fcx093007-10q.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 September 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
ÿo
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 R Accelerated
filer o
Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ÿo
Yes
R No
On
October 31, 2007, there were issued and outstanding 381,921,531 shares of
the registrant’s Common Stock, par value $0.10 per share.
FREEPORT-McMoRan
COPPER & GOLD INC.
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Page
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3
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3
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4
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5
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6
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7
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31
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32
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85
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85
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86
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86
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86
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87
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87
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88
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E-1
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FREEPORT-McMoRan
COPPER & GOLD INC.
FREEPORT-McMoRan
COPPER & GOLD INC.
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
Millions)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,377
|
|
|
$
|
907
|
|
Accounts
receivable
|
|
|
2,165
|
|
|
|
486
|
|
Inventories
|
|
|
2,135
|
|
|
|
724
|
|
Mill
and leach stockpiles
|
|
|
614
|
|
|
|
–
|
|
Prepaid
expenses, restricted cash and other
|
|
|
152
|
|
|
|
34
|
|
Assets
held for sale
|
|
|
1,231
|
|
|
|
–
|
|
Total
current assets
|
|
|
8,674
|
|
|
|
2,151
|
|
Property,
plant, equipment and development costs, net
|
|
|
24,020
|
|
|
|
3,099
|
|
Trust
assets
|
|
|
609
|
|
|
|
–
|
|
Long-term
mill and leach stockpiles
|
|
|
1,099
|
|
|
|
–
|
|
Goodwill
|
|
|
6,332
|
|
|
|
–
|
|
Other
assets
|
|
|
655
|
|
|
|
140
|
|
Total
assets
|
|
$
|
41,389
|
|
|
$
|
5,390
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
2,814
|
|
|
$
|
789
|
|
Accrued
income taxes
|
|
|
815
|
|
|
|
165
|
|
Copper
price protection program
|
|
|
635
|
|
|
|
–
|
|
Current
portion of long-term debt and short-term borrowings
|
|
|
67
|
|
|
|
19
|
|
Liabilities
related to assets held for sale
|
|
|
472
|
|
|
|
–
|
|
Total
current liabilities
|
|
|
4,803
|
|
|
|
973
|
|
Long-term
debt, less current portion:
|
|
|
|
|
|
|
|
|
Senior
notes
|
|
|
6,953
|
|
|
|
620
|
|
Term
loan
|
|
|
1,550
|
|
|
|
–
|
|
Project
financing, equipment loans and other
|
|
|
162
|
|
|
|
41
|
|
Total
long-term debt, less current portion
|
|
|
8,665
|
|
|
|
661
|
|
Deferred
income taxes
|
|
|
6,816
|
|
|
|
800
|
|
Other
liabilities and deferred credits
|
|
|
1,492
|
|
|
|
298
|
|
Total
liabilities
|
|
|
21,776
|
|
|
|
2,732
|
|
Minority
interests in consolidated subsidiaries
|
|
|
1,699
|
|
|
|
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
|
|
|
13,359
|
|
|
|
2,668
|
|
Retained
earnings
|
|
|
3,355
|
|
|
|
1,415
|
|
Accumulated
other comprehensive loss
|
|
|
(1
|
)
|
|
|
(20
|
)
|
Common
stock held in treasury
|
|
|
(2,824
|
)
|
|
|
(2,749
|
)
|
Total
stockholders’ equity
|
|
|
17,914
|
|
|
|
2,445
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
41,389
|
|
|
$
|
5,390
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
September
30,
|
|
September
30,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
(In
Millions, Except Per Share Amounts)
|
|
Revenues
|
$
|
5,066
|
|
$
|
1,636
|
|
$
|
12,755
|
|
$
|
4,148
|
|
Cost
of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
and delivery
|
|
2,662
|
|
|
792
|
|
|
6,105
|
|
|
1,875
|
|
Depreciation,
depletion and amortization
|
|
356
|
|
|
60
|
|
|
846
|
|
|
147
|
|
Total
cost of sales
|
|
3,018
|
|
|
852
|
|
|
6,951
|
|
|
2,022
|
|
Exploration
and research expenses
|
|
40
|
|
|
4
|
|
|
87
|
|
|
9
|
|
Selling,
general and administrative expenses
|
|
131
|
|
|
45
|
|
|
314
|
|
|
111
|
|
Total
costs and expenses
|
|
3,189
|
|
|
901
|
|
|
7,352
|
|
|
2,142
|
|
Operating
income
|
|
1,877
|
|
|
735
|
|
|
5,403
|
|
|
2,006
|
|
Interest
expense, net
|
|
(155
|
)
|
|
(18
|
)
|
|
(386
|
)
|
|
(62
|
)
|
Losses
on early extinguishment and conversion of debt, net
|
|
(36
|
)
|
|
(30
|
)
|
|
(171
|
)
|
|
(32
|
)
|
Gains
on sales of assets
|
|
47
|
|
|
21
|
|
|
85
|
|
|
30
|
|
Other
income, net
|
|
48
|
|
|
6
|
|
|
110
|
|
|
17
|
|
Equity
in affiliated companies’ net earnings
|
|
5
|
|
|
2
|
|
|
17
|
|
|
7
|
|
Income
from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
and
minority interests
|
|
1,786
|
|
|
716
|
|
|
5,058
|
|
|
1,966
|
|
Provision
for income taxes
|
|
(653
|
)
|
|
(304
|
)
|
|
(1,875
|
)
|
|
(836
|
)
|
Minority
interests in net income of consolidated subsidiaries
|
|
(307
|
)
|
|
(46
|
)
|
|
(728
|
)
|
|
(115
|
)
|
Income
from continuing operations
|
|
826
|
|
|
366
|
|
|
2,455
|
|
|
1,015
|
|
Discontinued
operations, net of taxes
|
|
12
|
|
|
–
|
|
|
44
|
|
|
–
|
|
Net
income
|
|
838
|
|
|
366
|
|
|
2,499
|
|
|
1,015
|
|
Preferred
dividends
|
|
(63
|
)
|
|
(15
|
)
|
|
(144
|
)
|
|
(45
|
)
|
Net
income applicable to common stock
|
$
|
775
|
|
$
|
351
|
|
$
|
2,355
|
|
$
|
970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
2.00
|
|
$
|
1.85
|
|
$
|
7.06
|
|
$
|
5.14
|
|
Discontinued
operations
|
|
0.03
|
|
|
–
|
|
|
0.13
|
|
|
–
|
|
Basic
net income per share of common stock
|
$
|
2.03
|
|
$
|
1.85
|
|
$
|
7.19
|
|
$
|
5.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
1.85
|
|
$
|
1.67
|
|
$
|
6.46
|
|
$
|
4.64
|
|
Discontinued
operations
|
|
0.02
|
|
|
–
|
|
|
0.12
|
|
|
–
|
|
Diluted
net income per share of common stock
|
$
|
1.87
|
|
$
|
1.67
|
|
$
|
6.58
|
|
$
|
4.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
382
|
|
|
190
|
|
|
327
|
|
|
189
|
|
Diluted
|
|
447
|
|
|
221
|
|
|
380
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share of common stock
|
$
|
0.3125
|
|
$
|
1.0625
|
|
$
|
0.9375
|
|
$
|
2.9375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30,
|
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
|
(In
Millions)
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
2,499
|
|
|
$
|
1,015
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Unrealized
losses on copper price protection program
|
|
|
212
|
|
|
|
–
|
|
Depreciation,
depletion and amortization
|
|
|
864
|
|
|
|
147
|
|
Minority
interests in net income of consolidated subsidiaries
|
|
|
738
|
|
|
|
115
|
|
Noncash
compensation and benefits
|
|
|
143
|
|
|
|
51
|
|
Losses
on early extinguishment and conversion of debt, net
|
|
|
171
|
|
|
|
32
|
|
Gains
on sales of assets
|
|
|
(85
|
)
|
|
|
(30
|
)
|
Deferred
income taxes
|
|
|
(279
|
)
|
|
|
13
|
|
Other
|
|
|
21
|
|
|
|
25
|
|
(Increases)
decreases in working capital, excluding amounts
|
|
|
|
|
|
|
|
|
acquired
from Phelps Dodge:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(299
|
)
|
|
|
131
|
|
Inventories
|
|
|
358
|
|
|
|
(182
|
)
|
Prepaid
expenses, restricted cash and other
|
|
|
–
|
|
|
|
(24
|
)
|
Accounts
payable and accrued liabilities
|
|
|
369
|
|
|
|
(77
|
)
|
Accrued
income taxes
|
|
|
215
|
|
|
|
(148
|
)
|
Net
cash provided by operating activities
|
|
|
4,927
|
|
|
|
1,068
|
|
Cash
flow from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition
of Phelps Dodge, net of cash acquired
|
|
|
(13,907
|
)
|
|
|
–
|
|
Phelps
Dodge capital expenditures
|
|
|
(834
|
)
|
|
|
–
|
|
PT
Freeport Indonesia capital expenditures
|
|
|
(273
|
)
|
|
|
(165
|
)
|
Other
capital expenditures
|
|
|
(31
|
)
|
|
|
(13
|
)
|
Sales
of assets and other
|
|
|
79
|
|
|
|
31
|
|
Net
cash used in investing activities
|
|
|
(14,966
|
)
|
|
|
(147
|
)
|
Cash
flow from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from term loans under bank credit facility
|
|
|
12,450
|
|
|
|
–
|
|
Repayments
of term loans under bank credit facility
|
|
|
(10,900
|
)
|
|
|
–
|
|
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
|
|
|
412
|
|
|
|
125
|
|
Repayments
of other debt
|
|
|
(752
|
)
|
|
|
(322
|
)
|
Purchases
of FCX common shares
|
|
|
–
|
|
|
|
(100
|
)
|
Cash
dividends paid:
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
(301
|
)
|
|
|
(559
|
)
|
Preferred
stock
|
|
|
(112
|
)
|
|
|
(45
|
)
|
Minority
interests
|
|
|
(440
|
)
|
|
|
(114
|
)
|
Net
(payments for) proceeds from exercised stock options
|
|
|
(15
|
)
|
|
|
14
|
|
Excess
tax benefit from exercised stock options
|
|
|
9
|
|
|
|
21
|
|
Bank
credit facilities fees and other
|
|
|
(250
|
)
|
|
|
(6
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
11,600
|
|
|
|
(986
|
)
|
Cash
included in assets held for sale
|
|
|
(91
|
)
|
|
|
–
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
1,470
|
|
|
|
(65
|
)
|
Cash
and cash equivalents at beginning of year
|
|
|
907
|
|
|
|
764
|
|
Cash
and cash equivalents at end of period
|
|
$
|
2,377
|
|
|
$
|
699
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
|
|
Convertible
Perpetual
|
|
Mandatory
Convertible
|
|
|
|
|
|
|
|
Accumulated
|
|
Common
Stock
|
|
|
|
|
|
|
Preferred
Stock
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
|
|
Other
|
|
Held
in Treasury
|
|
|
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Capital
in
|
|
|
|
Compre-
|
|
Number
|
|
|
|
|
|
|
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
Excess
of
|
|
Retained
|
|
hensive
|
|
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
|
|
|
-
|
|
|
89
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
89
|
|
Stock-based
compensation costs
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
83
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
83
|
|
Tax
benefit for stock option exercises
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7
|
|
Tender
of shares for exercised stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
and restricted stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
(75
|
)
|
|
(75
|
)
|
Adjustment
to initially apply FIN 48
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4
|
|
Dividends
on common stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(419
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(419
|
)
|
Dividends
on preferred stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(144
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(144
|
)
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,499
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,499
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(loss),
net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2
|
|
|
-
|
|
|
-
|
|
|
2
|
|
Translation
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11
|
|
|
-
|
|
|
-
|
|
|
11
|
|
Change
in unrealized derivatives’
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fair
value
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3
|
)
|
|
-
|
|
|
-
|
|
|
(2
|
)
|
Reclass
to earnings
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5
|
|
|
-
|
|
|
-
|
|
|
5
|
|
Amortization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amounts
(SFAS 158)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4
|
|
|
-
|
|
|
-
|
|
|
3
|
|
Other
comprehensive income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
19
|
|
|
-
|
|
|
-
|
|
|
19
|
|
Total
comprehensive income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,518
|
|
Balance
at September 30, 2007
|
|
1
|
|
$
|
1,100
|
|
|
29
|
|
$
|
2,875
|
|
|
496
|
|
$
|
50
|
|
$
|
13,359
|
|
$
|
3,355
|
|
$
|
(1
|
)
|
|
114
|
|
$
|
(2,824
|
)
|
$
|
17,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) 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 nine-month periods ended September 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 nine-month periods
ended
September 30, 2006, have been reclassified to conform to current period
presentation.
