fcx2q0710-q.htm
|
|
UNITED
STATES
|
SECURITIES
AND EXCHANGE COMMISSION
|
Washington,
D.C. 20549
|
|
FORM
10-Q
|
|
(Mark
One)
|
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the quarterly period ended June 30, 2007
|
OR
|
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the transition period from
|
|
To
|
Commission
File Number: 1-9916
|
|
|
|
Freeport-McMoRan
Copper & Gold Inc.
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
74-2480931
|
(State
or other jurisdiction of
|
(IRS
Employer Identification No.)
|
incorporation
or organization)
|
|
|
|
One
North Central Avenue
|
|
Phoenix,
AZ
|
85004-4414
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
|
(602)
366-8100
|
(Registrant's
telephone number, including area code)
|
|
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. R Yes
ÿ
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
one): Large accelerated filer RAccelerated
filer ÿNon-accelerated
filer ÿ
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ÿ Yes R
No
On
July
31, 2007, there were issued and outstanding 381,728,862 shares of the
registrant’s Common Stock, par value $0.10 per share.
FREEPORT-McMoRan
COPPER & GOLD INC.
|
|
|
Page
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
4
|
|
|
|
5
|
|
|
|
6
|
|
|
|
7
|
|
|
|
31
|
|
|
|
|
|
32
|
|
|
|
88
|
|
|
|
88
|
|
|
|
89
|
|
|
|
89
|
|
|
|
90
|
|
|
|
90
|
|
|
|
91
|
|
|
|
91
|
|
|
|
92
|
|
|
|
E-1
|
|
|
FREEPORT-McMoRan
COPPER & GOLD INC.
FREEPORT-McMoRan
COPPER & GOLD INC.
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
Millions)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,078
|
|
|
$
|
907
|
|
Accounts
receivable
|
|
|
2,455
|
|
|
|
486
|
|
Inventories
|
|
|
2,387
|
|
|
|
724
|
|
Mill
and leach stockpiles
|
|
|
320
|
|
|
|
-
|
|
Prepaid
expenses, restricted cash and other
|
|
|
215
|
|
|
|
34
|
|
Total
current assets
|
|
|
7,455
|
|
|
|
2,151
|
|
Property,
plant, equipment and development costs, net
|
|
|
24,302
|
|
|
|
3,099
|
|
Other
assets
|
|
|
743
|
|
|
|
140
|
|
Trust
assets
|
|
|
612
|
|
|
|
-
|
|
Long-term
mill and leach stockpiles
|
|
|
530
|
|
|
|
-
|
|
Goodwill
|
|
|
6,992
|
|
|
|
-
|
|
Total
assets
|
|
$
|
40,634
|
|
|
$
|
5,390
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
2,647
|
|
|
$
|
789
|
|
Accrued
income taxes
|
|
|
629
|
|
|
|
165
|
|
Copper
price protection program
|
|
|
592
|
|
|
|
–
|
|
Current
portion of long-term debt and short-term borrowings
|
|
|
152
|
|
|
|
19
|
|
Total
current liabilities
|
|
|
4,020
|
|
|
|
973
|
|
Long-term
debt, less current portion:
|
|
|
|
|
|
|
|
|
Senior
notes
|
|
|
6,951
|
|
|
|
620
|
|
Term
loan
|
|
|
2,450
|
|
|
|
-
|
|
Project
financing, equipment loans and other
|
|
|
236
|
|
|
|
41
|
|
Total
long-term debt, less current portion
|
|
|
9,637
|
|
|
|
661
|
|
Other
liabilities and deferred credits
|
|
|
1,230
|
|
|
|
298
|
|
Deferred
income taxes
|
|
|
6,856
|
|
|
|
800
|
|
Total
liabilities
|
|
|
21,743
|
|
|
|
2,732
|
|
Minority
interests
|
|
|
1,524
|
|
|
|
213
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
5½%
Convertible Perpetual Preferred Stock
|
|
|
1,100
|
|
|
|
1,100
|
|
6¾%
Mandatory Convertible Preferred Stock
|
|
|
2,875
|
|
|
|
-
|
|
Common
stock
|
|
|
50
|
|
|
|
31
|
|
Capital
in excess of par value
|
|
|
13,331
|
|
|
|
2,668
|
|
Retained
earnings
|
|
|
2,818
|
|
|
|
1,415
|
|
Accumulated
other comprehensive income (loss)
|
|
|
16
|
|
|
|
(20
|
)
|
Common
stock held in treasury
|
|
|
(2,823
|
)
|
|
|
(2,749
|
)
|
Total
stockholders’ equity
|
|
|
17,367
|
|
|
|
2,445
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
40,634
|
|
|
$
|
5,390
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
June
30,
|
|
June
30,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
(In
Millions, Except Per Share Amounts)
|
|
Revenues
|
$
|
5,807
|
|
$
|
1,426
|
|
$
|
8,110
|
|
$
|
2,512
|
|
Cost
of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
and delivery
|
|
2,850
|
|
|
605
|
|
|
3,802
|
|
|
1,083
|
|
Depreciation,
depletion and amortization
|
|
379
|
|
|
44
|
|
|
495
|
|
|
87
|
|
Total
cost of sales
|
|
3,229
|
|
|
649
|
|
|
4,297
|
|
|
1,170
|
|
Exploration
and research expenses
|
|
40
|
|
|
3
|
|
|
47
|
|
|
5
|
|
Selling,
general and administrative expenses
|
|
139
|
|
|
35
|
|
|
188
|
|
|
66
|
|
Total
costs and expenses
|
|
3,408
|
|
|
687
|
|
|
4,532
|
|
|
1,241
|
|
Operating
income
|
|
2,399
|
|
|
739
|
|
|
3,578
|
|
|
1,271
|
|
Interest
expense, net
|
|
(182
|
)
|
|
(21
|
)
|
|
(234
|
)
|
|
(44
|
)
|
Losses
on early extinguishment and conversion of debt, net
|
|
(47
|
)
|
|
-
|
|
|
(135
|
)
|
|
(2
|
)
|
Gains
on sales of assets
|
|
38
|
|
|
9
|
|
|
38
|
|
|
9
|
|
Other
income, net
|
|
43
|
|
|
6
|
|
|
66
|
|
|
11
|
|
Equity
in affiliated companies’ net earnings
|
|
7
|
|
|
1
|
|
|
12
|
|
|
5
|
|
Income
before income taxes and minority interests
|
|
2,258
|
|
|
734
|
|
|
3,325
|
|
|
1,250
|
|
Provision
for income taxes
|
|
(777
|
)
|
|
(310
|
)
|
|
(1,237
|
)
|
|
(532
|
)
|
Minority
interests in net income of consolidated subsidiaries
|
|
(313
|
)
|
|
(42
|
)
|
|
(427
|
)
|
|
(69
|
)
|
Net
income
|
|
1,168
|
|
|
382
|
|
|
1,661
|
|
|
649
|
|
Preferred
dividends
|
|
(64
|
)
|
|
(15
|
)
|
|
(81
|
)
|
|
(30
|
)
|
Net
income applicable to common stock
|
$
|
1,104
|
|
$
|
367
|
|
$
|
1,580
|
|
$
|
619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$2.90
|
|
|
$1.95
|
|
|
$5.27
|
|
|
$3.29
|
|
Diluted
|
|
$2.62
|
|
|
$1.74
|
|
|
$4.80
|
|
|
$2.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
381
|
|
|
188
|
|
|
300
|
|
|
188
|
|
Diluted
|
|
446
|
|
|
222
|
|
|
346
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid per share of common stock
|
|
$0.3125
|
|
|
$1.0625
|
|
|
$0.625
|
|
|
$1.875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
Millions)
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,661
|
|
|
$
|
649
|
|
Adjustments
to reconcile net income to net cash provided by
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
Unrealized
losses on copper price protection program
|
|
|
168
|
|
|
|
-
|
|
Depreciation,
depletion and amortization
|
|
|
495
|
|
|
|
87
|
|
Minority
interests in net income of consolidated subsidiaries
|
|
|
427
|
|
|
|
69
|
|
Noncash
compensation and benefits
|
|
|
104
|
|
|
|
36
|
|
Losses
on early extinguishment and conversion of debt, net
|
|
|
135
|
|
|
|
2
|
|
Gains
on sales of assets
|
|
|
(38
|
)
|
|
|
(9
|
)
|
Deferred
income taxes
|
|
|
(102
|
)
|
|
|
63
|
|
Elimination
(recognition) of profit on PT Freeport Indonesia sales
|
|
|
|
|
|
|
|
|
to
PT Smelting
|
|
|
36
|
|
|
|
(13
|
)
|
Increase
in long-term mill and leach stockpiles
|
|
|
(101
|
)
|
|
|
-
|
|
Other
|
|
|
46
|
|
|
|
11
|
|
(Increases)
decreases in working capital, excluding amounts
|
|
|
|
|
|
|
|
|
acquired
from Phelps Dodge:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(557
|
)
|
|
|
(2
|
)
|
Inventories
|
|
|
298
|
|
|
|
(218
|
)
|
Prepaid
expenses, restricted cash and other
|
|
|
16
|
|
|
|
(3
|
)
|
Accounts
payable and accrued liabilities
|
|
|
182
|
|
|
|
(70
|
)
|
Accrued
income taxes
|
|
|
(20
|
)
|
|
|
(226
|
)
|
Increase
in working capital
|
|
|
(81
|
)
|
|
|
(519
|
)
|
Net
cash provided by operating activities
|
|
|
2,750
|
|
|
|
376
|
|
Cash
flow from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition
of Phelps Dodge, net of cash acquired
|
|
|
(13,906
|
)
|
|
|
-
|
|
Phelps
Dodge capital expenditures
|
|
|
(476
|
)
|
|
|
-
|
|
PT
Freeport Indonesia capital expenditures
|
|
|
(175
|
)
|
|
|
(104
|
)
|
Other
capital expenditures
|
|
|
(21
|
)
|
|
|
(6
|
)
|
Sale
of assets and other
|
|
|
90
|
|
|
|
1
|
|
Net
cash used in investing activities
|
|
|
(14,488
|
)
|
|
|
(109
|
)
|
Cash
flow from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from term loans under bank credit facility
|
|
|
10,000
|
|
|
|
-
|
|
Repayments
of term loans under bank credit facility
|
|
|
(7,550
|
)
|
|
|
-
|
|
Net
proceeds from sales of senior notes
|
|
|
5,880
|
|
|
|
-
|
|
Net
proceeds from sale of 6¾% Mandatory Convertible Preferred
Stock
|
|
|
2,803
|
|
|
|
-
|
|
Net
proceeds from sale of common stock
|
|
|
2,816
|
|
|
|
-
|
|
Proceeds
from other debt
|
|
|
227
|
|
|
|
53
|
|
Repayments
of other debt
|
|
|
(481
|
)
|
|
|
(223
|
)
|
Purchases
of FCX common shares
|
|
|
-
|
|
|
|
(100
|
)
|
Cash
dividends paid:
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
(182
|
)
|
|
|
(352
|
)
|
Preferred
stock
|
|
|
(30
|
)
|
|
|
(30
|
)
|
Minority
interests
|
|
|
(314
|
)
|
|
|
(57
|
)
|
Net
(payments for) proceeds from exercised stock options
|
|
|
(24
|
)
|
|
|
14
|
|
Excess
tax benefit from exercised stock options
|
|
|
7
|
|
|
|
22
|
|
Bank
credit facilities fees and other
|
|
|
(243
|
)
|
|
|
-
|
|
Net
cash provided by (used in) financing activities
|
|
|
12,909
|
|
|
|
(673
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
1,171
|
|
|
|
(406
|
)
|
Cash
and cash equivalents at beginning of year
|
|
|
907
|
|
|
|
764
|
|
Cash
and cash equivalents at end of period
|
|
$
|
2,078
|
|
|
$
|
358
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
|
|
|
|
Mandatory
|
|
|
|
|
|
|
|
Accumulated
|
|
Common
|
|
|
|
|
|
|
Convertible
Perpetual
|
|
Convertible
|
|
|
|
|
|
|
|
Other
|
|
Stock
Held
|
|
|
|
|
|
|
Preferred
Stock
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
|
|
Compre-
|
|
in
Treasury
|
|
|
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Capital
in
|
|
|
|
hensive
|
|
Number
|
|
|
|
|
|
|
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
Excess
of
|
|
Retained
|
|
Income
|
|
of
|
|
At
|
|
Stockholders’
|
|
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Par
Value
|
|
Earnings
|
|
(Loss)
|
|
Shares
|
|
Cost
|
|
Equity
|
|
|
|
(In
Millions)
|
|
Balance
at December 31, 2006
|
|
1
|
|
$
|
1,100
|
|
|
-
|
|
$
|
-
|
|
|
310
|
|
$
|
31
|
|
$
|
2,668
|
|
$
|
1,415
|
|
$
|
(20
|
)
|
|
113
|
|
$
|
(2,749
|
)
|
$
|
2,445
|
|
Sale
of 6¾% mandatory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
preferred stock
|
|
-
|
|
|
-
|
|
|
29
|
|
|
2,875
|
|
|
-
|
|
|
-
|
|
|
(72
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,803
|
|
Common
stock issued to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquire
Phelps Dodge
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
137
|
|
|
14
|
|
|
7,767
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,781
|
|
Sale
of common stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
47
|
|
|
5
|
|
|
2,811
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,816
|
|
Conversions
of 7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
senior notes
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6
|
|
Exercised
stock options, issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted
stock and other
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2
|
|
|
-
|
|
|
74
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
74
|
|
Stock-based
compensation costs
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
73
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
73
|
|
Tax
benefit for stock option exercises
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4
|
|
Tender
of shares for exercised stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
and restricted stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
(74
|
)
|
|
(74
|
)
|
Adjustment
to initially apply FIN 48
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4
|
|
Dividends
on common stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(181
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(181
|
)
|
Dividends
on preferred stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(81
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(81
|
)
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,661
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,661
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(loss),
net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
26
|
|
|
-
|
|
|
-
|
|
|
26
|
|
Translation
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6
|
|
|
-
|
|
|
-
|
|
|
6
|
|
Change
in unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivatives
fair value
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2
|
)
|
|
-
|
|
|
-
|
|
|
(2
|
)
|
Reclass
to earnings
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3
|
|
|
-
|
|
|
-
|
|
|
3
|
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amounts
(SFAS 158)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3
|
|
|
-
|
|
|
-
|
|
|
3
|
|
Other
comprehensive income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
36
|
|
|
-
|
|
|
-
|
|
|
36
|
|
Total
comprehensive income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,697
|
|
Balance
at June 30, 2007
|
|
1
|
|
$
|
1,100
|
|
|
29
|
|
$
|
2,875
|
|
|
496
|
|
$
|
50
|
|
$
|
13,331
|
|
$
|
2,818
|
|
$
|
16
|
|
|
114
|
|
$
|
(2,823
|
)
|
$
|
17,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include
all
information and disclosures required by generally accepted accounting principles
(GAAP) in the United States (U.S.). Therefore, this information should be read
in conjunction with Freeport-McMoRan Copper & Gold Inc.’s (FCX) condensed
consolidated financial statements and notes contained in its 2006 Annual Report
on Form 10-K. The information furnished herein reflects all adjustments which
are, in the opinion of management, necessary for a fair statement of the results
for the interim periods reported. With the exception of certain adjustments
associated with the acquisition of Phelps Dodge Corporation (Phelps Dodge),
all
such adjustments are, in the opinion of management, of a normal recurring
nature. Operating results for the three and six-month periods ended June 30,
2007, are not necessarily indicative of the results that may be expected for
the
year ending December 31, 2007.
For
comparative purposes, certain amounts for the three and six-month periods ended
June 30, 2006, have been reclassified to conform to current period
presentation.
As
further discussed in Note 2, on March 19, 2007, FCX completed its acquisition
of
Phelps Dodge. Financial results for the first six months of 2007 include Phelps
Dodge’s results beginning March 20, 2007.
2.
|
ACQUISITION
OF PHELPS DODGE
|
On
March
19, 2007, FCX acquired Phelps Dodge. Phelps Dodge, now a wholly owned subsidiary
of FCX, is a fully integrated producer of copper and molybdenum, with mines
in
North and South America and processing capabilities for other minerals as
by-products, such as gold, silver and rhenium, and several development projects,
including the Tenke Fungurume mine in the Democratic Republic of Congo (DRC).
Additionally, Phelps Dodge has an international manufacturing division, Phelps
Dodge International Corporation (PDIC), which manufactures engineered wire
and
cable products principally for the global energy sector. The initial estimates
of the fair value of assets acquired and liabilities assumed and the results
of
Phelps Dodge’s operations are included in FCX’s condensed consolidated financial
statements beginning March 20, 2007.
In
the
acquisition, each share of Phelps Dodge common stock was exchanged for 0.67
of a
share of FCX common stock and $88.00 in cash. As a result, FCX issued 136.9
million shares and paid $18.0 billion in cash to Phelps Dodge shareholders.
The
acquisition has been accounted for under the purchase method as required by
Statement of Financial Accounting Standards (SFAS) No. 141, “Business
Combinations,” with FCX as the accounting acquirer. Below is a summary of the
$25.8 billion purchase price, which was funded through a combination of common
shares issued, borrowings under a $11.5 billion senior credit facility, proceeds
from the offering of $6.0 billion of senior notes (refer to Note 8 for further
discussion) and available cash resources (in millions, except exchange
ratio):
Phelps
Dodge common stock outstanding
|
|
|
|
and
issuable at March 19, 2007
|
|
204.3
|
|
Exchange
offer ratio of FCX common stock for each
|
|
|
|
Phelps
Dodge common share
|
|
0.67
|
|
Shares
of FCX common stock issued
|
|
136.9
|
|
|
|
|
|
Cash
consideration of $88.00 for each Phelps Dodge common share
|
$
|
17,979
|
a
|
Fair
value of FCX common stock issued
|
|
7,781
|
b
|
Transaction
and change of control costs and related employee benefits
|
|
136
|
|
Release
of FCX deferred tax asset valuation allowances
|
|
(90
|
)c
|
Total
purchase price
|
$
|
25,806
|
|
a.
|
Cash
consideration includes cash paid in lieu of any fractional shares
of FCX
stock.
|
b.
|
Measurement
of the common stock component of the purchase price based on a weighted
average closing price of FCX’s common stock of $56.85 for the two days
prior to through two days after the public announcement of the merger
on
November 19, 2006.
|
c.
|
During
second-quarter 2007, FCX determined that, as a result of the acquisition
of Phelps Dodge, it will be able to realize certain U.S. tax credits
for
which it had previously not recognized any benefit. Recognition of
these
tax credits resulted in a $90 million reduction to the purchase
price.
|
In
accordance with the purchase method of accounting, the purchase price paid
was
determined at the date of the public announcement of the transaction and has
been allocated to the assets acquired and liabilities assumed based upon their
estimated fair values on the closing date of March 19, 2007. The estimated
fair
values were based on preliminary internal estimates and are subject to change
as
FCX completes its analysis. In valuing acquired assets and assumed liabilities,
fair values were based on, but not limited to quoted market prices, where
available; the intent of FCX with respect to whether the assets purchased are
to
be held, sold or abandoned; expected future cash flows; current replacement
cost
for similar capacity for certain fixed assets; market rate assumptions for
contractual obligations; and appropriate discount rates and growth rates. The
excess of the purchase price over the estimated fair value of the net assets
acquired has been recorded as goodwill. A significant decline in copper or
molybdenum prices from those used to estimate the fair values of the acquired
assets could result in impairment to the carrying amounts assigned to
inventories; mill and leach stockpiles; property, plant, equipment and
development costs; and goodwill.
A
summary
of the preliminary purchase price allocation as of June 30, 2007, follows (in
billions):
|
|
|
|
|
Preliminary
|
|
|
|
|
|
|
Purchase
|
|
|
Historical
|
|
Fair
Value
|
|
Price
|
|
|
Balances
|
|
Adjustments
|
|
Allocation
|
|
Cash
and cash equivalents
|
$
|
4.2
|
|
$
|
–
|
|
$
|
4.2
|
|
Metal
inventories and mill and leach stockpilesa
|
|
0.7
|
|
|
1.7
|
|
|
2.4
|
|
Property,
plant, equipment and development costsb
|
|
6.0
|
|
|
15.0
|
|
|
21.0
|
|
Other
assets
|
|
3.3
|
|
|
(0.4
|
)
|
|
2.9
|
|
Allocation
to goodwillc
|
|
–
|
|
|
7.0
|
|
|
7.0
|
|
Total
assets
|
|
14.2
|
|
|
23.3
|
|
|
37.5
|
|
Deferred
income taxes (current and long-term)d
|
|
(0.7
|
)
|
|
(5.5
|
)
|
|
(6.2
|
)
|
Other
liabilities
|
|
(4.1
|
)
|
|
(0.2
|
)
|
|
(4.3
|
)
|
Minority
interests
|
|
(1.2
|
)
|
|
–
|
|
|
(1.2
|
)
|
Total
|
$
|
8.2
|
|
$
|
17.6
|
|
$
|
25.8
|
|
a.
|
Inventories
and stockpiles were valued using estimated discounted cash flows
based on
estimated selling prices less selling and completion costs and a
reasonable profit allowance. Application of fair value principles
to metal
inventories and stockpiles resulted in a significantly higher value
being
applied to inventory compared with the historical cost recorded by
Phelps
Dodge. Consequently, when inventory on hand as of the date of acquisition
is subsequently sold, FCX will recognize incremental noncash costs
and
realize a significantly smaller profit margin with respect to this
inventory.
|
b.
|
Includes
amounts based on estimated discounted cash flows from future production
of
proven and probable reserves and for values of properties other than
proven and probable reserves (VBPP). Carrying amounts assigned to
proven
and probable reserves are depleted using the unit of production method
over the estimated lives of the reserves. Carrying amounts assigned
to
VBPP are not charged to income until the VBPP becomes associated
with
proven and probable reserves and are being produced or are determined
to
be impaired.
|
|
The
concept of VBPP is described in Emerging Issue Task Force (EITF)
Issue
No. 04-3, “Mining Assets: Impairment and Business Combinations,” and
has been interpreted differently by different mining companies. FCX’s
preliminary adjustment to property, plant, equipment and development
costs
includes VBPP attributable to mineralized material that FCX believes
could
be brought into production with the establishment or modification
of
required permits and should market conditions and technical
|
assessments
warrant. Mineralized material is a
mineralized body that has been delineated by appropriately spaced drilling
and/or underground sampling to support reported tonnage and average grade of
minerals. Such a deposit may not qualify as proven and probable reserves
until legal and economic feasibility are confirmed based upon a comprehensive
evaluation of development costs, unit costs, grades, recoveries and other
material factors. The carrying amount of property, plant, equipment and
development costs includes preliminary adjustments attributable to inferred
mineral resources and exploration potential. FCX is continuing to analyze
VBPP and the final values may vary significantly from preliminary
estimates.
c.
|
During
the second quarter of 2007 adjustments to the preliminary fair values
assigned to assets acquired and liabilities assumed from Phelps Dodge
and
adjustments to the purchase price resulted in a $0.4 billion reduction
in
goodwill. Additional adjustments, which could be significant, are
expected
in future periods until FCX finalizes its valuation of the assets
acquired
and liabilities assumed. None of the $7.0 billion allocation to goodwill
is deductible for tax purposes.
|
d.
|
Deferred
income taxes have been recognized based on the estimated fair value
adjustments to net assets.
|
As
of
June 30, 2007, FCX had not identified any material pre-acquisition contingencies
where the related asset, liability or impairment is probable and the amount
of
the asset, liability or impairment can be reasonably estimated. Prior to the
end
of the purchase price allocation period, if information becomes available that
an asset existed, a liability had been incurred or an asset had been impaired
as
of the acquisition date, and the amounts can be reasonably estimated, such
items
will be included in the purchase price allocation.
FCX
paid
a premium (i.e., goodwill) over the fair value of the net tangible and
identified intangible assets acquired for a number of potential strategic and
financial benefits that are expected to be realized, including, but not limited
to, the following:
·
|
The
combined company’s increased scale of operations, management depth and
strengthened cash flow provide an improved platform to capitalize
on
growth opportunities in the global
market.
|
·
|
The
combined company is well positioned to benefit from the positive
copper
market at a time when there is a scarcity of large-scale copper
development projects combined with strong global demand for
copper.
|
·
|
The
combined company has long-lived, geographically diverse reserves,
totaling
approximately 77 billion pounds of copper, 38 million ounces of gold
and 2
billion pounds of molybdenum, net of minority interests as of December
31,
2006. Additionally, the combined company has rights to significant
mineralized material that could add to
reserves.
|
·
|
The
combined company has exploration rights with significant potential
in
copper regions around the world, including Phelps Dodge’s opportunities at
its Tenke Fungurume concessions in the
DRC.
|
Pro
Forma Financial Information. The following pro forma
financial information assumes that FCX acquired Phelps Dodge effective January
1, 2007, for the 2007 periods, and effective January 1, 2006, for the 2006
periods. The most significant adjustments relate to the purchase accounting
impacts of increases in the carrying values of Phelps Dodge’s metal inventories
(including mill and leach stockpiles) and property, plant and equipment (in
millions, except per share data):
|
Historical
|
|
|
|
|
|
|
|
FCX
|
|
Phelps
Dodgea
|
|
Purchase
Adjustments
|
|
Pro
forma
Consolidated
|
|
Three
Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
5,807
|
|
|
N/A
|
|
$
|
–
|
|
$
|
5,807
|
b
|
Operating
income
|
$
|
2,399
|
|
|
N/A
|
|
$
|
(28
|
)
|
$
|
2,371
|
b,c
|
Income
before income taxes and minority
|
|
|
|
|
|
|
|
|
|
|
|
|
interests
|
$
|
2,258
|
|
|
N/A
|
|
$
|
(28
|
)
|
$
|
2,230
|
b,c,e
|
Net
income applicable to common stock
|
$
|
1,104
|
|
|
N/A
|
|
$
|
(18
|
)
|
$
|
1,086
|
b,c,e
|
Diluted
net income per share of common stock
|
$
|
2.62
|
|
|
N/A
|
|
|
N/A
|
|
$
|
2.57
|
b,c,e
|
Diluted
weighted average shares outstanding
|
|
446
|
|
|
N/A
|
|
|
N/A
|
|
|
447
|
g
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
8,110
|
|
$
|
2,537
|
|
$
|
–
|
|
$
|
10,647
|
b
|
Operating
income
|
$
|
3,578
|
|
$
|
817
|
|
$
|
(445
|
)
|
$
|
3,950
|
b,c
|
Income
before income taxes and minority
|
|
|
|
|
|
|
|
|
|
|
|
|
interests
|
$
|
3,325
|
|
$
|
861
|
|
$
|
(512
|
)
|
$
|
3,674
|
b,c,d,e
|
Net
income applicable to common stock
|
$
|
1,580
|
|
$
|
508
|
|
$
|
(384
|
)
|
$
|
1,704
|
b,c,d,e
|
Diluted
net income per share of common stock
|
$
|
4.80
|
|
|
N/A
|
|
|
N/A
|
|
$
|
4.10
|
b,c,d,e
|
Diluted
weighted average shares outstanding
|
|
346
|
|
|
N/A
|
|
|
N/A
|
|
|
446
|
g
|
Three
Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,426
|
|
$
|
2,992
|
|
$
|
–
|
|
$
|
4,418
|
b
|
Operating
income
|
$
|
739
|
|
$
|
963
|
|
$
|
(456
|
)
|
$
|
1,246
|
b,c
|
Income
from continuing operations before income taxes and minority
interests
|
$
|
734
|
|
$
|
986
|
|
$
|
(665
|
)
|
$
|
1,055
|
b,c,e
|
Income
from continuing operations applicable to common stock
|
$
|
367
|
|
$
|
471
|
|
$
|
(524
|
)
|
$
|
314
|
b,c,e
|
Diluted
income per share of common stock from continuing
operations
|
$
|
1.74
|
|
$
|
2.32
|
|
|
N/A
|
|
$
|
0.82
|
b,c,e
|
Diluted
weighted average shares outstanding
|
|
222
|
|
|
204
|
|
|
N/A
|
|
|
406
|
g
|
Six
Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
2,512
|
f
|
$
|
5,217
|
|
$
|
–
|
|
$
|
7,729
|
b
|
Operating
income
|
$
|
1,271
|
f
|
$
|
1,538
|
|
$
|
(1,155
|
)
|
$
|
1,654
|
b,c
|
Income
from continuing operations before income taxes and minority
interests
|
$
|
1,250
|
f
|
$
|
1,590
|
|
$
|
(1,572
|
)
|
$
|
1,268
|
b,c,e
|
Income
from continuing operations applicable to common stock
|
$
|
619
|
f
|
$
|
822
|
|
$
|
(1,200
|
)
|
$
|
241
|
b,c,e
|
Diluted
income per share of common stock from continuing
operations
|
$
|
2.97
|
|
$
|
4.04
|
|
|
N/A
|
|
$
|
0.64
|
b,c,e
|
Diluted
weighted average shares outstanding
|
|
222
|
|
|
203
|
|
|
N/A
|
|
|
374
|
g
|
a.
|
For
the six months ended June 30, 2007, represents the results of Phelps
Dodge’s operations from January 1, 2007, through March 19, 2007. Beginning
March 20, 2007, the results of Phelps Dodge’s operations are included in
FCX’s consolidated financial
information.
|
b.
|
Includes
charges to revenues for mark-to-market accounting adjustments on
Phelps
Dodge’s copper price protection programs totaling $130 million ($80
million to net income or $0.18 per share) for the three months ended
June
30, 2007, $188 million ($116 million to net income or $0.26 per share)
for
the six months ended June 30, 2007, $677 million ($515 million to
net
income or $1.27 per share) for the three months ended June 30, 2006,
and
$1.1 billion ($813 million to net income or $2.17 per share) for
the six
months ended June 30, 2006.
|
c.
|
Includes
charges related to the impact of the increases in the carrying values
of
Phelps Dodge’s metal inventories (including mill and leach stockpiles) and
property, plant and equipment totaling $483 million ($304 million
to net
income or $0.68 per share) for the three months ended June 30, 2007,
$1.1
billion ($719 million to net income or $1.61 per share) for the six
months
ended June 30, 2007, $461 million ($290 million to net income or
$0.71 per
share) for the three months ended June 30, 2006, and $1.2 billion
($733
million to net income or $1.96 per share) for the six months ended
June
30, 2006.
|
d.
|
Excludes
net losses on early extinguishment of debt totaling $88 million ($75
million to net income or $0.17 per share) for financing transactions
related to the acquisition of Phelps
Dodge.
|
e.
|
Includes
net interest expense associated with debt issued in connection with
the
acquisition of Phelps Dodge totaling $155 million ($132 million to
net
income or $0.29 per share) for the three months ended June 30, 2007,
$344
million ($292 million to net income or $0.65 per share) for the six
months
ended June 30, 2007, $209 million ($178 million to net income or
$0.44 per
share) for the three months ended June 30, 2006, and $418 million
($356
million to net income or $0.95 per share) for the six months ended
June
30, 2006.
|
f.
|
Includes
a charge to revenues for the redemption of FCX’s Gold-Denominated
Preferred Stock, Series II totaling $69 million ($37 million to net
income
or $0.10 per share).
|
g.
|
Estimated
pro forma diluted weighted average shares outstanding for the three
and
six-month periods ended June 30, 2007 and 2006, follow (in
millions):
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Average
number of basic shares of FCX common stock outstanding prior to the
acquisition of Phelps Dodge
|
|
198
|
|
188
|
|
198
|
|
188
|
|
Shares
of FCX common stock issued in the acquisition
|
|
137
|
|
137
|
|
137
|
|
137
|
|
Sale
of FCX sharesa
|
|
47
|
|
47
|
|
47
|
|
47
|
|
Mandatory
Convertible Preferred Stocka
|
|
39
|
|
–
|
b
|
39
|
|
–
|
b
|
Other
dilutive securities
|
|
26
|
|
34
|
|
25
|
|
2
|
|
Pro
forma average number of common shares outstanding
|
|
447
|
|
406
|
|
446
|
|
374
|
|
a.
|
Refer
to Notes 8 and 11 for additional
information.
|
b.
|
Not
dilutive for the three and six-month periods ended June 30,
2006.
|
The
above
pro forma consolidated financial information has been prepared for illustrative
purposes only and is not intended to be indicative of the results that would
actually have occurred, or the results expected in future periods, had the
events reflected herein occurred on the dates indicated.
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
As
a
result of the acquisition of Phelps Dodge, the following summaries of
significant accounting policies is in addition to those contained in FCX’s 2006
Annual Report on Form 10-K.
Basis
of Presentation. Effective March 20, 2007, FCX began consolidating
its wholly owned subsidiary, Phelps Dodge. Phelps Dodge’s financial information
consolidates the results of operations and the assets and
liabilities
of majority-owned subsidiaries and reports the minority interest, and its
investment in the Morenci copper mine, an unincorporated joint venture, is
reflected using the proportionate consolidation method. All significant
intercompany transactions and balances have been eliminated.
Investments
in unconsolidated companies owned 20 percent or more are recorded on an equity
basis. Investments in companies owned less than 20 percent, and for which FCX
does not exercise significant influence, are carried at cost.
Foreign
Currencies. Except as noted below, the assets and liabilities of
foreign subsidiaries are translated at current exchange rates, while revenues
and expenses are translated at average rates in effect for the period. The
related translation gains and losses are included in accumulated other
comprehensive income (loss) within stockholders’ equity. For the translation of
the financial statements of certain foreign subsidiaries dealing predominantly
in U.S. dollars, assets receivable and liabilities payable in cash are
translated at current exchange rates, and inventories and other non-monetary
assets and liabilities are translated at historical rates. Gains and losses
resulting from translation of such financial statements are included in
operating results, as are gains and losses from foreign currency
transactions.
Mill
and Leach Stockpiles. Mill and leach stockpiles acquired in connection
with the Phelps Dodge acquisition are stated at the lower of cost or market.
FCX
uses the average cost method for recording its mill and leach
stockpiles.
Both
mill
and leach stockpiles contain low-grade ore that has been extracted from the
ore
body and is available for copper recovery. For mill stockpiles, recovery is
through milling, concentrating, smelting and refining or, alternatively, by
concentrate leaching. For leach stockpiles, recovery is through exposure to
acidic solutions that dissolve contained copper and deliver it in solution
to
extraction processing facilities. The recorded cost of mill and leach stockpiles
includes mining and haulage costs incurred to deliver ore to stockpiles,
depreciation, depletion, amortization and overhead costs.
Because
it is generally impracticable to determine copper contained in mill and leach
stockpiles by physical count, reasonable estimation methods are employed. The
quantity of material delivered to mill and leach stockpiles is based on
surveyed volumes of mined material and daily production records. Sampling and
assaying of blasthole cuttings determine the estimated copper grades of material
delivered to mill and leach stockpiles.
Expected
copper recovery rates for mill stockpiles are determined by metallurgical
testing. The recoverable copper in mill stockpiles can be extracted into copper
concentrate almost immediately. Estimates of copper contained in mill stockpiles
are adjusted as material is added or removed and fed to the mill.
Expected
copper recovery rates for leach stockpiles are determined using small-scale
laboratory tests, small- to large-scale column testing (which simulates the
production-scale process), historical trends and other factors, including
mineralogy of the ore and rock type. Ultimate recovery of copper contained
in
leach stockpiles can vary from a low percentage to more than 90 percent
depending on several variables, including type of copper recovery, mineralogy
and particle size of the rock. Although as much as 70 percent of the copper
ultimately recoverable may be extracted during the first year, the remaining
copper is recovered over several years.
Processes
and recovery rates are monitored continuously, and recovery rate estimates
are
adjusted periodically as additional information becomes available and as related
technology changes.
Goodwill.
Goodwill has an indefinite useful life and is not amortized, but rather is
tested for impairment at least annually, unless events occur or circumstances
change between annual tests that would more likely than not reduce the fair
value of a related reporting unit below its carrying amount.
As
of
June 30, 2007, goodwill of approximately $7.0 billion was recorded as a result
of the Phelps Dodge acquisition. This amount represents the excess of the
purchase price over the fair value of assets acquired
and
liabilities assumed and is subject to adjustment as FCX completes its analysis
of these fair values, which may take up to one year after the acquisition date.
In accordance with accounting rules, goodwill resulting from a business
combination is assigned to the acquiring entity's reporting units that are
expected to benefit from the business combination, regardless of whether other
assets or liabilities of the acquired entity have been assigned to those
reporting units. FCX is in the process of determining the appropriate definition
of reporting units for the allocation of goodwill, which could range from either
an individual mine to an aggregation of several mines. The allocation of
goodwill to reporting units will be completed at the conclusion of this
analysis.
Intangible
Assets. Intangible assets acquired as a result of the Phelps Dodge
acquisition include water rights, land easements and trademarks primarily at
the
North American mining sites. The principal amortization method for such
intangible assets is the computation of an overall unit rate applied to pounds
of principal products sold from mine production. As of June 30, 2007, FCX has
not completed the identification and valuation of intangible assets resulting
from the acquisition of Phelps Dodge. FCX expects to record additional
intangible assets, which could include such items as customer relationships
and
patents, as it identifies and values them, which will result in a reduction
of
the amount allocated to goodwill.
Environmental
Expenditures. Environmental expenditures are expensed or capitalized,
depending upon their future economic benefits. Liabilities for such expenditures
are recorded when it is probable that obligations have been incurred and the
costs can be reasonably estimated. For closed facilities and closed portions
of
operating facilities with environmental obligations, an environmental liability
is accrued when a decision to close a facility, or a portion of a facility,
is
made by management and the environmental liability is considered to be probable.
Environmental liabilities attributed to the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA) or analogous state programs
are considered probable when a claim is asserted, or is probable of assertion,
and FCX, or any of its subsidiaries, have been associated with the site.
Other environmental remediation liabilities are considered probable based on
specific facts and circumstances. FCX’s estimates of these costs are based on an
evaluation of various factors, including currently available facts, existing
technology, presently enacted laws and regulations, remediation experience,
whether or not FCX is a potentially responsible party (PRP) and the ability
of
other PRPs to pay their allocated portions. With the exception of those
obligations assumed in the acquisition of Phelps Dodge (see Note 12),
environmental obligations are recorded on an undiscounted basis. Where the
available information is sufficient to estimate the amount of liability, that
estimate has been used. Where the information is only sufficient to establish
a
range of probable liability and no point within the range is more likely than
any other, the lower end of the range has been used. Possible recoveries of
some
of these costs from other parties are not recognized in the condensed
consolidated financial statements until they become probable. Legal costs
associated with environmental remediation, as defined in Statement of Position
96-1, “Environmental Remediation Liabilities,” are included as part of the
estimated liability.
At
June
30, 2007, environmental reserves recorded in the condensed consolidated balance
sheet totaled $360 million, which reflected the fair value of the estimated
obligations. At June 30, 2007, the unescalated, undiscounted environmental
reserve totaled approximately $384 million, leaving approximately $24 million
to
be accreted over time.
4.
|
PENSION
AND POSTRETIREMENT
BENEFITS
|
With
the
acquisition of Phelps Dodge, FCX acquired trusteed, non-contributory pension
plans covering substantially all of Phelps Dodge’s U.S. employees. The
applicable plan design determines the manner in which benefits are calculated
for any particular group of employees. With respect to certain of these plans,
benefits are calculated based on final average monthly compensation and years
of
service. In the case of other plans, benefits are calculated based on a fixed
amount for each year of service. Participants in the plans generally vest in
their accrued benefits after five years of service. At the date of acquisition,
Phelps Dodge had both overfunded and underfunded pension plans. The funded
status of the overfunded plans was $129 million (representing the fair value
of
plans assets of approximately $1.36 billion less a projected benefit obligation
of approximately $1.23 billion). The funded status of the underfunded plans
was
$(70) million (representing the fair value of plan assets of $11 million less
a
projected benefit obligation of $81 million). The majority of plan assets are
invested in a diversified portfolio of stocks, bonds and cash and cash
equivalents, which consist
primarily
of equity and fixed-income securities. At March 19, 2007, a discount rate of
5.78 percent and a wage increase assumption of 4.25 percent were used to
estimate the projected benefit obligation, and the long-term expected rate
of
return on plan assets was 8.5 percent.
