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Krause Fund Research Fall 2017 Materials Recommendation: HOLD Analysts

Zach Kozlowski zach-kozlowski@uiowa.edu

Bryan Schultz bryan-schultz@uiowa.edu

Company Overview Freeport-McMoRan is a leading international mining company that is based in Phoenix, AZ. They operate long-lived assets with significant reserves of copper, molybdenum, and gold. Freeport’s portfolio of assets includes one of the world’s largest copper and gold deposits, the Grasberg Minerals District in Indonesia. They also have mining operations in the Americas, including the Morenci Minerals District in North America and the Cerro Verde operation in South America. In third-quarter of 2017, Freeport beat earnings expectations for the first time in the last year due primarily to rising copper prices. Stock Performance Highlights 52 week High $17.06 52 week Low $11.05 Beta Value 2.25 Average Daily Volume 17.8 m Share Highlights Market Capitalization $20.86 b Shares Outstanding 1.33 b Book Value per share $14.41 EPS (TTM 2017) $0.71 P/E Ratio (Trailing) 20.35 Dividend Yield 0% Company Performance Highlights ROA 4.51% ROE 11.40% Revenue $14.8 b Profit Margin 6.57% Financial Ratios Current Ratio 2.45 Debt to Equity 3.03

Freeport-McMoRan (NYSE: FCX)

November 10, 2017

Current Price: $14.41 Target Price: $12-$16

Investment Thesis We believe that Freeport’s market leadership in the copper industry, favorable fundamental trends, and increasing revenue growth over the next eight years, will allow Freeport to overcome its recent struggles and thrive again. Based on the DCF/EP model, we think Freeport’s stock is slightly underpriced and consequently we issue a “HOLD/NO ACTION” rating for Freeport-McMoRan. Investment Positives Favorable global economic growth: The global economies are becoming stronger due to the increases in construction and infrastructure spending. Favorable commodity prices: The rising prices in copper and molybdenum will lead Freeport to see 15% revenue growth and increasing margins over the next eight years. Potential deregulation and tax cuts: The Trump administration is eliminating regulations for businesses and trying to promote a reduction in the corporate tax code, and Freeport is poised to benefit from these changes due to its industry leadership in the copper market. Investment Negatives Political instability: Recent uprisings from the people of Indonesia have interrupted Freeport’s operations in the Grasberg mines, which has had a negative impact on its operations. Falling gold prices: Stabilizing global economies have led to falling gold prices. Since 20 percent of Freeport’s revenues stem from the sale of gold, falling prices inhibit Freeport’s future growth. One Year Stock Performance

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Our team is issuing a hold rating for Freeport-McMoRan. Freeport is poised to be the beneficiary of strengthening global economies and increased spending on infrastructure and construction. Although Freeport will be able to benefit from favorable fundamentals such as rising commodity prices, strengthening economies, and increased spending on infrastructure and construction, we believe there is too much uncertainty with Freeport’s mine ownership dispute in Indonesia. The uncertainty revolves around the dispute over the Grasberg mine in Indonesia. An armed separatist group has been in conflict with the Indonesian government, and they want Freeport to relinquish the rights of the mine to the Indonesian people. This mine is the largest gold mine and second largest copper mine in the world, with 31 percent of Freeport’s copper and 99 percent of Freeport’s gold deriving from this mine. Therefore, this uncertainty over the mine creates much financial uncertainty for Freeport going forward.

Real Gross Domestic Product (GDP) The real gross domestic product is the inflation adjusted value of all goods and services produced within the economy during a given time period.1 Real GDP is one of the primary indicators used to gauge the health of the economy. The most common measure of GDP is through the expenditure method, where GDP is equal to the sum of the four major factors: private consumption, private investment, government spending, and net exports. Future growth rates of GDP can help us anticipate the growth for Freeport’s revenues because the copper industry is highly correlated to GDP growth and thus, the growth of the stock

market. According to research done by the CME Group, a 10.0% rise in the S&P 500 tended to send copper prices 3.9% higher.15 Copper is often a reliable indicator of the economic health because copper is used in most sectors of the economy.2 We have seen consecutive quarters of at least 3.0% real GDP growth, which has been driven by low unemployment, and increased consumer spending. After consecutive quarters of 3.0% real GDP growth and unemployment dropping to 4.1%3, we are predicting copper prices to strengthen, which will increase Freeport’s profitability. The following chart shows the change in real GDP over the last ten years. Historically, you can tell that the annual real GDP growth typically stays between 2% and 3%, with the exception of the financial crisis in 2008. We are projecting real GDP growth of 3.0% over the next 6 months, and we also predict that real GDP growth will continue to grow at 3.0% over the next five years. 4

Interest Rates The materials sector is highly capital intensive. It requires large cash outflows to purchase and develop mining facilities, smelters, refineries, and to explore new possible mines or oil reserves. Many companies in the materials sector take on large amounts of debt, rather than equity, to finance their operations. Freeport can benefit from lower interest rates, because lower

Executive Summary

Economic Outlook

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interest rates create a lower cost of debt, which in turn lowers the WACC. Interest rates play a critical role for Freeport, affecting their ability to take on and pay down debt. Mines and many large-scale projects take many years to develop, thus having an abundance of debt with high interest rates can create growth problems for the firm. President Donald Trump recently nominated a new chair of the Fed.5 The Fed has begun to steadily increase the Fed fund’s rate as the economy continues to grow and strengthen, but it is uncertain what direction the Fed will take with a new chair. The following chart shows the 30 Year Treasury Yield over the past five years. It’s notable to notice that there was a sharp increase once Donald Trump won the 2016 presidency. As the Fed fund’s rate rises, we are expecting to see the 30 Year Treasury Yield rise, which would make borrowing more expensive for Freeport. We are projecting the 30 Year Treasury Yield to stay at 2.82% over the next six months, and then we predict it will rise to 2.88% over the next five years. 6

Infrastructure and Construction

Copper is widely used in construction (30% of overall copper use) and many infrastructure projects (12% of overall use).7 Donald Trump has proposed spending $1 Trillion on infrastructure within the U.S. The American

Society of Civil Engineers gave the current quality of U.S infrastructure a rating of D+, which shows that there is a current need for the infrastructural spending.8 Freeport will take advantage of the increased construction and infrastructural spending since they are the second largest copper producer globally and copper is widely used within these industries. China is also a major source of construction and spending on infrastructure projects. The Chinese government has stepped up investment in various infrastructure projects over the past two years.9 Due to the rising GDP and the talk about increased infrastructural spending, we are predicting copper demand will rise over the next five years by 5.0%, which will be primarily driven by demand in the U.S and China. As seen in the following chart, U.S construction spending has declined and reached a twenty year low in recent years. However, with President Donald Trump focusing on restoring the infrastructure within the U.S, we are projecting public construction spending (as a % of GDP) to increase to 2.0% over the next five years. Freeport, being the second largest global copper producer, is positioned to benefit from the increased construction spending. 10

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Exchange Rates

Freeport is a multinational company with operations globally, thus they are exposed to foreign exchange rate risks. An exchange rate is the price of a nation’s currency in terms of another currency.11 Exchange rates can impact Freeport’s profitability depending on the changes in valuation of the USD to various other currencies. The chart below displays the exchange rate between the USD and the Chinese Yuan. The chart shows that the USD strengthened once Trump became president, but has decreased thus far in 2017. As the USD strengthens, it will be more expensive for companies in China to purchase copper from U.S based Freeport. With the increasing global competitiveness over fair trade deals, we are expecting the USD to Chinese Yuan rate to remain volatile over the next six months and unchanged over the next five years. 12

Commodity Prices

The materials sector, and more specifically Freeport, is heavily dependent upon commodity prices. Freeport receives about 60% of their revenues from copper sales, making Freeport’s profitability heavily dependent upon the price of copper. Freeport had negative earnings from 2013-2016 and this can largely be attributed to falling copper prices. Copper prices today are $3.08 per pound. We believe that copper prices will continue to rise over the next six months, and to $3.40 per pound over the next five years. This will be driven by strengthening global economies and the increased demand for copper, due to the increased infrastructural and

construction spending. As shown by the graph below, copper prices have risen substantially since October 2016. 13

Freeport also sees about 20% of its revenues come from the sale of gold, so the price of gold is critical to determining Freeport’s profitability. The chart below shows gold prices have fallen in recent years as global economies have strengthened. We anticipate this trend to continue, and gold prices will fall from their current values of $1,276 to $1,141 per ounce over the next five years. 14

Capital Markets Outlook As discussed previously, we believe that global economies will strengthen, and there will be increased spending on infrastructure and construction. We also believe interest rates will be rising in the near future, and this will make expanding business operations slightly more expensive, but the firms in the industry with a major market presence will be able to absorb these additional costs. The strengthening global economies will drive precious metals and

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commodity prices higher, which makes the metals and mining industry an industry that we believe will outperform the market going forward. Most metals and mining companies will benefit, but the biggest benefactors will be firms with a major market presence such as Freeport or Alcoa.

Metals and Mining Industry Breakdown The metals and mining industry is made up of six sub-industries: Diversified Metals & Mining (54%), Steel (19%), Gold (17%), Copper (6%), Aluminum (2%), Silver (2%).17 The metals and mining industry is heavily capital intensive: firms need to explore and find potential mines, then they must purchase the land, and then the firm can think about beginning operations. The metals and mining industry has been the beneficiary of strengthening global economies, a trend we are predicting will continue over the next five years. The chart below shows that the metals and mining ETF has thrived and seen 25% returns over the past year. 17

The metals and mining ETF has seen higher returns than the S&P 500 (25% vs 17%) over the same time period, and the firms with competitive advantages are poised to take advantage of this growth opportunity within the industry.

Industry Trends As mentioned earlier, the metals and mining industry is correlated with GDP growth, and driven by construction and infrastructure spending. The metals and mining industry is also dependent upon the price of commodities. Rising commodity prices mean greater sales for these companies, and falling commodity prices leads to lower sales. We already touched on copper prices rising and gold prices falling, and these are common indicators of economic growth and stability. As shown by the chart below, aluminum prices have also risen substantially over the past year and a half. 18

The current trends show a healthy industry, and we believe this industry will continue to outperform the market over the next several years. There are substantial growth opportunities for the firms in the metals and mining industry due to economic growth, stability, and rising commodity prices. Markets and Competition The current competitive climate for the metals and mining industry keeps getting more competitive as firms try to take advantage of rising commodity prices, and the significant growth opportunities driven by the economic factors mentioned previously. The big necessity for firms in this industry is owning land so that they can mine the precious metals. However, many companies in this industry are controlled by the government,

Industry Outlook

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which provides them with a key advantage over publically traded firms. These government controlled firms avoid the conflicts that can arise between governments and companies over the control of land/mines. Porter’s Five-Forces Competition: Moderate to High. Within the industry, competition is moderately high. There are generally only a few big players specializing in a particular precious metal, so competition is extreme within the industry. The top four copper companies accounted for over 33% of the total copper produced and 62% of the total copper sales in 2016. Despite having a lower market cap than its peers within the industry, Freeport is better able to generate returns through its use of their assets and equity, thus providing them with a significant competitive advantage over their peers, as shown in the chart below.