As
discussed in Note 2, on March 19, 2007, FCX completed its acquisition of
Phelps
Dodge. Financial results for the first nine months of 2007 include Phelps
Dodge’s results beginning March 20, 2007.
As
discussed in Note 4, on September 12, 2007, FCX entered into an agreement
to
sell Phelps Dodge International Corporation (PDIC) to General Cable Corporation
(General Cable). As a result, the operating results of PDIC have been reported
separately from continuing operations as discontinued operations in the
condensed consolidated statements of income. Additionally, the assets and
liabilities of PDIC have been presented separately in the condensed consolidated
balance sheets as held for sale.
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).
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.
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.
The
following table summarizes 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 of senior
notes (refer to Note 9 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
|
|
131
|
|
Release
of FCX deferred tax asset valuation allowances
|
|
(90
|
)c
|
Total
purchase price
|
$
|
25,801
|
|
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. FCX is continuing
to work with third-party consultants to value all assets acquired and
liabilities assumed, and there could be additional adjustments to the estimated
fair values, which may be significant, until all valuation work is complete.
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 and equipment; and goodwill. A current summary of the
preliminary purchase price allocation as of March 19, 2007, follows (in
billions):
|
|
|
|
|
Preliminary
|
|
|
|
|
|
|
Purchase
|
|
|
Historical
|
|
Fair
Value
|
|
Price
|
|
|
Balances
|
|
Adjustments
|
|
Allocation
|
|
Cash
and cash equivalents
|
$
|
4.2
|
|
$
|
–
|
|
$
|
4.2
|
|
Inventories,
including mill and leach stockpilesa
|
|
0.9
|
|
|
2.8
|
|
|
3.7
|
|
Property,
plant and equipmentb
|
|
6.0
|
|
|
14.8
|
|
|
20.8
|
|
Other
assets
|
|
3.1
|
|
|
(0.3
|
)
|
|
2.8
|
|
Allocation
to goodwillc
|
|
–
|
|
|
6.5
|
|
|
6.5
|
d
|
Total
assets
|
|
14.2
|
|
|
23.8
|
|
|
38.0
|
|
Deferred
income taxes (current and long-term)e
|
|
(0.7
|
)
|
|
(6.1
|
)
|
|
(6.8
|
)
|
Other
liabilities
|
|
(4.1
|
)
|
|
(0.1
|
)
|
|
(4.2
|
)
|
Minority
interests
|
|
(1.2
|
)
|
|
–
|
|
|
(1.2
|
)
|
Total
|
$
|
8.2
|
|
$
|
17.6
|
|
$
|
25.8
|
|
a.
|
Inventories
and stockpiles were valued based on estimated selling prices less
selling
and completion costs and a reasonable profit allowance and through
the use
of estimated discounted cash flows, as applicable. 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.
During
third-quarter 2007, FCX adjusted its preliminary purchase price allocation
based
on updated valuation models for its mill and leach stockpiles resulting in
an
increase from initial estimates of approximately $1.0 billion.
b.
|
Includes
amounts based on estimated discounted cash flows from future production
of
proven and probable reserves and for values of properties beyond
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 additional
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 and equipment includes VBPP
attributable to mineralized material, which includes measured and indicated
amounts, 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 VBPP also 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 and third quarters 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 an approximate
$0.9 billion reduction in FCX’s initial estimate of 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 $6.5 billion of goodwill is deductible for
tax
purposes.
|
d.
|
Includes
$165 million of goodwill associated with PDIC that has been included
in
assets held for sale at September 30, 2007 (refer to Note 4 for
further
discussion).
|
e.
|
Deferred
income taxes have been recognized based on the estimated fair value
adjustments to net assets.
|
As
of
September 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.
|
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 acquired metal inventories
(including mill and leach stockpiles) and property, plant and equipment
(in
millions, except per share data):
|
Historical
|
|
|
|
|
|
|
|
|
|
Phelps
|
|
Pro
forma
|
|
Pro
forma
|
|
|
FCX
|
|
Dodgea
|
|
Adjustments
|
|
Consolidated
|
|
Three
Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
5,066
|
|
|
N/A
|
|
$
|
–
|
|
$
|
5,066
|
b
|
Operating
income
|
$
|
1,877
|
|
|
N/A
|
|
$
|
163
|
|
$
|
2,040
|
b,c
|
Income
from continuing operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes and minority interests
|
$
|
1,786
|
|
|
N/A
|
|
$
|
163
|
|
$
|
1,949
|
b,c,e,g
|
Income
from continuing operations applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
to
common stock
|
$
|
763
|
|
|
N/A
|
|
$
|
103
|
|
$
|
866
|
b,c,e,g
|
Diluted
income per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
from
continuing operations
|
$
|
1.85
|
|
|
N/A
|
|
|
N/A
|
|
$
|
2.07
|
b,c,e,g
|
Diluted
weighted average shares outstanding
|
|
447
|
|
|
N/A
|
|
|
N/A
|
|
|
448
|
h
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,636
|
|
$
|
3,143
|
|
$
|
–
|
|
$
|
4,779
|
b,f
|
Operating
income
|
$
|
735
|
|
$
|
1,319
|
|
$
|
(372
|
)
|
$
|
1,682
|
b,c,f
|
Income
from continuing operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes and minority interests
|
$
|
716
|
|
$
|
1,454
|
|
$
|
(549
|
)
|
$
|
1,621
|
b,c,e,f
|
Income
from continuing operations applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
to
common stock
|
$
|
351
|
|
$
|
883
|
|
$
|
(443
|
)
|
$
|
791
|
b,c,e,f
|
Diluted
income per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
from
continuing operations
|
$
|
1.67
|
|
$
|
4.34
|
|
|
N/A
|
|
$
|
1.93
|
b,c,e,f
|
Diluted
weighted average shares outstanding
|
|
221
|
|
|
204
|
|
|
N/A
|
|
|
445
|
h
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
12,755
|
|
$
|
2,294
|
|
$
|
–
|
|
$
|
15,049
|
b
|
Operating
income
|
$
|
5,403
|
|
$
|
793
|
|
$
|
(182
|
)
|
$
|
6,014
|
b,c
|
Income
from continuing operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes and minority interests
|
$
|
5,058
|
|
$
|
837
|
|
$
|
(249
|
)
|
$
|
5,646
|
b,c,d,e,g
|
Income
from continuing operations applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
to
common stock
|
$
|
2,311
|
|
$
|
493
|
|
$
|
(219
|
)
|
$
|
2,585
|
b,c,d,e,g
|
Diluted
income per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
from
continuing operations
|
$
|
6.46
|
|
|
N/A
|
|
|
N/A
|
|
$
|
6.21
|
b,c,d,e,g
|
Diluted
weighted average shares outstanding
|
|
380
|
|
|
N/A
|
|
|
N/A
|
|
|
447
|
h
|
|
Historical
|
|
|
|
|
|
|
|
|
Phelps
|
|
Pro
forma
|
|
Pro
forma
|
|
FCX
|
|
Dodgea
|
|
Adjustments
|
|
Consolidated
|
Nine
Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
4,148
|
|
$
|
7,828
|
|
$
|
–
|
|
$
|
11,976
|
b,f
|
Operating
income
|
$
|
2,006
|
|
$
|
2,823
|
|
$
|
(1,729
|
)
|
$
|
3,100
|
b,c,f
|
Income
from continuing operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes and minority interests
|
$
|
1,966
|
|
$
|
3,011
|
|
$
|
(2,322
|
)
|
$
|
2,655
|
b,c,e,f
|
Income
from continuing operations applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
to
common stock
|
$
|
970
|
|
$
|
1,689
|
|
$
|
(1,771
|
)
|
$
|
888
|
b,c,e,f
|
Diluted
income per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
from
continuing operations
|
$
|
4.64
|
|
$
|
8.31
|
|
|
N/A
|
|
$
|
2.33
|
b,c,e,f
|
Diluted
weighted average shares outstanding
|
|
221
|
|
|
203
|
|
|
N/A
|
|
|
406
|
h
|
a.
|
For
the nine months ended September 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.
|
Additionally,
for comparative purposes the historical Phelps Dodge financial information
for
the three and nine months ended September 30, 2006, represents results from
continuing operations, and therefore, excludes the results of PDIC
(i.e., discontinued operations).
b.
|
Includes
charges to revenues for mark-to-market accounting adjustments on
copper
price protection programs totaling $44 million ($26 million to
net income
or $0.06 per share) for third-quarter 2007, $232 million ($142
million to
net income or $0.32 per share) for the nine months ended September
30,
2007, $145 million ($110 million to net income or $0.25 per share)
for
third-quarter 2006 and $1.2 billion ($923 million to net income
or $2.28
per share) for the nine months ended September 30,
2006.
|
c.
|
Includes
charges associated with the impact of the increases in the carrying
values
of acquired metal inventories (including mill and leach stockpiles)
and
property, plant and equipment totaling $283 million ($179 million
to net
income or $0.40 per share) for third-quarter 2007, $1.3 billion
($835
million to net income or $1.87 per share) for the nine months ended
September 30, 2007, $376 million ($237 million to net income or
$0.53 per
share) for third-quarter 2006, and $1.7 billion ($1.1 billion to
net
income or $2.70 per share) for the nine months ended September
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 $129 million ($109 million
to net
income or $0.24 per share) for third-quarter 2007, $469 million
($399
million to net income or $0.89 per share) for the nine months ended
September 30, 2007, $179 million ($161 million to net income or
$0.36 per
share) for third-quarter 2006, and $597 million ($537 million to
net
income or $1.32 per share) for the nine months ended September
30,
2006.
|
f.
|
Includes
charges to revenues totaling $13 million ($7 million to net income
or
$0.02 per share) associated with the redemption of FCX’s
Silver-Denominated Preferred Stock for third-quarter 2006, and
$82 million
($44 million to net income or $0.11 per share) associated with
the
redemption of FCX’s Gold-Denominated Preferred Stock, Series II and
Silver-Denominated Preferred Stock for the nine months ended September
30,
2006.
|
g.
|
Includes
gains on the sales of marketable securities totaling $47 million
($29
million to net income or $0.06 per share) in third-quarter 2007
and $85
million ($52 million to net income or $0.12 per share) for the
nine months
ended September 30, 2007.
|
h.
|
Estimated
pro forma diluted weighted average shares outstanding for the quarters
and
nine months ended September 30, 2007 and 2006, follow (in
millions):
|
|
|
|
|
Nine
Months Ended
|
|
|
|
Third-Quarter
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Average
number of basic shares of FCX common stock
|
|
|
|
|
|
|
|
|
|
outstanding
prior to the acquisition of Phelps Dodge
|
|
199
|
|
190
|
|
198
|
|
189
|
|
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
|
|
39
|
|
39
|
|
–
|
b
|
Other
dilutive securities
|
|
26
|
|
32
|
|
26
|
|
33
|
|
Pro
forma average number of common shares outstanding
|
|
448
|
|
445
|
|
447
|
|
406
|
|
a.
|
Refer
to Notes 9 and 12 for additional
information.
|
b.
|
Not
dilutive for the nine months ended September 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 are 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. FCX’s 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 generally contain lower-grade ores that have been extracted
from the ore body and are 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 significantly 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. For newly placed material on active
stockpiles as much as 70 percent of the copper ultimately recoverable may
be
extracted during the first year, the remaining copper is recovered over many
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
September 30, 2007, goodwill of approximately $6.5 billion
was recorded in connection with the Phelps Dodge acquisition, which includes
approximately $165 million recorded in assets held for sale related to PDIC
(refer to Note 4). 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. Adjustments to the recorded
values of the assets acquired and liabilities assumed in the acquisition
of
Phelps Dodge will occur until such values are finalized. Accordingly, the
allocation of goodwill to reporting units, which will include individual
mines,
will be completed when FCX finalizes its purchase price allocation.
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 September 30, 2007,
FCX
has identified certain intangible assets and liabilities resulting from the
acquisition of Phelps Dodge. As FCX completes its identification and valuation,
it expects to record additional intangible assets or liabilities, which could
include such items as customer relationships and patents.
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 (refer to Note 13),
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.
4.
|
DISCONTINUED
OPERATIONS
|
On
September 12, 2007, FCX entered into an agreement to sell its international
wire
and cable business, PDIC, for $735 million (including the acquisition
of minority interests) subject to an adjustment that takes into account the
net
effect of dividends from and contributions to PDIC from March 31, 2007, through
the close of the transaction. Under the terms of the agreement, FCX expects
to
realize net proceeds of approximately $620 million, after taxes and net of
transaction related costs. FCX expects to use the net proceeds to repay debt.
