Grade: F — Major Red Flags
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-02-13, FY ended December 31, 2025) + Yahoo Finance
Auditor: Ernst & Young LLP — Unqualified opinion
One-line verdict: Freeport-McMoRan's one genuine red flag is the M-Score of -2.04, which sits in the grey zone primarily because the DSRI (Days Sales in Receivables Index) spiked to 1.66 — meaning receivables grew dramatically relative to revenue. Cash covers only 36% of $10.5B debt. However, the underlying mining operations generated $5.6B in operating cash flow at a 2.55x CFFO/NI ratio, and debt/EBITDA is a healthy 1.2x. The September 2025 mud rush incident at the Grasberg minerals district in Indonesia disrupted production and creates material uncertainty for 2026. FCX is a high-quality mining operation with a single-event risk that has distorted the FY2025 numbers.
| Metric | Result |
|---|---|
| Red Flags | **1** (cash-to-debt) |
| Watch Items | **2** (AR growth, M-Score grey zone) |
| Checks Completed | **17/18** (1 N/A: impairment data) |
| Beneish M-Score | **-2.04** (grey zone; threshold is -2.22) |
| Z-Score | **2.46** (grey zone) |
| Auditor | Ernst & Young LLP |
The World's Largest Publicly Traded Copper Producer
Per the filing, Freeport-McMoRan is "one of the world's leading producers of copper concentrate, cathode and continuous cast copper rod." During 2025, "43% of our mined copper was sold in concentrate, 33% as cathode and 24% as rod."
Key operations include:
| Operation | Ownership | Location | Type |
|---|---|---|---|
| Morenci | 72% | Arizona | Open-pit copper/moly |
| Cerro Verde | ~54% | Peru | Open-pit copper/moly |
| Grasberg (PTFI) | ~49% equity | Indonesia | Underground copper/gold |
| U.S. Other | Various | Arizona, New Mexico | Multiple mines |
Per the filing, LME copper "averaged $4.51 per pound" in 2025 while COMEX "averaged $4.82 per pound." The filing notes: "Following U.S. trade policy announcements in 2025, including proposed tariff announcements, the two benchmark prices traded at wider differentials than historical averages."
Profitability: Solid Despite Indonesia Disruption
| Metric | FY2023 | FY2024 | FY2025 | Trend |
|---|---|---|---|---|
| Revenue | $22,855M | $25,455M | $25,915M | +13.4% over 3 years |
| Net Income | $1,848M | $1,889M | $2,204M | +19.2% over 3 years |
| Gross Margin | 31.3% | 30.1% | 28.2% | Declining |
| EPS (diluted) | $1.28 | $1.30 | $1.52 | +17% |
| Net Margin | 8.1% | 7.4% | 8.5% | Stable |
Per the filing: "Net income attributable to common stock of $2.2 billion in 2025, compared to $1.9 billion in 2024, primarily reflects higher operating income from our U.S. and South America copper mining operations resulting from higher average realized copper prices, partly offset by lower financial results from Indonesia operations as a result of the September 2025 mud rush incident."
Gross margin declined from 31.3% to 28.2% despite higher copper prices, reflecting increasing mine costs and the Indonesia disruption.
Cash Flow: Still Powerful, But Declining
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Operating Cash Flow | $5,279M | $7,160M | $5,610M |
| Net Income | $1,848M | $1,889M | $2,204M |
| CFFO / NI | 2.86 | 3.79 | 2.55 |
| CapEx | $4,824M | $4,808M | $4,494M |
| Free Cash Flow | $455M | $2,352M | $1,116M |
CFFO/NI of 2.55 — consistently above 2.5x for three years — is exceptional and characteristic of mining companies where D&A (depreciation, depletion, and amortization of $2,244M) is a major non-cash charge.
CapEx remains heavy at $4.5B, driven by Indonesia underground mine development. Per the filing: "At December 31, 2025, PTFI had incurred approximately $1.1 billion for Kucing Liar" — the next major underground ore body at Grasberg.
The filing outlines Freeport's capital allocation: "up to 50% of available cash flows generated after planned capital spending and distributions to noncontrolling interest would be allocated to shareholder returns and the balance to debt reduction and investments in value enhancing growth projects."
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | ✅ | DSO 14 days, +5 days YoY |
| A2 | AR vs Revenue Growth | ⚠️ | AR growth 69.0% exceeds revenue growth 1.8% |
| A3 | Revenue vs CFFO | ✅ | Revenue +1.8%, CFFO -21.6% |
A2 — Massive AR spike. Accounts receivable grew 69% while revenue grew only 1.8%. This is the primary driver of the M-Score entering the grey zone (DSRI of 1.66). The likely explanation is provisional pricing on copper concentrate sales — FCX's concentrate is priced at delivery with final pricing months later, creating large receivable balances when copper prices are rising at year-end. LME copper closed at $5.67/lb on December 31, 2025, well above the $4.51 average — meaning substantial Q4 revenue was booked at provisionally high prices with cash collection pending.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | ✅ | Inventory +10.1% vs COGS +4.6% |
| B2 | CapEx vs Revenue | ✅ | CapEx -6.5% vs revenue +1.8% |
| B3 | SG&A Ratio | ✅ | SG&A/Gross Profit = 7.5%, excellent |
| B4 | Gross Margin | ✅ | 28.2%, -1.9pp. Stable |
SG&A at 7.5% of gross profit is remarkably lean — this is a mining company where almost all costs are in production.
