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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1993
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.
Organized in Delaware I.R.S. Employer Identification No. 74-2480931
First Interstate Bank Building, One East First Street, Suite 1600, Reno,
Nevada 89501
Registrant's telephone number, including area code: (702) 688-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Class A Common Stock Par Value $0.10 New York Stock Exchange and
per Share Australian Stock Excahnge
Depositary Shares Representing 2-16/17 New York Stock Exchange
shares of Special Preference Stock
Par Value $0.10 per Share
Depositary Shares Representing 0.05 New York Stock Exchange
shares of Step-Up Convertible Preferred
Stock Par Value $0.10 per Share
Depositary Shares Representing 0.05 New York Stock Exchange
shares of Gold-Denominated Preferred
Stock Par Value $0.10 per Share
Depositary Shares, Series II, Representing New York Stock Exchange
0.05 shares of Gold-Denominated
Preferred Stock, Series II, Par Value
$0.10 per Share
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)
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $1,607,239,000 on March 15, 1994.
On March 15, 1994, there were issued and outstanding 63,803,313 shares
of Class A Common Stock, par value $0.10 per share, of which 1,547,700
shares were held by the registrant's parent, Freeport-McMoRan Inc., and
142,129,602 shares of Class B Common Stock, par value $0.10 per share, all
of which were held by Freeport-McMoRan Inc.
Documents Incorporated by Reference
Portions of the registrant's Annual Report to stockholders for the year
ended December 31, 1993 (Parts I, II and IV) and portions of the Proxy
Statement dated March 31, 1994, submitted to the registrant's stockholders
in connection with its 1994 Annual Meeting to be held on May 5, 1994 (Part
III)
TABLE OF CONTENTS
-----------------
Part I................................................................ 1
Items 1 and 2. Business and Properties.............................. 1
Introduction...................................................... 1
P.T. Freeport Indonesia Company................................... 1
Contract of Work.................................................. 2
Ore Reserves...................................................... 2
Mining Operations................................................. 3
Exploration....................................................... 4
Milling, Expansion and Production................................. 6
Transportation and Other Infrastructure........................... 6
Marketing......................................................... 8
Republic of Indonesia............................................. 9
Rio Tinto Minera, S.A............................................. 10
Eastern Mining Company, Inc....................................... 10
Research and Development.......................................... 11
Environmental Matters............................................. 11
Employees......................................................... 12
Competition....................................................... 12
Item 3. Legal Proceedings.......................................... 12
Item 4. Submission of Matters to a Vote of Security Holders........ 13
Executive Officers of the Registrant................................ 13
Part II............................................................... 14
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 14
Item 6. Selected Financial Data.................................... 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.--.................... 14
Item 8. Financial Statements and Supplementary Data................ 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.--.................... 15
Part III.............................................................. 15
Items 10, 11, 12, and 13. Directors and Executive Officers of
the Registrant, Executive Compensation, Security
Ownership of Certain Beneficial Owners and
Management, and Certain Relationships and Related
Transactions.............................................. 15
Part IV............................................................... 15
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K....................................... 15
Signatures............................................................ 16
Index to Financial Statements......................................... F-1
Report of Independent Public Accountants.............................. F-1
Exhibit Index......................................................... E-1
PART I
------
Items 1 and 2. Business and Properties.
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INTRODUCTION
Freeport-McMoRan Copper & Gold Inc., a Delaware corporation formed
in 1987 ("FCX"), is a subsidiary of Freeport-McMoRan Inc. ("FTX"*).
FCX's principal operating subsidiary is P.T. Freeport Indonesia Company
("PT-FI"), a limited liability company organized under the laws of the
Republic of Indonesia and domesticated in Delaware. PT-FI engages in the
exploration for and development, mining, and processing of copper, gold
and silver in Indonesia and in the marketing of concentrates containing
such metals worldwide. FCX believes that PT-FI has one of the lowest
cost copper producing operations in the world, taking into account
customary credits for related gold and silver production. FTX owns
approximately 69.77% of FCX's common stock. FCX owns approximately 81.28%
of the outstanding common stock of PT-FI. Of the remaining 18.72% of the
outstanding PT-FI common stock, approximately 9.36% is owned by the
Government of the Republic of Indonesia (the "Government") and approximately
9.36% is owned by an Indonesian corporation, P.T. Indocopper Investama
Corporation ("PT-II"), in which FCX owns a 49% interest. FCX also has
a subsidiary, Eastern Mining Company, Inc., ("Eastern Mining") which on April
29, 1993 was granted an exploration permit, giving it exclusive rights for a
limited period to explore for minerals on 2.5 million acres adjacent to
the 6.5 million acre exploration area covered by PT-FI's New
COW (as defined below). On March 30, 1993, FCX acquired a 65%
interest in the capital stock of Rio Tinto Minera, S.A. ("RTM"), a
company primarily engaged in the smelting and refining of copper
concentrates in Spain. In December 1993, RTM redeemed the remaining 35%
interest.
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*The term "FTX", as used in this report, means Freeport-McMoRan Inc.,
its divisions, and its direct and indirect subsidiaries and affiliates other
than FCX, or any one or more of them, unless the context requires Freeport-
McMoRan Inc. only.
In January 1994, FCX redeemed its Zero Coupon Exchangeable Notes due
2011 (the "Notes"). Of the $118.6 million Notes outstanding at the initiation
of the call, $118.3 million were exchanged into 6.7 million shares of FCX
Class A Common Stock prior to the redemption of the Notes. The balance was
redeemed for cash. Also in January 1994, FCX sold 4.3 million depositary
shares, each representing 0.05 shares of its Gold-Denominated Preferred Stock,
Series II to the public for net proceeds of $158.5 million. In August 1993,
FCX sold 6.0 million depositary shares, each representing 0.05 shares of its
Gold-Denominated Preferred Stock, to the public for net proceeds of $220.4
million. In July 1993, FCX sold 14.0 million depositary shares, each
representing 0.05 shares of its Step-Up Convertible Preferred Stock, to the
public for net proceeds of $340.7 million.
P.T. FREEPORT INDONESIA COMPANY
PT-FI's operations are located in the rugged highlands of the Sudirman
Mountain Range in the province of Irian Jaya, Indonesia, located on the
western half of the island of New Guinea. Over the last 25 years, PT-FI has
met an extraordinary combination of engineering and construction challenges to
develop its mining and milling complex and supporting infrastructure in one of
the least explored areas in the world. PT-FI's largest mine, Grasberg,
discovered in 1988, contains the largest single gold reserve and one of the
three largest open-pit copper reserves of any mine in the world. In order to
develop the Grasberg deposit, PT-FI undertook an expansion program in stages,
initially from 20,000 metric tons of ore per day ("MTPD") to 57,000 MTPD.
Expansion from 57,000 MTPD to 66,000 MTPD was completed in 1993 ahead of
schedule and within budget. PT-FI has begun work on a further expansion of
its overall mining and milling rate to 115,000 MTPD which is expected to be
completed by year-end 1995 and to result in annual production rates
approaching 1.1 billion pounds of copper and 1.5 million ounces of gold.
CONTRACT OF WORK
In 1967, PT-FI's predecessor, Freeport Indonesia, Incorporated, a
Delaware corporation, ("FII") and the Government entered into a contract of
work (the "1967 COW") governing FII's mining activities in Indonesia. From
1967 until the end of 1991, FII operated as the sole contractor for the
production and marketing of certain minerals from a 24,700 acre area (the
"1967 Mining Area"). On December 30, 1991, FII was merged into PT-FI in
Delaware and PT-FI and the Government signed a new contract of work (the "New
COW"), which superseded the 1967 COW. The New COW covers both the 1967 Mining
Area and a contiguous 6.5 million acre exploration area (the "New COW Area").
The New COW has a 30-year term, with provisions for two 10-year extensions
under certain conditions.
The New COW contains a provision under which PT-FI must progressively
relinquish its rights to the nonprospective parts of the New COW Area in
amounts equal to 25% of the 6.5 million acres at the end of each of three
specified periods, the first of which is set to expire on December 30, 1994,
unless further extended by the Ministry of Mines, and the last of which is set
to expire five to seven years after the signing of the New COW. In light
of these relinquishment provisions, PT-FI has implemented an active
exploration program with a focus on both what it believes to be the most
promising exploration opportunities in the New Cow Area as well as
identification of areas which appear to hold the least promise.
The New COW also contains provisions for PT-FI to conduct or cause
to be conducted a feasibility study relating to the construction of a
copper smelting facility in Indonesia and for the eventual construction of
such a facility by PT-FI, if such facility is deemed to be
economically viable by PT-FI and the Government and is not
constructed by others. PT-FI is pursuing with other companies the
feasibility of constructing a copper smelting facility in Indonesia, in which
PT-FI would hold a minority interest and supply approximately one-half of the
smelter's currently anticipated copper concentrate requirements.
ORE RESERVES
Based upon published reports, FCX believes that PT-FI's Grasberg deposit
contains the largest single gold reserve and one of the three largest open-pit
copper reserves of any mine in the world. Proved and probable ore reserves at
December 31, 1993 were approximately 1,074.1 million tons* at an average grade
of 1.31% copper, 1.47 grams of gold per ton and 4.04 grams of silver per ton
compared with approximately 733.2 million tons of ore with an average grade of
1.47% copper, 1.72 grams of gold per ton and 3.87 grams of silver per ton at
December 31, 1992. Primarily as a result of the drilling operations at the
Grasberg mine (see "Mines in Production" below), PT-FI's proved and probable
copper and gold reserves as of December 31, 1993 have increased, net of
production since December 31, 1988 by approximately 319% and 574%,
respectively, and from year-end 1992 by 28% and 22%, respectively.
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* As used herein, "ton" refers to a metric ton, which is equivalent to
2,204.62 pounds on a dry weight basis.
This increase in proved and probable reserves, net of production,
reflects the addition of approximately 340.9 million tons of ore since
December 31, 1992 (a 46% increase) as the result of a drilling program that
includes data obtained from the surface down to approximately the 3,100 meter
elevation at the Grasberg ore body. PT-FI's proved and probable reserves at
Grasberg do not include reserves below the 3,100 meter level. PT-FI has begun
driving an adit (the "Amole adit") from the mill site to a point below the
currently delineated Grasberg ore body at the 2,900 meter level. The Amole
adit, expected to be completed in 1996, will facilitate further deep
exploration to delineate the extent of the Grasberg deposit below the 3,100
meter level. Preliminary drilling from the existing 3,700 meter adit
indicates significant additional mineralization below the existing proved and
probable reserves. There can be no assurance, however, that PT-FI's
exploration programs will result in the delineation of additional reserves in
commercial quantities. For further information with respect to the copper,
gold and silver content of proved and probable ore reserves of PT-FI,
reference is made to Note 11 to the financial statements of FCX referred to on
page F-1 hereof (the "FCX Financial Statements"), incorporated herein by
reference.
