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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
[x] ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2004
OR
[
] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from .......... to ..........
Commission
file number 1-9916
Freeport-McMoRan
Copper & Gold Inc.
(Exact
name of registrant as specified in its charter)
Delaware |
|
|
|
74-2480931 |
(State
or other jurisdiction of incorporation or
organization) |
|
|
|
(I.R.S.
Employer Identification No.) |
1615
Poydras Street |
|
|
|
|
New Orleans,
Louisiana 70112 |
|
|
|
70112 |
(Address
of principal executive offices) |
|
|
|
(Zip
Code) |
Registrant’s
telephone number, including area code: (504) 582-4000
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Name
of each exchange on which registered |
Class
B Common Stock, par value $0.10 per share |
|
New
York Stock Exchange |
Depositary
Shares, Series II, representing 0.05 shares of Gold- |
|
|
Denominated
Preferred Stock, Series II, par value $0.10 per share |
|
New
York Stock Exchange |
Depositary
Shares representing 0.00625 shares of Silver- |
|
|
Denominated
Preferred Stock, par value $0.10 per share |
|
New
York Stock Exchange |
10⅛%
Senior Notes due 2010 of the registrant |
|
New
York Stock Exchange |
7%
Convertible Senior Notes due 2011 of the registrant |
|
New
York Stock Exchange |
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
__
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
X
Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). Yes X No
__
The
aggregate market value of classes of common stock held by non-affiliates of the
registrant was approximately $5.6 billion on March 1, 2005, and approximately
$4.9 billion on June 30, 2004.
On March
1, 2005, there were issued and outstanding 179,580,551 shares of Class B Common
Stock and on June 30, 2004, there were issued and outstanding 173,770,485
shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of our Proxy Statement for our 2005 Annual Meeting to be held on May 5, 2005 are
incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) of this
report.
TABLE
OF CONTENTS |
|
|
|
Page |
Part
I |
1 |
Items
1. and 2. Business and Properties |
1 |
Item
3. Legal Proceedings |
33 |
Item
4. Submission of Matters to a Vote of Security Holders |
33 |
Executive
Officers of the Registrant |
33 |
|
|
Part
II |
34 |
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters
and
Issuer Purchases of Equity Securities |
34 |
Item
6. Selected Financial Data |
35 |
Items
7. and 7A. Management’s Discussion and Analysis of Financial Condition and
Results
of
Operation and Quantitative and Qualitative Disclosures about Market
Risks |
35 |
Item
8. Financial Statements and Supplementary Data |
35 |
Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure |
35 |
Item
9A. Controls and Procedures |
35 |
Item
9B. Other Information |
36 |
|
|
Part
III |
36 |
Item
10. Directors and Executive Officers of the Registrant |
36 |
Item
11. Executive Compensation |
36 |
Item
12. Security Ownership of Certain Beneficial Owners and Management and
Related
Stockholder Matters |
36 |
Item
13. Certain Relationships and Related Transactions |
36 |
Item
14. Principal Accounting Fees and Services |
36 |
|
|
Part
IV |
36 |
Item
15. Exhibits and Financial Statement Schedules |
36 |
|
|
Signatures |
S-1 |
|
|
Index
to Financial Statements |
F-1 |
|
|
Exhibit
Index |
E-1 |
PART
I
Items
1. and 2. Business and Properties.
All
of our periodic report filings with the Securities and Exchange Commission (SEC)
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, are available, free of charge, through our web site, www.fcx.com,
including our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and any amendments to those reports. These reports
and amendments are available through our web site as soon as reasonably
practicable after we electronically file or furnish such material to the
SEC.
General
We have
one of the world’s largest
copper and gold mining and production operations in terms of reserves and
production. We are also one of the lowest-cost copper producers in the world,
after taking into account credits for related gold and silver production. Our
principal asset is the Grasberg minerals district. We discovered the largest ore
body in the district, Grasberg, in 1988. The Grasberg minerals district contains
the largest single gold reserve and the second-largest copper reserves of any
mine in the world.
Our
principal operating subsidiary is PT Freeport Indonesia, a limited liability
company organized under the laws of the Republic of Indonesia and incorporated
as a corporation in Delaware. We own approximately 90.64 percent of PT Freeport
Indonesia, and the Government of Indonesia owns the remaining approximate 9.36
percent. PT Freeport Indonesia mines, processes and explores for ore containing
copper, gold and silver. It operates in the remote highlands of the Sudirman
Mountain Range in the province of Papua, Indonesia, which is on the western half
of the island of New Guinea. PT Freeport Indonesia markets its concentrates
containing copper, gold and silver worldwide.
PT
Freeport Indonesia conducts its operations pursuant to an agreement, called a
Contract of Work, with the Government of Indonesia (see “Contracts of Work”).
The Contract of Work allows us to conduct extensive mining, production and
exploration activities in a 24,700-acre area that we call Block A, which
contains the Grasberg minerals district, and governs our rights and obligations
relating to taxes, exchange controls, royalties, repatriation and other matters.
The Contract of Work also allows us to explore for minerals in an approximately
500,000-acre area that we call Block B. Exploration activities in Block B have
been suspended in recent years, but we are currently assessing the possible
timing for the resumption of those activities (see “Contracts of Work”). The
term of our Contract of Work expires in 2021, but we can extend it for two
10-year periods subject to Indonesian government approval, which cannot be
withheld or delayed unreasonably.
Another
of our operating subsidiaries, PT Irja Eastern Minerals, which we refer to as
Eastern Minerals, holds an additional Contract of Work in Papua covering
approximately 1.2 million acres and conducts exploration activities, which have
been suspended in recent years, under this Contract of Work (see “Contracts of
Work”). We are assessing the possible timing for the resumption of exploration
activities in Eastern Minerals’ exploration area. We have a 100 percent
ownership interest in Eastern Minerals.
In 1996,
we established joint ventures with Rio Tinto plc, which is an international
mining company with headquarters in London, England. Rio Tinto conducts mining
operations in North America, South America, Asia, Australia, Europe and southern
Africa. One of our joint ventures with Rio Tinto covers PT Freeport
Indonesia’s mining
operations in Block A. This joint venture gives Rio Tinto, through 2021, a 40
percent interest in certain assets and in production above specified levels from
operations in Block A and, after 2021, a 40 percent interest in all production
in Block A. Under our joint venture arrangements, Rio Tinto also has a 40
percent interest in PT Freeport Indonesia’s Contract
of Work and Eastern Minerals’ Contract
of Work. In addition, Rio Tinto has the option to participate in 40 percent of
any of our other future exploration projects in Papua. To date, Rio Tinto has
elected to participate in all exploration projects, including PT Nabire Bakti
Mining.
Under
another joint venture agreement through PT Nabire Bakti Mining, we conduct
exploration activities, which have been suspended in recent years (see
“Contracts of Work”), in an area covering approximately 500,000 acres in five
parcels contiguous to PT Freeport Indonesia’s Block B
and one of Eastern Minerals’ blocks.
We are assessing the possible timing for the resumption of exploration
activities in PT Nabire Bakti Mining’s
exploration area.
At
December 31, 2004, PT Freeport Indonesia’s share of
proven and probable recoverable reserves totaled 40.5 billion pounds of copper
and 46.5 million ounces of gold, all of which are located in Block A. Our
approximate 90.64 percent equity share of these proven and probable recoverable
reserves totaled 36.7 billion pounds of copper and 42.1 million ounces of gold
(see “Ore Reserves”). In this annual report, we refer to (1) aggregate reserves,
which means all reserves for the operations we manage, (2) PT Freeport
Indonesia’s share of
reserves, which means the reserves net of Rio Tinto’s interest
under our joint venture arrangements and which are the reserves reported as
those of our operations in our consolidated financial statements and (3) our
equity share of reserves, which means PT Freeport Indonesia’s share
net of the 9.36 percent interest that the Government of Indonesia
owns.
In July
2003, we acquired the 85.7 percent ownership interest in PT Puncakjaya Power
owned by affiliates of Duke Energy Corporation. Puncakjaya Power is the owner of
assets supplying power to PT Freeport Indonesia’s
operations, including the 3x65 megawatt coal-fired power facilities (see
“Infrastructure”).
We also
smelt and refine copper concentrates in Spain and market the refined copper
products through our wholly owned subsidiary, Atlantic Copper, S.A. In addition,
PT Freeport Indonesia has a 25 percent interest in PT Smelting, an Indonesian
company that operates a copper smelter and refinery in Gresik, Indonesia. These
smelters play an important role in our concentrate marketing strategy, as
approximately one-half of PT Freeport Indonesia’s
concentrate production has been sold to Atlantic Copper and PT Smelting over the
last several years (see “Investment in Smelters”).
The
diagram below shows our corporate structure.
_______________
(a) FM
Services Company, a Delaware corporation, provides us and two other
publicly-traded companies with executive, administrative, financial, accounting,
legal, tax and similar services.
The
following four maps indicate
- |
the
distance from Papua to Bali (approximately 1,500 miles) and to Jakarta
(approximately 2,000 miles); |
- |
the
location of the Papua province in which we
operate; |
- |
the
location of our Contracts of Work areas within the Papua province;
and |
- |
the
infrastructure of our Contract of Work project area.
|
Contracts
of Work
By virtue
of their Contracts of Work, PT Freeport Indonesia and Eastern Minerals conduct
their current exploration operations and PT Freeport Indonesia conducts its
mining operations in Indonesia. Both Contracts of Work govern our rights and
obligations relating to taxes, exchange controls, royalties, repatriation and
other matters. Both Contracts of Work were concluded pursuant to the 1967
Foreign Capital Investment Law, which expresses Indonesia’s foreign
investment policy and provides basic guarantees of remittance rights and
protection against nationalization, a framework for economic incentives and
basic rules regarding other rights and obligations of foreign investors.
Specifically, the Contracts of Work provide that the Government of Indonesia
will not nationalize or expropriate PT Freeport Indonesia’s or
Eastern Minerals’ mining operations. Any disputes regarding the provisions of
the Contracts of Work are subject to international arbitration. We have
experienced no disputes requiring arbitration during the 37 years we have
operated in Indonesia.
PT
Freeport Indonesia’s Contract
of Work covers both Block A, which was first included in a 1967 Contract of Work
that was replaced by a new Contract of Work in 1991, and Block B, to which we
gained rights in 1991. The initial term of our Contract of Work expires in
December 2021, but we can extend it for two 10-year periods subject to
Indonesian government approval, which cannot be withheld or delayed
unreasonably. We originally had the rights to explore 6.5 million acres in Block
B, but pursuant to the Contract of Work we have only retained the rights to
approximately 500,000 acres, which we believe, following significant geological
assessment, contain the most promising exploration opportunities.
Eastern
Minerals signed its Contract of Work in August 1994. The Contract of Work
originally covered approximately 2.5 million acres. Eastern Minerals' Contract
of Work provides for a four-to-seven year exploratory term and a 30-year term
for mining operations. Subject to Indonesian government approval, which cannot
be withheld or delayed unreasonably, we can extend this period for two 10-year
periods. Eastern Minerals’ Contract of Work requires us to relinquish our rights
to 25 percent of the original 2.5-million-acre Contract of Work area at the end
of each of three specified periods. As of December 31, 2004, we had relinquished
approximately 1.3 million acres and must relinquish an additional 0.6 million
acres at the end of the three-year exploration period, which can be extended by
the Government of Indonesia for as much as two additional years.
We
suspended our exploration activities outside of Block A in recent years because
of safety and security issues and regulatory uncertainty relating to a possible
conflict between our mining and exploration rights in certain forest areas and
an Indonesian Forestry law enacted in 1999 prohibiting open-pit mining in forest
preservation areas. In 2001, we requested and received from the Government of
Indonesia formal temporary suspensions of our obligations under the Contracts of
Work in all areas outside of Block A. The current suspensions were granted for
one-year periods ending February 26, 2005, for Block B; March 31, 2005, for PT
Nabire Bakti Mining; and November 15, 2004, for Eastern Minerals. Recent
Indonesian legislation permits open-pit mining in PT Freeport
Indonesia’s Block B
area, subject to certain requirements. We are currently assessing these
requirements and security issues. The timing for our resumption of exploration
activities in our Contract of Work areas outside of Block A depends on the
resolution of these matters.
PT
Freeport Indonesia pays a copper royalty under its Contact of Work that varies
from 1.5 percent of copper net revenue at a copper price of $0.90 or less per
pound to 3.5 percent at a copper price of $1.10 or more per pound. The Contract
of Work royalty rate for gold and silver sales is 1.0 percent.
A large
part of the mineral royalties under Government of Indonesia regulations are
designated to the provinces from which the minerals are extracted. In connection
with our “fourth concentrator mill expansion,” PT Freeport Indonesia agreed to
pay the Government of Indonesia additional royalties (royalties not required by
our Contract of Work) to provide further support to the local governments and
the people of Papua. PT Freeport Indonesia pays the additional royalties on
metal from production above 200,000 metric tons of ore per day. The additional
royalty for copper equals the Contract of Work royalty rate and for gold and
silver equals twice the Contract of Work royalty rates. Therefore, our royalty
rate on copper net revenues from production above 200,000 metric tons of ore per
day is double the Contract of Work royalty rate, and our royalty rates on gold
and silver sales from production above 200,000 metric tons of ore per day are
triple the Contract of Work royalty rates. PT Freeport Indonesia’s share of
the combined royalties, including the additional royalties which became
effective January 1, 1999, totaled $43.5 million in 2004, $26.5 million in 2003
and $24.5 million in 2002.
Republic
of Indonesia
General. The
Republic of Indonesia consists of more than 17,000 islands stretching 3,000
miles along the equator from Malaysia to Australia and is the fourth most
populous nation in the world with over 230 million people. Following many years
of Dutch colonial rule, Indonesia gained independence in 1945 and now has a
presidential republic system of government.
Our
mining complex was Indonesia’s first
copper mining project and was the first major foreign investment in Indonesia
following the economic development program instituted by the Indonesian
government in 1967. We work closely with the central, provincial and local
governments in development efforts in the area surrounding our operations. We
have had positive relations with the Indonesian government since we commenced
business activities in Indonesia in 1967, and we intend to continue to maintain
positive working relationships with the central, provincial and local branches
of the Indonesian government.
Political
Developments. In May
1998, President Suharto, Indonesia’s
political leader for more than 30 years, resigned in the wake of an economic
crisis in Indonesia and other parts of Southeast Asia and in the face of growing
social unrest. Vice President B.J. Habibie succeeded Suharto. In June 1999,
Indonesia held a new parliamentary election on a generally peaceful basis as the
first step in the process of electing a new president. In October 1999, in
accordance with the Indonesian constitution, the country’s highest
political institution (the People’s
Consultative Assembly), composed of the newly elected national parliament along
with additional provincial and other representatives, elected Abdurrahman Wahid
as president and Megawati Sukarnoputri as vice president.
There
were repeated challenges to the political leadership of President Wahid after
his election in October 1999. In July 2001, the People’s
Consultative Assembly voted to remove President Wahid, and elected Vice
President Megawati Sukarnoputri as president. The 2004 presidential election was
conducted peacefully and after a runoff, Susilo Bambang Yudhoyono was elected
the new president in October.
Recent
Developments. On
December 26, 2004, a massive earthquake - one of the five strongest ever
recorded - struck off the coast of North Sumatra in Indonesia, triggering
powerful tsunamis that devastated the coastlines of Aceh province in Indonesia
and areas of Thailand, India, Sri Lanka and other nations as far away as Somalia
in Africa. The human lives lost are currently estimated to total more than
166,000 in Indonesia alone. Aceh province, at the western tip of Sumatra, is
Indonesia’s
westernmost province. Our operations, located 3,000 miles away in
Indonesia’s
easternmost province of Papua, were not impacted by the tsunamis. PT Freeport
Indonesia has provided cash contributions in Indonesia and FCX, in the United
States for immediate assistance and to encourage fundraising efforts. We also
provided airplanes to transport food and medical supplies, aid workers and
government officials to the stricken area, including some of the first aid
shipments to arrive, which were received by President Yudhoyono.
On August
31, 2002, three people were killed and 11 others were wounded in an ambush by a
group of unidentified assailants. The assailants shot at several vehicles
transporting international contract teachers from PT Freeport
Indonesia’s school
in Tembagapura, their family members, and other contractors to PT Freeport
Indonesia on the road near Tembagapura, the mining town where the majority of PT
Freeport Indonesia’s
personnel reside. Indonesian authorities and the United States Federal Bureau of
Investigation investigated the incident, which resulted in the U.S. indictment
of an alleged operational commander in the Free Papua Movement/National Freedom
Force.
On
October 12, 2002, a bombing killed 202 people in the Indonesian province of
Bali, which is 1,500 miles west of our mining and milling operations. Indonesian
authorities arrested 35 people in connection with this bombing and 29 of those
arrested have been tried and convicted. On August 5, 2003, 12 people were killed
and over 100 others were injured by a car bomb detonated outside of the JW
Marriott Hotel in Jakarta, Indonesia. On September 9, 2004, 11 people were
killed and over 200 others injured by a car bomb detonated in front of the
Australian embassy. The same international terrorist organizations are suspected
in each of these incidents. Our mining and milling operations were not
interrupted by these incidents. However, our corporate offices in Jakarta
sustained damages as a result of the bombing in front of the Australian embassy.
After relocating for several months our corporate offices in Jakarta were
reestablished.
The
Government of Indonesia, which provides security for PT Freeport
Indonesia’s
personnel and operations (see “Security Matters”), has expressed a strong
commitment to protect natural resources businesses operating in Indonesia,
including PT Freeport Indonesia, with heightened security following the
incidents discussed above.
Economic
and Social Conditions. The
Indonesian economy grew by an estimated 5 percent in 2004 and 4 percent in 2003.
The Indonesian currency, the rupiah, averaged approximately 8,900 rupiah to one
U.S. dollar during 2004 and closed at 9,270 rupiah to one U.S. dollar on
December 31, 2004, compared with 8,437 rupiah to one U.S. dollar on December 31,
2003.
Despite
gradual improvements on the economic front, Indonesia’s recovery
remains vulnerable to ongoing political and social tensions. Incidents of
violence and separatist pressures continue to be reported. Pro-independence
movements in certain areas continue to be prominent, especially in the province
of Aceh, where the Indonesian government signed a peace agreement with
separatists in December 2002, and to a lesser extent in Papua. Following the
December 2004 tsunamis in Aceh, negotiations between the Government of Indonesia
and separatists in Aceh appear more promising. The area surrounding our mining
development is sparsely populated by local people and former residents of more
populous areas of Indonesia, some of whom have resettled in Papua under the
Government of Indonesia’s
transmigration program. A segment of the local population is opposing Indonesian
rule over Papua, and several separatist groups have sought political
independence for the province. In addition to the August 31, 2002, shooting
incident, there have been sporadic attacks on civilians by separatists and
sporadic but highly publicized conflicts between separatists and the Indonesian
military in Papua.