The transaction was complete on October 31, 2007, and is not expected to
result
in a material gain or loss, other than transaction and related costs of up
to
approximately $20 million ($12 million to net income).
As
a
result of the sale, the operating results of PDIC have been reported separately
from continuing operations as discontinued operations in the condensed
consolidated statements of income. Selected financial information that has
been
reported as discontinued operations for the third quarter and first nine
months
of 2007 (which includes results beginning March 20, 2007), follows (in
millions):
|
|
|
Third-Quarter
|
|
Nine
Months Ended
|
|
|
|
|
2007
|
|
September
30, 2007
|
|
Revenues
|
|
$
|
376
|
|
$
|
797
|
|
Operating
income
|
|
$
|
18
|
|
$
|
70
|
|
Provision
for income taxes
|
|
$
|
5
|
|
$
|
20
|
|
Income
from discontinued operations
|
|
$
|
12
|
|
$
|
44
|
|
The
assets and liabilities of PDIC have been presented separately in the condensed
consolidated balance sheets as held for sale. The major classes of these
assets
and liabilities at September 30, 2007, follow (in millions):
Assets
held for sale:
|
|
|
|
Cash
and cash equivalents
|
|
$
|
91
|
|
Accounts
receivable
|
|
|
273
|
|
Inventories
|
|
|
258
|
|
Property,
plant and equipment, net
|
|
|
234
|
|
Intangibles
|
|
|
164
|
|
Goodwill
|
|
|
165
|
|
Other
assets
|
|
|
46
|
|
|
|
$
|
1,231
|
|
Liabilities
related to assets held for sale:
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
263
|
|
Debt
and short-term borrowings
|
|
|
71
|
|
Deferred
income taxes
|
|
|
103
|
|
Other
liabilities and deferred credits
|
|
|
35
|
|
|
|
$
|
472
|
|
Cash
flows from discontinued operations for the nine months ended September 30,
2007,
have not been separately identified in the condensed consolidated statements
of
cash flows.
5.
|
PENSION
AND POSTRETIREMENT
BENEFITS
|
As
a
result of 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. For 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 its 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 third quarters of 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
|
|
$
|
1
|
|
$
|
–
|
|
$
|
–
|
|
$
|
7
|
|
Interest
cost
|
|
–
|
|
|
1
|
|
|
2
|
|
|
2
|
|
|
1
|
|
|
2
|
|
|
22
|
|
Expected
return on plan assets
|
|
–
|
|
|
–
|
|
|
(1
|
)
|
|
(1
|
)
|
|
–
|
|
|
–
|
|
|
(30
|
)
|
Amortization
of prior service cost
|
|
1
|
|
|
1
|
|
|
1
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Net
periodic benefit cost
|
$
|
2
|
|
$
|
2
|
|
$
|
3
|
|
$
|
2
|
|
$
|
1
|
|
$
|
2
|
|
$
|
(1
|
)
|
The
components of net periodic benefit cost for pension and postretirement benefits
for all of FCX’s plans for the nine-months ended September 30, 2007 and 2006,
follow (in millions):
|
|
|
|
|
|
|
Phelps
|
|
|
FCX
|
|
PT
Freeport Indonesia
|
|
Atlantic
Copper
|
|
Dodge
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
Service
cost
|
$
|
2
|
|
$
|
–
|
|
$
|
4
|
|
$
|
3
|
|
$
|
–
|
|
$
|
–
|
|
$
|
14
|
|
Interest
cost
|
|
1
|
|
|
2
|
|
|
5
|
|
|
4
|
|
|
3
|
|
|
4
|
|
|
47
|
|
Expected
return on plan assets
|
|
–
|
|
|
–
|
|
|
(3
|
)
|
|
(2
|
)
|
|
–
|
|
|
–
|
|
|
(64
|
)
|
Amortization
of prior service cost
|
|
3
|
|
|
3
|
|
|
1
|
|
|
1
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Amortization
of net actuarial loss
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1
|
|
|
1
|
|
|
–
|
|
Net
periodic benefit cost
|
$
|
6
|
|
$
|
5
|
|
$
|
7
|
|
$
|
6
|
|
$
|
4
|
|
$
|
5
|
|
$
|
(3
|
)
|
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 quarters and nine months ended September 30, 2007 and 2006,
follows (in millions, except per share amounts):
|
|
|
|
Nine
Months Ended
|
|
|
|
Third-Quarter
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Income
from continuing operations
|
|
$
|
826
|
|
$
|
366
|
|
$
|
2,455
|
|
$
|
1,015
|
|
Preferred
dividends
|
|
|
(63
|
)
|
|
(15
|
)
|
|
(144
|
)
|
|
(45
|
)
|
Income
from continuing operations applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
common stock
|
|
|
763
|
|
|
351
|
|
|
2,311
|
|
|
970
|
|
Plus
income impact of assumed conversion of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5½%
Convertible Perpetual Preferred Stock
|
|
|
15
|
|
|
15
|
|
|
45
|
|
|
45
|
|
6¾%
Mandatory Convertible Preferred Stock
|
|
|
48
|
|
|
–
|
|
|
99
|
|
|
–
|
|
7%
Convertible Senior Notes
|
|
|
–
|
|
|
3
|
|
|
–
|
|
|
13
|
|
Diluted
income from continuing operations applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
common stock
|
|
|
826
|
|
|
369
|
|
|
2,455
|
|
|
1,028
|
|
Income
from discontinued operations
|
|
|
12
|
|
|
–
|
|
|
44
|
|
|
–
|
|
Diluted
net income applicable to common stock
|
|
$
|
838
|
|
$
|
369
|
|
$
|
2,499
|
|
$
|
1,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
382
|
|
|
190
|
|
|
327
|
|
|
189
|
|
Add
shares issuable upon conversion, exercise or vesting of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5½%
Convertible Perpetual Preferred Stock
|
|
|
23
|
|
|
22
|
|
|
23
|
|
|
22
|
|
6¾%
Mandatory Convertible Preferred Stock
|
|
|
39
|
|
|
–
|
|
|
27
|
|
|
–
|
|
7%
Convertible Senior Notes
|
|
|
–
|
|
|
7
|
|
|
–
|
|
|
9
|
|
Dilutive
stock options
|
|
|
2
|
|
|
1
|
|
|
2
|
|
|
1
|
|
Restricted
stock
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
–
|
|
Weighted
average common shares outstanding for purposes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
calculating diluted net income per share
|
|
|
447
|
|
|
221
|
|
|
380
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
1.85
|
|
$
|
1.67
|
|
$
|
6.46
|
|
$
|
4.64
|
|
Discontinued
operations
|
|
|
0.02
|
|
|
–
|
|
|
0.12
|
|
|
–
|
|
Diluted
net income per share of common stock
|
|
$
|
1.87
|
|
$
|
1.67
|
|
$
|
6.58
|
|
$
|
4.64
|
|
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):
|
|
|
|
Nine
Months Ended
|
|
|
|
Third-Quarter
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Weighted
average outstanding options
|
|
|
–
|
|
|
1,004
|
|
|
389
|
|
|
896
|
|
Weighted
average exercise price
|
|
|
N/A
|
|
$
|
63.77
|
|
$
|
65.96
|
|
$
|
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):
|
|
September
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
Mining
Operations:
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
1
|
|
$
|
–
|
|
Work-in-process
|
|
|
64
|
|
|
11
|
|
Finished
goodsa
|
|
|
845
|
|
|
4
|
|
Mill
and leach stockpiles
|
|
|
614
|
|
|
–
|
|
Atlantic
Copper:
|
|
|
|
|
|
|
|
Concentrates
– First in, first out (FIFO)
|
|
|
153
|
|
|
189
|
|
Work-in-process
– FIFO
|
|
|
305
|
|
|
168
|
|
Finished
goods – FIFO
|
|
|
14
|
|
|
12
|
|
Total
product inventories
|
|
|
1,996
|
|
|
384
|
|
Total
materials and supplies, netb
|
|
|
753
|
|
|
340
|
|
Total
inventories
|
|
$
|
2,749
|
|
$
|
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
$16
million at both September 30, 2007, and December 31,
2006.
|
A
summary
of FCX’s trust assets at September 30, 2007, which were acquired in connection
with the acquisition of Phelps Dodge, follows (in millions):
Global
reclamation and remediation
|
$
|
433
|
|
Financial
assurance
|
|
103
|
a
|
Non-qualified
retirement benefits
|
|
46
|
|
Change
of control
|
|
27
|
|
Total
trust assets
|
$
|
609
|
|
a.
|
Represents
legally restricted funds for the use of asset retirement obligation
activities at Chino, Tyrone and Cobre (refer to Note 14 for further
discussion of financial assurance requirements for these
operations).
|
9.
|
DEBT
AND FINANCING TRANSACTIONS
|
At
September 30, 2007, FCX had approximately $8.7 billion in debt, including
$7.6
billion in acquisition debt, $0.7 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.
Following
the close of the Phelps Dodge acquisition and in accordance with its plan
to
reduce debt, FCX has completed the following transactions:
·
|
During
first-quarter 2007, 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 12 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
second-quarter 2007, FCX prepaid an additional $1.9 billion of
debt under
the Tranche B term loan.
|
·
|
During
third-quarter 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).
|
·
|
Also
during third-quarter 2007, FCX prepaid $0.9 billion of debt under
the
Tranche A term loan.
|
A
summary
of financing activities for the first nine months of 2007, and FCX’s outstanding
debt balances at September 30, 2007, follow (in billions):
|
December
31,
|
|
Borrowings/
|
|
|
|
September
30,
|
|
|
2006
|
|
Additions
|
|
Repayments
|
|
2007
|
|
$11.5
billion senior credit facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
term loan due 2012
|
$
|
–
|
|
$
|
2.5
|
a
|
$
|
(2.5
|
)
|
$
|
–
|
|
Tranche
B term loan due 2014
|
|
–
|
|
|
7.5
|
a
|
|
(7.5
|
)
|
|
–
|
|
Tranche
A term loan due 2012
|
|
–
|
|
|
2.5
|
|
|
(0.9
|
)
|
|
1.6
|
|
$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
|
|
|
(0.2
|
)
|
|
0.2
|
|
|
$
|
0.7
|
|
$
|
19.5
|
|
$
|
(11.5
|
)
|
$
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Represents
borrowings used to finance the acquisition of Phelps
Dodge.
|
For
the
first nine months of 2007, FCX recorded net charges totaling $171 million
($141
million to net income or $0.37 per share) for early extinguishment of debt.
These net charges include $154 million ($131 million to net income) related
to
the accelerated recognition of deferred financing costs associated with the
early repayment of amounts under the $11.5 billion senior credit facility,
including the refinancing of the Tranche B term loan. 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 senior 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.
During
third-quarter 2007, FCX refinanced the remaining $2.5 billion balance
outstanding under the Tranche B term loan with proceeds from the new 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,
beginning on September 30, 2007, with the remaining balance payable at maturity.
Any prepayments are applied towards scheduled amortization payments in order
of
maturity. In addition, certain terms and conditions of the senior credit
facility were amended, including the elimination of certain collateral
requirements.
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 credit 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.
Senior
Notes. Interest on the senior notes is payable semiannually on April 1
and October 1, with the first payment made 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
third-quarter 2007 income tax provision from continuing operations included
taxes on international operations ($584 million) and U.S. taxes ($69 million).
FCX’s income tax provision from continuing operations for the first nine months
of 2007 included taxes on international operations ($1.7 billion) and U.S.
taxes
($161 million).
The
difference between FCX’s consolidated effective income tax rate associated with
continuing operations of approximately 37 percent for the first nine months
of
2007 and the U.S. federal statutory rate of 35 percent primarily was
attributable to withholding taxes related to earnings from Indonesian and
South
American mining operations and a U.S. foreign tax credit limitation, partly
offset by a U.S. benefit for percentage depletion.
FCX’s
income tax provision for third-quarter 2006 ($304 million) and for the first
nine months of 2006 ($836 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 nine months of 2006 and PT Freeport
Indonesia’s Contract of Work rate of 35 percent primarily was attributable to
withholding taxes related to 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 includes interest
and penalties accrued on unrecognized tax benefits in other income and expenses
rather than in its provision for income taxes. 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
|
|
|
|
|
|
|
|
|
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
and third quarters of 2007.