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | ✅ | CFFO/NI = 2.55. Exceptional |
| C2 | Free Cash Flow | ✅ | FCF $1.1B, FCF/NI = 0.51 |
| C3 | Accruals Ratio | ✅ | -5.9%. Negative — clean |
| C4 | Cash vs Debt | ❌ | Cash $3.8B covers only 36% of debt $10.5B |
C4 — Moderate debt coverage. Total debt of $9,379M (including $466M current portion) against cash of $3,824M. The filing notes "total debt has an average remaining duration of approximately eight years" with "no senior note maturities scheduled in 2026 and $1.3 billion scheduled in 2027." Additionally, FCX has "$3.0 billion revolving credit facility" with no borrowings outstanding. The debt is long-dated and manageable with $5.6B annual operating cash flow.
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | ✅ | $0.4B = 2% of equity. Minimal |
| D2 | Leverage | ✅ | Debt/EBITDA = 1.2x |
| D3 | Soft Asset Growth | ✅ | Other assets +4.1% vs revenue +1.8% |
| D4 | Asset Impairment | — | No write-off data |
D1 — Clean. Essentially zero goodwill. This is a tangible-asset business with $58.2B total assets dominated by property, plant, equipment, and mine development costs.
Acquisition Risk
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | ✅ | FCF after acquisitions positive |
| E2 | Goodwill Surge | ✅ | No material goodwill |
Manipulation Score
| # | Check | Result | Detail |
|---|---|---|---|
| F1 | Beneish M-Score | ⚠️ | -2.04 (grey zone) |
The M-Score grey zone is driven by DSRI at 1.66. This is almost certainly a provisional pricing artifact, not manipulation. All other components are benign: GMI 1.069, AQI 1.13, SGI 1.018, DEPI 1.0, SGAI 1.044, TATA -0.059, LVGI 0.978.
Key Risks from the 10-K
1. Grasberg Mud Rush — Material Production Disruption
The filing discloses: "In late September 2025, a mud rush occurred at PTFI's Grasberg Block Cave (GBC) underground mine." In late October 2025, PTFI restarted the "unaffected Deep Mill Level Zone (DMLZ) and Big Gossan underground mines." However, GBC — the primary ore body — required "investigations and remedial plans" that were completed during Q4 2025. The filing states FCX "does not believe there has been a broader impairment of PTFI's long-lived mining assets based on PTFI's reserve life, favorable market outlook for metal prices and the expected resumption of operations."
2. Indonesia Sovereign Risk
PTFI's operations are governed by an IUPK mining license from the Indonesian government. The relationship between Freeport and the Indonesian government has been contentious historically, with disputes over royalties, ownership stakes, and export licenses. Any adverse change in the regulatory framework could significantly impact the Grasberg operations that generate a substantial portion of FCX's revenue.
3. Copper Price Tariff Divergence
Per the filing, proposed U.S. tariffs caused COMEX and LME copper prices to trade "at wider differentials than historical averages." This creates hedging complexity and pricing uncertainty for FCX, which sells copper on both exchanges.
4. Environmental and Asset Retirement Obligations
The filing discloses environmental and asset retirement obligations with total costs of $0.5 billion in 2025. Mine closure and remediation obligations are multi-decade liabilities. The company's U.S. mines face ongoing environmental compliance across Arizona, New Mexico, and Colorado.
Summary
Grade: F per the engine, but this is a borderline case driven by a single cash-to-debt failure and a grey-zone M-Score that is likely a provisional pricing artifact.
Freeport-McMoRan's operating quality is strong: CFFO/NI of 2.55, FCF of $1.1B, minimal goodwill, Debt/EBITDA of 1.2x, and SG&A at just 7.5% of gross profit. The F grade is driven by the C4 cash-to-debt failure and the M-Score grey zone (which itself is driven by the DSRI spike from provisional copper pricing at year-end). The real risk is not in the financials but in the physical operations — the Grasberg mud rush disrupted Indonesia production and creates uncertainty for 2026. If the GBC mine resumes full production and copper prices hold above $4.50/lb, FCX's next annual filing should produce a significantly cleaner screening result.
**Disclaimer**: This report is based on Freeport-McMoRan's FY2025 10-K filed with SEC EDGAR on February 13, 2026. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: Ernst & Young LLP (Unqualified opinion)
Fiscal year ended: December 31, 2025