Threat of New Entrants: Low. The metals and mining industry has been around for a long time, and as mentioned earlier, it is capital intensive. The combination of these two factors make it extremely difficult for new companies to enter the industry and steal business away. Threat of Substitutes: Low to Medium. The metals and mining industry plays a huge role in the construction and infrastructure markets. There will always be demand for precious metals. However, as the global focus moves towards reducing pollution and waste, we are starting to see aluminum replace steel, and in some cases, replace copper. Bargaining Power of Customers: Low. Companies in the mining and metals industry are dependent upon commodity prices, and the grade of precious metals are the same no matter

who produces them. Thus, customers don’t pose a major threat, because they are unlikely to find a superior product or significantly lower prices elsewhere. Bargaining Power of Suppliers: Low. Most players in the mining and metals industry are integrated and handle the full-scale operations internally. Thus, they don’t rely on suppliers. Catalysts for Growth and Change The most important factor driving the mining and metals industry is GDP growth. We believe GDP growth in the U.S will remain at 3.0% over the next five years, and that this could provide a bullish demand indicator for the mining and metals industry. The potential for the U.S and China to increase their spending on construction and infrastructure provide a critical growth opportunity for companies in the mining and metals industry. As the following chart shows, the GDP growth in China has slowed recently, driven primarily by reduced government spending. 19

We are anticipating, both the U.S and the Chinese governments to increase governmental spending over the next three years to spur growth, and the mining and metals industry will benefit from this. Key Investment Positives/Negatives We believe that the biggest key investment positives for the mining and metals industry are the rising commodity prices and increased economic growth globally. These two factors

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should spur significant growth within the industry. On the other hand, a major negative for the mining and metals industry is the commonality of disputes between governments and companies about ownership of mines and lands. This creates additional costs, and raises uncertainty for firms within the industry.

Business Summary Freeport-McMoRan is a leading international mining company. They operate long-lived geographically diverse assets with significant reserves of copper, molybdenum, and gold. Freeport’s portfolio of assets includes one of the world’s largest copper and gold deposits, the Grasberg Minerals District in Indonesia. They also have mining operations in the Americas, including the Morenci Minerals District in North America and the Cerro Verde operation in South America. They operate seven copper mines in North America, located in Arizona and New Mexico, and two molybdenum mines in Colorado. Certain North America copper mines, in addition to copper, also produce molybdenum concentrate, gold, and silver. They operate two copper mines in South America, Cerro Verde in Peru and El Abra in Chile, and these two mines also produce gold and silver. In Indonesia, PT Freeport Indonesia, a subsidiary of Freeport-McMoRan, operates mines in the Grasberg Minerals District which produces copper, gold, and silver.22 Corporate Strategy Freeport-McMoRan believes the long-term fundamentals of the copper business remain positive and they have accumulated a quality portfolio of copper assets to achieve long-term value. Through debt reduction plans and opportunities to stimulate net present values, FCX is able to advance studies for future

development of their copper resources. 22 FCX is able to produce products that are critical for sustainability and higher standards of living with a strong commitment to safety performance, environmental management, and the local communities where it operates. These are essential for the future success and image of the company.23 Recent Earnings Analysis For the third-quarter of its fiscal year 2017, FCX reported net income attributable to common stock of $280 million, and $0.19 per share. After adjusting for net charges of $212 million and $0.15 per share, net income attributable to common stock totaled $492 million and $0.34 per share. Consolidated sales for copper, gold, and molybdenum totaled 932 million pounds, 355 thousand ounces and 22 million pounds, respectively. Average realized prices for copper, gold, and molybdenum were $2.94 per pound, $1,290 per ounce, and $9.22 per pound, respectively. Based on current sales volume and cost estimates, operating cash flows for 2017 are expected to reach $4.29 billion.20 Third-quarter copper sales were lower than the 2016 third-quarter sales of 940 million pounds. This variance is due to lower ore grades and the timing of shipments. Gold sales of 355 thousand ounces were lower than the July 2017 estimates of 375 million ounces. However, sales were up compared to the third-quarter 2016 sales of 317 thousand ounces. This jump was due to a higher anticipation of ore grades from Indonesia. Molybdenum sales equaled July 2017 estimates of 22 million pounds and were higher than the third-quarter sales of 16 million pounds.20 Overall, quarterly results were strong and indicate a positive future outlook. Through an increased focus on cost management and generation of free cash flow, FCX will continue to strengthen its balance sheet.

Company Analysis

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Products and Sales FCX’s consolidated revenues for 2016 included copper (70 percent), gold (10 percent), oil (9 percent), and molybdenum (4 percent). No customer has accounted for more than 10 percent of their consolidated revenues in the past three years.22 Copper Products and Sales: FCX is one of the world’s largest producers of copper concentrate, cathode and continuous copper rod. During 2016, 58 percent of their mined copper was sold in concentrate, 21 percent was sold as cathode, and 21 percent as rod from its North America mines. The majority of the copper produced at their North America mines is consumed at their rod plants. The remainder of this production is sold as copper cathode or copper concentrate under annual contracts, with 12 percent of the copper concentrate sales volumes being shipped to Atlantic Copper. Production from their South American mines are sold as copper concentrate or cathode under annual and multi-year contracts. Four percent of their copper concentrate sales volumes are also shipped to Atlantic Copper. Copper, from its Indonesia operations, is sold in the form of copper concentrate with significant quantities of silver, and gold. Cathode and rod contract prices are priced at the prevailing Commodity Exchange Inc. monthly average spot price for the month of shipment, and includes a premium. The copper produced is used as a raw material input for copper rod, brass mill products, and for other uses.22 Gold Products and Sales: The majority of gold production is derived from FCX’s Grasberg Minerals District. Gold is primarily sold as a component of the copper concentrate or in slimes, a product provided through the smelting and refining process at Atlantic Copper. Gold is priced at the average London price for a specified month near the month of shipment.22 Molybdenum Products and Sales: FCX is the world’s largest producer of molybdenum and molybdenum-based chemicals. Molybdenum is

produced from the Henderson and Climax molybdenum mines. It is also produced in certain North American mines and the Cerro Verde mine in Peru. In 2016, the majority of the molybdenum concentrate sales were priced based on the average published Metals Week price for the month prior to the month of shipment. Molybdenum is a significant alloying element in steel and the raw material in some chemical-grade products, such as lubrication, smoke suppression, and catalysts.22 Mining At December 31, 2016, FCX’s consolidated recoverable mineral reserves totaled 2.95 billion pounds of molybdenum, 26.1 million ounces of gold, and 86.9 billion pounds of copper. In the U.S, most of the land in use by FCX’s copper and molybdenum mines is owned by FCX or is located on unpatented mining claims owned by FCX. The South American operations are controlled though mining claims or concessions under the mining laws of the relevant country. The claims or concessions are owned by operating companies that either FCX or its subsidiaries have ownership interests in. PT-FI has ownership rights over the Grasberg minerals district in Indonesia. FCX has an 81.28 percent ownership of the outstanding common stock of PT-FI and indirectly owns 9.36 percent through PT Indocopper Investama, a wholly owned subsidiary. The Indonesian government owns the remaining 9.36 percent. Long-term operating rights for PT-FI are under discussion between the Indonesian government and FCX. Demonstrated in the figure below is FCX’s mine location by geographic location. 22

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Mining Development and Exploration Mining Development: Capital expenditures for mining operations totaled $1.6 billion in 2016, $1.2 billion of which when to major projects. Capital expenditures for major products went to expansion projects at Morenci and Cerro Verde, and underground development activities in the Grasberg District. Further underground developments at Grasberg will be contingent on the extension of a Contract of Work with the Indonesian government. Current mine development projects include $5.7 billion of capital expenditures at their processing facilities to be able to optimize the handling of underground ore if a cessation of operations at Grasberg were to occur.22 Mining Exploration: Mining exploration activities focus on existing FCX mines, with a emphasis on expanding reserves and resources to enhance development of future production capacity. The results of these explorations continue to provide opportunities for future potential reserves in North and South America. Exploration spending for 2017 is expected to be $47 million. Spending for 2016 and 2015 was $44 million and $96 million, respectively.22 Production and Sequencing Due to ongoing development activities as each mine ramps up to full production, production volumes are lower in the first few years. Timing is contingent on exploration and development efforts. Mine plans are developed on maximizing the net present value of the ore bodies.22 Competition Approximately half of total worldwide copper production is dominated by 10 copper producers. FCX ranks second among these producers, and claims nine percent of total worldwide mined copper production 22. FCX differentiates itself by the size, quality, and grade of their ore bodies and their ability to manage costs compared to others in the

industry. Their diverse portfolio of mining operations provides FCX with the advantage to better manage costs. Costs are driven by the amount of input costs, including labor, equipment and energy, as well as the location, nature, and grade of their ore bodies. Through their ability to acquire and develop quality deposits, manage their costs, and retain and hire a quality workforce, FCX is able to maintain a competitive position throughout a cyclical metals market. Risk Financial Risk: Recent declines in the prices of copper and molybdenum have negatively affected cash flows, asset values, and earnings. If this trend continues, it may adversely affect their ability to repay debt. Fluctuations in the market prices of their products have led to volatility in both their financial performance and trading prices of their common stock and debt. International Risk: FCX’s international operations are vulnerable to political, social, and geographic risks in countries outside the U.S. With mining operations in Indonesia, Peru, and Chile, FCX could be subject to renegotiation or cancellation of existing contracts, political instability, or changes in U.S trade and tax policies. The Grasberg mining operation is a significant asset located in Indonesia. If political, social, or economic uncertainty were to arise, the business could be adversely affected. Additionally, FCX’s Contract of Work (COW) may be subject to termination if the company is not able to comply with all the contractual agreements.22 The COW expires in 2021 and it is currently under discussion with the Indonesian government to extend the contract to 2041. The current framework converts the COW to a special license, which would provide PT-FI with long-term operating rights through 2041. FCX will divest ownership to the Indonesian government so that Indonesia interests own 51 percent of PT-FI’s shares. FCX will continue to retain

