Fitch Rates Freeport-McMoRan's Proposed Sr. Unsecured Notes 'BBB'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned a 'BBB' rating to Freeport-McMoRan Inc.'s (Freeport, NYSE: FCX) proposed senior unsecured note issuance. Proceeds are to be used to repay existing indebtedness. A complete list of ratings is provided at the end of this release.

The Rating Outlook is Stable.

KEY RATING DRIVERS

The ratings reflect FCX's leading position in the mining industry, strong liquidity, and sound operational and financial management. Operations benefit from low average costs, and large-scale and long-lived copper reserves. Long-term copper fundamentals benefit from limited new supply, modest inventories, and solid demand.

Of the $658 million in cash on hand at Sept. 30, 2014, $456 million would be available to the holding company after withholding taxes and minority interests. On Nov. 3, 2014, FCX completed the sale of its 80% ownership interests in the Candelaria and Ojos del Salado copper mining operations for after-tax proceeds of approximately $1.5 billion which is expected to be used to repay revolver borrowings. At Sept. 30, 2014, pro forma total debt was $18.2 billion with near-term scheduled maturities of $1.1 billion in 2015, $751 million in 2016 and $700 million in 2017. Borrowings under the $4 billion revolver, maturing in 2019, were $1.1 billion as of Sept. 30, 2014 and $45 million was utilized for letters of credit. Financial covenants under the revolver and term loan are a maximum net debt-to-EBITDAX ratio of 3.75x with debt net of domestic cash capped at $1 billion and a minimum interest coverage ratio of 2.5x.

The Stable Outlook reflects FCX's intent to reduce debt and Fitch's expectation that they will manage with funds from operations (FFO) adjusted leverage at or below 2.5x on average and be free cash flow (FCF) positive. Pro forma for the application of proceeds from asset sales FFO adjusted leverage was 2.5x at Sept. 30, 2014.

EXPECTATIONS

Guidance for 2014 operating cash flow is about $5.8 billion assuming fourth-quarter average realizations of copper at $3.00/lb., gold at $1,250/oz., molybdenum at $10.0/lb., and Brent oil prices of $90/bbl. This compares to 2013 net cash provided by operating activities of $6.1 billion on average realizations of copper at $3.30/lb., gold at $1,315/oz., and molybdenum at $11.85/lb.

Guidance for capital expenditures is $7.5 billion for 2014, $7.5 billion in 2015 and $6.5 billion in 2016. Of this amount, $3 billion in 2014, $2.7 billion in 2015 and $1.4 billion in 2016 relate primarily to brown-field expansion projects at Cerro Verde, Morenci and Grasberg. Oil & Gas expenditures are expected to be $3.4 billion in 2014, $3.5 billion in 2015 and $4 billion in 2016. Fitch expects spending to be in line with operating cash flows allowing for debt repayment. Fitch estimates annual interest costs at $900 million per year and ordinary common dividends to be about $1.3 billion per year.

Fitch expects negative FCF in 2014 of about $3 billion with capital spending supported by asset sales. Fitch expects FCF to be neutral to positive in 2015. Fitch expects FFO adjusted leverage to be under 2.5x on average over the next 24 months.

Fitch notes that earnings and cash flows are highly leveraged to commodity prices and that a $0.10/lb. decline in copper prices could cut average 2015/2016 expected EBITDA by $480 million and expected operating cash flows by $335 million over a 12-month period.

Operating cash flows will be sensitive to oil sales prices even after accounting for hedges. Using a base Brent price of $100/bbl. on average for in 2015/ 2016, a $5/bbl. decrease in price would result in a decrease in EBITDA of $180 million (net of mining cost impacts).

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

--Expectations that FFO adjusted leverage remains above 2.5x and FCF is negative in a normalized price environment after 2014.

Positive: Not anticipated over the next 12 months:

--Repayment of debt ahead of expectations.

Fitch rates the group as follows:

FCX

--IDR at 'BBB';

--$3 billion unsecured bank revolver at 'BBB';

--$4 billion unsecured term loan at 'BBB';

--$500 million 1.40% senior notes due 2015 at 'BBB';

--$500 million 2.15% senior notes due 2017 at 'BBB';

--$1.5 billion 2.375% senior notes due 2018 at 'BBB';

--$1 billion 3.1% senior notes due 2020 at 'BBB';

--$2 billion 3.55% senior notes due 2022 at 'BBB';

--$2 billion 3.875% senior notes due 2023 at 'BBB';

--$2 billion 5.450% senior notes due 2043 at 'BBB'.

Freeport-McMoRan Corporation

--$115 million 7.125% senior unsecured debentures due 2027 at 'BBB';

--$107.4 million 9.50% senior unsecured notes due 2031 at 'BBB'; and

--$123.5 million 6.125% senior unsecured notes due 2034 at 'BBB'.

FCX Oil & Gas Inc.

--IDR at 'BBB';

--$487.5 million 6.125% senior notes due 2019 at 'BBB';

--$300 million 7.625% senior notes due 2020 at 'BBB';

--$975 million 6.5% senior notes due 2020 at 'BBB';

--$390 million 6.625% senior notes due 2021 at 'BBB';

--$650 million 6.75% senior notes due 2022 at 'BBB';

--$975 million 6.875% senior notes due 2023 at 'BBB'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=919555

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Contacts

Fitch Ratings
Primary Analyst
Monica M. Bonar, +1-212-908-0579
Senior Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Gregory Fodell, +1-312-368-3117
Associate Director
or
Committee Chairperson:
Mark Sadeghian, CFA, +1-312-368-2090
Senior Director
or
Media Relations, New York
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Monica M. Bonar, +1-212-908-0579
Senior Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Gregory Fodell, +1-312-368-3117
Associate Director
or
Committee Chairperson:
Mark Sadeghian, CFA, +1-312-368-2090
Senior Director
or
Media Relations, New York
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com