In
addition to the pension benefits, Phelps Dodge provides postretirement medical
and life insurance benefits for certain U.S. employees and, in some cases,
employees of international subsidiaries. These postretirement benefits vary
among plans, and many plans require contributions from retirees. The expected
cost of providing such postretirement benefits is accrued during the years
employees render the necessary service. At the date of acquisition, the funded
status of the Phelps Dodge postretirement medical and life insurance benefits
was $(80) million (representing the fair value of plan assets of $173 million
less a benefit obligation of $253 million). The plan assets consist of two
Voluntary Employees’ Beneficiary Association (VEBA) trusts, which FCX acquired
through the acquisition of Phelps Dodge. One trust is dedicated to funding
postretirement medical obligations and the other to funding postretirement
life
insurance obligations for eligible U.S. retirees. The majority of the assets
of
the VEBA trusts are invested in U.S. fixed-income securities. FCX’s funding
policy provides that contributions to the VEBA trusts shall be at least
sufficient to pay plan benefits as they come due. Additional contributions
may
be made from time to time. For participants not eligible to receive payments
from the VEBA trusts, FCX’s funding policy provides that contributions shall be
at least equal to the cash basis obligations. At March 19, 2007, a discount
rate
of 5.62 percent was used to estimate the accumulated postretirement benefit
obligation for the medical plans and 5.66 percent for the retiree life insurance
plan. The long-term expected rate of return on plan assets for the VEBA medical
and life insurance trusts was 3.7 percent and 4.5 percent,
respectively.
Net
periodic benefit cost for pension and postretirement benefits for Phelps Dodge
have been included in the condensed consolidated financial statements beginning
March 20, 2007. The components of net periodic benefit cost for pension and
postretirement benefits for all of FCX’s plans for the three-month periods ended
June 30, 2007 and 2006, follow (in millions):
|
|
|
|
|
|
|
Phelps
|
|
|
FCX
|
|
PT
Freeport Indonesia
|
|
Atlantic
Copper
|
|
Dodge
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
Service
cost
|
$
|
–
|
|
$
|
–
|
|
$
|
1
|
|
$
|
1
|
|
$
|
–
|
|
$
|
–
|
|
$
|
7
|
|
Interest
cost
|
|
1
|
|
|
1
|
|
|
2
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
22
|
|
Expected
return on plan assets
|
|
–
|
|
|
–
|
|
|
(1
|
)
|
|
(1
|
)
|
|
–
|
|
|
–
|
|
|
(31
|
)
|
Amortization
of prior service cost
|
|
1
|
|
|
1
|
|
|
–
|
|
|
1
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Amortization
of net actuarial loss
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1
|
|
|
–
|
|
|
–
|
|
Net
periodic benefit cost
|
$
|
2
|
|
$
|
2
|
|
$
|
2
|
|
$
|
2
|
|
$
|
2
|
|
$
|
1
|
|
$
|
(2
|
)
|
The
components of net periodic benefit cost for pension and postretirement benefits
for all of FCX’s plans for the six-month periods ended June 30, 2007 and 2006,
follow (in millions):
|
|
|
|
|
|
|
Phelps
|
|
|
FCX
|
|
PT
Freeport Indonesia
|
|
Atlantic
Copper
|
|
Dodge
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
Service
cost
|
$
|
1
|
|
$
|
–
|
|
$
|
3
|
|
$
|
2
|
|
$
|
–
|
|
$
|
–
|
|
$
|
7
|
|
Interest
cost
|
|
1
|
|
|
1
|
|
|
3
|
|
|
2
|
|
|
2
|
|
|
2
|
|
|
25
|
|
Expected
return on plan assets
|
|
–
|
|
|
–
|
|
|
(2
|
)
|
|
(1
|
)
|
|
–
|
|
|
–
|
|
|
(34
|
)
|
Amortization
of prior service cost
|
|
2
|
|
|
2
|
|
|
–
|
|
|
1
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Amortization
of net actuarial loss
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1
|
|
|
1
|
|
|
–
|
|
Net
periodic benefit cost
|
$
|
4
|
|
$
|
3
|
|
$
|
4
|
|
$
|
4
|
|
$
|
3
|
|
$
|
3
|
|
$
|
(2
|
)
|
FCX’s
basic net income per share of common stock was calculated by dividing net income
applicable to common stock by the weighted-average number of common shares
outstanding during the year. A reconciliation of net income and weighted-average
common shares outstanding for purposes of calculating diluted net income per
share for the three and six-month periods ended June 30, 2007 and 2006, follows
(in millions, except per share amounts):
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Net
income before preferred dividends
|
|
$
|
1,168
|
|
$
|
382
|
|
$
|
1,661
|
|
$
|
649
|
|
Preferred
dividends
|
|
|
(64
|
)
|
|
(15
|
)
|
|
(81
|
)
|
|
(30
|
)
|
Net
income applicable to common stock
|
|
|
1,104
|
|
|
367
|
|
|
1,580
|
|
|
619
|
|
Plus
income impact of assumed conversion of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5½%
Convertible Perpetual Preferred Stock
|
|
|
15
|
|
|
15
|
|
|
30
|
|
|
30
|
|
6¾%
Mandatory Convertible Preferred Stock
|
|
|
49
|
|
|
–
|
|
|
51
|
|
|
–
|
|
7%
Convertible Senior Notes
|
|
|
–
|
|
|
5
|
|
|
–
|
|
|
10
|
|
Diluted
net income applicable to common stock
|
|
$
|
1,168
|
|
$
|
387
|
|
$
|
1,661
|
|
$
|
659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
381
|
|
|
188
|
|
|
300
|
|
|
188
|
|
Add
shares issuable upon conversion, exercise or vesting of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5½%
Convertible Perpetual Preferred Stock
|
|
|
23
|
|
|
22
|
|
|
23
|
|
|
22
|
|
6¾%
Mandatory Convertible Preferred Stock
|
|
|
39
|
|
|
–
|
|
|
21
|
|
|
–
|
|
7%
Convertible Senior Notes
|
|
|
–
|
|
|
10
|
|
|
–
|
|
|
10
|
|
Dilutive
stock options
|
|
|
2
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Restricted
stock
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Weighted
average common shares outstanding for purposes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
calculating diluted net income per share
|
|
|
446
|
|
|
222
|
|
|
346
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share of common stock
|
|
$
|
2.62
|
|
$
|
1.74
|
|
$
|
4.80
|
|
$
|
2.97
|
|
Outstanding
stock options with exercise prices greater than the average market price
of
FCX’s common stock during the period are excluded from the computation of
diluted net income per share of common stock. FCX’s convertible instruments are
also excluded when including the conversion of these instruments increases
reported diluted net income per share. A summary of the excluded amounts
follows
(in thousands, except exercise prices):
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Weighted
average outstanding options
|
|
|
169
|
|
|
1,006
|
|
|
568
|
|
|
842
|
|
Weighted
average exercise price
|
|
$
|
78.92
|
|
$
|
63.77
|
|
$
|
67.71
|
|
$
|
63.77
|
|
A
summary
of inventories, which were recorded using the weighted average cost method
(except where otherwise indicated) and include the impact of purchase accounting
adjustments (refer to Note 2), follows (in millions):
|
|
June
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
Mining
Operations:
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
1
|
|
$
|
–
|
|
Work-in-process
|
|
|
117
|
|
|
11
|
|
Finished
goodsa
|
|
|
970
|
|
|
4
|
|
Mill
and leach stockpiles
|
|
|
850
|
|
|
–
|
|
Atlantic
Copper:
|
|
|
|
|
|
|
|
Concentrates
– First in, first out (FIFO)
|
|
|
81
|
|
|
189
|
|
Work-in-process
– FIFO
|
|
|
254
|
|
|
168
|
|
Finished
goods – FIFO
|
|
|
10
|
|
|
12
|
|
PDIC:
|
|
|
|
|
|
|
|
Raw
materials
|
|
|
148
|
|
|
–
|
|
Work-in-process
|
|
|
13
|
|
|
–
|
|
Finished
goods
|
|
|
81
|
|
|
–
|
|
Total
product inventories
|
|
|
2,525
|
|
|
384
|
|
Total
materials and supplies, netb
|
|
|
712
|
|
|
340
|
|
Total
inventories
|
|
$
|
3,237
|
|
$
|
724
|
|
|
|
|
|
|
|
|
|
a.
|
Finished
goods inventory associated with mining operations primarily includes
concentrates and cathodes.
|
b.
|
Materials
and supplies inventories are net of obsolescence reserves totaling
$17
million at June 30, 2007, and $16 million at December 31,
2006.
|
A
summary
of FCX’s trust assets at June 30, 2007, which were acquired in connection with
the acquisition of Phelps Dodge, follows (in millions):
Global
reclamation and remediation
|
$
|
428
|
|
Financial
assurance
|
|
99
|
a
|
Non-qualified
retirement benefits
|
|
53
|
|
Change
of control
|
|
32
|
|
Total
trust assets
|
$
|
612
|
|
a.
|
Represents
legally restricted funds for the use of asset retirement obligation
activities at Chino, Tyrone and Cobre (refer to Note 13 for further
discussion of financial assurance requirements for these
operations).
|
8.
|
DEBT
AND FINANCING TRANSACTIONS
|
At
June
30, 2007, FCX had approximately $9.8 billion in debt, including $8.5 billion
in
acquisition debt, $0.9 billion in previously existing Phelps Dodge debt and
$0.4
billion of previously existing FCX debt. In connection with financing its
acquisition of Phelps Dodge, FCX used $2.5 billion of available cash (including
cash acquired from Phelps Dodge) and funded the remainder with proceeds from
borrowings under the $11.5 billion senior credit facility and proceeds from
the
offering of $6.0 billion in senior notes.
In
accordance with its plan to reduce debt, following the close of the Phelps
Dodge
acquisition, FCX sold 47.15 million shares of common stock at $61.25 per share
for net proceeds of approximately $2.8 billion and 28.75 million shares of
6¾%
Mandatory Convertible Preferred Stock for net proceeds of approximately $2.8
billion (refer to Note 11 for further discussion of the 6¾% Mandatory
Convertible Preferred Stock). The net
proceeds
from these transactions were used to reduce borrowings under the $11.5 billion
senior credit facility, with $2.5 billion used to fully repay the senior term
loan due March 2012 and the remaining $3.1 billion to partially repay the senior
term loan due March 2014 (the Tranche B term loan). During the second quarter
of
2007, FCX prepaid an additional $1.9 billion of debt under the Tranche B term
loan.
A
summary
of financing activities for the first six months of 2007, and FCX’s outstanding
debt balances at June 30, 2007, follows (in billions):
|
December
31,
|
|
Borrowings/
|
|
|
|
June
30,
|
|
|
2006
|
|
Additions
|
|
Repayments
|
|
2007
|
|
$11.5
billion senior credit facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
term loan due 2012
|
$
|
–
|
|
$
|
2.5
|
a
|
$
|
(2.5
|
)
|
$
|
–
|
|
Senior
term loan due 2014
|
|
–
|
|
|
7.5
|
a
|
|
(5.0
|
)
|
|
2.5
|
|
$1.5
billion revolving credit facilities
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Senior
Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
10⅛%
Notes due 2010
|
|
0.3
|
|
|
–
|
|
|
(0.3
|
)
|
|
–
|
|
6⅞%
Notes due 2014
|
|
0.3
|
|
|
–
|
|
|
–
|
|
|
0.3
|
|
8¼%
Notes due 2015
|
|
–
|
|
|
1.5
|
a
|
|
–
|
|
|
1.5
|
|
8⅜%
Notes due 2017
|
|
–
|
|
|
3.5
|
a
|
|
–
|
|
|
3.5
|
|
Senior floating rate notes due 2015
|
|
–
|
|
|
1.0
|
a
|
|
–
|
|
|
1.0
|
|
Phelps
Dodge Senior Notes
|
|
–
|
|
|
0.7
|
|
|
(0.1
|
)
|
|
0.6
|
|
Other
|
|
0.1
|
|
|
0.3
|
|
|
–
|
|
|
0.4
|
|
|
$
|
0.7
|
|
$
|
17.0
|
|
$
|
(7.9
|
)
|
$
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Represents
borrowings used to finance the acquisition of Phelps
Dodge.
|
For
the
first six months of 2007, FCX recorded net charges totaling $135 million ($110
million to net income or $0.32 per share) for early extinguishment of debt.
These net charges include $88 million ($75 million to net income) recorded
in
first-quarter 2007 and $30 million ($25 million to net income) recorded in
second-quarter 2007 related to the accelerated recognition of deferred financing
costs associated with the early repayment of amounts under the $11.5 billion
senior credit facility. Also included is $17 million ($10 million to net income)
recorded in second-quarter 2007 related to premiums paid and the accelerated
recognition of deferred financing costs associated with the May 2007 redemption
of FCX’s 10⅛% Senior Notes.
Additional
information regarding the senior credit facility and senior notes used to
finance the Phelps Dodge acquisition follows:
Senior
Credit Facility. At the close of the Phelps Dodge acquisition, the
senior credit facility consisted of a $2.5 billion term loan due March 2012,
a
$7.5 billion Tranche B term loan due March 2014 and $1.5 billion in revolving
credit facilities due March 2012. The revolving credit facilities are composed
of (i) a $1.0 billion revolving credit facility available to FCX and (ii) a
$0.5
billion revolving credit facility available to both FCX and PT Freeport
Indonesia, which represents an amendment to the FCX and PT Freeport Indonesia
revolver that was scheduled to mature in 2009.
Interest
on the revolving credit facilities currently accrues at the London Interbank
Offered Rate (LIBOR) plus 1.00 percent, subject to an increase or decrease
in
the interest rate margin based on the credit rating assigned by Standard and
Poor’s Rating Services (S&P) and Moody’s Investor Services (Moody’s). Prior
to its refinancing, interest on the Tranche B term loan accrued at LIBOR plus
1.75 percent.
The
senior credit facility also contains covenants, including limitations on
indebtedness, liens, asset sales, prepayments of indebtedness and transactions
with affiliates. Financial leverage ratios must be met in order to incur certain
indebtedness and are required to be maintained when there are amounts drawn
or
letters of credits outstanding under the revolving credit facilities. The senior
credit facility is guaranteed by certain wholly owned subsidiaries of FCX and
is
secured by the pledge of equity in substantially all of these subsidiary
guarantors and certain other non-guarantor subsidiaries of FCX, and intercompany
indebtedness owed to
FCX.
Borrowings by FCX and PT Freeport Indonesia under the $0.5 billion revolver
are
also secured with a pledge of 50.1 percent of the outstanding stock of PT
Freeport Indonesia, over 90 percent of the assets of PT Freeport Indonesia
and,
with respect to borrowings by PT Freeport Indonesia, a pledge of the Contract
of
Work.
On
July
10, 2007, FCX refinanced the remaining $2.5 billion balance outstanding under
the Tranche B term loan with proceeds from a new senior term loan due March
2012
(the Tranche A term loan). Interest on the new Tranche A term loan accrues
at
LIBOR plus 1.00 percent, subject to an increase or decrease in the interest
rate
margin based on the credit rating assigned by S&P and Moody’s. The new
Tranche A term loan requires minimum scheduled amortization payments of 10
percent per year, consisting of equal payments of $122.5 million on September
30
and March 31, with the first payment on September 30, 2007. In addition, certain
terms and conditions of the senior credit facility were amended, including
the
elimination of certain collateral requirements. As a result of this transaction,
FCX will record charges totaling approximately $36 million ($31 million to
net
income) in third-quarter 2007 related to the accelerated recognition of deferred
financing costs associated with the extinguishment of the Tranche B term
loan.
Senior
Notes. Interest on the senior notes is payable semiannually on April 1
and October 1, with the first payment due October 1, 2007. Interest on the
senior floating rate notes due April 2015 accrues at six-month LIBOR plus 3.25
percent. FCX may redeem some or all of the notes at its option at make-whole
redemption prices, and afterwards at stated redemption prices. FCX may make
these optional make-whole redemptions prior to April 1, 2009, for the senior
floating rate notes; April 1, 2011, for the 8¼% Senior Notes; and April 1, 2012,
for the 8⅜% Senior Notes. The indenture governing the notes contains
restrictions, including restrictions on incurring debt, creating liens, selling
assets, entering
into certain transactions with affiliates, paying cash dividends on common
stock, repurchasing or redeeming common or preferred equity, prepaying
subordinated debt and making investments.
FCX’s
second-quarter 2007 income tax provision included taxes on international
operations ($639 million) and U.S. taxes ($138 million). FCX’s income tax
provision for the first six months of 2007 included taxes on international
operations ($1.1 billion) and U.S. taxes ($92 million).
The
difference between FCX’s consolidated effective income tax rate of approximately
37 percent for the first six months of 2007 and the U.S. federal statutory
rate
of 35 percent primarily was attributable to (i) withholding taxes incurred
in
connection with earnings from Indonesian and South American mining operations,
(ii) income taxes incurred by PT Indocopper Investama, a wholly owned subsidiary
of FCX whose only asset is its investment in PT Freeport Indonesia, and (iii)
a
U.S. foreign tax credit limitation, partly offset by a U.S. benefit for
percentage depletion.
FCX’s
income tax provision for second-quarter 2006 ($310 million) and for the first
six months of 2006 ($532 million) primarily reflected taxes on PT Freeport
Indonesia’s earnings. The difference between FCX’s effective income tax rate of
approximately 43 percent for the first six months of 2006 and PT Freeport
Indonesia’s Contract of Work rate of 35 percent primarily was attributable to
withholding taxes incurred in connection with earnings from Indonesian mining
operations and income taxes incurred by PT Indocopper Investama.
Effective
January 1, 2007, FCX adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN
48), which prescribes a recognition threshold and measurement attribute for
the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. With the adoption of FIN 48, FCX recognized
a cumulative effect adjustment to increase beginning retained earnings of
approximately $4 million. Following adoption of FIN 48, FCX no longer includes
interest and penalties accrued on unrecognized tax benefits in its provision
for
income taxes; instead, interest and penalties are included in other income
and
expenses.
A
summary
of the activities associated with the reserve for unrecognized tax benefits,
interest and penalties for the period of adoption, follows (in
millions):
|
|
Unrecognized
|
|
|
|
|
|
|
Three
Months Ended March 31, 2007
|
|
Tax
Benefit
|
|
Interest
|
|
Penalties
|
Balance
at beginning of period
|
|
$
|
41
|
|
$
|
11
|
|
$
|
–
|
Additions:
|
|
|
|
|
|
|
|
|
|
Acquisition
of Phelps Dodge
|
|
|
220
|
|
|
6
|
|
|
2
|
Prior
year tax positions
|
|
|
1
|
|
|
1
|
|
|
–
|
Balance,
March 31, 2007
|
|
$
|
262
|
|
$
|
18
|
|
$
|
2
|
The
reserve for unrecognized tax benefits of $262 million at March 31, 2007,
includes $124 million ($116 million net of income tax benefits) that, if
recognized, would reduce FCX’s provision for income taxes. There were no
material changes to the reserves for unrecognized tax benefits during the second
quarter of 2007.
For
the
first quarter of 2006, interest and penalties accrued on unrecognized tax
benefits and recorded in the provision for income taxes totaled $3
million.
FCX
or
its subsidiaries file income tax returns in the U.S. federal jurisdiction and
various state and foreign jurisdictions. The tax years of FCX and its
significant subsidiaries that remain subject to examination are as
follows:
Jurisdiction
|
Years
Under Examination
|
Additional
Open Years
|
U.S.
Federal
|
1997-2005
|
2006
|
Indonesia
|
–
|
2002-2006
|
Peru
|
2003
|
1999-2002,
2004-2006
|
Chile
|
–
|
2003-2006
|
Arizona
|
–
|
2002-2006
|
New
Mexico
|
–
|
2003-2006
|
FCX
has
not identified any uncertain tax position for which it is reasonably possible
that the total amount of unrecognized tax benefit will significantly increase
or
decrease within the 12-month period following the date of adoption of FIN
48.
10.
|
INTEREST
EXPENSE, NET
|
Interest
expense, net, includes capitalized interest of approximately $50 million in
the
second quarter of 2007, approximately $2 million in the second quarter of 2006,
approximately $57 million for the first six months of 2007 and approximately
$4
million for the first six months of 2006. The majority of the capitalized
interest in 2007 relates to development projects at Safford, Arizona, and Tenke
Fungurume.
11.
|
STOCKHOLDERS’
EQUITY AND STOCK AWARD
PLANS
|
Preferred
Stock. On March 28, 2007, FCX completed the sale of 28.75 million
shares of 6¾% Mandatory Convertible Preferred Stock, with a liquidation
preference of $100 per share. The 6¾% Mandatory Convertible Preferred Stock will
automatically convert on May 10, 2010, into between approximately 39 million
and
47 million shares of FCX common stock at a conversion rate that will be
determined based on FCX’s common stock price. The conversion rate per $100 face
amount of mandatory preferred will be 1.6327 when the FCX common stock price
is
at or below $61.25 and 1.3605 when the FCX common stock price is at or above
$73.50. For FCX common stock prices between these levels, the conversion rate
will be equal to $100 divided by FCX’s common stock price. Prior to May 1, 2010,
holders may convert their 6¾% Mandatory Convertible Preferred Stock at a
conversion rate of 1.3605. Dividends are payable quarterly on February 1, May
1,
August 1 and November 1, with the first dividend paid on August 1,
2007.
Stock
Award Plans.On July 10, 2007, FCX’s stockholders approved amendments to
FCX's 2006 Stock Incentive Plan (the Plan). The purpose of the Plan is to
motivate and reward key personnel with stock based-awards at an appropriate
level. As a result of the acquisition of Phelps Dodge, the number of
employees and consultants who are now eligible to receive awards under our
incentive plans increased by over 200 people.
Due
in
part to our increased employee population, the FCX Board of Directors believed
that the number of shares available for grant under FCX's incentive plans was
inadequate to address FCX's short-term needs. The amendments (i) increase
the number of shares available for grant under the Plan from 12 million to
37
million shares, (ii) increase the sublimits under the Plan regarding the number
of shares that may be granted as restricted stock, restricted stock units and
other stock-based awards and (iii) extend the term of the amended and restated
Plan to July 10, 2017.
During
second-quarter 2007, FCX granted approximately 5 million stock options awards,
resulting in stock-based compensation cost of $25 million recognized in selling,
general and administrative expenses.
12.
|
ENVIRONMENTAL,
RECLAMATION AND CLOSURE
|
FCX
has
the following environmental, reclamation and closure obligations following
its
acquisition of Phelps Dodge:
Environmental.
FCX subsidiaries that operate in the U.S. are subject to various
stringent federal, state and local environmental laws and regulations that
govern emissions of air pollutants; discharges of water pollutants; and
generation, handling, storage and disposal of hazardous substances, hazardous
wastes and other toxic materials. FCX subsidiaries also are subject to potential
liabilities arising under CERCLA or similar state laws that impose
responsibility on persons who arranged for the disposal of hazardous substances,
and on current and previous owners and operators of a facility for the cleanup
of hazardous substances released from the facility into the environment,
including damages to natural resources. In addition, FCX subsidiaries are
subject to potential liabilities under the Resource Conservation and Recovery
Act (RCRA) and analogous state laws that require responsible parties to
remediate releases of hazardous or solid waste constituents into the environment
associated with past or present activities.
Phelps
Dodge or its subsidiaries previously have been advised by the U.S. Environmental
Protection Agency (EPA), the Department of the Interior, the Department of
Agriculture and several state agencies that, under CERCLA or similar state
laws
and regulations, they may be liable for costs of responding to environmental
conditions at a number of sites that have been or are being investigated by
EPA,
the Department of the Interior, the Department of Agriculture or states to
determine whether releases of hazardous substances have occurred and, if so,
to
develop and implement remedial actions to address environmental concerns. Phelps
Dodge or its subsidiaries also have previously been advised by trustees for
natural resources that it may be liable under CERCLA or similar state laws
for
damages to natural resources caused by releases of hazardous
substances.
At
June
30, 2007, environmental reserves totaled $360 million, which reflected the
fair
value of the estimated obligations at the acquisition date. The long-term
portion of these reserves totaled $232 million and is included in other
liabilities and deferred credits on the condensed consolidated balance sheet.
At
June 30, 2007, the unescalated, undiscounted environmental reserve totaled
approximately $384 million, leaving approximately $24 million to be accreted
over time. These environmental obligations were estimated based on projected
cash flows, which included an estimated long-term inflation rate of 2.25
percent, and then discounted using a credit-adjusted risk-free interest rate
of
7.8 percent.
Pinal
Creek. The Pinal Creek site located near Miami,
Arizona, has the most significant environmental reserve of all FCX sites
totaling approximately $96 million. The Pinal Creek site was listed under the
Arizona Department of Environmental Quality (ADEQ) Water Quality Assurance
Revolving Fund program in 1989 for contamination in the shallow alluvial
aquifers within the Pinal Creek drainage near Miami, Arizona. Since that time,
environmental remediation has been performed by the members of the Pinal Creek
Group (PCG), consisting of Phelps Dodge Miami, Inc. (Miami), a wholly owned
subsidiary of Phelps Dodge, and two other companies. In 1998, the District
Court
approved a Consent Decree between the PCG members and the state of Arizona
resolving all matters related to an enforcement action contemplated by the
state
of Arizona against the PCG members with respect to the groundwater matter.
The
Consent Decree committed Miami and the other PCG members to complete the
remediation work outlined in the Consent Decree. That work continues at this
time pursuant to the Consent Decree and consistent with state law and the
National Contingency Plan prepared by EPA under CERCLA.
Miami
and
the other PCG members have been pursuing contribution litigation against three
other parties involved with the site. Miami dismissed its contribution claims
against one defendant when another PCG member agreed to be responsible for
any
share attributable to that defendant. Miami and the other PCG members settled
their contribution claims against another defendant in April 2005. While the
terms of the settlement are confidential, the proceeds of the settlement will
be
used to address remediation at the Pinal Creek site. The trial on the issue
of
allocating liability is pending.
While
recoveries or payments may result from the contribution litigation, FCX cannot
reasonably estimate the amount and, therefore, has not taken this into
consideration in its reserve estimates.
Miami’s
share of the planned remediation work based on the interim agreements between
the parties has a cost range on an undiscounted and unescalated basis for
reasonably expected outcomes estimated to be from $89 million to $202 million.
Approximately $96 million (based on discounted present value calculations)
remained in FCX’s Pinal Creek remediation reserve at June 30, 2007.
Other. At
June 30, 2007, the cost range for reasonably possible outcomes for all
reservable environmental remediation sites on an undiscounted and unescalated
basis (including Pinal Creek’s estimate) was approximately $335 million to $640
million (of which approximately $360 million has been reserved). Significant
work is expected to be completed in the next several years to remediate these
sites.
FCX
believes that there may be other potential claims for recovery from other third
parties, including the U.S. government and other PRPs. These potential
recoveries are not recognized unless realization is considered
probable.
FCX
subsidiaries have several sites for which no environmental reserve has been
recognized because it is not probable that a successful claim will be made
against FCX for those sites, but for which there is a reasonably possible
likelihood of an environmental remediation liability. While liabilities, if
any,
ultimately arising from potential environmental obligations may be material
to
the operating results of any single future quarter or year, management does
not
believe such liability is likely to have a material adverse effect on FCX’s
liquidity or financial position.
A
summary
of environmental reserve activities for the three and six months ended June
30,
2007, follows (in millions):
|
Three
Months
|
|
Six
Months
|
|
|
Ended
|
|
Ended
|
|
|
June
30, 2007
|
|
June
30, 2007
|
|
Balance,
beginning of period
|
$
|
356
|
|
$
|
–
|
|
Liabilities
assumed in acquisition of Phelps Dodge
|
|
22
|
|
|
380
|
|
Spending
against reserves
|
|
(20
|
)
|
|
(22
|
)
|
Accretion
expense
|
|
2
|
|
|
2
|
|
Balance,
end of period
|
$
|
360
|
|
$
|
360
|
|
Asset
Retirement Obligations. In connection with its acquisition of Phelps
Dodge, FCX has recorded approximately $394 million of asset retirement
obligations (AROs) accounted for in accordance with SFAS No. 143, “Accounting
for Asset Retirement Obligations.” A summary of the activities associated with
these AROs for the three and six months ended June 30, 2007, follows (in
millions):
|
Three
Months
|
|
Six
Months
|
|
|
Ended
|
|
Ended
|
|
|
June
30, 2007
|
|
June
30, 2007
|
|
Balance,
beginning of period
|
$
|
406
|
|
$
|
–
|
|
Liabilities
assumed in acquisition of Phelps Dodge
|
|
(12
|
)
|
|
394
|
|
Accretion
expense
|
|
7
|
|
|
8
|
|
Payments
|
|
(13
|
)
|
|
(14
|
)
|
Revisions
to cash flow estimates
|
|
3
|
|
|
3
|
|
Balance,
end of period
|
$
|
391
|
|
$
|
391
|
|
At
June
30, 2007, FCX estimated its share of the total cost of Phelps Dodge AROs,
including anticipated future disturbances and cumulative payments, at
approximately $1.3 billion (unescalated, undiscounted and on a third-party
cost
basis), leaving approximately $900 million remaining to be accreted over time.
These aggregate costs may increase or decrease materially in the future as
a
result of changes in regulations, engineering designs and technology, permit
modifications or updates, mine plans or other factors and as actual reclamation
spending occurs. ARO activities and expenditures generally are made over an
extended period of time commencing near the end of the mine life; however,
certain reclamation activities could be accelerated if doing so is required,
or
they are determined to be economically beneficial.
At
June
30, 2007, FCX had trust assets totaling $428 million that are dedicated to
funding global reclamation and remediation activities, and also had trust assets
totaling $99 million that are legally restricted to fund a portion of its asset
retirement obligations for Chino, Tyrone and Cobre as required for New Mexico
financial assurance.
FCX
has
the following contingencies in connection with the acquisition of Phelps
Dodge:
Letters
of Credit and Surety Bonds. Standby letters of credit totaled
approximately $86 million at June 30, 2007, primarily for reclamation,
environmental obligations and workers’ compensation insurance programs. In
addition, FCX had surety bonds totaling approximately $95 million at June 30,
2007, associated with reclamation, closure and environmental obligations
(approximately $66 million – refer to discussion below), self-insurance bonds
primarily for workers’ compensation (approximately $23 million) and
miscellaneous bonds (approximately $6 million).
Insurance.
FCX purchases a variety of insurance products to mitigate insurable
losses. The various insurance products typically have specified deductible
amounts, or self-insured retentions, and policy limits. In second-quarter 2007,
FCX renewed its property insurance coverage, which included the Phelps Dodge
mining operations. FCX generally is self-insured for U.S. workers’ compensation,
but purchases excess insurance up to statutory limits. An actuarial analysis
is
performed twice a year by an independent, third-party actuary for various FCX
casualty programs, including workers’ compensation, to estimate required
insurance reserves. Insurance reserves totaled approximately $57 million at
June
30, 2007.
Environmental
and Reclamation Programs. With regard to the disclosed environmental,
reclamation and closure obligations discussed in Note 12, the following provides
a summary of the significant Arizona and New Mexico environmental and
reclamation programs and related contingencies.
Significant
Arizona Environmental and Reclamation Programs. FCX’s
Arizona properties are subject to regulatory oversight and compliance in several
areas. The ADEQ has adopted regulations for its aquifer protection permit (APP)
program that replaced previous Arizona groundwater quality protection permit
regulations. APP regulations require permits for certain facilities, activities
and structures for mining, concentrating and smelting and requires compliance
with aquifer water quality standards at an applicable point of compliance well
or location. The APP program also may require mitigation and discharge reduction
or elimination of some discharges.
An
application for an APP requires a description of a closure strategy to meet
applicable groundwater protection requirements following cessation of operations
and a cost estimate to implement the closure strategy. An APP may specify
closure requirements, which may include post-closure monitoring and maintenance
requirements. A more detailed closure plan must be submitted within 90 days
after a permitted entity notifies ADEQ of its intent to cease operations. A
permit applicant must demonstrate its financial capability to meet the closure
costs required under the APP.
Portions
of the acquired Phelps Dodge Arizona mining facilities that operated after
January 1, 1986, also are subject to the Arizona Mined Land Reclamation Act
(AMLRA). AMLRA requires reclamation to achieve stability and safety consistent
with post-mining land use objectives specified in a reclamation plan.
Reclamation plans require approval by the State Mine Inspector and must include
a cost estimate to perform the reclamation
measures
specified in the plan. Financial assurance must be provided under AMLRA covering
the estimated cost of performing the reclamation plan.
At
June
30, 2007, FCX had accrued closure costs of approximately $66 million for its
Arizona operations. The amount of financial assurance currently demonstrated
for
Arizona closure and reclamation activities is approximately $183
million.
The
Tohono facility is located on Tohono O’odham Nation (the Nation) property in
southern Arizona. Tohono’s leases and Mine Plans of Operations (MPOs) impose
certain environmental compliance, closure and reclamation requirements, with
closure and reclamation actions required upon termination of the leases, which
currently expire between 2012 and 2017, unless terminated earlier in accordance
with the terms of the leases. Previous studies indicate that closure and
reclamation requirements are estimated at approximately $5 million. Phelps
Dodge
previously provided interim financial assurance in the amount of $5.1 million,
of which $5.0 million is in the form of a corporate performance guarantee.
Tohono has informally obtained an extension from the Nation to update the
previous closure and reclamation studies and associated cost estimates by June
2008.
Significant
New Mexico Environmental and Reclamation Programs. FCX’s New Mexico
operations are subject to regulation under the New Mexico Water Quality Act
and
the Water Quality Control Commission (WQCC) regulations adopted under that
Act.
The New Mexico Environment Department (NMED) has required each of these
operations to submit closure plans for NMED’s approval. The closure plans must
describe measures to be taken to prevent groundwater quality standards from
being exceeded following the closure of discharging facilities and to abate
any
groundwater or surface water contamination.
FCX’s
New
Mexico operations also are subject to regulation under the New Mexico Mining
Act
(the Mining Act), which was enacted in 1993, and the Mining Act Rules, which
are
administered by the Mining Minerals Division (MMD). Under the Mining Act, mines
are required to submit and obtain approval of closeout plans describing the
reclamation to be performed following closure of the mines or portions of the
mines.
Chino,
Tyrone and Cobre each have NMED-issued closure permits and MMD-approved closeout
plans. Chino’s closure permit was appealed to the WQCC by a third party. The
appeal originally was dismissed by the WQCC on procedural grounds, but that
decision was overturned by the New Mexico Court of Appeals. The WQCC has
postponed the hearing on the Chino closure permit pending a report by the
parties regarding settlement discussions. Tyrone appealed certain conditions
in
its closure permit to the WQCC, which upheld the permit conditions. Tyrone
appealed the WQCC’s decision to the Court of Appeals, and on June 15, 2006, the
Court of Appeals overturned two conditions that Tyrone had challenged in its
closure permit. The New Mexico Supreme Court denied Petitions for Certiorari
filed by other parties. The case has been remanded to the WQCC for further
proceedings to address the Court of Appeals decision. A hearing before the
WQCC
began on July 23, 2007 and is expected to continue for several weeks. Hidalgo
has applied for renewal of its discharge permit, which includes a requirement
for an updated closure plan. Hidalgo expects NMED to issue a new permit,
including permit conditions regarding closure and financial
assurance.
The
terms
of the NMED closure permits and MMD-approved closeout plans for Chino, Tyrone
and Cobre require the facilities to conduct supplemental studies concerning
closure and closeout, including feasibility studies to evaluate additional
closure and reclamation alternatives. The feasibility studies are due, along
with amended closure plans, before the end of the five-year permit terms, which
end in 2008 for Chino and Tyrone and in 2009 for Cobre. Chino’s feasibility
study report was submitted in February 2007 and was resubmitted in June 2007
to
address agency comments. The terms of the NMED closure permits also require
the
facilities to prepare and submit abatement plans to address groundwater that
exceeds New Mexico groundwater quality standards as well as potential sources
of
future groundwater contamination. Changes to the existing closure plans and
additional requirements arising from the abatement plans could increase or
decrease the cost of closure and closeout. Cobre submitted an application to
MMD
and NMED for a standby permit to defer implementation of closure and reclamation
requirements, which was approved on December 5, 2006. Cobre continues on
care-and-maintenance status.
Internal
cost estimates to perform the work (internal cost basis) generally are lower
than the cost estimates used for financial assurance because of savings from
the
use of internal personnel and equipment as opposed to third-party contractor
costs, and opportunities to prepare the site for more efficient reclamation
as
mining progresses, among other factors. FCX estimates the total cost, on an
internal cost basis, to perform the requirements of the approved closure and
closeout permits to be approximately $283 million for Chino, $338 million for
Tyrone and $40 million for Cobre (undiscounted and unescalated) over the
100-year period of the closure and closeout plans. Cost estimates, on a
third-party cost basis used to determine the fair value of closure and closeout
obligations for SFAS No. 143 totaled approximately $391 million for Chino,
$438
million for Tyrone and $47 million for Cobre (undiscounted and unescalated).
At
June 30, 2007, FCX had accrued approximately $53 million for Chino, $196 million
for Tyrone, $8 million for Cobre and $4 million for Hidalgo.
The
terms
of the permits also require Chino, Tyrone, Cobre and Hidalgo to provide and
maintain financial assurance based upon the estimated cost to the state of
New
Mexico to implement the closure and closeout plans, including any long-term
operation and maintenance obligations, in the event of a default by the
operators. The third-party cost estimates for financial assurance under the
existing permits are $371 million for Chino, $373 million for Tyrone and $45
million for Cobre on an undiscounted and unescalated basis over the 100-year
period of the closure and closeout plans. Hidalgo is updating its cost estimate
as part of its pending closure permit renewal. These cost estimates are
converted to a discounted present value basis to determine the amount of
financial assurance required for each facility. Financial assurance amounts
at
June 30, 2007, which reflected reductions for work completed through 2006 and
agreed upon by NMED and MMD, were $185 million for Chino, $218 million for
Tyrone and $29 million for Cobre. In the second half of 2007, Chino and Tyrone
each expects to submit updated third-party closure cost estimates to the state
of New Mexico as part of the permit renewal process. Chino and Tyrone will
be
required to post financial assurance based on these updated third party closure
cost estimates. Financial assurance requirements may increase as part of the
permit renewal process.
Up
to 70
percent of the financial assurance for Chino, Tyrone and Cobre is in the form
of
third-party guarantees provided by Phelps Dodge. The terms of the applicable
regulations and the guarantees require Phelps Dodge to meet certain financial
tests. Phelps Dodge provided demonstrations that it met the applicable financial
tests under the terms of the applicable regulations as of the end of 2006.
If it
is determined that Phelps Dodge no longer meets the applicable financial tests
following its acquisition by FCX, the Phelps Dodge guarantees would have to
be
replaced with financial assurance in another form.
Litigation.