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control over operations and governance of PT-FI.21

Environmental Risk: Current operations are subject to complex environmental laws and regulations. Compliance with these regulations include significant costs and can deter current operations or future business opportunities. FCX is legally responsible for remediating environmental conditions from substances released into the environment from properties that have not been operated in many years. Significant adjustments to these costs may adversely affect business as more information becomes available to environmental agencies. Oil and Gas Operations During 2016, FCX completed the sales of their Deepwater GOM, Onshore California, and Haynesville oil and gas properties. This represented 83 percent of their total oil and natural gas production in 2016. In January 2017, they agreed to sell their property interests in Wyoming. Their current portfolio of oil and gas assets includes production onshore in South Louisiana, on the GOM Shelf, and oil production offshore California.22 Outlook Limitations on the supply of copper and high demand for copper by the world’s economy indicate a positive long-term outlook for FCX. The financial results of the company depend heavily on commodity pricing. With the prices of their products out of their control, management puts an emphasis on sales volumes, unit net costs, operating cash flows, and capital expenditures. S.W.O.T Analysis Strengths: FCX is the world’s largest publically traded copper producer, and they have an increased scale of their business and bargaining power with business partners. FCX also has the ability to hedge to protect themselves against commodity pricing risk. Smaller firms and other

competitors do not have this luxury. FCX is also a multinational company and being able to mine in North America, South America, and Indonesia will help them diversify regional and regulation risks. Weaknesses: Profitability is tied to commodity pricing, so if commodity prices fall, FCX will see their margins shrink. FCX is also dependent upon demand for their precious metals. Opportunities: Rising commodity prices could improve their sales and margins going forward. Increased demand for precious metals (mostly copper) in China will be also be beneficial for FCX. Threats: FCX has to deal with many government regulations (increasing environmental regulations), which makes it harder to do business, and it could affect the profitability of the firm. Currently, FCX is involved in numerous legal proceedings, mostly associated with environmental issues. Additionally, FCX is under negotiations with the Indonesian government to extend the Contract of Work for the Grasberg minerals district. 21

Using a discounted cash flow and economic profit model analyses, we concluded that Freeport should have a HOLD rating with an intrinsic stock price of $14.72. This is just above the current trading price of $14.41. To arrive at this price, we forecasted future cash flows into year 2024. We decided that this forecast horizon allowed Freeport to achieve growth with the improving global economies, and to reach its steady-state growth rate in 2024. Our forecasted estimates reflect historical patterns, analysts/management guidance, and lastly our personal estimates. Over the past three years, Freeport has struggled mightily, and this was the result of two different

Valuation Analysis

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situations. First, Freeport decided to invest into the oil and gas business, and this was when oil was trading at $100 a barrel. Oil prices are currently at $57 a barrel, and Freeport has been selling off those oil properties. Secondly, commodity prices and specifically copper prices, had been falling. Between January 2013 and October 2016 copper prices fell 44%, and this cut into Freeport’s margins. As mentioned in the Economic and Industry analyses sections, global economies are continuing to grow and strengthen, which will cause copper prices to rise. These factors will contribute to expanding margins for Freeport over the next eight years, and Freeport should start to generate positive earnings over this time period. Next, we will discuss some of the key assumptions that we made within our model. Revenue Growth The most important factor for Freeport generating positive earnings is to see increased revenues. We projected Freeport would see revenue growth of 10.99% in 2017, and they would generate total revenues of $16.460B in 2017. This is in line with analysts’ estimate of $16B in 2017. The chart below shows our revenue projections for Freeport over the next eight years.

The primary driver for the rising revenues is rising copper prices. Earlier, we mentioned that we project copper prices to continue rising, but we also expect gold prices to continue to fall. Falling gold prices will inhibit Freeport’s growth, since 20% of their revenues are driven by gold. However, they will greatly benefit from

rising copper prices and increasing demand for copper. This momentum will project Freeport to see modest increasing revenues into their steady-state growth in 2024. Long-Term Debt, less current portion From 2013-2016, Freeport has had Long-Term debt equal to their revenues for the year. The reason they had such large values of debt is that when they made the mistake to purchase oil properties, they paid for it largely with debt. Freeport has started paying down this debt, and we are projecting Freeport to stick with Long-Term debt as 45% of their annual revenues. Weighted Average Cost of Capital (WACC) Cost of Equity: We estimated the cost of equity for FCX using the Capital Asset Pricing Model. We used the current yield to maturity (YTM) of 2.88% as the risk-free rate. We derived the equity risk premium of 4.65% by looking at the long-term geometric average premium of stocks minus T-Bonds from 1928 to 2016. After examining raw betas generated through a Bloomberg terminal, we determined 2.25 to be appropriate for FCX given its history of being more volatile than the market. These three inputs provided us with a cost of equity of 13.34%. Cost of Debt: Using the Bloomberg terminal, we found the 30 year corporate bond yield of 6.781%. We also estimated a marginal tax rate of 35.00%, which gets us to an after-tax cost of debt of 4.41%. WACC: We determined FCX’s weight of equity by taking its current stock price multiplied by the number of shares outstanding. The market value of debt wasn’t available, so we assumed that the book value of debt is approximately equal to the market value of debt. We calculated the book value of debt by taking the long-term debt plus the current portion of long-term debt plus the present value of operating leases. This provided us with Freeport’s capital structure of 53.88% equity and 46.12% debt. Using the

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values mentioned above, we calculated the WACC of 9.22%. Discounted Cash Flow & Economic Profit Models The discounted cash flow (DCF) and economic profit (EP) valuation models utilize the key value drivers of net operating profit less adjusted taxes (NOPLAT) and invested capital (IC). These two key value drivers are used to generate the future free cash flows and thus the yearly economic profit for the firm each year throughout the model. The value drivers yielded an interesting and important lesson for FCX. In the forecast horizon, FCX is generating positive earnings per share, but they are also generating negative EP in each year except the terminal year. This is primarily driven by FCX having a high WACC, so management at FCX will want to lower the WACC to generate positive EP going forward. Both valuation models (DCF and EP) provided us with an intrinsic stock price of $13.21 as of 12/31/2016. We adjusted this price to arrive at the intrinsic stock price today (11/10/2017) of $14.72. These two valuation models tell us that FCX is slightly undervalued. FCX is slightly undervalued because its intrinsic stock price of $14.72 is greater than its price today of $14.41. We believe that the DCF and EP valuation methodologies provide the most accurate representation of FCX’s intrinsic stock price. We also believe that the FCF and EP valuation methods truly capture the value of the firm. Since FCX doesn’t currently pay any dividends and it has few pure play peers, the best way to value FCX is using its cash flows that it generates. Dividend Discount Model The dividend discount model (DDM) for FCX yielded an intrinsic stock price of $2.27 as of 11/10/2017. The price from the DDM model would suggest that FCX stock is overvalued significantly relative to its current trading price

of $14.41. The dividend discount model relies upon the payment of dividends, and in 2015 FCX announced they were suspending their dividend going forward. FCX isn’t a high growth stock, so they can’t overcome not paying dividends in this valuation method. The DDM valuation method doesn’t provide a reasonable estimate of FCX’s intrinsic stock price given the firm doesn’t pay dividends, and they don’t grow fast enough to overcome not paying dividends. Relative P/E Valuation Our relative valuation model consists of three other key players within the metals and mining industry. As the chart below shows, the three other peers are trading at significantly higher prices compared to FCX’s $14.11, which results in FCX’s peers trading at higher P/E ratios.

Freeport specializes in copper production and sales, but they also deal with other precious metals. As mentioned previously, there aren’t many big, pure-play companies that specialize in copper production. Southern Copper Corporation is the closest peer play competitor, and then we had to compare FCX with some of the other peers within the overall industry that had comparable sales and market caps. We arrived at an intrinsic stock price of $22.62 and $22.20 based on the one and two-year industry average forward P/E ratios and FCX’s 2017 and 2018 EPS estimates. The relative P/E valuation method suggests that FCX is undervalued, because it is currently trading at $14.41, while the P/E valuation suggests that it should be valued at $22.62.

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The relative P/E valuation method provides us with a higher stock price estimate than the DCF/EP and DDM valuation. We believe that this is largely attributed to FCX’s peers trading at a premium, and thus being valued at higher prices than FCX. FCX’s major peers are trading between $35 and $44 per share, and FCX is currently trading at only $14.41. Earlier we mentioned that Freeport made poor investments into the oil business while oil was trading at $100 a barrel, and before this poor choice, FCX was trading at $38 per share. The market has incorporated this poor decision by FCX into its stock price, and that is why it is trading significantly lower than its peers. In conclusion, all four valuation models yield interesting results, but not all are important ways to determine the intrinsic stock price of FCX. We believe that the DCF/EP valuation models most accurately capture the intrinsic value of FCX. The DCF/EP valuation models show us that FCX is slightly undervalued, which validates our hold position on the stock. It also validates our recommendation to continue to keep an eye on FCX, because of the potential upside for the firm.

Beta vs. Risk-Free Rate We are interested in the impact of a changing beta and changing risk-free rate on the intrinsic stock price for FCX. As global economies strengthen, we might expect the beta for FCX to decrease. Also, with a new chair of the Fed, we might see the risk-free rate fluctuate also and we wanted to test the impact of both of these variables on the stock price of FCX. We decided to test what happens to the stock price if the beta changes in increments of 0.20, and the risk-free rate changes in increments of 0.20%. We discovered that FCX’s stock price is the highest when the beta is the lowest and the risk-free rate is also the lowest.

As the chart below shows, as both the beta and the risk-free rate rise, the stock price falls.

