Fitch Rates Freeport-McMoRan Copper & Gold's Proposed $6.5B Sr. Notes 'BBB'

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'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

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