For
first-quarter 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
|
2003-2005
|
2006
|
Indonesia
|
2005-2006
|
2002-2004
|
Peru
|
2003
|
1999-2002,
2004-2006
|
Chile
|
–
|
2004-2006
|
Arizona
|
–
|
2002-2006
|
New
Mexico
|
–
|
2004-2006
|
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.
11.
|
INTEREST
EXPENSE, NET
|
Interest
expense, net, includes capitalized interest of approximately $51 million
in
third-quarter 2007, approximately $3 million in third-quarter 2006,
approximately $108 million for the first nine months of 2007 and approximately
$7 million for the first nine months of 2006. The majority of the capitalized
interest in 2007 relates to capital expenditures for development projects
at
Safford, Arizona, and Tenke Fungurume.
12.
|
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 eligible to receive awards under FCX’s
incentive plans increased by over 200 people. Due in part to FCX’s increased
employee population, the FCX Board of Directors determined 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.
13.
|
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 been previously 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
September 30, 2007, environmental reserves totaled $348 million, with the
long-term portion totaling $218 million included in other liabilities and
deferred credits on the condensed consolidated balance sheets. At September
30,
2007, the unescalated, undiscounted environmental reserve totaled approximately
$372 million, leaving approximately $24 million to be accreted over
time.
Pinal
Creek. The Pinal Creek site located near Miami,
Arizona, has the most significant environmental reserve of all FCX sites.
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 responsibility for cleanup costs is set to commence in May
2008.
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 approximately $90 million
to
$200 million. At September 30, 2007, the reserve for Pinal Creek remediation
was
$94 million.
Other. At
September 30, 2007, the cost range for reasonably possible outcomes for all
reservable environmental remediation sites on an undiscounted and unescalated
basis (excluding Pinal Creek’s estimate) was
approximately $240 million to $450 million. 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
consolidated liquidity or financial position.
A
summary
of environmental reserve activities (associated with the acquired Phelps
Dodge
operations) for the nine months ended September 30, 2007, follows (in
millions):
Balance,
beginning of period
|
$
|
–
|
|
Liabilities
assumed in acquisition of Phelps Dodge
|
|
390
|
a
|
Spending
|
|
(46
|
)
|
Accretion
expense
|
|
4
|
|
Balance,
end of period
|
$
|
348
|
|
a.
|
The
fair value of environmental obligations at the acquisition date
was
estimated based on projected cash flows, an estimated long-term
annual
inflation rate of 2.25 percent and a discount rate based on FCX’s
estimated credit-adjusted risk-free interest rate of 7.8
percent.
|
Asset
Retirement Obligations. In connection with its acquisition of Phelps
Dodge, FCX has recorded approximately $463 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 nine months ended September 30, 2007, follows (in
millions):
Balance,
beginning of period
|
$
|
–
|
|
Liabilities
assumed in acquisition of Phelps Dodge
|
|
463
|
|
Revisions
to cash flow estimates
|
|
76
|
a
|
Spending
|
|
(27
|
)
|
Accretion
expense
|
|
15
|
|
Balance,
end of period
|
$
|
527
|
|
a.
|
During
third-quarter 2007, Chino submitted updated third-party closure
cost
estimates to the state of New Mexico as part of the permit renewal
process, and as a result, FCX revised its cash flow estimates and
increased its ARO by $73 million for the Chino mine. Additional
adjustments may be required based upon the agency’s review of the updated
closure plan and any permit conditions imposed by the state of
New Mexico.
In addition, in October 2007, Tyrone submitted updated third-party
closure
estimates to the state of New Mexico, which may result in further
increases to AROs.
|
At
September 30, 2007, FCX estimated its share of the total cost of Phelps Dodge
AROs, including anticipated future disturbances and cumulative payments,
at
approximately $1.5 billion (unescalated, undiscounted and on a third-party
cost
basis), with approximately $925 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, cost of inflation 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 required,
or if they are determined to be economically beneficial.
At
September 30, 2007, FCX had trust assets totaling $433 million that are
dedicated to funding global reclamation and remediation activities, and also
had
trust assets totaling $103 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 $78 million at September 30, 2007, primarily for reclamation,
environmental obligations and workers’ compensation insurance programs. In
addition, FCX had surety bonds totaling approximately $94 million at September
30, 2007, associated with reclamation and closure (approximately $65 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 $56 million
at
September 30, 2007.
Environmental
and Reclamation Programs. With regard to the disclosed environmental,
reclamation and closure obligations discussed in Note 13, 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
September 30, 2007, FCX had accrued closure costs of approximately $81 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 of approximately $5 million
primarily 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 all or a portion 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 ongoing. Hidalgo, a former Phelps Dodge smelter
located in Playas, New Mexico, has applied for renewal of its discharge permit,
which includes a requirement for an updated closure plan. Hidalgo expects
NMED
to publish notice of a proposed new permit, including permit conditions
regarding closure and financial assurance in fourth-quarter 2007.
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 updated 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. In August 2007, Chino submitted its updated closure
plan, and in October 2007, Tyrone submitted its updated closure plan and
feasibility study. The terms of the NMED closure permits also require the
facilities to prepare and submit abatement plans to address groundwater
contamination levels that exceed New Mexico water standards as well as potential
sources of future groundwater contamination. Changes to the existing closure
plans and additional requirements arising from the abatement plans will likely
increase the estimated closure and closeout costs, as well as the amounts
of
financial assurance. 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.
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 $531
million for Chino, $438 million for Tyrone and $47 million for Cobre
(undiscounted and unescalated). The increase in the Chino third-party estimate
is based on the updated closure plan submitted to the state of New Mexico
in
August 2007. Additional adjustments may be warranted based upon the agency’s
review of the updated closure plan and any permit conditions imposed by the
state of New Mexico. Internal cost estimates to perform the work generally
are
lower than the third-party cost estimates 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. At September 30, 2007, FCX had accrued
approximately $138 million for Chino, $220 million for Tyrone, $9 million
for
Cobre and $5 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 $524 million for Chino, $373 million for Tyrone and
$42
million for Cobre on an undiscounted and unescalated basis over the approximate
100-year period of the closure and closeout plans. Hidalgo will update 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. Required financial assurance
amounts at September 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 $28 million for Cobre. In August 2007, Chino
submitted
an
updated closure plan to the state of New Mexico, and in October 2007, Tyrone
submitted its updated closure plan to the state of New Mexico. Following
the
agency’s review of the updated closure plans, Chino and Tyrone will be required
to post financial assurance based on these updated third-party closure cost
estimates and any permit conditions imposed by the state of New
Mexico.
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. FCX may provide guarantees
to
replace the Phelps Dodge guarantees.
Litigation.
On September 27, 2007, the U.S. District Court in Boston, Massachusetts,
entered
an order approving the proposed settlement and dismissing, without prejudice,
of
all claims against Columbian Chemicals Company (Columbian), formerly a
subsidiary of Phelps Dodge, and other defendants in the actions consolidated
under the caption In Re Carbon Black Antitrust Litigation. FCX settled
these claims for a payment of $6 million.
Columbian
and the other defendants have entered into an agreement to settle a separate
action entitled Carlisle Companies Incorporated, et al. v. Cabot Corporation,
et al., which was filed against Columbian and other defendants on behalf of
a group of affiliated companies that opted out of the federal class action.
FCX
agreed to pay $115,000. On October 16, 2007, all claims in that action were
dismissed without prejudice. Columbian and the other defendants have also
entered into an agreement to settle the action brought in the state court
in
California on behalf of a purported class of indirect purchasers of carbon
black
in that state. FCX has agreed to pay $495,000 to settle these matters. The
agreement is subject to court approval following notice to the class. Actions
remain in the state courts in 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, were 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 remaining 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.
15.
|
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 September 30, 2007,
follows (in millions):
|
|
|
Less
Than
|
|
|
|
|
|
After
|
|
Total
|
|
1
Year
|
|
Years
2-3
|
|
Years
4-5
|
|
5
Years
|
Take-or-pay
obligations
|
$
|
727
|
|
$
|
426
|
|
$
|
210
|
|
$
|
61
|
|
$
|
30
|
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 September 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 $171 million. At September
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.
16.
|
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. 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 September 30, 2007, follows (in millions,
except per unit prices):
|
|
|
Expired
Positions
|
|
|
Open
Positions
|
|
Hedged
|
|
|
|
|
Open
|
|
Gain/
|
|
|
|
Sales
Price
|
|
Gain/
|
|
|
Position
|
|
(Loss)a
|
|
Maturity
|
|
Per
Unit
|
|
(Loss)a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
price protection (lbs.)
|
1,216
|
|
$
|
(212
|
)
|
December
2007
|
|
$
|
–
|
|
$
|
–
|
|
Copper
fixed-price rod sales (lbs.)
|
75
|
|
$
|
4
|
|
December
2009
|
|
|
3.44
|
|
$
|
75
|
|
Metal
purchase (lbs.)
|
57
|
|
$
|
–
|
|
October
2009
|
|
|
–
|
|
$
|
8
|
|
a.
|
Represents
gains (losses) recognized in the condensed consolidated statements
of
income from March 20, 2007, through September 30,
2007.
|
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. Mark-to-market accounting adjustments on these contracts resulted
in
charges of $44 million to revenues for third-quarter 2007 and $212 million
from
March 20, 2007, through September 30, 2007. At September 30, 2007, the liability
associated with these contracts was $635 million.
The
2007
copper price protection program matures December 31, 2007, and will settle
in
first-quarter 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 –North American mining,
South American mining and Indonesian mining. Following is a discussion of
the
reportable segments included in these operating divisions, as well as FCX’s
other reportable segment – Atlantic Copper. FCX continues to evaluate reportable
segments in conjunction with its review of its management reporting structure
following the acquisition of Phelps Dodge, and as a result the following
reportable segments may change when FCX finalizes its analysis.
As
a
result of the agreement to sell PDIC (refer to Note 4), the operating results
of
PDIC have been excluded from the results of continuing operations and presented
as discontinued operations. Accordingly, PDIC is no longer considered a
reportable segment of FCX in the following business segments tables for the
three and nine-month periods ended September 30, 2007.
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, and the marketing and
sale of
both product lines. 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 this segment
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 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 and silver, and the Sierrita mine
also
produces 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 not considered reportable segments include
FCX’s other 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 includes PT Freeport Indonesia’s Grasberg
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 an
unincorporated 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 venture interest using the proportionate consolidation
method
of accounting.
Atlantic
Copper. Atlantic Copper, FCX’s wholly owned smelting unit in Spain,
smelts and refines copper concentrates and markets refined copper and precious
metals in slimes.
Other. 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.
FCX
also
allocates certain operating costs, expenses and capital to the operating
divisions and individual segments. However, not all costs and expenses
applicable to a mine or operation are allocated. All federal and state income
taxes are recorded and managed at the corporate level with the exception
of
foreign income taxes, which are generally recorded and managed at the applicable
mine or operation. 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.