MINING OPERATIONS
Mines in Production
PT-FI currently has two mines in operation: the Ertsberg East and the
Grasberg, both within the 1967 Mining Area. PT-FI milled ore at an average
rate of approximately 57,600 MTPD in 1992 and 62,300 MTPD in 1993.
Open pit mining of the Grasberg ore body commenced in January 1990.
In 1993, Grasberg mine output totaled approximately 19.8 million tons of
ore, providing approximately 81% of total PT-FI ore production. Production
from the Grasberg ore body, averaged approximately 54,100 MTPD during 1993.
Ertsberg East is an underground mine which commenced production in
1980. Block caving operations are conducted in two separate zones of the
ore body with a common haulage level at 3,530 meters elevation. In 1993,
mine output from Ertsberg East totaled approximately 4.4 million tons of
ore and provided approximately 18% of total PT-FI ore production.
Production from Ertsberg East averaged approximately 12,200 MTPD during
1993. The Ertsberg East mine is expected to be depleted by the second half
of 1994 and production primarily from Grasberg, supplemented by production
from the Intermediate Ore Zone (the "IOZ") ore body (see "Mines in
Development" below), is expected to offset the Ertsberg East production.
Mines in Development
Three major additions to PT-FI's underground mining operations, which
are intended to replace existing underground production areas when they
become depleted, have previously been developed: the DOM (from the Dutch
word meaning "cathedral") ore body, the Deep Ore Zone (the "DOZ") ore body
and the IOZ ore body. The IOZ is located vertically between the Ertsberg
East and the DOZ ore bodies.
The DOM ore body's initial working level is some 380 meters above the
Erstberg East mining operation. The DOM ore body will initially be mined
using the block caving method. Pre-production development is complete and
the first block cave area has been prepared. All maintenance, warehouse
and service facilities are in place. Production at the DOM has been
deferred as a result of the continued increase in the Grasberg ore
reserves.
The mine being developed at the IOZ ore body is situated approximately
350 meters above the 2,900 meter level adit. Delineation drilling and pre-
production development began in 1991. The IOZ is being developed to
gradually replace production from the Ertsberg East mine beginning in 1994
using the same block caving method. Mining will proceed downward from the
IOZ to the DOZ.
The DOZ, also an underground mine within the 1967 Mining Area, lies
vertically below the IOZ ore body and is currently capable of production.
Initial production from the DOZ commenced in 1989. However, at the end of
1991, mine output from the DOZ was temporarily suspended, and it is
anticipated that it will resume once the IOZ ore body has been depleted
sometime after 1998.
EXPLORATION
In addition to continued delineation of the Grasberg deposit and other
deposits discussed above, PT-FI is continuing its ongoing exploration program
for copper and gold mineralization within the 1967 Mining Area. Two anomalous
zones in the vicinity of PT-FI's current mining activities are under active
exploratory drilling. The Big Gossan and Wanagon mineralizations are located
west of the Erstberg open pit, southwest of the Grasberg ore body and anchor
the ends of a clearly defined mineralized structure trending roughly east-west
for 4.5 kilometers. The Big Gossan mineralization, as drilled to date,
extends approximately 1,100 meters from just east of the intersection of the
Amole adit.
Over 50 holes have been drilled from the Amole adit and from an
exploration drift being driven in a westerly direction parallel to the Big
Gossan structure, which drilling resulted in the addition of 8.5 million
metric tons of ore at an average grade of 2.4% copper and 0.77 grams of gold
per metric ton to PT-FI's total proved and probable reserves at December 31,
1993. Earlier surface drilling of the western portion of the Big Gossan
anomaly, approximately 300-500 meters west of the underground drilling,
established a mineral resource in excess of 6 million metric tons with an
average grade of 5% copper and 2.9 grams of gold per metric ton which is not
included in PT-FI's total proved and probable reserves at December 31, 1993.
Further underground exploration of the resources established by the surface
drilling as well as the area between it and the reserves discovered near the
Amole adit will be carried out in 1994 from the exploration drift as it is
extended.
Mine planning for development of the Big Gossan resource has commenced
with development estimated to cost approximately $100 million and to begin in
late 1994 or early 1995.
During the first quarter of 1993, PT-FI initiated helicopter-supported
surface drilling of the Wanagon gold/silver/copper prospect. Seven holes were
drilled during 1993 at Wanagon, located approximately 2 kilometers northwest
of Big Gossan and approximately 3 kilometers southwest of Grasberg.
Significant copper values have been encountered below the 2,900 meter
elevation. Target evaluation in other parts of the 1967 Mining Area is also
continuing.
Preliminary exploration of the New COW Area has indicated many promising
targets. Extensive stream sediment sampling within the new acreage has
generated analytical results which are being evaluated. This sampling
program, when coupled with regional mapping completed on the ground and from
aerial photographs, has led to the outlining of over 50 exploration targets.
PT-FI has also completed a fixed-wing air-magnetometer survey of the
entire New COW Area. Detailed follow-up exploration of these anomalies by
additional mapping and sampling and through the use of both aerial and
ground magnetic surveys is now in progress. Systematic drilling of these
targets has already commenced with mineralization being discovered at
several prospects. Additional drilling is required to determine if any of
these are commercially viable.
PT-FI has focused its initial drilling in the New COW Area on two
prospects 30 kilometers and 40 kilometers north of Grasberg that display
anomalous geochemical and magnetic characteristics. Although these prospects
require additional exploratory drilling, initial results indicate a large
mineralized district that covers three times the aerial extent or
approximately 75,000 acres when compared to the original 24,700-acre district
that contained the Ertsberg, Grasberg, Ertsberg East, IOZ, DOZ, Big Gossan and
DOM ore bodies. The discovery of widespread igneous activity, including
volcanic rocks, in these new areas indicates the potential for Grasberg-type
stockwork and porphyry deposits as well as skarn-type copper/gold deposits
similar to the Ertsberg, Ertsberg East, IOZ, DOZ and DOM ore bodies. PT-FI has
also initiated drilling programs for four other prospects. Drilling results
are being interpreted. No assurance can be given that any of these new areas
contain commercially exploitable mineral deposits.
PT-FI's exploration expenditures were $31.7 million for 1993, compared to
$12.2 million for 1992.
MILLING, EXPANSION AND PRODUCTION
Milling
Most of the ore from PT-FI's mines moves by a conveyor system to an ore
pass through which it drops to the mill site. At the mill site, which is
located approximately 2,900 meters above sea level, the ore is crushed and
ground. The powdered ore is then mixed in tanks with chemical reagents and
continuously agitated with air. At this stage the copper-bearing concentrate
rises to the top of the tanks from which it is removed and thickened. The
product leaves the mill site as a thickened concentrate slurry, consisting of
approximately 65% solids by weight. During 1993, the recovery rates for the
milling facilities averaged approximately 87.0% of the copper content, 76.2%
of the gold content and 67.2% of the silver content of the ore processed,
compared to 88.2%, 73.7% and 65.5%, respectively, during 1992.
Expansion
In 1993 PT-FI completed, within budget and ahead of schedule, the
expansion of its production facilities increasing its mining and milling
capacity from 57,000 MTPD to 66,000 MTPD at its Indonesian complex. During
1993 mill production averaged 62,300 MTPD. PT-FI has begun work on a further
expansion of its overall mining and milling rate to 115,000 MTPD at an
estimated cost of approximately $685 million, excluding the capital required
for the Enhanced Infrastructure Project (the "EIP") and other infrastructure
improvements, of which approximately $120 million had been spent through
December 31, 1993. This expansion is expected to be completed by or about
year end 1995. Funding for this expansion will be obtained from existing cash
balances, cash flow from operations and additional financing, if required.
Such expansion beyond 66,000 MTPD will also require certain Government
approvals. This expansion will further PT-FI's goal of approaching annual
copper production of 1.1 billion pounds and annual gold production of
approximately 1.5 million ounces.
Production
In 1993 PT-FI achieved record copper production of 658.4 million
recoverable pounds, approximately 6% more than in 1992. Gold production was a
record 786,700 recoverable ounces, an increase of approximately 23% over 1992.
For a summary of PT-FI's production, sales and average product realizations
for 1993 and the previous four years, reference is made to "Selected Financial
and Operating Data" appearing on page 17 of FCX's 1993 Annual Report to
stockholders, which is incorporated herein by reference.
TRANSPORTATION AND OTHER INFRASTRUCTURE
Transportation
From the mill site, the thickened concentrate is pumped through two 115
kilometer pipelines to the port-site facility at Amamapare. At the port-site
the slurry is filtered, dried and stored for shipping. When ships arrive,
they are loaded at the dock facilities at the port-site until they draw their
maximum water. The ships then normally move to deeper water, where loading is
completed from shuttling barges.
Other Infrastructure
The location of PT-FI's operations in a remote and undeveloped area
requires that such operations be virtually self-sufficient. The facilities,
in addition to those described above, include an airport, a heliport, a 119
kilometer road with bridges and tunnels, an aerial service tramway to
transport personnel, equipment and supplies to the mines, a hospital and two
town sites with schools, housing and other required facilities sufficient to
support approximately 12,000 persons, including approximately 360 who are
located at the port-site.
In conjunction with the expansion of the mining and processing
facilities to 115,000 MTPD, the first phase of the EIP is being implemented.
The EIP is a long term program created (1) to provide certain infrastructure
facilities needed for PT-FI's operations, (2) to enhance the quality of
conditions for PT-FI's employees and (3) to develop and promote the growth of
local and other third party activities and enterprises in Irian Jaya through
the construction of certain required physical support facilities. The full EIP
includes plans for various commercial, residential, educational, retail,
medical, recreational, environmental and other infrastructure facilities to be
constructed during the next ten to twenty years. Depending on the long-term
growth of PT-FI's operations, the total cost of the EIP could range between
$500 million and $600 million. The first phase of the EIP is needed to support
the 115,000 MTPD expansion. FCX anticipates that the first phase, which
includes various residential, community and commercial facilities and an
extension of the principal road which will enable vehicle traffic to travel
all the way to the port-site, will be completed by mid-1996.
PT-FI has entered into certain agreements with Huarte S.A. ("Huarte"), a
Spanish construction and engineering company. These agreements cover the
design, engineering and construction of the facilities to be constructed in
the first phase of the EIP. Together, the agreements give Huarte
responsibility to deliver completed facilities to PT-FI.