Columbian Chemicals Company (Columbian), formerly a subsidiary of Phelps Dodge,
together with several other companies, is a defendant in an action entitled
Technical Industries, Inc. v. Cabot Corporation, et al., No. CIV 03-10191
WGY, filed on January 30, 2003, in the U.S. District Court in Boston,
Massachusetts, and 14 other actions filed in four U.S. district courts, on
behalf of a purported class of all individuals or entities who purchased carbon
black directly from the defendants since January 1999. The Judicial Panel on
Multidistrict Litigation consolidated all of these actions in the U.S. District
Court for the District of Massachusetts under the caption In Re Carbon Black
Antitrust Litigation. The consolidated amended complaint, which alleges that
the defendants fixed the prices of carbon black and engaged in other unlawful
activities in violation of the U.S. antitrust laws, seeks treble damages in
an
unspecified amount and attorney’s fees. The court certified a class that
includes all direct purchasers of carbon black in the U.S. from January 30,
1999, through January 18, 2005. FCX has entered into an agreement to settle
these claims for a payment of $6 million, which has been recorded as a
liability. This settlement is subject to approval by the court following a
hearing scheduled for September 27, 2007, after notice to the class
members.
A
separate action entitled Carlisle Companies Incorporated, et al. v. Cabot
Corporation, et al., was filed against Columbian and other defendants on
behalf of a group of affiliated companies that opted out of the federal class
action. This action, which asserts similar claims as the class action, was
filed
in the Northern District of New York on July 28, 2005, but was transferred
to
the District of Massachusetts, where the class action is pending, and was
consolidated with the class action for pretrial purposes. No separate
proceedings have occurred in this action.
Actions
are pending in state courts in California, Florida, Kansas, South Dakota and
Tennessee on behalf of purported classes of indirect purchasers of carbon black
in those and six other states, alleging violations of
state
antitrust and deceptive trade practices laws. Motions to dismiss are pending
in
the Kansas and South Dakota actions. A motion for class certification has been
filed in the Tennessee action. Similar actions filed in state courts in New
Jersey and North Carolina, and additional actions in Florida and Tennessee,
have
been dismissed. Columbian also received a demand for relief on behalf of
indirect purchasers in Massachusetts, but no lawsuit has been
filed.
Phelps
Dodge retained responsibility for the claims against Columbian pursuant to
the
agreement for the sale of Columbian. Columbian has committed to provide
appropriate assistance to defend these matters. FCX believes the claims are
without merit and intends to defend the lawsuits vigorously.
Since
approximately 1990, Phelps Dodge or its subsidiaries have been named as a
defendant in a large number of product liability or premises lawsuits claiming
injury from exposure to asbestos found in electrical wire products produced
or
marketed many years ago, or from asbestos at certain Phelps Dodge properties.
FCX believes its liability, if any, in these matters will not have a material
adverse effect, either individually or in the aggregate, upon its business,
financial condition, liquidity, results of operations or cash flow. There can
be
no assurance, however, that future developments will not alter this
conclusion.
14.
|
COMMITMENTS
AND GUARANTEES
|
FCX
has
unconditional purchase obligations (take-or-pay contracts with terms in excess
of one year), including obligations assumed in connection with the acquisition
of Phelps Dodge, consisting of the procurement of copper anodes, transportation,
electricity, other supplies and services, sulfuric acid, port fee commitments
and oxygen that are essential to its worldwide operations. A summary of the
maturities of the Phelps Dodge take-or-pay obligations at June 30, 2007, follows
(in millions):
|
|
|
Less
Than
|
|
|
|
|
|
After
|
|
Total
|
|
1
Year
|
|
Years
2-3
|
|
Years
4-5
|
|
5
Years
|
Take-or-pay
obligations
|
$
|
662
|
|
$
|
372
|
|
$
|
218
|
|
$
|
53
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCX
is also a guarantor in financial guarantees (including
option guarantees and indirect guarantees of the indebtedness of others) and
indemnities. At its Morenci mine in Arizona, FCX has a venture agreement dated
February 7, 1986, with its business partner, Sumitomo Metal Mining Arizona,
Inc.
(Sumitomo), which includes a put/call option guarantee clause. FCX holds an
85
percent undivided interest in the Morenci complex. Under certain conditions
defined in the venture agreement, Sumitomo has the right to sell its 15 percent
share to FCX. Likewise, under certain conditions, FCX has the right to exercise
its purchase option to acquire Sumitomo’s share of the venture. Based on
calculations defined in the venture agreement, at June 30, 2007, the maximum
potential payment FCX is obligated to make to Sumitomo upon exercise of the
put
option (or FCX’s exercise of its call option) totaled approximately $157
million. At June 30, 2007, FCX had not recorded any liability in its
condensed consolidated financial statements in connection with this guarantee
as
FCX does not believe, based on information available, that it is probable that
any amounts will be paid under this guarantee as the fair value of Sumitomo’s 15
percent share is well in excess of the exercise price.
Prior
to
its acquisition by FCX, Phelps Dodge and its subsidiaries have, as part of
merger, acquisition, divestiture and other transactions entered into during
the
ordinary course of business (including transactions involving the purchase
and
sale of property), from time to time, indemnified certain sellers, buyers or
other parties related to the transaction from and against certain liabilities
associated with conditions in existence (or claims associated with actions
taken) prior to the closing date of the transaction. As part of certain
transactions, Phelps Dodge indemnified the counterparty from and against certain
excluded or retained liabilities existing at the time of sale that would
otherwise have been transferred to the party at closing. These indemnity
provisions generally now require FCX to indemnify the party against certain
liabilities that may arise in the future from the pre-closing activities of
Phelps Dodge for assets sold or purchased. The indemnity classifications include
environmental, tax and certain operating liabilities, claims or litigation
existing at closing and various excluded liabilities or obligations. Most of
these indemnity obligations arise from transactions that closed many years
ago,
and given the nature of these indemnity obligations, it is impossible to
estimate the maximum potential exposure. Except as described in the following
sentence, FCX does not consider any of such obligations as having a probable
likelihood of payment that is reasonably estimable, and accordingly, has not
recorded any obligations associated with these indemnities. With respect to
FCX’s environmental
indemnity
obligations, any expected costs from these guarantees are accrued when potential
environmental obligations are considered by management to be probable and the
costs can be reasonably estimated.
15.
|
DERIVATIVE
FINANCIAL INSTRUMENTS
|
In
connection with the acquisition of Phelps Dodge, FCX acquired certain derivative
instruments entered into by Phelps Dodge. The most significant of these
derivatives are zero-premium copper collars (consisting of both put and call
options) and copper put options. These derivative instruments do not qualify
for
hedge accounting and are adjusted to fair market value based on the forward
price curve and implied volatility as of the last day of the respective
reporting period, with the gain or loss recorded in revenues. The fair values
of
derivative instruments of Phelps Dodge following its acquisition by FCX are
based on valuations provided by third parties, purchased derivative pricing
models or widely published market closing prices at period end.
A
summary
of the most significant acquired derivative financial instruments as of June
30,
2007, follows (in millions, except per unit prices):
|
|
|
Expired
Derivative
|
|
|
|
|
Positions
|
|
|
|
|
Hedged
|
|
|
|
|
Open
Derivative Positions
|
|
Sales
|
|
|
|
|
Open
|
|
Gain/
|
|
|
|
Price
Per
|
|
Gain/
|
|
|
Position
|
|
(Loss)a
|
|
Maturity
|
|
Unit
|
|
(Loss)a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
price protection (lbs.)b
|
1,216
|
|
$
|
(168
|
)
|
December
2007
|
|
$
|
–
|
|
$
|
–
|
|
Copper
fixed-price rod sales (lbs.)
|
98
|
|
|
3
|
|
November
2008
|
|
|
3.41
|
|
|
54
|
|
Metal
purchase (lbs.)
|
57
|
|
|
2
|
|
October
2009
|
|
|
–
|
|
|
4
|
|
a.
|
Represents
gains (losses) recognized in the condensed consolidated statements
of
income from March 20, 2007, through June 30,
2007.
|
b.
|
With
the acquisition of Phelps Dodge, FCX assumed copper hedging contracts
whereby 486 million pounds of copper for 2007 are capped at $2.00
per
pound. Mark-to-market accounting adjustments on these contracts resulted
in charges of $130 million to revenues for the second quarter of
2007 and
$168 million from March 20, 2007, through June 30, 2007. At June
30, 2007,
the liability associated with these contracts was $592 million. Refer
to
discussion below for additional information associated with the 2007
copper price protection program.
|
A
summary
of the significant hedging strategies and the derivative instruments used in
FCX’s risk management programs are provided below:
Metals
Hedging
Copper
Price Protection Program. Following the acquisition of Phelps Dodge,
FCX assumed Phelps Dodge’s 2007 copper price protection program, which consists
of zero-premium copper collars (consisting of both put and call options) for
486
million pounds of copper, capped at $2.00 per pound and copper put options
for
730 million pounds with a floor price of $0.95 per pound. These derivative
instruments do not qualify for hedge accounting and are adjusted to fair market
value based on the forward price curve and implied volatility as of the last
date of the respective reporting period, with the gain or loss recorded in
revenues. The 2007 copper price protection program matures December 31, 2007,
and will settle in the first quarter of 2008 with final adjustments based on
the
average annual London Metal Exchange (LME) price. FCX does not currently intend
to enter into similar programs in the future.
Copper
Fixed-Price Rod Sales. Some cathode and rod customers request a fixed sales
price instead of the New York Commodity Exchange (COMEX) average price in the
month of shipment. This fixed-price sales exposure is hedged in a manner that
allows FCX to receive the COMEX average price in the month of shipment
while customers receive the requested fixed price. Gains or losses from these
contracts are recognized in revenue.
Metal
Purchase. FCX’s international manufacturing operations may enter into
metal (aluminum, copper and lead) swap contracts to hedge metal purchase price
exposure on fixed-price sales contracts to allow FCX to lock in the cost of
the
metal used in fixed-price sales of cable to customers. These swap contracts
are
generally settled during the month of finished product shipment and result
in a
net LME metal price consistent with that agreed with FCX’s customers. Gains or
losses from the swap contracts are recognized in production and delivery
costs.
FCX’s
business consists of three primary operating divisions – Indonesian mining,
North American mining and South American mining. Following is a discussion
of
the reportable segments included in these operating divisions, as well as FCX’s
other reportable segments – Atlantic Copper and PDIC. FCX continues to evaluate
reportable segments in conjunction with its review of the management reporting
structure following the acquisition of Phelps Dodge, and as a result the
following reportable segments may change in the future.
North
American Mining. North American mining comprises copper operations from
mining through rod production, molybdenum operations from mining through
conversion to chemical and metallurgical products, marketing and sales. The
North American mining operating division includes one reportable copper
production segment (Morenci), and also includes as reportable segments
Manufacturing and Primary Molybdenum.
The
Morenci open-pit mine, located in southeastern Arizona, primarily produces
electrowon copper cathodes and copper concentrates. In addition to copper,
the
Morenci mine produces molybdenum. FCX owns an 85 percent undivided interest
in
Morenci, an unincorporated joint venture, and applies the proportionate
consolidation method of accounting. The remaining 15 percent is owned by
Sumitomo Metal Mining Arizona, Inc., a jointly owned subsidiary of Sumitomo
Metal Mining Co., Ltd. and Sumitomo Corporation. Each partner takes in kind
its
share of Morenci’s production.
The
Manufacturing segment consists of copper conversion facilities, including a
smelter, refinery, rod mills and specialty copper products facility. This
segment processes copper produced at the North American mines and copper
purchased from others into copper anode, cathode, rod and custom copper shapes.
The Miami smelter is the most significant source of sulfuric acid for the
various North American leaching operations. In addition, at times it smelts
and
refines copper and produces copper rod and shapes for customers on a toll basis.
Toll arrangements require the tolling customer to deliver appropriate
copper-bearing material to FCX’s facilities for processing into a product that
is returned to the customer. The customer pays FCX for processing its material
into the specified products.
The
Primary Molybdenum segment includes FCX’s wholly owned Henderson and Climax
molybdenum mines in Colorado, related conversion facilities and a technology
center. This segment is an integrated producer of molybdenum, with mining,
roasting and processing facilities that produce high-purity, molybdenum-based
chemicals, molybdenum metal powder and metallurgical products, which are sold
to
customers around the world. In addition, at times this segment roasts and/or
processes material on a toll basis. Toll arrangements require the tolling
customer to deliver appropriate molybdenum-bearing material to FCX’s facilities
for processing into a product that is returned to the customer. The customer
pays FCX for processing its material into the specified products. This segment
also includes a technology center whose primary activity is developing new
engineered products and applications.
Other
North American mining operations, although not considered reportable segments,
include FCX’s other southwestern U.S. copper mines – Bagdad, Sierrita, Chino,
Cobre, Tyrone, Miami, Bisbee and Tohono. In addition to copper, the Bagdad,
Sierrita and Chino mines produce molybdenum, gold, silver and rhenium. Other
North American mining operations also include the Safford project, which is
currently under development, a sales company, which functions as an agent to
purchase and sell copper from the North American mines and the Manufacturing
segment and also purchases and sells any copper not sold by the South American
mines to third parties, and other ancillary operations.
South
American Mining. South American mining includes one reportable copper
production segment (Cerro Verde). The Cerro Verde open-pit copper mine, located
near Arequipa, Peru, produces electrowon copper cathodes and copper
concentrates. In addition to copper, the Cerro Verde mine produces molybdenum
and
silver.
FCX owns a 53.56 percent equity interest in Cerro Verde, which it fully
consolidates and reports the minority interest. The remaining 46.44 percent
is
held by SMM Cerro Verde Netherlands B.V., Compañía de Minas Buenaventura S.A.A.
as well as other minority shareholders, certain of whose shares are publicly
traded on the Lima Stock Exchange.
Other
South American mining operations, although not considered reportable segments,
include FCX’s other South American copper mines – Candelaria, Ojos del Salado
and El Abra – which include open-pit and underground mining, sulfide ore
concentrating, leaching, solution extraction and electrowinning, and other
ancillary operations. In addition to copper, the Candelaria and Ojos del Salado
mines produce gold and silver. FCX owns an 80 percent partnership interest
in
both the Candelaria and Ojos del Salado mines, and owns a 51 percent partnership
interest in the El Abra mine. FCX fully consolidates these operations and
reports the minority interest.
Indonesian
Mining. Indonesian mining (i.e., Grasberg) includes PT
Freeport Indonesia’s copper and gold mining operations and PT Puncakjaya Power’s
power-generating operations (after eliminations with PT Freeport
Indonesia).
FCX
owns
90.64 percent of PT Freeport Indonesia, including 9.36 percent owned through
our
wholly owned subsidiary, PT Indocopper Investama, and the remaining 9.36 percent
is owned by the Government of Indonesia. In 1996, FCX established a joint
venture with Rio Tinto plc (Rio Tinto), which covers PT Freeport Indonesia’s
mining operations in Block A and gives Rio Tinto, through 2021, a 40 percent
interest in certain assets and future production exceeding specified annual
amounts of copper, gold and silver. After 2021, Rio Tinto will have a 40 percent
interest in all production from Block A. PT Freeport Indonesia records its
joint
interest using the proportionate consolidation method of
accounting.
Atlantic
Copper Smelting & Refining. Atlantic Copper, FCX’s wholly owned
smelting unit in Spain, smelts and refines copper concentrates and markets
refined copper and precious metals in slimes.
PDIC.
PDIC is FCX’s international manufacturing division, which produces
engineered products principally for the global energy sector. Its operations
are
characterized by products with internationally competitive costs and quality,
and specialized engineering capabilities. Its factories, which are located
in
nine countries throughout Latin America, Asia and Africa, manufacture energy
cables for international markets. Three of PDIC’s international manufacturing
companies have continuous-cast copper rod facilities, and three have
continuous-cast aluminum rod facilities.
FCX
is
currently exploring strategic alternatives for PDIC, including the potential
sale of this division.
Other.
Intersegment revenues of the individual North American mines represent
an internal allocation based on sales to unaffiliated customers and realized
copper prices. Intersegment sales by the Indonesian and South American mines
are
based upon arms-length prices at the time of the sale. Intersegment sales of
any
individual mine may not be reflective of the actual prices ultimately realized
because of a variety of factors, including additional processing, timing of
sales to unaffiliated customers and transportation premiums.
In
addition to the allocation of revenues, FCX allocates certain operating costs,
expenses and capital to the operating divisions and individual segments that
may
not be reflective of market conditions. FCX does not allocate all costs and
expenses applicable to a mine or operation from the operating division or
corporate offices. Accordingly, the following segment information reflects
management determinations that may not be indicative of actual financial
performance of each operating divisions or segment as if it was an independent
entity.
Table of Contents
FREEPORT-McMoRan
COPPER & GOLD INC.
BUSINESS
SEGMENTS
(In
Millions)
|
North
America
|
|
South
America
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Total
|
|
|
|
Other
|
|
Total
|
|
|
|
Atlantic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary
|
|
North
|
|
North
|
|
|
|
South
|
|
South
|
|
|
|
Copper
|
|
|
|
Corporate,
|
|
|
|
|
|
|
|
Manufac-
|
|
Molyb-
|
|
American
|
|
American
|
|
Cerro
|
|
American
|
|
American
|
|
|
|
Smelting
|
|
|
|
Other
&
|
|
FCX
|
|
Three
Months Ended June 30, 2007
|
Morenci
|
|
turing
|
|
denum
|
|
Mining
|
|
Mining
|
|
Verde
|
|
Mining
|
|
Mining
|
|
Grasberg
|
|
&
Refining
|
|
PDIC
|
|
Eliminations
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
$
|
23
|
|
1,827
|
|
463
|
|
366
|
|
2,679
|
|
157
|
|
572
|
|
729
|
|
1,415
|
a
|
619
|
|
364
|
|
1
|
|
5,807
|
|
Intersegment
|
|
519
|
|
49
|
|
-
|
|
(327
|
)
|
241
|
|
298
|
|
205
|
|
503
|
|
347
|
|
-
|
|
-
|
|
(1,091
|
)
|
-
|
|
Production
and deliveryc
|
|
304
|
|
1,861
|
|
406
|
|
(300
|
)
|
2,271
|
|
100
|
|
203
|
|
303
|
|
390
|
|
608
|
|
311
|
|
(1,033
|
)
|
2,850
|
|
Depreciation,
depletion and amortizationc
|
|
69
|
|
5
|
|
22
|
|
72
|
|
168
|
|
35
|
|
101
|
|
136
|
|
56
|
|
9
|
|
3
|
|
7
|
|
379
|
|
Exploration
and research expenses
|
|
-
|
|
-
|
|
-
|
|
3
|
|
3
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
37
|
|
40
|
|
Selling,
general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
-
|
|
-
|
|
5
|
|
2
|
|
7
|
|
-
|
|
-
|
|
-
|
|
45
|
|
6
|
|
5
|
|
76
|
|
139
|
|
Operating
income (loss)c
|
$
|
169
|
|
10
|
|
30
|
b
|
262
|
|
471
|
|
320
|
|
473
|
|
793
|
|
1,271
|
|
(4
|
)
|
45
|
|
(177
|
)
|
2,399
|
|
Interest
expense, net
|
$
|
-
|
|
1
|
|
-
|
|
-
|
|
1
|
|
4
|
|
(1
|
)
|
3
|
|
3
|
|
7
|
|
3
|
|
165
|
|
182
|
|
Equity
in affiliated companies’
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
earnings
|
$
|
-
|
|
-
|
|
-
|
|
1
|
|
1
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
6
|
|
7
|
|
Provision
for income taxes
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
123
|
|
156
|
|
279
|
|
443
|
|
-
|
|
-
|
|
55
|
|
777
|
|
Minority
interests in net income of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
subsidiaries
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
101
|
|
125
|
|
226
|
|
|
|
-
|
|
6
|
|
81
|
|
313
|
|
Total
assets at June 30, 2007
|
$
|
4,737
|
|
818
|
|
1,894
|
|
8,730
|
|
16,179
|
|
4,975
|
|
4,521
|
|
9,496
|
|
4,352
|
|
1,062
|
|
1,387
|
|
8,158
|
|
40,634
|
|
Capital
expenditures
|
$
|
60
|
|
3
|
|
11
|
|
227
|
|
301
|
|
17
|
|
17
|
|
34
|
|
101
|
|
14
|
|
5
|
|
75
|
|
530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
832
|
a
|
593
|
|
-
|
|
1
|
|
1,426
|
|
Intersegment
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
203
|
|
-
|
|
-
|
|
(203
|
)
|
-
|
|
Production
and delivery
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
281
|
|
561
|
|
-
|
|
(237
|
)
|
605
|
|
Depreciation,
depletion and amortization
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
34
|
|
7
|
|
-
|
|
3
|
|
44
|
|
Exploration
and research expenses
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3
|
|
3
|
|
Selling,
general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
56
|
|
3
|
|
-
|
|
(24
|
)
|
35
|
|
Operating
income
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
664
|
|
22
|
|
-
|
|
53
|
|
739
|
|
Interest
expense, net
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2
|
|
4
|
|
-
|
|
15
|
|
21
|
|
Equity
in affiliated companies’
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
earnings
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1
|
|
1
|
|
Provision
for income taxes
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
237
|
|
-
|
|
-
|
|
73
|
|
310
|
|
Minority
interests in net income of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
subsidiaries
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
42
|
|
42
|
|
Total
assets at June 30, 2006
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3,885
|
|
1,035
|
|
-
|
|
190
|
|
5,110
|
|
Capital
expenditures
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
56
|
|
2
|
|
-
|
|
-
|
|
58
|
|
a.
|
Includes
PT Freeport Indonesia’s sales to PT Smelting totaling $625 million in
second-quarter 2007 and $325 million in second-quarter
2006.
|
b.
|
Operating
income for Primary Molybdenum included a $41 million loss primarily
resulting from the difference between raw material purchases and
average
contractual selling prices, and was also net of a $49 million intercompany
profit elimination associated with purchases and sales between Henderson
and other molybdenum conversion facilities. Profits are deferred
until
sales are made to third parties.
|
c.
|
Operating
income (loss) includes purchase accounting adjustments primarily
associated with the impacts of the increases in the carrying values
of
Phelps Dodge’s metal inventories and stockpiles and property, plant and
equipment. Following provides the impacts of these adjustments on
FCX’s
segments and operating divisions for second-quarter
2007:
|
Production
and delivery
|
$
|
68
|
|
(1
|
)
|
67
|
|
117
|
|
251
|
|
-
|
|
18
|
|
18
|
|
N/A
|
|
N/A
|
|
2
|
|
(14
|
)
|
257
|
|
Depreciation,
depletion and amortization
|
|
60
|
|
-
|
|
10
|
|
47
|
|
117
|
|
15
|
|
55
|
|
70
|
|
N/A
|
|
N/A
|
|
-
|
|
(1
|
)
|
186
|
|
Purchase
accounting adjustments
|
$
|
128
|
|
(1
|
)
|
77
|
|
164
|
|
368
|
|
15
|
|
73
|
|
88
|
|
N/A
|
|
N/A
|
|
2
|
|
(15
|
)
|
443
|
|
FREEPORT-McMoRan
COPPER & GOLD INC.
BUSINESS
SEGMENTS
(In
Millions)
|
North
America
|
|
South
America
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Total
|
|
|
|
Other
|
|
Total
|
|
|
|
Atlantic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary
|
|
North
|
|
North
|
|
|
|
South
|
|
South
|
|
|
|
Copper
|
|
|
|
Corporate,
|
|
|
|
|
|
|
|
Manufac-
|
|
Molyb-
|
|
American
|
|
American
|
|
Cerro
|
|
American
|
|
American
|
|
|
|
Smelting
|
|
|
|
Other
&
|
|
FCX
|
|
Six
Months Ended June 30, 2007
|
Morenci
|
|
turing
|
|
denum
|
|
Mining
|
|
Mining
|
|
Verde
|
|
Mining
|
|
Mining
|
|
Grasberg
|
|
&
Refining
|
|
PDIC
|
|
Eliminations
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
$
|
23
|
|
2,034
|
|
515
|
|
426
|
|
2,998
|
|
171
|
|
698
|
|
869
|
|
2,747
|
a
|
1,073
|
|
421
|
|
2
|
|
8,110
|
|
Intersegment
|
|
540
|
|
58
|
|
-
|
|
(333
|
)
|
265
|
|
395
|
|
230
|
|
625
|
|
724
|
|
-
|
|
-
|
|
(1,614
|
)
|
-
|
|
Production
and deliveryc
|
|
333
|
|
2,071
|
|
458
|
|
(239
|
)
|
2,623
|
|
144
|
|
275
|
|
419
|
|
713
|
|
1,035
|
|
359
|
|
(1,347
|
)
|
3,802
|
|
Depreciation,
depletion and amortizationc
|
|
74
|
|
6
|
|
25
|
|
77
|
|
182
|
|
44
|
|
120
|
|
164
|
|
115
|
|
19
|
|
4
|
|
11
|
|
495
|
|
Exploration
and research expenses
|
|
-
|
|
-
|
|
-
|
|
3
|
|
3
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
44
|
|
47
|
|
Selling,
general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
-
|
|
-
|
|
5
|
|
3
|
|
8
|
|
-
|
|
-
|
|
-
|
|
89
|
|
10
|
|
6
|
|
75
|
|
188
|
|
Operating
income (loss)c
|
$
|
156
|
|
15
|
|
27
|
b
|
249
|
|
447
|
|
378
|
|
533
|
|
911
|
|
2,554
|
|
9
|
|
52
|
|
(395
|
)
|
3,578
|
|
Interest
expense, net
|
$
|
-
|
|
1
|
|
-
|
|
-
|
|
1
|
|
4
|
|
(1
|
)
|
3
|
|
7
|
|
14
|
|
3
|
|
206
|
|
234
|
|
Equity
in affiliated companies’
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
earnings
|
$
|
-
|
|
-
|
|
-
|
|
1
|
|
1
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
11
|
|
12
|
|
Provision
for income taxes
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
145
|
|
175
|
|
320
|
|
896
|
|
-
|
|
-
|
|
21
|
|
1,237
|
|
Minority
interests in net income of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
subsidiaries
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
126
|
|
147
|
|
273
|
|
-
|
|
-
|
|
7
|
|
147
|
|
427
|
|
Capital
expenditures
|
$
|
75
|
|
5
|
|
13
|
|
261
|
|
354
|
|
18
|
|
18
|
|
36
|
|
175
|
|
21
|
|
6
|
|
80
|
|
672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,400
|
a
|
1,109
|
|
-
|
|
3
|
|
2,512
|
|
Intersegment
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
432
|
|
-
|
|
-
|
|
(432
|
)
|
-
|
|
Production
and delivery
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
568
|
|
1,052
|
|
-
|
|
(537
|
)
|
1,083
|
|
Depreciation,
depletion and amortization
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
68
|
|
15
|
|
-
|
|
4
|
|
87
|
|
Exploration
and research expenses
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
5
|
|
5
|
|
Selling,
general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
138
|
|
7
|
|
-
|
|
(79
|
)
|
66
|
|
Operating
income
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,058
|
|
35
|
|
-
|
|
178
|
|
1,271
|
|
Interest
expense, net
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
5
|
|
10
|
|
-
|
|
29
|
|
44
|
|
Equity
in affiliated companies’
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
earnings
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
5
|
|
5
|
|
Provision
for income taxes
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
382
|
|
-
|
|
-
|
|
150
|
|
532
|
|
Minority
interests in net income of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
subsidiaries
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
69
|
|
69
|
|
Capital
expenditures
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
105
|
|
6
|
|
-
|
|
(1
|
)
|
110
|
|
a.
|
Includes
PT Freeport Indonesia’s sales to PT Smelting totaling $1.2 billion for the
first six months of 2007 and $608 million for the first six months
of
2006.
|
b.
|
Operating
income for Primary Molybdenum included a $53 million loss primarily
resulting from the difference between raw material purchases and
average
contractual selling prices, and was also net of a $49 million intercompany
profit elimination associated with purchases and sales between Henderson
and other molybdenum conversion facilities. Profits are deferred
until
sales are made to third parties.
|
c.
|
Operating
income (loss) includes purchase accounting adjustments primarily
associated with the impacts of increases in the carrying values of
Phelps
Dodge’s metal inventories and stockpiles and property, plant and
equipment. Following provides the impacts of these adjustments on
FCX’s
segments and operating divisions for the first six months of
2007:
|
Production
and delivery
|
$
|
84
|
|
-
|
|
80
|
|
135
|
|
299
|
|
20
|
|
46
|
|
66
|
|
N/A
|
|
N/A
|
|
3
|
|
(15
|
)
|
353
|
|
Depreciation,
depletion and amortization
|
|
63
|
|
-
|
|
12
|
|
48
|
|
123
|
|
21
|
|
70
|
|
91
|
|
N/A
|
|
N/A
|
|
-
|
|
-
|
|
214
|
|
Purchase
accounting adjustments
|
$
|
147
|
|
-
|
|
92
|
|
183
|
|
422
|
|
41
|
|
116
|
|
157
|
|
N/A
|
|
N/A
|
|
3
|
|
(15
|
)
|
567
|
|
Table of Contents
TO
THE
BOARD OF DIRECTORS AND STOCKHOLDERS OF
FREEPORT-McMoRan
COPPER & GOLD INC.:
We
have
reviewed the condensed consolidated balance sheet of Freeport-McMoRan Copper
& Gold Inc. as of June 30, 2007, and the related condensed consolidated
statements of income for the three-month and six-month periods ended June 30,
2007 and 2006, the condensed consolidated statements of cash flows for the
six-month periods ended June 30, 2007 and 2006, and the condensed consolidated
statement of stockholders’ equity for the six-month period ended June 30, 2007.
These financial statements are the responsibility of the Company’s
management.
We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based
on
our review, we are not aware of any material modifications that should be made
to the condensed consolidated financial statements referred to above for them
to
be in conformity with U.S. generally accepted accounting
principles.
We
have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet
of
Freeport-McMoRan Copper & Gold Inc. as of December 31, 2006, and the related
consolidated statements of income, stockholders’ equity, and cash flows for the
year then ended (not presented herein), and in our report dated February 26,
2007, we expressed an unqualified opinion on those consolidated financial
statements and which report included an explanatory paragraph for the Company’s
adoption of Statement of Financial Accounting Standards No. 123 (revised 2004),
“Share-Based Payment,” effective January 1, 2006; Emerging Issues Task Force
Issue No. 04-6, “Accounting for Stripping Costs Incurred during Production in
the Mining Industry,” effective January 1, 2006; and Statement of Financial
Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88,
106
and 132R,” effective December 31, 2006. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of December
31, 2006, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
ERNST
& YOUNG LLP
Phoenix,
Arizona
August
3,
2007
OVERVIEW
In
management’s discussion and analysis, “we,” “us” and “our” refer to
Freeport-McMoRan Copper & Gold Inc. (FCX) and its consolidated subsidiaries,
including, except as otherwise stated, Phelps Dodge Corporation (Phelps Dodge)
and its subsidiaries, which we acquired March 19, 2007. You should read this
discussion in conjunction with our financial statements, the related discussion
and analysis of financial condition and results of operations and the discussion
of our “Business and Properties” in our Form 10-K for the year ended December
31, 2006, filed with the Securities and Exchange Commission. The results of
operations reported and summarized below are not necessarily indicative of
future operating results. In particular, the financial results for the first
six
months of 2007 include the operations of Phelps Dodge only since March 20,
2007,
not the full six-month period because of the accounting treatment for the
acquisition. References to “Notes” refer to the “Notes to Condensed Consolidated
Financial Statements.” Throughout management's discussion and analysis
of financial condition and results of operations, all references to earnings
or
losses per share are based on diluted earnings or losses per common
share.
Through
our majority-owned subsidiary, PT Freeport Indonesia, and our wholly owned
subsidiary, Phelps Dodge, we are one of the world’s largest copper, gold and
molybdenum mining companies in terms of reserves and production. Our principal
asset is the Grasberg minerals district, which based on available year-end
2005
copper reserve data and year-end 2006 gold reserve data provided by third-party
industry consultants, contains the largest single copper reserve and the largest
single gold reserve of any mine in the world.
On
March
19, 2007, we acquired Phelps Dodge, a fully integrated producer of copper and
molybdenum, with mines in North and South America and processing capabilities
for other by-product minerals, such as gold, silver and rhenium, and several
development projects, including the Tenke Fungurume mine in the Democratic
Republic of Congo (DRC). Additionally, Phelps Dodge has an international
manufacturing division, Phelps Dodge International Corporation (PDIC), which
manufactures engineered wire and cable products principally for the global
energy sector.
Through
Phelps Dodge, we have the following operating open-pit copper mines in North
America – Morenci, Bagdad and Sierrita in Arizona and Chino and Tyrone in New
Mexico, as well as two primary molybdenum mines – Henderson and Climax, which is
not currently operating, in Colorado. In addition, a new copper mine is under
construction at Safford, Arizona. All of these mining operations are wholly
owned, except for Morenci. We record our 85 percent interest in Morenci, an
unincorporated joint venture, using the proportionate consolidation method.
The
North American mining operations are operated in an integrated fashion and
have
long-lived reserves with additional development potential.
Additionally,
through Phelps Dodge, we have four copper mines in South America – Candelaria,
Ojos del Salado and El Abra in Chile and Cerro Verde in Peru. We own an 80
percent partnership interest in both Candelaria and Ojos del Salado, a 51
percent partnership interest in El Abra and a 53.56 percent equity interest
in
Cerro Verde. We fully consolidate the results of these operations and report
the
minority interest.
ACQUISITION
OF PHELPS DODGE
Phelps
Dodge became our wholly owned subsidiary on March 19, 2007. In the acquisition,
each share of Phelps Dodge common stock was exchanged for 0.67 of a share of
FCX
common stock and $88.00 in cash. As a result, we issued 136.9 million shares
and
paid approximately $18.0 billion in cash to Phelps Dodge shareholders. The
estimated fair value of assets acquired and liabilities assumed and the results
of Phelps Dodge’s operations are included in our condensed consolidated
financial statements beginning March 20, 2007.
We
paid a
premium (i.e., goodwill) over the estimated fair value of the net
tangible and identified intangible assets acquired for a number of potential
strategic and financial benefits that are expected to be realized. Refer to
Note
2 for further discussion of these potential benefits.
Accounting
for the Acquisition of Phelps Dodge. The acquisition of Phelps Dodge is
being accounted for under the purchase method as required by Statement of
Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” with FCX
as the accounting acquirer. Refer to Note 2 for a summary of the $25.8 billion
purchase price, which was funded through a combination of common shares issued,
borrowings under an $11.5 billion senior credit facility, proceeds from the
offering of $6.0 billion senior notes and available cash resources (including
cash acquired from Phelps Dodge).
In
accordance with the purchase method of accounting, the purchase price paid
was
determined at the date of the public announcement of the transaction and has
been allocated to the assets acquired and liabilities assumed based upon their
estimated fair values on the closing date of March 19, 2007. The estimated
fair
values were based on preliminary internal estimates and are subject to change
as
we complete our analysis. In valuing acquired assets and assumed liabilities,
fair values were based on, but were not limited to: quoted market prices, where
available; our intent with respect to whether the assets purchased are to be
held, sold or abandoned; expected future cash flows; current replacement cost
for similar capacity for certain fixed assets; market rate assumptions for
contractual obligations; and appropriate discount rates and growth rates. The
excess of the purchase price over the estimated fair value of the net assets
acquired has been recorded as goodwill. A significant decline in copper or
molybdenum prices from those used to estimate the fair values of the acquired
assets could result in impairment to the carrying amounts assigned to
inventories; mill and leach stockpiles; property, plant, equipment and
development costs; and goodwill.
The
following table summarizes the actual and estimated impacts of the initial
fair
value adjustments on 2007 production and delivery costs and depreciation,
depletion and amortization expense associated with the increases in the carrying
values of Phelps Dodge’s metal inventories (including mill and leach stockpiles)
and property, plant and equipment. These charges do not affect cash flows and
are based on the preliminary purchase price allocations and projected sales
volumes (refer to Note 2 for a summary of the June 30, 2007, preliminary
purchase price allocation). Changes to fair value estimates of inventories,
including mill and leach stockpiles, and/or property, plant and equipment,
as
well as changes in the timing of quarterly sales volumes, could result in actual
amounts differing significantly from the estimates shown below. Additionally,
inventories, including mill and leach stockpiles, are subject to lower of cost
or market assessments, and significant declines in metals prices could result
in
future impairment charges.
|
2007
|
|
|
First
Six
|
|
Third
|
|
Fourth
|
|
|
|
|
Months
|
|
Quarter
|
|
Quarter
|
|
Total
|
|
(In
millions)
|
Actual
|
|
Estimate
|
|
Estimate
|
|
Estimate
|
|
Production
and delivery costs
|
$
|
364
|
|
$
|
100
|
|
$
|
40
|
|
$
|
504
|
|
Depreciation,
depletion and amortization
|
|
214
|
|
|
200
|
|
|
210
|
|
|
624
|
|
Total
cost of sales impact
|
$
|
578
|
|
$
|
300
|
|
$
|
250
|
|
$
|
1,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net income impact
|
$
|
364
|
|
$
|
189
|
|
$
|
158
|
|
$
|
711
|
|
COPPER,
GOLD AND MOLYBDENUM MARKETS
As
shown
in the graphs below, world metal prices for copper have fluctuated during the
period from 1992 through July 2007 with the London Metal Exchange (LME) spot
copper price varying from a low of approximately $0.60 per pound in 2001 to
a
high of approximately $4.00 per pound in May 2006. World gold prices have
fluctuated during the period from 1998 through July 2007 from a low of
approximately $250 per ounce in 1999 to a high of approximately $725 per ounce
in May 2006. During the past 15 years, Metals Week Molybdenum Dealer
Oxide prices have ranged from a low of $1.82 per pound in 1992 to a high of
$40.00 per pound in June 2005. Copper, gold and molybdenum prices are affected
by numerous factors beyond our control as described further in our “Risk
Factors” contained in Part II, Item 1A of the Quarterly Report on Form 10-Q for
the quarter ended March 31, 2007.
*
Excludes Shanghai stocks, producer, consumer and merchant stocks.
The
graph
above presents LME spot copper prices and reported stocks of copper at the
LME
and New York Commodity Exchange (COMEX) through July 31, 2007. From 2003 through
2005, global demand exceeded supply, evidenced by the decline in exchange
warehouse inventories. LME and COMEX inventories have risen from the 2005 lows
but combined stocks of approximately 135,000 metric tons at June 30, 2007,
remain at historically low levels, representing less than three days of global
consumption. Disruptions associated with strikes, unrest and other operational
issues resulted in low levels of inventory throughout 2006. In December 2006
and
early 2007, prices declined on concerns about reduced demand, especially in
the
United States (U.S.), and rising inventories; however, later in the second
quarter of 2007 prices rose above $3.50 per pound reflecting continued
volatility in market prices and continued strong demand. LME copper prices
averaged $3.46 per pound in the second quarter of 2007, with prices ranging
from
$3.14 per pound to approximately $3.73 per pound. The LME spot price closed
at
$3.70 per pound on July 31, 2007. Future copper prices are expected to continue
to be influenced by demand from China, economic performance in the U.S. and
other industrialized countries, the timing of the development of new supplies
of
copper, production levels of mines and copper smelters and the level of direct
participation by investors. We consider the current underlying supply and demand
conditions in the global copper markets to be positive for our
company.
After
reaching new 25-year highs above $700 per ounce in May 2006, gold prices
declined in the second half of 2006. Gold prices averaged approximately $667
per
ounce in the second quarter of 2007, with prices ranging from approximately
$642
per ounce to approximately $691 per ounce. Gold prices continued to be supported
by increased investment demand for gold, ongoing geopolitical tensions, a weak
U.S. dollar, inflationary pressures and reduced mine supply. The London gold
price closed at $665.50 per ounce on July 31, 2007.
Molybdenum
markets have been strong in recent years as demand has exceeded available
supplies. In 2006, the molybdenum market was generally balanced with prices
ranging from $20.50 per pound to $28.40 per pound and averaging $24.75 per
pound. Molybdenum markets continued to be strong in the first half of 2007.