Our
Contracts of Work and the Government of Indonesia. While
the uncertainties of the regional autonomy process have created concern among
foreign investors, the Indonesian government has repeatedly assured investors
that existing contracts would be honored. Government officials have publicly
stated that the Government of Indonesia will honor existing contracts and that
they have no intention of revoking or unilaterally amending such contracts,
specifically including PT Freeport Indonesia’s Contract
of Work. Our belief that our Contracts of Work will continue to be honored is
further supported by U.S. laws, which prohibit U.S. aid to countries that
nationalize property owned by, or take steps to nullify a contract with, a U.S.
citizen or company at least 50 percent owned by U.S. citizens if the foreign
country does not within a reasonable time take appropriate steps to provide full
value compensation or other relief under international law.
In July
2004, we received a request from the Indonesian Department of Energy and Mineral
Resources that we offer to sell to Indonesian nationals shares in PT Indocopper
Investama at fair market value. PT Indocopper Investama, which we wholly own,
has an approximate 9.36 percent ownership interest in PT Freeport Indonesia. In
response to this request and in view of the potential benefits of having
additional Indonesian ownership in our project, we have agreed to consider a
potential sale of an interest in PT Indocopper Investama at fair market value.
Neither our Contract of Work nor Indonesian law requires us to divest any
portion of our ownership interest in PT Freeport Indonesia or PT Indocopper
Investama. See “Nusamba Loan Guarantee.”
Our
Investment in Indonesia and Papua. We have a
board-approved policy statement on social, employment and human rights, and have
comprehensive and extensive social, cultural and community development programs,
to which we have committed significant financial and managerial resources. See
“Social Development, Employment and Human Rights.” These policies and programs
are designed to address the impact of our operations on the local villages and
people and to provide assistance for the development of the local people. While
we believe these efforts should serve to avoid damage to and disruptions of our
mining operations, our operations could be damaged or disrupted by social,
economic and political forces beyond our control.
PT
Freeport Indonesia contributes to the economies of Papua and the Republic of
Indonesia through the payment of taxes, dividends and royalties; voluntary
economic development programs; infrastructure development; employment; and the
purchase of local and national goods. In fact, PT Freeport Indonesia has
frequently been one of the largest taxpayers in the Republic of Indonesia. In
addition, it pays royalties on all minerals removed from the
ground.
Since it
began development activities more than 35 years ago, PT Freeport Indonesia has
made significant investments in infrastructure both for its use and for use by
the Papuan public. These infrastructure improvements include medical facilities,
roads, an airport and heliports, schools, housing, community buildings and
places of worship.
PT
Freeport Indonesia is also one of the largest private employers in Indonesia and
by far the largest in Papua. As of December 31, 2004, PT Freeport Indonesia
directly employed 7,858 people; and 6,247 contract workers provided services to
PT Freeport Indonesia. In addition, 4,587 persons worked for privatized
companies providing services within PT Freeport Indonesia’s
operations area.
Besides
the estimated $2.6 billion paid in direct benefits to the Indonesian government
under the Contract of Work from 1992 through 2004, PT Freeport
Indonesia’s
operations have provided another $9.3 billion during this period in indirect
benefits to Papua and the Republic of Indonesia in the form of wages and
benefits paid to workers, purchases of goods and services, charitable
contributions and reinvestments in operations. For 2004, direct benefits totaled
approximately $260 million and indirect benefits totaled approximately $623
million.
Ore
Reserves
During
2004, additions to the aggregate proven and probable reserves of the Grasberg
and other Block A ore bodies in the Grasberg minerals district totaled
approximately 141 million metric tons of ore representing increases of 2.9
billion recoverable pounds of copper, 2.2 million recoverable ounces of gold and
18.9 million recoverable ounces of silver. The additions were primarily the
result of positive drilling results at the Deep Mill Level Zone ore body, a
146-million-metric-ton ore body. Year-end aggregate proven and probable
recoverable reserves, net of 2004 production, were 2.8 billion metric tons of
ore averaging 1.09 percent copper, 0.97 grams per metric ton (g/t) of gold and
3.84 g/t of silver representing 56.2 billion pounds of copper, 61.0 million
ounces of gold and 174.5 million ounces of silver. Our aggregate exploration
budget for 2005, including Rio Tinto’s share,
is expected to total approximately $21 million ($15 million for our share) with
most of the effort focused on testing the Mill Level Zone and Deep Mill Level
Zone deposits to the northwest, expansion of the underground Grasberg resource,
and testing reconnaissance targets along the Wanagon and Idenberg fault trends.
Pursuant
to joint venture arrangements between PT Freeport Indonesia and Rio Tinto, Rio
Tinto has a 40 percent interest in production from reserves above those reported
at December 31, 1994. Net of Rio Tinto’s share,
PT Freeport Indonesia’s share of
proven and probable recoverable reserves as of December 31, 2004, was 40.5
billion pounds of copper, 46.5 million ounces of gold and 124.5 million ounces
of silver. FCX’s equity
interest in proven and probable recoverable reserves as of December 31, 2004,
was 36.7 billion pounds of copper, 42.1 million ounces of gold and 112.8 million
ounces of silver. We estimated recoverable reserves using an average copper
price of $0.85 per pound and an average gold price of $270 per ounce. If metal
prices were adjusted to the approximate average London spot prices for the past
three years, i.e., copper prices adjusted from $0.85 per pound to $0.94 per
pound and gold prices adjusted from $270 per ounce to $361 per ounce, the
additions to proven and probable reserves would not be material to our reported
reserves.
All of
our proven and probable recoverable reserves lie within Block A. The Grasberg
minerals district contains the largest single gold reserve and the
second-largest copper reserves of any mine in the world. Aggregate Grasberg open
pit and underground proven and probable recoverable ore reserves as of December
31, 2004, are shown below along with those of our other deposits. Reserve
calculations were prepared by our employees under the supervision of George D.
MacDonald, our Vice President of Exploration, and were reviewed and verified by
Independent Mining Consultants, Inc., experts in mining, geology and reserve
determination. See “Risk Factors.” We developed our current mine plan based on
completing the mining of all of our currently designated recoverable reserves
before the end of 2041, which would be the expiration of our Contract of Work
including two 10-year extensions. Prior to the expiration of the initial term of
our Contract of Work in December 2021, under our current mine plan we expect to
mine approximately 47 percent of aggregate proven and probable ore, representing
approximately 55 percent of PT Freeport Indonesia’s share of
recoverable copper reserves and approximately 69 percent of PT Freeport
Indonesia’s share of
recoverable gold reserves.
|
Proven |
Probable |
Total |
|
Metric
Tons of Ore (000s)a |
Average
Ore Grade |
Metric
Tons of Ore (000s)a |
Average
Ore Grade |
Metric
Tons |
|
Copper |
Gold |
Silver |
Copper |
Gold |
Silver |
of
Ore (000s)a |
|
|
(%) |
(g/t) |
(g/t) |
|
(%) |
(g/t) |
(g/t) |
|
Developed
and producing: |
|
|
|
|
|
|
|
|
Grasberg
open pit |
234,908 |
1.11 |
1.50 |
2.55 |
475,699 |
1.10 |
1.21 |
2.60 |
710,607 |
Deep
Ore Zone |
70,178 |
0.97 |
0.65 |
4.96 |
85,065 |
0.88 |
0.61 |
5.01 |
155,243 |
Undeveloped: |
|
|
|
|
|
|
|
|
|
Grasberg
block cave |
133,567 |
1.09 |
1.04 |
2.87 |
740,225 |
0.98 |
0.72 |
2.81 |
873,792 |
Kucing
Liar |
190,147 |
1.29 |
1.01 |
4.89 |
308,852 |
1.31 |
1.27 |
6.06 |
498,999 |
Mill
Level Zone |
71,774 |
0.92 |
0.78 |
3.91 |
86,999 |
0.83 |
0.74 |
3.95 |
158,773 |
Deep
Mill Level Zone |
24,464 |
1.39 |
1.13 |
6.90 |
121,953 |
1.19 |
0.91 |
6.12 |
146,417 |
Ertsberg
Stockwork Zone |
25,941 |
0.52 |
0.94 |
1.74 |
95,773 |
0.49 |
0.89 |
1.63 |
121,714 |
Dom
block cave |
11,894 |
1.18 |
0.31 |
6.40 |
31,757 |
1.05 |
0.31 |
5.72 |
43,651 |
Big
Gossan |
2,468 |
2.20 |
0.93 |
14.08 |
30,438 |
2.67 |
0.92 |
15.85 |
32,906 |
Dom
open pit |
6,882 |
1.87 |
0.46 |
9.88 |
20,118 |
1.78 |
0.42 |
9.50 |
27,000 |
Total |
772,223 |
1.12 |
1.10 |
3.80 |
1,996,879 |
1.07 |
0.93 |
3.86 |
2,769,102 |
|
Mill
Recoveries (%) |
|
Proven
and Probable
Recoverable
Reservesb |
|
|
Copper |
Gold |
Silver |
|
Copper |
Gold |
Silver |
|
|
|
|
|
|
(Billions
of Lbs.) |
(Millions
of Ozs.) |
(Millions
of Ozs.) |
Developed
and producing: |
|
|
|
|
|
|
|
|
Grasberg
open pit |
|
88.6 |
86.5 |
65.9 |
|
14.9 |
24.9 |
29.9 |
Deep
Ore Zone |
|
83.7 |
74.0 |
66.1 |
|
2.5 |
2.3 |
12.6 |
Undeveloped: |
|
|
|
|
|
|
|
|
Grasberg
block cave |
|
87.4 |
68.6 |
69.2 |
|
16.2 |
14.2 |
42.2 |
Kucing
Liar |
|
89.4 |
50.7 |
55.9 |
|
12.4 |
9.3 |
38.7 |
Mill
Level Zone |
|
87.6 |
77.7 |
81.5 |
|
2.6 |
3.0 |
12.6 |
Deep
Mill Level Zone |
|
88.9 |
78.5 |
81.2 |
|
3.4 |
3.4 |
18.4 |
Ertsberg
Stockwork Zone |
|
87.8 |
78.1 |
85.6 |
|
1.1 |
2.7 |
4.2 |
Dom
block cave |
|
82.6 |
75.2 |
62.0 |
|
0.8 |
0.3 |
4.0 |
Big
Gossan |
|
85.0 |
79.1 |
63.8 |
|
1.6 |
0.7 |
8.1 |
Dom
open pit |
|
69.0 |
68.0 |
59.0 |
|
0.7 |
0.2 |
3.8 |
Total |
|
87.6 |
72.5 |
66.3 |
|
56.2 |
61.0 |
174.5 |
|
|
|
|
|
|
|
|
|
PT
Freeport Indonesia’s
share |
|
|
|
|
|
40.5 |
46.5 |
124.5 |
FCX’s
equity share |
|
|
|
|
|
36.7 |
42.1 |
112.8 |
a. Ore
reserve tonnage estimates are after application of applicable mining recovery
factors.
b. |
Proven
and probable recoverable reserves represent estimated metal quantities
from which we expect to be paid after application of estimated mill
recovery rates and smelter recovery rates of 96.5 percent for copper, 97.0
percent for gold and 76.9 percent for silver. The term “recoverable
reserve” means that part of a mineral deposit which we estimate can be
economically and legally extracted or produced at the time of the reserve
determination. |
In
defining its open-pit reserves, PT Freeport Indonesia applies an “economic
cutoff grade” strategy. The objective of this strategy is to maximize the net
present value of its operations. PT Freeport Indonesia uses a break-even cutoff
grade to define the insitu reserves for its underground ore bodies. The
break-even cutoff grade is defined for a metric ton of ore, as that equivalent
copper grade, once produced and sold, that generates sufficient revenue to cover
all operating and administrative costs associated with its production.
PT
Freeport Indonesia’s ores contain three recoverable metals; copper, gold and
silver. We value all three metals in terms of a copper equivalent percentage to
determine a single break-even cutoff grade. Copper equivalent percentage is used
to express the relative value of multi-metal ores in terms of one metal, in this
case, copper. The calculation expresses the relative value of the ore using
estimates of contained metal quantities, metals prices as used for reserve
determination, recovery rates, treatment charges and royalties. The table below
shows the break-even cutoff grade, expressed as a copper equivalent percentage,
for each of our existing ore bodies as of December 31, 2004.
Ore
Body |
|
Copper
Equivalent
Percentage |
|
Grasberg
open pit |
|
0.54% |
|
Deep
Ore Zone |
|
0.70% |
|
Grasberg
block cave |
|
0.73% |
|
Kucing
Liar |
|
0.86% |
|
Mill
Level Zone |
|
0.85% |
|
Deep
Mill Level Zone |
|
0.84% |
|
Ertsberg
Stockwork Zone |
|
0.77% |
|
Dom
block cave |
|
0.73% |
|
Big
Gossan |
|
1.75% |
|
Dom
open pit |
|
0.71% |
|
Average |
0.73% |
The
following table sets forth the average drill hole spacing for each of our ore
bodies. Drill hole spacing data is used by mining professionals, such as mining
engineers, in determining the suitability of data coverage (on a relative basis)
in a given deposit type and mining method scenario so as to achieve a given
level of confidence in the resource estimate. Drill hole spacing is only one of
several criteria necessary to establish confidence level for resource
classification. Drilling programs are typically designed to achieve an optimum
sample spacing to support the level of confidence in results that fit a
particular stage of development of a mineral deposit. We calculated the average
drill hole spacing within each ore body using the distance from the center of
each block in the resource model to the nearest drill hole composite. We then
calculated the averages of these values within the volume of each ore body and
reported them under the column entitled “Average Distance: To Nearest Sample.”
This value represents at least one-half of the average drill hole spacing within
each deposit. We calculated the value under the column entitled “Average
Distance: Between Drill Holes” by multiplying the average minimum distance value
by two, and this value represents the maximum average drill hole spacing.
|
|
Spacing
(in
meters) |
|
Average
Distance
(in
meters) |
Deposit |
Mining
Unit |
Surface
Drilling
Grids |
Underground
(&
Surface)
Drill
Fans |
Drilling
Method |
To
Nearest
Sample |
Between
Drill
Holes
(less
than) |
Grasberg |
Open
Pit |
50 |
75 |
Core |
45 |
89 |
Deep
Ore Zone |
Block
Cave |
- |
50 |
Core |
13 |
25 |
Grasberg |
Block
Cave |
- |
100 |
Core |
46 |
92 |
Kucing
Liar |
Block
Cave |
- |
75 |
Core |
36 |
72 |
Mill
Level Zone |
Block
Cave |
- |
50 |
Core |
19 |
38 |
Deep
Mill Level Zone |
Block
Cave |
- |
75 |
Core |
28 |
57 |
Ertsberg
Stockwork Zone |
Block
Cave |
100 |
50 |
Core |
26 |
52 |
Dom |
Block
Cave |
- |
50 |
Core |
26 |
52 |
Big
Gossan |
Open
Stope |
100 |
50 |
Core |
22 |
45 |
Dom |
Open
Pit |
- |
50 |
Core |
25 |
50 |
Mining
Operations - Mines in Production
We and
our predecessors have conducted exploration and mining operations in Block A
since 1967 and have been the only operator of these operations. We currently
have two mines in operation: the Grasberg open pit and the Deep Ore Zone.
We began
open-pit mining of the Grasberg ore body in 1990. Open-pit operations are
expected to continue until 2015 at which time the Grasberg underground mining
operations are scheduled to begin. Production is currently at the 3,520- to
4,060-meter elevation level and totaled 48.9 million metric tons of ore in 2004
and 57.4 million metric tons of ore in 2003, which provided 76 percent or our
2004 mill feed and 77 percent of our 2003 mill feed. Our open-pit mining rate,
including ore and overburden, totaled 592,700 metric tons per day in 2004 and
598,800 metric tons per day in 2003. Annual production rates are expected to
range between 600,000 metric tons per day and 750,000 metric tons per day
through 2010 and then decline through 2015. The Grasberg open pit is fully
developed and we do not expect to incur any significant development costs other
than our deferred mining costs discussed below.
The
current Grasberg equipment fleet consists of over 800 pieces of equipment. As of
December 31, 2004, the larger mining equipment directly associated with
production includes 150 haul trucks with payloads ranging from 135 metric tons
to 290 metric tons, 17 shovels with bucket sizes ranging from 30 cubic meters to
42 cubic meters and 58 bulldozers and graders. We believe our current equipment
level is adequate to meet our projected production levels over the remaining
life of the pit.
In
addition to the mining equipment, Grasberg crushing and conveying systems are
integral to the mine and provide the capacity to transport up to 225,000 metric
tons per day of Grasberg ore to the mill and 135,000 metric tons per day of
overburden to the overburden stockpiles.
Mining
costs are charged to operations as incurred. However, because of the
configuration and location of the Grasberg open-pit ore body and the location
and extent of the related surrounding overburden, the ratio of overburden to ore
is much higher in the initial mining of the open pit than in later years. As a
result, surface mining costs associated with overburden removal at PT Freeport
Indonesia’s Grasberg open-pit mine that are estimated to relate to future
production are initially deferred when the ratio of actual overburden removed to
ore mined exceeds the estimated average ratio of overburden removed to ore mined
over the life of the Grasberg open-pit mine. Those deferred costs are
subsequently charged to operating costs when the ratio of actual overburden
removed to ore mined falls below the estimated average ratio of overburden to
ore over the life of the Grasberg open-pit mine. The reserve quantities used to
develop the life of mine ratio are the proven and probable ore quantities for
the Grasberg open pit shown above.
The
application of the deferred mining cost method has resulted in an asset on FCX’s
balance sheets (“Deferred Mining Costs”), which based on current mine plans, is
estimated to increase through about 2010. Subsequently, these costs are expected
to be amortized as a charge to production and delivery costs until they are
fully amortized at the end of the open pit’s life, which is estimated to be in
approximately 2015. This is because PT Freeport Indonesia expects to mine higher
than average amounts of overburden through 2010 and less than average
thereafter. Deferred mining costs totaled $220.4 million at December 31, 2004,
and $142.6 million at December 31, 2003. Additions to deferred mining costs are
classified as increases in deferred mining costs in operating activities in the
consolidated statements of cash flows and totaled $77.8 million in 2004, $64.4
million in 2003 and $30.6 million in 2002. See Note 1 of “Notes to Consolidated
Financial Statements” included in our 2004 Annual Report incorporated herein by
reference.
The Deep
Ore Zone ore body lies vertically below the now depleted Intermediate Ore Zone.
We began production from the Deep Ore Zone ore body in 1989, but we suspended
production in 1991 in favor of production from the Grasberg deposit. Production
using the block-cave method restarted in September 2000. Production is at the
3,110-meter elevation level and totaled 15.9 million metric tons of ore in 2004
and 14.8 million metric tons of ore in 2003. The Deep Ore Zone has performed
above design capacity of 35,000 metric tons of ore per day and we are expanding
the Deep Ore Zone operation to sustained production of 50,000 metric tons of ore
per day with the installation of a second crusher and additional ventilation.
