010, FCX announced that it issued a notice to redeem all of the outstanding 8.25% notes due 2015, $1.1 billion principal amount, on April 1, 2011. Pro forma for the transaction, cash would be $2.6 billion and total debt would be $3.7 billion. The $1.5 billion in revolvers, maturing March 19, 2012, were fully available except for $43 million representing letters of credits issued at Dec. 31, 2010.
Guidance for annual average cash flow from operations, excluding working capital changes for 2011 and 2012, is between $6.1 billion and $8.8 billion (copper prices between $3.50/lb. and $4.50/lb.) compared with 2010 at $7.1 billion on average copper realizations of $3.59/lb. Guidance for capital expenditures is $2.5 billion in 2011 and $2.1 billion in 2012. Fitch estimates annual interest expense on pro forma debt levels to be about $300 million per year and common dividends of about $945 million for 2011.
Operating EBITDA for 2010 was $10.1 billion and FCX guides to an annual range for 2011 and 2012 of between $8.4 billion and $12.5 billion for copper prices between $3.50/lb. and $4.50/lb. These levels correspond to a pro forma total debt to EBITDA range of 0.4x to 0.3x on a gross basis.
Fitch expects funds from operations (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 that a $0.10/lb. decline in copper prices could cut EBITDA by $375 million over a 12-month period. In particular, FCX realized $2.60/lb. of copper in 2009 compared with an average of $3.59/lb in 2010.
Forty-five percent of 2010 operating profits and 27% of 2010 reserves are from Papua, Indonesia. Fitch rates Indonesia 'BB+' with a Stable Rating Outlook. FCX has been in this area for 40-plus years and the mine is a significant exporter.
Fitch has affirmed the following ratings:
FCX
--IDR at 'BBB';
--$1 billion secured bank revolver at 'BBB';
--$500 million PT Freeport Indonesia/FCX secured bank revolver at 'BBB';
--Unsecured notes due 2015 and 2017 at 'BBB'.
FMC
--8.75% senior unsecured notes due 2011 at 'BBB';
--7.125% senior unsecured debentures due 2027 at 'BBB';
--9.50% senior unsecured notes due 2031 at 'BBB';
--6.125% senior unsecured notes due 2034 at 'BBB'.
Additional information is available at 'www.fitchratings.com'. The issuer did not participate in the rating process other than through the medium of its public disclosure.
Applicable criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 16, 2010);
--'Evaluating Corporate Governance' (Dec.16, 2010);
--'Analysis of U.S. Corporate Pensions' (Dec. 1, 2010).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
Evaluating Corporate Governance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=581405
Analysis of U.S. Corporate Pensions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=578365
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