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 September 30, 2007
|
Morenci
|
|
turing
|
|
denum
|
|
Mining
|
|
Mining
|
|
Verde
|
|
Mining
|
|
Mining
|
|
Grasberg
|
|
&
Refining
|
|
Eliminations
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
$
|
49
|
|
1,726
|
|
519
|
|
713
|
|
3,007
|
|
339
|
|
460
|
|
799
|
|
570
|
a
|
688
|
|
2
|
|
5,066
|
|
Intersegment
|
|
632
|
|
61
|
|
-
|
|
(689
|
)
|
4
|
|
263
|
|
287
|
|
550
|
|
267
|
|
-
|
|
(821
|
)
|
-
|
|
Production
and deliveryd
|
|
372
|
|
1,765
|
|
380
|
|
(352
|
)
|
2,165
|
|
199
|
|
256
|
|
455
|
|
351
|
|
674
|
|
(983
|
)
|
2,662
|
|
Depreciation,
depletion and amortizationd
|
|
91
|
|
6
|
|
22
|
|
87
|
|
206
|
|
41
|
|
53
|
|
94
|
|
43
|
|
8
|
|
5
|
|
356
|
|
Exploration
and research expenses
|
|
-
|
|
-
|
|
1
|
|
2
|
|
3
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
37
|
|
40
|
|
Selling,
general and administrative expenses
|
|
-
|
|
-
|
|
4
|
|
3
|
|
7
|
|
-
|
|
-
|
|
-
|
|
44
|
|
5
|
|
75
|
|
131
|
|
Operating
incomed
|
$
|
218
|
|
16
|
|
112
|
b
|
284
|
|
630
|
|
362
|
|
438
|
|
800
|
|
399
|
|
1
|
|
47
|
|
1,877
|
|
Interest
expense, net
|
$
|
-
|
|
2
|
|
-
|
|
-
|
|
2
|
|
3
|
|
-
|
|
3
|
|
3
|
|
6
|
|
141
|
|
155
|
|
Equity
in affiliated companies’ net earnings
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
5
|
|
5
|
|
Provision
for income taxes
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
121
|
|
143
|
|
264
|
|
141
|
|
-
|
|
248
|
|
653
|
|
Minority
interests in net income of consolidated subsidiaries
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
133
|
|
136
|
|
269
|
|
-
|
|
-
|
|
38
|
|
307
|
|
Total
assets at September 30, 2007
|
$
|
4,780
|
|
787
|
|
1,944
|
|
9,390
|
|
16,901
|
|
5,378
|
|
5,267
|
|
10,645
|
|
3,968
|
|
1,104
|
|
8,771
|
c
|
41,389
|
|
Capital
expenditures
|
$
|
81
|
|
3
|
|
8
|
|
154
|
|
246
|
|
13
|
|
16
|
|
29
|
|
98
|
|
10
|
|
83
|
c
|
466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,021
|
a
|
613
|
|
2
|
|
1,636
|
|
Intersegment
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
241
|
|
-
|
|
(241
|
)
|
-
|
|
Production
and delivery
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
363
|
|
581
|
|
(152
|
)
|
792
|
|
Depreciation,
depletion and amortization
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
50
|
|
8
|
|
2
|
|
60
|
|
Exploration
and research expenses
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
4
|
|
4
|
|
Selling,
general and administrative expenses
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
36
|
|
4
|
|
5
|
|
45
|
|
Operating
income
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
813
|
|
20
|
|
(98
|
)
|
735
|
|
Interest
expense, net
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1
|
|
7
|
|
10
|
|
18
|
|
Equity
in affiliated companies’ net earnings
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2
|
|
2
|
|
Provision
for income taxes
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
271
|
|
-
|
|
33
|
|
304
|
|
Minority
interests in net income of consolidated subsidiaries
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
46
|
|
46
|
|
Total
assets at September 30, 2006
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3,940
|
|
1,045
|
|
295
|
|
5,280
|
|
Capital
expenditures
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
60
|
|
7
|
|
1
|
|
68
|
|
a.
|
Includes
PT Freeport Indonesia’s sales to PT Smelting totaling $353 million in
third-quarter 2007 and $458 million in third-quarter
2006.
|
b.
|
Operating
income for Primary Molybdenum for third-quarter 2007 included a
$14
million loss primarily resulting from the difference between raw
material
purchases and average contractual selling prices, and was also
net of a
$44 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.
|
Includes
total assets of $1.2 billion at September 30, 2007, and capital
expenditures of $7 million for third-quarter 2007 associated with
discontinued operations (refer to Note
4).
|
d.
|
Operating
income includes purchase accounting adjustments primarily associated
with
the impacts of the increases in the carrying values of acquired
metal
inventories and stockpiles and property, plant and equipment. Following
provides the impacts of these adjustments on FCX’s segments and operating
divisions in third-quarter 2007:
|
Production
and delivery
|
$
|
104
|
|
-
|
|
40
|
|
30
|
|
174
|
|
42
|
|
34
|
|
76
|
|
N/A
|
|
N/A
|
|
27
|
|
277
|
Depreciation,
depletion and amortization
|
|
58
|
|
-
|
|
9
|
|
48
|
|
115
|
|
21
|
|
19
|
|
40
|
|
N/A
|
|
N/A
|
|
-
|
|
155
|
Purchase
accounting adjustments
|
$
|
162
|
|
-
|
|
49
|
|
78
|
|
289
|
|
63
|
|
53
|
|
116
|
|
N/A
|
|
N/A
|
|
27
|
|
432
|
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
|
|
Nine
Months Ended September 30, 2007
|
Morenci
|
|
turing
|
|
denum
|
|
Mining
|
|
Mining
|
|
Verde
|
|
Mining
|
|
Mining
|
|
Grasberg
|
|
&
Refining
|
|
Eliminations
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
$
|
72
|
|
3,760
|
|
1,034
|
|
1,139
|
|
6,005
|
|
510
|
|
1,158
|
|
1,668
|
|
3,317
|
a
|
1,761
|
|
4
|
|
12,755
|
|
Intersegment
|
|
1,172
|
|
119
|
|
-
|
|
(1,283
|
)
|
8
|
|
658
|
|
517
|
|
1,175
|
|
991
|
|
-
|
|
(2,174
|
)
|
-
|
|
Production
and deliveryd
|
|
705
|
|
3,836
|
|
838
|
|
(780
|
)
|
4,599
|
|
343
|
|
531
|
|
874
|
|
1,064
|
|
1,709
|
|
(2,141
|
)
|
6,105
|
|
Depreciation,
depletion and amortizationd
|
|
165
|
|
12
|
|
47
|
|
164
|
|
388
|
|
85
|
|
173
|
|
258
|
|
158
|
|
27
|
|
15
|
|
846
|
|
Exploration
and research expenses
|
|
-
|
|
-
|
|
1
|
|
5
|
|
6
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
81
|
|
87
|
|
Selling,
general and administrative expenses
|
|
-
|
|
-
|
|
9
|
|
6
|
|
15
|
|
-
|
|
-
|
|
-
|
|
133
|
|
15
|
|
151
|
|
314
|
|
Operating
income (loss)d
|
$
|
374
|
|
31
|
|
139
|
b
|
461
|
|
1,005
|
|
740
|
|
971
|
|
1,711
|
|
2,953
|
|
10
|
|
(276
|
)
|
5,403
|
|
Interest
expense, net
|
$
|
-
|
|
3
|
|
-
|
|
-
|
|
3
|
|
7
|
|
(1
|
)
|
6
|
|
10
|
|
20
|
|
347
|
|
386
|
|
Equity
in affiliated companies’ net earnings
|
$
|
-
|
|
-
|
|
-
|
|
1
|
|
1
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
16
|
|
17
|
|
Provision
for income taxes
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
266
|
|
318
|
|
584
|
|
1,037
|
|
-
|
|
254
|
|
1,875
|
|
Minority
interests in net income of consolidated subsidiaries
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
259
|
|
283
|
|
542
|
|
-
|
|
-
|
|
186
|
|
728
|
|
Capital
expenditures
|
$
|
156
|
|
8
|
|
21
|
|
415
|
|
600
|
|
31
|
|
34
|
|
65
|
|
273
|
|
31
|
|
169
|
c
|
1,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,421
|
a
|
1,722
|
|
5
|
|
4,148
|
|
Intersegment
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
673
|
|
-
|
|
(673)
|
|
-
|
|
Production
and delivery
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
931
|
|
1,633
|
|
(689)
|
|
1,875
|
|
Depreciation,
depletion and amortization
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
118
|
|
23
|
|
6
|
|
147
|
|
Exploration
and research expenses
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
9
|
|
9
|
|
Selling,
general and administrative expenses
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
174
|
|
11
|
|
(74)
|
|
111
|
|
Operating
income
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,871
|
|
55
|
|
80
|
|
2,006
|
|
Interest
expense, net
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
6
|
|
17
|
|
39
|
|
62
|
|
Equity
in affiliated companies’ net earnings
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
7
|
|
7
|
|
Provision
for income taxes
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
653
|
|
-
|
|
183
|
|
836
|
|
Minority
interests in net income of consolidated subsidiaries
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
115
|
|
115
|
|
Capital
expenditures
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
165
|
|
13
|
|
-
|
|
178
|
|
a.
|
Includes
PT Freeport Indonesia’s sales to PT Smelting totaling $1.6 billion for the
first nine months of 2007 and $1.1 billion for the first nine months
of
2006.
|
b.
|
Operating
income for Primary Molybdenum from March 20, 2007, through September
30,
2007, included a $67 million loss primarily resulting from the
difference
between raw material purchases and average contractual selling
prices, and
was also net of a $93 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.
|
Includes
capital expenditures of $13 million for the first nine months of
2007
associated with discontinued operations (refer to Note
4).
|
d.
|
Operating
income (loss) includes purchase accounting adjustments primarily
associated with the impacts of increases in the carrying values
of
acquired 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 nine months of
2007:
|
Production
and delivery
|
$
|
188
|
|
-
|
|
120
|
|
165
|
|
473
|
|
62
|
|
80
|
|
142
|
|
N/A
|
|
N/A
|
|
12
|
|
627
|
Depreciation,
depletion and amortization
|
|
121
|
|
-
|
|
21
|
|
96
|
|
238
|
|
42
|
|
89
|
|
131
|
|
N/A
|
|
N/A
|
|
-
|
|
369
|
Purchase
accounting adjustments
|
$
|
309
|
|
-
|
|
141
|
|
261
|
|
711
|
|
104
|
|
169
|
|
273
|
|
N/A
|
|
N/A
|
|
12
|
|
996
|
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 September 30, 2007, and the related condensed consolidated
statements of income for the three-month and nine-month periods ended September
30, 2007 and 2006, the condensed consolidated statements of cash flows for
the
nine-month periods ended September 30, 2007 and 2006, and the condensed
consolidated statement of stockholders’ equity for the nine-month period ended
September 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
November
5, 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
nine months of 2007 include the operations of Phelps Dodge only since March
20,
2007, not the full nine-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 the latest available
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).
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.
Phelps
Dodge also has an international manufacturing division, Phelps Dodge
International Corporation (PDIC), which manufactures engineered wire and cable
products principally for the global energy sector. On September 12, 2007, FCX
entered into an agreement to sell PDIC. The transaction was complete on October
31, 2007. As a result of the transaction, the operating results of PDIC have
been reported separately from continuing operations as discontinued operations
in the condensed consolidated statements of income for the quarter and nine
months ended September 30, 2007. Additionally, the assets and liabilities of
PDIC have been presented separately as held for sale in the condensed
consolidated balance sheets. Refer to Note 4 for further discussion of
discontinued operations.
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. Adjustments to
the
estimated fair values, which were initially recorded based on preliminary
internal estimates, will occur until such values are finalized. 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 purchase
accounting 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 subject to change as FCX completes the final purchase price
allocation (refer to Note 2 for a summary of the September 30, 2007, preliminary
purchase price allocation). 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
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Total
|
|
(In
millions)
|
Actual
|
|
Actual
|
|
Actual
|
|
Estimate
|
|
Estimate
|
|
Production
and delivery costs
|
$
|
96
|
|
$
|
269
|
|
$
|
291
|
|
$
|
100
|
|
$
|
756
|
|
Depreciation,
depletion and amortization
|
|
28
|
|
|
186
|
|
|
155
|
|
|
200
|
|
|
569
|
|
Total
cost of sales impact
|
$
|
124
|
|
$
|
455
|
|
$
|
446
|
a
|
$
|
300
|
|
$
|
1,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
on income from continuing operations
|
$
|
79
|
|
$
|
286
|
|
$
|
281
|
|
$
|
189
|
|
$
|
835
|
|
a.
|
During
third-quarter 2007, we adjusted our preliminary purchase price allocation
based on updated valuation models for mill and leach stockpiles resulting
in an increase from initial estimates of approximately $1.0 billion.
The
increase in mill and leach stockpile values, along with other adjustments,
resulted in higher net purchase accounting impacts of $146 million.
FCX is
continuing to work with third-party consultants to assign fair values
to
the assets acquired and liabilities assumed in the Phelps Dodge
transaction. Further changes to the fair value estimates could be
significant and could result in changes to reported interim financial
results.
|
COPPER,
GOLD AND MOLYBDENUM MARKETS
As
shown
in the graphs below, world metal prices for copper have fluctuated during the
period from 1992 through October 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 October 2007 from a low of
approximately $250 per ounce in 1999 to a high of approximately $790 per ounce
on October 31, 2007. 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 October 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 149,000 metric tons at September
30, 2007, remain at historically low levels, representing approximately 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 $3.50 per pound in third-quarter 2007, with prices ranging
from
$3.16 per pound to approximately $3.72 per pound. The LME spot price closed
at
$3.52 per pound on October 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.
Gold
prices averaged approximately $680 per ounce in third-quarter 2007, with prices
ranging from approximately $648 per ounce to approximately $743 per ounce.