Production from the Deep Ore Zone averaged 43,600 metric tons of ore per day in
2004 and 40,500 metric tons of ore per day in 2003.
The Deep
Ore Zone mine fleet consists of over 160 pieces of mobile equipment. The primary
mining equipment directly associated with production and development includes 26
load-haul-dump (LHD) units and 15 haul trucks. Our LHD units typically carry
approximately 11 metric tons of ore. The units dump into a gyratory crusher and
ore is then conveyed to the surface stockpiles.
During
2004 at the Deep Ore Zone mine, we completed 9,550 meters of development
drifting in support of the block-cave mining method and the ongoing expansion to
50,000 metric tons of ore per day. The expansion to 50,000 metric tons of ore
per day is expected to be completed in 2007 with aggregate development costs
from 2004 through 2007 to total approximately $62 million (approximately $37
million for PT Freeport Indonesia’s share).
Our
development costs include costs incurred resulting from mine pre-production
activities undertaken to gain access to proven and probable reserves including
adits, drifts, ramps, permanent excavations, infrastructure and removal of
overburden. Depreciation for mining and milling life-of-mine assets is
determined using the unit-of-production method based on estimated recoverable
proven and probable copper reserves. Development costs that relate to a specific
ore body are depreciated using the unit-of-production method based on estimated
recoverable proven and probable copper reserves for the ore body benefited. PT
Freeport Indonesia’s total development costs at December 31, 2004 for the Deep
Ore Zone mine, currently our only operating underground mine, totaled $189.5
million, which are being depreciated on a unit-of-production basis over the life
of the Deep Ore Zone proven and probable reserves. See Note 1 of “Notes to
Consolidated Financial Statements” included in our 2004 Annual Report
incorporated herein by reference.
The
majority of maintenance activities is performed on site by a combination of PT
Freeport Indonesia employees and contract workers. As of December 31, 2004, we
had approximately 7,500 employees and contract workers directly involved in
Grasberg open-pit and Deep Ore Zone underground mining, milling and ore flow
operations.
The
Intermediate Ore Zone was an underground block-cave operation that began
production in the first half of 1994. The Intermediate Ore Zone was depleted
during the third quarter of 2003. Production totaled 2.5 million metric tons of
ore in 2003 and 7.1 million metric tons of ore in 2002. During its 10-year life,
the Intermediate Ore Zone operation produced almost 30 percent more copper and
gold than the initial reserve estimates.
Our
principal source of power for all our operations is a coal-fired power plant
that we built in conjunction with our fourth concentrator expansion (see
“Infrastructure”). Medium-speed diesel generators supply peaking and backup
power. A combination of naturally occurring mountain streams and water derived
from our underground operations provides water for our operations. The average
annual rainfall in the project area is 180 inches.
Mining
Operations - Mines in Development
Seven
other ore bodies, referred to as the underground Grasberg, Kucing Liar, Mill
Level Zone, Deep Mill Level Zone, Ertsberg Stockwork Zone, Big Gossan and the
Dom are located in Block A. These ore bodies are at various stages of
development, and are included in our proven and probable recoverable reserves.
We incurred $2.9 million for mine development, expansion and infrastructure
capital expenditures related to these ore bodies and $26.7 million for common
underground infrastructure during the three years ended December 31, 2004. See
“Risk Factors.”
The
underground Grasberg reserves will be mined using the block-cave method at the
end of open-pit mining, which is expected to continue until approximately 2015.
The Kucing Liar ore body lies on the southern flank of and underneath the
southern portion of the Grasberg open pit at the 2,600- to 3,200-meter elevation
level. We are reviewing development plans for Kucing Liar.
The Mill
Level Zone ore body lies directly below the Deep Ore Zone mine at the
2,900-meter elevation. The Deep Mill Level Zone ore body lies beneath the Mill
Level Zone ore body at the 2,600-meter elevation. This ore represents the
downward continuation of mineralization in the Ertsberg East Skarn system and
neighboring Ertsberg porphyry. Drilling efforts continue to determine the extent
of these ore bodies. We expect to mine the Mill Level Zone ore body using a
block-cave method after we complete mining at the Deep Ore Zone ore body. Near
the end of mining the Mill Level Zone ore body, we expect to mine the Deep Mill
Level Zone ore body also using a block-cave method.
The
Ertsberg Stockwork Zone ore body extends off the southwest side of the Deep Ore
Zone ore body at the 3,100- to 3,600-meter elevation level. Drilling efforts
continue to determine the extent of this ore body, which we expect to mine using
a block-cave method starting in about 2009.
The Big
Gossan ore body is located approximately 1,000 meters southwest of the original
Ertsberg open-pit deposit. We began the initial underground development of the
ore body in 1993 when we drove tunnels from the mill area into the ore zone at
the 2,600-meter elevation level. A stope and fill mining method will be used on
the Big Gossan deposit. A feasibility study and an update to the site-wide
development plan will be completed in 2005 to determine is the timing of initial
production, currently projected to be 2007.
The Dom
ore body lies approximately 1,500 meters southeast of the depleted Ertsberg
open-pit deposit. Production at the open-pit portion of the ore body will begin
after completion of open-pit mining at Grasberg, subsequently followed by
block-cave mining of the underground portion of the Dom ore body.
The
projected aggregate capital expenditures required to reach full production
capacity for each of our undeveloped ore bodies based on our latest mine plans
and our proven and probable recoverable reserves as of December 31, 2004, are
shown below (in millions). Actual costs could differ materially from these
estimates as we will not incur most of the expenditures for several years and we
will incur them over a period of several years. Based on our current estimates,
we expect aggregate expenditures will range between $25 million and $265 million
annually, during the next 15 years. In addition, these costs will be shared with
Rio Tinto in accordance with our joint venture agreement.
Grasberg
block cave |
$ 980 |
Kucing
Liar block cave |
500 |
Mill
Level Zone block cave |
265 |
Deep
Mill Level Zone block cave |
260 |
Big
Gossan open stope |
225 |
Dom
block cave |
185 |
Ertsberg
Stockwork Zone block cave |
180 |
Dom
open pit |
30 |
Total |
$2,625 |
Description
of Ore Bodies. Our ore
bodies are located within and around two main igneous intrusions, the Grasberg
monzodiorite and the Ertsberg diorite. The host rocks of these ore bodies
include both carbonate and clastic rocks that form the ridge crests and upper
flanks of the Sudirman Range, and the igneous rocks of monzonitic to dioritic
composition that intrude them. The igneous-hosted ore bodies (the Grasberg open
pit and block cave, and the Ertsberg Stockwork Zone block cave) occur as vein
stockworks and disseminations of copper sulphides, dominated by chalcopyrite
and, to a much lesser extent, bornite. The sedimentary-rock hosted ore bodies
occur as “magnetite-rich, calcium/magnesian skarn” replacements, whose location
and orientation are strongly influenced by major faults and by the chemistry of
the carbonate rocks along the margins of the intrusions.
The
copper mineralization in these skarn deposits is also dominated by chalcopyrite,
but higher bornite concentrations are common. Moreover, gold occurs in
significant concentrations in all of the district’s ore
bodies, though rarely visible to the naked eye. These gold concentrations
usually occur as inclusions within the copper sulphide minerals, though, in some
deposits, these concentrations can also be strongly associated with
pyrite.
The
following diagram indicates the relative elevations (in meters) of our reported
reserve ore bodies.
The
following map, which encompasses an area of approximately 42 square kilometers
(approximately 16 square miles), indicates the relative positions and sizes of
our reported reserve ore bodies and their locations.
![](graphic_6.jpg)
The
following chart illustrates our current plans for sequencing and producing each
of our ore bodies and the years in which we currently expect that production of
each ore body will begin and end. Production volumes are typically lower in the
first few years of each ore body as development activities are ongoing and as
the mine ramps up to full production. Currently, the Grasberg open pit and Deep
Ore Zone are our only producing mines. The ultimate timing of the start of
production from our undeveloped mines is dependent upon a number of factors,
including the results of our exploration efforts, and may vary from the dates
shown below. In addition, we develop our mine plans for the Grasberg open pit
and underground mines based on maximizing the net present value from the ore
bodies.
During
2004, we mined an average of 636,200 metric tons of material per day, including
ore and overburden, and we do not require any additional approvals for higher
rates. During 2003, we mined an average of 646,100 metric tons of material per
day. The following chart illustrates our current aggregate mill capacity; our
aggregate permitted mill capacity; and our projected milling rates. The decline
in milling rates in 2016 reflects the expected completion date of open-pit
mining at the Grasberg ore body. We are continuing to develop mine plans to
optimize production levels and to offset the anticipated decline in
2016.
Milling
and Production
The ore
from our mines moves by a conveyor system to a series of shafts through which it
drops to our milling and concentrating complex located approximately 2,900
meters above sea level. At the mill, the ore is crushed and ground and mixed in
tanks with water and small amounts of flotation reagents where it is
continuously agitated with air. During this physical separation process,
copper-, gold- and silver-bearing particles rise to the top of the tanks and are
collected and thickened into a concentrate. The concentrate leaves the mill
complex as a slurry, consisting of approximately 65 percent solids by weight,
and is pumped through three parallel 115-kilometer pipelines to our coastal port
site facility at Amamapare where it is filtered, dried and stored for shipping.
Ships are loaded at dock facilities at the port until they draw their maximum
dock-side water, and they then move to deeper water, where loading is completed
from shuttling barges.
Our
production results for the last three years are as follows:
|
Years
Ended December 31, |
Percentage
Change |
|
2004 |
2003 |
2002 |
2003
to 2004 |
2002
to 2003 |
Mill
throughput (metric tons of ore per day) |
185,100 |
203,000
|
235,600 |
(9)% |
(14)% |
Copper
production, net to PT Freeport Indonesia (000 pounds) |
996,500 |
1,291,600
|
1,524,200 |
(23)% |
(15)% |
Gold
production, net to PT Freeport Indonesia (ounces) |
1,456,200 |
2,463,300
|
2,296,800 |
(41)% |
7% |
Average
net cash production costs (credits) per pound of coppera |
$0.40 |
$(0.02) |
$0.08 |
N.M. |
125% |
N.M. Not
Meaningful
a. Includes
site production and delivery costs, smelting and refining costs, and royalties,
less credits for gold and silver sales. See our 2004 Annual Report incorporated
herein by reference for a reconciliation of average net cash production costs
per pound to production and delivery costs applicable to sales reported in our
consolidated financial statements.
In
October 2003, a slippage of material occurred in a section of the Grasberg open
pit and in December 2003, a smaller debris flow occurred in the same section.
The area affected by the slippage events included two active mining areas which
were scheduled to be mined in the fourth quarter of 2003 (see “Grasberg Open-Pit
Slippage”). Mill throughput and production in 2003 and 2004 were negatively
affected by PT Freeport Indonesia’s efforts
to accelerate removal of overburden material and restore safe access to
higher-grade areas in the pit. Mill throughput averaged 185,100 metric tons of
ore per day in 2004, a nine percent decrease from the 203,000 metric tons
average in 2003. Copper and gold production was lower in 2004 compared with 2003
reflecting the lower mill throughput and lower average ore grades. Copper
production for 2004 totaled 1.0 billion pounds, 295.1 million pounds lower than
2003 production. Gold production for 2004 totaled 1.46 million ounces, 1.0
million ounces lower than 2003 production. The lower sales volumes and the
primarily fixed nature of a large portion of PT Freeport Indonesia’s cost
structure resulted in average net cash production costs for 2004 increasing to
$0.40 per pound compared with a net credit of $0.02 per pound for
2003.
Copper
production for 2003 was 1.3 billion pounds, 232.6 million pounds lower than 2002
production primarily because of lower average copper ore grades and lower mill
throughput caused by the slippage and debris flow events. Gold production for
2003 was 166,500 ounces higher than that for 2002 primarily because of higher
average gold grades.
Average
net cash production costs per pound of copper of a net credit of $(0.02) for
2003 were an annual record low compared with $0.08 for 2002. Higher gold credits
in 2003 offset higher site production and delivery costs. Our average net cash
production costs per pound of copper vary with the amount of gold we sell and
gold prices, among other factors. Once we complete our open-pit mining
operations at the Grasberg mine in approximately 2015 and transition to
underground, we expect our share of annual copper and gold production to be
lower than current levels, and all other factors being equal, our average net
cash production costs to increase. For more information regarding our operating
and financial results, see our 2004 Annual Report incorporated herein by
reference.
Geotechnical
Programs
Our
geotechnical programs support several phases of the operations, including our
open-pit mine (pit slope and overburden stockpile stability), our underground
mine, our infrastructure and our tailings management program. For information
regarding our tailings management program, see “Environmental
Matters.”
A group
of our senior level employees has the responsibility, authority and oversight
for our overall geotechnical programs. Our multi-disciplinary approach combines
in-house personnel with backgrounds in civil, geotechnical, mining engineering,
geology and hydrology to form a technical services group that reports to our
senior managers. Our technical services group develops information that our mine
engineering group uses to develop mine and stockpile designs, production
schedules and related plans. Our technical services group also monitors slope
stability and other geotechnical and hydrological developments.
Our
technical services group is composed of expatriates and Indonesian nationals,
who are university educated. International consulting experts in each of the
applicable technical fields support this group. In-house training provided by
consultants as well as off-site seminars and industry conferences supports the
training of our staff. Our joint venture partner has also provided geotechnical
and engineering support to our operations. Consultants and our joint venture
partner provide input into program development and assess performance of these
critical roles.
Our
technical services group uses information from geological drilling for the
development and updating of our geological, geotechnical and hydrologic models.
We develop computer-based geologic models for mine design and dewatering
programs. We provide continuous ground and slope monitoring in our mines, on all
overburden stockpiles, and around all infrastructure using various computerized
and automated systems. We also daily inspect all open-pit working areas, with
any items of concern being reported to our senior managers. Our hydrology
function measures and tracks water flow patterns to determine the effectiveness
and need for de-watering and depressurization programs. We drain all surface
flows away from the open pit and pump any in-pit surface water to dedicated
drain holes connected to our underground de-watering drift system. We also
continuously monitor rainfall at our operations so that we may adjust for
operational impacts and safety considerations.
Grasberg
Open-Pit Slippage
On
October 9, 2003, a slippage of material occurred in a section of the Grasberg
open pit. Eight workers perished and five workers were injured in the incident.
The area affected by the slippage, comprising approximately five percent of the
surface area of the massive Grasberg pit, included two active mining areas that
were scheduled to be mined in 2003 and 2004. On December 12, 2003, a debris flow
involving a relatively small amount of loose material occurred in the same area
of the Grasberg open pit resulting in only minor property damage. Following
these two events, PT Freeport Indonesia redirected its open-pit operations to
accelerate removal of waste material from the south wall to restore safe access
to the higher-grade ore areas in the pit. These activities resulted in reduced
production levels. In April 2004, PT Freeport Indonesia established safe access
and initiated mining in higher-grade ore areas while continuing waste removal
activities. PT Freeport Indonesia resumed normal milling rates in June
2004.
As a
result of the fourth-quarter 2003 slippage and debris flow events, PT Freeport
Indonesia notified its copper concentrate customers that it was declaring force
majeure under the terms of its contracts as it would be unable to satisfy its
annual sales and delivery commitments. In December 2004, PT Freeport Indonesia
terminated the force majeure that had been in effect since December 2003 under
its concentrate sales contracts.
PT
Freeport Indonesia maintains property damage and business interruption insurance
related to its operations. In December 2004, we entered into an insurance
settlement agreement and settled all claims that arose from the fourth-quarter
2003 slippage and debris flow events in the Grasberg open-pit mine. PT Freeport
Indonesia’s insurers
agreed to pay an aggregate of $125.0 million in connection with its claims.
After considering our joint venture partner’s interest
in the proceeds, PT Freeport Indonesia’s share of
proceeds totaled $95.0 million.
Exploration
As a
result of our joint venture arrangements, Rio Tinto generally pays for 40
percent of our joint venture exploration and exploratory drilling costs in
Papua. The joint ventures incurred total exploration costs of $13.6 million in
2004 and $10.5 million in 2003. The joint ventures’ exploration budget for 2005
totals approximately $21 million with most of the effort focused on testing the
Mill Level Zone and Deep Mill Level Zone deposits to the northwest, expansion of
the underground Grasberg resource, and testing reconnaissance targets along the
Wanagan and Idenberg fault trends.
In June
1998, we entered into a joint venture agreement to conduct exploration
activities in PT Nabire Bakti Mining’s Contract
of Work area, which currently covers approximately 500,000 acres in several
blocks contiguous to PT Freeport Indonesia’s Block B
and one of Eastern Minerals’ blocks in Papua. Rio Tinto shares in 40 percent of
our interest and costs in this exploration joint venture. We and Rio Tinto can
earn up to a 62 percent interest in the PT Nabire Bakti Mining Contract of Work
by spending up to $21 million on exploration and other activities in the joint
venture areas. We have spent $17.0 million through December 31,
2004.
With the
subsequent approval of the Indonesian government, in 2000 we suspended our field
exploration activities in Block B, which includes the Wabu Ridge gold prospect,
as well as in the other Contract of Work areas of Eastern Minerals and PT Nabire
Bakti Mining. The suspensions are due to safety and security issues and
regulatory uncertainty relating to a possible conflict between our mining and
exploration rights in certain forest areas and an Indonesian Forestry law
enacted in 1999 prohibiting open-pit mining in forest preservation areas. All of
the suspended areas are outside of our current mining operations area. We are
assessing the possible timing for resumption of our exploration
activities.
Infrastructure
The
location of our mining operations in a remote area requires that our operations
be virtually self-sufficient. In addition to the mining facilities described
above, in the course of the development of our project we have constructed
ourselves or participated with others in the construction of an airport, a port,
a 119 kilometer road, an aerial tramway, two hospitals and related medical
facilities, and two town sites with housing, schools and other facilities
sufficient to support more than 17,000 persons.
In 1996,
we completed a significant infrastructure program, which includes various
residential, community and commercial facilities. We designed the program to
provide the infrastructure needed for our operations, to enhance the living
conditions of our employees, and to develop and promote the growth of local and
other third party activities and enterprises in Papua. We have developed the
facilities through joint ventures or direct ownership involving local Indonesian
interests and other investors.
In July
2003, we acquired the 85.7 percent ownership interest in Puncakjaya Power owned
by affiliates of Duke Energy Corporation for $68.1 million cash, net of $9.9
million of cash acquired. Puncakjaya Power is the owner of assets supplying
power to PT Freeport Indonesia’s
operations, including the 3x65 megawatt coal-fired power facilities. PT Freeport
Indonesia purchases power from Puncakjaya Power under infrastructure asset
financing arrangements. At December 31, 2004, PT Freeport Indonesia had
infrastructure asset financing obligations to Puncakjaya Power totaling $258.7
million. As a result of our acquisition of the 85.7 percent ownership interest,
our consolidated balance sheet no longer reflects PT Freeport
Indonesia’s
obligation to Puncakjaya Power, but instead reflects the Puncakjaya Power bank
debt which totaled $187.0 million and a receivable from Rio Tinto totaling $73.5
million for its share of the obligation to Puncakjaya Power at December 31,
2004.