In March 1993, PT-FI entered into a joint venture agreement with P.T.
ALatieF Nusakarya Corporation ("ALatieF"), an Indonesian investor, pursuant to
which PT-FI will sell to a joint venture or ventures (the "ALatieF Joint
Venture") certain existing infrastructure assets and certain assets to be
constructed as part of the EIP for total consideration of $270 million. The
ALatieF Joint Venture, which is owned one-third by PT-FI and two-thirds by
ALatieF, is expected to purchase approximately $90 million of EIP assets
annually over the period 1993-1995, with funding provided by equity
contributions from the ALatieF Joint Venture partners ($90 million) and debt
financing ($180 million), which is expected to be guaranteed by PT-FI, FCX or
both. The sale of the first group of assets to the ALatieF Joint Venture,
primarily dormitory-style residential properties and associated food service
facilities, was completed in December 1993, for a price of $90 million. The
sales which are anticipated for 1994 and later are subject to the execution of
definitive agreements and certain Government approvals.
The acquired assets will be made available to PT-FI and its employees and
designees under arrangements which will provide the ALatieF Joint Venture with
a guaranteed minimum rate of return on its investment. Certain existing EIP
related contracts with Huarte will be assigned to the ALatieF Joint Venture as
appropriate.
In December 1993, PT-FI announced the execution of a Letter of Intent
with Duke Energy Corp. ("DE") and PowerLink Corporation ("PL"), pursuant to
which PT-FI would sell its existing and to be constructed power generation and
transmission assets and certain other power-related assets to a joint venture
(the "Power Joint Venture") whose ownership would consist of DE (30%), PL
(30%), PT-FI (30%) and an Indonesian investor (10%). The total value of the
transaction is estimated at $200 million and is expected to be concluded in
two phases. The first sale, representing the existing assets, is expected to
exceed $100 million and to occur in mid-1994. The final sale, representing
the to-be-constructed expansion-related assets, is expected to occur during
the first half of 1995. Under the agreement, the Power Joint Venture will own
these assets and be responsible for providing the electrical power services
required by PT-FI at its mining, milling and support operations in Irian Jaya,
Indonesia, including the power services required for the expansion of ore
throughput to 115,000 MTPD.
PT-FI has also entered into two separate letters of intent with respect
to the sale to joint ventures of certain aircraft, airport and related
operations (the "Airport Joint Venture") and certain construction equipment,
certain port facilities and related marine, logistics and related assets (the
"Port Joint Venture"). PT-FI would have a 25% equity interest in the Airport
Joint Venture, with certain Indonesian investors controlling the
remainder. PT-FI would enter into one or more agreements with the Airport
Joint Venture for air transport services for both passengers and cargo. It
is expected that the purchase price of the assets transferred to the
Airport Joint Venture will be approximately $30 million.
The Port Joint Venture is expected to be owned by a multinational
shipping concern and three to five Indonesian investors (one of which is
expected to be ALatieF). PT-FI is not expected to have an equity interest in
the Port Joint Venture. PT-FI would enter into one or more agreements with
the Port Joint Venture for use of the transferred assets. It is expected that
the purchase price of the assets transferred to the Port Joint Venture will
not exceed $100 million.
The foregoing letters of intent are not binding and are subject to the
execution of definitive agreements, financing, and certain Government
approvals. No assurance can be given that any of these transactions will be
consummated.
MARKETING
PT-FI's copper concentrates, which contain significant gold and silver
components, are sold primarily under long-term, U. S. dollar-denominated
contracts, pursuant to which the selling price is based on world metals
prices, generally the London Metal Exchange ("LME") settlement prices for
Grade A copper metal, less certain allowances. Under a major long-term
contract signed in late 1990, approximately 44% of the concentrates produced
by PT-FI in 1993 were sold to a group of Japanese copper smelting companies.
PT-FI also supplies copper concentrates to other Asian, European and North
American smelters and international trading companies under long-term sales
agreements. Virtually all of PT-FI's 1993 production of copper concentrates
was sold under prior commitments, and PT-FI has commitments from various
parties to purchase virtually all of its estimated 1994 production of copper
concentrates. For further detail with respect to sales of concentrates, see
Note 8 to the FCX Financial Statements.
For average realizations per recoverable pound of copper,
see "Selected Financial and Operating Data" on page 17 of
FCX's 1993 Annual Report to stockholders. PT-FI has in place a
price protection program that eliminates exposure to copper price declines
below an average $.90 per recoverable pound for estimated copper sales priced
during 1994, while allowing full benefit to PT-FI for prices above that
level. The cost of the 1994 price protection program, $6 million, is
included in product inventories and is being amortized as an adjustment to
revenues as sales are priced during 1994.
REPUBLIC OF INDONESIA
The economy of Indonesia is based on export commodity agriculture, the
extraction of petroleum, natural gas and other mineral resources, wholesale
and retail trade and, to an increasing extent, manufacturing. Indonesia has a
presidential republic system of government. President Suharto assumed power
in 1966 following an attempted communist coup and has been in power since
then. The Government has maintained a high degree of stability for the past
26 years. President Suharto was re-elected in March 1993 to serve a sixth
consecutive five-year term.
The Government has promoted policies designed to help develop Indonesia
economically and has encouraged foreign investment in numerous areas where
such investment would benefit the Indonesian economy. Indonesia's foreign
investment policy is expressed in the 1967 Foreign Capital Investment Law. It
provides basic guarantees of remittance rights and protection against
nationalization, a framework for incentives and some basic rules as to the
other rights and obligations of foreign investors. PT-FI's rights and
obligations relating to taxes, exchange controls, repatriation and other
matters are governed by the New COW, which was concluded pursuant to the 1967
Foreign Capital Investment Law.
PT-FI has had and continues to enjoy a good working relationship with
the Government. PT-FI's mining complex was Indonesia's first copper mining
project and was the first major foreign investment made in Indonesia following
the new economic development program instituted by the Suharto administration
in 1967. PT-FI works closely with the various levels of the Government in
development efforts in the vicinity of its operations. PT-FI incurs
significant costs associated with providing health and educational assistance,
job training, employment opportunities, agricultural assistance and other
community development services and facilities for the Indonesian people living
in the areas of its operations. In 1990 PT-FI established a foundation to
provide educational and work opportunities for the benefit of the people of
Irian Jaya. Over the next several years, PT-FI will contribute at least $10
million to the foundation for community projects. PT-FI also has in place a
long-term business development program to provide financing and support for
new and emerging businesses, many of which are expected to be suppliers of
goods and services for PT-FI's operations. Over time, PT-FI anticipates
investing $25 million in this program.
FCX has the benefit of political risk insurance from the Overseas
Private Investment Corporation, the Multilateral Investment Guaranty Agency
and other insurers, where available, which covers a portion of its interest in
PT-FI. The insurance is primarily designed to cover certain breach of
contract risks.
RIO TINTO MINERA, S.A.
In March 1993, FCX acquired a 65% interest in RTM, which is principally
engaged in the smelting and refining of copper in Spain, for approximately $50
million, excluding transaction costs. In December 1993, RTM redeemed the
remaining 35% interest for approximately $19 million. RTM has announced plans
to expand its smelter production capacity from its current 150,000 metric tons
of metal per year to approximately 180,000 metric tons of metal per year by
1995 at a cost of approximately $50 million. RTM is studying further
expansion to as much as 270,000 metric tons of metal production per year.
During 1993, PT-FI supplied RTM with approximately 90,000 metric tons of
copper concentrate and is expected to supply approximately 150,000 metric tons
in 1994, providing for approximately 20% and 33%, respectively, of RTM's
requirements in those years. Beginning in 1996, PT-FI is expected to provide
the RTM smelter with approximately one-half of its copper concentrate
requirements. For further information concerning RTM,
reference is made to the information set forth in Item 7 below.
EASTERN MINING COMPANY, INC.
FCX's subsidiary Eastern Mining was granted an exploration permit (the
"SIPP") in April 1993 which gives exclusive rights for a limited period to
explore for minerals on 2.5 million acres (the "SIPP Area") adjacent to the
New COW Area. Preliminary exploration of the SIPP Area is under way.
A draft of a contract of work ("Eastern Mining Draft") was initialled on
January 30, 1993 by the Ministry of Mines and Energy of Indonesia and Eastern
Mining which covers the SIPP Area. The Eastern Mining Draft will be submitted
to the President of Indonesia, with execution of a definitive contract of work
expected in 1994. The Eastern Mining Draft, as initialled, provides for a
30-year term and for two 10-year extensions under certain circumstances. Upon
execution, an Indonesian limited liability company will be formed to hold the
definitive contract of work which initially is to be owned 80% by Eastern
Mining and 10% by each of PT-II and an unrelated Indonesian corporation.
RESEARCH AND DEVELOPMENT
In February 1993, FTX outsourced its corporate engineering, research and
development, corporate environmental and corporate safety functions and, to
that end, contracted with a new company initially owned and staffed by former
employees of FTX, Crescent Technology, Inc. ("Crescent"), that furnishes
services to FTX. Crescent maintains engineering and mine development groups
in New Orleans, Louisiana, which provide engineering, design and construction
supervision activities required to implement new ventures and apply
improvements to existing operations of PT-FI and RTM.
ENVIRONMENTAL MATTERS
FTX and its affiliates, including FCX, have a history of commitment to
environmental responsibility. Since the 1940s, long before the general public
recognized the importance of maintaining environmental quality, FTX has
conducted, and continues to conduct, preoperational, bioassay, marine
ecological and other environmental surveys to determine the environmental
compatibility of its operations. FTX's Environmental Policy commits its
operations to full compliance with applicable laws and regulations. FTX has
contracted with Crescent whose environmental specialists develop and implement
environmental programs that include the activities of PT-FI.
The management of PT-FI believes that it is in compliance with
Indonesian environmental laws, rules and regulations. PT-FI had a team of
environmental scientists from a leading Indonesian scientific institution
conduct a study to update its 1984 Environmental Evaluation Study, with
particular focus on its 66,000 MTPD expansion program, and which addressed the
anticipated effect of PT-FI's expansion to 66,000 MTPD on the environment
within the study area including water quality, aquatic and terrestrial
biology, hydrology, geomorphology, oceanography, sociology and economics. The
study was submitted to the Government, and a formal hearing was held on the
document. The Government then requested PT-FI to update the document to
include future expansion plans. An additional environmental evaluation study
was submitted in late 1993 with respect to the proposed expansion of
production to 115,000 MTPD, and it was approved in February 1994.