It is interesting to note that a beta of 1.85 and a risk-free rate of 2.48% result in a significantly increased stock price of $20.77. This demonstrates that the stock price for FCX is sensitive to changes in the beta and the risk-free rate. Pre-Tax Cost of Debt vs. Marginal Tax Rate In the U.S, there is a lot of talk and a big push to pass tax reform which would end up lowering the marginal tax rate for FCX. We wanted to test the impact of changes in the marginal tax rate with changes in the pre-tax cost of debt. We discovered that if the marginal tax rate for FCX drops to 31.00%, and all else stays constant, then FCX stock price would slightly drop. The reason for the drop in stock price is FCX would receive less of a tax shield on their cost of debt. Overall, the stock price of FCX isn’t very sensitive to changes in the marginal tax rate and the pre-tax cost of debt WACC vs. CV Growth of NOPLAT We are interested in how sensitive the stock price of FCX is by changing our WACC and our steady-state growth rate of NOPLAT. We increased and decreased 0.2% from our WACC estimate, because we believe this reflected realistic changes that FCX might make. We also decided to increase and decrease 0.25% from our CV growth of NOPLAT estimate to reflect possible steady-state growth rates. We discovered that as the WACC decreased and the CV growth of NOPLAT increased, we saw increasing stock prices. However, we discovered that the stock price for FCX isn’t very sensitive to these changes.

Sensitivity Analysis

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Cost of Equity vs. WACC We are projecting global economies to continue to strengthen and show increased growth, and this will impact the cost of equity for FCX. We wanted to see how these changes, and the changes to the WACC affected the stock price of FCX. We discovered that changes in these two variables don’t have a significant impact on the stock price for FCX. COGS (% of Sales) vs. SG&A (% of Sales) Cost of goods sold (COGS) and selling general & administrative costs (SG&A) account for a majority of the expenses for FCX. We wanted to test how changes in these two factors affect the stock price. We don’t see FCX drastically changing their COGS as a % of sales, so we increased and decreased our estimate by factors of 5%. We also felt the same could be said for the SG&A costs, so we increased and decreased our estimate by factors of 0.20%. It turns out that the stock price of FCX isn’t very sensitive to these changes in both COGS and SG&A.

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Works Cited 1: Staff, Investopedia. “Real Gross Domestic Product (GDP).” Investopedia, Investopedia, 3 Oct. 2014, www.investopedia.com/terms/r/realgdp.asp. 2: Staff, Investopedia. “Doctor Copper.” Investopedia, Investopedia, 30 Aug. 2011, www.investopedia.com/terms/d/doctor-copper.asp. 3: “Bureau of Labor Statistics Data.” U.S. Bureau of Labor Statistics, U.S. Bureau of Labor Statistics, 13 Nov. 2017, data.bls.gov/timeseries/LNS14000000. 4: “Real Gross Domestic Product.” FRED, Federal Reserve Bank of St. Louis, 27 Oct. 2017, fred.stlouisfed.org/series/A191RL1Q225SBEA5: Cox, Jeff. “Trump Picks Jerome Powell to Succeed Yellen as Fed Chair.” CNBC, CNBC, 2 Nov. 2017, www.cnbc.com/2017/11/02/trump-picks-jerome-powell-to-succeed-yellen-as-fed-chair.html. 6: “Treasury Yield 30 Years.” Google Finance, Google, 10 Nov. 2017, finance.google.com/finance?q=INDEXCBOE%3ATYX&ei=t2ECWun-AozKjAG-_IyQDQ. 7:https://born2invest.com/articles/major-consumers-and-applications-of-copper/ 8: “GPA: D+.” ASCE's 2017 Infrastructure Report Card, ASCE, 2017, www.infrastructurereportcard.org/. 9: Woo, Ryan, and Elias Glenn; “China July Factory Growth Cools but Construction Boom Fortifies Economy.” Reuters, Thomson Reuters, 31 July 2017, www.reuters.com/article/us-china-economy-pmi-official/china-july-factory-growth-cools-but-construction-boom-fortifies-economy-idUSKBN1AG04Y?il=0. 10: “Investment in American Infrastructure Is Falling.” The Economist, The Economist Newspaper, 12 Aug. 2017, www.economist.com/news/finance-and-economics/21726092-donald-trumps-trillion-dollar-package-remains-hypothetical-investment-american. 11: Picardo, CFA Elvis. “Exchange Rate.” Investopedia, Investopedia, 31 Oct.

2017, www.investopedia.com/terms/e/exchangerate.asp. 12: “US Dollar (USD) to Chinese Yuan (CNY) Exchange Rate History.” Exchange Rates, Exchange Rates, 10 Nov. 2017, www.exchangerates.org.uk/USD-CNY-exchange-rate-history.html. 13: “Copper Prices - 45 Year Historical Chart.” MacroTrends, MacroTrends, 10 Nov. 2017, www.macrotrends.net/1476/copper-prices-historical-chart-data. 14: “Gold Prices - 100 Year Historical Chart.” MacroTrends, MacroTrends, www.macrotrends.net/1333/historical-gold-prices-100-year-chart. 15: Norland, Erik. “Copper: Supply and Demand Dynamics – CME Group.” Futures & Options Trading for Risk Management - CME Group, CME Group, 27 Jan. 2016, www.cmegroup.com/education/featured-reports/copper-supply-and-demand-dynamics.html. 16: “MSCI World Metals and Mining Index.” MSCI, MSCI, www.msci.com/documents/10199/fb6ddbdf-8df3-4fdf-96b4-e578e2ac776c. 17: “SPDR S&P Metals & Mining ETF (XME) Stock Chart.” NASDAQ.com, NASDAQ, www.nasdaq.com/symbol/xme/stock-chart?intraday=off&timeframe=1y&charttype=line&splits=off&earnings=off&movingaverage=None&lowerstudy=volume&comparison=off&index=&drilldown=off&sDefault=true. 18: “Aluminum Prices - Interactive Historical Chart.” MacroTrends, MacroTrends, www.macrotrends.net/2539/aluminum-prices-historical-chart-data. 19: “China GDP Annual Growth Rate 1989-2017 | Data | Chart | Calendar.” Trading Economics, Trading Economics, tradingeconomics.com/china/gdp-growth-annual. 20: “Freeport-McMoRan Reports Third-Quarter and Nine-Month 2017 Results.” Freeport-McMoRan Inc., Freeport-McMoRan Inc., investors.fcx.com/investors/news-releases/news-release-details/2017/Freeport-

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McMoRan-Reports-Third-Quarter-and-Nine-Month-2017-Results/default.aspx. 21: “Freeport-McMoRan Inc (FCX.N) Key Developments.” Reuters, Thomson Reuters, www.reuters.com/finance/stocks/FCX.N/key-developments/article/3663039. 22: Freeport-McMoRan, Inc. (2016). Form 10-K 2016. Retrieved from Freeport-McMoRan website http://s22.q4cdn.com/529358580/files/doc_financials/10-K/10_k2016.pdf 23: “SUSTAINABILITY | Freeport-McMoRan.” Freeport-McMoRan l FCX, Freeport-McMoRan l FCX, www.fcx.com/sd.

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Important Disclaimer This report was created by students enrolled in the Applied Equity Valuation (FIN:4250) class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.

Freeport‐McMoRanKey Assumptions of Valuation Model

Ticker Symbol FCXCurrent Share Price $14.41 Current Model Date 11/10/2017FY End (month/day) Dec. 31

WACC 9.22%Pre‐Tax Cost of Debt 6.78%Beta 2.25Cost of Equity 13.34%Risk‐Free Rate 2.88%Equity Risk Premium 4.65%CV Growth of NOPLAT 3.00%CV Growth of EPS 1.50%CV ROIC 9.27%Marginal Tax Rate 35%DCF Price:  $       14.72 Relative P/E Price  $       22.62 

2017 2018 2019 2020 2021 2022Copper Growth 7% 4% ‐2% 1% 3% 4%Gold Growth ‐4% 0% 2% 7% 2% ‐2%Molybdenum Growth ‐1% 1% 2% 3% 1% ‐1%Oil Growth 2% 2% 1% 0% ‐1% 1%

CapEX 1,800 2700 2835 2976.75 3125.588 3281.867 3445.96

Freeport‐McMoRanRevenue Decomposition(In millions)Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E(CV)CopperNorth AmericaPrice per lb 3.1            2.5            2.2            2.35                 2.47                2.59                2.72                 2.86                 3.00                3.15                3.31             Pounds sold 1,657        1,985        1,836        1,871               1,853              1,730              1,664               1,632               1,617              1,617              1,617           Total Sales: 5,186        4,907        4,113        4,401               4,577              4,485              4,530               4,666               4,853              5,095              5,353           

South AmericaPrice per lb 3.1            2.4            2.3            2.43                 2.55                2.67                2.81                 2.95                 3.10                3.25                3.41             Pounds sold 1,135        871           1,332        1,357               1,344              1,255              1,207               1,184               1,173              1,173              1,173           Total Sales: 3,814        2,075        3,077        3,292               3,424              3,356              3,389               3,491               3,630              3,812              4,004           

IndonesiaPrice per lb 3.0            2.3            2.3            2.44                 2.56                2.69                2.82                 2.96                 3.11                3.26                3.43             Pounds sold 664           744           1,054        1,075               1,065              994                  956                  938                  929                  929                  929              Total Sales: 2,414        1,735        2,448        2,619               2,724              2,670              2,696               2,777               2,888              3,033              3,186           

MolybdenumNorth AmericaPrice per lb 11.74 7.02 6.34 6.21                 6.09                5.97                5.85                 5.73                 5.62                5.50                5.39             Pounds sold 33 37 33 34                     35                    36                    38                     39                     40                    40                    41                 Total Sales: 386 209 213 211                  213                  217                  224                  226                  224                  221                  221              

MolybdenumPrice per lb 12.28 8.14 8.02 7.86                 7.70                7.55                7.40                 7.25                 7.10                6.96                6.82             Pounds sold 51 48 26 23                     24                    25                    26                     27                     27                    28                    28                 Total Sales: 587 348 186 184                  186                  190                  195                  197                  195                  193                  193              

GoldIndonesiaPrice per lb 1,229        1,129        1,237        1,224.63         1,212.38        1,200.26        1,188.26         1,176.37         1,164.61        1,152.96        1,141.44     Pounds sold (thousands) 1,168        1,224        1,054        1,022               1,032              1,064              1,150               1,184               1,172              1,172              1,196           Total Sales: 1,434        1,382        1,304        1,252               1,252              1,277              1,366               1,393               1,365              1,352              1,365           

SilverIndonesiaTotal Sales: 39 31 50 40 40 40 40 40 40 40 40

OtherOilPrice per barrell 90 57.11 39.13 40.00               40.00              40.00              40.00               40.00               40.00              40.00              40.00           Barrells sold 40              35              34              23                     23                    24                    24                     23                     24                    24                    24                 Total Sales: 3,610        2,013        901           919                  937                  947                  947                  937                  947                  956                  956              

