TEXT - Fitch rates Freeport-McMoran Copper & Gold proposed notes

Fri Mar 1, 2013 10:32am EST

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March 1 - Fitch Ratings rates Freeport-McMoRan Copper & Gold Inc.'s  
 (NYSE: FCX) proposed new senior notes at 'BBB'. FCX stated that it 
intends to use the net proceeds of the notes together with the net proceeds of 
its term loan to fund the Plains Exploration & Production Company (NYSE: PXP) 
and McMoRan Exploration Co. (NYSE: MMR) acquisitions, including for the payment 
of cash consideration for the acquisitions and the repayment of certain 
indebtedness of PXP. FCX states that if the PXP acquisition does not close, FCX 
will be required to redeem all of the outstanding $1 billion due in 2020, the $2
billion notes due 2023 and the $2 billion notes due 2043 at 101% plus accrued 
and unpaid interest. 

A full list of ratings is provided at the end of this release.

The Rating Outlook is Stable.

KEY RATING DRIVERS:

The ratings reflect FCX's leading position in the mining industry, strong 
liquidity, and sound operational and financial management. Operations benefit 
from low average costs, large scale and long lived copper reserves. Long-term 
copper fundamentals benefit from limited new supply, modest inventories, strong 
demand from China and solid demand from developed nations. FCX's management has 
a long experience with oil and gas and the transaction does diversify the 
company's Indonesian copper exposure. 

Of the $3.7 billion in cash on hand at Dec. 31, 2012, $2.7 billion would 
available to the holding company after withholding taxes and minority interests.
At Dec. 31, 2012, pro forma total debt was $20 billion with scheduled maturities
over the next five years of $2 million in 2013, $600 million in 2014, $1 billion
in 2015, $950 million in 2016 and $700 million in 2017. The new $3 billion 
revolver, maturing in 2018, would have been fully available except for $45 
million representing letters of credits. Financial covenants under the revolver 
are a maximum net debt to EBITDAX ratio of 3.75x with debt net of domestic cash 
capped at $1 billion and a minimum interest coverage ratio of 2.5x.

The Stable Outlook reflects FCX's intent to reduce debt and Fitch's outlook on 
the copper and energy markets. 

Expectations:

Guidance for average 2013/2014 EBITDA and operating cash flow excluding the 
impacts of working capital pro forma for the PXP and MMR acquisition is about 
$12.5 billion and $9.5 billion, respectively assuming average realizations of 
copper at $3.50/lb., gold at $1,500/oz., molybdenum at $12/lb, Brent oil prices 
of $100/bbl. and natural gas at $4.50/mcf. This compares to 2012 operating 
EBITDA of $7.2 billion and operating cash flow before working capital of $5.2 
billion on average realizations of copper at $3.60/lb., gold at $1,665/oz., and 
molybdenum at $14.26/lb.

Guidance for pro forma annual capital expenditures is $7.2 billion on average in
2013 and 2014. Fitch estimates annual interest costs on pro forma debt levels to
be about $1 billion per year and ordinary common dividends to be about $1.3 
billion per year, at the current dividend rate. 

Fitch expects free cash flow to be neutral to positive. Fitch expects FFO 
adjusted leverage to remain under 2.5x on average over the next 24 months.

Fitch notes that earnings and cash flows are highly leveraged to metals prices 
and a $0.10/lb. decline in copper prices could cut EBITDA by $405 million and 
operating cash flows by $275 million over a 12-month period. In particular, 
FCX's average copper realizations were $3.60/lb. for the full year 2012. Fitch's
Base Case copper price assumptions are $3.40/lb. in 2013 and $2.70/lb. longer 
term.

Pro forma EBITDA and operating cash flows will be sensitive to oil sales prices 
even after accounting for hedges. Using a base Brent price of $106/bbl. in 2013 
and $101/bbl. in 2014, a $10/bbl. decrease in price would result in a decrease 
in EBITDA of $275 million and a decrease in operating cash flows of $280 
million. Fitch's Base Case Brent price is $100/bbl. in 2013, $92/bbl. in 2014, 
and $85/bbl. in 2015.

RATING SENSITIVITIES:

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

--Expectations that FFO adjusted leverage be above 2.5x and free cash flow 
negative in a normalized price environment by 2015.

Positive: Not anticipated over the next 12 months given the PXP and MMR 
transaction:

--Repayment of debt ahead of expectations.

Fitch rates the proposed new notes as follows:

--$1.5 billion 2.375% new senior notes due March 15, 2018 'BBB';
--$1 billion 3.1% new senior notes due March 15, 2020 'BBB';
--$2 billion 3.875% new senior notes due March 15, 2023 'BBB';
--$2 billion 5.45% new senior notes due March 15, 2043 'BBB'.

Fitch rates FCX and FMC as follows:

FCX
--Issuer Default Rating 'BBB';
--$3 billion unsecured bank revolver 'BBB';
--$4 billion unsecured term loan 'BBB';
--$500 million 1.40% senior notes due Feb. 13, 2015 'BBB';
--$500 million 2.15% senior notes due March 1, 2017 'BBB';
--$2 billion 3.55% senior notes due March 1, 2022 'BBB'.

FMC
--7.125% senior unsecured debentures due 2027 'BBB';
--9.50% senior unsecured notes due 2031 'BBB';
--6.125% senior unsecured notes due 2034 'BBB'.
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