For
the second quarter of 2007, prices averaged $30.56 per pound and ranged from
$27.60 per pound to $34.25 per pound. The Metals Week Molybdenum Dealer
Oxide price closed at $31.25 per pound on July 27, 2007.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management’s
discussion and analysis of financial condition and results of operations is
based on our condensed consolidated financial statements, which have been
prepared in conformity with generally accepted accounting principles (GAAP)
in
the U.S. The preparation of these statements requires that we make estimates
and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. We base these estimates on historical experience and on
assumptions that we consider reasonable under the circumstances; however,
reported results could differ from those based on the current estimates under
different assumptions or conditions. As a result of the acquisition of Phelps
Dodge, the following provides additional and/or revised critical accounting
policies and estimates to those presented in our 2006 Annual Report on Form
10-K.
Recoverable
Copper. We record, as inventory, applicable costs for copper contained in
mill and leach stockpiles that are expected to be processed in the future based
on proven processing technologies. Mill and leach stockpiles are evaluated
periodically to ensure that they are stated at the lower of cost or
market.
Because
it is generally impracticable to determine copper contained in mill and leach
stockpiles by physical count, reasonable estimation methods are employed. The
quantity of material delivered to mill and leach stockpiles is based on surveyed
volumes of mined material and daily production records. Sampling and assaying
of
blasthole cuttings determine the estimated copper grade contained in the
material delivered to the mill and leach stockpiles.
Expected
copper recovery rates for mill stockpiles are determined by metallurgical
testing. The recoverable copper in mill stockpiles can be extracted into copper
concentrate almost immediately. Estimates of copper contained in mill stockpiles
are adjusted as material is added or removed and fed to the mill.
Expected
copper recovery rates for leach stockpiles are determined using small-scale
laboratory tests, small- to large-scale column testing (which simulates the
production-scale process), historical trends and other factors, including
mineralogy of the ore and rock type. Estimated amounts of copper contained
in
the leach stockpiles are reduced as stockpiles are leached, the leach solution
is fed to the electrowinning process, and copper cathodes are produced. Ultimate
recovery of copper contained in leach stockpiles can vary from a very low
percentage to more than 90 percent depending on several variables, including
type of recovery, mineralogy and particle size of the rock. Although as much
as
70 percent of the copper ultimately recoverable may be extracted during the
first year, the remaining copper is recovered over several years.
Processes
and recovery rates are monitored continuously, and recovery rate estimates
are
adjusted periodically as additional information becomes available and as related
technology changes.
Asset
Impairments. We evaluate long-term assets to be held and used for impairment
when events or changes in economic circumstances indicate the carrying amount
of
such assets may not be recoverable. Goodwill, investments and our identifiable
intangible assets are evaluated at least annually for impairment. Evaluations
are based on business plans developed using a time horizon generally reflective
of the historical, moving average for the full price cycle. We use estimates
of
future pre-tax, undiscounted net cash flows of the related asset or asset
grouping over the remaining life to measure whether the assets are recoverable
and measure any impairment by reference to fair value. Fair value is based
on
observable market prices. In the absence of observable market prices, fair
value
is generally estimated using estimated after-tax, discounted net cash flows.
Should estimates of future copper, gold and molybdenum prices decrease,
impairment to the carrying value of our long-term assets may
result.
Deferred
Taxes. In preparing our consolidated financial statements, we recognize our
consolidated provision for income taxes based on our estimated annualized tax
rate and adjust the tax provision accordingly. For each jurisdiction, we
estimate the actual amount of taxes currently payable or receivable as well
as
deferred tax assets and liabilities attributable to temporary differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which these temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of
a
change in tax rates and laws is recognized in income in the period in which
such
changes are enacted.
A
valuation allowance is provided for those deferred tax assets for which it
is
more likely than not that the related benefits will not be realized. In
determining the amount of the valuation allowance, we consider estimated future
taxable income as well as feasible tax planning strategies in each jurisdiction.
If we determine that we will not realize all or a portion of our deferred tax
assets, we will increase our valuation allowance with a charge to income tax
expense. Conversely, if we determine that we will ultimately be able to realize
all or a portion of the related benefits for which a valuation allowance has
been provided, all or a portion of the related valuation allowance will be
reduced with a credit to income tax expense.
Environmental
Obligations. Our mining, exploration, production and historical operating
activities are subject to stringent laws and regulations governing the
protection of the environment and compliance with those laws requires
significant expenditures. Environmental expenditures for closed facilities
and
closed portions of operating facilities are expensed or capitalized depending
upon their future economic benefits. The general guidance provided by U.S.
GAAP
requires that liabilities for contingencies be recorded when it is probable
that
a liability has been incurred and that the amount can be reasonably estimated.
Refer to Note 3 for further discussion of our accounting policy for
environmental expenditures.
Significant
management judgment and estimates are required to comply with this guidance.
Accordingly, management reviews changes in facts and circumstances associated
with the environmental obligations. Judgments and estimates are based upon
available facts, existing technology, and current laws and regulations, and
take
into consideration reasonably possible outcomes. The estimates can change
substantially as additional information becomes available regarding the nature
or extent of site contamination, required remediation methods, and actions
by or
against governmental agencies or private parties.
At
June
30, 2007, environmental reserves recorded in the condensed consolidated balance
sheet totaled $360 million, which reflected the fair value of the estimated
obligations for environmental liabilities attributed to Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA) or analogous
state programs and for estimated future costs associated with environmental
matters at closed facilities and closed portions of certain facilities. At
June
30, 2007, the cost range for reasonably possible outcomes for all reservable
remediation sites, on an undiscounted and unescalated basis, was $335 million
to
$640 million.
We
have a
number of sites for which an environmental reserve has not been recorded because
it is not probable that a successful claim will be made against us for those
sites, but for which there is a reasonably possible likelihood of an
environmental remediation liability. The liabilities arising from these
potential environmental obligations may be material to the operating results
of
any quarter or year in the future. However, we believe any liability arising
from potential environmental obligations is not likely to have a material
adverse effect on our liquidity or financial position.
Purchase
Accounting. We accounted for the acquisition of Phelps Dodge in accordance
with the purchase method of accounting, with FCX as the accounting acquirer.
In
accordance with the purchase method of accounting, the price paid was determined
at the date of the public announcement of the transaction and has been allocated
to the assets acquired and liabilities assumed based upon their estimated fair
values on the closing date of March 19, 2007. The excess of the purchase price
over the fair value of the net assets acquired represents goodwill that will
be
allocated to reporting units and subject to annual impairment
testing.
The
June
30, 2007, preliminary purchase price allocation represents the estimated fair
values of assets acquired and liabilities assumed based on internal estimates
and are subject to change as we complete our analysis. Refer to Note 2 for
a
summary of the purchase price allocation as of June 30, 2007. Upon finalization
of the purchase price allocation, any resulting goodwill will be allocated
to
the reporting units, which could range from individual mines to groups of mines
in each regional business unit.
Table of Contents
CONSOLIDATED
RESULTS
A
summary
of comparative results for the three and six-month periods ended June 30, 2007
and 2006, follows:
|
|
|
Six
Months Ended
|
|
|
Second
Quarter
|
|
June
30,
|
|
|
2007a
|
|
2006
|
|
2007b
|
|
2006
|
|
Revenues
(in millions)
|
$
|
5,807
|
c
|
$
|
1,426
|
|
$
|
8,110
|
c
|
$
|
2,512
|
g
|
Operating
income (in millions)
|
$
|
2,399
|
c
|
$
|
739
|
|
$
|
3,578
|
c
|
$
|
1,271
|
g
|
Net
income applicable to common stock (in millions)f
|
$
|
1,104
|
c,d
|
$
|
367
|
|
$
|
1,580
|
c,d
|
$
|
619
|
g
|
Diluted
net income per share of common stock
|
$
|
2.62
|
c,d,e
|
$
|
1.74
|
|
$
|
4.80
|
c,d,e
|
$
|
2.97
|
g
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
from Mines
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
share (millions of recoverable pounds)
|
|
1,010
|
|
|
220
|
|
|
1,530
|
|
|
445
|
|
Average
realized price per pound
|
$
|
3.33
|
c
|
$
|
3.33
|
|
$
|
3.32
|
c
|
$
|
3.27
|
|
Gold
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
share (thousands of recoverable ounces)
|
|
913
|
|
|
278
|
|
|
1,869
|
|
|
750
|
|
Average
realized price per ounce
|
$
|
658.36
|
|
$
|
613.77
|
|
$
|
659.51
|
|
$
|
492.73
|
g
|
Molybdenum
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
share (millions of recoverable pounds)
|
|
15
|
|
|
N/A
|
|
|
17
|
|
|
N/A
|
|
Average
realized price per pound
|
$
|
24.83
|
|
|
N/A
|
|
$
|
24.68
|
|
|
N/A
|
|
a.
|
A
summary of the key components contributing to the consolidated results
for
the second quarter of 2007 follows (in
millions):
|
|
|
|
Operating
|
|
|
|
|
Revenues
|
|
Income
|
|
Net
Income
|
|
FCX,
excluding Phelps Dodge
|
$
|
2,035
|
|
$
|
1,269
|
|
$
|
471
|
|
Phelps
Dodge results
|
|
3,772
|
|
|
1,573
|
|
|
935
|
|
Purchase
accounting impact:
|
|
|
|
|
|
|
|
|
|
Inventories,
including mill and leach stockpiles
|
|
–
|
|
|
(268
|
)
|
|
(168
|
)
|
Property,
plant, equipment and development costs
|
|
–
|
|
|
(186
|
)
|
|
(117
|
)
|
Other
|
|
–
|
|
|
11
|
|
|
(17
|
)
|
Consolidated
|
$
|
5,807
|
|
$
|
2,399
|
|
$
|
1,104
|
|
Phelps
Dodge’s sales from its mines totaled 676 million pounds of copper, 33 thousand
ounces of gold and 15 million pounds of molybdenum in second-quarter
2007.
b.
|
The
six months ended June 30, 2007, include the operations of Phelps
Dodge
beginning March 20, 2007. A summary of the key components contributing
to
the consolidated results for the six months ended June 30, 2007,
follows
(in millions):
|
|
|
|
Operating
|
|
|
|
|
Revenues
|
|
Income
|
|
Net
Income
|
|
FCX,
excluding Phelps Dodge
|
$
|
3,822
|
|
$
|
2,355
|
|
$
|
923
|
|
Phelps
Dodge results
|
|
4,288
|
|
|
1,790
|
|
|
1,038
|
|
Purchase
accounting impact:
|
|
|
|
|
|
|
|
|
|
Inventories,
including mill and leach stockpiles
|
|
–
|
|
|
(364
|
)
|
|
(229
|
)
|
Property,
plant, equipment and development costs
|
|
–
|
|
|
(214
|
)
|
|
(135
|
)
|
Other
|
|
–
|
|
|
11
|
|
|
(17
|
)
|
Consolidated
|
$
|
8,110
|
|
$
|
3,578
|
|
$
|
1,580
|
|
Phelps
Dodge’s sales from its mines totaled 779 million pounds of copper, 42 thousand
ounces of gold and 17 million pounds of molybdenum for the first six months
of
2007.
c.
|
Includes
charges to revenues for mark-to-market accounting adjustments on
Phelps
Dodge’s 2007 copper price protection program totaling $130 million ($80
million to net income or $0.18 per share) and a reduction in average
realized prices of $0.13 per pound in second-quarter 2007, and $168
|
million
($103 million to net income or $0.30 per
share) and a reduction in average realized prices of $0.11 per pound for the
first six months of 2007.
d.
|
Includes
net losses on early extinguishment of debt totaling $47 million ($35
million to net income or $0.08 per share) in second-quarter 2007
and $135
million ($110 million to net income or $0.32 per share) for the first
six
months of 2007 related to premiums paid and the accelerated recognition
of
deferred financing costs associated with prepayments on our senior
credit
facility and the May 2007 redemption of our 10⅛% Senior
Notes.
|
e.
|
On
March 19, 2007, we issued 136.9 million common shares to acquire
Phelps
Dodge, and on March 28, 2007, we sold 47.15 million common shares.
Common
shares outstanding at June 30, 2007, totaled 382 million shares.
Assuming
conversion of all our convertible instruments, total potential common
shares outstanding would be 444 million shares at June 30,
2007.
|
f.
|
After
dividends on preferred stock.
|
g.
|
Includes
a loss on redemption of our Gold-Denominated Preferred Stock, Series
II
totaling $69 million ($37 million to net income or $0.17 per share)
and a
reduction in average realized prices of $92.61 per ounce for the
revenue
adjustment relating to the
redemption.
|
Outlook
Below
is
a summary of our currently projected consolidated sales volumes for 2007 and
for
third-quarter 2007. Actual consolidated sales volumes for 2007 include Phelps
Dodge sales volumes beginning March 20, 2007, and pro forma sales volumes for
2007 include Phelps Dodge sales volumes prior to the acquisition.
|
Full
Year 2007
|
|
Third-Quarter
|
|
Actual
|
|
Pro
forma
|
|
2007
|
Copper
(in billions of recoverable pounds)
|
|
3.4
|
|
|
3.9
|
|
|
900
|
Gold
(in thousands of recoverable ounces)
|
|
2,100
|
|
|
2,100
|
|
|
125
|
Molybdenum
(in millions of recoverable pounds)
|
|
51
|
|
|
68
|
|
|
16
|
The
achievement of the above sales estimates will be dependent, among other factors,
on the achievement of targeted mining rates and expansion plans, the successful
operation of production facilities, the impact of weather conditions and other
factors.
Consolidated
revenues and net income vary significantly with fluctuations in the market
prices of copper, gold and molybdenum, sales volumes and other factors. Based
on
projected consolidated copper sales volumes (excluding purchased copper) for
the
remainder of 2007 (approximately 1.8 billion pounds) and provisionally priced
sales at June 30, 2007, and assuming an average price of $3.25 per pound of
copper, each $0.20 per pound change in the average price realized in the balance
of the year would have an approximate $480 million impact on our 2007 revenues
and an approximate $225 million impact on our 2007 net income, which includes
the impact associated with the 2007 copper price protection program. Based
on
projected consolidated gold sales for the remainder of 2007 (250 thousand
ounces), a $50 per ounce change in the average price realized would have an
approximate $12 million impact on our 2007 revenues and an approximate $7
million impact on our 2007 net income. Based on projected consolidated
molybdenum sales for the remainder of 2007 (34 million pounds), a $2 per pound
change in the average price realized would have an approximate $40 million
impact on our 2007 revenues and an approximate $28 million impact on our 2007
net income.
Revenues
Consolidated
revenues include PT Freeport Indonesia’s sale of copper concentrates, which also
contain significant quantities of gold and silver, the sale by Atlantic Copper
of copper anodes, copper cathodes, and gold in anodes and slimes, and, beginning
March 20, 2007, the sales of copper, gold, molybdenum and other metals and
metal-related products by Phelps Dodge. Excluding additional revenues associated
with Phelps Dodge’s operations ($3.8 billion), revenues for the second quarter
of 2007 were approximately 43 percent higher than for the second quarter of
2006, reflecting higher copper and gold prices and higher sales volumes in
2007.
Higher sales volumes were primarily because PT Freeport Indonesia mined higher
grade ore in the second quarter of 2007, compared with the second quarter of
2006.
Excluding
additional revenues associated with Phelps Dodge’s operations ($4.3 billion),
revenues for the first six months of 2007, were approximately 52 percent higher
than for the comparable 2006 period, reflecting higher copper and gold prices
and higher sales volumes in 2007. Higher sales volumes were primarily because
PT
Freeport Indonesia mined higher grade ore for the first six months of 2007,
compared with the first six months of 2006.
Substantially
all of our concentrate sales contracts provide final copper pricing in a
specified future period based on prices quoted on the LME. We record revenues
and invoice customers based on LME prices at the time of shipment. Under
accounting rules, these terms create an “embedded derivative” in our concentrate
sales contracts which must be adjusted to fair value through earnings each
period until the date of final pricing. As a result, revenues include net
additions for adjustments to the fair value of embedded copper derivatives
in
concentrate sales contracts of $146 million in the second quarter of 2007 and
$254 million for the first six months of 2007, compared with net additions
of
$174 million in the second quarter of 2006 and $304 million for the first six
months of 2006.
At
June
30, 2007, our consolidated copper sales included 490 million pounds of copper
priced at an average of $3.45 per pound and subject to final pricing over the
next several months. We estimate that each $0.05 change in the price realized
from the June 30, 2007, pricing would impact our 2007 net income by
approximately $15 million.
Adjustments
to concentrate sales recognized in prior quarters increased second-quarter
2007
revenues by $180 million ($95 million to net income or $0.21 per share),
compared with an increase of $147 million ($78 million to net income or $0.35
per share) in the second quarter of 2006. Adjustments to concentrate sales
recognized in prior quarters increased revenues for the first six months of
2007
by $178 million ($94 million to net income or $0.27 per share), compared with
an
increase of $138 million ($73 million to net income or $0.33 per share) for
the
first six months of 2006.
On
limited past occasions, in response to market conditions, we have entered into
copper and gold price protection contracts for a portion of our expected future
mine production to mitigate the risk of adverse price fluctuations. We currently
have a very small quantity of gold production subject to price protection
contracts acquired in the Phelps Dodge transaction. Also, in connection with
the
acquisition of Phelps Dodge, FCX assumed Phelps Dodge’s 2007 copper price
protection program, which resulted in charges to revenues for mark-to-market
accounting adjustments totaling $130 million ($80 million to net income or
$0.18
per share) for the second quarter of 2007 and $168 million ($103 million to
net
income or $0.30 per share) from March 20, 2007, through June 30, 2007. Refer
to
Note 15 and “Contractual Obligations - Hedging Activities” for further
discussion of the 2007 copper price protection program. FCX does not currently
intend to enter into similar programs in the future.
In
February 2006, we redeemed our Gold-Denominated Preferred Stock, Series II,
which resulted in a charge to revenues of $69 million ($37 million to net income
or $0.17 per share).
Production
and Delivery Costs
Consolidated
production and delivery costs were higher in the second quarter of 2007 at
$2.8
billion compared with $605 million for the second quarter of 2006. Excluding
additional production and delivery costs associated with the Phelps Dodge
operations ($2.2 billion, which included $257 million primarily related to
purchase accounting impacts for higher values of metal inventories and
stockpiles), the increase of $35 million primarily reflects higher PT Freeport
Indonesia costs mostly related to higher sales volumes in 2007 (refer to
“Indonesian Mining” for further discussion).
Consolidated
production and delivery costs were higher for the first six months of 2007
at
approximately $3.8 billion compared with approximately $1.1 billion for the
first six months of 2006. Excluding additional production and delivery costs
associated with the Phelps Dodge operations ($2.6 billion, which included $353
million primarily related to purchase accounting impacts for higher values
of
metal inventories and stockpiles), the increase of $140 million primarily
reflects higher PT Freeport Indonesia costs mostly related to higher sales
volumes in 2007 (refer to “Indonesian Mining” for further
discussion).
Energy
Costs. Energy, including electricity, diesel fuel, coal and natural gas,
represents a significant portion of our production and delivery costs. To
moderate the impact of increasing energy costs, we have multi-year energy
contracts in place, primarily at our North American operations. We will continue
to review our energy costs and consider appropriate hedging strategies. We
may
continue to experience high energy costs if prices remain at the levels
experienced in 2006.
We
own a
one-third interest in the Luna Energy Facility (Luna) located near Deming,
New
Mexico, which became operational in April 2006. Public Service Company of New
Mexico (PNM), a subsidiary of PNM Resources, and Tucson Electric Power, a
subsidiary of Unisource Energy Corporation, partnered in the purchase of Luna,
each owning a one-third interest and each responsible for one-third of the
costs
and expenses. PNM is the operating partner of the plant. Approximately 190
megawatts, or one-third of the plant’s electricity, is available to satisfy a
significant portion of the electricity demands of our New Mexico and Arizona
operations. Electricity in excess of our demand is sold on the wholesale market.
Our interest in this efficient, low-cost plant is expected to continue to
stabilize our southwest North American mining operations’ energy costs and
increase the reliability of our energy supply.
Cost
Structure. We continue to experience increases in our worldwide copper
production costs. One factor affecting the increase in average copper production
costs is Phelps Dodge’s previous restart of certain higher-cost properties in
response to strong demand for copper. Costs are also affected by the prices
of
commodities, equipment consumed or used in our operations and labor costs.
In
addition, our cost structure in certain of our North American operations is
higher than that of some mines located outside the U.S. This is because of
lower
ore grades, higher labor costs (including pension and health-care costs) and,
in
some cases, stricter regulatory requirements.
Underground
operations are more sensitive to labor costs than large-scale open pit and
process operations. We are developing large-scale underground operations in
Indonesia. Increasing labor costs without corresponding productivity gains
will
adversely impact our current and future underground development and
operations.
Depreciation,
Depletion and Amortization
Consolidated
depreciation, depletion and amortization expense increased to $379 million
in
the second quarter of 2007 compared with $44 million in the second quarter
of
2006. Excluding additional depreciation, depletion and amortization associated
with the Phelps Dodge operations ($311 million, which included $186 million
related to purchase accounting impacts for the increase in the carrying value
of
Phelps Dodge’s property, plant and equipment), the remaining $24 million
increase was primarily related to higher copper sales volumes at PT Freeport
Indonesia during the second quarter of 2007, which resulted in higher
depreciation, depletion and amortization expense under the unit-of-production
method.
Consolidated
depreciation, depletion and amortization expense increased to $495 million
for
the first six months of 2007 compared with $87 million for the first six months
of 2006. Excluding additional depreciation, depletion and amortization
associated with the Phelps Dodge operations ($354 million, which included $214
million related to purchase accounting impacts for the increase in the carrying
value of Phelps Dodge’s property, plant and equipment), the remaining $54
million increase was primarily related to higher copper sales volumes at PT
Freeport Indonesia during the first six months of 2007, which resulted in higher
depreciation, depletion and amortization expense under the unit-of-production
method.
Selling,
General and Administrative Expense
Consolidated
selling, general and administrative expense increased to $139 million in
second-quarter 2007 compared with $35 million in second-quarter 2006. The
increase of $104 million primarily reflects additional costs relating to the
acquisition of Phelps Dodge ($60 million) and higher stock-based compensation
costs related to second-quarter 2007 stock option grants ($25
million).
Consolidated
selling, general and administrative expense increased to $188 million for the
first six months of 2007, compared with $66 million for the first six months
of
2006. The increase of $122 million primarily reflects additional costs relating
to the acquisition of Phelps Dodge ($68 million) and higher stock-based
compensation costs related to second-quarter 2007 stock option grants ($25
million).
Interest
Expense, Net
Total
consolidated interest cost (before capitalization) increased to $232 million
in
second-quarter 2007 and $291 million for the first six months of 2007, compared
with $23 million in the second quarter of 2006 and $48 million for the first
six
months of 2006. The increase in interest expense in the 2007 periods primarily
relates to the addition of debt incurred in connection with the acquisition
of
Phelps Dodge. Refer to Note 8 and “Capital Resources and Liquidity – Financing
Activities” for further discussion of the debt incurred in connection with the
acquisition. We expect our interest cost for 2007 to be significantly higher
compared with 2006 because of the acquisition debt.
Capitalized
interest totaled $50 million in the second quarter of 2007 and $57 million
for
the first six months of 2007, compared with $2 million in the second quarter
of
2006 and $4 million for the first six months of 2006. The increase in
capitalized interest in 2007 primarily relates to development projects at
Safford and Tenke Fungurume.
Losses
on Early Extinguishment and Conversion of Debt, Net
For
the
first six months of 2007, we recorded net charges totaling $135 million ($110
million to net income or $0.32 per share) for early extinguishment of debt.
These net charges include $88 million ($75 million to net income) recorded
in
first-quarter 2007 and $30 million ($25 million to net income) recorded in
second-quarter 2007 related to the accelerated recognition of deferred financing
costs associated with early repayment of amounts under the $11.5 billion senior
credit facility. Also included is $17 million ($10 million to net income)
recorded in second-quarter 2007 related to premiums paid and the accelerated
recognition of deferred financing costs associated with the May 2007 redemption
of our 10⅛% Senior Notes.
During
the first six months of 2006, we recorded net charges totaling approximately
$2
million ($2 million to net income or $0.01 per share) for early extinguishment
and conversion of debt associated with debt reduction activities, including
privately negotiated transactions to induce conversion of $16 million of our
7%
Convertible Senior Notes into FCX common stock and open-market purchases of
$11.5 million of our 10⅛% Senior Notes.
Gains
on Sales of Assets
Gains
on
sales of assets totaled $38 million for both the second quarter and first six
months of 2007 primarily associated with the sale of marketable securities.
For
both the second quarter and first six months of 2006 gains on sales of assets
totaled $9 million.
Other
Income, Net
Other
income, net, increased to $43 million in second-quarter 2007 and $66 million
for
the first six months of 2007, compared with $6 million in the second quarter
of
2006 and $11 million for the first six months of 2006. The increase in other
income in the 2007 periods primarily relates to higher interest
income.
Interest
income totaled $41 million in the second quarter of 2007 and $63 million for
the
first six months of 2007, including interest on cash acquired from Phelps Dodge.
Interest income totaled $5 million in the second quarter of 2006 and $12 million
for the first six months of 2006. The overall increase in interest income was
related to higher cash balances.
Provision
for Income Taxes
Our
second-quarter 2007 income tax provision included taxes on international
operations ($639 million) and U.S. taxes ($138 million). FCX’s income tax
provision for the first six months of 2007 included taxes on international
operations ($1.1 billion) and U.S. taxes ($92 million).
The
difference between FCX’s consolidated effective income tax rate of approximately
37 percent for the first six months of 2007 and the U.S. federal statutory
rate
of 35 percent primarily was attributable to (i) withholding taxes incurred
in
connection with earnings from Indonesian and South American mining operations,
(ii) income taxes incurred by PT Indocopper Investama, a wholly owned subsidiary
of FCX
whose
only asset is its investment in PT Freeport Indonesia, and (iii) a U.S. foreign
tax credit limitation, partly offset by a U.S. benefit for percentage
depletion.
FCX’s
income tax provision for second-quarter 2006 ($310 million) and for the first
six months of 2006 ($532 million) primarily reflected taxes on PT Freeport
Indonesia’s earnings. The difference between FCX’s effective income tax rate of
approximately 43 percent for the first six months of 2006 and PT Freeport
Indonesia’s Contract of Work rate of 35 percent primarily was attributable to
withholding taxes incurred in connection with earnings from Indonesian mining
operations and income taxes incurred by PT Indocopper Investama.
A
summary
of the significant components in the calculation of our consolidated provision
for income taxes for the first six months of 2007 follows (in millions, except
percentages):
|
|
|
Effective
|
|
Provision
for
|
|
|
Incomea
|
|
Tax
Rate
|
|
Income
Tax
|
|
North
America
|
|
|
|
|
|
|
|
|
|
Income
before taxes and minority interests
|
$
|
408
|
|
|
30%
|
|
$
|
122
|
|
Purchase
accounting adjustments
|
|
(434
|
)
|
|
39%
|
|
|
(169
|
)
|
Subtotal
|
|
(26
|
)
|
|
|
|
|
(47
|
)
|
South
America
|
|
|
|
|
|
|
|
|
|
Income
before taxes and minority interest
|
|
1,076
|
|
|
35%
|
|
|
374
|
|
Purchase
accounting adjustments
|
|
(156
|
)
|
|
35%
|
|
|
(54
|
)
|
Subtotal
|
|
920
|
|
|
|
|
|
320
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
Income
before taxes and minority interests
|
|
2,365
|
|
|
43%
|
|
|
1,021
|
|
Other
|
|
|
|
|
|
|
|
|
|
Income
before taxes and minority interests
|
|
66
|
|
|
31%
|
|
|
21
|
|
Annualized
rate adjustmentb
|
|
N/A
|
|
|
N/A
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
Consolidated
totals
|
$
|
3,325
|
|
|
37%
|
|
$
|
1,237
|
|
a.
|
Represents
income before income taxes and minority
interests.
|
b.
|
In
accordance with APB Opinion No. 28, “Interim Financial Reporting,” and
FASB Interpretation No. 18, “Accounting for Income Taxes in Interim
Periods – an interpretation of APB Opinion No. 28,” (FIN 18) we adjust our
interim provision for income taxes to equal our estimated annualized
tax
rate, currently 37 percent.
|
Refer
to
Note 9 for further discussion of income taxes.
Minority
Interests in Net Income of Consolidated Subsidiaries
Minority
interests in net income of consolidated subsidiaries increased to $313 million
in the second quarter of 2007, compared with $42 million in the second quarter
of 2006. The increase of $271 million primarily was attributable to additional
amounts associated with our South American mining operations ($226 million),
along with an increase related to higher earnings at PT Freeport Indonesia
($39
million).
Minority
interests in net income of consolidated subsidiaries increased to $427 million
for the first six months of 2007, compared with $69 million for the first six
months of 2006. The increase of $358 million primarily was attributable to
additional amounts associated with our South American mining operations ($273
million), along with an increase related to higher earnings at PT Freeport
Indonesia ($78 million).
Table of Contents
RESULTS
OF OPERATIONS
Following
the acquisition of Phelps Dodge, our business consists of three primary
operating divisions –North American mining, South American mining and Indonesian
mining. Refer to “Mining Operations” for further discussion of the operations
associated with these divisions.
A
summary
of revenues by division, which includes the results of Phelps Dodge beginning
March 20, 2007, follows (in millions):
|
Second-Quarter
2007
|
|
Second-Quarter
2006
|
|
|
Unaffiliated
|
|
|
Inter-
|
|
|
|
|
Unaffiliated
|
|
|
Inter-
|
|
|
|
|
|
Customers
|
|
segment
|
|
Total
|
|
Customers
|
|
segment
|
|
Total
|
|
North
American mininga
|
$
|
2,679
|
|
$
|
241
|
|
$
|
2,920
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
South
American miningb
|
|
729
|
|
|
503
|
|
|
1,232
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Indonesian
mining
|
|
1,415
|
|
|
347
|
|
|
1,762
|
|
|
832
|
|
|
203
|
|
|
1,035
|
|
Atlantic
Copper smelting & refining
|
|
619
|
|
|
–
|
|
|
619
|
|
|
593
|
|
|
–
|
|
|
593
|
|
PDIC
|
|
364
|
|
|
–
|
|
|
364
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Corporate,
other & eliminations
|
|
1
|
|
|
(1,091
|
)
|
|
(1,090
|
)
|
|
1
|
|
|
(203
|
)
|
|
(202
|
)
|
Consolidated
revenues
|
$
|
5,807
|
|
$
|
–
|
|
$
|
5,807
|
|
$
|
1,426
|
|
$
|
–
|
|
$
|
1,426
|
|
|
Six
Months Ended June 30,
|
|
|
2007
|
|
2006
|
|
|
Unaffiliated
|
|
|
Inter-
|
|
|
|
|
Unaffiliated
|
|
|
Inter-
|
|
|
|
|
|
Customers
|
|
segment
|
|
Total
|
|
Customers
|
|
segment
|
|
Total
|
|
North
American mininga
|
$
|
2,998
|
|
$
|
265
|
|
$
|
3,263
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
South
American miningb
|
|
869
|
|
|
625
|
|
|
1,494
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Indonesian
mining
|
|
2,747
|
|
|
724
|
|
|
3,471
|
|
|
1,400
|
|
|
432
|
|
|
1,832
|
|
Atlantic
Copper smelting & refining
|
|
1,073
|
|
|
–
|
|
|
1,073
|
|
|
1,109
|
|
|
–
|
|
|
1,109
|
|
PDIC
|
|
421
|
|
|
–
|
|
|
421
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Corporate,
other & eliminations
|
|
2
|
|
|
(1,614
|
)
|
|
(1,612
|
)
|
|
3
|
|
|
(432
|
)
|
|
(429
|
)
|
Consolidated
revenues
|
$
|
8,110
|
|
$
|
–
|
|
$
|
8,110
|
|
$
|
2,512
|
|
$
|
–
|
|
$
|
2,512
|
|
a.
|
Includes
our operating mines at Morenci, Bagdad, Sierrita, Chino and Tyrone.
Also
includes our Manufacturing and Primary Molybdenum operations (refer
to
Note 16).
|
b.
|
Includes
our operating mines at Candelaria, Ojos del Salado, El Abra and Cerro
Verde (refer to Note 16).
|
Intersegment
revenues of the individual North American mines represent an internal allocation
based on sales to unaffiliated customers and realized copper prices.
Intersegment sales by the Indonesian and South American mines are based upon
arms-length prices at the time of the sale. Intersegment sales of any individual
mine may not be reflective of the actual prices ultimately realized due to
a
variety of factors, including additional processing, timing of sales to
unaffiliated customers and transportation premiums.
In
addition to the allocation of revenues, we allocate certain operating costs,
expenses and capital to the operating divisions and individual segments that
may
not be reflective of market conditions. We do not allocate all costs and
expenses applicable to a mine or operation from the operating division or
corporate offices. Accordingly, any division or segment information reflects
management determinations that may not be indicative of actual financial
performance of each operating division or segment as if it was an independent
entity.
A
summary
of operating income (loss) by operating division, which includes the results
of
Phelps Dodge beginning March 20, 2007, follows (in millions):
|
Second
Quarter
|
|
Six
Months Ended June 30,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
North
American mining
|
$
|
471
|
|
$
|
–
|
|
$
|
447
|
|
$
|
–
|
|
South
American mining
|
|
793
|
|
|
–
|
|
|
911
|
|
|
–
|
|
Indonesian
mining
|
|
1,271
|
|
|
664
|
|
|
2,554
|
|
|
1,058
|
|
Atlantic
Copper smelting & refining
|
|
(4
|
)
|
|
22
|
|
|
9
|
|
|
35
|
|
PDIC
|
|
45
|
|
|
–
|
|
|
52
|
|
|
–
|
|
Corporate,
other & eliminations
|
|
(177
|
)
|
|
53
|
|
|
(395
|
)
|
|
178
|
|
Consolidated
operating income
|
$
|
2,399
|
a
|
$
|
739
|
|
$
|
3,578
|
a
|
$
|
1,271
|
|
a.
|
Operating
income includes purchase accounting adjustments totaling $443 million
for
the second quarter of 2007 and $567 million for the first six months
of
2007 (refer to Note 16). These adjustments primarily relate to the
impacts
of increases in the carrying values of Phelps Dodge’s metal inventories
(including mill and leach stockpiles) and property, plant and
equipment.
|
MINING
OPERATIONS
North
American Mining
Our
North
American mining operations comprise copper operations from mining through rod
production, molybdenum operations from mining through conversion to chemical and
metallurgical products, marketing and sales. Through our wholly owned
subsidiary, Phelps Dodge, we have five operating copper mines in North America
–
Morenci, Bagdad, Sierrita, Chino and Tyrone.
The
North
American mining division includes one reportable copper production segment
(Morenci), and also includes as reportable segments, Manufacturing and Primary
Molybdenum. Following is further discussion of the reportable segments of the
North American mining division:
Morenci.
The Morenci open-pit mine, located in southeastern Arizona, primarily produces
electrowon copper cathodes and copper concentrates. In addition to copper,
Morenci produces molybdenum. We own an 85 percent undivided interest in Morenci,
an unincorporated joint venture, and apply the proportionate consolidation
method of accounting. The remaining 15 percent is owned by Sumitomo Metal Mining
Arizona, Inc., a jointly owned subsidiary of Sumitomo Metal Mining Co., Ltd.
and
Sumitomo Corporation. Each partner takes in kind its share of
production.
The
mill
restart at Morenci is ramping-up with the achievement of operating capacity
expected in third-quarter 2007. The project, which includes construction of
a
concentrate-leach, direct-electrowinning facility, is expected to provide an
incremental 115 million pounds of copper per year. The facility uses Phelps
Dodge’s proprietary medium-temperature, pressure-leaching and
direct-electrowinning technology, which will enhance cost savings by processing
concentrates on-site instead of shipping concentrates to smelters for treatment
and by providing acid for leaching operations. FCX’s share of the concentrate
produced by Morenci will continue to be treated at the smelter located in Miami,
Arizona, until the Morenci mill facility is completed.
Manufacturing.
The Manufacturing segment consists of copper conversion facilities, including
our smelter, refinery, rod mills and specialty copper products facility. This
segment processes copper produced at our North American mines and copper
purchased from others into copper anode, cathode, rod and custom copper shapes.
The Miami smelter is the most significant source of sulfuric acid for the
various North American leaching operations. In addition, at times it smelts
and
refines copper and produces copper rod and shapes for customers on a toll basis.
Toll arrangements require the tolling customer to deliver appropriate
copper-bearing material to our facilities for processing into a product that
is
returned to the customer. The customer pays us for processing their material
into the specified products.
Primary
Molybdenum. The Primary Molybdenum segment includes our wholly owned
Henderson and Climax molybdenum mines in Colorado, related conversion facilities
and a technology center. This segment is an integrated producer of molybdenum,
with mining, roasting and processing facilities that produce high-purity,
molybdenum-based chemicals, molybdenum metal powder and metallurgical products,
which are sold to customers around the world. In addition, at times this segment
roasts and/or processes material on a toll basis. Toll arrangements require
the
tolling customer to deliver appropriate molybdenum-bearing material to our
facilities for processing into a product that is returned to the customer.
The
customer pays us for processing their material into the specified products.
This
segment also includes a technology center whose primary activity is developing
new engineered products and applications.
The
Henderson underground mine produces high-purity, chemical-grade molybdenum
concentrates, which are further processed into value-added molybdenum chemical
products.
The
Climax mine has been on care-and-maintenance status since 1995. Prior to its
acquisition by FCX, Phelps Dodge had conditionally approved the restart of
the
Climax mine. Final approval is contingent upon completion of a favorable
feasibility study for a new mill (which is expected to be complete in the third
quarter of 2007) and obtaining all required operating permits and regulatory
approvals. A pre-feasibility study indicates that the open-pit mine could
annually produce approximately 20 million to 30 million pounds of molybdenum
contained in high-quality concentrates. We are currently updating our capital
estimate and other aspects of the project in connection with the feasibility
study. Assuming a favorable feasibility study and market conditions, and the
timely receipt of permits, the Climax mine could resume operation by 2010.
The
feasibility study is expected to confirm the restart of Climax as an attractive
economic project. Consequently, in the second quarter of 2007 we began to order
long lead-time equipment.
Other
North American mining operations. Although not considered reportable
segments, other North American mining operations include our other southwestern
U.S. copper mines – Bagdad, Sierrita, Chino, Cobre, Tyrone, Miami, Bisbee and
Tohono. In addition to copper, the Bagdad, Sierrita and Chino mines produce
molybdenum, gold, silver and rhenium. Other North American mining operations
also include the Safford copper mine, which is currently under development
(refer to further discussion below), a sales company, which functions as an
agent to purchase and sell copper from the North American mines and the
Manufacturing segment and also purchases and sells any copper not sold by our
South American mines to third parties, and other ancillary
operations.
The
Safford copper mine is expected to produce ore from two open-pit copper mines
located in southeastern Arizona and includes a solution
extraction/electrowinning facility, which is scheduled for start-up in early
2008. Construction commenced in August 2006 and is expected to be substantially
complete in late 2007, with ramp-up to full production of approximately 240
million pounds per year in the first half of 2008. The Safford mining complex
will require a total capital investment of approximately $580 million, with
over
60 percent spent as of June 30, 2007 (including amounts spent prior to the
acquisition of Phelps Dodge). For the remainder of 2007, we expect additional
spending of approximately $160 million associated with the development of the
Safford mining complex.