PT-FI and RTM, through FTX, maintain insurance coverage in amounts
deemed prudent for certain types of damages associated with environmental
liabilities which arise from sudden, unexpected and unforeseen events.
PT-FI has made, and continues to make, expenditures at its operations
for protection of the environment. Government and public emphasis on
environmental matters can be expected to require PT-FI to incur additional
costs, which will be charged against income from future operations. It is
possible that the Government could revise its environmental laws and/or
regulations periodically. The impact, if any, of such possible revisions on
PT-FI's operations cannot be accurately predicted. However, PT-FI does not
anticipate that any investments which might be required will have a
significant adverse impact on its future operations, liquidity, capital
resources or financial position.
EMPLOYEES
In order to allow access to the FTX employee benefit plans for United
States citizens employed full time in PT-FI's and RTM's businesses, such
persons are formally employed by certain United States subsidiaries of FTX.
For all operational purposes, however, such individuals are regarded as
employees of PT-FI or RTM, respectively, and references herein to PT-FI or RTM
employees include such individuals.
FCX, PT-FI and FTX are parties to a Management Services Agreement (the
"Management Agreement") pursuant to which FTX furnishes general executive,
administrative, financial, accounting, legal, environmental, tax, research and
development, sales and certain other services to FCX and PT-FI. The term of
the Management Agreement is unlimited, subject to termination by any of the
parties on December 31 of any year and subject to at least six months' prior
written notice. FCX and PT-FI reimburse FTX at FTX's cost, including
allocated overhead, for such services on a monthly basis. For further
information with respect to the Management Agreement, including costs
reimbursed to FTX, reference is made to Note 9 to the FCX Financial
Statements.
As of December 31, 1993, PT-FI had a total of 6,054 employees
(approximately 94% Indonesian), compared with 4,983 employees (approximately
91% Indonesian) at year-end 1992. In addition, as of December 31, 1993, PT-FI
had approximately 6,600 contract workers, most of whom were Indonesian.
Approximately 40% of PT-FI's Indonesian employees are members of the All
Indonesia Workers' Union, which operates under Government supervision, with
which a labor agreement covering PT-FI's hourly paid Indonesian employees runs
until September 30, 1995. PT-FI experienced no work stoppages in 1993, and
relations with the union have generally been good. As of December 31, 1993,
RTM had a total of 1,216 employees, of which 1,003 employees are covered by
union contracts. RTM experienced limited work stoppages in 1993, but
relations with these unions have also generally been good.
COMPETITION
PT-FI competes with other mining companies in connection with the sale
of its mineral concentrates and the recruitment and retention of qualified
personnel. Some competing companies possess financial resources equal to or
greater than those of PT-FI. The management of FCX believes that PT-FI is one
of the lowest cost copper producers in the world, taking into account credits
for related gold and silver production.
Item 3. Legal Proceedings.
- ---------------------------
Although FCX may be from time to time involved in various legal
proceedings of a character normally incident to the ordinary course of its
business, the management of FCX believes that potential liability in any such
pending or threatened proceedings would not have a material adverse effect on
the financial condition or results of operations of FCX. FCX, through FTX,
maintains liability insurance to cover some, but not all, potential
liabilities normally incident to the ordinary course of its business as well
as other insurance coverages customary in its business, with such coverage
limits as management deems prudent.
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
Not applicable.
Executive Officers of the Registrant.
- -------------------------------------
In addition to the elected executive officers of FCX (the "Elected FCX
Executive Officers"), certain employees of affiliates of FCX are deemed by FCX
to be executive officers of FCX (the "Designated FCX Executive Officers") for
purposes of the federal securities laws. Listed below are the names and ages,
as of March 15, 1994, of each of the Elected FCX Executive Officers and the
Designated FCX Executive Officers, together with the principal positions and
offices with FCX, FTX, and PT-FI held by each. All officers of FCX, FTX, and
PT-FI are elected or appointed for one year terms, subject to death,
resignation or removal.
Name Age Position or Office
---- --- ------------------
Richard C. Adkerson 47 Senior Vice President of FCX.
Senior Vice President of FTX.
Commissioner of PT-FI.
John G. Amato 50 General Counsel of FCX.
General Counsel of FTX.
Commissioner of PT-FI.
Richard H. Block* 43 Senior Vice President of FTX.
Thomas J. Egan* 49 Senior Vice President of FTX.
Charles W. Goodyear 36 Senior Vice President of FCX.
Senior Vice President of FTX.
Commissioner of PT-FI.
Hoediatmo Hoed* 54 President Director of PT-FI.
W. Russell King* 44 Senior Vice President of FTX.
Rene L. Latiolais* 51 Director of FCX. Director,
President, and Chief Operating
Officer of FTX. Commissioner
of PT-FI.
George A. Mealey 60 Director, President, and Chief
Executive Officer of FCX.
Executive Vice President of FTX.
Director and Executive Vice
President of PT-FI.
James R. Moffett 55 Director and Chairman of the Board
of FCX. Director, Chairman of the
Board, and Chief Executive Officer
of FTX. President Commissioner of
PT-FI.
- --------------------
* This individual is a Designated FCX Executive Officer and not an
Elected FCX Executive Officer. He is deemed by FCX to be a Designated
FCX Executive Officer solely for purposes of the federal securities laws
in view of his position and responsibilities as an officer of FTX or PT-
FI, as applicable; he holds no actual position as an officer of FCX.
The individuals listed above, with the exceptions of Messrs. Adkerson,
Amato, and Goodyear, have served FCX, FTX, or PT-FI in various executive
capacities for at least the last five years. Until 1989, Mr. Adkerson was a
partner in Arthur Andersen & Co., an independent public accounting firm, and
Mr. Goodyear was a Vice President of Kidder, Peabody & Co. Incorporated, an
investment banking firm. During the past five years and prior to that period,
Mr. Amato has been engaged in the private practice of law and has served as
outside counsel to FCX, FTX, and PT-FI.
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder
- -----------------------------------------------------------------------------
Matters.
--------
The information set forth under the caption "FCX Class A Common Shares"
and "Class A Common Share Dividends", on the inside back cover of FCX's 1993
Annual Report to stockholders, is incorporated herein by reference. As of
March 15, 1994, there were 2,355 record holders of FCX's Class A common stock.
Item 6. Selected Financial Data.
- ---------------------------------
The Information set forth under the caption "Selected Financial and
Operating Data", on page 17 of FCX's 1993 Annual Report to stockholders, is
incorporated herein by reference.
FCX's ratio of earnings to fixed charges for each of the years 1989
through 1993, inclusive, was 27.6x, 9.2x, 4.5x, 6.5x and 3.6x respectively.
For this calculation, earnings consist of income from continuing operations
before income taxes, minority interest and fixed charges. Fixed charges
include interest and that portion of rent deemed representative of
interest.
Item 7. Management's Discussion and Analysis of Financial
- -----------------------------------------------------------------
Condition and Results of Operations.
-----------------------------------
ORE RESERVE ADDITIONS AND ONGOING EXPLORATION PROGRAM
Total estimated proved and probable recoverable reserves at P.T. Freeport
Indonesia Company (PT-FI), Freeport-McMoRan Copper & Gold Inc.'s (FCX or the
Company) principal operating unit, have increased since December 31, 1992,
by 5.9 billion pounds of copper (a 28 percent increase), 7.0 million ounces
of gold (a 22 percent increase), and 32.0 million ounces of silver (a 72
percent increase), bringing PT-FI's total year-end 1993 estimated proved
and probable recoverable reserves to 26.8 billion pounds of copper, 39.1
million ounces of gold and 76.7 million ounces of silver. The increases,
net of production during the year, were added primarily at the Grasberg
deposit, but also include additions at the Company's underground mine at
the DOZ (Deep Ore Zone) deposit and the recently discovered Big Gossan
deposit.
In addition to continued delineation of the Grasberg deposit and other
deposits including Big Gossan, PT-FI is proceeding with its ongoing
exploration program for mineralization within the original mining area.
During 1993, PT-FI initiated helicopter-supported surface drilling of the
Wanagon gold/silver/copper prospect, located 1.5 miles northwest of Big
Gossan and 2 miles southwest of Grasberg, where seven holes were drilled.
Significant copper mineralization has been encountered below the 2,900
meter elevation.
Preliminary exploration of the new contract of work area (New COW
Area) has indicated numerous promising targets. Extensive stream sediment
sampling within the new acreage has generated analytical results which are
being evaluated. This sampling program, when coupled with regional mapping
completed on the ground and from aerial photographs, has led to the
outlining of over 50 exploration targets. PT-FI has also completed a
fixed-wing air-magnetometer survey of the entire New COW Area. Detailed
follow-up exploration of these anomalies by additional mapping and sampling
and through the use of both aerial and ground magnetic surveys is now in
progress. Systematic drilling of these targets has already commenced with
significant mineralization being discovered at several prospects.
Additional drilling is required to determine if any of these are
commercially viable. Initial surface and stream sampling began on an
additional 2.5 million acres, just north and west of our existing COW area,
on which an affiliate has an exploration permit and a pending COW.
1993 RESULTS OF OPERATIONS COMPARED WITH 1992
After discussions with the staff of the Securities and Exchange Commission
(SEC), FCX is reclassifying certain expenses and accruals previously
recorded in 1993 as restructuring and valuation of assets. In response to
inquiries, the Company advised the SEC staff that $15.5 million originally
reported as restructuring and valuation of assets represented the
cumulative effect of changes in accounting principle resulting from the
adoption of the new accounting policies that the Company considered
preferable, as described in Note 1 to the financial statements. The
Company also informed the SEC staff of the components of other charges
included in the amount originally reported as restructuring and valuation
of assets. The Company concluded that the reclassification and the related
supplemental disclosures more accurately reflect the nature of these
charges to 1993 net income in accordance with generally accepted accounting
principles. These reclassifications had no impact on net income or net
income per share.
FCX reported 1993 net income applicable to common stock of $21.9
million ($.11 per share) compared with net income of $122.9 million ($.66
per share) for 1992. The results for 1993 reflect (a) a $15.7 million loss
for Rio Tinto Minera, S.A. (RTM) since its acquisition (Note 3) and (b)
charges totaling $52.6 million ($30.4 million to net income or $.15 per
share), of which $28.3 million was noncash, related to (1) restructuring
the administrative organization at Freeport-McMoRan Inc. (FTX), the parent
company of FCX, (2) adjustments to general and administrative expenses and
site production and delivery costs discussed below, and (3) changes in
accounting principle, discussed further in Note 1 to the financial
statements. Operating income was lower in 1993 due to a lower gross margin
resulting primarily from lower copper realizations; higher exploration
expenses; administrative restructuring costs (Note 1); and higher general
and administrative costs. Also impacting net income were lower interest
expense resulting from reduced debt levels, a higher effective tax rate,
and an increase in preferred dividends (Notes 4 and 5).