At
the end of October 2007, gold prices reach new 25-year highs of approximately
$790 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 approximately
$790 per ounce on October 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 continue to be favorable in 2007, with prices
averaging $31.68 per pound and ranging from $31.00 per pound to $32.50 per
pound
in third-quarter 2007. The Metals Week Molybdenum Dealer Oxide price
closed at $32.55 per pound on October 29, 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 significantly 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. For newly
placed material on active stockpiles as much as 70 percent of the copper
ultimately recoverable may be extracted during the first year, the remaining
copper is recovered over many 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. 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
September 30, 2007, environmental reserves recorded in our condensed
consolidated balance sheet totaled $348 million, which reflect 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 September
30, 2007,
the cost range for reasonably possible outcomes for all reservable remediation
sites (on an undiscounted and unescalated basis) was $330 million to $650
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
preliminary purchase price allocation represents the estimated fair values
of
assets acquired and liabilities assumed based on internal estimates and
adjustments will occur until such values are finalized. Upon finalization of
the
purchase price allocation, any resulting goodwill will be allocated to the
reporting units, which will include individual mines. Refer to Note 2 for a
current summary of the March 19, 2007, preliminary purchase price
allocation.
CONSOLIDATED
RESULTS
A
summary
of comparative results for the quarters and nine months ended September 30,
2007
and 2006, follows:
|
|
|
Nine
Months Ended
|
|
|
Third-Quarter
|
|
September
30,
|
|
|
2007a
|
|
2006
|
|
2007b
|
|
2006
|
|
Revenues
(in millions)
|
$
|
5,066
|
c
|
$
|
1,636
|
f
|
$
|
12,755
|
c
|
$
|
4,148
|
f
|
Operating
income (in millions)
|
$
|
1,877
|
c
|
$
|
735
|
f
|
$
|
5,403
|
c
|
$
|
2,006
|
f
|
Income
from continuing operations applicable to
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock (in millions)
g
|
$
|
763
|
c,d
|
$
|
351
|
f
|
$
|
2,311
|
c,d
|
$
|
970
|
f
|
Net
income applicable to common stock (in millions)g
|
$
|
775
|
c,d
|
$
|
351
|
f
|
$
|
2,355
|
c,d
|
$
|
970
|
f
|
Diluted
net income per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
1.85
|
c,d,e
|
$
|
1.67
|
f
|
$
|
6.46
|
c,d,e
|
$
|
4.64
|
f
|
Discontinued
operations
|
|
0.02
|
|
|
–
|
|
|
0.12
|
|
|
–
|
|
Diluted
net income per share of common stock
|
$
|
1.87
|
|
$
|
1.67
|
|
$
|
6.58
|
|
$
|
4.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
from Mines
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
share (millions of recoverable pounds)
|
|
949
|
|
|
324
|
|
|
2,479
|
|
|
769
|
|
Average
realized price per pound
|
$
|
3.53
|
c
|
$
|
3.43
|
|
$
|
3.43
|
c
|
$
|
3.38
|
|
Gold
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
share (thousands of recoverable ounces)
|
|
269
|
|
|
478
|
|
|
2,137
|
|
|
1,228
|
|
Average
realized price per ounce
|
$
|
692.43
|
|
$
|
608.57
|
|
$
|
668.80
|
|
$
|
540.67
|
f
|
Molybdenum
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
share (millions of recoverable pounds)
|
|
16
|
|
|
N/A
|
|
|
33
|
|
|
N/A
|
|
Average
realized price per pound
|
$
|
27.89
|
|
|
N/A
|
|
$
|
26.22
|
|
|
N/A
|
|
a.
|
A
summary of the key components contributing to the consolidated results
for
third-quarter 2007 follows (in
millions):
|
|
|
|
|
|
Income
from
|
|
|
|
|
Operating
|
|
Continuing
|
|
|
Revenues
|
|
Income
|
|
Operations
|
|
FCX,
excluding Phelps Dodge
|
$
|
1,260
|
|
$
|
577
|
|
$
|
50
|
|
Phelps
Dodge results
|
|
3,806
|
|
|
1,732
|
|
|
1,047
|
|
Purchase
accounting impact:
|
|
|
|
|
|
|
|
|
|
Inventories
(including mill and leach stockpiles)
|
|
–
|
|
|
(291
|
)
|
|
(184
|
)
|
Property,
plant and equipment
|
|
–
|
|
|
(155
|
)
|
|
(97
|
)
|
Other
|
|
–
|
|
|
14
|
|
|
10
|
|
Consolidated
|
$
|
5,066
|
|
$
|
1,877
|
|
$
|
826
|
|
Phelps
Dodge’s sales from its mines totaled 752 million pounds of copper, 35 thousand
ounces of gold and 16 million pounds of molybdenum in third-quarter
2007.
b.
|
The
nine months ended September 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 nine months ended
September 30, 2007, follows (in
millions):
|
|
|
|
|
|
Income
from
|
|
|
|
|
Operating
|
|
Continuing
|
|
|
Revenues
|
|
Income
|
|
Operations
|
|
FCX,
excluding Phelps Dodge
|
$
|
5,082
|
|
$
|
2,932
|
|
$
|
1,054
|
|
Phelps
Dodge results
|
|
7,673
|
|
|
3,467
|
|
|
2,025
|
|
Purchase
accounting impact:
|
|
|
|
|
|
|
|
|
|
Inventories
(including mill and leach stockpiles)
|
|
–
|
|
|
(656
|
)
|
|
(414
|
)
|
Property,
plant and equipment
|
|
–
|
|
|
(369
|
)
|
|
(232
|
)
|
Other
|
|
–
|
|
|
29
|
|
|
22
|
|
Consolidated
|
$
|
12,755
|
|
$
|
5,403
|
|
$
|
2,455
|
|
Phelps
Dodge’s sales from its mines totaled 1.5 billion pounds of copper, 77 thousand
ounces of gold and 33 million pounds of molybdenum from March 20, 2007 through
September 30, 2007.
c.
|
Includes
charges to revenues for mark-to-market accounting adjustments on
the 2007
copper price protection program totaling $44 million ($26 million
to net
income or $0.06 per share) and a reduction in average realized prices
of
$0.04 per pound in third-quarter 2007, and $212 million ($129 million
to
net income or $0.34 per share) and a reduction in average realized
prices
of $0.08 per pound for the first nine months of
2007.
|
d.
|
Includes
net losses on early extinguishment of debt totaling $36 million ($31
million to net income or $0.07 per share) in third-quarter 2007 and
$171
million ($141 million to net income or $0.37 per share) for the first
nine
months of 2007 primarily related to premiums paid and the accelerated
recognition of deferred financing costs associated with prepayments
on
debt, including the refinancing of our senior term loan due March
2014
(the Tranche B term loan) under the $11.5 billion senior credit
facility. Refer to Note 9 for further
discussion.
|
e.
|
On
March 19, 2007, we issued 136.9 million common shares to acquire
Phelps
Dodge, and on March 28, 2007, we sold an additional 47.15 million
common
shares. Common shares outstanding at September 30, 2007, totaled
382
million shares. Assuming conversion of all our convertible instruments,
total potential common shares outstanding would be 444 million shares
at
September 30, 2007.
|
f.
|
Includes
a loss on redemption of our Silver-Denominated Preferred Stock totaling
$13 million ($7 million to net income or $0.03 per share) in third-quarter
2006. In addition to the loss on redemption of our Silver-Denominated
Preferred Stock, the first nine months of 2006 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 $56.40 per ounce for the revenue adjustment
relating to the redemption.
|
g.
|
After
dividends on preferred stock.
|
Outlook
Below
is
a summary of our currently projected consolidated sales volumes for 2007 and
for
fourth-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
|
|
Fourth-Quarter
|
|
Actual
|
|
Pro
forma
|
|
2007
|
Copper
(in billions of recoverable pounds)
|
|
3.4
|
|
|
3.9
|
|
|
0.9
|
Gold
(in millions of recoverable ounces)
|
|
2.2
|
|
|
2.3
|
|
|
0.1
|
Molybdenum
(in millions of recoverable pounds)
|
|
51
|
|
|
68
|
|
|
18
|
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
fourth-quarter 2007 (approximately 875 million pounds) and provisionally priced
sales at September 30, 2007, and assuming an average price of $3.50 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 $275 million impact on our 2007 revenues
and an approximate $130 million impact on our 2007 net income, which includes
the impact associated with the 2007 copper price protection
program.
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 third-quarter 2007
were approximately 23 percent lower than third-quarter 2006 because of lower
sales volumes in 2007, partly offset by higher copper and gold prices (refer
to
“Indonesian Mining” for further discussion). Lower sales volumes for PT Freeport
Indonesia were the result of mining in a relatively low-grade section of the
Grasberg open pit during third-quarter 2007.
Excluding
additional revenues associated with Phelps Dodge’s operations ($7.7 billion),
revenues for the first nine months of 2007, were approximately 23 percent higher
than the comparable 2006 period, reflecting higher copper and gold prices and
higher overall sales volumes in 2007 (refer to “Indonesian Mining” for further
discussion). Higher sales volumes were primarily because PT Freeport Indonesia
mined higher grade ore during the first half of 2007.
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 $99 million in third-quarter 2007 and $445
million for the first nine months of 2007, compared with net additions of $22
million in third-quarter 2006 and $392 million for the first nine months of
2006.
At
September 30, 2007, our consolidated copper sales included 442 million pounds
of
copper priced at an average of $3.65 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 September 30, 2007, pricing would impact our 2007 consolidated
revenues by $29 million ($15 million impact to net income).
Adjustments
to concentrate sales recognized in prior quarters decreased third-quarter 2007
revenues by $37 million ($22 million to net income or $0.05 per share), compared
with an increase of $33 million ($18 million to net income or $0.08 per share)
in third-quarter 2006. Adjustments to concentrate sales recognized in prior
quarters increased revenues for the first nine months of 2007 by $90 million
($43 million to net income or $0.11 per share), compared with an increase of
$139 million ($74 million to net income or $0.33 per share) for the first nine
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 the 2007 copper price protection
program, which resulted in charges to revenues for mark-to-market accounting
adjustments totaling $44 million ($26 million to net income or $0.06 per share)
for third-quarter 2007 and $212 million ($129 million to net income or $0.34
per
share) from March 20, 2007, through September 30, 2007. Refer to Note 16 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); and in August 2006, the final scheduled redemption, of
our
Silver-Denominated Preferred Stock resulted in a charge to revenues of $13
million ($7 million to net income or $0.03 per share).
Production
and Delivery Costs
Excluding
amounts associated with the Phelps Dodge operations ($2.1 billion, which
included $277 million primarily related to purchase accounting impacts for
higher values of metal inventories and stockpiles), production and delivery
costs for third-quarter 2007 decreased $201 million compared with third-quarter
2006. This decrease primarily reflects changes in intersegment sales activity
between PT Freeport Indonesia and Atlantic Copper and between PT Freeport
Indonesia and PT Smelting, combined with lower PT Freeport Indonesia costs
related to lower sales volumes in third-quarter 2007. These reductions to
production and delivery costs were partly offset by increases at Atlantic Copper
related to higher cost of concentrate in 2007 because of higher gold
content.
Excluding
amounts associated with the Phelps Dodge operations ($4.3 billion, which
included $627 million primarily related to purchase accounting impacts for
higher values of metal inventories and stockpiles), production and delivery
costs for the first nine months of 2007 decreased by $60 million compared with
the first nine months of 2006. This decrease primarily reflects changes in
intersegment sales activity between PT Freeport Indonesia and Atlantic Copper,
partly offset by increases at PT Freeport Indonesia costs related to higher
overall sales volumes in 2007 and at Atlantic Copper related to higher cost
of
concentrate in 2007 because of higher copper and gold prices.
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
Excluding
amounts associated with the Phelps Dodge operations ($304 million, which
included $155 million related to purchase accounting impacts for the increase
in
the carrying value of acquired property, plant and equipment), depreciation,
depletion and amortization expense for third-quarter 2007 decreased $8 million
compared with third-quarter 2006. This decrease was primarily related to lower
copper sales volumes at PT Freeport Indonesia during third-quarter 2007, which
resulted in lower expense under the unit-of-production method.
Excluding
amounts associated with the Phelps Dodge operations ($653 million, which
included $369 million related to purchase accounting impacts for the increase
in
the carrying value of acquired property, plant and equipment), depreciation,
depletion and amortization expense for the first nine months of 2007 increased
$46 million compared with the first nine months of 2006. This increase was
primarily related to higher overall copper sales volumes at PT Freeport
Indonesia for the first nine months of 2007, which resulted in higher expense
under the unit-of-production method.
Selling,
General and Administrative Expense
Consolidated
selling, general and administrative expense increased to $131 million in
third-quarter 2007 compared with $45 million in third-quarter 2006. The increase
of $86 million primarily reflects additional costs relating to the acquisition
of Phelps Dodge ($69 million) and higher stock-based compensation costs ($9
million).