North
American mining added $2.9 billion in revenues and $471 million of operating
income to our second-quarter 2007 results, and $3.3 billion in revenues and
$447
million of operating income to our results for the first six months of 2007,
including charges to revenues for mark-to-market accounting adjustments on
Phelps Dodge’s 2007 copper price protection program totaling $130 million for
second-quarter 2007 and $168 million for the first six months of 2007. Refer
to
Note 15 and “Contractual Obligations – Hedging Activities” for further
discussion of Phelps Dodge’s 2007 copper price protection program.
The
following pro forma discussion of our North American mining operations covers
the full three and six-month periods ending June 30, 2007 and 2006, including
periods prior to our acquisition of these operations:
Pro
Forma Consolidated
|
|
Second
Quarter
|
|
Six
Months Ended
June
30,
|
|
North
American Mining Operations
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Copper
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
335
|
|
|
334
|
|
|
636
|
|
|
654
|
|
Sales
|
|
|
333
|
|
|
333
|
|
|
640
|
|
|
667
|
|
Average
realized price per pound, excluding hedging
|
|
$
|
3.41
|
|
$
|
3.27
|
|
$
|
3.02
|
|
$
|
2.78
|
|
Average
realized price per pound, including hedginga
|
|
$
|
3.02
|
|
$
|
1.24
|
|
$
|
2.88
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
18
|
|
|
18
|
|
|
35
|
|
|
35
|
|
Sales
|
|
|
15
|
|
|
18
|
|
|
34
|
|
|
35
|
|
Average
realized price per pound
|
|
$
|
24.83
|
|
$
|
21.04
|
|
$
|
23.83
|
|
$
|
21.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solution
extraction/electrowinning (SX/EW) operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leach
ore placed in stockpiles (metric tons per day)
|
|
|
743,100
|
|
|
822,000
|
|
|
710,400
|
|
|
839,400
|
|
Average
copper ore grade (percent)
|
|
|
0.25
|
|
|
0.32
|
|
|
0.27
|
|
|
0.31
|
|
Copper
production (millions of recoverable pounds)
|
|
|
219
|
|
|
233
|
|
|
421
|
|
|
452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
227,300
|
|
|
190,700
|
|
|
218,200
|
|
|
190,600
|
|
Average
ore grade (percent)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
0.34
|
|
|
0.34
|
|
|
0.32
|
|
|
0.33
|
|
Molybdenum
|
|
|
0.03
|
|
|
0.03
|
|
|
0.02
|
|
|
0.03
|
|
Production
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
116
|
|
|
101
|
|
|
215
|
|
|
202
|
|
Molybdenum
(by-product)
|
|
|
8
|
|
|
8
|
|
|
15
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary
molybdenum mine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
25,400
|
|
|
23,300
|
|
|
25,000
|
|
|
23,300
|
|
Average
molybdenum ore grade (percent)
|
|
|
0.22
|
|
|
0.24
|
|
|
0.22
|
|
|
0.23
|
|
Molybdenum
production (millions of recoverable pounds)
|
|
|
10
|
|
|
10
|
|
|
20
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
impact of hedging losses related to Phelps Dodge’s copper price protection
programs.
|
North
American copper sales volumes for the first six months of 2007 were lower than
sales volumes in the comparable 2006 period primarily because of lower ore
grades. Consolidated copper sales from North American operations totaled
approximately 1.3 billion pounds in 2006 and are expected to approximate 1.3
billion pounds for 2007, including sales volumes prior to our acquisition of
Phelps Dodge. In the first six months of 2007, sales from these operations
totaled 640 million pounds of copper, and are expected to approximate 685
million pounds in the second half of 2007.
Consolidated
molybdenum sales volumes for the second quarter of 2007 were lower than in
the
comparable 2006 period primarily because of decreased demand in the chemical
segment, specifically in the catalyst and lubricant markets, as well as in
the
metallurgical segment. Consolidated molybdenum sales volumes totaled 34 million
pounds in the first six months of 2007 and are expected to approximate 34
million pounds in the second half of 2007. Consolidated molybdenum sales volumes
totaled 69 million pounds in 2006 and are expected to approximate 68 million
pounds for 2007, including sales volumes prior to our acquisition of Phelps
Dodge. Approximately 60 percent of our expected 2007 molybdenum production
and
approximately 75 percent of our expected 2008 molybdenum production is committed
for sale throughout the world pursuant to annual or quarterly agreements based
primarily on prevailing market prices one month prior to the time of
sale.
Unit
Net Cash Costs. The following tables summarize the pro forma unit net cash
costs at the North American copper mines for the full three and six-month
periods ended June 30, 2007 and 2006. Henderson, a molybdenum mine, is not
included in the below gross profit per pound calculations – refer to the
separate “Primary Molybdenum (Henderson) Unit Net Cash Cost”
tables.
Gross
Profit per Pound of Copper and Molybdenum/per Ounce of Gold and
Silver
|
|
|
|
Three
Months Ended June 30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Molybdenum
|
a
|
Revenues,
after adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shown
below
|
$
|
3.28
|
|
$
|
3.28
|
|
$
|
738.57
|
|
$
|
14.58
|
|
$
|
28.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
1.46
|
|
|
1.21
|
|
|
255.81
|
|
|
4.65
|
|
|
10.04
|
|
By-product
credits
a
|
|
(0.74
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.09
|
|
|
0.09
|
|
|
54.33
|
|
|
1.32
|
|
|
–
|
|
Unit
net cash costsb
|
|
0.81
|
|
|
1.30
|
|
|
310.14
|
|
|
5.97
|
|
|
10.04
|
|
Depreciation
and amortization
|
|
0.10
|
|
|
0.08
|
|
|
(6.49
|
)
|
|
0.44
|
|
|
1.07
|
|
Noncash
and nonrecurring costs, net
|
|
0.01
|
|
|
0.01
|
|
|
3.09
|
|
|
0.01
|
|
|
0.03
|
|
Total
unit costs
|
|
0.92
|
|
|
1.39
|
|
|
306.74
|
|
|
6.42
|
|
|
11.14
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
(0.27
|
)
|
|
(0.27
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.51
|
)
|
|
(0.01
|
)
|
|
–
|
|
Gross
profit
|
$
|
2.07
|
|
$
|
1.60
|
|
$
|
431.32
|
|
$
|
8.15
|
|
$
|
17.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
327
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
Gold
(in thousand ounces)
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
Silver
(in thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
523
|
|
|
|
|
Molybdenum
(in million pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
a.
|
Molybdenum
by-product credits reflect volumes produced at market-based pricing,
and
also includes tolling revenues at
Sierrita.
|
b.
|
For
a reconciliation of unit net cash costs per pound to production and
delivery costs applicable to sales reported in FCX’s consolidated
financial statements, refer to “Product Revenues and Production
Costs.”
|
Table of Contents
Gross
Profit per Pound of Copper and Molybdenum/per Ounce of Gold and Silver (Pro
Forma)
Three
Months Ended June 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Molybdenum
|
a
|
Revenues,
after adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shown
below
|
$
|
3.82
|
|
$
|
3.82
|
|
$
|
638.64
|
|
$
|
13.84
|
|
$
|
23.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
1.05
|
|
|
0.78
|
|
|
460.72
|
|
|
7.17
|
|
|
11.29
|
|
By-product
credits
a
|
|
(0.58
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.06
|
|
|
0.06
|
|
|
90.49
|
|
|
2.24
|
|
|
–
|
|
Unit
net cash costsb
|
|
0.53
|
|
|
0.84
|
|
|
551.21
|
|
|
9.41
|
|
|
11.29
|
|
Depreciation
and amortization
|
|
0.11
|
|
|
0.08
|
|
|
44.57
|
|
|
0.63
|
|
|
0.91
|
|
Noncash
and nonrecurring costs, net
|
|
0.02
|
|
|
0.02
|
|
|
7.27
|
|
|
0.03
|
|
|
0.04
|
|
Total
unit costs
|
|
0.66
|
|
|
0.94
|
|
|
603.05
|
|
|
10.07
|
|
|
12.24
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
(2.59
|
)
|
|
(2.59
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
–
|
|
|
(0.08
|
)
|
|
–
|
|
Gross
profit
|
$
|
0.56
|
|
$
|
0.28
|
|
$
|
35.59
|
|
$
|
3.69
|
|
$
|
11.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
329
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
Gold
(in thousand ounces)
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
Silver
(in thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
441
|
|
|
|
|
Molybdenum
(in million pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2007
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Molybdenum
|
a
|
Revenues,
after adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shown
below
|
$
|
3.00
|
|
$
|
3.00
|
|
$
|
691.93
|
|
$
|
14.79
|
|
$
|
26.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
1.39
|
|
|
1.19
|
|
|
129.60
|
|
|
4.39
|
|
|
9.90
|
|
By-product
credits
a
|
|
(0.64
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.08
|
|
|
0.08
|
|
|
28.64
|
|
|
1.13
|
|
|
–
|
|
Unit
net cash costsb
|
|
0.83
|
|
|
1.27
|
|
|
158.24
|
|
|
5.52
|
|
|
9.90
|
|
Depreciation
and amortization
|
|
0.12
|
|
|
0.09
|
|
|
(10.31
|
)
|
|
0.42
|
|
|
0.94
|
|
Noncash
and nonrecurring costs, net
|
|
0.01
|
|
|
0.02
|
|
|
1.16
|
|
|
0.01
|
|
|
0.03
|
|
Total
unit costs
|
|
0.96
|
|
|
1.38
|
|
|
149.09
|
|
|
5.95
|
|
|
10.87
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
(0.13
|
)
|
|
(0.13
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.24
|
)
|
|
–
|
|
|
–
|
|
Gross
profit
|
$
|
1.89
|
|
$
|
1.47
|
|
$
|
542.60
|
|
$
|
8.84
|
|
$
|
16.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
628
|
|
|
628
|
|
|
|
|
|
|
|
|
|
|
Gold
(in thousand ounces)
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
Silver
(in thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
818
|
|
|
|
|
Molybdenum
(in million pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
Six
Months Ended June 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Molybdenum
|
a
|
Revenues,
after adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shown
below
|
$
|
3.03
|
|
$
|
3.03
|
|
$
|
586.54
|
|
$
|
11.53
|
|
$
|
24.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
1.02
|
|
|
0.78
|
|
|
391.78
|
|
|
5.64
|
|
|
10.47
|
|
By-product
credits
a
|
|
(0.58
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.07
|
|
|
0.06
|
|
|
94.34
|
|
|
1.92
|
|
|
–
|
|
Unit
net cash costsb
|
|
0.51
|
|
|
0.84
|
|
|
486.12
|
|
|
7.56
|
|
|
10.47
|
|
Depreciation
and amortization
|
|
0.11
|
|
|
0.09
|
|
|
42.52
|
|
|
0.52
|
|
|
0.88
|
|
Noncash
and nonrecurring costs, net
|
|
0.01
|
|
|
0.01
|
|
|
6.78
|
|
|
0.03
|
|
|
0.03
|
|
Total
unit costs
|
|
0.63
|
|
|
0.94
|
|
|
535.42
|
|
|
8.11
|
|
|
11.38
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
(1.86
|
)
|
|
(1.86
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
–
|
|
|
(0.07
|
)
|
|
–
|
|
Gross
profit
|
$
|
0.52
|
|
$
|
0.21
|
|
$
|
51.12
|
|
$
|
3.35
|
|
$
|
12.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
660
|
|
|
660
|
|
|
|
|
|
|
|
|
|
|
Gold
(in thousand ounces)
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
Silver
(in thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
950
|
|
|
|
|
Molybdenum
(in million pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
a.
|
Molybdenum
by-product credits reflect volumes produced at market-based pricing,
and
also includes tolling revenues at
Sierrita.
|
b.
|
For
a reconciliation of unit net cash costs per pound to production and
delivery costs applicable to pro forma sales refer to “Product Revenues
and Production Costs.”
|
Unit
net
cash costs per pound of copper and molybdenum is a measure intended to provide
investors with information about the cash generating capacity of our mining
operations expressed on a basis relating to the primary metal product for our
respective operations. We use this measure for the same purpose and for
monitoring operating performance by our mining operations. This information
differs from measures of performance determined in accordance with U.S. GAAP
and
should not be considered in isolation or as a substitute for measures of
performance determined in accordance with U.S. GAAP. This measure is presented
by other mining companies, although our measures may not be comparable to
similarly titled measures reported by other companies.
North
American unit net cash costs in the second quarter and first six months of
2007
were higher than the comparable 2006 periods primarily because of higher
maintenance, labor and other input costs at Morenci and Bagdad, along with
higher milling costs at Chino.
Assuming
average prices of $3.25 per pound of copper and $25 per pound of molybdenum
for
the remainder of 2007 and achievement of current 2007 sales estimates, we
estimate that our pro forma 2007 average unit net cash costs for our North
American mines, including molybdenum credits, would approximate $0.84 per pound
of copper. Each $2 per pound change in the average price of molybdenum for
the
remainder of 2007, would impact average North American unit net cash costs
by
approximately $0.02 per pound.
Primary
Molybdenum (Henderson) Unit Net Cash Costs. The following table summarizes
the pro forma unit net cash costs at the Henderson mine for the full three
and
six-month periods ended June 30, 2007 and 2006.
Primary
Molybdenum (Henderson) Gross Profit per Pound (Pro Forma)a
|
|
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
June
30,
|
|
June
30,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Revenues,
after adjustments shown below
|
$
|
25.12
|
|
$
|
21.08
|
|
$
|
23.70
|
|
$
|
21.30
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
4.15
|
|
|
3.31
|
|
|
4.15
|
|
|
3.46
|
|
Unit
net cash costsb
|
|
4.15
|
|
|
3.31
|
|
|
4.15
|
|
|
3.46
|
|
Depreciation
and amortization
|
|
0.92
|
|
|
0.88
|
|
|
0.91
|
|
|
0.88
|
|
Noncash
and nonrecurring costs, net
|
|
0.01
|
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
Total
unit costs
|
|
5.08
|
|
|
4.21
|
|
|
5.08
|
|
|
4.36
|
|
Gross
profitc
|
$
|
20.04
|
|
$
|
16.87
|
|
$
|
18.62
|
|
$
|
16.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
molybdenum sales (in million pounds)
|
|
10
|
|
|
10
|
|
|
20
|
|
|
19
|
|
a.
|
Three
months ended June 30, 2007, represents actual financial
results.
|
b.
|
For
a reconciliation of unit net cash costs per pound to production and
delivery costs applicable to actual and pro forma sales refer to
“Product
Revenues and Production Costs.”
|
c.
|
Gross
profit reflects sales of Henderson products based on volumes produced
at
market-based pricing. On a consolidated basis, the Primary Molybdenum
segment includes profits on sales as they are made to third parties
and
realizations based on actual contract
terms.
|
Henderson’s
unit net cash costs per pound of molybdenum for the second quarter and first
six
months of 2007 were higher than the comparable 2006 periods primarily because
of
higher input costs, including labor, supplies and service costs, and higher
taxes. Assuming achievement of current 2007 sales estimates, we estimate that
our pro forma 2007 average unit net cash costs for Henderson would approximate
$4.20 per pound of molybdenum.
South
American Mining
Through
Phelps Dodge, we have four operating copper mines in South America – Candelaria,
Ojos del Salado and El Abra in Chile, and Cerro Verde in Peru. These operations
include open-pit and underground mining, sulfide ore concentrating, leaching,
solution extraction and electrowinning. The South American operations are fully
consolidated in our financial statements, with outside ownerships reported
as
minority interests.
The
South
American mining division includes one reportable copper production segment
(Cerro Verde).
Cerro
Verde. The Cerro Verde open-pit mine, located near Arequipa, Peru, produces
electrowon copper cathodes and copper concentrates. In addition to copper,
the
Cerro Verde mine produces molybdenum and silver. We own a 53.56 percent equity
interest in Cerro Verde, which we fully consolidate and report the minority
interest. The remaining 46.44 percent is held by SMM Cerro Verde Netherlands
B.V., Compañía de Minas Buenaventura S.A.A. as well as other minority
shareholders, certain of whose shares are publicly traded on the Lima Stock
Exchange.
Cerro
Verde has recently completed an approximate $900 million mill expansion project,
which permits the mining and processing of a primary sulfide ore body beneath
the leachable ore body currently in production. Through the expansion,
approximately 1.4 billion metric tons of sulfide mill ore reserves averaging
0.47 percent copper and 0.02 percent molybdenum will be processed through the
new concentrator. Processing of the sulfide ore began in the fourth quarter
of
2006 and in June 2007, the mill reached design capacity of 108,000 metric tons
of ore per day. With the completion of the expansion,
copper
production at Cerro Verde initially is expected to approximate 650 million
pounds per year (approximately 348 million pounds per year for our share).
In
addition, the expansion is expected to produce an average of approximately
8
million pounds of molybdenum per year (approximately 4 million pounds per year
for our share) for the next five years. Cerro Verde also has a long-term
contract that provides for fixed treatment and refining charges through 2011
on
approximately 50 percent of its projected copper concentrate
production.
During
July 2007, certain Peruvian mining unions, which did not include the Cerro
Verde
union, and other civil associations called for a nationwide strike. Following
that announcement, several Arequipa Region unions, social groups and civil
associations called for an unlimited strike. The strike began July 11, 2007,
and
lasted through July 17, 2007. Several protests, blockage of main roads and
disturbances took place during this time. As a result, Cerro Verde executed
an
emergency plan to maintain operations.
Our
acquisition of Phelps Dodge is deemed under Peruvian law to be an indirect
acquisition of over 50 percent of the voting shares of Sociedad Minera Cerro
Verde S.A.A. (SMCV), the publicly-traded entity that owns Cerro Verde. Pursuant
to applicable Peruvian regulations, we are required to conduct a tender offer
for 24.87 percent of the minority interest in SMCV. Accordingly, on August
1,
2007, one of our subsidiaries submitted a tender offer for these shares. Certain
minority holders have waived their rights to participate in the tender offer
and
after taking this into account, the shares remaining for purchase total 6.94
percent of the SMCV shares. The offering price of $14.40 per share of SMCV
was
determined by an independent appraiser appointed by Peruvian regulators. We
do
not expect holders to tender their shares because the offer of $14.40 per share
is below the recent trading price of SMCV of $26 to $30 per share. The tender
offer will remain open through August 29, 2007.
Other
South American Mining Operations. Although not
considered reportable segments, other South American mining operations include
our other South American copper mines – Candelaria, Ojos del Salado and El Abra
– which include open-pit and underground mining, sulfide ore concentrating,
leaching, solution extraction and electrowinning. In addition to copper, the
Candelaria and Ojos del Salado mines produce gold and silver. We own an 80
percent partnership interest in both the Candelaria and Ojos del Salado mines,
and own a 51 percent partnership interest in the El Abra mine.
At
the
end of 2006, a feasibility study was completed to evaluate the development
of
the large sulfide deposit at El Abra. This project would extend the mine life
by
nine years with copper production from the sulfides expected to begin in 2010.
The existing facilities at El Abra will be used to process the additional
reserves, minimizing capital spending requirements. We estimate total initial
capital for this project to approximate $350 million, the majority of which
will
be spent between 2008 and 2011. In March 2007, an environmental impact study
associated with the sulfide project was submitted to Chilean
authorities.
South
American mining added $1.2 billion in revenues and $793 million of operating
income to our second-quarter 2007 results, and $1.5 billion in revenues and
$911
million of operating income to our results for the first six months of
2007.
The
following pro forma discussion of our South American mining operations covers
the full three and six-month periods ended June 30, 2007 and 2006, including
periods prior to our acquisition of these operations:
Pro
Forma Consolidated
|
|
Second
Quarter
|
|
Six
Months
|
|
South
American Mining Operations
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Copper
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
338
|
|
|
283
|
|
|
645
|
|
|
572
|
|
Sales
|
|
|
343
|
|
|
290
|
|
|
644
|
|
|
565
|
|
Average
realized price per pound
|
|
$
|
3.54
|
|
$
|
3.14
|
|
$
|
3.33
|
|
$
|
2.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
28
|
|
|
29
|
|
|
52
|
|
|
59
|
|
Sales
|
|
|
28
|
|
|
29
|
|
|
53
|
|
|
58
|
|
Average
realized price per ounce
|
|
$
|
673.92
|
|
$
|
583.44
|
|
$
|
608.71
|
|
$
|
464.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solution
extraction/electrowinning (SX/EW) operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leach
ore placed in stockpiles (metric tons per day)
|
|
|
305,200
|
|
|
256,000
|
|
|
290,700
|
|
|
253,300
|
|
Average
copper ore grade (percent)
|
|
|
0.42
|
|
|
0.47
|
|
|
0.40
|
|
|
0.46
|
|
Copper
production (millions of recoverable pounds)
|
|
|
142
|
|
|
176
|
|
|
291
|
|
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
168,000
|
|
|
62,300
|
|
|
154,700
|
|
|
61,700
|
|
Average
copper ore grade (percent)
|
|
|
0.72
|
|
|
0.95
|
|
|
0.70
|
|
|
1.01
|
|
Copper
production (millions of recoverable pounds)
|
|
|
196
|
|
|
107
|
|
|
354
|
|
|
225
|
|
South
American copper sales volumes for the second quarter and first six months of
2007 were higher than sales volumes in the comparable 2006 periods primarily
reflecting expanded production at Cerro Verde, partly offset by lower ore grade
at El Abra. Consolidated copper sales from South American operations totaled
approximately 1.1 billion pounds in 2006 and are expected to approximate 1.4
billion pounds for 2007, including sales volumes prior to our acquisition of
Phelps Dodge. In the first six months of 2007, sales from these operations
totaled 644 million pounds of copper, and are expected to approximate 775
million pounds in the second half of 2007. The increase in projected copper
sales for 2007 primarily reflects the additional production resulting from
the
new Cerro Verde concentrator, which reached design capacity during the second
quarter of 2007.
Unit
Net Cash Costs. The following tables summarize the pro forma unit
net cash costs at the South American copper mines for the full three and
six-month periods ended June 30, 2007 and 2006.
Gross
Profit per Pound of Copper/per Ounce of Gold and
Silver
|
|
|
|
Three
Months Ended June 30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Revenues,
after adjustments shown below
|
$
|
3.55
|
|
$
|
3.55
|
|
$
|
673.60
|
|
$
|
13.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
0.82
|
|
|
0.81
|
|
|
127.59
|
|
|
2.86
|
|
By-product
credits
|
|
(0.07
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.21
|
|
|
0.20
|
|
|
32.52
|
|
|
1.07
|
|
Unit
net cash costsa
|
|
0.96
|
|
|
1.01
|
|
|
160.11
|
|
|
3.93
|
|
Depreciation
and amortization
|
|
0.18
|
|
|
0.18
|
|
|
19.50
|
|
|
0.46
|
|
Noncash
and nonrecurring costs, net
|
|
–
|
|
|
–
|
|
|
0.28
|
|
|
–
|
|
Total
unit costs
|
|
1.14
|
|
|
1.19
|
|
|
179.89
|
|
|
4.39
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and hedging
|
|
0.17
|
|
|
0.17
|
|
|
(2.05
|
)
|
|
(0.03
|
)
|
Idle
facility and other non-inventoriable costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(4.92
|
)
|
|
(0.08
|
)
|
Gross
profit
|
$
|
2.56
|
|
$
|
2.51
|
|
$
|
486.74
|
|
$
|
8.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
343
|
|
|
343
|
|
|
|
|
|
|
|
Gold
(in thousand ounces)
|
|
|
|
|
|
|
|
28
|
|
|
|
|
Silver
(in thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
603
|
|
a.
|
For
a reconciliation of unit net cash costs per pound to production and
delivery costs applicable to sales reported in FCX’s consolidated
financial statements, refer to “Product Revenues and Production
Costs.”
|
Gross
Profit per Pound of Copper/per Ounce of Gold and Silver (Pro
Forma)
Three
Months Ended June 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Revenues,
after adjustments shown below
|
$
|
3.32
|
|
$
|
3.32
|
|
$
|
643.42
|
|
$
|
13.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
0.68
|
|
|
0.67
|
|
|
110.27
|
|
|
2.10
|
|
By-product
credits
|
|
(0.09
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.20
|
|
|
0.20
|
|
|
29.65
|
|
|
0.50
|
|
Unit
net cash costsa
|
|
0.79
|
|
|
0.87
|
|
|
139.92
|
|
|
2.60
|
|
Depreciation
and amortization
|
|
0.17
|
|
|
0.16
|
|
|
14.57
|
|
|
0.31
|
|
Noncash
and nonrecurring costs, net
|
|
–
|
|
|
–
|
|
|
0.16
|
|
|
0.01
|
|
Total
unit costs
|
|
0.96
|
|
|
1.03
|
|
|
154.65
|
|
|
2.92
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and hedging
|
|
0.24
|
|
|
0.25
|
|
|
(51.24
|
)
|
|
(1.18
|
)
|
Idle
facility and other non-inventoriable costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
0.52
|
|
|
0.02
|
|
Gross
profit
|
$
|
2.58
|
|
$
|
2.52
|
|
$
|
438.05
|
|
$
|
9.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
290
|
|
|
290
|
|
|
|
|
|
|
|
Gold
(in thousand ounces)
|
|
|
|
|
|
|
|
29
|
|
|
|
|
Silver
(in thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
593
|
|
|
|
Six
Months Ended June 30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Revenues,
after adjustments shown below
|
$
|
3.32
|
|
$
|
3.32
|
|
$
|
665.77
|
|
$
|
13.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
0.83
|
|
|
0.81
|
|
|
203.85
|
|
|
3.98
|
|
By-product
credits
|
|
(0.07
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.19
|
|
|
0.19
|
|
|
38.33
|
|
|
1.22
|
|
Unit
net cash costsa
|
|
0.95
|
|
|
1.00
|
|
|
242.18
|
|
|
5.20
|
|
Depreciation
and amortization
|
|
0.16
|
|
|
0.16
|
|
|
23.28
|
|
|
0.50
|
|
Noncash
and nonrecurring costs, net
|
|
–
|
|
|
–
|
|
|
0.34
|
|
|
–
|
|
Total
unit costs
|
|
1.12
|
|
|
1.16
|
|
|
265.80
|
|
|
5.70
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and hedging
|
|
0.03
|
|
|
0.03
|
|
|
(8.95
|
)
|
|
(0.11
|
)
|
Idle
facility and other non-inventoriable costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(7.18
|
)
|
|
(0.12
|
)
|
Gross
profit
|
$
|
2.21
|
|
$
|
2.17
|
|
$
|
383.84
|
|
$
|
7.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
644
|
|
|
644
|
|
|
|
|
|
|
|
Gold
(in thousand ounces)
|
|
|
|
|
|
|
|
53
|
|
|
|
|
Silver
(in thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
1,139
|
|
Six
Months Ended June 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Revenues,
after adjustments shown below
|
$
|
3.08
|
|
$
|
3.08
|
|
$
|
610.80
|
|
$
|
11.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
0.71
|
|
|
0.69
|
|
|
144.97
|
|
|
2.61
|
|
By-product
credits
|
|
(0.09
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.18
|
|
|
0.17
|
|
|
36.30
|
|
|
0.57
|
|
Unit
net cash costsa
|
|
0.80
|
|
|
0.86
|
|
|
181.27
|
|
|
3.18
|
|
Depreciation
and amortization
|
|
0.17
|
|
|
0.17
|
|
|
18.06
|
|
|
0.34
|
|
Noncash
and nonrecurring costs, net
|
|
–
|
|
|
–
|
|
|
0.20
|
|
|
–
|
|
Total
unit costs
|
|
0.97
|
|
|
1.03
|
|
|
199.53
|
|
|
3.52
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and hedging
|
|
(0.08
|
)
|
|
(0.07
|
)
|
|
(108.13
|
)
|
|
(2.10
|
)
|
Idle
facility and other non-inventoriable costs
|
|
(0.02
|
)
|
|
(0.01
|
)
|
|
(4.68
|
)
|
|
(0.04
|
)
|
Gross
profit
|
$
|
2.01
|
|
$
|
1.97
|
|
$
|
298.46
|
|
$
|
5.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
565
|
|
|
565
|
|
|
|
|
|
|
|
Gold
(in thousand ounces)
|
|
|
|
|
|
|
|
58
|
|
|
|
|
Silver
(in thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
1,242
|
|
a.
|
For
a reconciliation of unit net cash costs per pound to production and
delivery costs applicable to pro forma sales refer to “Product Revenues
and Production Costs.”
|
Unit
net
cash costs per pound of copper, calculated under the by-product method, is
a
measure intended to provide investors with information about the cash generating
capacity of our mining operations expressed on a basis relating to the primary
metal product for our respective operations. We use this measure for the same
purpose and for monitoring operating performance by our mining operations.
This
information differs from measures of performance determined in accordance with
U.S. GAAP and should not be considered in isolation or as a substitute for
measures of performance determined in accordance
with
U.S.
GAAP. This measure is presented by other mining companies, although our measures
may not be comparable to similarly titled measures reported by other
companies.
South
American unit net cash costs in the second quarter and first six months of
2007
were higher than in the comparable 2006 periods primarily because of the ramp-up
of Cerro Verde mill activities, higher employee related costs at Cerro Verde
and
Candelaria and additional costs associated with the Cerro Verde voluntary
contribution program. Additionally, Candelaria experienced higher costs related
to equipment maintenance and longer hauls. Assuming achievement of current
2007
sales estimates, we estimate that our pro forma 2007 average unit net cash
costs
for our South American mines, including gold credits, would approximate $0.90
per pound of copper.
Indonesian
Mining
PT
Freeport Indonesia operates under an agreement, the Contract of Work, with
the
Government of Indonesia. The Contract of Work allows us to conduct exploration,
mining and production activities in a 24,700-acre area, referred to as Block
A,
located in Papua, Indonesia. Under the Contract of Work, PT Freeport Indonesia
also conducts exploration activities (which had been suspended, but resumed
in
2007) in an approximate 500,000-acre area, referred to as Block B, in Papua.
All
of PT Freeport Indonesia’s proven and probable mineral reserves and current
mining operations are located in Block A.
We
own
90.64 percent of PT Freeport Indonesia, including 9.36 percent through our
wholly owned subsidiary, PT Indocopper Investama, and the Government of
Indonesia owns the remaining 9.36 percent. In July 2004, we received a request
from the Indonesian Department of Energy and Mineral Resources that we offer
to
sell shares in PT Indocopper Investama to Indonesian nationals at fair market
value. In response to this request and in view of the potential benefits of
having additional Indonesian ownership in our operations, we have agreed to
consider a potential sale of an interest in PT Indocopper Investama at fair
market value. Neither our Contract of Work nor Indonesian law requires us to
divest any portion of our ownership interest in PT Freeport Indonesia or PT
Indocopper Investama.
In
1996,
we established joint ventures with Rio Tinto plc (Rio Tinto), an international
mining company with headquarters in London, England. One joint venture covers
PT
Freeport Indonesia’s mining operations in Block A and gives Rio Tinto, through
2021, a 40 percent interest in certain assets and future production exceeding
specified annual amounts of copper, gold and silver in Block A, and, after
2021,
a 40 percent interest in all production from Block A. Operating, nonexpansion
capital and administrative costs are shared proportionately between PT Freeport
Indonesia and Rio Tinto based on the ratio of (a) the incremental revenues
from
production from our expansion completed in 1998 to (b) total revenues from
Block
A, including production from PT Freeport Indonesia’s previously existing
reserves. PT Freeport Indonesia receives 100 percent of the cash flow from
specified annual amounts of copper, gold and silver through 2021, calculated
by
reference to its proven and probable reserves as of December 31, 1994, and
60
percent of all remaining cash flow. PT Freeport Indonesia records its joint
venture interest using the proportionate consolidation method.
PT
Freeport Indonesia has a labor agreement covering its hourly paid Indonesian
employees, the key provisions of which are renegotiated biannually. PT Freeport
Indonesia’s current labor agreement with its workers expires in September 2007.
In July 2007, PT Freeport Indonesia and its workers agreed to terms for a new
two-year labor agreement, which expires in September 2009. The estimated annual
increase in wages under the new labor agreement totals approximately $40
million. PT Freeport Indonesia’s relations with the workers’ union generally
have been satisfactory.
|
Second
Quarter
|
|
Six
Months Ended June 30,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Consolidated,
net of Rio Tinto’s Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
298
|
|
|
237
|
|
|
766
|
|
|
458
|
|
Sales
|
|
334
|
|
|
220
|
|
|
751
|
|
|
445
|
|
Average
realized price per pound
|
$
|
3.43
|
|
$
|
3.33
|
|
$
|
3.40
|
|
$
|
3.27
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
795
|
|
|
307
|
|
|
1,869
|
|
|
769
|
|
Sales
|
|
880
|
|
|
278
|
|
|
1,827
|
|
|
750
|
|
Average
realized price per ounce
|
$
|
657.91
|
|
$
|
613.77
|
|
$
|
659.43
|
|
$
|
492.73
|
a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
Operating Data, including Rio Tinto’s Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
215,000
|
|
|
223,700
|
|
|
221,700
|
|
|
220,200
|
|
Average
ore grade
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(percent)
|
|
0.82
|
|
|
0.72
|
|
|
1.02
|
|
|
0.72
|
|
Gold
(grams per metric ton)
|
|
1.63
|
|
|
0.67
|
|
|
1.82
|
|
|
0.79
|
|
Recovery
rates (percent)
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
91.8
|
|
|
84.1
|
|
|
91.3
|
|
|
83.3
|
|
Gold
|
|
88.6
|
|
|
76.4
|
|
|
88.1
|
|
|
78.8
|
|
Copper
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
310
|
|
|
259
|
|
|
790
|
|
|
505
|
|
Sales
|
|
347
|
|
|
240
|
|
|
775
|
|
|
491
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
889
|
|
|
326
|
|
|
2,035
|
|
|
796
|
|
Sales
|
|
978
|
|
|
294
|
|
|
1,988
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Amount
was $585.34 per ounce before a loss resulting from redemption of
FCX’s
Gold-Denominated Preferred Stock, Series
II.
|
PT
Freeport Indonesia’s share of sales totaled 334 million pounds of copper and 880
thousand ounces of gold for second-quarter 2007, and 751 million pounds of
copper and 1,827 thousand ounces of gold for the first six months of 2007.
Sales
volumes for the second quarter and first six months of 2007 increased when
compared with the 2006 periods primarily because of higher ore grades and
recovery rates.
In
the
second quarter of 2007, copper ore grades averaged 0.82 percent and recovery
rates averaged 91.8 percent, compared with 0.72 percent and 84.1 percent for
the
second quarter of 2006. Gold ore grades averaged 1.63 grams per metric ton
(g/t)
and recovery rates averaged 88.6 percent in the second quarter of 2007, compared
with 0.67 g/t and 76.4 percent for the second quarter of 2006. At the Grasberg
mine, the sequencing in mining areas with varying ore grades causes fluctuations
in the timing of ore production, resulting in varying quarterly and annual
sales
of copper and gold.
During
the second half of 2007, PT Freeport Indonesia will be mining in a relatively
low-grade section of the Grasberg open pit, and therefore, we estimate that
approximately 67 percent of its expected copper sales and 91 percent of its
expected gold sales for 2007 occurred in the first six months of 2007.
Consolidated copper sales from PT Freeport Indonesia are expected to approximate
1.1 billion pounds for 2007, with approximately 365 million pounds in the second
half of 2007. Consolidated gold sales from PT Freeport Indonesia are expected
to
approximate 2.0 million ounces for 2007, with approximately 170 thousand ounces
in the second half of 2007.
Mill
throughput, which varies depending on ore types being processed, averaged
215,000 metric tons of ore per day in the second quarter of 2007 and 221,700
metric tons of ore per day for the first six months of 2007, compared with
223,700 metric tons of ore per day in the second quarter of 2006 and 220,200
metric tons of ore per day for the first six months of 2006. Mill rates will
vary during 2007 depending on ore types
mined
and
are expected to average approximately 190,000 metric tons of ore per day during
the remainder of the year.
Approximate
average daily throughput processed at PT Freeport Indonesia’s mill facilities
from each producing mine follows (metric tons of ore per day):
|
|
|
Six
Months Ended
|
|
|
Second
Quarter
|
|
June
30,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Grasberg
open pit
|
165,100
|
|
176,500
|
|
172,100
|
|
174,700
|
|
Deep
Ore Zone (DOZ) underground mine
|
49,900
|
|
47,200
|
|
49,600
|
|
45,500
|
|
Total
mill throughput
|
215,000
|
|
223,700
|
|
221,700
|
|
220,200
|
|
|
|
|
|
|
|
|
|
|
Production
from the DOZ underground mine averaged 49,900 metric tons of ore per day in
the
second quarter of 2007, representing approximately 23 percent of mill
throughput. DOZ continues to perform above design capacity of 35,000 metric
tons
of ore per day. In the second quarter of 2007, PT Freeport Indonesia completed
the expansion of the capacity of the DOZ underground operation to allow a
sustained rate of 50,000 metric tons per day. Total cost for this expansion
was
$62 million, with PT Freeport Indonesia’s 60 percent share totaling $37 million.
PT Freeport Indonesia anticipates a further expansion of the DOZ mine to 80,000
metric tons of ore per day. The estimated capital cost for this project is
approximately $100 million, with PT Freeport Indonesia’s 60 percent share
totaling approximately $60 million. The success of the development of the DOZ
mine, one of the world’s largest underground mines, provides confidence in the
future development of PT Freeport Indonesia’s large-scale undeveloped ore
bodies.
In
2004,
PT Freeport Indonesia commenced its “Common Infrastructure” project, which will
provide access to its large undeveloped underground ore bodies located in the
Grasberg minerals district through a tunnel system located approximately 400
meters deeper than its existing underground tunnel system. In addition to
providing access to our underground ore bodies, the tunnel system will enable
PT
Freeport Indonesia to conduct future exploration in prospective areas associated
with currently identified ore bodies. The Common Infrastructure project is
progressing according to plan. PT Freeport Indonesia has also advanced
development of the Grasberg spur and as of June 30, 2007, has completed 80
percent of the tunneling required to reach the Grasberg underground ore body.
PT
Freeport Indonesia expects the Grasberg spur to reach the Grasberg underground
ore body and to initiate multi-year mine development activities in the first
half of 2008. Work on the Grasberg underground ore body continues with PT
Freeport Indonesia’s share of capital expenditures totaling approximately $36
million for the first six months of 2007 and projected to total approximately
$70 million for 2007.
The
Big
Gossan underground mine is a high-grade deposit located near the existing
milling complex. The Big Gossan mine is being developed as an open-stope mine
with backfill consisting of mill tailings and cement, an established mining
methodology expected to be higher-cost than the block-cave method used at the
DOZ mine. Production is expected to ramp up to full production of 7,000 metric
tons per day in late 2010 (average annual aggregate incremental production
of
135 million pounds of copper and 65,000 ounces of gold, with PT Freeport
Indonesia receiving 60 percent of these amounts). Capital expenditures incurred
to date on this project total $123 million. Recent increases in labor costs,
currency exchange rates and other construction costs, along with changes in
scope, have resulted in spending above previous estimates. We are currently
evaluating our previous estimate of approximately $260 million, and expect
that
these increased costs and scoping changes could result in an approximate $100
million increase to the project’s costs.