Revenues in 1993 increased as a result of the acquisition of RTM,
adding sales of copper cathodes and anodes ($204.9 million), gold bullion
($57.4 million), and other products ($26.1 million). Excluding RTM,
revenues declined 4 percent when compared to 1992. Copper price
realizations, taking into account PT-FI's $.90 per pound price protection
program, were 12 percent lower than in 1992, but gold price realizations
were up 6 percent. Although ore production averaged 62,300 metric tons of
ore milled per day (MTPD) in 1993 (8 percent higher than in 1992), copper
sales volumes decreased slightly from 1992 primarily because of sales from
inventory in 1992. Gold sales volumes in 1993 benefited from significantly
higher fourth-quarter 1993 gold grades (a 46 percent increase over fourth-
quarter 1992 and a 38 percent increase over third-quarter 1993), which are
not anticipated to continue in 1994, and an increase in gold recovery rates
for the year which improve with higher gold grades. See Selected Financial
and Operating Data.
A reconciliation of revenues from 1992 to 1993 is presented below (in
millions):
Revenues - 1992 ........................................... $714.3
RTM revenues ........................................... 288.4
Elimination of intercompany sales.......................... (47.7)
Concentrate:
Price realizations:
Copper ............................................... (84.7)
Gold ............................................... 14.7
Sales volumes:
Copper ............................................... (5.5)
Gold ............................................... 30.2
Treatment charges 23.6
Adjustments to prior year concentrate sales ............. (13.0)
Other ............................................... 5.6
------
Revenues - 1993 $925.9
======
Revenues also benefited from a decline in treatment charges of 3.4
cents per pound from 1992, resulting from a tightening in the concentrate
market, as the industry's inventories were reduced for much of 1993.
Additionally, lower copper prices led to lower treatment charges since
these charges vary with the price of copper.
Adjustments to prior year concentrate sales include changes in prices
on all metals for prior year open sales as well as the related impact on
treatment charges. Open copper sales at the beginning of 1993 were
recorded at an average price of $1.04 per pound, but subsequently were
adjusted downward as copper prices fell during the year, negatively
impacting 1993 revenues. As of December 31, 1993, 213.4 million pounds of
copper remained to be contractually priced during future quotational
periods. As a result of PT-FI's price protection program, discussed below,
these pounds are recorded at $.90 per pound. The copper price on the
London Metal Exchange (LME) was $.84 per pound on February 1, 1994.
In June 1993, two of PT-FI's four mill level ore passes caved,
resulting in a blockage of a portion of the ore pass delivery system. The
blockage's primary effect was to limit mill throughput to approximately
40,700 MTPD for approximately eight weeks. The impact of the blockage was
minimized by using an ore stockpile adjacent to the mill and installing
conveyors to alternative ore pass systems. The ore pass blockage has been
rectified through the temporary use of alternative delivery systems and by-
passes. A permanent delivery system is expected to be in service by mid-
1994. The copper recovery rate for 1993 was adversely affected because the
ore milled from the stockpile contained higher than normal oxidized copper,
which yields lower copper recoveries. The Company's insurance policies are
expected to cover the property damage and business interruption claims
relative to the blockage.
PT-FI's unit site production and delivery costs, excluding the $10.0
million charge discussed below, increased slightly from 1992 primarily as a
result of costs incurred in connection with the ore pass blockage and an
increase in production overhead costs related to expansion activities.
Unit cash production costs declined significantly to 31.1 cents per pound
in 1993 from 40.7 cents per pound in 1992, benefiting from higher gold and
silver credits, lower treatment charges, and reduced royalties primarily
due to lower copper prices on which such royalties are based. PT-FI's
depreciation rate increased from 7.4 cents per recoverable pound during
1992 to 8.3 cents in 1993, reflecting the increased cost relating to the
66,000 MTPD expansion. As a result of the reserve additions discussed
earlier, PT-FI's depreciation rate is expected to decrease to 7.5 cents per
recoverable pound for 1994, absent any other significant changes in ore
reserves. In addition, FCX is amortizing costs in excess of book value
($2.4 million of amortization in 1993) relating to certain capital stock
transactions with PT-FI. Amortization of these excess costs is expected to
be $3.6 million per year starting in 1994.
Exploration expenditures in Irian Jaya totaled $31.7 million in 1993,
compared to $12.2 million in 1992 and are projected to be approximately $35
million in 1994. Exploration expenditures in Spain are expected to be
approximately $6 million in 1994.
FCX's general and administrative expenses increased from $68.5 million
in 1992 to $81.4 million in 1993 primarily because of the additional
personnel and facilities needed due to the expansion at PT-FI and the
acquisition of RTM. Included in the 1993 expense is $5.0 million for RTM
(since its acquisition in March 1993) and charges of $6.3 million primarily
consisting of a write-off of deferred charges incurred in 1992 related to a
planned securities offering that was withdrawn ($2.0 million) and costs to
downsize FCX's computing and management information systems (MIS) structure
($4.0 million).
Further increases in general and administrative expenses by FCX are
anticipated in conjunction with continuing expansion at PT-FI. General and
administrative expenses, including those of RTM, are currently expected to
increase by approximately 25 percent in 1994.
During the second quarter of 1993, FTX undertook a restructuring of
its administrative organization. This restructuring represented a major
step by FTX to lower its costs of operating and administering its
businesses in response to weak market prices of the commodities produced by
its operating units. As part of this restructuring, FTX significantly
reduced the number of employees engaged in administrative functions,
changed its MIS environment to achieve efficiencies, reduced its needs for
office space, outsourced a number of administrative functions, and
implemented other actions to lower costs. As a result of this
restructuring process, the level of FCX's administrative cost has been
reduced substantially over what it would have been otherwise, which benefit
will continue in the future. However, the restructuring process entailed
incurring certain one-time costs by FTX, portions of which were allocated
to FCX pursuant to its management services agreement with FTX.
FCX's restructuring costs totaled $20.8 million, including $10.7
million allocated from FTX based on historical allocations, consisting of
the following: $8.3 million for personnel related costs; $3.2 million
relating to excess office space and furniture and fixtures resulting from
the staff reduction; $6.1 million relating to the cost to downsize its
computing and MIS structure; and $3.2 million of deferred charges relating
to PT-FI's 1989 credit facility which was substantially revised in June
1993. As of December 31, 1993, the remaining accrual for these
restructuring costs totaled $1.5 million relating to excess office space.
In connection with the restructuring project, FCX changed its
accounting systems and undertook a detailed review of its accounting
records. As a result of this process, FCX recorded a $10.0 million charge
to site production and delivery costs comprised of the following: $5.0
million for materials and supplies inventory obsolescence; $2.5 million for
revised estimates of value added taxes and import duties related to prior
years; and $2.5 million of adjustments for various items identified in
converting its accounting system.
Interest expense was $15.3 million during 1993 compared with $18.9
million in 1992, excluding $24.5 million and $24.0 million of capitalized
interest, respectively.
The New COW provides a 35 percent corporate income tax rate for PT-FI
and a 15 percent withholding tax on interest for debt incurred after the
signing of the New COW and on dividends paid to FCX by PT-FI. The
additional withholding required on interest and on dividends paid to FCX by
PT-FI, and a $15.7 million loss by RTM for which no tax benefit is
recorded, results in a 1993 effective tax rate of 52 percent (Note 6).
TRENDS AND OUTLOOK - MARKETING
PT-FI's copper concentrates, which contain significant amounts of
recoverable gold and silver, are sold primarily under long-term sales
agreements which accounted for virtually all of PT-FI's 1993 sales. PT-FI
has commitments from various parties to purchase virtually all of its
estimated 1994 production. Concentrate sales agreements provide for
provisional billings based on world metals prices, primarily the LME,
generally at the time of loading. As is customary within the industry,
sales under these long-term contracts usually "final-price" within a few
months of shipment. Certain terms of the long-term contracts, including
treatment charges, are negotiated annually on a portion of the tonnage to
reflect current market conditions. Treatment charges have declined during
1993 as a result of the tightening in the concentrate market and are
expected to remain at or below 1993 levels. RTM has commitments from most
of its suppliers for 1994 treatment charge rates in excess of current spot
market rates.
The increased production at PT-FI has required it to market its
concentrate globally. Its principal markets include Japan, Asia, Europe
and North America. PT-FI's mill throughput is currently forecast to be
approximately 67,000 MTPD for 1994 as it continues to integrate new mill
equipment for the expansion to 115,000 MTPD. Current estimates for 1994
production are approximately 700 million pounds of copper and 780,000
ounces of gold for PT-FI and 165,000 ounces of gold at RTM. RTM, whose
smelter can be expanded, was acquired to provide low-cost smelter capacity
for a portion of PT-FI's concentrate and to improve PT-FI's competitive
position in marketing concentrate to other parties.
During 1993, copper prices dropped to their lowest levels since 1987,
reflecting lower demand caused by the continuing global recession, but
recovered to a level in excess of $.80 per pound. Prices for copper, gold,
and silver are influenced by many factors beyond the Company's control and
can fluctuate sharply. PT-FI has a price protection program for virtually
all of its estimated copper sales to be priced in 1994 at an average floor
price of $.90 per pound of copper, while allowing full benefit from prices
above this amount. Based on projected 1994 PT-FI copper sales of
approximately 720 million pounds, a 1 cent per pound change in the average
annual copper price received over $.90 per pound would have an
approximately $6 million effect on pretax operating income and cash flow.
Based on projected 1994 gold sales of approximately 800,000 ounces by PT-
FI, a $10 per ounce change in the average annual gold price received would
have an approximately $8 million effect on 1994 pretax operating income and
cash flow.
CAPITAL RESOURCES AND LIQUIDITY
Cash flow from operations decreased to $158.5 million during 1993
compared with $252.6 million for 1992, due primarily to lower net income
and an increase in inventories. Materials and supplies increased over
year-end 1992 as additional explosives, reagents and chemicals, fuel, and
spare parts are required for the expanding PT-FI operations. For the year
ended December 31, 1993, consolidated working capital decreased by $352.0
million from December 31, 1992, primarily as a result of a $358.0 million
decrease in cash and short-term investments, which was used to reduce long-
term debt and fund capital expenditures, and the negative working capital
position of RTM.