Marketing
PT
Freeport Indonesia sells its copper concentrates, which contain significant
quantities of gold and silver, under United States dollar-denominated sales
agreements, mostly to companies in Asia and Europe and to international trading
companies. We sell substantially all of our budgeted production of copper
concentrates under long-term contracts with selling prices based on world metals
prices (generally the London Metal Exchange settlement prices for Grade A
copper). Under these contracts, initial billing occurs at the time of shipment
and final settlement on the copper portion is generally based on average prices
for a specified future period. Gold generally is sold at the average London
Bullion Market Association price for a specified month near the month of
shipment.
Revenues
from concentrate sales are recorded net of royalties (see “Contracts of Work”),
treatment and refining charges (including participation charges, if applicable,
based on the market prices of metals), and the impact of derivative financial
instruments, if any, used to hedge against risks from metals price fluctuations.
Moreover, because a portion of the metals contained in copper concentrates is
unrecoverable as a result of the smelting process, our revenues from concentrate
sales are also recorded net of allowances based on the quantity and value of
these unrecoverable metals. These allowances are a negotiated term of our
contracts and vary by customer. Treatment and refining charges represent
payments to smelters and refiners and are either fixed or in certain cases vary
with the price of copper. We sell a small amount of copper concentrates in the
spot market. See “Risk Factors.”
We have
commitments, including commitments from Atlantic Copper and PT Smelting, for
essentially all of our estimated 2005 production. We estimate our share of sales
for 2005 to approximate 1.5 billion pounds of copper and 2.9 million ounces of
gold. Projected 2005 copper and gold sales reflect the expectation of higher
production following completion of efforts to restore safe access to high-grade
ore areas in the Grasberg open pit. See “Risk Factors.”
PT
Freeport Indonesia has a long-term contract through 2007 to provide Atlantic
Copper with a quantity of copper concentrates at market prices which currently
approximates 60 percent of Atlantic Copper’s annual
copper concentrate requirements. PT Freeport Indonesia’s
agreement with PT Smelting provides, for the life of PT Freeport
Indonesia’s mines,
for the supply of 100 percent of the copper concentrate requirements necessary
to produce 205,000 metric tons of copper (essentially the Gresik
smelter’s original
design capacity) on a priority basis. In 2004, PT Smelting increased its stated
production capacity to 250,000 metric tons of copper per year. For the first 15
years of PT Smelting’s
commercial operations beginning December 1998, PT Freeport Indonesia agreed that
the treatment and refining charges on specified quantities of the concentrate PT
Freeport Indonesia supplies will not fall below specified minimum rates, subject
to renegotiation in 2008. The rate was $0.23 per pound, during the period from
the commencement of PT Smelting’s
operations in 1998 until April 3, 2004 when it declined to a minimum of $0.21
per pound. We anticipate that PT Freeport Indonesia will sell approximately 50
percent of its annual concentrate production to Atlantic Copper and PT Smelting.
In 2004, the percentage of concentrate PT Freeport Indonesia sold to Atlantic
Copper and PT Smelting was closer to 60 percent because of reduced production
levels following the Grasberg slippage events and PT Freeport Indonesia’s
commitments to provide PT Smelting with concentrate on a priority basis. A
summary of PT Freeport Indonesia’s
aggregate percentage concentrate sales to its affiliates and to other parties
for the last three years follows:
|
|
2004 |
|
2003 |
|
2002 |
PT
Smelting |
|
40% |
|
30% |
|
26% |
Atlantic
Copper |
|
19% |
|
25% |
|
24% |
Other
parties |
|
41% |
|
45% |
|
50% |
|
|
100% |
|
100% |
|
100% |
Investment
in Smelters
Our
investment in smelters (Atlantic Copper and PT Smelting) serves an important
role in our concentrate marketing strategy. PT Freeport Indonesia generally
sells approximately one-half of its concentrate production to its affiliated
smelters, Atlantic Copper and PT Smelting, and the remainder to other customers.
Treatment charges for smelting and refining copper concentrates represent a cost
to PT Freeport Indonesia and income to Atlantic Copper and PT Smelting. Through
downstream integration, we are assured placement of a significant portion of our
concentrate production. While low smelting and refining charges in recent years
adversely affected the operating results of Atlantic Copper, they benefited the
operating results of PT Freeport Indonesia’s mining
operations, effectively achieving a hedge for these charges.
Atlantic
Copper, S.A. We own
100 percent of Atlantic Copper. Atlantic Copper completed the last expansion of
its production capacity in 1997 and its smelter currently has a design capacity
of 290,000 metric tons of copper per year. We have no present plans to expand
Atlantic Copper’s
production capacity. During 2004, Atlantic Copper treated 768,100 metric tons of
concentrate and scrap and produced 224,300 metric tons of new copper anodes.
During 2003, Atlantic Copper treated 964,400 metric tons of concentrate and
scrap and produced 290,300 metric tons of new copper anodes. Atlantic Copper
completed a 51-day scheduled major maintenance turnaround in May 2004, adversely
affecting 2004 results. Major maintenance turnarounds of this duration typically
occur approximately every nine years for Atlantic Copper, with significantly
shorter-term maintenance turnarounds occurring in the interim. Atlantic Copper
purchased approximately 27 percent of its 2004 concentrate requirements from PT
Freeport Indonesia at market prices. Atlantic Copper has experienced no material
operating problems, and we are not aware of any potential material environmental
liabilities at Atlantic Copper.
We
contributed $202.0 million to Atlantic Copper in 2004, $10.0 million in 2003 and
$25.0 million in 2002. In addition, we loaned $189.5 million to Atlantic Copper
in 2004. The funds were used to improve Atlantic Copper’s
financial structure during its major maintenance turnaround and during a period
of extremely low treatment and refining charge rates, which have negatively
affected Atlantic Copper’s results.
Our total investment in Atlantic Copper through December 31, 2004, was $456.9
million.
PT
Smelting. PT
Freeport Indonesia’s Contract
of Work required us to construct or cause to be constructed a smelter in
Indonesia if we and the Indonesian government determined that such a project
would be economically viable. In 1995, following the completion of a feasibility
study, we entered into agreements relating to the formation of PT Smelting and
the construction of the copper smelter in Gresik, Indonesia.
PT
Smelting is a joint venture among PT Freeport Indonesia, Mitsubishi Materials
Corporation, Mitsubishi Corporation and Nippon Mining & Metals Co., Ltd.,
which own 25 percent, 60.5 percent, 9.5 percent and 5 percent, respectively, of
the outstanding PT Smelting common stock. In accordance with the joint venture
agreements, PT Freeport Indonesia provides the majority of PT
Smelting’s copper
concentrate requirements. In December 2003, PT Smelting’s
shareholder agreement was amended to eliminate PT Freeport Indonesia’s
assignment of its earnings in PT Smelting to support a 13 percent cumulative
annual return to the other owners for the first 20 years of operations. No
amounts were paid under this assignment. PT Freeport Indonesia’s total
investment in PT Smelting through December 31, 2004, was $98.7
million.
During
2004, PT Smelting treated 758,100 metric tons of concentrate and produced
211,600 metric tons of new copper anodes. During 2003, PT Smelting treated
824,800 metric tons of concentrate and produced 247,400 metric tons of new
copper anodes. PT Smelting completed a 31-day major maintenance turnaround in
the second quarter of 2004. Major maintenance turnarounds of this duration
typically occur approximately every four years for PT Smelting, with
significantly shorter term maintenance turnarounds in the interim. PT Smelting
has experienced no material operating problems and we are not aware of any
potential material environmental liabilities at PT Smelting.
Competition
We
compete with other mining companies in the sale of our mineral concentrates and
the recruitment and retention of qualified personnel. Some competing companies
possess financial resources greater than ours and possess multiple mining assets
less geographically concentrated in a single area than ours. We believe,
however, that we are one of the lowest-cost copper producers in the world, after
taking into account credits for related gold and silver production, which gives
us a significant competitive advantage.
Social
Development, Employment and Human Rights
We have a
social, employment and human rights policy designed to result in our operating
in compliance with the laws in the areas of our operations, and in a manner that
respects basic human rights and the culture of the people who are indigenous to
the area. We continue to incur significant costs on social and cultural
activities, primarily in Papua. These activities include:
· |
comprehensive
job training programs; |
· |
basic
education programs; |
· |
several
public health programs, including extensive malaria
control; |
· |
agricultural
assistance programs; |
· |
a
business incubator program to encourage the local people to establish
their own small scale businesses; |
· |
cultural
preservation programs; and |
In 1996,
PT Freeport Indonesia agreed to commit at least one percent of its revenues to
the Freeport Partnership Fund for Community Development (formerly the Freeport
Fund for Irian Jaya Development) to support village-based health, education,
economic and social development programs in its area of operations. This
commitment replaced our community development programs in which we spent a
similar amount of money each year. Our contributions totaled $17.5 million in
2004, $17.4 million in 2003 and $15.2 million in 2002 to the Freeport
Partnership Fund for Community Development.
Lembaga
Pembangunan Masyarakat Amungme Kamoro (LPMAK) oversees disbursement of the funds
we contribute to the fund. LPMAK’s board of
commissioners is made up of a leader of the Amungme people, a leader of the
Kamoro people, leaders of the three local churches, a representative of the
local government and a representative of PT Freeport Indonesia.
We
believe that our social and economic development programs are responsive to the
issues raised by the local villages and people and should help us to avoid
disruptions of mining operations. Nevertheless, social and political instability
in the area may adversely impact our mining operations. See “Risk
Factors.”
In
December 2000, we endorsed the joint U.S. State Department-British Foreign
Office Voluntary Principles on Human Rights and Security. Several major natural
resources companies and important human rights organizations also endorsed the
Voluntary Principles. We participated in drafting these principles with all of
the parties involved and incorporated them into our social and human rights
policy.
Security
Matters
Consistent
with our Contract of Work and duty to protect our employees and property, we
have taken appropriate steps to provide a safe and secure working environment.
As part of its security program, PT Freeport Indonesia maintains its own
internal security department, which performs functions such as protecting
company facilities, monitoring the shipment of company goods through the airport
and terminal, assisting in traffic control and aiding rescue operations. PT
Freeport Indonesia’s civilian
security employees (numbering about 700) are unarmed and perform duties
consistent with their internal security role. PT Freeport Indonesia’s share of
costs for its internal civilian security department totaled $12.3 million for
2004, $11.2 million for 2003 and $7.7 million for 2002. The security department
has received human rights training and each member is required to certify his or
her compliance with our human rights policy.
PT
Freeport Indonesia, and all businesses and residents of Indonesia, relies on the
Government of Indonesia for the provision of public order, upholding the rule of
law and the protection of personnel and property. The Grasberg mine has been
designated by the Government of Indonesia as one of Indonesia’s vital
national assets. This designation results in the military’s playing
a significant role in protecting the area of our operations. The Government of
Indonesia is responsible for employing police and military personnel and
directing their operations.
From the
outset of PT Freeport Indonesia’s
operations, the government has looked to PT Freeport Indonesia to provide
logistical and infrastructure support and assistance for these necessary
services because of the limited resources of the Indonesian government and the
remote location of and lack of development in Papua. PT Freeport
Indonesia’s
financial support for the Indonesian government security institutions assigned
to the operations area represents a prudent response to its requirements to
protect its workforce and property, better ensuring that personnel are properly
fed and lodged, and have the logistical resources to patrol PT Freeport
Indonesia’s roads
and secure its operating area. In addition, provision of such support and
oversight is consistent with PT Freeport Indonesia’s
obligations under the Contract of Work, reflects our philosophy of responsible
corporate citizenship, and is in keeping with our commitment to pursue practices
that will promote human rights, which include our endorsement of the joint U.S.
State Department-British Foreign Office Voluntary Principles on Human Rights and
Security.
PT
Freeport Indonesia’s share of
support costs for the government-provided security, involving over 2,400
Indonesian government security personnel currently located in the general area
of our operations, was $6.9 million for 2004, $5.9 million for 2003 and $5.6
million for 2002. This supplemental support consists of various infrastructure
and other costs, such as food, housing, fuel, travel, vehicle repairs,
allowances to cover incidental and administrative costs, and community
assistance programs conducted by the military/police. PT Freeport
Indonesia’s capital
costs for associated infrastructure was $0.2 million for 2004, $0.6 million for
2003 and $0.4 million for 2002.
Environmental
Matters
We have a
board-approved environmental policy that commits us not only to compliance with
applicable federal, state and local environmental statutes and regulations, but
also to continuous improvement of our environmental performance at every
operational site. We believe that we conduct our Indonesian operations pursuant
to all necessary permits and are in compliance in all material respects with
applicable Indonesian environmental laws, rules and regulations. Additionally,
the environmental management systems for our PT Freeport Indonesia mining and
milling operations and our Atlantic Copper smelting operations are ISO
(International Standardization Organization) 14001 certified.
Mining
operations on the scale of our operations in Papua involve significant
environmental challenges, primarily related to the disposition of tailings,
which are the crushed and ground rock material resulting from the physical
separation of commercially valuable minerals from the ore. We have
comprehensive, ongoing environmental management and monitoring plans for the
disposal of tailings resulting from our milling operations, which the Government
of Indonesia has approved. Pursuant to these plans, we manage and monitor the
impact of our tailings disposal on the surrounding area of the Ajkwa River and
adjoining water bodies and the surrounding coastal areas. In 1997, we completed
an engineered levee system to minimize the impact of the tailings through a
controlled deposition area located on a portion of the flood plain on the Ajkwa
River.
In
furtherance of our commitments to the Indonesian government pursuant to our
tailings management plan, we monitor the acid-neutralizing capacity of tailings
on a daily basis to ensure the discharge of non-acid generating tailings into
our tailings deposition area. The net acid-neutralizing capacity of our tailings
discharge is maintained through a managed program of blending underground ore
with ore from the open pit, the addition of supplemental limestone (or lime) to
the ore blend, and the addition of lime for control of the pH levels in the
flotation system. Daily samples are collected and tested and this data is
communicated to our mill operations so that adjustments in ore blending and
lime/limestone addition can be made as appropriate.
With
respect to overburden, control and treatment of acid rock drainage is our
primary environmental issue. Our approaches to this issue include the prevention
of acid rock drainage generation, the control of acid rock drainage migration,
and the capture and treatment of acid rock drainage emanating from the
overburden stockpile. In addition, tests have shown the feasibility of
revegetating the overburden stockpile and, as a result, we have engaged in
stockpile reclamation as an additional means of mitigating acid rock drainage.
We have
made significant capital expenditures with respect to the capture and treatment
of acid rock drainage and additional capital expenditures are currently in
progress. We continue to evaluate various technologies for the treatment of
captured acid rock drainage. Currently, acid rock drainage collected by
boreholes at the base of the overburden stockpile is treated using conventional
lime neutralization.
We have
also committed to the Indonesian government to have independent external
environmental audits of our Papuan operations performed by qualified experts
every three years, with results available for public review. We have had three
independent environmental audits conducted by internationally recognized
consulting and auditing firms. SGS International Certification Services
Indonesia, a member of the Société Générale de Surveillance Group, completed the
2002 environmental audit. The 2002 audit found the overall approach to practical
management of environmental issues at PT Freeport Indonesia to be very sound.
There were no audit findings requiring corrective action. We also are continuing
our annual internal audits, through the life of our mining operations, so that
our environmental management and monitoring programs will remain sound and our
operations will remain in material compliance with local laws.
In
connection with obtaining our environmental approvals from the Indonesian
government, we committed to performing a one-time environmental risk assessment
on the impacts of our tailings management plan. We completed this extensive
environmental risk assessment with more than 90 scientific studies conducted
over four years and submitted it to the Indonesian government in December 2002.
We developed the risk assessment exercise with input from an independent review
panel, which included representatives from the Indonesian government, academia,
and non-governmental organizations. The risks that we identified during this
process were in line with our impact projections of the tailings management
program contained in our environmental approval documents.
We have
environmental approvals from the Government of Indonesia to expand our milling
rate up to a maximum of 300,000 metric tons of ore per day. In 2004, we averaged
185,100 metric tons of ore per day and in 2003 we averaged 203,000 metric tons
of ore per day.
The cost
of complying with environmental laws is a fundamental cost of our business. We
incurred aggregate environmental capital expenditures and other environmental
costs totaling $65.1 million in 2004, $72.1 million in 2003 and $62.6 million in
2002, including tailings management levee maintenance and mine reclamation. In
2005, we expect to incur approximately $21 million of aggregate environmental
capital expenditures and $39 million of other environmental costs. These
environmental expenditures are part of our overall 2005 operating
budget.
We are
currently revegetating portions of the tailings deposition area. Upon the
completion of our mining operations, we will fulfill the remaining commitments
we made to the Indonesian government in connection with our tailings management
plan. Our options for revegetation of affected areas of the deposition area
include natural revegetation, forage crops and grasses, fruits, grains and
vegetables, and other traditional food and medicinal crops. Decisions on these
options are made in consultation with local and regional government, local
residents and other stakeholders. In addition to the revegetation and
reclamation of the deposition area, we will continue to operate treatment
systems as long as necessary. We also monitor and test the water discharged from
our mine and the pH, sulfate and electrical conductivity levels of ground water
in the deposition area. The stability of our levees will be ensured through
routine visual inspection, revegetation of the levee embankments, and the
transfer of our levee roads for public use. Moreover, we will submit an annual
written report to the Indonesian government regarding our reclamation
activities.
Our
ultimate reclamation and closure activities will be determined after
consultation with the Indonesian government, local residents and other parties.
Our best estimate is that PT Freeport Indonesia’s total
aggregate reclamation and closure obligations totaled approximately $149 million
as of December 31, 2004. Estimates of reclamation and closure costs involve
complex issues requiring integrated assessments over a period of many years, and
we may revise them as we perform more complete studies. Some reclamation costs
will be incurred during mining activities, while most closure costs and the
remaining reclamation costs will be incurred at the end of mining activities,
which are currently estimated to continue for more than 35 years.
Moreover,
we cannot predict with any certainty the ultimate future uses of the tailings
deposition area once our mining operations are completed. In addition to forage
crop and grass planting and food and medicinal crop production, possible future
uses of the tailings deposition area include rainforest regrowth, production of
timber, fuel woods, fruits and nuts and other economic forestry, and the
cultivation of fish, shellfish and other aquaculture. The ultimate future uses
will be determined in consultation with local and regional government, local
residents and other stakeholders.
In 1996,
we began contributing to a cash fund ($6.0 million balance at December 31, 2004)
designed to accumulate at least $100 million by the end of our Indonesian mining
activities. We plan to use this fund, including accrued interest, to pay for
mine closure and reclamation costs. Any incremental costs in excess of this $100
million fund are expected to be incurred throughout the life of the mine and
would be funded by operational cash flow or other sources. An increasing
emphasis on environmental issues and future changes in regulations could require
us to incur additional costs that would be charged against future operations.