Natural GasPrice per MMBtu 4.37 2.59 2.38 2.75                 2.75                2.75                2.75                 2.75                 2.75                2.75                2.75             MMBtu sold 81              90              65              57                     59                    59                    59                     59                     59                    60                    60                 Total Sales: 342           232           155           158                  161                  163                  163                  161                  163                  164                  164              

NGLsPrice per barrell 39.73 18.9 18.11 21.00               21.00              21.00              21.00               21.00               21.00              21.00              21.00           Barrells sold 3 2 2 2                       2                      2                      2                       2                       2                      2                      2                   Total Sales: 128 46 33 34                     34                    35                    35                     34                     35                    35                    35                 

OtherNorth America 120 102 94 100                  100                  100                  100                  100                  100                  100                  100              South America 151 65 176 150                  150                  150                  150                  150                  150                  150                  150              

Rod & Refining 4,665        4,334        3,418 4,200               4,200              4,200              4,200               4,200               4,200              4,200              4,200           Atlantic Copper Smelting & Refining 2,412        1,970        1,830 1,700               1,700              1,700              1,700               1,700               1,700              1,700              1,700           Other mining, corporate, other & elimination (3,850)      (3,572)      (3,168) (2,800)             (2,800)             (2,800)             (2,800)             (2,800)             (2,800)             (2,800)             (2,800)         Total Revenue 21,438     15,877     14,830     16,460            16,899            16,729            16,935            17,274            17,690            18,253            19,490        Total Revenue Growth 6.19% ‐25.94% ‐6.59% 10.99% 2.66% ‐1.01% 1.24% 2.00% 2.41% 3.18% 6.78%

Freeport‐McMoRan 60.00% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00%Income Statement 3.30% 3.30% 3.30% 3.30% 3.30% 3.30% 3.30% 3.30%(In millions) 10.50% 10.50% 10.50% 10.50% 10.50% 10.50% 10.50% 10.50%Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E(CV)Revenues  $       21,438   $       15,877   $       14,830   $       16,460   $       16,899   $       16,729   $            16,935  $       17,274   $       17,690   $       18,253   $           19,490 Cost of sales:

    Production and delivery 11,898          11,545           10,697          9,876             10,139          10,037          10,161               10,364          10,614          10,952          11,694                  Depreciation, depletion, and amortization 3,863             3,497             2,530             2,438             2,466             2,504             2,554                  2,614             2,684             2,764             2,854                    Selling, general, and administrative expenses 592                569                 607                543                558                552                559                     570                584                602                643                        Mining exploration and research expenses 126                127                 64                   165                169                167                169                     181                186                192                205                        Environmental obligations and shutdown costs 119                78                   20                   61                   63                   62                   63                        64                   65                   68                   72                          Metals inventory adjustments 6                     338                 36                   13                   14                   13                   14                        14                   14                   15                   16                      Total cost of sales 16,604          16,154           13,954          13,096          13,407          13,336          13,519               13,807          14,147          14,592          15,484              Operating (loss) income 4,834             (277)                876                3,364             3,491             3,393             3,416                  3,466             3,543             3,661             4,007                Impairment of oil and gas properties              3,737             13,144              4,317  ‐                 ‐                 ‐                 ‐                      ‐                 ‐                 ‐                 ‐                     Interest expense, net (630)               (645)                (755)               (727)               (738)               (745)               (758)                    (775)               (795)               (818)               (851)                  Net gain (loss) on early extinguishment of debt 73                   ‐ 26                   ‐                 ‐                 ‐                 ‐                      ‐                 ‐                 ‐                 ‐                     Gain on investment ‐ ‐ ‐ ‐                 ‐                 ‐                 ‐                      ‐                 ‐                 ‐                 ‐                     Other income (expense), net 36                   6                      49                   ‐                 ‐                 ‐                 ‐                      ‐                 ‐                 ‐                 ‐                     Goodwill impairment 1,717             ‐ ‐ ‐                 ‐                 ‐                 ‐                      ‐                 ‐                 ‐                 ‐                     Net gain on sales of assets (717)               (39)                  (649)               ‐                 ‐                 ‐                 ‐                      ‐                 ‐                 ‐                 ‐                     Total costs and expenses 23,514          29,988           19,750          13,823          14,146          14,081          14,278               14,582          14,942          15,410          16,334              

(Loss) income before income taxes and equity in affiliated companies' net (losses) earnings (800)               (14,128)          (3,472)           2,637             2,753             2,647             2,657                  2,691             2,748             2,843             3,156                Benefit from (provision for) income taxes (225)               1,951             (371)               (923)               (964)               (927)               (930)                    (942)               (962)               (995)               (1,105)               Equity in affiliated companies' net (losses) earnings 3                     (3)                    11                   3                     3                     3                     3                          3                     3                     3                     3                        Net (loss) income from discontinued operations 277                                   91  (193)               ‐                 ‐                 ‐                 ‐                      ‐                 ‐                 ‐                 ‐                     Net (loss) income (745)               (12,089)          (4,025)           1,717             1,792             1,724             1,730                  1,752             1,789             1,851             2,054                Net income attributable to noncontrolling interests (523)               (106)                (290)               (322)               (330)               (327)               (331)                    (338)               (346)               (357)               (381)                  Net (loss) income attributable to common stockholders (1,268)           (12,195)          (4,315)           1,395             1,462             1,397             1,399                  1,415             1,443             1,494             1,673                

Net (loss) income per share attributable to common stockholders (1.26)$           (11.31)$          (2.96)$           1.05$             1.09$             1.03$             1.03$                  1.03$             1.04$             1.07$             1.19$                Weighted‐average common shares outstanding: 1,039             1,082             1,318             1,329             1,341             1,352             1,363                  1,375             1,386             1,398             1,409                Dividends declared per share of common stock 1.25$             0.26$             ‐ ‐                 ‐                 ‐                 ‐                      ‐                 ‐                 ‐                 ‐                     

Intrinisc Value of stock 14.72$         

Freeport‐McMoRanBalance Sheet(In millions)Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E(CV)AssetsCurrent assets:    Cash and cash equivalents 464                  177                  4,245                            5,313               7,596                 9,447              11,452              13,502            15,584              17,760              20,444     Trade accounts receivable 953                  645                  1,126                            1,014               1,041                 1,030                1,043                1,064              1,090                1,124                1,201     Income and other tax receivables 1,322              1,332              879                                   946                  972                    962                   974                   993              1,017                1,050                1,121     Other accounts receivable 288                  152                  89                                     206                  211                    209                   212                   216                 221                   228                   244     Inventories 5,361              4,075              3,642                            4,268               4,382                 4,338                4,391                4,479              4,587                4,733                5,054     Other current assets 657                  1,081              454                                   377                  387                    383                   388                   396                 405                   418                   446         Total current assets 9,045              7,462              10,435                       12,125             14,588               16,369              18,460              20,650            22,905              25,313              28,509 Property, plant, equipment and mining devlopment costs, net 26,220            23,986           23,219           23,481            23,850           24,323             24,895            25,563            26,324          27,179            28,124           Oil and gas properties, net 19,274            7,093              74                    46                     47                    47                      47                     48                     50                  51                     55                    Long‐term mill and leach stockpiles 2,179              1,663              1,633              1,543              1,458             1,378               1,302              1,231              1,163            1,099              1,039              Goodwill ‐ ‐ ‐ ‐ ‐ ‐ ‐                   ‐                   ‐                ‐                   ‐                   Other assets 1,956              6,373              1,956              1,852              1,901             1,882               1,905              1,943              1,990            2,053              2,193              Total assets             58,674             46,577             37,317  39,047            41,846           43,999             46,610            49,435            52,432          55,695            59,919           

Liabilities and EquityCurrent liabilities:Accounts payable and accrued liabilities 3,653              3,355              2,393              2,963              3,042             3,011               3,048              3,109              3,184            3,285              3,508              Current portion of debt 478                  649                  1,232              589                  598                603                    614                  628                  644               663                  689                  Current portion of environmental and asset retirment obligations 296                  272                  369                  61                     63                    62                      63                     64                     65                  68                     72                    Accrued income taxes 410                  23                    66                    140                  144                142                    144                  147                  150               155                  166                  Current portion of deferred income taxes ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐Liabilities held for sale ‐ ‐ 205                  ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐Dividends payable 335                  8                      ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

        Total current liabilities 5,172              4,307              4,265              3,753              3,846             3,819               3,869              3,948              4,044            4,171              4,435              Long‐term debt, less current portion 18,371            19,779           14,795           14,724            14,944           15,085             15,351            15,691            16,091          16,565            17,223           Deferred income taxes 6,398              4,288              3,768              3,971              4,046             4,057               4,121              4,209              4,315            4,445              4,664              Environment and asset retirement obligations, less current portion 3,647              3,739              3,487              3,277              3,365             3,331               3,372              3,439              3,522            3,634              3,881              Other liabilities 1,861              1,656              1,745              1,603              1,646             1,629               1,649              1,682              1,723            1,778              1,898                      Total liabilities 35,449            33,769           28,060           27,327            27,846           27,920             28,363            28,969            29,694          30,593            32,102           Redeemable noncontrolling interest 751                  764                  ‐ 623                  639                633                    641                  654                  669               691                  737                  

Equity:    Stockholders' equity:        Common stock, and additional paid in capital 22,398            24,420           26,847           27,246            27,645           28,043             28,442            28,841            29,240          29,639            30,038                   (Accumulated deficit) retained earnings 128                  (12,387)          (16,540)                    (14,823)          (13,031)            (11,307)             (9,576)             (7,824)           (6,035)             (4,184)              (2,130)        Accumulated other comprehensive loss (544)                (503)               (548)                              (548)               (548)                  (548)                (548)                (548)              (548)                (548)                 (548)        Common stock held in treasury (3,695)             (3,702)            (3,708)                        (3,714)            (3,720)              (3,726)             (3,732)             (3,738)           (3,744)             (3,750)              (3,756)            Total Stockholders' equity 18,287            7,828              6,051              8,161              10,346           12,463             14,586            16,731            18,913          21,157            23,604               Noncontrolling interests 4,187              4,216              3,206              3,558              3,653             3,616               3,661              3,734              3,824            3,946              4,214                          Total equity 22,474            12,044           9,257              11,719            13,999           16,079             18,247            20,465            22,737          25,102            27,817           Total liabilities and equity 58,674            46,577           37,317           39,047            41,846           43,999             46,610            49,435            52,432          55,695            59,919           