Cash flow used in investing activities totaled $463.5 million compared
with $579.7 million in 1992. Capital expenditures increased 23 percent in
1993 due to increased expansion activities. During 1992, FCX acquired an
indirect interest in PT-FI for $211.9 million.
Cash flow used in financing activities totaled $53.1 million compared
with $618.2 million provided by financing activities in 1992. FCX issued
shares of its Step-Up Preferred Stock and its Gold-Denominated Preferred
Stock during 1993 for net proceeds totaling $561.1 million. Net proceeds
from the two offerings were used in part to reduce borrowings under the PT-
FI amended credit agreement by a net $537.0 million, thereby increasing the
facility's availability for general corporate purposes and the continued
expansion of mining and milling operations. Also in 1993, the Company
received net proceeds of $80.0 million from the sale of a portion of PT-
FI's infrastructure assets (Note 10). In 1992, $212.5 million was received
from the sale of a 10 percent interest in PT-FI to Indonesian investors in
December 1991 and $392.0 million was received from the sale of Class A
common stock and Special Preference Stock. Dividend payments rose in 1993
due to increased Class A shares outstanding and dividends paid on the
Special Preference and Preferred Stock issued in 1992 and 1993. FCX called
its Zero Coupon Exchangeable Notes (Note 7) for redemption in January 1994
(substantially all of which were exchanged for Class A common stock) and
completed a public offering of its Gold-Denominated Preferred Stock, Series
II (Note 4) which yielded net proceeds of $158.5 million to be used
primarily for expansion related activities.
Cash flow from operations increased to $252.6 million during 1992
compared with $73.9 million for 1991, due primarily to higher net income.
Customer accounts receivable rose by $76.1 million to $130.6 million
because of increased sales. Partially offsetting the increase in
receivables was an increase in accounts payable and accrued liabilities
associated with expansion activities. Cash flow used in investing
activities increased to $579.7 million during 1992 compared with $240.0
million for 1991, due to increased capital expenditures for the 57,000 MTPD
expansion and the purchase of an indirect interest in PT-FI. Cash flow
from financing activities increased $415.8 million in 1992 compared with
1991, primarily due to the sale of Class A common stock, Special Preference
Stock, and a 10 percent interest in PT-FI to Indonesian investors. The
proceeds from these financing activities were used to purchase an indirect
interest in PT-FI and to fund ongoing expansion related expenditures.
RTM's principal operations currently consist of a copper smelter. The
FCX purchase proceeds will be used by RTM for working capital requirements
and capital expenditures, including funding a portion of the expansion of
its smelter production capacity (expected to cost approximately $50
million) from its current 150,000 metric tons of metal per year to 180,000
metric tons of metal per year by mid-1995. RTM is also studying further
expansion of the smelter facilities to as much as 270,000 metric tons of
metal production per year and is assessing the opportunity to expand its
tankhouse operations from 135,000 metric tons per year to 215,000 metric
tons per year. RTM's 1993 cash flow from operations was negative ($5.9
million) primarily due to cash requirements related to shut-down costs for
RTM's gold mine. RTM has relied on short-term credit facilities and the
FCX purchase proceeds to fund this shortfall. RTM is currently evaluating
financing alternatives to fund its short-term needs and to provide long-
term funding for expansion. RTM's future cash flow is dependent on a
number of variables including fluctuations in the exchange rate between the
United States dollar and the Spanish peseta, future prices and sales
volumes of gold, the size and timing of the smelter and tankhouse
expansions, and the supply/demand for smelter capacity and its impact on
related treatment and refining charges.
During 1992, the Company established the Enhanced Infrastructure
Project (EIP). The full EIP (currently expected to involve aggregate cost
of as much as $500 million to $600 million) includes plans for commercial,
residential, educational, retail, medical, recreational, environmental and
other infrastructure facilities to be constructed during the next 20 years
for PT-FI operations. The EIP will develop and promote the growth of local
and other third-party activities and enterprises in Irian Jaya through the
creation of certain necessary support facilities. The initial phase of the
EIP is under construction and is scheduled for completion in 1995.
Additional expenditures for EIP assets beyond the initial phase depend on
the long-term growth of PT-FI's operations and would be expected to be
funded by third-party financing sources, which may include debt, equity or
asset sales. As discussed in Note 10, certain portions of the EIP and
other existing infrastructure assets are expected to be sold in the near
future to provide additional funds for the expansion to 115,000 MTPD.
Through 1995, capital expenditures are expected to be greater than
cash flow from operations. Upon completion of the previously announced
115,000 MTPD expansion by year-end 1995, annual production is expected to
approach 1.1 billion pounds of copper and 1.5 million ounces of gold.
Subsequently, capital expenditures will be determined by the results of
FCX's exploration activities and ongoing capital maintenance programs.
Estimated capital expenditures for 1994 and 1995 for the expansion to
115,000 MTPD, the initial phase of the EIP, ongoing capital maintenance
expenditures, and the expansion of RTM's smelter to 180,000 metric tons of
metal per year are expected to range from $850 million to $950 million and
will be funded by operating cash flow, sales of existing and to-be-
constructed infrastructure assets and a wide range of financing sources the
Company believes are available as a result of the future cash flow from PT-
FI's mineral reserve asset base. These sources include, but are not
limited to, PT-FI's credit facility and the public and private issuances of
securities (including the January 1994 public offering of Gold-Denominated
Preferred Stock, Series II).
The New COW contains provisions for PT-FI to conduct or cause to be
conducted a feasibility study relating to the construction of a copper
smelting facility in Indonesia and for the eventual construction of such a
facility, if it is deemed to be economically viable by PT-FI and the
Government of Indonesia (the Government). PT-FI has participated in a
group assessing the feasibility of constructing a copper smelting facility
in Indonesia.
PT-FI amended its $550.0 million credit agreement in June 1993. The
amended credit agreement, which, among other things eliminated a required
debt service reserve and provided a lower interest rate, is guaranteed by
FCX and FTX, and is structured as a three year revolving line of credit
followed by a 3 1/2 year reducing revolver. As of February 1, 1994, $425.0
million was available to PT-FI under the credit facility. To the extent
FTX and its other subsidiaries incur additional debt, the amount available
to PT-FI under the credit facility may be reduced (Note 7).
Payment of future dividends by FCX will depend on the payment of
dividends by PT-FI, which, in turn, depends on PT-FI's economic resources,
profitability, cash flow and capital expenditures. It is the policy of PT-
FI to maximize its dividend payments to stockholders, taking into account
its operational cash needs including debt service requirements. FCX
currently pays an annual cash dividend of 60 cents per share to its common
shareholders. Management anticipates that this dividend will continue at
this level through completion of the expansion in 1995, absent significant
changes in the prices of copper and gold. However, FCX's Board of
Directors determines its dividend payment on a quarterly basis and in its
discretion may change or maintain the dividend payment. In determining
dividend policy, the Board of Directors considers many factors, including
current and expected future prices and sales volumes, future capital
expenditure requirements, and the availability and cost of financing from
third parties.
PT-FI has had good relations with the Government since it commenced
operations in Indonesia in 1967. The New COW provides that the Government
will not nationalize the mining operations of PT-FI or expropriate assets
of PT-FI. Disputes under the New COW are to be resolved by international
arbitration. The 1967 Foreign Capital Investment Law, which expresses
Indonesia's foreign investment policy, provides basic guarantees of
remittance rights and protection against nationalization, a framework for
incentives and some basic rules as to other rights and obligations of
foreign investors.
ENVIRONMENTAL
FTX and affiliates, including FCX, have a history of commitment to
environmental responsibility. Since the 1940s, long before public
attention focused on the importance of maintaining environmental quality,
FTX has conducted preoperational, bioassay, marine ecological, and other
environmental surveys to ensure the environmental compatibility of its
operations. FTX's Environmental Policy commits FTX's operations to full
compliance with local, state, and federal laws and regulations.
The Company believes it is in compliance with Indonesian environmental
laws, rules, and regulations. The Company had a team of environmental
scientists from a leading Indonesian scientific institution conduct a study
to update its 1984 Environmental Impact Assessment that covered expansion
to 66,000 MTPD. Subsequently, that document was expanded by other
independent scientists to cover all environmental aspects of the current
expansion to 115,000 MTPD. The latest study document was submitted to the
Government in December 1993. Based on preliminary hearings, the Company
believes the study document will be accepted substantially as submitted.
The Company has made, and will continue to make, expenditures at its
operations for protection of the environment. Increasing emphasis on
environmental matters can be expected to require the Company to incur
additional costs, which will be charged against income from future
operations. On the basis of its analysis of its operations in relation to
current and presently anticipated environmental requirements, management
does not anticipate that these investments will have a significant adverse
impact on its future operations, liquidity, capital resources, or financial
position.
1992 RESULTS OF OPERATIONS COMPARED WITH 1991
FCX reported 1992 net income of $122.9 million ($.66 per share)
compared with 1991 net income of $96.2 million ($.53 per share).
A reconciliation of revenues from 1991 to 1992
is presented below (in millions):
Revenues - 1991 .............................................. $467.5
Price realizations:
Copper ..................................................... 8.8
Gold........................................................ (7.4)
Sales volumes:
Copper...................................................... 218.5
Gold ....................................................... 95.7
Treatment charges............................................. (73.0)
Adjustments to prior year concentrate sales................... 12.5
Other......................................................... (8.3)
------
Revenues - 1992 .............................................. $714.3
======
Revenues increased 53 percent in 1992, reflecting higher production
rates due to the mine/mill expansion, higher gold grades, and the sale of
all year-end 1991 inventory. Price realizations were relatively unchanged
between years (2 percent increase in copper realizations and 5 percent
decrease in gold realizations), but sales volumes benefited significantly
from the expansion, higher gold grades, and inventory sales discussed
above. Copper sales volumes increased 48 percent and gold sales volumes
increased 71 percent. Partially offsetting the benefit from sales volumes
increases was a 3.6 cents per pound increase in treatment charges because
of tight market conditions in the smelting industry early in 1992 and
increased spot market sales attributable to higher than anticipated
production due to the early completion of the 57,000 MTPD expansion
program. A $5.7 million upward revenue adjustment was made in 1992
compared with a $6.8 million downward revenue adjustment in 1991 for prior
year concentrate sales contractually priced during the year.
Cost of sales for 1992 were $357.2 million, an increase of 47 percent
from 1991 due primarily to the 48 percent increase in copper sales volumes.
Unit site production and delivery costs in 1992 approximated 1991 costs.
FCX's depreciation rate declined from an average 8.7 cents per recoverable
pound in 1991 to 7.4 cents in 1992 because of the significant increase in
ore reserves during 1991.