Estimates involving environmental matters are by their nature imprecise and
changes in government regulations, operations, technology and inflation could
require us to revise them over time.
We
believe that Atlantic Copper’s
facilities and operations are in compliance in all material respects with all
applicable Spanish environmental laws, rules and regulations. However, in July
2002, the Integrated Pollution Prevention and Control guidelines were adopted
under Spanish law with a phase in for compliance by 2007. Atlantic Copper,
working with local environmental authorities, is continually assessing the
impact of these new guidelines on its operations, and has budgeted approximately
$30 million as its best estimate of the remaining required capital expenditures
from 2005 through 2007 to comply. In 2002, the Environmental Management Systems
at Atlantic Copper’s
operations in Huelva, Cordoba and Barcelona were audited by the Spanish
Association for Standardization and Certification (AENOR), in accordance with
the ISO 14001:96 international certification standard and the new European Union
Environmental, Eco-Management and Eco-Auditing (EMAS) Regulation No. 761/2001.
AENOR is a Spanish not-for-profit entity that has been accredited by the Spanish
government to inspect, audit and certify environmental management systems.
Atlantic Copper received positive results from the audits, which are required
annually to retain the ISO 14001 certification that Atlantic Copper achieved in
prior years.
The
Indonesian and Spanish governments may periodically revise their environmental
laws and regulations or adopt new ones, and we cannot predict the effects on our
operations of new or revised regulations. We have expended significant
resources, both financial and managerial, to comply with environmental
regulations and permitting and approval requirements, and we anticipate that we
will continue to do so in the future. There can be no assurance that we will not
incur additional significant costs and liabilities to comply with such current
and future regulations or that such regulations will not materially affect our
operations. See “Risk Factors.”
Wanagon
Overburden Stockpile Slippage
In May
2000, a slippage occurred in the overburden stockpile at the Wanagon basin
following a period of excessive rainfall, causing a wave of water and material
to overflow from the basin. Four employees of a contractor to PT Freeport
Indonesia were working in the area and perished. Contained within the mud were
the treatment solids from the lime precipitation of acid rock drainage, which
then entered the tailings river system near the village of Banti. We incurred
environmental costs for overburden disposition, overburden stockpile
stabilization, laboratory testing and consulting studies relating to the Wanagon
overburden waste stockpile. PT Freeport Indonesia charged $2.9 million to its
2000 production costs, primarily for assets lost as a result of the
incident.
Sampling
and monitoring were renewed and expanded at a number of stations covering the
entire tailings system between the mine and estuary. A specific environmental
risk analysis was conducted as a result of this event and used data from the
monitoring program. No long-term environmental effects were found from the
direct monitoring nor predicted by the environmental risk assessment. The
slippage caused a flow of sediments containing elevated levels of precipitated
copper. As a result, water quality in the river was temporarily diminished due
to higher levels of total suspended solids. According to water quality tests,
the pre-slippage water quality in the river was substantially reestablished by
the following day and was fully reestablished within 22 days after the
incident.
PT
Freeport Indonesia engaged international experts and outside consultants led by
a team from the Institute of Technology of Bandung (Indonesia) to conduct a
comprehensive study of the cause of the slippage and to recommend a future
course of action. Working with the close cooperation of the Indonesian
Department of Energy and Natural Resources and also BAPEDAL (the Indonesian
environmental protection agency), we initiated an overburden stockpile
stabilization program and voluntarily agreed to a temporary limitation on
average production from the Grasberg open pit of 200,000 metric tons per day.
Underground ore production was not affected. A safe-zone based on engineering
calculations was subsequently identified along the Wanagon River and within the
village of Banti. The residents within this zone were temporarily moved to
Tembagapura, our original mining town site, and the houses were removed. These
families were relocated to new housing designed according to their wishes and
located on higher ground in Banti.
After
successful completion of the stabilization program and consultation with
affected local residents, and with the approval of the Indonesian government,
normal overburden placement at the Wanagon overburden stockpile resumed and the
restriction on production from the Grasberg open pit was lifted at the end of
2000.
Employees
and Relationship with FM Services Company
As of
December 31, 2004, PT Freeport Indonesia had 7,858 employees (approximately 98
percent Indonesian) and 6,247 contract workers, the vast majority of whom were
Indonesian. Approximately 75 percent of PT Freeport Indonesia’s
employees are represented by the All Indonesia Workers’ Union, which operates
under Government of Indonesia supervision. PT Freeport Indonesia has a labor
agreement covering all of its hourly-paid Indonesian employees, the key
provisions of which are renegotiated biannually. In June 2003, PT Freeport
Indonesia and its workers agreed to terms for a new labor agreement that expires
September 30, 2005. PT Freeport Indonesia’s
relations with the workers’ union have generally been satisfactory. In addition,
4,587 persons worked for privatized companies providing services within PT
Freeport Indonesia’s
operations area.
As of
December 31, 2004, Atlantic Copper had 731 employees, of which approximately 75
percent are represented by union contracts. In July 2003, Atlantic Copper
successfully negotiated new labor contracts covering its smelter/refinery and
copper wire manufacturing workforce in Huelva, Spain with no material changes in
terms. Atlantic Copper’s union
contracts in Huelva expired on December 31, 2004, and negotiations for new
contracts are expected to begin in April 2005. Atlantic Copper experienced a
four-day labor strike in October 2004 at its smelter facility in Huelva because
of a workforce reduction plan. The union’s issues
with the workforce reduction plan were resolved and the plan was approved by
Spanish authorities and implemented in December 2004.
FM
Services Company (FM Services) furnishes executive, administrative, financial,
accounting, legal, tax and similar services to us. FM Services became our wholly
owned subsidiary in October 2002, when we purchased the remaining 50 percent
ownership in FM Services from McMoRan Exploration Co. (McMoRan) for $1.3
million. As of December 31, 2004, FCX had 11 employees and FM Services had 141
employees. FM Services employees continue to provide services to McMoRan, a
publicly traded company engaged in the exploration, development and production
of oil and gas, and Stratus Properties Inc., a publicly traded company engaged
in the development of real estate.
Nusamba
Loan Guarantee
In 1997,
PT Nusamba Mineral Industri (Nusamba), an Indonesian company and a subsidiary of
PT Nusantara Ampera Bakti, acquired from a third party approximately 51 percent
of the capital stock of PT Indocopper Investama. PT Indocopper Investama is an
Indonesian company whose only significant assets are its approximate 9.36
percent ownership of PT Freeport Indonesia’s common
stock and its 10.0 percent ownership of Eastern Minerals’ stock. Nusamba paid
$61.6 million in cash and financed $253.4 million of the $315.0 million purchase
price with a variable-rate commercial loan from a syndicate of commercial banks,
including JPMorgan Chase Bank as agent, which was to mature in March 2002. We
guaranteed the Nusamba loan for the purpose of continuing minority Indonesian
ownership of PT Freeport Indonesia. We also agreed to lend to Nusamba any
amounts to cover any shortfalls between the interest payments due on the
commercial loan and dividends received by Nusamba from PT Indocopper Investama.
Through December 31, 2001, we loaned Nusamba $68.9 million to cover such
shortfalls and we charged $7.3 million of this amount to expense because the
loans exceeded Nusamba’s initial
cash investment.
In early
2002, Nusamba informed us that it did not expect to be able to repay the bank
loan or our loan at maturity. On February 27, 2002, we repaid the bank loan as
provided for under the terms of our credit facilities and acquired
Nusamba’s
ownership in PT Indocopper Investama. For accounting purposes, the transactions
were deemed effective as of December 31, 2001. As a result of our payment of the
Nusamba bank loan, our ownership interest in PT Freeport Indonesia increased to
90.64 percent from 85.87 percent and our ownership interest in Eastern Minerals
increased to 100 percent from 95 percent.
Risk
Factors
This
report contains “forward-looking statements” within the meaning of the federal
securities laws. Forward-looking statements are all statements other than
statements of historical facts, such as statements regarding anticipated
production volumes, sales volumes, ore grades, commodity prices, development and
capital expenditures, mine production and development plans, environmental
reclamation and closure cost and plans, reserve estimates, political, economic
and social conditions in our areas of operations, and exploration efforts and
results. Except for our ongoing obligations under the federal securities laws,
we do not intend, and we undertake no obligation, to update or revise any
forward-looking statements. Readers are cautioned that forward-looking
statements are not guarantees of future performance and actual results may
differ materially from those projected, anticipated or assumed in the
forward-looking statements. Important factors that could cause our actual
results to differ materially from those anticipated in the forward-looking
statements include the following:
Because
our primary operating assets are located in the Republic of Indonesia, our
business may be adversely affected by Indonesian political, economic and social
uncertainties, in addition to the usual risks associated with conducting
business in a foreign country.
Indonesia
has faced political, economic and social uncertainties, including separatist
movements and civil and religious strife in a number of provinces. In
particular, several separatist groups are opposing Indonesian rule over the
province of Papua, where our mining operations are located, and have sought
political independence for the province. In response to demands for political
independence, new Indonesian regional autonomy laws became effective January 1,
2001. However, the manner in which the new laws are being implemented and the
degree of political and economic autonomy that they may bring to individual
provinces, including Papua, is uncertain and is a current issue in Indonesian
politics. Moreover, in Papua there have been sporadic attacks on civilians by
separatists and sporadic but highly publicized conflicts between separatists and
the Indonesian military. Social, economic and political instability in Papua
could materially and adversely affect us if this instability results in damage
to our property or interruption of our activities.
Maintaining
a good working relationship with the Indonesian government is important to us
because all of our mining operations are located in Indonesia and are conducted
pursuant to Contracts of Work with the Indonesian government. Accordingly, we
are also subject to the usual risks associated with conducting business in and
with a foreign country, including the risk of forced modification of existing
contracts, changes in the country’s laws and
policies, including those relating to taxation, royalties, divestment, imports,
exports and currency, and the risk of having to submit to the jurisdiction of a
foreign court or arbitration panel or having to enforce the judgment of a
foreign court or arbitration panel against a sovereign nation within its own
territory. In addition, we are subject to the risk of expropriation, and our
insurance does not cover losses caused by expropriation.
In
addition to the usual risks encountered in the mining industry, we face
additional risks because our operations are located on difficult terrain in a
very remote area.
Our
mining operations are located in steeply mountainous terrain in a very remote
area in Indonesia. Because of these conditions, we have had to overcome special
engineering difficulties and develop extensive infrastructure facilities. In
addition, the area receives considerable rainfall, which has led to periodic
floods and mudslides. The mine site is also in an active seismic area and has
experienced earth tremors from time to time. In addition to these special risks,
we are also subject to the usual risks associated with the mining industry, such
as the risk of encountering unexpected geological conditions that may result in
cave-ins and flooding of mine areas. Our insurance may not sufficiently cover an
unexpected natural or operating disaster.
On
October 9, 2003, a slippage of material occurred in a section of the Grasberg
open pit, resulting in eight fatalities. On December 12, 2003, a debris flow
involving a relatively small amount of loose material occurred in the same
section of the open pit resulting in only minor property damage. All material
involved in the affected mining areas has been removed. The events caused us to
alter our short-term mine sequencing plans, which adversely affected our 2003
and 2004 production. While we resumed normal production activities in the second
quarter of 2004, no assurance can be given that these events will not adversely
affect production over the longer term or that similar events will not occur in
the future.
The
terrorist attacks in the United States on September 11, 2001, recent attacks in
Indonesia and the potential for additional future terrorist acts and other
recent events have created economic and political uncertainties that could
materially and adversely affect our business and the prices of our
securities.
On August
31, 2002, three people were killed and 11 others were wounded in an ambush by a
group of unidentified assailants. The assailants shot at several vehicles
transporting international contract teachers from our school in Tembagapura,
their family members, and other contractors to PT Freeport Indonesia on the road
near Tembagapura, the mining town where the majority of PT Freeport
Indonesia’s
personnel reside. We, along with the United States government, the central
Indonesian government, the Papuan provincial and local governments, and leaders
of the local people residing in the area of our operations condemned the attack.
Indonesian authorities and the United States Federal Bureau of Investigation
investigated the incident, which resulted in the U.S. indictment of an alleged
operational commander of the Free Papua Movement/National Freedom
Force.
On
October 12, 2002, a bombing killed 202 people in the Indonesian province of
Bali, which is 1,500 miles west of our mining and milling operations. Indonesian
authorities arrested 35 people in connection with this bombing and 29 of those
arrested have been tried and convicted. On August 5, 2003, 12 people were killed
and over 100 others were injured by a car bomb detonated outside of the JW
Marriott Hotel in Jakarta, Indonesia. On September 9, 2004, 11 people were
killed and over 200 others injured by a car bomb detonated in front of the
Australian embassy in Jakarta. The same international terrorist organizations
are suspected in each of these incidents. Our mining and milling operations were
not interrupted by these incidents but our corporate office in Jakarta had to
relocate for several months following the bombing in front of the Australian
embassy.
We cannot
predict whether there will be additional incidents similar to the recent
shooting or bombings. If there were to be additional separatist, terrorist or
other violence in Indonesia, it could materially and adversely affect our
business and profitability in ways that we cannot predict at this
time.
Terrorist
attacks and other recent events have caused uncertainty in the world’s
financial and insurance markets and may significantly increase global political,
economic and social instability, including in Indonesia. In addition to the
Bali, JW Marriott Hotel and Australian embassy bombings, there have been
anti-American demonstrations in certain sections of Indonesia reportedly led by
radical Islamic activists. Radical activists have also threatened to attack
foreign interests and have called for the expulsion of United States and British
citizens and companies from Indonesia.
It is
possible that further acts of terrorism may be directed against the United
States domestically or abroad, and such acts could be directed against
properties and personnel of companies such as ours. The attacks and the
resulting economic and political uncertainties, including the potential for
further terrorist acts, have caused our insurance premiums to increase.
Moreover, while our property and business interruption insurance covers damages
to insured property directly caused by terrorism, this insurance does not cover
damages and losses caused by war. Terrorism and war developments may materially
and adversely affect our business and profitability and the prices of our
securities in ways that we cannot predict at this time.
Our
profitability can vary significantly with fluctuations in the market prices of
copper and gold.
Our
revenues are derived primarily from the sale of copper concentrates, which also
contain significant quantities of gold and silver, and from the sale of copper
cathodes and anodes. Although we sell most of our copper concentrates under
long-term contracts, the selling price is based on world metal prices at or near
the time of shipment and delivery.
During
2004, the daily closing prices on the London spot market ranged from $1.06 to
$1.49 per pound for copper and $374 to $456 per ounce for gold. During 2003, the
daily closing prices on the London spot market ranged from $0.70 to $1.05 per
pound for copper and $320 to $417 per ounce for gold.
World
copper prices have historically fluctuated widely and are affected by numerous
factors beyond our control, including:
· |
the
strength of the United States economy and the economies of other
industrialized and developing nations, including
China; |
· |
available
supplies of copper from mine production and
inventories; |
· |
sales
by holders and producers of copper; |
· |
demand
for industrial products containing copper; and
|
World
gold prices also have historically fluctuated widely and are affected by
numerous factors beyond our control, including:
· |
the
strength of the United States economy and the economies of other
industrialized and developing nations, including
China; |
· |
global
or regional political or economic crises; |
· |
the
relative strength of the United States dollar and other
currencies; |
· |
expectations
with respect to the rate of inflation; |
· |
sales
of gold by central banks and other holders;
|
· |
demand
for jewelry containing gold; and |
Any
material decrease in market prices of copper or gold would materially and
adversely affect our results of operations and financial condition. See our 2004
Annual Report incorporated herein by reference for an analysis of the effect on
our revenues and net income of changes in copper and gold prices.
Our
Contracts of Work are subject to termination if we do not comply with our
contractual obligations, and if a dispute arises, we may have to submit to the
jurisdiction of a foreign court or arbitration panel.
PT
Freeport Indonesia’s
Contracts of Work and other Contracts of Work in which we have an interest were
entered into under Indonesia’s 1967
Foreign Capital Investment Law, which provides guarantees of remittance rights
and protection against nationalization. Our Contracts of Work can be terminated
by the Government of Indonesia if we do not satisfy our contractual obligations,
which include the payment of royalties and taxes to the government and the
satisfaction of certain mining, environmental, safety and health requirements.
Indonesian government officials have periodically raised questions regarding our
compliance with Indonesian environmental
laws and
regulations and the terms of the Contracts of Work. In order to address these
questions, the Indonesian government formed a fact-finding team in 2000 that
reviewed our compliance with all aspects of PT Freeport Indonesia’s Contract
of Work. When or whether the Indonesian government will release any report on
its investigation is uncertain. In addition, we cannot assure you that the
Indonesian government’s report,
if and when it is released, will conclude that we are complying with all of the
provisions of PT Freeport Indonesia’s Contract
of Work.
Moreover,
in recent years, certain government officials and others in Indonesia have
questioned the validity of contracts entered into by the Government of Indonesia
prior to October 1999 (i.e., during
the Suharto regime), including PT Freeport Indonesia’s Contract
of Work, which was signed in December 1991. We cannot assure you that the
validity of, or our compliance with the Contracts of Work will not be challenged
for political or other reasons. PT Freeport Indonesia’s
Contracts of Work and our other Contracts of Work require that disputes with the
Indonesian government be submitted to international arbitration. Notwithstanding
that provision, if a dispute arises under the Contracts of Work, we face the
risk of having to submit to the jurisdiction of a foreign court or arbitration
panel, and if we prevail in such a dispute, we will face the additional risk of
having to enforce the judgment of a foreign court or arbitration panel against
Indonesia within its own territory.
Any
suspension of required activities under our Contracts of Work requires the
consent of the Indonesian government.
Our
Contracts of Work permit us to suspend certain contractually required
activities, including exploration, for a period of one year by making a written
request to the Indonesian government. These requests are subject to the approval
of the Indonesian government and are renewable annually. If we do not request a
suspension or are denied a suspension, then we are required to continue our
activities under the Contract of Work or potentially be declared in default.
Moreover, if a suspension continues for more than one year for reasons other
than force majeure and the Indonesian government has not approved such
continuation, then the government would be entitled to declare a default under
the Contract of Work.
We
suspended our field exploration activities outside of Block A in recent years
due to safety and security issues and regulatory uncertainty relating to a
possible conflict between our mining and exploration rights in certain forest
areas and an Indonesian Forestry law enacted in 1999 prohibiting open-pit mining
in forest preservation areas. In 2001, we requested and received from the
Government of Indonesia, formal temporary suspensions of our obligations under
the Contracts of Work in all areas outside of Block A. Recent Indonesian
legislation permits open-pit mining in PT Freeport Indonesia’s Block B
area, subject to certain requirements. We are currently assessing these
requirements and security issues. The timing for the resumption of exploration
activities in our Contract of Work areas outside of Block A depends on the
resolution of these matters.
Our
mining operations create difficult and costly environmental challenges, and
future changes in environmental laws, or unanticipated environmental impacts
from our operations, could require us to incur increased
costs.