Balancing: CheckAssets 58,674.00       46,577.00      37,317.00      39,046.73       41,845.58      43,999.30        46,609.72       49,434.83       52,431.91    55,694.96       59,919.05      Liabilities+Equity 58,674.00       46,577.00      37,317.00      39,046.73       41,845.58      43,999.30        46,609.72       49,434.83       52,431.91    55,694.96       59,919.05      

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Freeport‐McMoRanCash Flow Statement(In millions)Fiscal Years Ending Dec. 31 2014 2015 2016

Cash flow from operating activities:Net loss (745)$ (12,089)$ (4,025)$ Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation, depletion and amortization 3,863 3,497 2,610Impairment of oil and gas properties and goodwill 5,454 13,144 4,317Non-cash oil and gas drillship settlements - - 689Metals inventory adjustments 6 338 36Other asset impairments, oil and gas inventory adjustments, and restructuring 18 256 134Net gain on sales of assets (717) (39) (649)Stock-based compensation 106 85 86Net charges for environmental and asset retirement obligations 200 209 191Payments for environmental and asset retirement obligations (176) (198) (242)Net gain on exchanges and early extinguishment of debt (73) - (26)Pension plans contributions - - - Deferred income taxes (929) (2,039) 239Loss on disposal of discontinued operations - - 198Decrease (increase) in long-term mill and leach stockpiles (233) (212) 10Net loss (gain) on crude oil and natural gas derivative contracts (504) (87) 35Gain on investment in MMRLosses on early extinguishment of debtOther, net (7) (18) 69Changes in working capital and other tax paymentsAccounts receivable 215 813 (175)Income and other tax receivables - - - Other accounts receivable - - - Inventories (249.00) 379.00 117.00

Other current assets - 97 37Accounts payable and accrued liabilities (394) (217) (28)Accrued income taxes and changes in other tax payments (204) (699) 106Other non-current liabilitiesNet cash provided by operating activities 5,631 3,220 3,729Cash flow from investing activities:Capital expenditures:North America copper mines (969) (355) (102)South America (1,785) (1,722) (382)Indonesia (935) (901) (1,025)AfricaMolybdenum mines (54) (13) (2)United States oil and gas operations (3,205) (2,948) (1,127) Other (267) (414) (175) Acquisition of Plains Exploration & Production Company, net of cash acquiredAcquisition of MMR, net of cash acquiredAcquisition of cobalt chemical business, net of cash acquiredRestricted cash and other, netProceeds from sales of:Tenke Fungurume mine - - 2,664 Deepwater Gulf of Mexico and onshore California oil and gas properties - - 2,272 Additional interest in Morenci joint venture - - 996 Eagle Ford shale assets 2,910 - - Candelaria and Ojos del Salado mines 1,709 - - Other assets - 160 423 Acquisitions of Deepwater Gulf of Mexico interests (1,426) - - Other, net 221 (53) 8 Net cash provided by (used in) investing activities (3,801) (6,246) 3,550 Cash flow from financing activities:Proceeds from debt 8,710 8,272 3,681 Repayments of debt (10,306) (6,677) (7,625) Redemption of MMR preferred stockNet proceeds from sale of common stock - 1,936 1,515 Cash dividends and distributions paid:Common stock (1,305) (605) (6) Noncontrolling interests, including redemption (424) (120) (693) Stock-based awards net (payments) proceeds, including excess tax benefit 9 (4) (6) Debt financing costs and other, net (35) (16) (32) Net cash (used in) provided by financing activities (3,351) 2,786 (3,166) Net increase (decrease) in cash and cash equivalents (1,521) (240) 4,113 (Increase) decrease in cash and cash equivalents in assets held for sale (45) 119 (45) Cash and cash equivalents at beginning of year 1,864 298 177 Cash and cash equivalents at end of year 298$ 177$ 4,245$

Freeport‐McMoRanCash Flow Statement(In millions)Fiscal Years Ending Dec. 31 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E(CV)Cash Flows from Operating Activities:Net income  1,717 1,792 1,724 1,730 1,752 1,789 1,851 2,054 Adjustments to reconcile net loss to cash from operations:Depreciation 2,438 2,466 2,504 2,554 2,614 2,684 2,764 2,854 (Increase) or decrease in Trade A/R 112 (27) 10 (13) (21) (26) (35) (76) (Increase) or decrease in Income Receivables (67) (25) 10 (12) (19) (24) (32) (71) (Increase) or decrease in Other Receivables (117) (5) 2 (3) (4) (5) (7) (15) (Increase) or decrease in Inventories (626) (114) 44 (54) (88) (108) (146) (321) (Increase) or decrease in Other Current Assets 77 (10) 4 (5) (8) (10) (13) (28) (Increase) or decrease in Stockpiles 90 85 80 76 72 68 64 60 Increase or decrease in Accounts Payable 570 79 (31) 37 61 75 101 223 (Increase) or decrease in Liabilities held for sale (205) - - - - - - - Increase or decrease in Accrued taxes 74 4 (1) 2 3 4 5 11 Increase or decrease in Deferred Income Taxes 203 75 11 64 88 105 130 219 (Increase) or decrease in Gas Properties 28 (1) 0 (1) (1) (1) (2) (3) Cash (used for) provided by Operating Activities  4,293 4,318 4,358 4,377 4,449 4,551 4,681 4,906

Cash Flows from Investing Activities:Capital Expenditures (2,700) (2,835) (2,977) (3,126) (3,282) (3,446) (3,618) (3,799) (Increase) decrease in Non‐Current Assets 104 (49) 19 (23) (38) (47) (63) (139) Increase (decrease) in Asset Retirement Obligations (210) 87 (34) 41 67 83 112 246 Increase (decrease) in Current Portion of Asset Retirement Obligations (308) 2 (1) 1 1 2 2 5 Cash (used for) provided from Investing Activities  (3,114) (2,795) (2,992) (3,107) (3,251) (3,408) (3,567) (3,687)

Cash Flows from Financing Activities:Increase (decrease) in Currrent Portion of Long‐Term Debt (643) 9 6 11 14 16 19 26 Increase (decrease) in Long‐Term Debt (71) 220 141 267 340 400 474 659 Proceeds from Issuance of Common Stock (ESOP exercises) 399 399 399 399 399 399 399 399 Changes in Non‐Controlling Interest 352 95 (37) 45 73 90 122 268 Increase (decrease) in Other Non‐Current Liabilities (142) 43 (17) 20 33 41 55 121 Treasury Stock (6) (6) (6) (6) (6) (6) (6) (6) Cash (used for) provided from Financing Activities  (111) 759 486 735 852 940 1,062 1,466

Change in Cash Beginning Cash & Cash Equivalents Balance  4,245 5,313 7,596 9,447 11,452 13,502 15,584 17,760 Ending Cash  5,313 7,596 9,447 11,452 13,502 15,584 17,760 20,444

Freeport‐McMoRanCommon Size Income Statement (% of Revenues)Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E(CV)Revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Cost of sales:    Production and delivery 55.50% 72.72% 72.13% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00%    Depreciation, depletion, and amortization 18.02% 22.03% 17.06% 14.81% 14.59% 14.97% 15.08% 15.13% 15.17% 15.14% 14.64%    Selling, general, and administrative expenses 2.76% 3.58% 4.09% 3.30% 3.30% 3.30% 3.30% 3.30% 3.30% 3.30% 3.30%    Mining exploration and research expenses 0.59% 0.80% 0.43% 1.00% 1.00% 1.00% 1.00% 1.05% 1.05% 1.05% 1.05%    Environmental obligations and shutdown costs 0.56% 0.49% 0.13% 0.37% 0.37% 0.37% 0.37% 0.37% 0.37% 0.37% 0.37%    Metals inventory adjustments 0.03% 2.13% 0.24% 0.08% 0.08% 0.08% 0.08% 0.08% 0.08% 0.08% 0.08%Total cost of sales 77.45% 101.74% 94.09% 79.56% 79.34% 79.72% 79.83% 79.93% 79.97% 79.94% 79.44%Operating (loss) income 22.55% ‐1.74% 5.91% 20.44% 20.66% 20.28% 20.17% 20.07% 20.03% 20.06% 20.56%Impairment of oil and gas properties 17.43% 82.79% 29.11% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Interest expense, net ‐2.94% ‐4.06% ‐5.09% ‐4.42% ‐4.37% ‐4.45% ‐4.48% ‐4.49% ‐4.49% ‐4.48% ‐4.37%Net gain (loss) on early extinguishment of debt 0.34% 0.00% 0.18% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Gain on investment 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Other income (expense), net 0.17% 0.04% 0.33% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Goodwill impairment 8.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Net gain on sales of assets ‐3.34% ‐0.25% ‐4.38% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total costs and expenses 109.68% 188.88% 133.18% 83.98% 83.71% 84.17% 84.31% 84.42% 84.47% 84.43% 83.81%(Loss) income before income taxes and equity in affiliated companies' net (losses) earnings ‐3.73% ‐88.98% ‐23.41% 16.02% 16.29% 15.83% 15.69% 15.58% 15.53% 15.57% 16.19%Benefit from (provision for) income taxes ‐1.05% 12.29% ‐2.50% ‐5.61% ‐5.70% ‐5.54% ‐5.49% ‐5.45% ‐5.44% ‐5.45% ‐5.67%Equity in affiliated companies' net (losses) earnings 0.01% ‐0.02% 0.07% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02%Net (loss) income from discontinued operations 1.29% 0.57% ‐1.30% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Net (loss) income ‐3.48% ‐76.14% ‐27.14% 10.43% 10.61% 10.30% 10.22% 10.14% 10.11% 10.14% 10.54%Net income attributable to noncontrolling interests ‐2.44% ‐0.67% ‐1.96% ‐1.96% ‐1.96% ‐1.96% ‐1.96% ‐1.96% ‐1.96% ‐1.96% ‐1.96%Net (loss) income attributable to common stockholders ‐5.91% ‐76.81% ‐29.10% 8.48% 8.65% 8.35% 8.26% 8.19% 8.16% 8.18% 8.59%Net (loss) income per share attributable to common stockholders ‐0.01% ‐0.07% ‐0.02% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%Weighted‐average common shares outstanding: 4.85% 6.81% 8.89% 8.08% 7.93% 8.08% 8.05% 7.96% 7.84% 7.66% 7.23%Dividends declared per share of common stock 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Freeport‐McMoRanCommon Size Balance Sheet (% of Revenues)Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E(CV)AssetsCurrent assets:    Cash and cash equivalents 2.16% 1.11% 28.62% 32.28% 44.95% 56.47% 67.62% 78.16% 88.10% 97.30% 104.89%    Trade accounts receivable 4.45% 4.06% 7.59% 6.16% 6.16% 6.16% 6.16% 6.16% 6.16% 6.16% 6.16%    Income and other tax receivables 6.17% 8.39% 5.93% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75%    Other accounts receivable 1.34% 0.96% 0.60% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%    Inventories 25.01% 25.67% 24.56% 25.93% 25.93% 25.93% 25.93% 25.93% 25.93% 25.93% 25.93%    Other current assets 3.06% 6.81% 3.06% 2.29% 2.29% 2.29% 2.29% 2.29% 2.29% 2.29% 2.29%        Total current assets 42.19% 47.00% 70.36% 73.66% 86.33% 97.85% 109.00% 119.54% 129.48% 138.68% 146.27%Property, plant, equipment and mining devlopment costs, net 122.31% 151.07% 156.57% 142.65% 141.14% 145.40% 147.00% 147.98% 148.81% 148.90% 144.30%Oil and gas properties, net 89.91% 44.67% 0.50% 0.28% 0.28% 0.28% 0.28% 0.28% 0.28% 0.28% 0.28%Long‐term mill and leach stockpiles 10.16% 10.47% 11.01% 9.38% 8.63% 8.24% 7.69% 7.12% 6.57% 6.02% 5.33%Goodwill 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Other assets 9.12% 40.14% 13.19% 11.25% 11.25% 11.25% 11.25% 11.25% 11.25% 11.25% 11.25%Total assets 273.69% 293.36% 251.63% 237.22% 247.63% 263.02% 275.22% 286.18% 296.39% 305.14% 307.43%