Interest expense was $18.9 million during 1992 compared with $21.5
million in 1991, excluding $24.0 million and $18.3 million of capitalized
interest, respectively.
The 1992 general and administrative expenses rose to $68.5 million
from $40.6 million in 1991, because of several financing transactions and
operational and environmental studies in 1992 which required additional
corporate personnel whose salaries and related overhead, were charged to
the Company. General and administrative expenses also increased because of
the additional personnel and facilities needed in Indonesia for the
expanding operations.
Minority interest share of net income reflects FCX's 80 percent
ownership interest in PT-FI for 1992, compared with its 90 percent interest
during 1991.
___________________________
The results of operations reported and summarized above are not necessarily
indicative of future operating results.
The information set forth under the caption "FCX Class A Common Shares"
and "Class A Common Share Dividends", on the inside back cover of FCX's 1993
Annual Report to stockholders, is incorporated herein by reference. As of
March 15, 1994, there were 2,355 record holders of FCX's Class A common stock.
Item 8. Financial Statements and Supplementary Data.
- -----------------------------------------------------
The financial statements of FCX, the notes thereto, the report of
management and the report thereon of Arthur Andersen & Co., appearing on pages
25 through 39, inclusive, of FCX's 1993 Annual Report to stockholders, are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
- ----------------------------------------------------------------------------
and Financial Disclosure.
-------------------------
Not applicable.
PART III
--------
Items 10, 11, 12, and 13. Directors and Executive Officers of the Registrant,
- ------------------------------------------------------------------------------
Executive Compensation, Security Ownership of Certain Beneficial
--------------------------------------------------------------------
Owners and Management, and Certain Relationships and Related
-----------------------------------------------------------------
Transactions.
-------------
The information set forth under the captions "Voting Procedure" and
"Election of Directors", beginning on pages 1 and 5, respectively, of the
Proxy Statement dated March 31, 1994, submitted to the stockholders of FCX in
connection with its 1994 Annual Meeting to be held on May 5, 1994, is
incorporated herein by reference.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
- --------------------------------------------------------------------------
(a)(1), (a)(2), and (d). Financial Statements. See Index to Financial
Statements appearing on page F-1 hereof.
(a)(3) and (c). Exhibits. See Exhibit Index beginning on page E-1
hereof.
(b). Reports on Form 8-K. No reports on Form 8-K were filed by the
registrant during the fourth quarter of 1993.
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 29, 1994.
FREEPORT-McMoRan COPPER & GOLD INC.
BY: /s/ James R. Moffett
--------------------------------
James R. Moffett
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 1994.
/s/ James R. Moffett Chairman of the Board and
- ------------------------------ Director
James R. Moffett
George A. Mealey* President, Chief Executive Officer
and Director
(Principal Executive Officer)
Stephen M. Jones* Vice President and
Chief Financial Officer
(Principal Financial Officer)
C. Donald Whitmire* Controller
(Principal Accounting Officer)
Leland 0. Erdahl* Director
Ronald Grossman* Director
Rene L. Latiolais* Director
Wolfgang F. Siegel* Director
Elwin E. Smith* Director
Eiji Umene* Director
*By: /s/ James R. Moffett
-------------------------------
James R. Moffett
Attorney-in-Fact
INDEX TO FINANCIAL STATEMENTS
------------------------------
The financial statements of FCX, the notes thereto, and the report
thereon of Arthur Andersen & Co. appearing on pages 25 through 39, inclusive,
of FCX's 1993 Annual Report to stockholders are incorporated by reference.
The financial statement schedules listed below should be read in
conjunction with such financial statements contained in FCX's 1993 Annual
Report to stockholders.
Page
----
Report of Independent Public Accountants........................ F-1
II-Amounts Receivable from Employees............................ F-2
III-Condensed Financial Information of Registrant............... F-3
V-Property, Plant and Equipment................................. F-6
VI-Accumulated Depreciation and Amortization.................... F-7
X-Supplementary Income Statement Information.................... F-8
Schedules other than those schedules listed above have been omitted since
they are either not required or not applicable or the required information is
included in the financial statements or notes thereof.
* * *
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
We have audited, in accordance with generally accepted auditing
standards, the financial statements as of December 31, 1993 and 1992 and
for each of the three years in the period ended December 31, 1993 included
in Freeport-McMoRan Copper & Gold Inc.'s annual report to shareholders
incorporated by reference in this Form 10-K, and have issued our report
thereon dated January 25, 1994. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The schedules
listed in the index above are the responsibility of the Company's
management and are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken
as a whole.
Arthur Andersen & Co.
New Orleans, Louisiana
January 25, 1994
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE II - AMOUNTS RECEIVABLE FROM EMPLOYEES
for the years ended December 31, 1993, 1992 and 1991
Balance at Balance at
Beginning Amounts End of Period
------------------- --------------
Employee of Period Additions Collected Written Current Long-
Off Term
- ------------------- ---------- --------- --------- --------- ------- ------
1993:
- ----
Usman S. Pamuntjak $305,910 $ - $305,910 - $ - $ -
Hoediatmo Hoed 248,069 - 25,668 - 25,663 196,738
Adrianto Machribie 480,000 200,000 65,500 - 73,200 541,300
1992:
- ----
Usman S. Pamuntjak 339,900 - 33,990 - 33,990 271,920
Hoediatmo Hoed 271,425 256,625 279,981 - 25,663 222,406
Adrianto Machribie - 500,000 20,000 - 60,000 420,000
1991:
- ----
Usman S. Pamuntjak 339,900 - - - 33,990 305,910
Hoediatmo Hoed 291,625 - 20,200 - 22,400 249,025
a. Under the (PT-FI) residential loan policy, Mr. Pamuntjak, President of
PT-FI until December 31, 1990, Mr. Hoed, President of PT-FI effective
January 1, 1991, and Mr. Machribie, Vice President of PT-FI, borrowed
$525,450, $360,000 and $700,000, respectively.
Mr. Pamuntjak retired from PT-FI on December 31, 1990 and on January 1,
1991 signed a consulting services agreement with PT-FI. For the
performance of his services under this agreement, PT-FI forgave, as
compensation, 10 percent of the indebtedness in 1992. The consulting
services agreement with Mr. Pamuntjak was terminated in January 1993, at
which time Mr. Pamuntjak repaid the balance of the loan.
Effective September 1992, Mr. Hoed executed a new loan in the amount
of $256,625 which was used to pay off the remaining balance of the
existing loan; 10 percent of the principal amount of the new loan will
be forgiven annually.
Effective August 1992, Mr. Machribie borrowed $500,000 consisting of
one loan for $400,000 (First Loan) and a second loan for $100,000
(Second Loan). As long as Mr. Machribie remains in the employ of PT-
FI, 10 percent of the principal amount of the First Loan and 20
percent of the principal amount of the Second Loan will be forgiven
annually; a pro rata amount of $20,000 was forgiven in 1992.
Additionally, effective July 6, 1993, Mr. Machribie borrowed
$200,000. This loan will be repaid over 15 years through monthly
salary deductions in the amount of $1,100, which began in August 1993.
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Balance Sheets
December 31,
----------------------------
1993 1992
---------- --------
(In Thousands)
ASSETS
Cash and short-term investments $ 427 $174,760
Interest receivable 7,582 1,739
Receivable from Government of Indonesia 2,247 8,535
Notes receivable-PT-FI 1,064,888 458,274
Investment in PT-FI 145,959 106,169
Investment in PTII 75,601 74,401
Investment in RTM 43,254 -
Other Assets 2,011 115
---------- --------
Total assets $1,341,969 $823,993
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable & accrued liabilities $ 32,468 $ 3,953
Zero coupon exchangeable notes 102,039 173,583
Amount due to FTX 12,270 -
RTM stock subscription payable 12,644 -
Other liabilities and deferred credits 2,001 -
Mandatory Redeemable Gold-Denominated
Preferred Stock 232,620 -
Stockholders' equity 947,927 646,457
------- --------
Total liabilities and stockholders' equity $1,341,969 $823,993
========== ========
Statements of Income
Years Ended December 31,
-------------------------------------
1993 1992 1991
-------- --------- --------
(In Thousands)
Income from investment in
PT-FI and PTII, net of
PT-FI tax provision $ 53,861 $128,220 $100,472
Net loss from investment in RTM (15,666) - -
Elimination of intercompany profit (6,610) - -
General and administrative expenses (5,207) (4,802) (3,280)
Depreciation and amortization (2,397) (200) (1,134)
Interest expense (8,017) (16,518) (8,767)
Interest income on PT-FI notes receivable:
Zero coupon exchangeable notes 19,175 18,326 8,767
Promissory notes 9,292 11,097 -
8.235% convertible 14,036 - -
Step-up perpetual convertible 12,785 - -
Gold production payment loan 4,055 - -
Other income (expense), net (406) 5,561 101
Provision for income taxes (24,085) (11,791) -
------- -------- --------
Net income 50,816 129,893 96,159
Preferred dividends (28,954) (7,025) -
------- -------- --------
21,862 $122,868 $ 96,159
======= ======== ========
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Continued)
Statements of Cash Flow
Years Ended December 31,
-----------------------------
1993 1992 1991
-------- -------- --------
(In Thousands)
Cash flow from operating activities:
Net income $ 50,816 $129,893 $ 96,159
Adjustments to reconcile net
income to net cash
provided by operating activities:
Income from investment in
PT-FI and PTII (53,861) (128,220) (100,472)
Net loss from investment in RTM 15,666 - -
Elimination of intercompany profit 6,610 - -
Dividends received from PT-FI 132,048 78,214 126,330
Accretion of note receivable -
PT-FI, net (9,104) (1,808) -
Depreciation and amortization 2,397 200 1,134
(Increase) decrease in accounts
receivable - 20,000 (20,000)
Increase (decrease) in accounts payable (646) 597 (18)
Other (5,959) (1,854) -
-------- -------- --------
Net cash provided by operating
activities 137,967 97,022 103,133
-------- -------- --------
Cash flow from investing activities:
Received from Government of Indonesia 6,288 3,911 5,615
Investment in RTM (43,642) - -
Investment in PTII - (211,892) -
Investment in Freeport Hasa Inc. - (1) -
-------- -------- --------
Net cash provided by (used in)
investing activities (37,354) (207,982) 5,615
-------- -------- --------
Cash flow from financing activities:
Cash dividends paid:
Class A common stock (33,298) (26,088) (22,000)
Class B common stock (85,277) (85,277) (78,171)
Special preference stock (15,708) (4,407) -
Step-Up preferred stock (5,590) - -
Gold-denominated preferred stock (1,683) - -
Net proceeds from issuance of zero
coupon notes - - 218,560
Proceeds from Class A common stock offering - 174,142 -
Proceeds from Depositary shares offerings 561,090 217,867 -
Proceeds from sale of stock to Bakrie - 212,484 -
Proceeds from FTX 20,650 - -
Repayment to FTX (8,380) - -
Loans to PT-FI (706,750) (212,484) (218,560)
-------- -------- --------
Net cash provided by (used) in
financing activities (274,946) 276,237 (100,171)
-------- -------- --------
Net increase (decrease) in cash and
short-term investments (174,333) 165,277 8,577
Cash and short-term investments at
beginning of year 174,760 9,483 906
-------- -------- --------
Cash and short-term investments
at end of year $ 427 $174,760 $ 9,483
======== ======== ========
Interest paid $ 213 $ - $ -
======== ======== ========
Taxes paid $ 22,723 $ 11,762 $ -
======== ======== ========
a. The footnotes contained in FCX's 1993 Annual Report to stockholders are
an integral part of these statements.
b. Effective December 31, 1991, PT-FI issued 21,300 of its shares,
representing a 10 percent interest in PT-FI, to a publicly traded entity
owned by Indonesian investors for $212.5 million, pursuant to an
agreement negotiated in early 1991. FCX guaranteed the buyer's
financing for this purchase and accordingly, deferred the gain on the
sale.