Indonesian
Mining Revenues. A summary of changes in PT Freeport Indonesia’s revenues
between periods follows (in millions):
|
Second
|
|
|
Six
|
|
|
Quarter
|
|
|
Months
|
|
PT
Freeport Indonesia revenues – prior year period
|
$
|
1,035
|
|
|
$
|
1,832
|
|
Sales
volumes:
|
|
|
|
|
|
|
|
Copper
|
|
381
|
|
|
|
999
|
|
Gold
|
|
370
|
|
|
|
530
|
|
Price
realizations:
|
|
|
|
|
|
|
|
Copper
|
|
34
|
|
|
|
105
|
|
Gold
|
|
39
|
|
|
|
305
|
|
Adjustments,
primarily for copper pricing on prior
|
|
|
|
|
|
|
|
period/year
open sales
|
|
(70
|
)
|
|
|
(173
|
)
|
Treatment
charges, royalties and other
|
|
(26
|
)
|
|
|
(127
|
)
|
PT
Freeport Indonesia revenues – current year period
|
$
|
1,763
|
|
|
$
|
3,471
|
|
|
|
|
|
|
|
|
|
PT
Freeport Indonesia’s share of second-quarter 2007 sales increased to 334 million
pounds of copper and 880 thousand ounces of gold, compared with 220 million
pounds and 278 thousand ounces in second-quarter 2006, primarily because of
higher ore grades and recovery rates. Realized copper prices improved by $0.10
per pound to an average of $3.43 per pound in the second quarter of 2007,
compared to $3.33 per pound in the second quarter of 2006. Realized gold prices
improved by $44.14 per ounce to an average of $657.91 per ounce in the second
quarter of 2007, compared to $613.77 per ounce in the second quarter of
2006.
For
the
first six months of 2007, PT Freeport Indonesia’s share of sales increased to
751 million pounds of copper and 1,827 thousand ounces of gold, compared with
445 million pounds and 750 thousand ounces for the first six months of 2006
primarily because of higher ore grades and recovery rates. Realized copper
prices improved by $0.13 per pound to an average of $3.40 per pound for the
first six months of 2007, compared to $3.27 for the first six months of 2006.
Realized gold prices improved by $166.70 per ounce to an average of $659.43
per
ounce for the first six months of 2007, compared to $492.73 per ounce for the
first six months of 2006, which included a reduction of $92.61 per ounce for
revenue adjustments associated with the redemption of our Gold-Denominated
Preferred Stock, Series II.
Treatment
charges vary with the volume of metals sold and the price of copper, and
royalties vary with the volume of metals sold and the prices of copper and
gold.
Royalties totaled $48 million in the second quarter of 2007 and $97 million
for
the first six months of 2007, compared with $23 million in the second quarter
of
2006 and $43 million for the first six months of 2006, reflecting higher sales
volumes and metal prices. Based on current 2007 sales estimates for PT Freeport
Indonesia, if copper prices average $3.25 per pound and gold prices average
$650
per ounce for the remainder of 2007, royalty costs would total approximately
$125 million ($0.11 per pound of copper) in 2007.
PT
Freeport Indonesia has long-term contracts to provide approximately 60 percent
of Atlantic Copper’s copper concentrate requirements at market prices and nearly
all of PT Smelting’s copper concentrate requirements. PT Freeport Indonesia owns
25 percent of PT Smelting. Under the PT Smelting contract, for the first 15
years of PT Smelting’s operations beginning December 1998, the treatment and
refining charges on the majority of the concentrate PT Freeport Indonesia
provides will not fall below specified minimum rates, subject to renegotiation
in 2008. The rate was $0.23 per pound during the period from the commencement
of
PT Smelting’s operations in 1998 until April 2004, when it declined to a minimum
of $0.21 per pound. PT Smelting’s rates for 2007 are expected to exceed the
minimum $0.21 per pound. Current rates are substantially higher than the minimum
rate.
Unit
Net Cash (Credits) Costs. The following tables summarize the unit net cash
(credits) costs at our Indonesian mining operations for the three and six-month
periods ended June 30, 2007 and 2006.
Gross
Profit per Pound of Copper/per Ounce of Gold and
Silver
|
|
|
|
Three
Months Ended June 30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Revenues,
after adjustments shown below
|
$
|
3.43
|
|
$
|
3.43
|
|
$
|
657.91
|
|
$
|
13.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.14
|
|
|
0.75
|
|
|
142.52
|
|
|
2.83
|
|
Gold
and silver credits
|
|
(1.79
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.33
|
|
|
0.22
|
|
|
41.75
|
|
|
0.83
|
|
Royalty
on metals
|
|
0.14
|
|
|
0.09
|
|
|
17.87
|
|
|
–
|
|
Unit
net cash (credits) costsa
|
|
(0.18
|
)
|
|
1.06
|
|
|
202.14
|
|
|
3.66
|
|
Depreciation
and amortization
|
|
0.17
|
|
|
0.11
|
|
|
20.96
|
|
|
0.42
|
|
Noncash
and nonrecurring costs, net
|
|
0.03
|
|
|
0.02
|
|
|
4.00
|
|
|
0.08
|
|
Total
unit costs
|
|
0.02
|
|
|
1.19
|
|
|
227.10
|
|
|
4.16
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales
|
|
0.53
|
|
|
0.52
|
|
|
6.44
|
|
|
(0.27
|
)
|
PT
Smelting intercompany profit elimination
|
|
–
|
|
|
–
|
|
|
(0.02
|
)
|
|
–
|
|
Gross
profit
|
$
|
3.94
|
|
$
|
2.76
|
|
$
|
437.23
|
|
$
|
8.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales, net of Rio Tinto’s interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
334
|
|
|
334
|
|
|
|
|
|
|
|
Gold
(in thousand ounces)
|
|
|
|
|
|
|
|
880
|
|
|
|
|
Silver
(in thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
1,117
|
|
Three
Months Ended June 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Revenues,
after adjustments shown below
|
$
|
3.33
|
|
$
|
3.33
|
|
$
|
613.77
|
|
$
|
11.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.23
|
|
|
0.98
|
|
|
184.56
|
|
|
3.76
|
|
Gold
and silver credits
|
|
(0.85
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.49
|
|
|
0.39
|
|
|
73.03
|
|
|
1.49
|
|
Royalty
on metals
|
|
0.11
|
|
|
0.09
|
|
|
15.62
|
|
|
0.32
|
|
Unit
net cash costsa
|
|
0.98
|
|
|
1.46
|
|
|
273.21
|
|
|
5.57
|
|
Depreciation
and amortization
|
|
0.15
|
|
|
0.12
|
|
|
23.10
|
|
|
0.47
|
|
Noncash
and nonrecurring costs, net
|
|
0.05
|
|
|
0.04
|
|
|
7.09
|
|
|
0.14
|
|
Total
unit costs
|
|
1.18
|
|
|
1.62
|
|
|
303.40
|
|
|
6.18
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales
|
|
1.12
|
|
|
1.12
|
|
|
18.47
|
|
|
1.14
|
|
PT
Smelting intercompany profit elimination
|
|
(0.03
|
)
|
|
(0.03
|
)
|
|
(5.35
|
)
|
|
(0.11
|
)
|
Gross
profit
|
$
|
3.24
|
|
$
|
2.80
|
|
$
|
323.49
|
|
$
|
6.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales, net of Rio Tinto’s interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
220
|
|
|
220
|
|
|
|
|
|
|
|
Gold
(in thousand ounces)
|
|
|
|
|
|
|
|
278
|
|
|
|
|
Silver
(in thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
835
|
|
Six
Months Ended June 30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Revenues,
after adjustments shown below
|
$
|
3.40
|
|
$
|
3.40
|
|
$
|
659.43
|
|
$
|
13.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
0.92
|
|
|
0.62
|
|
|
119.85
|
|
|
2.40
|
|
Gold
and silver credits
|
|
(1.65
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.35
|
|
|
0.24
|
|
|
45.73
|
|
|
0.92
|
|
Royalty
on metals
|
|
0.13
|
|
|
0.09
|
|
|
16.83
|
|
|
0.34
|
|
Unit
net cash (credits) costsa
|
|
(0.25
|
)
|
|
0.95
|
|
|
182.41
|
|
|
3.66
|
|
Depreciation
and amortization
|
|
0.15
|
|
|
0.10
|
|
|
19.88
|
|
|
0.40
|
|
Noncash
and nonrecurring costs, net
|
|
0.03
|
|
|
0.02
|
|
|
3.37
|
|
|
0.07
|
|
Total
unit (credits) costs
|
|
(0.07
|
)
|
|
1.07
|
|
|
205.66
|
|
|
4.13
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales
|
|
0.05
|
|
|
0.05
|
|
|
1.38
|
|
|
0.02
|
|
PT
Smelting intercompany profit elimination
|
|
(0.05
|
)
|
|
(0.03
|
)
|
|
(6.18
|
)
|
|
(0.12
|
)
|
Gross
profit
|
$
|
3.47
|
|
$
|
2.35
|
|
$
|
448.97
|
|
$
|
8.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales, net of Rio Tinto’s interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
751
|
|
|
751
|
|
|
|
|
|
|
|
Gold
(in thousand ounces)
|
|
|
|
|
|
|
|
1,827
|
|
|
|
|
Silver
(in thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
2,694
|
|
Six
Months Ended June 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Revenues,
after adjustments shown below
|
$
|
3.27
|
|
$
|
3.27
|
|
$
|
492.73
|
b
|
$
|
11.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.23
|
|
|
0.93
|
|
|
172.18
|
|
|
3.38
|
|
By-product
credits
|
|
(1.07
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.43
|
|
|
0.32
|
|
|
60.19
|
|
|
1.18
|
|
Royalty
on metals
|
|
0.09
|
|
|
0.07
|
|
|
13.52
|
|
|
0.27
|
|
Unit
net cash costsa
|
|
0.68
|
|
|
1.32
|
|
|
245.89
|
|
|
4.83
|
|
Depreciation
and amortization
|
|
0.15
|
|
|
0.11
|
|
|
21.35
|
|
|
0.42
|
|
Noncash
and nonrecurring costs, net
|
|
0.05
|
|
|
0.04
|
|
|
6.96
|
|
|
0.14
|
|
Total
unit costs
|
|
0.88
|
|
|
1.47
|
|
|
274.20
|
|
|
5.39
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales
|
|
0.30
|
c
|
|
0.45
|
|
|
26.40
|
|
|
0.82
|
|
PT
Smelting intercompany profit elimination
|
|
0.03
|
|
|
0.02
|
|
|
4.09
|
|
|
0.08
|
|
Gross
profit
|
$
|
2.72
|
|
$
|
2.27
|
|
$
|
249.02
|
|
$
|
6.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales, net of Rio Tinto’s interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
445
|
|
|
445
|
|
|
|
|
|
|
|
Gold
(in thousand ounces)
|
|
|
|
|
|
|
|
750
|
|
|
|
|
Silver
(in thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
1,542
|
|
a.
|
For
a reconciliation of unit net cash (credits) costs per pound to production
and delivery costs applicable to sales reported in FCX’s consolidated
financial statements, refer to “Product Revenues and Production
Costs.”
|
b.
|
Amount
was $585.34 before a loss resulting from redemption of FCX’s
Gold-Denominated Preferred Stock, Series
II.
|
c.
|
Includes
a $69 million or $0.16 per pound loss on the redemption of FCX’s
Gold-Denominated Preferred Stock, Series
II.
|
Unit
net
cash costs per pound of copper, calculated under the by-product method, is
a
measure intended to provide investors with information about the cash generating
capacity of our mining operations expressed on a basis relating to the primary
metal product for our respective operations. We use this measure for the same
purpose and for monitoring operating performance by our mining operations.
This
information differs from measures of performance determined in accordance with
U.S. GAAP and should not be considered in isolation or as a substitute for
measures of performance determined in accordance with U.S. GAAP. This measure
is
presented by other mining companies, although our measures may not be comparable
to similarly titled measures reported by other companies.
Because
of the fixed nature of a large portion of PT Freeport Indonesia’s costs, unit
costs vary significantly from period to period depending on volumes of copper
and gold sold during the period. Lower unit site production and delivery costs
in the second quarter and first six months of 2007, when compared with the
2006
periods, primarily reflect higher sales volumes resulting from mine sequencing
in the Grasberg open pit, partly offset by higher input costs (including
energy). Although higher sales volumes more than offset increases in input
costs
this quarter, we have experienced significant increases in our production costs
in recent years primarily as a result of higher energy costs and costs of other
consumables, higher mining costs and milling rates, labor costs and other
factors. Aggregate energy costs, which approximate 20 percent of PT Freeport
Indonesia’s production costs, primarily include purchases of approximately 100
million gallons of diesel fuel per year and approximately 650,000 metric tons
of
coal per year. Diesel prices have more than doubled and our coal costs are
approximately 35 percent higher since the beginning of 2003. The costs of other
consumables, including steel and reagents, also have increased. Additionally,
as
approximately 15 percent of PT Freeport Indonesia’s production costs are
denominated in Australian dollars, our Indonesian mining costs have been
affected by the stronger Australian dollar against the U.S. dollar. We are
continuing to pursue cost reduction initiatives to mitigate the impacts of
these
increases.
Higher
gold and silver credits in the second quarter and first six months of 2007,
when
compared to the 2006 periods, reflect higher gold sales volumes and average
realized gold prices. Additionally, royalties were higher in the second quarter
and first six months of 2007, when compared to the 2006 periods, primarily
because of higher copper and gold prices and sales volumes.
Unit
treatment charges vary with the price of copper, and unit royalty costs vary
with prices of copper and gold. In addition, market rates for treatment charges
have increased significantly since 2004 and will vary based on PT Freeport
Indonesia’s customer mix. The copper royalty rate payable by PT Freeport
Indonesia under its Contract of Work varies from 1.5 percent of copper net
revenue at a copper price of $0.90 or less per pound to 3.5 percent at a copper
price of $1.10 or more per pound. The Contract of Work royalty rate for gold
and
silver sales is 1.0 percent.
In
connection with our fourth concentrator mill expansion completed in 1998, PT
Freeport Indonesia agreed to pay the Government of Indonesia additional
royalties (royalties not required by the Contract of Work) to provide further
support to the local governments and the people of the Indonesian province
of
Papua (refer to Note 1 in our 2006 Annual Report on Form 10-K). The additional
royalties are paid on production exceeding specified annual amounts of copper,
gold and silver expected to be generated when PT Freeport Indonesia’s milling
facilities operate above 200,000 metric tons of ore per day. PT Freeport
Indonesia’s royalty rate on copper net revenues from production above the agreed
levels is double the Contract of Work royalty rate, and the royalty rates on
gold and silver sales from production above the agreed levels are triple the
Contract of Work royalty rates.
Assuming
average copper prices of $3.25 per pound and average gold prices of $650 per
ounce for the remainder of 2007 and achievement of current 2007 sales estimates,
PT Freeport Indonesia estimates that its annual 2007 unit net cash costs,
including gold and silver credits, would approximate $0.44 per pound. Because
the majority of PT Freeport Indonesia’s costs are fixed, unit costs vary with
the volumes sold and the price of gold, and are therefore currently projected
to
be higher during the second half of 2007 than in the first half of 2007. Unit
net cash costs for 2007 would change by less than $0.01 per pound for each
$25
per ounce change in the average price of gold for the remainder of
2007.
Other
Mining Matters
Africa. We
hold an effective 57.75 percent interest in the Tenke Fungurume copper/cobalt
mining concessions in the Katanga province of the DRC, and are the operator
of
the project. We estimate that the Tenke Fungurume project will require a capital
investment of approximately $650 million. However, we are experiencing higher
costs for certain aspects of the project than initially anticipated and are
currently updating our capital estimate for the project . As of June
30, 2007, approximately $115 million has been spent on this project, including
amounts spent prior to the acquisition of Phelps Dodge. For the remainder of
2007, we expect spending of approximately $250 million associated with the
development of the Tenke Fungurume project. We are responsible for funding
70
percent of project development costs.
The
Tenke
Fungurume feasibility study completed in the fourth quarter of 2006 is based
on
ore reserves of 103 million metric tons with ore grades of 2.1 percent copper
and 0.3 percent cobalt. Based on the current mine plan, ore grades for the
first
10 years are expected to average 4.6 percent copper and 0.4 percent cobalt.
Operations are expected to commence by early 2009, with initial production
of
approximately 250 million pounds of copper and approximately 18 million pounds
of cobalt per year for the first 10 years. Based on the recent feasibility
study, which assumes a long-term cobalt price of $12 per pound, life-of-mine
unit net cash costs after by-product credits are estimated to be a net credit
of
$0.19 per pound of copper.
Cerro
Verde. In June 2004, the executive branch of the Peruvian
government approved legislation incorporating a royalty on mining activities,
which would be assessed at a graduated rate of up to three percent on the value
of Cerro Verde’s sales, net of certain related expenses. In June 2006, an
amendment to the royalty law was approved by the Peruvian congress, which
granted the Peruvian tax authorities the right to levy mining royalties on
all
mining companies operating in Peru, including those with stability agreements.
This amendment was subsequently rejected by the executive branch on the grounds
that the government cannot modify stability agreements entered into with mining
companies without their consent. However, the government has requested that
all
mining companies make additional payments to local communities where they
operate during times of high metal prices to partially offset proceeds that
would have otherwise come from the royalty.
During
2006, the Peruvian government announced that all mining companies operating
in
Peru will make annual contributions equal to 3.75 percent of after-tax profits
to local development funds for a five-year period, with each company negotiating
an individual agreement with the government. Cerro Verde has negotiated an
agreement to pay the 3.75 percent contribution, of which 2.75 percent will
be
contributed to a local mining fund and 1.00 percent to a regional mining fund.
Cerro Verde would also receive a credit against the local contribution for
any
contributions made to the Arequipa region for funding a portion of the cost
of
constructing local water and sewage treatment facilities. Cerro
Verde had previously agreed to conduct and fund technical studies for
the construction of water and sewage treatment facilities in Arequipa and to
fund 50 percent of the construction of both facilities. The cost associated
with
the construction of these facilities is currently under review, but Cerro
Verde’s share is expected to approximate $40 million, which is recorded as a
liability in the condensed consolidated balance sheet.
Curtailed
Properties. We base our decision to temporarily curtail
production on a variety of factors. We may temporarily curtail production in
response to external, macro-level factors such as prevailing and projected
global copper production and demand, and the magnitude and trend of changes
in
world copper inventories. The lead times involved in temporarily curtailing
and
restarting open-pit copper mines are such that careful consideration must be
given to long-term planning rather than immediate reaction to price
fluctuations.
Our
decisions concerning temporary curtailment of certain mining operations also
take into account molybdenum market conditions. This includes overall molybdenum
market supply/demand fundamentals, inventory levels and published
prices.
We
also
may adjust production at various properties in response to internal, micro-level
factors such as the need to balance smelter feed or an internal shortage or
surplus of sulfuric acid for our leaching operations. In other cases, facilities
may be temporarily curtailed as a result of changes in technology that
may
make
one technology, at a given copper price, more attractive than another
technology. Unique regional issues, such as the energy crisis in the
southwestern United States in 2000 and 2001, also may result in temporary
curtailments.
We
have
additional sources of copper that could be developed; however, such additional
sources would require the development of greenfield projects that would involve
significant capital expenditures and could require long lead-times.
We
are
conducting exploration activities near our existing mines and in other high
potential areas around the world. Aggregate exploration expenditures in 2007
are
expected to approximate $125 million.
Our
exploration efforts in North America primarily include drilling within the
Safford district of the Lone Star deposit, located approximately four miles
from
the ore body currently under development, and targets in the Morenci district.
Additionally, we are conducting exploration efforts near the Henderson
molybdenum ore body. In Africa, we are actively pursuing targets outside of
the
area of initial development at Tenke Fungurume and are completing a
pre-feasibility study on the separate Kisanfu project.
We
are
continuing to review the development potential of each mining district acquired
from Phelps Dodge and all of its ongoing exploration activities. These reviews
could result in changes in our exploration and development plans.
PT
Freeport Indonesia’s 2007 exploration efforts in Indonesia will continue to test
extensions of the Deep Grasberg and Kucing Liar mine complex. PT Freeport
Indonesia also continues to evaluate targets in the area between the Ertsberg
and Grasberg mineral systems from the new Common Infrastructure tunnels,
possible extensions of the Deep Mill Level Zone deposit, the Ertsberg open-pit
resource through surface drilling programs and the open-pit potential of the
Wanagon gold prospect. During 2007, we have resumed exploration activities
that
were suspended in recent years in certain prospective areas outside Block A
(the
Grasberg contract area) including the Kamopa prospect, the Ular Merah
copper/gold prospect in our Eastern Minerals contract of work area and the
Wabu
gold prospect.
ATLANTIC
COPPER SMELTING & REFINING
Our
investment in smelters serves an important role in our concentrate marketing
strategy. PT Freeport Indonesia generally sells, under long-term contracts,
approximately one-half of its concentrate production to its affiliated smelters,
Atlantic Copper and PT Smelting, and the remainder to other customers. Treatment
charges for smelting and refining copper concentrates represent a cost to PT
Freeport Indonesia and income to Atlantic Copper and PT Smelting. Through
downstream integration, we are assured placement of a significant portion of
PT
Freeport Indonesia’s concentrate production. Smelting and refining charges
consist of a base rate and, in certain contracts, price participation based
on
copper prices. Higher treatment and refining charges benefit our smelter
operations at Atlantic Copper and adversely affect our mining operations in
Indonesia and South America. North American mining operations are not affected
by changes in treatment and refining charges because these operations are fully
integrated.
Table of Contents
|
|
|
Six
Months Ended
|
|
Atlantic
Copper Operating Results
|
Second
Quarter
|
|
June
30,
|
|
(in
millions)
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Gross
profit
|
$
|
2
|
|
$
|
25
|
|
$
|
19
|
|
$
|
42
|
|
Add
depreciation and amortization expense
|
|
9
|
|
|
7
|
|
|
19
|
|
|
15
|
|
Other
|
|
–
|
|
|
1
|
|
|
–
|
|
|
–
|
|
Cash
margin
|
$
|
11
|
|
$
|
33
|
|
$
|
38
|
|
$
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) (in millions)
|
$
|
(4)
|
|
$
|
22
|
|
$
|
9
|
|
$
|
35
|
|
Concentrate
and scrap treated (thousand metric tons)
|
|
181
|
|
|
229
|
|
|
424
|
|
|
480
|
|
Anodes
production (million pounds)
|
|
112
|
|
|
139
|
|
|
261
|
|
|
296
|
|
Treatment
rates per pound
|
$
|
0.31
|
|
$
|
0.34
|
|
$
|
0.33
|
|
$
|
0.32
|
|
Cathodes
sales (million pounds)
|
|
134
|
|
|
131
|
|
|
269
|
|
|
268
|
|
Gold
sales in anodes and slimes (thousand ounces)
|
|
174
|
|
|
199
|
|
|
288
|
|
|
445
|
|
On
June
7, 2007, Atlantic Copper successfully completed a 23-day maintenance turnaround,
which had a $23 million impact on operating results in second-quarter 2007,
including $7 million related to lower volumes, and is expected to have an
additional $3 million impact on third-quarter 2007 operating results. Major
maintenance turnarounds typically occur every 12 years for Atlantic Copper,
with
significantly shorter term maintenance turnarounds in the interim. The next
maintenance activity at Atlantic Copper is scheduled for 2011.
Atlantic
Copper’s cash margin and operating results for the second-quarter and first six
months of 2007 primarily reflect the impact of the scheduled maintenance
turnaround that was completed in June 2007. Atlantic Copper’s treatment charges,
including price participation, which are what PT Freeport Indonesia and third
parties pay Atlantic Copper to smelt and refine concentrates, averaged $0.31
per
pound during the second quarter of 2007 and $0.33 per pound for the first six
months of 2007, compared to $0.34 per pound during the second quarter of 2006
and $0.32 per pound for the first six months of 2006. The decrease in treatment
rates per pound for the second quarter of 2007, compared with the second quarter
of 2006 primarily resulted from lower treatment rates negotiated for 2007 under
the terms of Atlantic Copper’s concentrate purchase and sales agreements. The
overall increase in treatment charges for the first six months of 2007, compared
with 2006 was primarily because of higher treatment rates recognized in
first-quarter 2007, which mostly reflected 2006 terms, partly offset by the
impact of lower treatment rates recognized in second-quarter 2007, which
reflected the lower negotiated rates for 2007.
We
defer
recognizing profits on PT Freeport Indonesia’s sales to Atlantic Copper and on
25 percent of PT Freeport Indonesia’s sales to PT Smelting until the final sales
to third parties occur. Changes in these net deferrals resulted in an increase
to our operating income totaling $13 million ($7 million to net income or $0.02
per share) in the second quarter of 2007 and a reduction of $194 million ($103
million to net income or $0.30 per share) for the first six months of 2007,
compared with increases of $34 million ($18 million to net income or $0.08
per
share) in the second quarter of 2006 and $108 million ($57 million to net income
or $0.26 per share) for the first six months of 2006. At June 30, 2007, our
net
deferred profits on PT Freeport Indonesia concentrate inventories at Atlantic
Copper and PT Smelting to be recognized in future periods’ net income after
taxes and minority interest sharing totaled $203 million. Based on copper prices
of $3.25 per pound and gold prices of $650 per ounce for the third quarter
of
2007 and current shipping schedules, we estimate the net change in deferred
profits on intercompany sales will result in an increase to net income of
approximately $100 million in the third quarter of 2007. The actual change
in
deferred intercompany profits may differ substantially from this estimate
because of changes in the timing of shipments to affiliated smelters and metal
prices.
PHELPS
DODGE INTERNATIONAL CORPORATION (PDIC)
PDIC,
our
international manufacturing division, produces engineered wire and cable
products principally for the global energy sector. Its operations are
characterized by products with internationally competitive costs and quality,
and specialized engineering capabilities. Its factories, which are located
in
nine countries throughout Latin America, Asia and Africa, primarily manufacture
energy cables for international markets. Three of our international wire and
cable companies have continuous-cast copper rod facilities and three have
continuous-cast aluminum rod facilities.
PDIC
added $364 million in revenues and $45 million of operating income to our
second-quarter 2007 results, and $421 million in revenues and $52 million of
operating income to our results for the first six months of 2007.
We
are
currently exploring strategic alternatives for PDIC, including the potential
sale of this division.
CAPITAL
RESOURCES AND LIQUIDITY
Our
operating cash flows vary with prices realized from copper, gold and molybdenum
sales, our production levels, production costs, cash payments for income taxes
and interest, other working capital changes and other factors. Based on current
mine plans and subject to future copper, gold and molybdenum prices, we expect
to generate cash flows significantly greater than our budgeted capital
expenditures, scheduled debt maturities and other cash requirements, thereby
providing us with opportunities to further reduce debt and consider making
additional returns to shareholders.
Following
the significant increase in our debt associated with the acquisition of Phelps
Dodge, we have placed a high priority on debt reduction, and if market
conditions remain favorable, we expect to continue to achieve our objective
of
meaningful debt reduction in the near-term.
Cash
and cash equivalents
At
June
30, 2007, we had consolidated cash and cash equivalents of approximately $2.1
billion. The following table reflects the U.S. and international components
of
consolidated cash and cash equivalents at June 30, 2007, and December 31, 2006
(in billions):
|
June
30,
|
|
December
31,
|
|
|
2007
|
|
2006
|
|
Cash
from U.S. operations
|
$
|
0.1
|
|
$
|
–
|
|
Cash
from international operations
|
|
2.0
|
|
|
0.9
|
|
Total
consolidated cash and cash equivalents
|
|
2.1
|
|
|
0.9
|
|
Less:
minority interests’ share
|
|
0.5
|
|
|
–
|
|
Cash,
net of minority interests’ share
|
|
1.6
|
|
|
0.9
|
|
Withholding
taxes if distributeda
|
|
(0.2
|
)
|
|
(0.1
|
)
|
Net
cash available to FCX
|
$
|
1.4
|
|
$
|
0.8
|
|
|
|
|
|
|
|
|
a.
|
Cash
at our international operations is subject to foreign withholding
taxes of
up to 22 percent upon repatriation into the
U.S.
|
Based
on
estimated sales volumes for the remainder of 2007 and assuming average prices
of
$3.25 per pound of copper, $650 per ounce of gold and $25 per pound of
molybdenum for the remainder of 2007, our consolidated operating cash flows
would exceed $6 billion in 2007. Each $0.20 per pound change in copper prices
would affect 2007 cash flows by approximately $300 million, each $50 per ounce
change in gold prices would affect 2007 cash flows by approximately $10 million,
and each $2 per pound change in molybdenum prices would affect 2007 cash flows
by approximately $30 million.
We
expect
to generate cash flows during 2007 significantly greater than our capital
expenditures, minority interest distributions, dividends and other cash
requirements. Using the same assumptions regarding
average
prices for the remainder of 2007, and assuming excess cash is applied to reduce
debt, total debt at year-end 2007 would approximate $8.2 billion and
consolidated cash would approximate $1.7 billion.
Operating
Activities
Net
cash
provided by operating activities totaled $2.8 billion for the first six months
of 2007, net of $81 million used for working capital requirements. For the
first
six months of 2006, net cash provided by operating activities totaled $376
million, net of $519 million used for working capital requirements. Operating
cash flows for the first six months of 2007 benefited from higher net income
primarily associated with of higher sales volumes and metals prices, and $1.2
billion of additional cash flows from Phelps Dodge’s operations beginning March
20, 2007.
Investing
Activities
On
March
19, 2007, we issued 136.9 million shares of common stock and paid approximately
$13.9 billion (net of cash acquired) to acquire Phelps Dodge (refer to Note
2
for further discussion).
Capital
expenditures, including capitalized interest, totaled $672 million for the
first
six months of 2007 and $110 million for the first six months of 2006. PT
Freeport Indonesia capital expenditures for the first six months of 2007 totaled
$175 million, which included approximately $47 million for Big Gossan and
approximately $36 million for the development of the underground Grasberg ore
body. Also included in capital expenditures for the first six months of 2007
were Phelps Dodge capital expenditures of $476 million, which included
approximately $179 million associated with the Safford project and approximately
$90 million associated with Tenke Fungurume.
Capital
expenditures, including approximately $800 million for long-term projects,
are
estimated to approximate $1.8 billion for 2007. The increase in capital
expenditures for 2007, when compared with 2006, primarily is because of the
addition of Phelps Dodge capital spending, which is expected to approximate
$1.3
billion for 2007, and includes amounts for the development of the Tenke
Fungurume copper/cobalt mining project (approximately $325 million) and the
Safford copper mine (approximately $310 million). PT Freeport Indonesia’s
projected capital expenditures for 2007 include approximately $95 million for
Big Gossan.
During
the second quarter of 2007, our sale of marketable securities resulted in net
proceeds of $91 million.
Financing
Activities
At
June
30, 2007, we had approximately $9.8 billion in debt, including $8.5 billion
in
acquisition debt, $0.9 billion of debt assumed in the Phelps Dodge acquisition
and $0.4 billion of previously existing debt. In connection with financing
the
acquisition of Phelps Dodge, we used $2.5 billion of available cash (including
cash acquired from Phelps Dodge) and funded the remainder with proceeds from
borrowings under the $11.5 billion senior credit facility and from the offering
of $6.0 billion in senior notes.
In
accordance with our plan to reduce debt, following the close of the Phelps
Dodge
acquisition we completed the sale of 47.15 million shares of common stock at
$61.25 per share for net proceeds of approximately $2.8 billion and 28.75
million shares of 6¾% Mandatory Convertible Preferred Stock for net proceeds of
approximately $2.8 billion. The net proceeds from these transactions were used
to reduce borrowings under the $11.5 billion senior credit facility. During
second-quarter 2007, FCX prepaid an additional $1.9 billion of debt under the
senior term loan due March 2014 (the Tranche B term loan). Refer to Note 8
for a
summary table of the financing transactions for the first six months of
2007.
For
the
first six months of 2007, we recorded net charges totaling $135 million ($110
million to net income or $0.32 per share) for early extinguishment of debt.
These net charges include $88 million ($75 million to net income) recorded
in
first-quarter 2007 and $30 million ($25 million to net income) recorded in
second-quarter 2007 related to the accelerated recognition of deferred financing
costs associated with the early repayment of amounts under the $11.5 billion
senior credit facility. Also included is $17 million ($10 million to net income)
recorded in second-quarter 2007 related to premiums paid and the accelerated
recognition of deferred financing costs associated with the May 2007 redemption
of our 10⅛% Senior Notes.
On
July
10, 2007, we refinanced the remaining $2.5 billion balance outstanding under
the
Tranche B term loan with proceeds from a new senior term loan due March 2012
(the Tranche A term loan). As a result of this transaction, we will record
charges totaling approximately $36 million ($31 million to net income) in
third-quarter 2007 related to the accelerated recognition of deferred financing
costs associated with the extinguishment of the Tranche B term
loan.
In
2003,
our Board of Directors approved an open market share purchase program for up
to
20 million shares, which replaced our previous program. Under this program,
we
acquired 2.0 million shares in 2006 for $100 million ($49.94 per share average),
2.4 million shares in 2005 for $80 million ($33.83 per share average) and 3.4
million shares in 2004 for $100 million ($29.39 per share average); 12.2 million
shares remain available. The timing of future purchases of our common stock
is
dependent on many factors including the price of our common shares, our cash
flows and financial position, copper and gold prices and general economic and
market conditions.
For
the
first six months of 2007, common stock dividends totaled $182 million. The
declaration and payment of dividends is at the discretion of our Board of
Directors. The amount of our current quarterly cash dividend on our common
stock
will be dependent upon our financial results, cash requirements, future
prospects and other factors deemed relevant by our Board of Directors. Our
current regular annual common stock dividend is $1.25 per share, paid at a
quarterly rate of $0.3125 per share. Based on outstanding common shares on
June
30, 2007, our annual common stock dividend totals approximately $475 million.
On
June 28, 2007, FCX declared a regular quarterly dividend, which was paid on
August 1, 2007, to common shareholders of record at the close of business on
July 16, 2007.
Cash
dividends on preferred stock of $30 million in each of the first six months
of
2007 and 2006, represent dividends on our 5½% Convertible Perpetual Preferred
Stock. Each share of preferred stock was initially convertible into 18.8019
shares of our common stock. The conversion rate is adjustable upon the
occurrence of certain events, including any quarter that our common stock
dividend exceeds $0.20 per share. As a result of the quarterly and supplemental
common stock dividends paid through August 1, 2007, each share of preferred
stock is now convertible into 21.2201 shares of FCX common stock, or an
aggregate of approximately 23 million shares of FCX common stock. On June 28,
2007, FCX declared a regular quarterly dividend of $13.75 per share of FCX’s 5½%
Convertible Perpetual Preferred Stock, which was paid on August 1, 2007, to
shareholders of record at the close of business on July 16, 2007.
In
March
2007, we sold 28.75 million shares of 6¾% Mandatory Convertible Preferred Stock,
which will automatically convert on May 1, 2010, into between approximately
39
million and 47 million shares of FCX common stock. The conversion rate will
be
subject to anti-dilution adjustments in certain circumstances. Holders may
elect
to convert at any time prior to May 1, 2010, at a conversion rate equal to
1.3605 shares of common stock for each share of 6¾% Mandatory Convertible
Preferred Stock. We will pay, when declared by our Board of Directors, quarterly
dividends at a rate of 6.75 percent per annum. The first quarterly dividend
of
$2.30625 per share of FCX’s 6¾% Mandatory Convertible Preferred Stock was paid
on August 1, 2007, to shareholders of record at the close of business on July
16, 2007. The first quarterly dividend reflects the time period from issuance
through August 1, 2007. We expect each subsequent quarterly dividend on our
6¾%
Mandatory Convertible Preferred Stock to be $1.6875 per share.
Annual
preferred stock dividends on our 5½% Convertible Perpetual Preferred Stock and
6¾% Mandatory Convertible Preferred Stock total approximately $255
million.
Cash
dividends to minority interests of $314 million for the first six months of
2007
and $57 million for the first six months of 2006 primarily reflect dividends
paid to the minority interest owners of PT Freeport Indonesia and El
Abra.
Pursuant
to the restricted payment covenants in our $11.5 billion senior credit facility
and certain senior notes, the amount available for dividend payments, purchases
of our common stock and other restricted payments as of June 30, 2007, was
approximately $4.3 billion.
DISCLOSURES
ABOUT MARKET RISKS
In
connection with the acquisition of Phelps Dodge, the following supplements
the
disclosures about market risks contained in our 2006 Annual Report on Form
10-K.
Commodity
Price Risk
Our
consolidated revenues include the sale of copper concentrates, which also may
contain significant quantities of gold and silver, the sale of copper anodes,
cathodes, wire rod, wire and gold in anodes and slimes, and the sale of
molybdenum. Consolidated revenues and net income vary significantly with
fluctuations in the market prices of copper, gold and molybdenum, sales volumes
and other factors. For further information on commodity price risk see the
discussion under “Consolidated Results – Revenues.”
Foreign
Currency Exchange Risk
The
functional currency for most of our operations is the U.S. dollar. All of our
revenues and a significant portion of our costs are denominated in U.S. dollars;
however, some costs and certain assets and liability accounts are denominated
in
local currencies, including the Indonesian rupiah, Australian dollars, Chilean
pesos, Peruvian nuevos soles and euros. Generally, our results are positively
affected when the U.S. dollar strengthens in relation to those foreign
currencies and adversely affected when the U.S. dollar weakens in relation
to
those foreign currencies.
PT
Freeport Indonesia’s labor costs are mostly rupiah denominated. One U.S. dollar
was equivalent to 9,045 rupiah at June 30, 2007, and 8,989 rupiah at December
31, 2006. Based on estimated annual payments of 1.6 trillion rupiah for
operating costs and an exchange rate of 9,045 rupiah to one U.S. dollar, a
one-thousand-rupiah increase in the exchange rate would result in an approximate
$18 million decrease in aggregate annual operating costs; and a
one-thousand-rupiah decrease in the exchange rate would result in an approximate
$22 million increase in annual operating costs.
Approximately
15 percent of PT Freeport Indonesia’s projected purchases of materials, supplies
and services for 2007 are denominated in Australian dollars. One Australian
dollar was equivalent to $0.85 at June 30, 2007, and $0.79 at December 31,
2006.
Based on estimated annual payments of 250 million Australian dollars and an
exchange rate of $0.85 to one Australian dollar, a $0.01 increase or decrease
in
the exchange rate would result in an approximate $2.5 million change in annual
operating costs.
The
majority of Atlantic Copper’s revenues are denominated in U.S. dollars; however,
operating costs, other than concentrate purchases, and certain asset and
liability accounts are denominated in euros. Atlantic Copper’s estimated annual
euro payments total approximately 100 million euros. One euro was equivalent
to
$1.35 at June 30, 2007, and $1.32 at December 31, 2006. Based on estimated
annual payments of approximately 100 million euros and an exchange rate of
$1.35
to one euro, a $0.05 increase or decrease in the exchange rate would result
in
an approximate $5 million change in annual costs.
At
our
South American mining operations, labor costs and local supply costs are mostly
denominated in the local currencies. One U.S. dollar was equivalent to 528
Chilean pesos and 3.23 Peruvian nuevos soles at June 30, 2007, and 532 Chilean
pesos and 3.20 Peruvian nuevos soles at December 31, 2006. Based on estimated
annual payments of 160 billion Chilean peso for operating costs and an exchange
rate of 528 Chilean pesos to one U.S. dollar, a ten-peso increase or decrease
in
the exchange rate would result in an approximate $6 million change in aggregate
annual operating costs. Based on estimated annual payments of 330 million
Peruvian nuevo soles for operating costs and an exchange rate of 3.23 Peruvian
nuevos soles to one U.S. dollar, a 0.10 nuevo sol increase or decrease in the
exchange rate would result in an approximate $3 million change in annual
operating costs.
Interest
Rate Risk
At
June
30, 2007, we had total debt of approximately $9.8 billion, of which
approximately 39 percent represents variable-rate debt, with an interest rate
based on London Interbank Offered Rate (LIBOR). An increase in LIBOR would
increase our interest costs and would negatively affect our cash flows and
results of operations.