Liabilities and EquityCurrent liabilities:Accounts payable and accrued liabilities 17.04% 21.13% 16.14% 18.00% 18.00% 18.00% 18.00% 18.00% 18.00% 18.00% 18.00%Current portion of debt 2.23% 4.09% 8.31% 3.58% 3.54% 3.61% 3.63% 3.63% 3.64% 3.63% 3.53%Current portion of environmental and asset retirment obligations 1.38% 1.71% 2.49% 0.37% 0.37% 0.37% 0.37% 0.37% 0.37% 0.37% 0.37%Accrued income taxes 1.91% 0.14% 0.45% 0.85% 0.85% 0.85% 0.85% 0.85% 0.85% 0.85% 0.85%Current portion of deferred income taxes 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Liabilities held for sale 0.00% 0.00% 1.38% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Dividends payable 1.56% 0.05% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

        Total current liabilities 24.13% 27.13% 28.76% 22.80% 22.76% 22.83% 22.85% 22.85% 22.86% 22.85% 22.75%Long‐term debt, less current portion 85.69% 124.58% 99.76% 89.45% 88.43% 90.17% 90.65% 90.84% 90.96% 90.75% 88.37%Deferred income taxes 29.84% 27.01% 25.41% 24.12% 23.94% 24.25% 24.33% 24.37% 24.39% 24.35% 23.93%Environment and asset retirement obligations, less current portion 17.01% 23.55% 23.51% 19.91% 19.91% 19.91% 19.91% 19.91% 19.91% 19.91% 19.91%Other liabilities 8.68% 10.43% 11.77% 9.74% 9.74% 9.74% 9.74% 9.74% 9.74% 9.74% 9.74%        Total liabilities 165.36% 212.69% 189.21% 166.02% 164.78% 166.90% 167.48% 167.71% 167.86% 167.61% 164.71%Redeemable noncontrolling interest 3.50% 4.81% 0.00% 3.78% 3.78% 3.78% 3.78% 3.78% 3.78% 3.78% 3.78%

Equity:    Stockholders' equity:        Common stock, and additional paid in capital 104.48% 153.81% 181.03% 165.52% 163.59% 167.64% 167.95% 166.96% 165.29% 162.38% 154.11%

        (Accumulated deficit) retained earnings 0.60% ‐78.02% ‐111.53% ‐90.05% ‐77.11% ‐67.59% ‐56.55% ‐45.29% ‐34.11% ‐22.92% ‐10.93%        Accumulated other comprehensive loss ‐2.54% ‐3.17% ‐3.70% ‐3.33% ‐3.24% ‐3.28% ‐3.24% ‐3.17% ‐3.10% ‐3.00% ‐2.81%        Common stock held in treasury ‐17.24% ‐23.32% ‐25.00% ‐22.56% ‐22.01% ‐22.27% ‐22.04% ‐21.64% ‐21.16% ‐20.55% ‐19.27%            Total Stockholders' equity 85.30% 49.30% 40.80% 49.58% 61.22% 74.50% 86.13% 96.86% 106.91% 115.91% 121.10%    Noncontrolling interests 19.53% 26.55% 21.62% 21.62% 21.62% 21.62% 21.62% 21.62% 21.62% 21.62% 21.62%            Total equity 104.83% 75.86% 62.42% 71.20% 82.84% 96.12% 107.75% 118.48% 128.53% 137.53% 142.72%Total liabilities and equity 273.69% 293.36% 251.63% 237.22% 247.63% 263.02% 275.22% 286.18% 296.39% 305.14% 307.43%

Freeport‐McMoRanValue Driver Estimation(In millions)Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E(CV)

NOPLAT:Net Sales             21,438            15,877            14,830            16,460            16,899            16,729            16,935            17,274            17,690            18,253              19,490Cost of Goods Sold            12,023            11,961            10,753              9,950            10,215            10,112            10,237            10,442            10,694            11,034              11,782

Selling, General, and Administrative Expenses                  592                  569                  607                  543                  558                  552                  559                  570                  584                  602                    643

Provision for Depreciation, Depletion & Amortization              3,863              3,497              2,530              2,438              2,466              2,504              2,554              2,614              2,684              2,764                2,854

Research & Development Expenses                  126                  127                     64                  165                  169                  167                  169                  181                  186                  192                    205

Interest on Leases 17 17 15 15 15 15 15 15 15 15 15

EBITA 4,851 (260) 891 3,380 3,507 3,408 3,431 3,482 3,558 3,676 4,022

Less: Adjusted Taxes:Marginal Tax Rate 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%Income Tax Provision 79 (683) 130 323 337 324 326 330 337 348 387 Tax shield on Impairment of Oil Propertie 1,308 4,600 1,511 - - - - - - - - Tax shield on Interest Expense 221 226 264 255 258 261 265 271 278 286 298

Tax on Gain from Debt 26 - 9 - - - - - - - -

Tax on Other Income 13 2 17 - - - - - - - -

Tax shield on Loss from Asset Sale 251 14 227 - - - - - - - -

Tax shield on Operating Lease Interest  6 6 5 5 5 5 5 5 5 5 5

Total Adjusted Taxes 1,826 4,161 2,111 583 601 591 596 606 620 640 690

Plus: Change in Deferred TaxesDeferred Tax Liabilities              6,398              4,288              3,768              3,971              4,046              4,057              4,121              4,209              4,315              4,445                4,664

Deferred Tax Assets - - - - - - - - - - -

Change in Deferred Taxes (1,012) (2,110) (520) 203 75 11 64 88 105 130 219

NOPLAT 2,013 (6,531) (1,740) 2,999 2,981 2,828 2,899 2,964 3,043 3,167 3,552

20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%Invested Capital:Normal Cash (20% of sales) 4,288 3,175 2,966 3,292 3,380 3,346 3,387 3,455 3,538 3,651 3,898

Trade Accounts Receivables 953 645 1,126 1,014 1,041 1,030 1,043 1,064 1,090 1,124 1,201

Income Tax Receivables 1,322 1,332 879 946 972 962 974 993 1,017 1,050 1,121

Other Receivables 288 152 89 206 211 209 212 216 221 228 244

Inventories 5,361 4,075 3,642 4,268 4,382 4,338 4,391 4,479 4,587 4,733 5,054

Other Current Assets 657 1,081 454 377 387 383 388 396 405 418 446

Operating Current Assets 12,869 10,460 9,156 10,103 10372 10268 10395 10603 10858 11203 11963

Accounts Payable 3,653 3,355 2,393 2,963 3,042 3,011 3,048 3,109 3,184 3,285 3,508

Accrued Income Taxes 410 23 66 140 144 142 144 147 150 155 166

Operating Current Liabilities  4,063 3,378 2,459 3,103 3,185 3,153 3,192 3,256 3,335 3,441 3,674

Operating Working Capital  8,806 7,082 6,697 7,001 7,187 7,115 7,203 7,347 7,524 7,763 8,289

Properties, Plant & Equipment, net 26,220 23,986 23,219 23,481 23,850 24,323 24,895 25,563 26,324 27,179 28,124

Present Value of Operating Leases 255 246 228 228 228 228 228 228 228 228 228

Other Non‐Current Assets 4,135 8,036 3,589 3,395 3,359 3,260 3,208 3,174 3,153 3,152 3,231

Total Invested Capital  39,415 39,350 33,733 34,104 34,624 34,925 35,532 36,311 37,229 38,321 39,872

Value Drivers:

NOPLAT (6,531) (1,740) 2,999 2,981 2,828 2,899 2,964 3,043 3,167 3,552

/Beg. IC 39,415 39,350 33,733 34,104 34,624 34,925 35,532 36,311 37,229 38,321

ROIC -16.57% -4.42% 8.89% 8.74% 8.17% 8.30% 8.34% 8.38% 8.51% 9.27%

Beg. IC 39,415 39,350 33,733 34,104 34,624 34,925 35,532 36,311 37,229 38,321

*(ROIC-WACC) -25.79% -13.64% -0.33% -0.48% -1.05% -0.92% -0.88% -0.84% -0.72% 0.05%

Economic Profit (10,166) (5,369) (111) (164) (365) (322) (313) (305) (267) 18

NOPLAT (6,531) (1,740) 2,999 2,981 2,828 2,899 2,964 3,043 3,167 3,552

(Change in IC) (65) (5,618) 372 520 301 607 778 918 1,093 1,551

FCF (6,466) 3,878 2,628 2,461 2,527 2,292 2,185 2,125 2,074 2,001

Freeport‐McMoRanWeighted Average Cost of Capital (WACC) Estimation(In millions)Long‐Term Debt                               14,795.00 Current Portion of Long‐Term Debt                                 1,232.00 PV of Operating Leases                                     227.56 Book Value of Debt (Approx. MV)                                       16.25  46.12%Weight of Debt 46.12%