In December 1992, FCX purchased approximately 49 percent of the capital
stock of P.T. Indocopper Investama Corporation (PTII), a publicly
traded Indonesian entity which owned 10 percent of the outstanding
common stock of PT-FI. PTII acquired the 10 percent of the outstanding
common stock of PT-FI from the Indonesian investors who acquired the
shares on December 31, 1991. When FCX recorded its investment in PTII
it utilized purchase accounting and thus eliminated the deferred gain of
$138.6 million on the original sale to the Indonesian investors against
the cost of the 4.9 percent indirect interest in PT-FI. The excess cost
resulting from the purchase ($69.5 million) is reflected in FCX's
consolidated balance sheet as property, plant and equipment and is being
amortized over the remaining life of the Contract of Work (approximately
28 years), at a rate of approximately $2.4 million per year. This
property, plant and equipment is included in the condensed balance sheet
as part of FCX's investment in PTII.
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
for the years ended December 31, 1993, 1992, and 1991
Col. A Col. B Col. C Col. D Col. E Col. F
- --------------------- ------------ --------- ----------- --------- ----------
Balance at Balance at
Beginning of Additions Retirements Other-Add End of
Description Period at Cost and Sales (Deduct) Period
- --------------------- ------------ --------- ----------- --------- ---------
(In Thousands)
1993:
- ----
Exploration and
development costs $ 137,576 $ 9,365 $ - $ - $ 146,941
Plant and equipment 1,306,363 751,131 (2,882) (29,331) 2,025,281
---------- -------- ------- --------- ----------
$1,443,939 $760,496 $(2,882) $ (29,331) $2,172,222
========== ======== ======= ========= ==========
1992:
- ----
Exploration and
development costs $ 135,548 $ 2,028 $ - $ - $ 137,576
Plant and equipment 876,481 365,820 (5,445) 69,507 (a) 1,306,363
---------- -------- ------- --------- ----------
$1,012,029 $367,848 $(5,445) $ 69,507 $1,443,939
========== ======== ======= ========= ==========
1991:
- ----
Exploration and
development costs $ 129,138 $ 6,410 $ - $ - $ 135,548
Plant and equipment 748,851 233,544 (3,729) (102,185)(a) 876,481
---------- -------- ------- --------- ----------
$ 877,989 $239,954 $(3,729) $(102,185) $1,012,029
========== ======== ======= ========= ==========
a. See note (b) on Schedule III.
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
for the years ended December 31, 1993, 1992, and 1991
Col. A Col. B Col. C Col. D Col. E Col. F
- ------------------------- ----------- ----------- ---------- --------- -------
Balance at Additions Balance
Beginning Charged to Retire- at
of Costs and ments Other-Add End of
Description Period Expenses(a) and Sales (Deduct) Period
- ------------------------- ----------- ----------- --------- --------- ------
(In Thousands)
1993: Accumulated
- ----
depreciation
and amortization $450,527 $67,906 $(2,732) $ 9,918 $525,619
======== ======= ======= ======= ========
1992: Accumulated
- ----
depreciation
and amortization $410,354 $48,272 $(5,438) $(2,661) $450,527
======== ======= ======= ======= ========
1991: Accumulated
- ----
depreciation
and amortization $375,818 $38,397 $(3,729) $ (132) $410,354
======== ======= ======= ======= ========
a. Mine and mill assets, including estimated future capital costs, are
depreciated on the unit-of-production method while the remaining assets
are depreciated on a straight-line basis.
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
for the years ended December 31, 1993, 1992, and 1991
Col. A Col. B
- -------------------------------------- ------------------------------------
Description Charged to Costs and Expenses
- -------------------------------------- ------------------------------------
1993 1992 1991
------- ------- -------
(In Thousands)
Maintenance and repairs $78,335 $68,623 $52,061
======= ------- -------
Taxes, other than payroll and
income taxes:
Value added tax $ 4,164 $ 792 $ 1,371
Shippers tax - - (12)
Fiscal 259 263 60
P.I.U.D. 3,050 3,148 2,716
------- ------- -------
$ 7,473 $ 4,203 $ 4,135
======= ======= =======
Royalties $ 9,539 $15,708 $10,355
======= ======= =======
Freeport-McMoRan Copper & Gold Inc.
Exhibit Index
Sequentially
Exhibit Numbered
Number Page
------ ------------
3.1 Composite copy of the Certificate of
Incorporation of FCX.
3.2 By-Laws of FCX, as amended.
Incorporated by reference to Exhibit
3.2 to the Annual Report on Form 10-K
of FCX for the fiscal year ended
December 31, 1992 (the "FCX 1992 Form
10-K").
4.1 Certificate of Designations of the 7%
Convertible Exchangeable Special
Preference Stock (the "Special
Preference Stock") of FCX.
Incorporated by reference to Exhibit
5 to the Form 8 Amendment No. 1 dated
July 16, 1992 (the "Form 8
Amendment") to the Application for
Registration on Form 8-A of FCX dated
July 2, 1992.
4.2 Deposit Agreement dated as of July
21, 1992 among FCX, Mellon Securities
Trust Company, as Depositary, and
holders of depositary receipts
("Depositary Receipts") evidencing
certain Depositary Shares, each of
which, in turn, represents 2-16/17
shares of Special Preference Stock.
Incorporated by reference to Exhibit
2 to the Form 8 Amendment.
4.3 Form of Depositary Receipt.
Incorporated by reference to Exhibit
1 to the Form 8 Amendment.
4.4 Certificate of Designations of the
Step-Up Convertible Preferred Stock
(the "Step-Up Convertible Preferred
Stock") of FCX.
4.5 Deposit Agreement dated as of July 1,
1993 among FCX, Mellon Securities
Trust Company, as Depositary, and
holders of depositary receipts
("Step-Up Depositary Receipts")
evidencing certain Depositary Shares,
each of which, in turn, represents
0.05 shares of Step-Up Convertible
Preferred Stock.
4.6 Form of Step-Up Depositary Receipt.
4.7 Certificate of Designations of the
Gold-Denominated Preferred Stock (the
"Gold-Denominated Preferred Stock")
of FCX.
4.8 Deposit Agreement dated as of August
12, 1993 among FCX, Mellon Securities
Trust Company, as Depositary, and
holders of depositary receipts
("Gold-Denominated Depositary
Receipts") evidencing certain
Depositary shares, each of which, in
turn, represents 0.05 shares of Gold
Denominated Preferred Stock.
4.9 Form of Gold-Denominated Depositary
Receipt.
4.10 Credit Agreement dated as of June 1,
1993 (the "PT-FI Credit Agreement")
among PT-FI, the several banks which
are parties thereto (the "PT-FI
Banks"), Morgan Guaranty Trust
Company of New York, as PT-FI Trustee
(the "PT-FI Trustee"), and Chemical
Bank, as agent (the "PT-FI Bank
Agent").
4.11 First Amendment dated as of February
2, 1994 to the PT-FI Credit Agreement
among PT-FI, the PT-FI Banks, the PT-
FI Trustee and the PT-FI Bank Agent.
4.12 Second Amendment dated as of March 1,
1994 to the PT-FI Credit Agreement
among PT-FI, the PT-FI Banks, the PT-
FI Trustee and the PT-FI Bank Agent.
4.13 Agreement dated as of May 1, 1988
between Freeport Minerals Company and
FCX assigning certain stockholder
rights and obligations. Incorporated
by reference to Exhibit 10.13 to
Registration No. 33-20807.
10.1 Design, Engineering and Related
Services Contract dated as of
September 15, 1992 between PT-FI and
Fluor Daniel Engineers &
Constructors, Ltd. Incorporated by
reference to Exhibit 10.1 to the FCX
1992 Form 10-K.
10.2 Site Services Contract dated as of
September 15, 1992 between PT-FI and
Fluor Daniel Eastern, Inc.
Incorporated by reference to Exhibit
10.2 to the FCX 1992 Form 10-K.
10.3 Contract of Work dated December 30,
1991 between The Government of the
Republic of Indonesia and PT-FI.
Incorporated by reference to Exhibit
10.20 to the FCX 1991 Form 10-K.
10.4 Management Services Agreement dated
as of May 1, 1988 among FCX, FII and
FTX. Incorporated by reference to
Exhibit 10.01 to Registration No. 33-
20807.
10.5 Concentrate Sales Agreement dated as
of December 30, 1990 between FII and
Dowa Mining Co., Ltd., Furukawa Co.,
Ltd., Mitsubishi Materials
Corporation, Mitsui Mining & Smelting
Co., Ltd., Nittetsu Mining Co., Ltd.,
Nippon Mining Co., Ltd. and Sumitomo
Metal Mining Co., Ltd. (Confidential
information omitted and filed
separately with the Securities and
Exchange Commission.) Incorporated
by reference to Exhibit 10.3 to the
Annual Report on Form 10-K of FCX for
the fiscal year ended December 31,
1990.
12.1 FCX Computation of Ratio of Earnings
to Fixed Charges.
13.1 Those portions of the 1993 Annual
Report to stockholders of FCX which
are incorporated herein by reference.
18.1 Letter from Arthur Andersen & Co.
concerning changes in accounting
principles.
21.1 Subsidiaries of FCX.
23.1 Consent of Arthur Andersen & Co.
dated March 25, 1994.
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.