Consolidated
selling, general and administrative expense increased to $314 million for the
first nine months of 2007, compared with $111 million for the first nine months
of 2006. The increase of $203 million primarily reflects additional costs
relating to the acquisition of Phelps Dodge ($137 million) and higher
stock-based compensation costs ($33 million) primarily related to second-quarter
2007 stock option grants.
Interest
Expense, Net
Total
consolidated interest expense (before capitalization) increased to $206 million
in third-quarter 2007 and $494 million for the first nine months of 2007,
compared with $21 million in third-quarter 2006 and $69 million for the first
nine months of 2006. The increase in interest expense in the 2007 periods
primarily relates to the debt incurred in connection with the acquisition of
Phelps Dodge. Refer to Note 9 and “Capital Resources and Liquidity – Financing
Activities” for further discussion of the debt incurred in connection with the
acquisition. We expect interest expense for 2007 to be significantly higher
compared with 2006 because of the acquisition debt.
Capitalized
interest totaled $51 million in third-quarter 2007 and $108 million for the
first nine months of 2007, compared with $3 million in third-quarter 2006 and
$7
million for the first nine months of 2006. The increase in capitalized interest
in 2007 primarily relates to capital expenditures for development projects
at
Safford and Tenke Fungurume.
Losses
on Early Extinguishment and Conversion of Debt, Net
During
third-quarter 2007, we recorded charges totaling $36 million ($31 million to
net
income or $0.07 per share) for early extinguishment of debt related to the
accelerated recognition of deferred financing costs associated with refinancing
the Tranche B term loan under the $11.5 billion senior credit
facility.
For
the
first nine months of 2007, we recorded net charges totaling $171 million ($141
million to net income or $0.37 per share) for early extinguishment of debt.
These net charges include $154 million ($131 million to net income) related
to
the accelerated recognition of deferred financing costs associated with early
repayment of amounts under the $11.5 billion senior credit facility, including
the refinancing of the Tranche B term loan. 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 nine months of 2006, we recorded net charges totaling approximately
$32 million ($30 million to net income or $0.14 per share) for early
extinguishment and conversion of debt including charges associated with the
completion of a tender offer to induce conversion of $286 million of our 7%
convertible senior notes into FCX common stock, privately negotiated
transactions to induce conversion of $30.5 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 $47 million ($29 million to net income or $0.06 per
share) for third-quarter 2007 and $85 million ($52 million to net income or
$0.14 per share) for the first nine months of 2007 primarily associated with
sales of marketable securities.
Atlantic
Copper recorded gains on sales of assets totaling $21 million in third-quarter
2006 and $30 million for the first nine months of 2006 for the disposition
of
land and certain royalty rights.
Other
Income, Net
Other
income, net, increased to $48 million in third-quarter 2007 and $110 million
for
the first nine months of 2007, compared with $6 million in third-quarter 2006
and $17 million for the first nine months of 2006. The increases in other income
for the 2007 periods primarily relates to higher interest income.
Other
net
income includes interest income totaling $39 million in third-quarter 2007
and
$101 million for the first nine months of 2007. Interest income totaled $7
million in third-quarter 2006 and $19 million for the first nine months of
2006.
The overall increase in interest income was related to higher cash
balances.
Provision
for Income Taxes
Our
third-quarter 2007 income tax provision from continuing operations included
taxes on international operations ($584 million) and U.S. taxes ($69 million).
FCX’s income tax provision from continuing operations for the first nine months
of 2007 included taxes on international operations ($1.7 billion) and U.S.
taxes
($161 million).
The
difference between FCX’s consolidated effective income tax rate of approximately
37 percent for the first nine months of 2007 and the U.S. federal statutory
rate
of 35 percent primarily was attributable to withholding taxes related to
earnings from Indonesian and South American mining operations and a U.S. foreign
tax credit limitation, partly offset by a U.S. benefit for percentage
depletion.
FCX’s
income tax provision for third-quarter 2006 ($304 million) and for the first
nine months of 2006 ($836 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 nine months of 2006 and PT Freeport
Indonesia’s Contract of Work rate of 35 percent primarily was attributable to
withholding taxes related to 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 nine months of 2007 follows (in millions, except
percentages):
|
|
|
Effective
|
|
Provision
for
|
|
|
Incomea
|
|
Tax
Rate
|
|
Income
Tax
|
|
North
America
|
|
|
|
|
|
|
|
|
|
Income
before taxes and minority interests
|
$
|
1,076
|
|
|
32%
|
|
$
|
339
|
|
Purchase
accounting adjustments
|
|
(723
|
)
|
|
39%
|
|
|
(280
|
)
|
Subtotal
|
|
353
|
|
|
|
|
|
59
|
|
South
America
|
|
|
|
|
|
|
|
|
|
Income
before taxes and minority interest
|
|
2,006
|
|
|
34%
|
|
|
676
|
|
Purchase
accounting adjustments
|
|
(273
|
)
|
|
34%
|
|
|
(92
|
)
|
Subtotal
|
|
1,733
|
|
|
|
|
|
584
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
Income
before taxes and minority interests
|
|
2,947
|
|
|
43%
|
|
|
1,275
|
|
Other
|
|
|
|
|
|
|
|
|
|
Income
before taxes and minority interests
|
|
25
|
|
|
28%
|
|
|
7
|
|
Annualized
rate adjustmentb
|
|
N/A
|
|
|
N/A
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
Consolidated
totals
|
$
|
5,058
|
|
|
37%
|
|
$
|
1,875
|
|
a.
|
Represents
income from continuing operations 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 10 for further discussion of income taxes.
Minority
Interests in Net Income of Consolidated Subsidiaries
Minority
interests in net income of consolidated subsidiaries increased to $307 million
in third-quarter 2007, compared with $46 million in third-quarter 2006. The
increase of $261 million primarily was attributable to additional amounts
associated with our South American mining operations ($269
million).
Minority
interests in net income of consolidated subsidiaries increased to $728 million
for the first nine months of 2007, compared with $115 million for the first
nine
months of 2006. The increase of $613 million primarily was attributable to
additional amounts associated with our South American mining operations ($542
million), along with an increase related to higher 2007 earnings at PT Freeport
Indonesia ($71 million).
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):
|
Third-Quarter
2007
|
|
Third-Quarter
2006
|
|
|
Unaffiliated
|
|
Inter-
|
|
|
|
|
Unaffiliated
|
|
Inter-
|
|
|
|
|
|
Customers
|
|
segment
|
|
Total
|
|
Customers
|
|
segment
|
|
Total
|
|
North
American mininga
|
$
|
3,007
|
|
$
|
4
|
|
$
|
3,011
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
South
American miningb
|
|
799
|
|
|
550
|
|
|
1,349
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Indonesian
mining
|
|
570
|
|
|
267
|
|
|
837
|
|
|
1,021
|
|
|
241
|
|
|
1,262
|
|
Atlantic
Copper smelting & refining
|
|
688
|
|
|
–
|
|
|
688
|
|
|
613
|
|
|
–
|
|
|
613
|
|
Corporate,
other & eliminations
|
|
2
|
|
|
(821
|
)
|
|
(819
|
)
|
|
2
|
|
|
(241
|
)
|
|
(239
|
)
|
Consolidated
revenues
|
$
|
5,066
|
|
$
|
–
|
|
$
|
5,066
|
|
$
|
1,636
|
|
$
|
–
|
|
$
|
1,636
|
|
|
Nine
Months Ended
|
|
|
September
30, 2007
|
|
September
30, 2006
|
|
|
Unaffiliated
|
|
Inter-
|
|
|
|
|
Unaffiliated
|
|
Inter-
|
|
|
|
|
|
Customers
|
|
segment
|
|
Total
|
|
Customers
|
|
segment
|
|
Total
|
|
North
American mininga
|
$
|
6,005
|
|
$
|
8
|
|
$
|
6,013
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
South
American miningb
|
|
1,668
|
|
|
1,175
|
|
|
2,843
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Indonesian
mining
|
|
3,317
|
|
|
991
|
|
|
4,308
|
|
|
2,421
|
|
|
673
|
|
|
3,094
|
|
Atlantic
Copper smelting & refining
|
|
1,761
|
|
|
–
|
|
|
1,761
|
|
|
1,722
|
|
|
–
|
|
|
1,722
|
|
Corporate,
other & eliminations
|
|
4
|
|
|
(2,174
|
)
|
|
(2,170
|
)
|
|
5
|
|
|
(673
|
)
|
|
(668
|
)
|
Consolidated
revenues
|
$
|
12,755
|
|
$
|
–
|
|
$
|
12,755
|
|
$
|
4,148
|
|
$
|
–
|
|
$
|
4,148
|
|
a.
|
Includes
our operating mines at Morenci, Bagdad, Sierrita, Chino and Tyrone.
Also
includes our Manufacturing and Primary Molybdenum operations (refer
to
Note 17).
|
b.
|
Includes
our operating mines at Candelaria, Ojos del Salado, El Abra and Cerro
Verde (refer to Note 17).
|
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.
A
summary
of operating income (loss) by operating division, which includes the results
of
Phelps Dodge beginning March 20, 2007, follows (in millions):
|
|
|
Nine
Months Ended
|
|
|
Third-Quarter
|
|
September
30,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
North
American mining
|
$
|
630
|
|
$
|
–
|
|
$
|
1,005
|
|
$
|
–
|
|
South
American mining
|
|
800
|
|
|
–
|
|
|
1,711
|
|
|
–
|
|
Indonesian
mining
|
|
399
|
|
|
813
|
|
|
2,953
|
|
|
1,871
|
|
Atlantic
Copper smelting & refining
|
|
1
|
|
|
20
|
|
|
10
|
|
|
55
|
|
Corporate,
other & eliminations
|
|
47
|
|
|
(98
|
)
|
|
(276
|
)
|
|
80
|
|
Consolidated
operating income
|
$
|
1,877
|
a
|
$
|
735
|
|
$
|
5,403
|
a
|
$
|
2,006
|
|
a.
|
Operating
income includes purchase accounting adjustments totaling $432 million
for
third-quarter 2007 and approximately $1.0 billion for the first nine
months of 2007 (refer to Note 17). 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.
|
We
also
allocate certain operating costs, expenses and capital to the operating
divisions and individual segments. 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.
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, and the marketing and sale of both product lines.
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.
Construction
of the concentrate-leach, direct-electrowinning facility at Morenci is
essentially complete and the facility is currently being commissioned. This
project uses FCX’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 concentrate-leach facility is completed. With the
recent restart of the mill, this project is designed to add 115 million pounds
of copper per year. The overall project required a total capital investment
of
approximately $250 million.
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 this segment
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.
We
are in
the final stages of evaluating the restart of the Climax primary molybdenum
mine
near Leadville, Colorado, which has been on care-and-maintenance status since
1995. Climax is believed to be the largest, highest-grade and lowest-cost
undeveloped molybdenum ore body in the world. The initial project would involve
the restart of open pit mining and the construction of a new mill. Annual
production is expected to approximate 30 million pounds of molybdenum at
estimated cash costs of approximately $3.50 per pound. Capital cost estimates
for the initial project approximate $500 million and the facilities could be
in
operation by 2010. Based on our expectation that the evaluation study will
confirm the restart of Climax as an attractive economic project, we began
ordering long lead-time equipment in second-quarter 2007. A final investment
decision is expected by the end of 2007.
The
molybdenum resource at Climax is large and the project is designed to enable
the
consideration of further large-scale expansion and FCX will consider a second
phase of the Climax project, which could potentially double annual molybdenum
production at Climax.
Other
North American mining operations. 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 and silver, and the Sierrita
mine also produces 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 that 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 will produce ore from two open-pit mines located in
southeastern Arizona and includes a solution extraction/electrowinning facility,
which is nearing completion. Construction commenced in August 2006, and first
production is expected in late 2007, with ramp-up to full production of
approximately 240 million pounds per year in the first half of 2008. The total
capital investment for this project is approximately $625 million, with over
70
percent spent as of September 30, 2007 (including amounts spent prior to the
acquisition of Phelps Dodge). For fourth-quarter 2007, we expect additional
spending of approximately $90 million associated with the development of the
Safford mining complex.
North
American mining added $3.0 billion in revenues and $630 million of operating
income to our third-quarter 2007 results, and $6.0 billion in revenues and
$1.0
billion of operating income to our results for the first nine months of 2007,
including charges to revenues for mark-to-market accounting adjustments on
the
2007 copper price protection program totaling $44 million for third-quarter
2007
and $212 million from March 20, 2007, through September 30, 2007. Refer to
Note
16 and “Contractual Obligations – Hedging Activities” for further discussion of
the 2007 copper price protection program.