CONTRACTUAL
OBLIGATIONS
In
connection with the acquisition of Phelps Dodge, contractual obligations,
including debt, have increased when compared to those disclosed at December
31,
2006. The following table, as of June 30, 2007, reflects an update of only
the
major changes to the similar table presented in our 2006 Annual Report on Form
10-K, and the effect such obligations are expected to have on our liquidity
and
cash flows in future periods (in millions):
|
|
|
|
Less
Than
|
|
|
|
|
|
After
|
|
Total
|
|
1
Year
|
|
Years
2-3
|
|
Years
4-5
|
|
5
Years
|
Total
debta
|
$
|
9,789
|
|
$
|
397
|
|
$
|
597
|
|
$
|
664
|
|
$
|
8,131
|
Scheduled
interest payment obligationsb
|
|
6,281
|
|
|
737
|
|
|
1,410
|
|
|
1,304
|
|
|
2,830
|
Asset
retirement obligationsc
|
|
88
|
|
|
57
|
|
|
28
|
|
|
2
|
|
|
1
|
Take-or-pay
contractsd
|
|
1,350
|
|
|
1,009
|
|
|
247
|
|
|
69
|
|
|
25
|
Total
contractual cash obligationse
|
$
|
17,508
|
|
$
|
2,200
|
|
$
|
2,282
|
|
$
|
2,039
|
|
$
|
10,987
|
a.
|
Reflects
total scheduled debt payments, including the impact of refinancing
the
Tranche B term loan on July 10, 2007, resulting in a transfer of
$245
million to payments in less than 1 year under the new Tranche A term
loan
(refer to Note 8 and “Financing Activities” for further
discussion).
|
b.
|
Scheduled
interest payment obligations were calculated using stated coupon
rates for
fixed-rate debt and interest rates applicable at June 30, 2007, for
variable-rate debt.
|
c.
|
Asset
retirement obligations only include our estimated contractual cash
payments associated with reclamation activities at certain Phelps
Dodge
sites we acquired for which our costs are estimable and the timing
of
payments was reasonably determinable at June 30, 2007. The timing
and the
amount of these payments could change as a result of changes in regulatory
requirements, changes in scope of reclamation activities and as actual
reclamation spending occurs. The table excludes remaining cash payments
of
$64 million that are expected to be incurred in connection with
accelerating certain closure projects at our discretion. We have
also
excluded payments for reclamation activities that are expected to
occur
after five years and the associated trust assets of $527 million
that have
been dedicated to funding those reclamation activities because a
majority
of these cash flows are expected to occur over an extended period
of time
and are dependent upon the timing of the end of the mine life, which
is
subject to revision.
|
d.
|
Take-or-pay
contracts acquired in the acquisition of Phelps Dodge primarily include
contracts for copper deliveries of specified volumes at market-based
prices ($930 million), transportation and port fee commitments ($179
million) and contracts for electricity ($106 million). Approximately
36
percent of our take-or-pay electricity obligations are through Phelps
Dodge Energy Services (PDES), the legal entity used to manage power
for
North American operations at generally fixed-priced arrangements.
PDES has
the right and the ability to resell the electricity as circumstances
warrant.
|
e.
|
This
table excludes certain other obligations in our Condensed Consolidated
Balance Sheet, including estimated funding for pension obligations
as the
funding may vary from year-to-year based on changes in the fair value
of
plan assets and actuarial assumptions. Also excluded are (i) environmental
obligations and contingencies for which the timing of payments is
not
determinable and (ii) FIN 48, “Accounting for Uncertainty in Income Taxes
– an interpretation of FASB Statement No. 109,” liabilities related to
unrecognized tax benefits as the ultimate amount and/or timing of
settlement is not determinable.
|
Hedging
Activities
In
connection with the acquisition of Phelps Dodge, we acquired certain derivative
instruments entered into by Phelps Dodge. The most significant of these
derivatives are the 2007 zero-premium copper collars (consisting of both put
and
call options) and copper put options (refer to Note 15). These derivative
instruments do not qualify for hedge accounting and are adjusted to fair market
value based on the forward price curve and implied volatility as of the last
day
of the respective reporting period, with the gain or loss recorded in revenues.
Mark-to-market accounting adjustments on these contracts resulted in charges
to
revenues totaling $130 million ($80 million to net income or $0.18 per share)
in
the second
quarter
of 2007 and $168 million ($103 million to net income or $0.30 per share) from
March 20, 2007, through June 30, 2007. The actual impact of our 2007
zero-premium copper collar price protection program will not be fully
determinable until its maturity at year-end 2007, with final adjustments based
on the average annual LME price.
The
zero-premium copper collars covered approximately 486 million pounds of 2007
copper sales. At June 30, 2007, the liability associated with these contracts
totaled $592 million. We also have in place copper put options assumed in the
Phelps Dodge acquisition at a strike price of $0.95 per pound for approximately
730 million pounds of 2007 copper sales.
Based
on
current market prices as of July 31, 2007, we estimate that mark-to-market
accounting adjustments would reduce revenues by approximately $54 million ($33
million reduction in net income) in the third quarter of 2007. The 2007 copper
collars and put contracts will settle in the first quarter of 2008 based on
the
average 2007 LME price.
We
do not
currently intend to enter into similar programs in the future.
ENVIRONMENTAL
AND RECLAMATION MATTERS
Environmental
In
the
U.S. we are subject to stringent federal, state and local environmental laws
and
regulations that govern emissions of air pollutants; discharges of water
pollutants; and generation, handling, storage and disposal of hazardous
substances, hazardous wastes and other toxic materials. We also are subject
to
potential liabilities arising under CERCLA and similar state laws that impose
responsibility on persons who arranged for the disposal of hazardous substances,
and on current and previous owners and operators of a facility for the cleanup
of hazardous substances released from the facility into the environment,
including damages to natural resources. In addition, we are subject to potential
liabilities under the Resource Conservation and Recovery Act (RCRA) and
analogous state laws that require responsible parties to remediate releases
of
hazardous or solid waste constituents into the environment associated with
past
or present activities.
Phelps
Dodge or its subsidiaries previously have been advised by the U.S. Environmental
Protection Agency (EPA), the Department of the Interior, the Department of
Agriculture and several state agencies that under CERCLA or similar state laws
and regulations, they may be liable for costs of responding to environmental
conditions at a number of sites that have been or are being investigated by
EPA,
the Department of the Interior, the Department of Agriculture or states to
determine whether releases of hazardous substances have occurred and, if so,
to
develop and implement remedial actions to address environmental concerns. Phelps
Dodge has also been advised by trustees for natural resources that it may be
liable under CERCLA or similar state laws for damages to natural resources
caused by releases of hazardous substances.
Refer
to
Note 12 for additional information on significant environmental
matters.
Asset
Retirement Obligations
In
connection with the acquisition of Phelps Dodge, we acquired certain asset
retirement obligations (AROs). At June 30, 2007, we had $391 million recorded
for Phelps Dodge AROs in current and long-term liabilities on the condensed
consolidated balance sheet. At June 30, 2007, we estimate that our share of
the
total cost of Phelps Dodge’s AROs, including anticipated future disturbances and
cumulative payments, at approximately $1.3 billion (unescalated, undiscounted
and on a third-party cost basis), leaving approximately $900 million remaining
to be accreted over time. These aggregate costs may increase or decrease
materially in the future as a result of changes in regulations, engineering
designs and technology, permit modifications or updates, mine plans or other
factors and as actual reclamation spending occurs. ARO activities and
expenditures generally are made over an extended period of time commencing
near
the end of the mine life; however, certain reclamation activities could be
accelerated if they are determined to be economically beneficial.
At
June
30, 2007, we had trust assets totaling $428 million that are dedicated to
funding global reclamation and remediation activities, and also had trust
assets totaling $99 million that are legally restricted to fund a portion of
our
asset retirement obligations for Chino, Tyrone and Cobre as required for New
Mexico financial assurance.
Refer
to
Note 12 for additional information on asset retirement obligations.
Prior
to
its acquisition by FCX, Phelps Dodge had initiated a process of identifying
and
prioritizing opportunities to accelerate certain demolition, environmental
reserve and asset retirement obligation projects. The projects were prioritized
based on projects where it has regulatory flexibility to remediate at a faster
pace, structures that can be readily demolished, reclamation of visibly impacted
areas, and projects in Arizona and New Mexico where we have substantial
long-term closure obligations. The current plan is to spend, including capital,
at least $300 million through 2008 associated with environmental reserve and
reclamation projects.
Effective
January 1, 2007, we adopted FIN 48, which prescribes a recognition threshold
and
measurement attribute for the financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. The cumulative effect
of adopting FIN 48 was an increase in beginning retained earnings of
approximately $4 million. Refer to Note 9 for further discussion.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Liabilities – Including an amendment of FASB No. 115,”
which permits entities to choose to measure many financial instruments and
certain other items at fair value. This statement is effective for fiscal years
beginning after November 15, 2007, with early adoption allowed. We have not
yet
determined the impact, if any, that adopting this standard might have on our
financial statements.
PRODUCT
REVENUES AND PRODUCTION COSTS
Unit
net
cash costs per pound of copper and molybdenum is a measure intended to provide
investors with information about the cash generating capacity of our mining
operations expressed on a basis relating to the primary metal product for the
respective operations. We use this measure for the same purpose and for
monitoring operating performance by our mining operations. This information
differs from measures of performance determined in accordance with U.S. GAAP
and
should not be considered in isolation or as a substitute for measures of
performance determined in accordance with U.S. GAAP. This measure is presented
by other mining companies, although our measures may not be comparable to
similarly titled measures reported by other companies.
We
present gross profit per pound of copper using both a “by-product” method and a
“co-product” method. We use the by-product method in our presentation of gross
profit per pound of copper because (i) the majority of our revenues are copper
revenues, (ii) we mine ore, which contains copper, gold, molybdenum and other
metals, (iii) it is not possible to specifically assign all of our costs to
revenues from the copper, gold, and molybdenum and other metals we produce,
(iv)
it is the method used to compare mining operations in certain industry
publications and (v) it is the method used by our management and Board of
Directors to monitor operations. In the co-product method presentation below,
costs are allocated to the different products based on their relative revenue
values, which will vary to the extent our metals sales volumes and realized
prices change.
In
both
the by-product and the co-product method calculations below, we show adjustments
to copper revenues for prior period open sales as separate line items. Because
the copper pricing adjustments do not result from current period sales, we
have
reflected these separately from revenues on current period sales. Noncash and
nonrecurring costs consist of items such as stock-based compensation costs,
write-offs of equipment or unusual charges. They are removed from site
production and delivery costs in the
calculation
of unit net cash costs. In addition, costs resulting from the application of
the
purchase accounting method are removed. As discussed above, gold, molybdenum
and
other metal revenues, excluding any impacts from redemption of the gold- and
silver-denominated preferred stocks, are reflected as credits against site
production and delivery costs in the by-product method. Presentations under
both
methods are shown below together with reconciliations to amounts reported in
our
consolidated financial statements or pro forma consolidated financial
results.
North
America Mining Product Revenues and Production Costs
Three
Months Ended June 30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Molybdenum
|
a
|
Other
|
|
Total
|
|
Revenues,
after adjustments shown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
below
|
$
|
1,074
|
|
$
|
1,074
|
|
$
|
5
|
|
$
|
7
|
|
$
|
235
|
|
$
|
6
|
|
$
|
1,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
476
|
|
|
397
|
|
|
2
|
|
|
2
|
|
|
83
|
|
|
5
|
|
|
489
|
|
By-product
credits
a
|
|
(241
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
29
|
|
|
28
|
|
|
-
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
29
|
|
Unit
net cash costs
|
|
264
|
|
|
425
|
|
|
2
|
|
|
3
|
|
|
83
|
|
|
5
|
|
|
518
|
|
Depreciation
and amortization
|
|
33
|
|
|
24
|
|
|
-
|
|
|
-
|
|
|
9
|
|
|
-
|
|
|
33
|
|
Noncash
and nonrecurring costs, net
|
|
5
|
|
|
5
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5
|
|
Total
unit costs
|
|
302
|
|
|
454
|
|
|
2
|
|
|
3
|
|
|
92
|
|
|
5
|
|
|
556
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
(87
|
)
|
|
(87
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(87
|
)
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
(8
|
)
|
|
(8
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(8
|
)
|
Gross
profit
|
$
|
676
|
|
$
|
525
|
|
$
|
3
|
|
$
|
4
|
|
$
|
143
|
|
$
|
1
|
|
$
|
676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,327
|
|
$
|
489
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
above
|
|
N/A
|
|
|
5
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
North America operations
|
|
1,680
|
|
|
1,526
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
251
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging per above
|
|
(87
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
North American mining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
2,920
|
|
|
2,271
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
2,887
|
|
|
579
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
statements
|
$
|
5,807
|
|
$
|
2,850
|
|
$
|
379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Molybdenum
by-product credits reflect volumes produced at market-based pricing,
and
also includes tolling revenues at
Sierrita.
|
Table of Contents
North
America Mining Product Revenues and Production Costs (Pro
Forma)
Three
Months Ended June 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Molybdenum
|
a
|
Other
|
|
Total
|
|
Revenues,
after adjustments shown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
below
|
$
|
1,259
|
|
$
|
1,259
|
|
$
|
2
|
|
$
|
6
|
|
$
|
187
|
|
$
|
4
|
|
$
|
1,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
345
|
|
|
256
|
|
|
2
|
|
|
3
|
|
|
89
|
|
|
4
|
|
|
354
|
|
By-product
credits
a
|
|
(190
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
21
|
|
|
20
|
|
|
-
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
21
|
|
Unit
net cash costs
|
|
176
|
|
|
276
|
|
|
2
|
|
|
4
|
|
|
89
|
|
|
4
|
|
|
375
|
|
Depreciation
and amortization
|
|
35
|
|
|
27
|
|
|
-
|
|
|
1
|
|
|
7
|
|
|
-
|
|
|
35
|
|
Noncash
and nonrecurring costs, net
|
|
5
|
|
|
5
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5
|
|
Total
unit costs
|
|
216
|
|
|
308
|
|
|
2
|
|
|
5
|
|
|
96
|
|
|
4
|
|
|
415
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
(852
|
)
|
|
(852
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(852
|
)
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
(6
|
)
|
|
(6
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6
|
)
|
Gross
profit
|
$
|
185
|
|
$
|
92
|
|
$
|
-
|
|
$
|
2
|
|
$
|
91
|
|
$
|
-
|
|
$
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,458
|
|
$
|
354
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
above
|
|
N/A
|
|
|
5
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging per above
|
|
(852
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
276
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
3,812
|
|
|
2,071
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported in FCX’s pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
financial results
|
$
|
4,418
|
|
$
|
2,706
|
|
$
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Molybdenum
by-product credits reflect volumes produced at market-based pricing,
and
also includes tolling revenues at
Sierrita.
|
North
America Mining Product Revenues and Production Costs (Pro
Forma)
Six
Months Ended June 30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Molybdenum
|
a
|
Other
|
|
Total
|
|
Revenues,
after adjustments shown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
below
|
$
|
1,886
|
|
$
|
1,886
|
|
$
|
7
|
|
$
|
12
|
|
$
|
413
|
|
$
|
10
|
|
$
|
2,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
870
|
|
|
745
|
|
|
1
|
|
|
4
|
|
|
152
|
|
|
8
|
|
|
910
|
|
By-product
credits
a
|
|
(403
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
51
|
|
|
50
|
|
|
-
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
51
|
|
Unit
net cash costs
|
|
518
|
|
|
795
|
|
|
1
|
|
|
5
|
|
|
152
|
|
|
8
|
|
|
961
|
|
Depreciation
and amortization
|
|
73
|
|
|
58
|
|
|
1
|
|
|
-
|
|
|
14
|
|
|
-
|
|
|
73
|
|
Noncash
and nonrecurring costs, net
|
|
11
|
|
|
10
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
-
|
|
|
11
|
|
Total
unit costs
|
|
602
|
|
|
863
|
|
|
2
|
|
|
5
|
|
|
167
|
|
|
8
|
|
|
1,045
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
(79
|
)
|
|
(79
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(79
|
)
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
(18
|
)
|
|
(18
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(18
|
)
|
Gross
profit
|
$
|
1,187
|
|
$
|
926
|
|
$
|
5
|
|
$
|
7
|
|
$
|
247
|
|
$
|
2
|
|
$
|
1,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
2,328
|
|
$
|
910
|
|
$
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
above
|
|
N/A
|
|
|
11
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging per above
|
|
(79
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
429
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
8,398
|
|
|
4,305
|
|
|
521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported in FCX’s pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
financial results
|
$
|
10,647
|
|
$
|
5,655
|
|
$
|
742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Molybdenum
by-product credits reflect volumes produced at market-based pricing,
and
also includes tolling revenues at
Sierrita.
|
North
America Mining Product Revenues and Production Costs (Pro
Forma)
Six
Months Ended June 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Molybdenum
|
a
|
Other
|
|
Total
|
|
Revenues,
after adjustments shown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
below
|
$
|
1,999
|
|
$
|
1,999
|
|
$
|
5
|
|
$
|
11
|
|
$
|
378
|
|
$
|
7
|
|
$
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
672
|
|
|
513
|
|
|
3
|
|
|
5
|
|
|
164
|
|
|
6
|
|
|
692
|
|
By-product
credits
a
|
|
(381
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
44
|
|
|
41
|
|
|
1
|
|
|
2
|
|
|
-
|
|
|
-
|
|
|
44
|
|
Unit
net cash costs
|
|
335
|
|
|
554
|
|
|
4
|
|
|
7
|
|
|
164
|
|
|
6
|
|
|
736
|
|
Depreciation
and amortization
|
|
71
|
|
|
56
|
|
|
1
|
|
|
1
|
|
|
14
|
|
|
-
|
|
|
71
|
|
Noncash
and nonrecurring costs, net
|
|
10
|
|
|
9
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
-
|
|
|
10
|
|
Total
unit costs
|
|
416
|
|
|
619
|
|
|
5
|
|
|
8
|
|
|
179
|
|
|
6
|
|
|
817
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
(1,227
|
)
|
|
(1,227
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,227
|
)
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
(13
|
)
|
|
(13
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(13
|
)
|
Gross
profit
|
$
|
343
|
|
$
|
140
|
|
$
|
-
|
|
$
|
3
|
|
$
|
199
|
|
$
|
1
|
|
$
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
2,400
|
|
$
|
692
|
|
$
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
above
|
|
N/A
|
|
|
10
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging per above
|
|
(1,227
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
792
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
6,556
|
|
|
3,653
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported in FCX’s pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
financial results
|
$
|
7,729
|
|
$
|
5,147
|
|
$
|
687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Molybdenum
by-product credits reflect volumes produced at market-based pricing,
and
also includes tolling revenues at
Sierrita.
|
Primary
Molybdenum (Henderson) Product Revenues and Production Costs (Pro Forma)a
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
June
30,
|
|
June
30,
|
|
(In
Millions)
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Revenues,
after adjustments shown below
|
$
|
255
|
|
$
|
206
|
|
$
|
463
|
|
$
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
42
|
|
|
32
|
|
|
81
|
|
|
66
|
|
Unit
net cash costs
|
|
42
|
|
|
32
|
|
|
81
|
|
|
66
|
|
Depreciation
and amortization
|
|
9
|
|
|
9
|
|
|
18
|
|
|
17
|
|
Noncash
and nonrecurring costs, net
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
unit costs
|
|
51
|
|
|
41
|
|
|
99
|
|
|
83
|
|
Gross
profitb
|
$
|
204
|
|
$
|
165
|
|
$
|
364
|
|
$
|
324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
Three
Months Ended June 30, 2007
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
Totals
presented above
|
$
|
255
|
|
$
|
42
|
|
$
|
9
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
67
|
|
|
10
|
|
|
|
|
Other
molybdenum operations
|
|
208
|
|
|
297
|
|
|
3
|
|
|
|
|
Primary
molybdenum segment
|
|
463
|
|
|
406
|
|
|
22
|
|
|
|
|
Eliminations
and other
|
|
5,344
|
|
|
2,444
|
|
|
357
|
|
|
|
|
As
reported in FCX’s consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
statements
|
$
|
5,807
|
|
$
|
2,850
|
|
$
|
379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
206
|
|
$
|
32
|
|
$
|
9
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
276
|
|
|
195
|
|
|
|
|
Eliminations
and other
|
|
4,212
|
|
|
2,398
|
|
|
142
|
|
|
|
|
As
reported in FCX’s pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
financial results
|
$
|
4,418
|
|
$
|
2,706
|
|
$
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
463
|
|
$
|
81
|
|
$
|
18
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
429
|
|
|
148
|
|
|
|
|
Eliminations
and other
|
|
10,184
|
|
|
5,145
|
|
|
576
|
|
|
|
|
As
reported in FCX’s pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
financial results
|
$
|
10,647
|
|
$
|
5,655
|
|
$
|
742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
407
|
|
$
|
66
|
|
$
|
17
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
792
|
|
|
385
|
|
|
|
|
Eliminations
and other
|
|
7,322
|
|
|
4,289
|
|
|
285
|
|
|
|
|
As
reported in FCX’s pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
financial results
|
$
|
7,729
|
|
$
|
5,147
|
|
$
|
687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Three
months ended June 30, 2007, represents actual financial
results.
|
b.
|
Gross
profit reflects sales
of Henderson products based on volumes produced at market-based
pricing. On a consolidated basis, the Primary Molybdenum segment
includes profits on sales as they are made to third parties and
realizations based on actual contract
terms.
|
South
America Mining Product Revenues and Production Costs
Three
Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Other
|
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
1,216
|
|
$
|
1,216
|
|
$
|
19
|
|
$
|
8
|
|
$
|
(3
|
)a
|
$
|
1,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
281
|
|
|
276
|
|
|
4
|
|
|
2
|
|
|
-
|
|
|
281
|
|
By-product
credits
|
|
(23
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
71
|
|
|
70
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
71
|
|
Unit
net cash costs
|
|
329
|
|
|
346
|
|
|
5
|
|
|
2
|
|
|
-
|
|
|
352
|
|
Depreciation
and amortization
|
|
61
|
|
|
60
|
|
|
-
|
|
|
1
|
|
|
-
|
|
|
61
|
|
Noncash
and nonrecurring costs, net
|
|
1
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1
|
|
Total
unit costs
|
|
391
|
|
|
407
|
|
|
5
|
|
|
3
|
|
|
-
|
|
|
414
|
|
Revenue
adjustments, primarily for pricing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
prior period open sales and hedging
|
|
57
|
|
|
57
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
57
|
|
Idle
facility and other non-inventoriable costs
|
|
(7
|
)
|
|
(7
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7
|
)
|
Gross
profit
|
$
|
875
|
|
$
|
860
|
|
$
|
13
|
|
$
|
5
|
|
$
|
(3
|
)
|
$
|
875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,240
|
|
$
|
281
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
above
|
|
N/A
|
|
|
1
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
(71
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Purchased
metal
|
|
81
|
|
|
81
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
18
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
(75
|
)
|
|
(78
|
)
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging per above
|
|
57
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Total
South American mining operations
|
|
1,232
|
|
|
303
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
4,575
|
|
|
2,547
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
statements
|
$
|
5,807
|
|
$
|
2,850
|
|
$
|
379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Represents
start-up costs related to molybdenum production at Cerro
Verde.
|
South
America Mining Product Revenues and Production Costs (Pro
Forma)
Three
Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
962
|
|
$
|
962
|
|
$
|
18
|
|
$
|
8
|
|
$
|
988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
198
|
|
|
193
|
|
|
3
|
|
|
1
|
|
|
198
|
|
By-product
credits
|
|
(26
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
58
|
|
|
57
|
|
|
1
|
|
|
-
|
|
|
58
|
|
Unit
net cash costs
|
|
230
|
|
|
250
|
|
|
4
|
|
|
2
|
|
|
256
|
|
Depreciation
and amortization
|
|
49
|
|
|
49
|
|
|
-
|
|
|
-
|
|
|
49
|
|
Noncash
and nonrecurring costs, net
|
|
1
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
1
|
|
Total
unit costs
|
|
280
|
|
|
300
|
|
|
4
|
|
|
2
|
|
|
306
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and hedging
|
|
70
|
|
|
72
|
|
|
(1
|
)
|
|
(1
|
)
|
|
70
|
|
Idle
facility and other non-inventoriable costs
|
|
(4
|
)
|
|
(4
|
)
|
|
-
|
|
|
-
|
|
|
(4
|
)
|
Gross
profit
|
$
|
748
|
|
$
|
730
|
|
$
|
13
|
|
$
|
5
|
|
$
|
748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
988
|
|
$
|
198
|
|
$
|
49
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
1
|
|
|
N/A
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
(58
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Purchased
metal
|
|
81
|
|
|
81
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and hedging per above
|
|
70
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
276
|
|
|
195
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
3,337
|
|
|
2,150
|
|
|
102
|
|
|
|
|
|
|
|
As
reported in FCX’s pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
financial results
|
$
|
4,418
|
|
$
|
2,706
|
|
$
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
America Mining Product Revenues and Production Costs (Pro
Forma)
Six
Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Other
|
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
2,140
|
|
$
|
2,141
|
|
$
|
35
|
|
$
|
15
|
|
$
|
(3
|
)a
|
$
|
2,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
534
|
|
|
518
|
|
|
11
|
|
|
5
|
|
|
-
|
|
|
534
|
|
By-product
credits
|
|
(47
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
126
|
|
|
123
|
|
|
2
|
|
|
1
|
|
|
-
|
|
|
126
|
|
Unit
net cash costs
|
|
613
|
|
|
641
|
|
|
13
|
|
|
6
|
|
|
-
|
|
|
660
|
|
Depreciation
and amortization
|
|
105
|
|
|
104
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
105
|
|
Noncash
and nonrecurring costs, net
|
|
1
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1
|
|
Total
unit costs
|
|
719
|
|
|
746
|
|
|
14
|
|
|
6
|
|
|
-
|
|
|
766
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
18
|
|
|
18
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
18
|
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
(14
|
)
|
|
(13
|
)
|
|
(1
|
)
|
|
-
|
|
|
-
|
|
|
(14
|
)
|
Gross
profit
|
$
|
1,425
|
|
$
|
1,400
|
|
$
|
20
|
|
$
|
8
|
|
$
|
(3
|
)
|
$
|
1,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
2,188
|
|
$
|
534
|
|
$
|
105
|
|
|
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
above
|
|
N/A
|
|
|
1
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
(126
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Purchased
metal
|
|
148
|
|
|
148
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging per above
|
|
18
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
429
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
8,419
|
|
|
4,543
|
|
|
489
|
|
|
|
|
|
|
|
|
|
|
As
reported in FCX’s pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
financial results
|
$
|
10,647
|
|
$
|
5,655
|
|
$
|
742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Represents
start-up costs related to molybdenum production at Cerro
Verde.
|
South
America Mining Product Revenues and Production Costs (Pro
Forma)
Six
Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
1,742
|
|
$
|
1,742
|
|
$
|
35
|
|
$
|
14
|
|
$
|
1,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
403
|
|
|
392
|
|
|
8
|
|
|
3
|
|
|
403
|
|
By-product
credits
|
|
(49
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
100
|
|
|
97
|
|
|
2
|
|
|
1
|
|
|
100
|
|
Unit
net cash costs
|
|
454
|
|
|
489
|
|
|
10
|
|
|
4
|
|
|
503
|
|
Depreciation
and amortization
|
|
96
|
|
|
94
|
|
|
2
|
|
|
-
|
|
|
96
|
|
Noncash
and nonrecurring costs, net
|
|
1
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
1
|
|
Total
unit costs
|
|
551
|
|
|
584
|
|
|
12
|
|
|
4
|
|
|
600
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and hedging
|
|
(45
|
)
|
|
(36
|
)
|
|
(6
|
)
|
|
(3
|
)
|
|
(45
|
)
|
Idle
facility and other non-inventoriable costs
|
|
(9
|
)
|
|
(9
|
)
|
|
-
|
|
|
-
|
|
|
(9
|
)
|
Gross
profit
|
$
|
1,137
|
|
$
|
1,113
|
|
$
|
17
|
|
$
|
7
|
|
$
|
1,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,791
|
|
$
|
403
|
|
$
|
96
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
1
|
|
|
N/A
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
(100
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Purchased
metal
|
|
126
|
|
|
126
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and hedging per above
|
|
(45
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
792
|
|
|
385
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
5,957
|
|
|
3,825
|
|
|
206
|
|
|
|
|
|
|
|
As
reported in FCX’s pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
financial results
|
$
|
7,729
|
|
$
|
5,147
|
|
$
|
687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
Mining Product Revenues and Production Costs
Three
Months Ended June 30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown below
|
$
|
1,169
|
|
$
|
1,169
|
|
$
|
584
|
|
$
|
15
|
|
$
|
1,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
379
|
|
|
251
|
|
|
125
|
|
|
3
|
|
|
379
|
|
Gold
and silver credits
|
|
(599
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
111
|
|
|
73
|
|
|
37
|
|
|
1
|
|
|
111
|
|
Royalty
on metals
|
|
48
|
|
|
32
|
|
|
16
|
|
|
-
|
|
|
48
|
|
Unit
net cash (credits) costs
|
|
(61
|
)
|
|
356
|
|
|
178
|
|
|
4
|
|
|
538
|
|
Depreciation
and amortization
|
|
56
|
|
|
37
|
|
|
18
|
|
|
1
|
|
|
56
|
|
Noncash
and nonrecurring costs, net
|
|
10
|
|
|
7
|
|
|
3
|
|
|
-
|
|
|
10
|
|
Total
unit costs
|
|
5
|
|
|
400
|
|
|
199
|
|
|
5
|
|
|
604
|
|
Revenue
adjustments, primarily for pricing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
prior period open sales
|
|
153
|
|
|
153
|
|
|
-
|
|
|
-
|
|
|
153
|
|
PT
Smelting intercompany profit elimination
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Gross
profit
|
$
|
1,317
|
|
$
|
922
|
|
$
|
385
|
|
$
|
10
|
|
$
|
1,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,768
|
|
$
|
379
|
|
$
|
56
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
10
|
|
|
N/A
|
|
|
|
|
|
|
|
Less: Treatment
charges per above
|
|
(111
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Royalty
per above
|
|
(48
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
prior period open sales per above
|
|
153
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Total
Indonesia mining operations
|
|
1,762
|
|
|
390
|
|
|
56
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
4,045
|
|
|
2,460
|
|
|
323
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
statements
|
$
|
5,807
|
|
$
|
2,850
|
|
$
|
379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
Mining Product Revenues and Production Costs
Three
Months Ended June 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown below
|
$
|
742
|
|
$
|
742
|
|
$
|
176
|
|
$
|
10
|
|
$
|
928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
271
|
|
|
217
|
|
|
51
|
|
|
3
|
|
|
271
|
|
Gold
and silver credits
|
|
(186
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
107
|
|
|
85
|
|
|
21
|
|
|
1
|
|
|
107
|
|
Royalty
on metals
|
|
23
|
|
|
18
|
|
|
4
|
|
|
1
|
|
|
23
|
|
Unit
net cash costs
|
|
215
|
|
|
320
|
|
|
76
|
|
|
5
|
|
|
401
|
|
Depreciation
and amortization
|
|
34
|
|
|
28
|
|
|
6
|
|
|
-
|
|
|
34
|
|
Noncash
and nonrecurring costs, net
|
|
10
|
|
|
8
|
|
|
2
|
|
|
-
|
|
|
10
|
|
Total
unit costs
|
|
259
|
|
|
356
|
|
|
84
|
|
|
5
|
|
|
445
|
|
Revenue
adjustments, primarily for pricing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
prior period open sales
|
|
237
|
|
|
237
|
|
|
-
|
|
|
-
|
|
|
237
|
|
PT
Smelting intercompany profit elimination
|
|
(8
|
)
|
|
(6
|
)
|
|
(2
|
)
|
|
-
|
|
|
(8
|
)
|
Gross
profit
|
$
|
712
|
|
$
|
617
|
|
$
|
90
|
|
$
|
5
|
|
$
|
712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
928
|
|
$
|
271
|
|
$
|
34
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
10
|
|
|
N/A
|
|
|
|
|
|
|
|
Less: Treatment
charges per above
|
|
(107
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Royalty
per above
|
|
(23
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
prior period open sales per above
|
|
237
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Total
Indonesia mining operations
|
|
1,035
|
|
|
281
|
|
|
34
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
391
|
|
|
324
|
|
|
10
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
statements
|
$
|
1,426
|
|
$
|
605
|
|
$
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
Mining Product Revenues and Production Costs
Six
Months Ended June 30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown below
|
$
|
2,578
|
|
$
|
2,578
|
|
$
|
1,207
|
|
$
|
36
|
|
$
|
3,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
693
|
|
|
468
|
|
|
219
|
|
|
6
|
|
|
693
|
|
Gold
and silver credits
|
|
(1,243
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
265
|
|
|
178
|
|
|
84
|
|
|
3
|
|
|
265
|
|
Royalty
on metals
|
|
97
|
|
|
66
|
|
|
30
|
|
|
1
|
|
|
97
|
|
Unit
net cash (credits) costs
|
|
(188
|
)
|
|
712
|
|
|
333
|
|
|
10
|
|
|
1,055
|
|
Depreciation
and amortization
|
|
115
|
|
|
78
|
|
|
36
|
|
|
1
|
|
|
115
|
|
Noncash
and nonrecurring costs, net
|
|
19
|
|
|
13
|
|
|
6
|
|
|
-
|
|
|
19
|
|
Total
unit (credits) costs
|
|
(54
|
)
|
|
803
|
|
|
375
|
|
|
11
|
|
|
1,189
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales
|
|
12
|
|
|
12
|
|
|
-
|
|
|
-
|
|
|
12
|
|
PT
Smelting intercompany profit elimination
|
|
(36
|
)
|
|
(24
|
)
|
|
(11
|
)
|
|
(1
|
)
|
|
(36
|
)
|
Gross
profit
|
$
|
2,608
|
|
$
|
1,763
|
|
$
|
821
|
|
$
|
24
|
|
$
|
2,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
3,821
|
|
$
|
693
|
|
$
|
115
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
19
|
|
|
N/A
|
|
|
|
|
|
|
|
Less: Treatment
charges per above
|
|
(265
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Royalty
per above
|
|
(97
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
prior period open sales per above
|
|
12
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Total
Indonesia mining operations
|
|
3,471
|
|
|
713
|
|
|
115
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
4,639
|
|
|
3,089
|
|
|
380
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
statements
|
$
|
8,110
|
|
$
|
3,802
|
|
$
|
495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
Mining Product Revenues and Production Costs
Six
Months Ended June 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown below
|
$
|
1,460
|
|
$
|
1,460
|
|
$
|
459
|
|
$
|
18
|
|
$
|
1,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
546
|
|
|
412
|
|
|
129
|
|
|
5
|
|
|
546
|
|
Gold
and silver credits
|
|
(477
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
191
|
|
|
144
|
|
|
45
|
|
|
2
|
|
|
191
|
|
Royalty
on metals
|
|
42
|
|
|
32
|
|
|
10
|
|
|
-
|
|
|
42
|
|
Unit
net cash costs
|
|
302
|
|
|
588
|
|
|
184
|
|
|
7
|
|
|
779
|
|
Depreciation
and amortization
|
|
68
|
|
|
51
|
|
|
16
|
|
|
1
|
|
|
68
|
|
Noncash
and nonrecurring costs, net
|
|
22
|
|
|
16
|
|
|
6
|
|
|
-
|
|
|
22
|
|
Total
unit costs
|
|
392
|
|
|
655
|
|
|
206
|
|
|
8
|
|
|
869
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and gold hedging
|
|
128
|
a
|
|
197
|
|
|
(69
|
)
|
|
-
|
|
|
128
|
|
PT
Smelting intercompany profit recognized
|
|
13
|
|
|
10
|
|
|
3
|
|
|
-
|
|
|
13
|
|
Gross
profit
|
$
|
1,209
|
|
$
|
1,012
|
|
$
|
187
|
|
$
|
10
|
|
$
|
1,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,937
|
|
$
|
546
|
|
$
|
68
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
22
|
|
|
N/A
|
|
|
|
|
|
|
|
Less: Treatment
charges per above
|
|
(191
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Royalty
per above
|
|
(42
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and hedging per above
|
|
128
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Total
Indonesia mining operations
|
|
1,832
|
|
|
568
|
|
|
68
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
680
|
|
|
515
|
|
|
19
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
statements
|
$
|
2,512
|
|
$
|
1,083
|
|
$
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
a $69 million or $0.16 per pound loss on the redemption of FCX’s
Gold-Denominated Preferred Stock, Series
II.
|
CAUTIONARY
STATEMENT
Our
discussion and analysis contains forward-looking statements in which we discuss
our expectations regarding future performance. Forward-looking statements are
all statements other than historical facts, such as those regarding anticipated
sales volumes, ore grades, milling rates, commodity prices, selling, general
and
administrative expenses, unit net cash (credits) costs, operating cash flows,
royalty costs, capital expenditures, reclamation and closure costs,
environmental expenditures, litigation expenses and liabilities, the impact
of
copper, gold and molybdenum price changes, the impact of changes in deferred
intercompany profits on earnings, projected debt and cash balances, treatment
charge rates, exploration efforts and results, dividend payments, liquidity
and
other financial commitments. Accuracy of the forward-looking statements depends
on assumptions about events that change over time and is thus susceptible to
periodic change based on actual experience and new developments. We caution
readers that we assume no obligation to update or publicly release any revisions
to the forward-looking statements in this Form 10-Q and, except to the extent
required by applicable law, do not intend to update or otherwise revise the
forward-looking statements more frequently than quarterly. Additionally,
important factors that might cause future results to differ from these
forward-looking statements include mine sequencing, production rates, industry
risks, regulatory changes, commodity prices, political risks, weather-related
risks, labor relations, environmental risks, litigation results, currency
translation risks and other factors described in more detail under the heading
“Risk Factors” in Part II, Item 1A of the Quarterly Report on Form 10-Q for the
quarter ended March 31, 2007.
For
information about changes in our market risks since the year ended December
31,
2006, see “Disclosures About Market Risks” included in Part I, Item 2 of this
Quarterly Report on Form 10-Q.
On
March
19, 2007, Freeport McMoRan Copper & Gold Inc. (FCX) completed its
acquisition of Phelps Dodge Corporation (Phelps Dodge), at which time Phelps
Dodge became a wholly owned subsidiary of FCX. For accounting purposes, FCX
was
designated the acquiring entity.
FCX
considers the acquisition of Phelps Dodge material to the results of its
operations, financial position and cash flows from the date of acquisition
through June 30, 2007, and believes that the internal controls and procedures
of
Phelps Dodge have a material effect on FCX’s internal control over financial
reporting. FCX is integrating the Phelps Dodge operations and has extended
its
Sarbanes-Oxley Act Section 404 compliance program to include Phelps Dodge.
FCX will report on its assessment of its combined operations within the time
provided by the Sarbanes-Oxley Act and applicable rules relating to business
acquisitions.
Although
FCX has generally maintained its disclosure controls and procedures that were
in
effect prior to the acquisition, since the acquisition there have been changes
in FCX’s internal control over financial reporting, including preparation of the
consolidated financial statements and changes of personnel with direct
responsibility for financial reporting. FCX believes these changes have not
negatively affected its internal control over financial reporting.
In
addition, as a matter of course, FCX continues to update its internal controls
over financial reporting as necessary to accommodate any modifications to its
business processes or accounting procedures.
Our
chief
executive officer and chief financial officer, with the participation of
management, have evaluated the effectiveness of our “disclosure controls and
procedures” (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934) as of the end of the period covered by this quarterly
report on Form 10-Q. Based on their evaluation, they have concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to FCX (including our consolidated subsidiaries)
required to be disclosed in our periodic Securities and Exchange Commission
filings.