Mining
operations on the scale of our operations in Papua involve significant
environmental risks and challenges. Our primary challenge is to dispose of the
large amount of crushed and ground rock material, called tailings, that results
from the process by which we physically separate the copper-, gold- and
silver-bearing materials from the ore that we mine. Our tailings management plan
uses the river system near our mine to transport the tailings to the lowlands
where the tailings and natural sediments are deposited in a controlled area
contained within a levee system that will be revegetated. We incurred aggregate
costs relating to tailings management of $11.8 million in 2004, $8.3 million in
2003 and $7.0 million in 2002.
Another
major environmental challenge is managing overburden, which is the rock that
must be moved aside in the mining process in order to reach the ore. In the
presence of air, water and naturally occurring bacteria, some overburden can
cause acid rock drainage, or acidic water containing dissolved metals which, if
not properly managed, can have a negative impact on the
environment.
Certain
Indonesian governmental officials have from time to time raised issues with
respect to our tailings and overburden management plans, including a suggestion
that we implement a pipeline system rather than our river deposition system for
tailings disposal. Because our mining operations are remotely located in steep
mountainous terrain and in an active seismic area, a pipeline system would be
costly, difficult to construct and maintain, and more prone to catastrophic
failure. An external panel of qualified experts, as directed in our 300K ANDAL
(the Environmental Impact
Assessment
document submitted to the Indonesian government), conducted detailed reviews and
analyses of a number of technical studies. They concluded that all significant
impacts identified were in line with the 300K ANDAL predictions, and that the
current system of riverine tailings management was appropriate considering all
site-specific factors. For these reasons, we do not believe that a pipeline
system is necessary or practical.
We
anticipate that we will continue to spend significant financial and managerial
resources on environmental compliance. In addition, changes in Indonesian
environmental laws or unanticipated environmental impacts from our operations
could require us to incur significant unanticipated costs.
The
volume and grade of the reserves we recover and our rates of production may be
more or less than we anticipate.
Our
reserve amounts are determined in accordance with established mining industry
practices and standards, but are merely estimates of the mineral deposits that
can be recovered economically and legally. In addition, our ore bodies may not
conform to standard geological expectations. Because ore bodies do not contain
uniform grades of minerals, our metal recovery rates will vary from time to
time, which will result in variations in the volumes of minerals that we can
sell from period to period. Some of our reserves may become unprofitable to
develop if there are unfavorable long-term market price fluctuations in copper
and gold, or if there are significant increases in our operating or capital
costs. In addition, our exploration programs may not result in the discovery of
additional mineral deposits that we can mine profitably.
We
do not expect to mine all of our reserves before the initial term of our
Contract of Work expires.
All of
our current proven and probable reserves, including the Grasberg deposit, are
located in Block A. The initial term of our Contract of Work covering these
reserves expires at the end of 2021. We can extend this term for two successive
10-year periods, subject to the approval of the Indonesian government, which
under our Contract of Work cannot be withheld or delayed unreasonably. Our
reserves reflect estimates of minerals that can be recovered through the end of
2041 (i.e.,
through the expiration of the two 10-year extensions) and our current mine plan
has been developed, and our operations are based on the assumption that we will
receive the two 10-year extensions. As a result, we will not mine all of our
reserves during the current term of our Contract of Work, and there can be no
assurance that the Indonesian government will approve the extensions. Prior to
the end of 2021, we expect to mine approximately 47 percent of aggregate proven
and probable recoverable ore at December 31, 2004, representing approximately 55
percent of PT Freeport Indonesia’s share of
recoverable copper reserves and approximately 69 percent of its share of
recoverable gold reserves.
Servicing
our debt will require a significant amount of cash, and our ability to generate
sufficient cash depends on many factors, some of which are beyond our
control.
Our
ability to make payments on and to refinance our maturing debt depends on our
ability to generate sufficient cash flow. This ability, to a significant extent,
is subject to commodity prices and general economic, financial, regulatory,
political and other factors that are beyond our control. In addition, our
ability to borrow funds in the future to service our debt will depend on meeting
the financial covenants in our 10⅛% senior notes due 2010, our 6⅞% senior notes
due 2014, our bank credit facilities and other debt agreements we may have in
the future. Future borrowings may not be available to us under our bank credit
facilities or from the capital markets in amounts sufficient to enable us to pay
our obligations as they mature or to fund other liquidity needs. As a result, we
may need to refinance all or a portion of our debt on or before maturity. Any
inability to generate sufficient cash flow or refinance our debt on favorable
terms could materially and adversely affect our financial
condition.
Covenants
in our bank credit facilities impose restrictions on us.
Although
we currently have no amounts outstanding under our bank credit facilities, our
bank credit facilities:
· |
restrict
the repurchase of, and payment of dividends on, our common stock under
certain circumstances; |
· |
limit,
among other things, our ability to: |
· |
incur
additional indebtedness; |
· |
engage
in transactions with affiliates; |
· |
create
liens on our assets; and |
· |
require
us to maintain specified financial ratios and satisfy financial condition
tests. |
Events
beyond our control, including changes in general economic and business
conditions, may affect our ability to satisfy these covenants, which could
result in a default. If an event of default occurs, the banks could declare any
amounts outstanding together with accrued interest, to be immediately due and
payable. An event of default under our bank credit facilities may also give rise
to an event of default under our other existing and future debt agreements.
Covenants
in our 10⅛% senior notes due 2010 and 6⅞% senior notes due 2014 also impose
restrictions on us.
Our 10⅛%
senior notes and our 6⅞% senior notes limit, among other things, our ability
to:
· |
pay
dividends on our common stock and repurchase and redeem certain classes of
our capital stock; |
· |
incur
additional indebtedness; |
· |
engage
in transactions with affiliates; and |
· |
create
liens on our assets. |
Movements
in foreign currency exchange rates or interest rates could negatively affect our
operating results.
All of
our revenues and a significant portion of our costs are denominated in U.S.
dollars; however, some costs, and certain asset and liability accounts are
denominated in Indonesian rupiah, Australian dollars or euros. As a result, we
are generally less profitable when the U.S. dollar weakens in relation to these
foreign currencies.
The
rupiah/U.S. dollar daily closing exchange rate ranged from 8,316 to 9,479 rupiah
per U.S. dollar during 2004, and on December 31, 2004, the closing exchange rate
was 9,270 rupiah per U.S. dollar compared with 8,437 rupiah per U.S. dollar on
December 31, 2003. During 2004, the Australian dollar/U.S. dollar daily closing
exchange rate ranged from $0.68 to $0.80 per Australian dollar and the euro/U.S.
dollar daily closing exchange rate ranged from $1.18 to $1.37 per euro. On
December 31, 2004 and 2003, the closing exchange rates were $0.78 per Australian
dollar and $1.36 per euro and $0.75 per Australian dollar and $1.26 per euro,
respectively.
From time
to time, we have in the past and may in the future implement currency hedges
intended to reduce our exposure to changes in foreign currency exchange rates.
However, our hedging strategies may not be successful, and any of our unhedged
foreign exchange payment requirements will continue to be subject to market
fluctuations. In addition, our bank credit facilities are based on fluctuating
interest rates. Accordingly, an increase in interest rates could adversely
affect our results of operations and financial condition.
Because
we are a holding company, our ability to pay our debts depends upon the ability
of our subsidiaries to pay us dividends and to advance us funds. In addition,
our ability to participate in any distribution of our subsidiaries’ assets is
generally subject to the prior claims of the subsidiaries’
creditors.
Because
we conduct business primarily through PT Freeport Indonesia, our major
subsidiary, and other subsidiaries, our ability to pay our debts depends upon
the earnings and cash flow of PT Freeport Indonesia and our other subsidiaries
and their ability to pay us dividends and to advance us funds. Contractual and
legal restrictions applicable to our subsidiaries could also limit our ability
to obtain cash from them. Our rights to participate in any distribution of our
subsidiaries’ assets upon their liquidation, reorganization or insolvency would
generally be subject to the prior claims of the subsidiaries’ creditors,
including any trade creditors and preferred shareholders.
Item
3. Legal Proceedings.
We are
involved from time to time in various legal proceedings of a character normally
incident to the ordinary course of our business. We believe that potential
liability in such proceedings would not have a material adverse effect on our
financial condition or results of operations. We maintain liability insurance to
cover some, but not all, potential liabilities normally incident to the ordinary
course of our business as well as other insurance coverage customary in our
business, with coverage limits that we deem prudent.
Item
4. Submission of Matters to a Vote of Security Holders.
Not
applicable.
Executive
Officers of the Registrant.
Certain
information as of March 1, 2005 about our executive officers, including their
position or office with FCX, PT Freeport Indonesia and Atlantic Copper, is set
forth in the following table and accompanying text:
Name |
Age |
Position
or Office |
|
|
|
James
R. Moffett |
66 |
Chairman
of the Board of FCX. President Commissioner of PT Freeport
Indonesia. |
|
|
|
Richard
C. Adkerson |
58 |
President
and Chief Executive Officer of FCX. Director and Executive Vice President
of PT Freeport Indonesia. Chairman of the Board of Directors of Atlantic
Copper. |
|
|
|
Michael
J. Arnold |
52 |
Chief
Administrative Officer of FCX. Director, Executive Vice
President
and Chief Financial Officer of PT Freeport Indonesia. |
|
|
|
Mark
J. Johnson |
45 |
Senior
Vice President and Chief Operating Officer of FCX. |
|
|
|
Adrianto
Machribie |
63 |
President
Director of PT Freeport Indonesia. |
|
|
|
Kathleen
L. Quirk |
41 |
Senior
Vice President, Chief Financial Officer and Treasurer of FCX. Commissioner
of PT Freeport Indonesia. Director of Atlantic
Copper. |
James
R. Moffett has
served as Chairman of the Board of FCX since 1992. Mr. Moffett previously served
as the Chief Executive Officer of FCX from July 1995 until December 2003. He is
also President Commissioner of PT Freeport Indonesia and Co-Chairman of the
Board of McMoRan Exploration Co. (McMoRan).
Richard
C. Adkerson has
served as FCX’s
President since April 1997 and Chief Executive Officer since December 2003. Mr.
Adkerson previously served as FCX’s Chief
Financial Officer from October 2000 to December 2003. Mr. Adkerson is also a
director and Executive Vice President of PT Freeport Indonesia, Chairman of the
Board of Directors of Atlantic Copper, and Co-Chairman of the Board of McMoRan.
From November 1998 to February 2004, he also served as President and Chief
Executive Officer of McMoRan.
Michael
J. Arnold has
served as the Chief
Administrative Officer of FCX since December 2003. He also served as a director
and Executive Vice President of PT Freeport Indonesia since May 1998.
Mark
J. Johnson has
served as the Senior Vice President and Chief Operating Officer of FCX since
December 2003 and as Vice President of PT Freeport Indonesia since February
2002. He previously served as Vice
President of FCX from July 2001 to December 2003.
Adrianto
Machribie has
served as President Director of PT Freeport Indonesia since March 1996.
Kathleen
L. Quirk has
served as our Senior Vice President, Chief Financial Officer and Treasurer since
December 2003. She previously served as the Vice President and Treasurer of FCX
from February 2000 to December 2003, and as Vice President from February 1999 to
February 2000. Ms. Quirk has also served as a Commissioner of PT Freeport
Indonesia since April 2000, as the Senior Vice President and Treasurer of
McMoRan since April 2002 and as Vice President and Treasurer of McMoRan from
January 2000 to April 2002.
PART
II
Item
5. Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Reclassification
of Class A and Class B Common Shares
On May 2, 2002,
FCX’s
stockholders approved a proposal to reclassify its Class A and Class B common
stock into a single class of common stock on a one share-for-one share basis.
The reclassification simplified the company’s capital
structure, enhanced the company’s ability
to structure and execute equity-based transactions, increased the trading
liquidity of the company’s common
stock, and generated administrative cost savings.
Class
B Common Shares
Our Class
B common shares trade on the NYSE under the symbol “FCX.” The FCX share price is
reported daily in the financial press under “FMCG” in most listings of NYSE
securities. At year-end 2004, the number of holders of record of our Class B
common shares was 8,999. NYSE composite tape Class B common share price ranges
during 2004 and 2003 follow:
|
|
2004 |
|
2003 |
|
|
High |
|
Low |
|
High |
|
Low |
First
Quarter |
|
$ |
44.90 |
|
$ |
35.09 |
|
$ |
19.30 |
|
$ |
16.01 |
Second
Quarter |
|
|
39.85 |
|
|
27.76 |
|
|
25.70 |
|
|
16.72 |
Third
Quarter |
|
|
42.13 |
|
|
31.54 |
|
|
34.57 |
|
|
23.45 |
Fourth
Quarter |
|
|
42.55 |
|
|
33.98 |
|
|
46.74 |
|
|
32.73 |
As of
March 1, 2005, there were approximately 8,874 holders of record of our Class B
common stock.
Common
Share Dividends
In
February 2003, the Board of Directors authorized a new cash dividend policy for
FCX’s common
stock with the initial $0.09 per share quarterly dividend being paid on May 1,
2003. In October 2003, the Board of Directors authorized an increase in the cash
dividend to an annual rate of $0.80 per share and increased the dividend again
in October 2004 to an annual rate of $1.00 per share. In December 2004, the
Board authorized a supplemental common stock dividend of $0.25 per share, and in
February 2005 the Board authorized a supplemental dividend of $0.50 per share
payable March 31, 2005 to shareholders of record on March 15, 2005. Below is a
summary of the common stock cash dividends declared and paid for the quarterly
periods of 2004 and 2003, and the 2004 supplemental dividend:
|
2004 |
|
2003 |
|
Amount
Per Share |
|
Record
Date |
|
Payment
Date |
|
Amount
Per Share |
|
Record
Date |
|
Payment
Date |
First
Quarter |
$0.20 |
|
Jan.
15, 2004 |
|
Feb.
1, 2004 |
|
N/A |
|
N/A |
|
N/A |
Second
Quarter |
0.20 |
|
Apr.
15, 2004 |
|
May
1, 2004 |
|
$0.09 |
|
Apr.
15, 2003 |
|
May
1, 2003 |
Third
Quarter |
0.20 |
|
July
15, 2004 |
|
Aug.
1, 2004 |
|
0.09 |
|
July
15, 2003 |
|
Aug.
1, 2003 |
Fourth
Quarter |
0.25 |
|
Oct.
15, 2004 |
|
Nov.
1, 2004 |
|
0.09 |
|
Oct.
15, 2003 |
|
Nov.
3, 2003 |
Supplemental
dividend |
0.25 |
|
Dec.
20, 2004 |
|
Dec.
29, 2004 |
|
N/A |
|
N/A |
|
N/A |
The
declaration and payment of dividends is at the discretion of our Board and will
depend on our financial results, cash requirements, future prospects and other
factors deemed relevant by the Board. In addition, payment of dividends on our
common stock and purchases of common stock are subject to limitations under our
10⅛% Senior Notes and 6⅞% Senior Notes and, in certain circumstances, our credit
facility.
Issuer
Purchases of Equity Securities
In
October 2003, our Board of Directors approved a new open market share purchase
program for up to 20 million shares, which replaced our previous program. The
program does not have an expiration date. No shares were purchased during the
three-month period ended December 31, 2004, and 16.6 million shares remain
available for purchase.
Item
6. Selected Financial Data.
The
information set forth under the caption “Selected Financial and Operating Data”
of our 2004 Annual Report is incorporated herein by reference.
Our ratio
of earnings to fixed charges was as follows for the years
presented.
|
Years
Ended December 31, |
|
2004 |
2003 |
2002 |
2001 |
2000 |
Ratio
of earnings to fixed charges |
4.7x |
3.9x |
3.4x |
2.9x |
2.3x |
Ratio
of earnings to fixed charges and preferred stock dividends |
2.8x |
3.0x |
2.5x |
2.1x |
1.7x |
For the
ratio of earnings to fixed charges calculation, earnings consist of pre-tax
income from continuing operations before minority interests in consolidated
subsidiaries, income or loss from equity investees and fixed charges. Fixed
charges include interest and that portion of rent deemed representative of
interest. For the ratio of earnings to fixed charges and preferred stock
dividends calculation, we assumed that our preferred stock dividend requirements
were equal to the pre-tax earnings that would be required to cover those
dividend requirements. We computed those pre-tax earnings using actual tax rates
for each year.
Items
7. and 7A. Management’s
Discussion and Analysis of Financial Condition and Results of Operation and
Quantitative and Qualitative Disclosures About Market
Risks.
The
information set fourth under the caption “Management’s
Discussion and Analysis” of our 2004 Annual Report is incorporated herein by
reference.
Item
8. Financial Statements and Supplementary Data.
Our
financial statements and the notes thereto, the report thereon of Ernst &
Young LLP, each as set forth in our 2004 Annual Report, are incorporated
herein by reference.
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
Not
applicable.
Item
9A. Controls and Procedures.
(a) Evaluation
of disclosure controls and procedures. Our
chief executive officer and chief financial officer, with the participation of
management, have evaluated the effectiveness of our “disclosure controls and
procedures” (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934) as of the end of the period covered by this annual report
on Form 10-K. Based on their evaluation, they have concluded that our disclosure
controls and procedures are effective in timely alerting them to material
information relating to FCX (including our consolidated subsidiaries) required
to be disclosed in our periodic Commission filings.
(b) Changes
in internal controls. There
has been no change in our internal control over financial reporting that
occurred during the fourth quarter that has materially affected, or is
reasonably likely to materially affect our internal control over financial
reporting.
(c) Management’s annual
report on internal control over financial reporting and the report thereon of
Ernst & Young LLP are incorporated herein by reference to our 2004 Annual
Report.
Item
9B. Other Information.
Not
applicable.
PART
III
Item
10. Directors and Executive Officers of the Registrant.
The
information set forth under the caption “Information About Nominees and
Directors” of our definitive Proxy Statement to be filed with the Commission,
relating to our 2005 Annual Meeting to be held on May 5, 2005, is incorporated
herein by reference. The information required by Item 10 regarding our executive
officers appears in a separately captioned heading after Item 4 in Part I of
this report.
Item
11. Executive Compensation.
The
information set forth under the captions “Director Compensation” and “Executive
Officer Compensation” of our definitive Proxy Statement to be filed with the
Commission, relating to our 2005 Annual Meeting to be held on May 5, 2005, is
incorporated herein by reference.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The
information set forth under the captions “Stock Ownership of Directors and
Executive Officers,” “Stock Ownership of Certain Beneficial Owners” and
“Proposal to Adopt the 2005 Annual Incentive Plan” of our definitive Proxy
Statement to be filed with the Commission, relating to our 2005 Annual Meeting
to be held on May 5, 2005, is incorporated herein by reference.
Item
13. Certain Relationships and Related Transactions.
The
information set forth under the caption “Certain Transactions” of our definitive
Proxy Statement to be filed with the Commission, relating to our 2005 Annual
Meeting to be held on May 5, 2005, is incorporated herein by
reference.