Pre‐Tax Cost of Debt (30Y) 6.78% 35.25                                    Tax Shield 35.00%After‐Tax cost of Debt 4.41%

Total Common Shares Outstanding                                  1,318.00 Common Share Price                                        14.41 Value of Equity                                        18.99  0.5388                                  Weight of Equity 53.88%

30Y UST Yield 2.88%Beta 2.25Equity Risk Premium 4.65%Implied Cost of Equity 13.34%

Weighted Cost of Capital 9.22% 9.22%

Intrinsic Value of Stock 14.72$                                    

Freeport‐McMoRanDiscounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models 2024NOPLAT 3551.78Scale: (in Millions) G/ROICcv ######## #########Key Inputs: Wacc-g 6.22%     CV Growth 3.00% 38606.6282     CV ROIC 9.27%     WACC 9.22%     Cost of Equity 13.34%

Fiscal Years Ending Dec. 31 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024(CV)DCF Model Discount Period  1 2 3 4 5 6 7 7FCF               2,628            2,461            2,527            2,292        2,185          2,125            2,074               2,001 Continuing Value            38,607 Cash Flows to Discount                2,628            2,461            2,527            2,292        2,185          2,125            2,074             38,607 PV of Free Cash Flows               2,406            2,063            1,940            1,611        1,406          1,252            1,119             20,820 

PV of Operating Assets 32,616 Excess Cash - Plus: Value of Non‐Operating Assets 32,616

Value of Non-Equity Claims: Ept/WACCLong Term Debt 14,724 NOPLATt 3551.7802ESOP 100 G/ROICcv 0.3236809PV Operating Leases 228 ROICcv-WA 0.05%Less: Value of Non-Equity Claims 15,052 Wacc*(Wac 0.0057381

Value of Equity 17,564 0.53232258Shares Outstanding 1,329 92.77052

Intrinsic Value of Freeport as of 12/31/2016 $ 13.21

EP Model  2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024(CV)Discount Period 1 2 3 4 5 6 7 7Economic Profit (111)                (164)            (365)            (322)            (313)        (305)          (267)            18                   Continuing Value  285                 Cash Flows to Discount  (111)                (164)            (365)            (322)            (313)        (305)          (267)            285                 PV of Cash Flows  (102)                (138)            (280)            (226)            (201)        (180)          (144)            154                 

PV of Economic Profit (1,117)Initial Invested Capital 33,733 PV of Operating Assets 32,616

Value of Non-Equity Claims:Long Term Debt 14,724 ESOP 100 PV Operating Leases 228 Less: Value of Non-Equity Claims 15,052

Value of Equity 17,564 Shares Outstanding 1,329 Intrinsic Value of Freeport as of 12/31/2016 $ 13.21

Partial Year Adjustment:Price as of 12/31/2016 13.21 Cost of Equity 13.34%Dividend Yield 0.00%Year Fraction 0.86Adjusted Price as of 11/10/17 $ 14.72

Freeport‐McMoRanDividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Dec. 31 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E(CV)Discount Period 1 2 3 4 5 6 7 7EPS 1.05$           1.09$       1.03$       1.03$       1.03$       1.04$       1.07$       1.19$             

Key Assumptions   CV growth 1.50%   CV ROE 3.57%   Cost of Equity 13.34%

Future Cash Flows     P/E Multiple (CV Year) 5.82                     EPS (CV Year) 1.19$                  Future Stock Price 4.90                

Dividend Per Share  ‐               ‐           ‐           ‐           ‐           ‐           ‐           ‐                  CF to Discount ‐               ‐           ‐           ‐           ‐           ‐           ‐           4.90                Discounted Cash Flows  ‐               ‐           ‐           ‐           ‐           ‐           ‐           2.04                

Intrinsic Value 2.04$          

Stock Price as of 12/31/16  $         2.04 R*e 13.34%Elapsed Fraction 0.86Adjusted Price as of 11/10/2017  $         2.27 

Freeport‐McMoRan 1,000,000,000              Relative Valuation Models 1,000,000                      

EPS EPSTicker Company MKT Cap (Billions) Sales 2017E(Millions) Sales 2018E(Millions) Price 2017E 2018E P/E 17 P/E 18SCCO Southern Copper Corporation                               38.84                                6,500                                 7,000  $43.91 $1.69  $2.04  25.98         21.52         NEM Newmont Mining corporation                               18.94                                7,280                                 7,300  $35.52 $1.42  $1.34  25.01         26.51         AA Alcoa                                  7.96                              11,580                               11,680  $43.01 $3.15  $3.30  13.65         13.03         

Averages:                               21.91                                8,453                                 8,660  $40.81 $2.09  Avg: 21.55         20.36         

FCX 20.86                             16,460                               16,899  $14.41  $            1.05   $          1.09  13.7           13.2            

Implied Relative Value:   P/E (EPS17)  $          22.62    P/E (EPS18) 22.20$          

Freeport‐McMoRanKey Management Ratios

Fiscal Years Ending Dec. 31 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E(CV)

2026E

Liquidity RatiosCurrent Ratio  Current Assets/Current Liab.  2.09 1.75 1.73 2.45 3.23 3.79 4.29 4.77 5.23 5.66 6.07 6.43Quick Ratio  (Cash + ST Invest+A/R) /Total Liab.  0.78 0.27 0.19 1.26 1.69 2.25 2.74 3.23 3.69 4.12 4.53 4.88Cash Ratio  Cash/Current Liab  0.42 0.09 0.04 1.00 1.42 1.98 2.47 2.96 3.42 3.85 4.26 4.61

Activity or Asset‐Management RatiosInvestory Turnover Ratio COGS/Average Inventory 3.90 6.71 4.48 3.47 4.01 4.08 4.03 4.02 4.01 3.99 3.93 8.12Total Asset Turnover Ratio Net Sales/Average Total Assets 0.09 0.10 0.09 0.10 0.10 0.10 0.09 0.09 0.08 0.08 0.08 0.16

Financial Leverage RatiosDebt Ratio Total Liab/Total Assets 0.59 0.60 0.73 0.75 0.70 0.67 0.63 0.61 0.59 0.57 0.55 0.54Debt to Equity Ratio Total Liab/Stockholder's EQ 1.49 1.58 2.80 3.03 2.33 1.99 1.74 1.55 1.42 1.31 1.22 1.15Interest Coverage Ratio Net Income/Interest Expense ‐6.64 1.18 18.74 5.33 ‐2.36 ‐2.43 ‐2.31 ‐2.28 ‐2.26 ‐2.25 ‐2.26 ‐2.41

Profitability RatiosROA Net Income/Average Total Assets 4.19% ‐2.16% ‐26.18% ‐11.56% 3.57% 3.49% 3.17% 3.00% 2.86% 2.75% 2.68% 2.79%ROE  Net Income/Stockholder's Equity  10.53% ‐5.64% ‐101.25% ‐46.61% 11.90% 10.44% 8.69% 7.67% 6.91% 6.35% 5.95% 6.02%Profit Margin  Net Income/Sales  16.45% ‐3.48% ‐76.14% ‐27.14% 10.43% 10.61% 10.30% 10.22% 10.14% 10.11% 10.14% 10.54%

Payout Policy RatiosPayout Policy Ratio Dividends Paid/EPS 84.91% ‐99.21% ‐2.30% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Sensitivity Analysis

Present Value of Operating Lease Obligations (2016) Present Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014)

Operating Operating OperatingFiscal Years Ending Dec. 31 Leases Fiscal Years Ending  Leases Fiscal Years Ending  Leases2016 54 2016 54 2015 442017 44 2017 44 2016 432018 45 2018 45 2017 432019 24 2019 24 2018 292020 24 2020 24 2019 30Thereafter 109 Thereafter 146 Thereafter 165Total Minimum Payments 300 Total Minimum Payments 337 Total Minimum Payments 354Less: Interest 72 Less: Interest 91 Less: Interest 99PV of Minimum Payments 228 PV of Minimum Payments 246 PV of Minimum Payments 255

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre‐Tax Cost of Debt 6.78% Pre‐Tax Cost of Debt 6.78% Pre‐Tax Cost of Debt 6.78%Number Years Implied by Year 6 Payment 4.5 Number Years Implied by Year 6 Payment 6.1 Number Years Implied by Year 6 Payment 5.5

Lease PV Lease Lease PV Lease Lease PV LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment1 54 50.6 1 54 50.6 1 44 41.22 44 38.6 2 44 38.6 2 43 37.73 45 37.0 3 45 37.0 3 43 35.34 24 18.5 4 24 18.5 4 29 22.35 24 17.3 5 24 17.3 5 30 21.66 & beyond 24 65.7 6 & beyond 24 83.9 6 & beyond 30 96.5PV of Minimum Payments 227.6 PV of Minimum Payments 245.8 PV of Minimum Payments 254.7

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares):  44Average Time to Maturity (years): 3.80Expected Annual Number of Options Exercised: 12

Current Average Strike Price: 34.20$         Cost of Equity: 13.34%Current Stock Price: $14.41

2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E(CV)Increase in Shares Outstanding: 12 12 12 12 12 12 12 12Average Strike Price: 34.20$          34.20$          34.20$          34.20$          34.20$          34.20$          34.20$          34.20$         Increase in Common Stock Account: 399                399                399                399                399                399                399                399               

Change in Treasury Stock 6 6 6 6 6 6 6 6Expected Price of Repurchased Shares: 14.41$          16.33$          18.51$          20.98$          23.78$          26.95$          30.55$          34.63$         Number of Shares Repurchased: 0                     0                     0                     0                     0                     0                     0                     0                    

Shares Outstanding (beginning of the year) 1,318 1,329 1,341 1,352 1,363 1,375 1,386 1,398Plus: Shares Issued Through ESOP 12 12 12 12 12 12 12 12Less: Shares Repurchased in Treasury 0                     0                     0                     0                     0                     0                     0                     0                    Shares Outstanding (end of the year) 1,329 1,341 1,352 1,363 1,375 1,386 1,398 1,409

‐13.8272533 5.65131057 ‐1.77760549 1.88698229 2.59182551 2.78020321 3.18112214 3.6583557

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol FCXCurrent Stock Price $14.41Risk Free Rate 2.88%Current Dividend Yield 0.00%Annualized St. Dev. of Stock Returns 48.70%

Average Average B‐S ValueRange of Number Exercise Remaining Option of OptionsOutstanding Options of Shares Price Life (yrs) Price GrantedRange 1 44 34.20 3.80 2.26$           100$                  Total 44 34.20$         3.80 2.26$           100$