Environmental
Proceedings
New
Mexico Closure Permits. Reference is made to Item 1 Legal
Proceedings of the Company’s Form 10-Q for the quarter ended March 31,
2007.
Litigation
is pending regarding closure permits issued by the New Mexico Environment
Department for the Phelps Dodge Tyrone, Inc. (Tyrone) and Chino Mines Company
(Chino) operations. Tyrone appealed a decision by the New Mexico Water Quality
Control Commission (WQCC) upholding certain conditions imposed by the New Mexico
Environment Department in Tyrone’s Supplemental Discharge Permit for Closure,
DP-1341. Phelps Dodge Tyrone, Inc. v. New Mexico Water Quality Control
Commission, No. 25027. In this case, Tyrone objected to permit conditions
requiring Tyrone to perform approximately $75 million of additional closure
work. On June 15, 2006, the New Mexico Court of Appeals issued its decision
overturning two permit conditions that Tyrone had challenged in its closure
permit. The New Mexico Supreme Court denied Petitions for Certiorari and the
case has been remanded by the Court of Appeals to WQCC for further proceedings
to address the Court of Appeals decision. A hearing before the WQCC began on
July 23, 2007 and is expected to continue for several weeks.
EPA
Notice re Violation of Consent Decree – Sierrita
operations. Reference is made to Item 1 Legal
Proceedings of the Company’s Form 10-Q for the quarter ended March 31,
2007.
In
September 2006, the U.S. Environmental Protection Agency (EPA) notified Phelps
Dodge Sierrita, Inc. (Sierrita) of the possible assessment of stipulated
penalties arising from deviations from certain provisions of a Consent Decree
dated June 21, 2004, by and among Sierrita, the United States and the Arizona
Department of Environmental Quality (ADEQ), entitled United States and the
State of Arizona v. Phelps Dodge Sierrita, Inc. No. CIV 04-312 TUC FRZ.
Sierrita is engaged in negotiations with EPA and ADEQ concerning stipulated
penalties and a joint request to the federal court for termination of the
Consent Decree.
Antitrust
Claims. Reference is made to Item 1 Legal
Proceedings of the Company’s Form 10-Q for the quarter ended March 31,
2007.
With
respect to the consolidated class action in federal court entitled In Re
Carbon Black Antitrust Litigation, the Company has entered into an agreement
to settle those claims for a payment of $6 million, which has been recorded
as a
liability. This settlement is subject to approval by the court
following a hearing scheduled on September 27, 2007, after notice to the class
members.
Shareholder
Litigation. Reference is made to Item 1
Legal Proceedings of the Company’s Form 10-Q for the quarter ended March 31,
2007 regarding litigation brought on behalf of a purported class of all
shareholders of Phelps Dodge, one filed in the Supreme Court of the State of
New
York, County of New York (Phillips v. Phelps Dodge Corporation, et al.,
No. 06604255, filed December 12, 2006) and two in the Superior Court of the
State of Arizona, County of Maricopa (Nathanson v. Phelps Dodge Corporation,
et al., No. CV2006-017963, filed November 22, 2006, and Knisley v. Phelps
Dodge Corp. et al., No. CV2006-053422, filed December 14,
2006).
The
parties have entered into a stipulation of settlement which incorporates the
terms of the agreement in principle described in the Form 10-Q for the quarter
ended March 31, 2007. This settlement is subject to approval by the
Arizona court following a hearing scheduled on September 10, 2007, after notice
to class members.
In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Item 1A, Risk Factors, contained in our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2007.
(c) In
October 2003, our Board of Directors approved a new open market share purchase
program for up to 20 million shares, which replaced our previous program. The
program does not have an expiration date. No shares were purchased during the
three-month period ended June 30, 2007, and 12.2 million shares remain available
for purchase.
The
following table sets forth information with respect to shares of common stock
of
FCX purchased by FCX during the three months ended June 30, 2007:
|
|
|
|
|
|
|
|
|
(d)
Maximum Number
|
|
|
|
|
|
|
|
(c)
Total Number of
|
|
(or
Approximate
|
|
|
(a)
Total
|
|
|
|
|
Shares
(or Units)
|
|
Dollar
Value) of Shares
|
|
|
Number
of
|
|
(b)
Average
|
|
Purchased
as Part of
|
|
(or
Units) That May
|
|
|
Shares
(or Units)
|
|
Price
Paid Per
|
|
Publicly
Announced
|
|
Yet
Be Purchased Under
|
Period
|
|
Purchased*
|
|
Share
(or Unit)
|
|
Plans
or Programs
|
|
the
Plans or Programs
|
April
1-30, 2007
|
|
3,422
|
|
$
|
68.66
|
|
-
|
|
-
|
May
1-31, 2007
|
|
52
|
|
$
|
68.42
|
|
-
|
|
-
|
June
1-30, 2007
|
|
–
|
|
$
|
–
|
|
-
|
|
-
|
Total
|
|
3,474
|
|
$
|
68.66
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
*
|
This
category includes shares repurchased under FCX’s applicable stock option
and restricted stock plans (Plans) and its non-qualified supplemental
savings plan (SSP). Through the Plans, FCX repurchases shares to
satisfy
tax obligations on restricted stock awards, and in the SSP repurchases
shares as a result of FCX dividends
paid.
|
Our
annual meeting of stockholders was held on July 10, 2007 (the “Annual Meeting”).
Proxies were solicited pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended. The following matters were submitted to a vote of
security holders during our Annual Meeting:
Name
|
For
|
Withheld
|
1.
Election of Directors:
|
|
|
Richard
C. Adkerson
|
307,285,499
|
8,574,480
|
Robert
J. Allison, Jr.
|
298,069,210
|
17,790,769
|
Robert
A. Day
|
308,457,754
|
7,402,225
|
Gerald
J. Ford
|
311,368,423
|
4,491,556
|
H.
Devon Graham, Jr.
|
310,503,817
|
5,356,162
|
J.
Bennett Johnston
|
290,962,391
|
24,897,588
|
Charles
C. Krulak
|
311,624,858
|
4,235,121
|
Bobby
Lee Lackey
|
308,649,157
|
7,210,822
|
Jon
C. Madonna
|
311,583,410
|
4,276,569
|
Dustan
E. McCoy
|
310,327,201
|
5,532,778
|
Gabrielle
K. McDonald
|
291,104,710
|
24,755,269
|
James
R. Moffett
|
305,864,572
|
9,995,407
|
B.M.
Rankin, Jr.
|
291,023,306
|
24,836,673
|
J.
Stapleton Roy
|
291,173,224
|
24,686,755
|
Stephen
H. Siegele
|
311,680,276
|
4,179,703
|
J.
Taylor Wharton
|
308,684,532
|
7,175,447
|
There
were no abstentions with respect to the election of directors.
|
For
|
Against
|
Abstentions
|
Broker
Non-
Votes
|
2.
Ratification of Ernst & Young LLP as independent
auditors.
|
312,368,614
|
1,542,878
|
1,948,487
|
–
|
3.
Proposal to adopt amendments to the 2006 Stock Incentive
Plan.
|
217,728,876
|
43,445,626
|
2,387,707
|
52,297,770
|
The
exhibits to this report are listed in the Exhibit Index beginning on Page E-1
hereof.
FREEPORT-McMoRan
COPPER & GOLD INC.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
FREEPORT-McMoRan
COPPER & GOLD INC.
By: /s/
C. Donald Whitmire, Jr.
C.
Donald
Whitmire, Jr.
Vice
President and
Controller-Financial
Reporting
(authorized
signatory and
Principal
Accounting Officer)
Date: August
9, 2007
Freeport-McMoRan
Copper & Gold Inc.
Exhibit
Number Description
2.1
|
|
Agreement
and Plan of Merger dated as of November 18, 2006, by and among
Freeport-McMoRan Copper & Gold Inc. (FCX), Phelps Dodge Corporation
and Panther Acquisition Corporation. Incorporated by reference
to Exhibit 2.1 to the Preliminary Joint Proxy Statement/Prospectus
included in the Registration Statement on Form S-4 (File No. 333-139252)
filed December 11, 2006, as amended on January 18, 2007 and February
12,
2007.
|
|
|
|
3.1
|
|
Amended
and Restated Certificate of Incorporation of FCX. Incorporated
by
reference to Exhibit 3.1 to the Current Report on Form 8-K of FCX
dated
March 19, 2007.
|
|
|
|
3.2
|
|
Amended
and Restated By-Laws of FCX, as amended through May 1, 2007. Incorporated
by reference to Exhibit 3.3 to the Current Report on Form 8-K of
FCX dated
May 1, 2007.
|
|
|
|
4.1
|
|
Certificate
of Designations of 5½% Convertible Perpetual Preferred Stock of FCX.
Incorporated by reference to Exhibit 4.1 to the Current Report
on Form 8-K
of FCX dated March 30, 2004.
|
|
|
|
4.2
|
|
Credit
Agreement dated as of March 19, 2007, by and among FCX, the lenders
party
thereto, the issuing banks party thereto, JPMorgan Chase Bank,
N.A. as
administrative agent and collateral agent, and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as syndication agent. Incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K of
FCX dated
March 19, 2007.
|
|
|
|
4.3
|
|
Amendment
Agreement dated as of July 3, 2007, amending the Senior Secured
Credit
Agreement dated as of March 19, 2007, among Freeport-McMoRan Copper
&
Gold Inc., the Lenders party thereto, the Issuing Banks party thereto,
and
JPMorgan Chase Bank, N.A., as Administrative Agent and as Collateral
Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
Syndication Agent. Incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K of FCX dated July 10,
2007.
|
|
|
|
4.4
|
|
Amended
and Restated Credit Agreement dated as of March 19, 2007, by and
among
FCX, PT Freeport Indonesia, the lenders party thereto, the issuing
banks
party thereto, JPMorgan Chase Bank, N.A. as administrative agent,
collateral agent, security agent and JAA security agent, U.S. Bank
National Association, as FI trustee, and Merrill Lynch, Pierce,
Fenner
& Smith Incorporated, as syndication agent. Incorporated by reference
to Exhibit 10.2 to the Current Report on Form 8-K of FCX dated
March 19,
2007.
|
|
|
|
4.5
|
|
Amendment
Agreement dated as of July 3, 2007, amending the Amended and Restated
Senior Secured Credit Agreement dated as of March 19, 2007, which
amended
and restated the Amended and Restated Credit Agreement, dated as
of July
25, 2006, which amended and restated the Amended and Restated Credit
Agreement, dated as of September 30, 2003, which amended and restated
the
Amended and Restated Credit Agreement, dated as of October 19,
2001, which
amended and restated both the Credit Agreement, originally dated
as of
October 27, 1989 and amended and restated as of June 1, 1993 and
the
Credit Agreement, originally dated as of June 30, 1995, among
Freeport-McMoRan Copper & Gold Inc., PT Freeport Indonesia, U.S. Bank
National Association, as trustee for the Lenders and certain other
lenders
under the FI Trust Agreement, the Lenders party thereto, the Issuing
Banks
party thereto, and JPMorgan Chase Bank, N.A., as Administrative
Agent,
Security Agent, JAA Security Agent and Collateral Agent, and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as Syndication
Agent. Incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K of FCX dated July 10, 2007.
|
|
|
|
4.6
|
|
Senior
Indenture dated as of November 15, 1996, from FCX to The Chase
Manhattan
Bank, as Trustee. Incorporated by reference to Exhibit 4.4 to the
Registration Statement on Form S-3 (File No. 333-72760) of FCX
filed
November 5, 2001 (the FCX November 5, 2001 Form S-3).
|
|
|
|
Table of Contents
4.7
|
|
First
Supplemental Indenture dated as of November 18, 1996, from FCX
to The
Chase Manhattan Bank, as Trustee, providing for the issuance of
the Senior
Notes and supplementing the Senior Indenture dated November 15,
1996, from
FCX to such Trustee, providing for the issuance of the 7.50% Senior
Notes
due 2006 and the 7.20% Senior Notes due 2026. Incorporated by reference
to
Exhibit 4.5 to the FCX November 5, 2001 Form S-3.
|
|
|
|
4.8
|
|
Indenture
dated as of January 29, 2003, from FCX to The Bank of New York,
as
Trustee, with respect to the 10⅛% Senior Notes due 2010. Incorporated by
reference to Exhibit 4.1 to the Current Report on Form 8-K of FCX
dated
February 6, 2003.
|
|
|
|
4.9
|
|
Supplemental
Indenture dated March 19, 2007 from FCX to the Bank of New York,
as
Trustee, providing for an equal and ratable subsidiary guaranty
and
supplementing the Indenture dated January 23, 2003. Incorporated
by
reference to Exhibit 4.7 to the Quarterly Report on Form 10-Q of
FCX for
the quarter ended March 31, 2007 (the FCX First-Quarter 2007 Form
10-Q).
|
4.10
|
|
Indenture
dated as of February 11, 2003, from FCX to The Bank of New York,
as
Trustee, with respect to the 7% Convertible Senior Notes due 2011.
Incorporated by reference to Exhibit 4.1 to the Current Report
on Form 8-K
of FCX dated February 11, 2003.
|
|
|
|
4.11
|
|
Indenture
dated as of February 3, 2004, from FCX to The Bank of New York,
as
Trustee, with respect to the 6⅞% Senior Notes due 2014. Incorporated by
reference to Exhibit 4.12 to the Annual Report on Form 10-K of
FCX for the
fiscal year ended December 31, 2003 (the FCX 2003 Form
10-K).
|
|
|
|
4.12
|
|
Supplemental
Indenture dated March 19, 2007 from FCX to the Bank of New York,
as
Trustee, providing for an equal and ratable subsidiary guaranty
and
supplementing the Indenture dated February 3, 2004. Incorporated
by
reference to Exhibit 4.10 to the FCX First-Quarter 2007 Form
10-Q.
|
|
|
|
4.13
|
|
Rights
Agreement dated as of May 3, 2000, between FCX and ChaseMellon
Shareholder
Services, L.L.C., as Rights Agent. Incorporated by reference to
Exhibit
4.26 to the Quarterly Report on Form 10-Q of FCX for the quarter
ended
March 31, 2000.
|
|
|
|
4.14
|
|
Amendment
No. 1 to Rights Agreement dated as of February 26, 2002, between
FCX and
Mellon Investor Services. Incorporated by reference to Exhibit
4.16 to the
Quarterly Report on Form 10-Q of FCX for the quarter ended March
31,
2002.
|
|
|
|
4.15
|
|
Indenture
dated as of March 19, 2007, from FCX to The Bank of New York, as
Trustee,
with respect to the 8.25% Senior Notes due 2015, 8.375% Senior
Notes due
2017, and the Senior Floating Rate Notes due 2015. Incorporated
by
reference to Exhibit 4.1 to the Current Report on Form 8-K of FCX
dated
March 19, 2007.
|
|
|
|
4.16
|
|
Certificate
of Designations of 6¾% Mandatory Convertible Preferred Stock of FCX.
Incorporated by reference to Exhibit 4.1 to the Current Report
on Form 8-K
of FCX dated March 22, 2007.
|
|
|
|
|
|
Note: Certain
instruments with respect to long-term debt of FCX have not been
filed as
exhibits to this Quarterly Report on Form 10-Q since the total
amount of
securities authorized under any such instrument does not exceed
10 percent
of the total assets of FCX and its subsidiaries on a consolidated
basis. FCX agrees to furnish a copy of each such instrument
upon request of the Securities and Exchange
Commission.
|
|
|
|
10.1
|
|
Contract
of Work dated December 30, 1991, between the Government of the
Republic of
Indonesia and PT Freeport Indonesia. Incorporated by reference
to Exhibit
10.1 to the FCX November 5, 2001 Form S-3.
|
|
|
|
10.2
|
|
Contract
of Work dated August 15, 1994, between the Government of the Republic
of
Indonesia and PT Irja Eastern Minerals Corporation. Incorporated
by
reference to Exhibit 10.2 to the FCX November 5, 2001 Form
S-3.
|
|
|
|
Table of Contents
10.3
|
|
Participation
Agreement dated as of October 11, 1996, between PT Freeport Indonesia
and
P.T. RTZ-CRA Indonesia with respect to a certain contract of work.
Incorporated by reference to Exhibit 10.4 to the FCX November 5,
2001 Form
S-3.
|
|
|
|
10.4
|
|
Agreement
dated as of October 11, 1996, to Amend and Restate Trust Agreement
among
PT Freeport Indonesia, FCX, the RTZ Corporation PLC, P.T. RTZ-CRA
Indonesia, RTZ Indonesian Finance Limited and First Trust of New
York,
National Association, and The Chase Manhattan Bank, as Administrative
Agent, JAA Security Agent and Security Agent. Incorporated by reference
to
Exhibit 10.3 to the Current Report on Form 8-K of FCX dated November
13,
1996.
|
|
|
|
10.5
|
|
Concentrate
Purchase and Sales Agreement dated effective December 11, 1996,
between PT
Freeport Indonesia and PT Smelting. Incorporated by reference to
Exhibit
10.3 to the FCX November 5, 2001 Form S-3.
|
|
|
|
10.6
|
|
Second
Amended and Restated Joint Venture and Shareholders’ Agreement dated as of
December 11, 1996, among Mitsubishi Materials Corporation, Nippon
Mining
and Metals Company, Limited and PT Freeport Indonesia. Incorporated
by
reference to Exhibit 10.5 to the FCX November 5, 2001 Form
S-3.
|
|
|
|
10.7
|
|
Participation
Agreement, dated as of March 16, 2005, among Phelps Dodge Corporation,
Cyprus Amax Minerals Company, a Delaware corporation, Cyprus Metals
Company, a Delaware corporation, Cyprus Climax Metals Company,
a Delaware
corporation, Sumitomo Corporation, a Japanese corporation, Summit
Global
Management, B.V., a Dutch corporation, Sumitomo Metal Mining Co.,
Ltd., a
Japanese corporation, Compañia
de Minas Buenaventura S.A.A., a Peruvian sociedad anonima abierta,
and
Sociedad Minera Cerro Verde S.A.A., a Peruvian sociedad anonima
abierta. Incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K of Phelps Dodge Corporation dated March
16,
2005.
|
|
|
|
10.8
|
|
Guarantee,
dated as of March 16, 2005, among Phelps Dodge Corporation, Sumitomo
Corporation, a Japanese corporation, and Sumitomo Metal Mining
Co., Ltd.,
a Japanese corporation incorporated by reference to Exhibit 10.2
to the
Current Report on Form 8-K of Phelps Dodge Corporation dated March
16,
2005.
|
|
|
|
10.9
|
|
Shareholders
Agreement, dated as of June 1, 2005, among Phelps Dodge Corporation,
Cyprus Climax Metals Company, a Delaware corporation, Sumitomo
Corporation, a Japanese corporation, Sumitomo Metal Mining Co.,
Ltd., a
Japanese corporation, Summit Global Management B.V., a Dutch corporation,
SMM Cerro Verde Netherlands, B.V., a Dutch corporation, Compañia
de Minas Buenaventura S.A.A., a Peruvian sociedad anonima abierta,
and
Sociedad Minera Cerro Verde S.A.A., a Peruvian sociedad anonima
abierta. Incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K of Phelps Dodge Corporation dated June
1,
2005.
|
|
|
|
10.10
|
|
Master
Participation Agreement, dated as of September 30, 2005, among
Sociedad
Minera Cerro Verde S.A.A., Japan Bank for International Cooperation,
Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi,
Ltd.,
KfW, Calyon New York Branch, The Royal Bank of Scotland plc, The
Bank of
Nova Scotia, Mizuho Corporation Bank, Ltd. and Calyon New York
Branch, as
administrative agent. Incorporated by reference to Exhibit 10.1
to the Quarterly Report on Form 10-Q of Phelps Dodge Corporation
for the
quarter ended September 30, 2005 (the PD 2005 Third Quarter Form
10-Q). First Amendment to Master Participation Agreement, dated
as of December 16, 2005. Incorporated by reference to Exhibit
10.22 to the Annual Report on Form 10-K of Phelps Dodge Corporation
for
the fiscal year ended December 31, 2005 (the PD 2005 Form
10-K).
|
|
|
|
10.11
|
|
Completion
Guarantee, dated as of September 30, 2005, among Sumitomo Metal
Mining
Co., Ltd., Sumitomo Corporation, Compañia de Minas Buenaventura S.A.A.,
Phelps Dodge Corporation, Japan Bank for International Cooperation,
Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi,
Ltd.,
KfW, Calyon New York Branch, The Royal Bank of Scotland plc, The
Bank of
Nova Scotia, Mizuho Corporate Bank, Ltd. and Calyon New York Branch,
as
administrative agent. Incorporated by reference to Exhibit 10.2
to the PD 2005 Third Quarter Form 10-Q.
|
|
|
|
Table of Contents
10.12
|
|
Master
Security Agreement, dated as of September 30, 2005, among Sociedad
Minera
Cerro Verde S.A.A., Japan Bank for International Cooperation,
Sumitomo
Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi, Ltd.,
KfW,
Calyon New York Branch, The Royal Bank of Scotland plc, The Bank
of Nova
Scotia, Mizuho Corporate Bank, Ltd., Calyon New York Branch,
as
administrative agent, and Citibank, N.A. and Citibank del Peru
S.A. Incorporated by reference to Exhibit 10.3 to the PD 2005
Third Quarter Form 10-Q.
|
|
|
|
10.13
|
|
Transfer
Restrictions Agreement, dated as of September 30, 2005, among
SMM Cerro
Verde Netherlands, B.V., Compañia de Minas Buenaventura S.A.A., Cyprus
Climax Metals Company, Sumitomo Metal Mining Co., Ltd., Sumitomo
Corporation, Phelps Dodge Corporation, Japan Bank for International
Cooperation, Sumitomo Mitsui Banking Corporation, The Bank of
Tokyo-Mitsubishi, Ltd., KfW, Calyon New York Branch, The Royal
Bank of
Scotland plc, The Bank of Nova Scotia, Mizuho Corporate Bank,
Ltd., and
Calyon New York Branch, as administrative agent. Incorporated
by reference to Exhibit 10.4 to the PD 2005 Third Quarter Form
10-Q
.
|
|
|
|
10.14
|
|
JBIC
Loan Agreement, dated as of September 30, 2005, among Sociedad
Minera
Cerro Verde S.A.A., Japan Bank for International Cooperation,
and Sumitomo
Mitsui Banking Corporation, as JBIC Agent. Incorporated by
reference to Exhibit 10.5 to the PD 2005 Third Quarter Form
10-Q. First Amendment to JBIC Loan Agreement, dated as of
December 19, 2005. Incorporated by reference to Exhibit 10.26
to the PD 2005 Form 10-K.
|
|
|
|
10.15
|
|
KfW
Loan Agreement, dated as of September 30, 2005, between Sociedad
Minera
Cerro Verde S.A.A. and KfW. Incorporated by reference to
Exhibit 10.6 to the PD 2005 Third Quarter Form 10-Q.
|
|
|
|
10.16
|
|
Loan
Agreement, dated as of September 30, 2005, among Sociedad Minera
Cerro
Verde S.A.A., Calyon New York Branch (as administrative agent),
Calyon New
York Branch, Mizuho Corporate Bank, Ltd., The Bank of Nova Scotia,
and The
Royal Bank of Scotland plc. Incorporated by reference to
Exhibit 10.7 to the PD 2005 Third Quarter Form 10-Q.
|
|
|
|
10.17
|
|
Parent
Company Guarantee, dated as of September 30, 2005, between Phelps
Dodge
Corporation and Sociedad Minera Cerro Verde S.A.A. (this guarantee
is with
respect to the Operator’s Agreement, dated June 1, 2005, between Sociedad
Minera Cerro Verde S.A.A. and Minera Phelps Dodge del Peru
S.A.C.). Incorporated by reference to Exhibit 10.8 to the PD
2005 Third Quarter Form 10-Q.
|
|
|
|
10.18
|
|
Master
Agreement and Plan of Merger between Columbian Chemicals Company,
Columbian Chemicals Acquisition LLC and Columbian Chemicals Merger
Sub,
Inc., dated November 15, 2005. Incorporated by reference to
Exhibit 10.31 to the PD 2005 Form 10-K.
|
|
|
|
10.19
|
|
Phelps
Dodge Corporation Retiree Medical Plan Welfare Benefit Trust
Agreement
between Phelps Dodge Corporation and The Northern Trust Company,
dated
December 15, 2005. Incorporated by reference to Exhibit 10.33
to the PD 2005 Form 10-K.
|
|
|
|
10.20
|
|
Reclamation
and Remediation Trust Agreement between Phelps Dodge Corporation
and Wells
Fargo Delaware Trust Company, dated December 22,
2005. Incorporated by reference to Exhibit 10.34 to the PD 2005
Form 10-K.
|
|
|
|
|
|
Executive
Compensation Plans and Arrangements (Exhibits 10.21 through
10.80)
|
|
|
|
10.21
|
|
FCX
Performance Incentive Awards Program as amended effective February
2,
1999. Incorporated by reference to the Annual Report on Form
10-K of FCX
for the fiscal year ended December 31, 1998 (the FCX 1998 Form
10-K).
|
|
|
|
10.22
|
|
FCX
President’s Award Program. Incorporated by reference to Exhibit 10.7 to
the FCX November 5, 2001 Form S-3.
|
|
|
|
10.23
|
|
FCX
1995 Stock Option Plan, as amended and restated. Incorporated
by reference
to Exhibit 10.23 to the FCX First-Quarter 2007 Form
10-Q).
|
|
|
|
Table of Contents
10.24
|
|
FCX
Amended and Restated 1999 Stock Incentive Plan, as amended and
restated.
Incorporated by reference to Exhibit 10.24 to the FCX First-Quarter
2007
Form 10-Q.
|
|
|
|
10.25
|
|
Form
of Notice of Grant of Nonqualified Stock Options under the 1999
Stock
Incentive Plan. Incorporated by reference to Exhibit 10.14 to
the
Quarterly Report on Form 10-Q of FCX for the quarter ended June
30, 2005
(the FCX 2005 Second Quarter Form 10-Q).
|
|
|
|
|
|
Form
of Restricted Stock Unit Agreement under the 1999 Stock Incentive
Plan.
|
|
|
|
|
|
Form
of Performance-Based Restricted Stock Unit Agreement under the
1999 Stock
Incentive Plan.
|
|
|
|
10.28
|
|
FCX
1999 Long-Term Performance Incentive Plan. Incorporated by reference
to
Exhibit 10.19 to the Annual Report of FCX on Form 10-K for the
fiscal year
ended December 31, 1999 (the FCX 1999 Form 10-K).
|
|
|
|
10.29
|
|
FCX
Stock Appreciation Rights Plan dated May 2, 2000. Incorporated
by
reference to Exhibit 10.20 to the Quarterly Report on Form 10-Q
of FCX for
the quarter ended June 30, 2001 (the FCX 2001 Second Quarter
Form
10-Q).
|
|
|
|
10.30
|
|
FCX
2003 Stock Incentive Plan, as amended and restated. Incorporated
by
reference to Exhibit 10.30 to the FCX First-Quarter 2007 Form
10-Q.
|
|
|
|
10.31
|
|
Form
of Notice of Grant of Nonqualified Stock Options under the 2003
Stock
Incentive Plan. Incorporated by reference to Exhibit 10.20 to
the FCX 2005
Second Quarter Form 10-Q.
|
|
|
|
|
|
Form
of Restricted Stock Unit Agreement under the 2003 Stock Incentive
Plan.
|
|
|
|
|
|
Form
of Performance-Based Restricted Stock Unit Agreement under the
2003 Stock
Incentive Plan.
|
|
|
|
10.34
|
|
FCX
1995 Stock Option Plan for Non-Employee Directors, as amended
and
restated. Incorporated by reference to Exhibit 10.34 to the FCX
First-Quarter 2007 Form 10-Q.
|
|
|
|
10.35
|
|
FCX
2004 Director Compensation Plan, as amended and restated. Incorporated
by
reference to Exhibit 10.35 to the FCX First-Quarter 2007 Form
10-Q.
|
|
|
|
10.36
|
|
Form
of Amendment No. 1 to Notice of Grant of Nonqualified Stock Options
and
Stock Appreciation Rights under the 2004 Director Compensation
Plan.
Incorporated by reference to Exhibit 10.4 to the Current Report
on Form
8-K of FCX dated May 2, 2006.
|
|
|
|
10.37
|
|
FCX
Amended and Restated 2006 Stock Incentive Plan. Incorporated
by reference
to Exhibit 10.1 to the Current Report on Form 8-K of FCX dated
July 10,
2007.
|
|
|
|
10.38
|
|
Form
of Notice of Grant of Nonqualified Stock Options under the 2006
Stock
Incentive Plan. Incorporated by reference to Exhibit 10.7 to
the Current
Report on Form 8-K of FCX dated May 2, 2006.
|
|
|
|
|
|
Form
of Restricted Stock Unit Agreement under the 2006 Stock Incentive
Plan.
|
|
|
|
|
|
Form
of Performance-Based Restricted Stock Unit Agreement under the
2006 Stock
Incentive Plan.
|
|
|
|
10.41
|
|
FCX
Director Compensation. Incorporated by reference to Exhibit 10.25
to the
Annual Report on Form 10-K of FCX for the fiscal year ended December
31,
2004 (the FCX 2004 Form 10-K).
|
|
|
|
10.42
|
|
FCX
Supplemental Executive Retirement Plan, as amended and restated.
Incorporated by reference to Exhibit 10.1 to the Current Report
on Form
8-K of FCX dated January 30, 2007.
|
|
|
|
10.43
|
|
FCX
2005 Annual Incentive Plan. Incorporated by reference to Exhibit
10.1 to
the Current Report on Form 8-K of FCX dated May 5,
2005.
|
Table of Contents
10.44
|
|
FCX
Executive Services Program. Incorporated by reference to Exhibit
10.5 to
the Current Report on Form 8-K of FCX dated May 2,
2006.
|
|
|
|
10.45
|
|
FM
Services Company Performance Incentive Awards Program as amended
effective
February 2, 1999. Incorporated by reference to Exhibit 10.19
to the FCX
1998 Form 10-K.
|
|
|
|
10.46
|
|
Consulting
Agreement dated as of December 22, 1988, with Kissinger Associates,
Inc.
(Kissinger Associates). Incorporated by reference to Exhibit
10.21 to the
Annual Report on Form 10-K of FCX for the fiscal year ended December
31,
1997 (the FCX 1997 Form 10-K).
|
|
|
|
10.47
|
|
Letter
Agreement dated May 1, 1989, with Kent Associates, Inc. (Kent
Associates,
predecessor in interest to Kissinger Associates). Incorporated
by
reference to Exhibit 10.22 to the FCX 1997 Form 10-K.
|
|
|
|
10.48
|
|
Letter
Agreement dated January 27, 1997, among Kissinger Associates,
Kent
Associates, FCX, Freeport-McMoRan Inc., and FM Services Company
(FMS).
Incorporated by reference to Exhibit 10.26 to the Annual Report
on Form
10-K of FCX for the fiscal year ended December 31, 2001 (the
FCX 2001 Form
10-K).
|
|
|
|
10.49
|
|
Supplemental
Consulting Agreement with Kissinger Associates and Kent Associates,
effective as of January 1, 2007. Incorporated by reference to
Exhibit
10.38 to the Quarterly Report on Form 10-Q of FCX for the quarter
ended
September 30, 2006 (the FCX 2006 Third Quarter Form
10-Q).
|
|
|
|
10.50
|
|
Agreement
for Consulting Services between FTX and B. M. Rankin, Jr. effective
as of
January 1, 1990 (assigned to FMS as of January 1, 1996). Incorporated
by
reference to Exhibit 10.24 to the FCX 1997 Form 10-K.
|
|
|
|
10.51
|
|
Supplemental
Agreement between FMS and B. M. Rankin, Jr. dated December 15,
1997.
Incorporated by reference to Exhibit 10.25 to the FCX 1997 Form
10-K.
|
|
|
|
10.52
|
|
Supplemental
Letter Agreement between FMS and B. M. Rankin, Jr., effective
as of
January 1, 2007. Incorporated by reference to Exhibit 10.41 to
the Annual
Report on Form 10-K of FCX for the fiscal year ended December
31,
2006.
|
|
|
|
10.53
|
|
Letter
Agreement effective as of January 7, 1997, between Senator J.
Bennett
Johnston, Jr. and FMS. Incorporated by reference to Exhibit 10.31
to the
FCX 2001 Form 10-K.
|
|
|
|
10.54
|
|
Supplemental
Letter Agreement dated July 14, 2003, between J. Bennett Johnston,
Jr. and
FMS. Incorporated by reference to Exhibit 10.28 to the Quarterly
Report on
Form 10-Q of FCX for the quarter ended June 30, 2003.
|
|
|
|
10.55
|
|
Supplemental
Letter Agreement between FMS and J. Bennett Johnston, Jr., dated
January
18, 2005. Incorporated by reference to Exhibit 10.40 to the FCX
2004 Form
10-K.
|
|
|
|
10.56
|
|
Supplemental
Consulting Agreement between FMS and J. Bennett Johnston, Jr.,
effective
as of January 1, 2007. Incorporated by reference to Exhibit 10.45
to the
FCX 2006 Third Quarter Form 10-Q.
|
|
|
|
10.57
|
|
Letter
Agreement dated November 1, 1999, between FMS and Gabrielle K.
McDonald.
Incorporated by reference to Exhibit 10.33 to the FCX 1999 Form
10-K.
|
|
|
|
10.58
|
|
Supplemental
Letter Agreement, between FMS and Gabrielle K. McDonald, effective
as of
January 1, 2007. Incorporated by reference to Exhibit 10.47 to
the FCX
2006 Third Quarter Form 10-Q.
|
|
|
|
10.59
|
|
Executive
Employment Agreement dated April 30, 2001, between FCX and James
R.
Moffett. Incorporated by reference to Exhibit 10.35 to the FCX
2001 Second
Quarter Form 10-Q.
|
|
|
|
10.60
|
|
Executive
Employment Agreement dated April 30, 2001, between FCX and Richard
C.
Adkerson. Incorporated by reference to Exhibit 10.36 to the FCX
2001
Second Quarter Form 10-Q.
|
|
|
|
10.61
|
|
Change
of Control Agreement dated April 30, 2001, between FCX and James
R.
Moffett. Incorporated by reference to Exhibit 10.37 to the FCX
2001 Second
Quarter Form 10-Q.
|
|
|
|
10.62
|
|
Change
of Control Agreement dated April 30, 2001, between FCX and Richard
C.
Adkerson. Incorporated by reference to Exhibit 10.38 to the FCX
2001
Second Quarter Form 10-Q.
|
|
|
|
10.63
|
|
First
Amendment to Executive Employment Agreement dated December 10,
2003,
between FCX and James R. Moffett. Incorporated by reference to
Exhibit
10.36 to the FCX 2003 Form 10-K.
|
|
|
|
10.64
|
|
First
Amendment to Executive Employment Agreement dated December 10,
2003,
between FCX and Richard C. Adkerson. Incorporated by reference
to Exhibit
10.37 to the FCX 2003 Form 10-K.
|
|
|
|
10.65
|
|
First
Amendment to Change of Control Agreement dated December 10, 2003,
between
FCX and James R. Moffett. Incorporated by reference to Exhibit
10.38 to
the FCX 2003 Form 10-K.
|
|
|
|
10.66
|
|
First
Amendment to Change of Control Agreement dated December 10, 2003,
between
FCX and Richard C. Adkerson. Incorporated by reference to Exhibit
10.39 to
the FCX 2003 Form 10-K.
|
|
|
|
10.67
|
|
Change
of Control Agreement dated February 3, 2004, between FCX and
Michael J.
Arnold. Incorporated by reference to Exhibit 10.40 to the FCX
2003 Form
10-K.
|
|
|
|
10.68
|
|
Change
of Control Agreement dated February 3, 2004, between FCX and
Mark J.
Johnson. Incorporated by reference to Exhibit 10.41 to the FCX
2003 Form
10-K.
|
|
|
|
10.69
|
|
Change
of Control Agreement dated February 3, 2004, between FCX and
Kathleen L.
Quirk. Incorporated by reference to Exhibit 10.42 to the FCX
2003 Form
10-K.
|
|
|
|
10.70
|
|
Phelps
Dodge 2003 Stock Option and Restricted Stock Plan, as
amended. Incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-8 (File No. 333-141358) of FCX
filed
March 16, 2007 (the FCX March 16, 2007 Form S-8).
|
|
|
|
10.71
|
|
Phelps
Dodge 1998 Stock Option and Restricted Stock Plan, as
amended. Incorporated by reference to Exhibit 10.2 to the FCX
March 16, 2007 Form S-8.
|
|
|
|
10.72
|
|
Phelps
Dodge Corporation 2006 Executive Performance Incentive
Plan. Incorporated by reference to Appendix A of Phelps Dodge
Corporation’s 2005 definitive Proxy Statement on Schedule 14A filed April
15, 2005.
|
|
|
|
10.73
|
|
Letter
of employment by and between Freeport-McMoRan Copper & Gold Inc. and
Timothy R. Snider dated April 4, 2007. Incorporated by reference
to
Exhibit 10.73 to the FCX First-Quarter 2007 Form 10-Q.
|
|
|
|
10.74
|
|
Form
of Change of Control Agreement (amended and restated effective
January 1,
2005), adopted by Phelps Dodge Corporation for agreements entered
into
between Phelps Dodge Corporation and other of its executive officers
and
other members of its senior management team. Incorporated by
reference to Exhibit 10.1 to Amendment No. 1 to the Annual Report
on Form
10-K of Phelps Dodge Corporation for the fiscal year ended December
31,
2006 (Amendment No. 1 to the PD 2006 Form 10-K).
|
|
|
|
10.75
|
|
Form
of Severance Agreement (as amended and restated effective January
1, 2005)
adopted by Phelps Dodge Corporation and entered into between
Phelps Dodge
Corporation and certain of its executives. Incorporated by
reference to Exhibit 10.2 of Amendment No. 1 to the PD 2006 Form
10-K.
|
|
|
|
10.76
|
|
Form
of Amendment to the ELIP Split Dollar Life Insurance Agreement
(Endorsement Method) adopted by Phelps Dodge Corporation and
entered into
by and between Phelps Dodge and certain of its executives. Incorporated
by
reference to Exhibit 10.76 to the FCX First-Quarter 2007 Form
10-Q.
|
|
|
|
10.77
|
|
The
Phelps Dodge Corporation Supplemental Retirement Plan, amended
and
restated effective January 1, 2005 and adopted on March 16, 2007.
Incorporated by reference to Exhibit 10.77 to the FCX First-Quarter
2007
Form 10-Q.
|
|
|
|
10.78
|
|
The
Phelps Dodge Corporation Supplemental Savings Plan, amended and
restated
effective January 1, 2005, and adopted on March 16, 2007. Incorporated
by
reference to Exhibit 10.78 to the FCX First-Quarter 2007 Form
10-Q.
|
|
|
|
10.79
|
|
First
Amendment to the Phelps Dodge Corporation Supplemental Savings
Plan, dated
March 16, 2007. Incorporated by reference to Exhibit 10.79 to
the FCX
First-Quarter 2007 Form 10-Q.
|
|
|
|
10.80
|
|
Second
Amendment to the Phelps Dodge Corporation Supplemental Savings
Plan, dated
as of March 16, 2007. Incorporated by reference to Exhibit 10.80
to the
FCX First-Quarter 2007 Form 10-Q.
|
|
|
|
|
|
Letter
from Ernst & Young LLP regarding unaudited interim financial
statements.
|
|
|
|
|
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a)/15d
–
14(a).
|
|
|
|
|
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a)/15d
–
14(a).
|
|
|
|
|
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section
1350.
|
|
|
|
|
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C Section
1350.
|