Item
14. Principal Accounting Fees and Services.
The
information set forth under the caption “Independent Auditors” of our definitive
Proxy Statement to be filed with the
Commission, relating to our 2005 Annual Meeting to be held on May 5, 2005, is
incorporated herein by reference.
PART
IV
Item
15. Exhibits and Financial Statement Schedules.
(a)(1). Financial
Statements.
Reference
is made to Item 8 and the Index to Financial Statements appearing on page F-1
hereof.
(a)(2). Financial
Statement Schedules.
Reference
is made to the Index to Financial Statements appearing on page F-1
hereof.
(a)(3). Exhibits.
Reference
is made to the Exhibit Index beginning on page E-1 hereof.
SIGNATURES
Pursuant
to the requirements of Section 13 of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 15, 2005.
Freeport-McMoRan
Copper & Gold Inc.
By:
/s/ Richard C. Adkerson
Richard
C. Adkerson
President
and
Chief
Executive Officer
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant in the capacities
indicated on March 15, 2005.
* |
Chairman
of the Board |
James
R. Moffett |
|
|
|
* |
Vice
Chairman of the Board |
B.
M. Rankin, Jr. |
|
|
|
/s/
Richard C. Adkerson |
President
and Chief Executive Officer |
Richard
C. Adkerson |
(Principal
Executive Officer) |
|
|
/s/
Kathleen L. Quirk |
Senior
Vice President, Chief Financial Officer and |
Kathleen
L. Quirk |
Treasurer |
|
(Principal
Financial Officer) |
|
|
* |
Vice
President and Controller - Financial Reporting |
C.
Donald Whitmire, Jr. |
(Principal
Accounting Officer) |
|
|
* |
Director |
Robert
J. Allison, Jr. |
|
|
|
* |
Director |
Robert
A. Day |
|
|
|
* |
Director |
Gerald
J. Ford |
|
|
|
* |
Director |
H.
Devon Graham, Jr. |
|
|
|
* |
Director |
J.
Bennett Johnston |
|
|
|
* |
Director |
Bobby
Lee Lackey |
|
|
|
* |
Director |
J.
Taylor Wharton |
|
|
|
|
|
|
|
*By:
/s/ Richard C.
Adkerson |
|
Richard
C. Adkerson |
|
Attorney-in-Fact |
|
FREEPORT-McMoRan
COPPER & GOLD INC.
INDEX TO
FINANCIAL STATEMENTS
Our
financial statements and the notes thereto, and the report of Ernst & Young
LLP included in our 2004 Annual Report are incorporated herein by reference. The
financial statements in schedule I listed below should be read in conjunction
with our financial statements included in our 2004 Annual Report incorporated
herein by reference.
|
Page |
Report
of Independent Registered Public Accounting Firm |
F-1 |
Schedule
I-Condensed Financial Information of Registrant |
F-2 |
Schedule
II-Valuation and Qualifying Accounts |
F-5 |
Schedules
other than the ones listed above have been omitted since they are either not
required, not applicable or the required information is included in the
financial statements or notes thereto.
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE
STOCKHOLDERS AND BOARD OF DIRECTORS OF
FREEPORT-McMoRan
COPPER & GOLD INC.:
We have
audited the consolidated financial statements of Freeport-McMoRan Copper &
Gold Inc. (the Company) as of December 31, 2004 and 2003 and for each of the
three years in the period ended December 31, 2004, and have issued our report
thereon dated March 9, 2005. Our audits also included the schedules listed in
the index above for this Form 10-K. The schedules listed in the index above are
the responsibility of the Company’s
management. Our responsibility is to express an opinion based on our audits.
In our
opinion, the schedules referred to above, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Ernst
& Young LLP
New
Orleans, Louisiana
March 9,
2005
FREEPORT-McMoRan
COPPER & GOLD INC.
SCHEDULE
I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE
SHEETS
|
December
31, |
|
|
2004 |
|
2003 |
|
Assets: |
(In
Thousands) |
|
Cash |
$ |
98,125 |
|
$ |
205,704 |
|
Restricted
cash and investments |
|
500 |
|
|
23,964 |
|
Interest
receivable |
|
1,296 |
|
|
1,218 |
|
Due
from affiliates |
|
31,973 |
|
|
35,507 |
|
Notes
receivable from PT Freeport Indonesia |
|
192,381 |
|
|
204,882 |
|
Notes
receivable Atlantic Copper |
|
189,500 |
|
|
- |
|
Investments
in PT Freeport Indonesia and PT Indocopper Investama |
|
2,326,089 |
|
|
2,022,655 |
|
Investment
in Atlantic Copper |
|
104,971 |
|
|
4,879 |
|
Investment
in PT Puncakjaya Power |
|
83,824 |
|
|
76,683 |
|
Other
assets |
|
100,999 |
|
|
87,206 |
|
Total
assets |
$ |
3,129,658 |
|
$ |
2,662,698 |
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity: |
|
|
|
|
|
|
Accounts
payable and accrued liabilities |
$ |
18,852 |
|
$ |
9,530 |
|
Accrued
interest payable |
|
46,199 |
|
|
46,643 |
|
Long-term
debt, including current portion |
|
1,683,699 |
|
|
1,667,723 |
|
Other
long-term liabilities |
|
44,636 |
|
|
21,572 |
|
Deferred
income taxes |
|
172,623 |
|
|
141,246 |
|
Stockholders'
equity |
|
1,163,649 |
|
|
775,984 |
|
Total
liabilities and stockholders’ equity |
$ |
3,129,658 |
|
$ |
2,662,698 |
|
The
footnotes to the consolidated financial statements of FCX contained in
FCX’s 2004
Annual Report to stockholders incorporated by reference are an integral part of
these statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
SCHEDULE
I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS
OF INCOMES
|
Years
Ended December 31, |
|
|
2004 |
|
2003 |
|
2002 |
|
|
(In
Thousands) |
|
Income
from investments in PT Freeport Indonesia and PT |
|
|
|
|
|
|
|
|
|
Indocopper
Investama, net of tax provisions |
$ |
380,418 |
|
$ |
421,493 |
|
$ |
343,738 |
|
Net
loss from investment in Atlantic Copper |
|
(103,388 |
) |
|
(58,538 |
) |
|
(34,550 |
) |
Income
from investment in PT Puncakjaya Power |
|
15,712 |
|
|
6,521 |
|
|
- |
|
Intercompany
charges and eliminationsa |
|
88,678 |
|
|
72,588 |
|
|
(4,645 |
) |
General
and administrative expenses |
|
(18,059 |
) |
|
(14,937 |
) |
|
(11,095 |
) |
Depreciation
and amortization |
|
(11,324 |
) |
|
(13,557 |
) |
|
(15,598 |
) |
Interest
expense, net |
|
(125,674 |
) |
|
(151,453 |
) |
|
(104,794 |
) |
Interest
income on PT Freeport Indonesia and Atlantic Copper notes
receivable: |
|
|
|
|
|
|
|
|
|
Gold
and silver production payment loans |
|
9,037 |
|
|
13,683 |
|
|
16,280 |
|
Promissory
notes |
|
5,246 |
|
|
- |
|
|
7,992 |
|
Other
income (expense), net |
|
2,897 |
|
|
4,715 |
|
|
2,905 |
|
Gain
on sale of assets |
|
21,281 |
|
|
- |
|
|
- |
|
Losses
on early extinguishment and conversion of debt |
|
(10,176 |
) |
|
(30,268 |
) |
|
- |
|
Provision
for income taxes |
|
(52,381 |
) |
|
(43,912 |
) |
|
(35,579 |
) |
Cumulative
effect of change in accounting principle, net |
|
- |
|
|
(24,675 |
)b |
|
- |
|
Net
income |
|
202,267 |
|
|
181,660 |
|
|
164,654 |
|
Preferred
dividends |
|
(45,491 |
) |
|
(27,441 |
) |
|
(37,604 |
) |
|
$ |
156,776 |
|
$ |
154,219 |
|
$ |
127,050 |
|
a. |
Includes
reimbursements from PT Freeport Indonesia and Rio Tinto, FCX’s
joint venture partner, totaling $94.3 million in 2004, $69.1 million in
2003 and $6.8 million in 2002 for certain FCX stock option
exercises. |
b. |
Effective
July 1, 2003, FCX adopted SFAS No. 150 and reclassified its mandatorily
redeemable preferred stock as debt and recorded a cumulative effect charge
to accelerate amortization of deferred financing costs. SFAS No. 150 does
not allow restatement of prior periods. |
The
footnotes to the consolidated financial statements of FCX contained in
FCX’s 2004
Annual Report to stockholders incorporated by reference are an integral part of
these statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
SCHEDULE
I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS
OF CASH FLOWS
|
Years
Ended December 31, |
|
|
2004 |
|
2003 |
|
2002 |
|
|
(In
Thousands) |
|
Cash
flow from operating activities: |
|
|
|
|
|
|
|
|
|
Net
income |
$ |
202,267 |
|
$ |
181,660 |
|
$ |
164,654 |
|
Adjustments
to reconcile net income to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
Income
from investments in PT Freeport Indonesia and PT Indocopper
Investama |
|
(380,418 |
) |
|
(421,493 |
) |
|
(343,738 |
) |
Deferred
income taxes |
|
37,277 |
|
|
41,669 |
|
|
34,616 |
|
Net
loss from investment in Atlantic Copper |
|
103,388 |
|
|
58,538 |
|
|
34,550 |
|
Income
from investment in PT Puncakjaya Power |
|
(15,712 |
) |
|
(6,521 |
) |
|
- |
|
Elimination
of intercompany profit |
|
5,594 |
|
|
(3,500 |
) |
|
11,412 |
|
Dividends
received from PT Freeport Indonesia and PT Indocopper
Investama |
|
96,981 |
|
|
- |
|
|
- |
|
Amortization
of deferred financing costs |
|
4,818 |
|
|
6,157 |
|
|
3,368 |
|
Dividends
received from PT Puncakjaya Power |
|
8,571 |
|
|
9,736 |
|
|
- |
|
Depreciation
and amortization |
|
11,324 |
|
|
13,557 |
|
|
15,598 |
|
Gain
on sale of assets |
|
(21,281 |
) |
|
- |
|
|
- |
|
Losses
on early extinguishment and conversion of debt |
|
10,176 |
|
|
30,268 |
|
|
- |
|
Cumulative
effect of change in accounting principle |
|
- |
|
|
24,675 |
|
|
- |
|
(Increase)
decrease in interest receivable and due from affiliates |
|
9,435 |
|
|
(13,437 |
) |
|
(5,159 |
) |
Increase
(decrease) in accounts payable and accrued liabilities |
|
(1,571 |
) |
|
21,833 |
|
|
2,497 |
|
Increase
(decrease) in accrued income taxes |
|
2,467 |
|
|
(314 |
) |
|
(918 |
) |
Increase
in long-term compensation benefits |
|
13,000 |
|
|
5,716 |
|
|
2,439 |
|
Other |
|
2,178 |
|
|
922 |
|
|
(28,149 |
)a |
Net
cash provided by (used in) operating activities |
|
88,494 |
|
|
(50,534 |
) |
|
(108,830 |
) |
|
|
|
|
|
|
|
|
|
|
Cash
flow from investing activities: |
|
|
|
|
|
|
|
|
|
Sale
of restricted investments |
|
21,804 |
|
|
73,629 |
|
|
47,938 |
|
Sale
of assets |
|
21,634 |
|
|
- |
|
|
- |
|
Investment
in PT Freeport Indonesia |
|
- |
|
|
- |
|
|
(1,027 |
) |
Investment
in Atlantic Copper |
|
(202,000 |
) |
|
(10,000 |
) |
|
- |
|
Investment
in PT Puncakjaya Power |
|
- |
|
|
(78,367 |
) |
|
- |
|
Other |
|
(3,446 |
) |
|
(2,083 |
) |
|
(5,022 |
) |
Net
cash provided by (used in) investing activities |
|
(162,008 |
) |
|
(16,821 |
) |
|
41,889 |
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities: |
|
|
|
|
|
|
|
|
|
Cash
dividends paid: |
|
|
|
|
|
|
|
|
|
Common
stock |
|
(198,782 |
) |
|
(41,682 |
) |
|
- |
|
Convertible
perpetual preferred stock |
|
(35,460 |
) |
|
- |
|
|
- |
|
Step-up
convertible preferred stock |
|
(10 |
) |
|
(24,552 |
) |
|
(24,500 |
) |
Mandatory
redeemable preferred stock |
|
- |
|
|
(9,181 |
) |
|
(12,795 |
) |
Net
proceeds from sale of senior notes |
|
344,354 |
|
|
1,046,437 |
|
|
- |
|
Proceeds
from other debt |
|
- |
|
|
- |
|
|
183,355 |
|
Net
proceeds from sale of convertible perpetual preferred
stock |
|
1,067,000 |
|
|
- |
|
|
- |
|
Repayment
of debt |
|
(260,299 |
) |
|
(931,136 |
) |
|
(275,505 |
) |
Partial
redemption of preferred stock |
|
- |
|
|
- |
|
|
(11,671 |
) |
Redemption
of step-up convertible preferred stock |
|
(1,172 |
) |
|
(5,792 |
) |
|
- |
|
Repayment
from PT Freeport Indonesia |
|
30,000 |
|
|
245,121 |
|
|
118,972 |
|
Borrowings
from (repayments to) PT Freeport Indonesia |
|
- |
|
|
(81,500 |
) |
|
81,500 |
|
Purchase
of FCX common shares from Rio Tinto |
|
(881,868 |
) |
|
- |
|
|
- |
|
Purchases
of other FCX common shares |
|
(99,477 |
) |
|
- |
|
|
- |
|
Net
proceeds from exercised stock options |
|
3,196 |
|
|
68,776 |
|
|
7,777 |
|
Other |
|
(1,547 |
) |
|
6,258 |
|
|
(534 |
) |
Net
cash provided by (used in) financing activities |
|
(34,065 |
) |
|
272,749 |
|
|
66,599 |
|
Net
increase (decrease) in cash and cash equivalents |
|
(107,579 |
) |
|
205,394 |
|
|
(342 |
) |
Cash
at beginning of year |
|
205,704 |
|
|
310 |
|
|
652 |
|
Cash
at end of year |
$ |
98,125 |
|
$ |
205,704 |
|
$ |
310 |
|
|
|
|
|
|
|
|
|
|
|
Interest
paid |
$ |
124,903 |
|
$ |
126,875 |
|
$ |
107,116 |
|
Taxes
paid |
$ |
12,681 |
|
$ |
1,026 |
|
$ |
1,689 |
|
a. |
Includes
support payments to Atlantic Copper totaling $25.0 million in
2002. |
The
footnotes to the consolidated financial statements of FCX contained in
FCX’s 2004
Annual Report to stockholders incorporated by reference are an integral part of
these statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
Col.
A |
|
Col
B |
|
Col.
C |
|
Col.
D |
|
Col.
E |
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
|
Balance
at
Beginning
of
Period |
|
Charged
to Costs and Expense |
|
Charged
to Other Accounts |
|
Other
Add
(Deduct) |
|
Balance
at End of Period |
|
Reserves
and allowances deducted from asset accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials
and supplies reserves: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PT
Freeport Indonesia |
|
|
$16,110 |
|
$ |
3,525 |
|
$ |
- |
|
$ |
(2,641 |
)a |
$ |
16,994 |
|
Atlantic
Copper |
|
|
1,498 |
|
|
1,391 |
|
|
- |
|
|
(2,750 |
)a |
|
139 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials
and supplies reserves: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PT
Freeport Indonesia |
|
|
15,303 |
|
|
6,000 |
|
|
- |
|
|
(5,193 |
)a |
|
16,110 |
|
Atlantic
Copper |
|
|
520 |
|
|
978 |
|
|
- |
|
|
- |
|
|
1,498 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials
and supplies reserves: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PT
Freeport Indonesia |
|
|
17,144 |
|
|
6,000 |
|
|
- |
|
|
(7,841 |
)a |
|
15,303 |
|
Atlantic
Copper |
|
|
323 |
|
|
197 |
|
|
- |
|
|
- |
|
|
520 |
|
Allowance
for uncollectible |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
value-added
taxes |
|
|
8 |
|
|
- |
|
|
- |
|
|
(8 |
) |
|
- |
|
Allowance
for uncollectible |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounts
receivable |
|
|
941 |
|
|
- |
|
|
- |
|
|
(941 |
)b |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclamation
and mine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shutdown
reserves: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PT
Freeport Indonesia |
|
|
$25,696 |
|
|
2,848 |
|
|
- |
|
|
(6,534 |
)c |
|
22,010 |
|
Atlantic
Copper |
|
|
790 |
|
|
212 |
|
|
- |
|
|
(164 |
) |
|
838 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PT
Freeport Indonesia |
|
|
29,175 |
|
|
2,781 |
|
|
605 |
|
|
(6,865 |
)d |
|
25,696 |
|
Atlantic
Copper |
|
|
- |
|
|
170 |
|
|
- |
|
|
620 |
|
|
790 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PT
Freeport Indonesia |
|
|
24,097 |
|
|
5,078 |
|
|
- |
|
|
- |
|
|
29,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
for non-income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PT
Freeport Indonesia |
|
|
17,978 |
|
|
3,856 |
|
|
- |
|
|
(4,019 |
)e |
|
17,815 |
|
Atlantic
Copper |
|
|
1,022 |
|
|
- |
|
|
- |
|
|
73 |
|
|
1,095 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PT
Freeport Indonesia |
|
|
15,306 |
|
|
3,286 |
|
|
- |
|
|
(614 |
)e |
|
17,978 |
|
Atlantic
Copper |
|
|
848 |
|
|
- |
|
|
- |
|
|
174 |
|
|
1,022 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PT
Freeport Indonesia |
|
|
21,656 |
|
|
4,293 |
|
|
- |
|
|
(10,643 |
)e |
|
15,306 |
|
Atlantic
Copper |
|
|
713 |
|
|
- |
|
|
- |
|
|
135 |
|
|
848 |
|
a. Primarily
represents write-offs of obsolete materials and supplies
inventories.
b. Represents
amounts collected.
c. Represents
impact of changes in reclamation and closure estimates.
d. |
Includes
$(1.2) million for liabilities settled in 2003, $(4.3) million for changes
in reclamation and closure estimates and $(1.4) million for cumulative
effect adjustment for adoption of SFAS No. 143, “Accounting for Asset
Retirement Obligations.” |
e. |
Represents
amounts paid or adjustments to reserves based on revised
estimates. |
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
3.1 |
|
Amended
and Restated Certificate of Incorporation of Freeport-McMoRan Copper &
Gold Inc. (FCX). Incorporated by reference to Exhibit 3.1 to the Quarterly
Report on Form 10-Q of FCX for the quarter ended March 31, 2002 (the FCX
2002 First Quarter Form 10-Q). |
|
|
|
3.2 |
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation of FCX.
Incorporated
by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q of FCX
for the quarter ended
March 31, 2003 (the FCX 2003 First Quarter Form 10-Q). |
|
|
|
3.3 |
|
Amended
By-Laws of FCX dated as of February 3, 2004. Incorporated by reference to
Exhibit 3.3 to the
Annual Report on Form 10-K of FCX for the fiscal year ended December 31,
2003 (the FCX 2003 Form
10-K). |
|
|
|
4.1 |
|
Deposit
Agreement dated as of January 15, 1994, among FCX, Mellon, as Depositary,
and holders of
depositary receipts (Gold-Denominated II Depositary Receipts) evidencing
certain Depositary Shares,
each of which, in turn, represented 0.05 shares of Gold-Denominated
Preferred Stock II. Incorporated
by reference to Exhibit 4.5 to the Quarterly Report on Form 10-Q of FCX
for the quarter ended
June 30, 2002 (the FCX 2002 Second Quarter Form 10-Q). |
|
|
|
4.2 |
|
Form
of Gold-Denominated II Depositary Receipt. Incorporated by reference to
Exhibit 4.6 to the FCX
2002 Second Quarter Form 10-Q. |
|
|
|
4.3 |
|
Deposit
Agreement dated as of July 25, 1994, among FCX, Mellon, as Depositary, and
holders of depositary
receipts (Silver-Denominated Depositary Receipts) evidencing certain
Depositary Shares, each
of which, in turn, initially represented 0.025 shares of
Silver-Denominated Preferred Stock. Incorporated
by reference to Exhibit 4.7 to the FCX 2002 Second Quarter Form
10-Q. |
|
|
|
4.4 |
|
Form
of Silver-Denominated Depositary Receipt. Incorporated by reference to
Exhibit 4.8 to the FCX 2002
Second Quarter Form 10-Q. |
|
|
|
4.5 |
|
Certificate
of Designations of 5½% Convertible Perpetual Preferred Stock of FCX.
Incorporated by reference
to Exhibit 4.1 to the Current Report on Form 8-K of FCX dated March 30,
2004 and filed March
31, 2004. |
|
|
|
4.6 |
|
Amended
and Restated Credit Agreement dated as of September 30, 2003, but
effective as of October
2, 2003, among FCX, PT Freeport Indonesia, the several financial
institutions that are parties
thereto, U.S. Bank Trust National Association, as PT Freeport Indonesia
Trustee, J.P. Morgan
Securities Inc., as Arranger, and JPMorgan Chase Manhattan Bank as
Administrative Agent, Issuing
Bank, Security Agent, JAA Security Agent and Documentation Agent.
Incorporated by reference
to Exhibit 4.7 to the Quarterly Report on Form 10-Q of FCX for the quarter
ended September
30, 2003. |
|
|
|
4.7 |
|
Senior
Indenture dated as of November 15, 1996, from FCX to The Chase Manhattan
Bank, as Trustee.
Incorporated by reference to Exhibit 4.4 to the Registration Statement on
Form S-3 of FCX filed November 5, 2001 (the FCX November 5, 2001 Form
S-3). |
4.8 |
|
First
Supplemental Indenture dated as of November 18, 1996, from FCX to The
Chase Manhattan Bank,
as Trustee, providing for the issuance of the Senior Notes and
supplementing the Senior Indenture
dated November 15, 1996, from FCX to such Trustee, providing for the
issuance of the 7.50%
Senior Notes due 2006 and the 7.20% Senior Notes due 2026. Incorporated by
reference to Exhibit
4.5 to the FCX November 5, 2001 Form S-3. |
|
|
|
4.9 |
|
Indenture
dated as of January 29, 2003, from FCX to The Bank of New York, as
Trustee, with respect
to the 10⅛%
Senior Notes due 2010. Incorporated by reference to Exhibit 4.1 to the
Current Report
on Form 8-K of FCX dated February 6, 2003. |
|
|
|
4.10 |
|
Indenture
dated as of February 11, 2003, from FCX to The Bank of New York, as
Trustee, with respect
to the 7% Convertible Senior Notes due 2011. Incorporated by reference to
Exhibit 4.1 to the Current
Report on Form 8-K of FCX dated February 11, 2003 and filed February 25,
2003. |
|
|
|
4.11 |
|
Indenture
dated as of February 3, 2004, from FCX to The Bank of New York, as
Trustee, with respect
to the 6⅞% Senior Notes due 2014. Incorporated by reference to Exhibit
4.12 to the FCX 2003
Form 10-K. |
|
|
|
4.12 |
|
Rights
Agreement dated as of May 3, 2000, between FCX and ChaseMellon Shareholder
Services, L.L.C.,
as Rights Agent. Incorporated by reference to Exhibit 4.26 to the
Quarterly Report on Form 10-Q
of FCX for the quarter ended March 31, 2000. |
|
|
|
4.13 |
|
Amendment
No. 1 to Rights Agreement dated as of February 26, 2002, between FCX and
Mellon Investor
Services. Incorporated by reference to Exhibit 4.16 to the FCX 2002 First
Quarter Form 10-Q. |
|
|
|
10.1 |
|
Contract
of Work dated December 30, 1991, between the Government of the Republic of
Indonesia and
PT Freeport Indonesia. Incorporated by reference to Exhibit 10.1 to the
FCX November 5, 2001 Form
S-3. |
|
|
|
10.2 |
|
Contract
of Work dated August 15, 1994, between the Government of the Republic of
Indonesia and PT
Irja Eastern Minerals Corporation. Incorporated by reference to Exhibit
10.2 to the FCX November
5, 2001 Form S-3. |
|
|
|
10.3 |
|
Participation
Agreement dated as of October 11, 1996, between PT Freeport Indonesia and
P.T. RTZ-CRA
Indonesia with respect to a certain contract of work. Incorporated by
reference to Exhibit 10.4
to the FCX November 5, 2001 Form S-3. |
|
|
|
10.4 |
|
Agreement
dated as of October 11, 1996, to Amend and Restate Trust Agreement among
PT Freeport
Indonesia, FCX, the RTZ Corporation PLC, P.T. RTZ-CRA Indonesia, RTZ
Indonesian Finance
Limited and First Trust of New York, National Association, and The Chase
Manhattan Bank, as
Administrative Agent, JAA Security Agent and Security Agent. Incorporated
by reference to Exhibit
10.3 to the Current Report on Form 8-K of FCX dated November 13, 1996 and
filed
November
15, 1996. |
|
|
|
10.5 |
|
Concentrate
Purchase and Sales Agreement dated effective December 11, 1996, between PT
Freeport
Indonesia and PT Smelting. Incorporated by reference to Exhibit 10.3 to
the FCX November
5, 2001 Form S-3. |
|
|
|
10.6 |
|
Second
Amended and Restated Joint Venture and Shareholders’ Agreement dated as of
December 11,
1996, among Mitsubishi Materials Corporation, Nippon Mining and Metals
Company, Limited and PT
Freeport Indonesia. Incorporated by reference to Exhibit 10.5 to the FCX
November 5, 2001 Form
S-3. |
|
|
|
10.7 |
|
Settlement
Agreement dated December 17, 2004, between Underwriters Subscribing to
Certain Policies Reinsuring the Original Policy, Freeport-McMoRan
Insurance Company Limited, FM Services Company (FMS) and
FCX. |
|
|
|
|
|
Executive
Compensation Plans and Arrangements (Exhibits 10.8 through
10.53) |
|
|
|
10.8 |
|
Annual
Incentive Plan of FCX as amended effective February 2, 1999. Incorporated
by reference to Exhibit
10.11 to the Annual Report on Form 10-K of FCX for the fiscal year ended
December 31, 1998
(the FCX 1998 Form 10-K). |
|
|
|
10.9 |
|
FCX
Performance Incentive Awards Program as amended effective February 2,
1999. Incorporated by
reference to Exhibit 10.13 to the FCX 1998 Form 10-K. |
|
|
|
10.10 |
|
FCX
President’s
Award Program. Incorporated by reference to Exhibit 10.7 to the FCX
November 5, 2001
Form S-3. |
|
|
|
10.11 |
|
FCX
Adjusted Stock Award Plan. Incorporated by reference to Exhibit 10.12 to
the FCX 2003 Form 10-K. |
|
|
|
10.12 |
|
FCX
1995 Stock Option Plan. Incorporated by reference to Exhibit 10.13 to the
FCX 2003 Form 10-K. |
|
|
|
10.13 |
|
FCX
1999 Stock Incentive Plan. Incorporated by reference to Exhibit 10.15 to
the FCX 2003 Form 10-K. |
|
|
|
10.14 |
|
Form
of Notice of Grant of Nonqualified Stock Options and Limited Rights under
the 1999 Stock Incentive Plan. Incorporated by reference to Exhibit 10.16
to the Quarterly Report on Form 10-Q of FCX for the quarter ended June 30,
2004 (the FCX 2004 Second Quarter Form 10-Q). |
|
|
|
10.15 |
|
Form
of Restricted Stock Unit Agreement under the 1999 Stock Incentive Plan.
Incorporated by reference to Exhibit 10.17 to the FCX 2004 Second Quarter
Form 10-Q. |
|
|
|
10.16 |
|
Form
of Performance-Based Restricted Stock Unit Agreement under the 1999 Stock
Incentive Plan. Incorporated by reference to Exhibit 10.18 to the FCX 2004
Second Quarter Form 10-Q. |
|
|
|
10.17 |
|
FCX
1999 Long-Term Performance Incentive Plan. Incorporated by reference to
Exhibit 10.19 to the Annual
Report of FCX on Form 10-K for the year ended December 31, 1999 (the FCX
1999 Form 10-K). |
|
|
|
10.18 |
|
FCX
Stock Appreciation Rights Plan dated May 2, 2000. Incorporated by
reference to Exhibit 10.20 to
the Quarterly Report on Form 10-Q of FCX for the quarter ended June 30,
2001 (the FCX 2001 Second
Quarter Form 10-Q). |
|
|
|
10.19 |
|
FCX
2003 Stock Incentive Plan. Incorporated by reference to Exhibit 10.18 to
the FCX 2003 Form 10-K. |
|
|
|
10.20 |
|
Form
of Notice of Grant of Nonqualified Stock Options and Limited Rights under
the 2003 Stock Incentive Plan. Incorporated by reference to Exhibit 10.22
to the FCX 2004 Second Quarter Form 10-Q. |
|
|
|
10.21 |
|
Form
of Restricted Stock Unit Agreement under the 2003 Stock Incentive Plan.
Incorporated by reference to Exhibit 10.23 to the FCX 2004 Second Quarter
Form 10-Q. |
|
|
|
10.22 |
|
Form
of Performance-Based Restricted Stock Unit Agreement under the 2003 Stock
Incentive Plan. Incorporated by reference to Exhibit 10.24 to the FCX 2004
Second Quarter Form 10-Q. |
|
|
|
10.23 |
|
FCX
1995 Stock Option Plan for Non-Employee Directors. Incorporated by
reference to Exhibit 10.14
to the FCX 2003 Form 10-K. |
|
|
|
10.24 |
|
FCX
2004 Director Compensation Plan. Incorporated by reference to Exhibit
10.25 to the FCX 2004 Second Quarter Form 10-Q. |
|
|
|
10.25 |
|
FCX
Director Compensation. |
|
|
|
10.26 |
|
FCX
Supplemental Executive Retirement Plan dated February 26,
2004. |
|
|
|
10.27 |
|
Amended
Financial Counseling and Tax Return Preparation and Certification Program
of FCX. Incorporated
by reference to Exhibit 10.18 to the FCX 2003 First Quarter Form 10-Q.
|
|
|
|
10.28 |
|
FM
Services Company Performance Incentive Awards Program as amended effective
February 2, 1999.
Incorporated by reference to Exhibit 10.19 to the FCX 1998 Form
10-K. |
|
|
|
10.29 |
|
Amended
FM Services Company Financial Counseling and Tax Return Preparation and
Certification Program.
Incorporated by reference to Exhibit 10.20 to the FCX 2003 First Quarter
Form 10-Q. |
|
|
|
10.30 |
|
Consulting
Agreement dated as of December 22, 1988, with Kissinger Associates, Inc.
(Kissinger
Associates). Incorporated by reference to Exhibit 10.21 to the Annual
Report on Form 10-K of FCX for the fiscal year ended December 31, 1997
(the FCX 1997 Form 10-K). |
|
|
|
10.31 |
|
Letter
Agreement dated May 1, 1989, with Kent Associates, Inc. (Kent Associates,
predecessor in interest to Kissinger Associates). Incorporated by
reference to Exhibit 10.22 to the FCX 1997 Form 10-K. |
|
|
|
10.32 |
|
Letter
Agreement dated January 27, 1997, among Kissinger Associates, Kent
Associates, FCX, Freeport-McMoRan Inc., and FMS. Incorporated by reference
to Exhibit 10.26 to the Annual Report on Form 10-K of FCX for the fiscal
year ended December 31, 2001 (the FCX 2001 Form 10-K). |
|
|
|
10.33 |
|
Supplemental
Consulting Agreement with Kissinger Associates and Kent Associates,
effective as of January 1, 2005. Incorporated by reference to Exhibit 10.2
to the Current Report on Form 8-K of FCX filed on December 30, 2004 (the
FCX December 30, 2004 Form 8-K). |
|
|
|
10.34 |
|
Agreement
for Consulting Services between FTX and B. M. Rankin, Jr. effective as of
January 1, 1990 (assigned to FMS as of January 1, 1996). Incorporated by
reference to Exhibit 10.24 to the FCX 1997 Form 10-K. |
|
|
|
10.35 |
|
Supplemental
Agreement between FMS and B. M. Rankin, Jr. dated December 15, 1997.
Incorporated by reference to Exhibit 10.25 to the FCX 1997 Form
10-K. |
|
|
|
10.36 |
|
Supplemental
Letter Agreement between FMS and B. M. Rankin, Jr., effective as of
January 1, 2005. |
|
|
|
10.37 |
|
Letter
Agreement effective as of January 7, 1997, between Senator J. Bennett
Johnston, Jr. and FMS.
Incorporated by reference to Exhibit 10.31 to the FCX 2001 Form 10-K.
|
|
|
|
10.38 |
|
Supplemental
Letter Agreement dated July 14, 2003, between J. Bennett Johnston, Jr. and
FMS. Incorporated by reference to Exhibit 10.28 to the Quarterly Report on
Form 10-Q of FCX for the quarter ended June 30, 2003. |
|
|
|
10.39
|
|
Supplemental
Consulting Agreement between FMS and J. Bennett Johnston, Jr., effective
as of January 1, 2005. Incorporated by reference to Exhibit 10.1 to the
FCX December 30, 2004 Form 8-K. |
|
|
|
10.40 |
|
Supplemental
Letter Agreement between FMS and J. Bennett Johnston, Jr., dated January
18, 2005. |
|
|
|
10.41 |
|
Letter
Agreement dated November 1, 1999, between FMS and Gabrielle K. McDonald.
Incorporated by
reference to Exhibit 10.33 to the FCX 1999 Form 10-K. |
|
|
|
10.42 |
|
Supplemental
Letter Agreement, between FMS and Gabrielle K. McDonald., effective as of
January 1, 2005. Incorporated by reference to Exhibit 10.3 to the FCX
December 30, 2004 Form 8-K. |
|
|
|
10.43 |
|
Executive
Employment Agreement dated April 30, 2001, between FCX and James R.
Moffett. Incorporated
by reference to Exhibit 10.35 to the FCX 2001 Second Quarter Form 10-Q.
|
|
|
|
10.44 |
|
Executive
Employment Agreement dated April 30, 2001, between FCX and Richard C.
Adkerson. Incorporated
by reference to Exhibit 10.36 to the FCX 2001 Second Quarter Form 10-Q.
|
|
|
|
10.45 |
|
Change
of Control Agreement dated April 30, 2001, between FCX and James R.
Moffett. Incorporated
by reference to Exhibit 10.37 to the FCX 2001 Second Quarter Form 10-Q.
|
|
|
|
10.46 |
|
Change
of Control Agreement dated April 30, 2001, between FCX and Richard C.
Adkerson. Incorporated
by reference to Exhibit 10.38 to the FCX 2001 Second Quarter Form
10-Q. |
|
|
|
10.47 |
|
First
Amendment to Executive Employment Agreement dated December 10, 2003,
between FCX and
James R. Moffett. Incorporated by reference to Exhibit 10.36 to the FCX
2003 Form 10-K. |
|
|
|
10.48 |
|
First
Amendment to Executive Employment Agreement dated December 10, 2003,
between FCX and
Richard C. Adkerson. Incorporated by reference to Exhibit 10.37 to the FCX
2003 Form 10-K. |
|
|
|
10.49 |
|
First
Amendment to Change of Control Agreement dated December 10, 2003, between
FCX and James
R. Moffett. Incorporated by reference to Exhibit 10.38 to the FCX 2003
Form 10-K. |
|
|
|
10.50 |
|
First
Amendment to Change of Control Agreement dated December 10, 2003, between
FCX and Richard
C. Adkerson. Incorporated by reference to Exhibit 10.39 to the FCX 2003
Form 10-K. |
|
|
|
10.51 |
|
Change
of Control Agreement dated February 3, 2004, between FCX and Michael J.
Arnold. Incorporated
by reference to Exhibit 10.40 to the FCX 2003 Form
10-K. |
|
|
|
10.52 |
|
Change
of Control Agreement dated February 3, 2004, between FCX and Mark J.
Johnson. Incorporated
by reference to Exhibit 10.41 to the FCX 2003 Form
10-K. |
|
|
|
10.53 |
|
Change
of Control Agreement dated February 3, 2004, between FCX and Kathleen L.
Quirk. Incorporated
by reference to Exhibit 10.42 to the FCX 2003 Form
10-K. |
12.1 |
|
FCX
Computation of Ratio of Earnings to Fixed Charges. |
|
|
|
13.1 |
|
Those
portions of the 2004 Annual Report to stockholders of FCX that are
incorporated herein by reference. |
|
|
|
14.1 |
|
Ethics
and Business Conduct Policy. Incorporated by reference to Exhibit 14.1 to
the FCX 2003 Form 10-K. |
|
|
|
18.1 |
|
Letter
from Arthur Andersen LLP regarding change in accounting. Incorporated by
reference to Exhibit 18.1 to the FCX 2002 First Quarter Form
10-Q. |
|
|
|
21.1 |
|
Subsidiaries
of FCX. |
|
|
|
23.1 |
|
Consent
of Ernst & Young LLP. |
|
|
|
23.2 |
|
Consent
of Independent Mining Consultants, Inc. |
|
|
|
24.1 |
|
Certified
resolution of the Board of Directors of FCX authorizing this report to be
signed on behalf of any officer or director pursuant to a Power of
Attorney. |
|
|
|
24.2 |
|
Powers
of Attorney pursuant to which this report has been signed on behalf of
certain officers and directors of FCX. |
|
|
|
31.1 |
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a)/15d -
14(a). |
|
|
|
31.2 |
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a)/15d -
14(a). |
|
|
|
32.1 |
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.
|
|
|
|
32.2 |
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C Section
1350. |