The
following discussion of our North American mining operations covers the full
three and nine-month periods ending September 30, 2007 and 2006, including
periods prior to our acquisition of these operations:
|
|
|
|
Nine
Months Ended
|
|
|
|
Third-Quarter
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Consolidated
North American Mining Operations
|
|
(Actual)
|
|
(Pro
Forma)
|
|
(Pro
Forma)
|
|
(Pro
Forma)
|
|
Copper
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
357
|
|
|
322
|
|
|
993
|
|
|
976
|
|
Sales
|
|
|
376
|
|
|
303
|
|
|
1,016
|
|
|
970
|
|
Average
realized price per pound, excluding hedging
|
|
$
|
3.48
|
|
$
|
3.48
|
|
$
|
3.29
|
|
$
|
3.00
|
|
Average
realized price per pound, including hedginga
|
|
$
|
3.37
|
|
$
|
3.00
|
|
$
|
3.06
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
18
|
|
|
16
|
|
|
53
|
|
|
51
|
|
Sales
|
|
|
16
|
|
|
16
|
|
|
50
|
|
|
51
|
|
Average
realized price per pound
|
|
$
|
27.89
|
|
$
|
22.59
|
|
$
|
25.12
|
|
$
|
21.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solution
extraction/electrowinning (SX/EW) operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leach
ore placed in stockpiles (metric tons per day)
|
|
|
797,600
|
|
|
772,600
|
|
|
739,800
|
|
|
816,900
|
|
Average
copper ore grade (percent)
|
|
|
0.21
|
|
|
0.32
|
|
|
0.25
|
|
|
0.30
|
|
Copper
production (millions of recoverable pounds)
|
|
|
216
|
|
|
223
|
|
|
637
|
|
|
675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
226,400
|
|
|
203,100
|
|
|
221,000
|
|
|
194,800
|
|
Average
ore grade (percent)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
0.36
|
|
|
0.33
|
|
|
0.34
|
|
|
0.33
|
|
Molybdenum
|
|
|
0.03
|
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
Production
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
141
|
|
|
99
|
|
|
356
|
|
|
301
|
|
Molybdenum
(by-product)
|
|
|
8
|
|
|
7
|
|
|
23
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary
molybdenum mine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
22,300
|
|
|
19,500
|
|
|
24,000
|
|
|
22,000
|
|
Average
molybdenum ore grade (percent)
|
|
|
0.25
|
|
|
0.25
|
|
|
0.23
|
|
|
0.23
|
|
Molybdenum
production (millions of recoverable pounds)
|
|
|
10
|
|
|
9
|
|
|
30
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
the impact of hedging losses related to copper price protection
programs.
|
North
American copper sales volumes for the third quarter and first nine months of
2007 were higher than sales volumes in the comparable 2006 periods primarily
because of higher production at Bagdad and at Morenci primarily because of
expanded production from the mill, which was operating close to projected
capacity at the end of third-quarter 2007. Additionally, higher sales volumes
were also associated with timing of shipments. 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 nine months of 2007,
sales from these operations totaled 1.0 billion pounds of copper and are
expected to approximate 325 million pounds in fourth-quarter 2007.
Consolidated
molybdenum sales volumes and ore grades for the third quarter and first nine
months of 2007 were comparable to the 2006 periods. 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. Consolidated molybdenum sales volumes totaled 50 million pounds
in
the first nine months of 2007 and are expected to approximate 18 million pounds
for fourth-quarter 2007. Approximately 65 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. 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.
The
following tables summarize the actual unit net cash costs at the North American
copper mines for third-quarter 2007 and the pro forma unit net cash costs for
third-quarter 2006 and the full nine-month periods ended September 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). Additionally, 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.”
Gross
Profit per Pound of Copper and Molybdenum
Three
Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product Method
|
|
|
|
Method
|
|
|
Copper
|
|
|
Molybdenum
|
a
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown below
|
$
|
3.51
|
|
$
|
3.51
|
|
$
|
31.80
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash and
|
|
|
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
1.40
|
|
|
1.22
|
|
|
9.69
|
|
By-product
credits
a
|
|
(0.66
|
)
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.09
|
|
|
0.09
|
|
|
–
|
|
Unit
net cash costs
|
|
0.84
|
|
|
1.31
|
|
|
9.69
|
|
Depreciation
and amortization
|
|
0.18
|
|
|
0.16
|
|
|
0.95
|
|
Noncash
and nonrecurring costs, net
|
|
0.01
|
|
|
0.01
|
|
|
0.02
|
|
Total
unit costs
|
|
1.03
|
|
|
1.49
|
|
|
10.66
|
|
Revenue
adjustments, primarily for pricing on prior period
|
|
|
|
|
|
|
|
|
|
open
sales and hedging
|
|
(0.15
|
)
|
|
(0.15
|
)
|
|
–
|
|
Idle
facility and other non-inventoriable costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
–
|
|
Gross
profit
|
$
|
2.31
|
|
$
|
1.85
|
|
$
|
21.14
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
376
|
|
|
376
|
|
|
|
|
Molybdenum
(in million pounds)
|
|
|
|
|
|
|
|
8
|
|
a.
|
Molybdenum
by-product credits reflect volumes produced at market-based pricing,
and
also include tolling revenues at
Sierrita.
|
Gross
Profit per Pound of Copper and Molybdenum (Pro Forma)
Three
Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product Method
|
|
|
|
Method
|
|
|
Copper
|
|
|
Molybdenum
|
a
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown below
|
$
|
3.40
|
|
$
|
3.40
|
|
$
|
25.39
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash and
|
|
|
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
1.23
|
|
|
1.03
|
|
|
8.29
|
|
By-product
credits
a
|
|
(0.66
|
)
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.07
|
|
|
0.07
|
|
|
–
|
|
Unit
net cash costs
|
|
0.64
|
|
|
1.10
|
|
|
8.29
|
|
Depreciation
and amortization
|
|
0.11
|
|
|
0.10
|
|
|
0.52
|
|
Noncash
and nonrecurring costs, net
|
|
0.02
|
|
|
0.01
|
|
|
0.02
|
|
Total
unit costs
|
|
0.77
|
|
|
1.21
|
|
|
8.83
|
|
Revenue
adjustments, primarily for pricing on prior period
|
|
|
|
|
|
|
|
|
|
open
sales and hedging
|
|
(0.41
|
)
|
|
(0.41
|
)
|
|
–
|
|
Idle
facility and other non-inventoriable costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
–
|
|
Gross
profit
|
$
|
2.20
|
|
$
|
1.76
|
|
$
|
16.56
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
302
|
|
|
302
|
|
|
|
|
Molybdenum
(in million pounds)
|
|
|
|
|
|
|
|
7
|
|
a.
|
Molybdenum
by-product credits reflect volumes produced at market-based pricing,
and
also include tolling revenues at
Sierrita.
|
Nine
Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product Method
|
|
|
|
Method
|
|
|
Copper
|
|
|
Molybdenum
|
a
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown below
|
$
|
3.19
|
|
$
|
3.19
|
|
$
|
28.57
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash and
|
|
|
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
1.39
|
|
|
1.20
|
|
|
9.83
|
|
By-product
credits
a
|
|
(0.65
|
)
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.08
|
|
|
0.08
|
|
|
–
|
|
Unit
net cash costs
|
|
0.83
|
|
|
1.28
|
|
|
9.83
|
|
Depreciation
and amortization
|
|
0.14
|
|
|
0.12
|
|
|
0.94
|
|
Noncash
and nonrecurring costs, net
|
|
0.02
|
|
|
0.02
|
|
|
0.03
|
|
Total
unit costs
|
|
0.99
|
|
|
1.42
|
|
|
10.80
|
|
Revenue
adjustments, primarily for pricing on prior period
|
|
|
|
|
|
|
|
|
|
open
sales and hedging
|
|
(0.13
|
)
|
|
(0.13
|
)
|
|
–
|
|
Idle
facility and other non-inventoriable costs
|
|
(0.03
|
)
|
|
(0.03
|
)
|
|
–
|
|
Gross
profit
|
$
|
2.05
|
|
$
|
1.62
|
|
$
|
17.77
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
1,004
|
|
|
1,004
|
|
|
|
|
Molybdenum
(in million pounds)
|
|
|
|
|
|
|
|
23
|
|
a.
|
Molybdenum
by-product credits reflect volumes produced at market-based pricing,
and
also include tolling revenues at
Sierrita.
|
Nine
Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product Method
|
|
|
|
Method
|
|
|
Copper
|
|
|
Molybdenum
|
a
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown below
|
$
|
3.15
|
|
$
|
3.15
|
|
$
|
24.48
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash and
|
|
|
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
1.08
|
|
|
0.86
|
|
|
9.75
|
|
By-product
credits
a
|
|
(0.60
|
)
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.07
|
|
|
0.07
|
|
|
–
|
|
Unit
net cash costs
|
|
0.55
|
|
|
0.92
|
|
|
9.75
|
|
Depreciation
and amortization
|
|
0.11
|
|
|
0.09
|
|
|
0.75
|
|
Noncash
and nonrecurring costs, net
|
|
0.01
|
|
|
0.01
|
|
|
0.03
|
|
Total
unit costs
|
|
0.67
|
|
|
1.02
|
|
|
10.53
|
|
Revenue
adjustments, primarily for pricing on prior period
|
|
|
|
|
|
|
|
|
|
open
sales and hedging
|
|
(1.41
|
)
|
|
(1.41
|
)
|
|
–
|
|
Idle
facility and other non-inventoriable costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
–
|
|
Gross
profit
|
$
|
1.05
|
|
$
|
0.70
|
|
$
|
13.95
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
962
|
|
|
962
|
|
|
|
|
Molybdenum
(in million pounds)
|
|
|
|
|
|
|
|
23
|
|
a.
|
Molybdenum
by-product credits reflect volumes produced at market-based pricing,
and
also include tolling revenues at
Sierrita.
|
North
American unit net cash costs in the third quarter and first nine months of
2007
were higher than the comparable 2006 periods primarily because of higher
maintenance, labor and other input costs.
Assuming
average prices of $3.50 per pound of copper and $30 per pound of molybdenum
for
fourth-quarter 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 $0.80 per pound of
copper.
Primary
Molybdenum (Henderson) Unit Net Cash Costs. The following table summarizes
the actual unit net cash costs at the Henderson mine for third-quarter 2007
and
the pro forma unit net cash costs for third-quarter 2006 and the full nine-month
periods ended September 30, 2007 and 2006. 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.”
Primary
Molybdenum (Henderson) Gross Profit per Pound
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
Third-Quarter
|
|
September
30,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
(Actual)
|
|
(Pro
Forma)
|
|
(Pro
Forma)
|
|
(Pro
Forma)
|
|
Revenues,
after adjustments shown below
|
$
|
28.22
|
|
$
|
22.77
|
|
$
|
25.22
|
|
$
|
21.76
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
4.34
|
|
|
3.92
|
|
|
4.20
|
|
|
3.60
|
|
Unit
net cash costs
|
|
4.34
|
|
|
3.92
|
|
|
4.20
|
|
|
3.60
|
|
Depreciation
and amortization
|
|
0.87
|
|
|
0.93
|
|
|
0.85
|
|
|
0.90
|
|
Noncash
and nonrecurring costs, net
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
Total
unit costs
|
|
5.22
|
|
|
4.87
|
|
|
5.07
|
|
|
4.52
|
|
Gross
profita
|
$
|
23.00
|
|
$
|
17.90
|
|
$
|
20.15
|
|
$
|
17.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
molybdenum sales (in million pounds)
|
|
10
|
|
|
9
|
|
|
30
|
|
|
28
|
|
a.
|
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 third quarter and first
nine
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, partly offset by lower energy costs. Assuming achievement of current
2007
sales estimates, we estimate pro forma 2007 average unit net cash costs for
Henderson at approximately $4.30 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 recently completed a $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 averaging 0.47 percent copper and 0.02
percent molybdenum will be processed through the new concentrator. In June
2007,
the mill reached design capacity of 108,000 metric tons of ore per day and
averaged 104,700 metric tons per day in third-quarter 2007. 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.
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 were 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 waived their rights to participate in the tender offer and
after taking this into account, the shares remaining for purchase totaled 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. The
tender offer remained open through August 29, 2007. On August 29, 2007, the
Lima
Stock Exchange declared that the tender offer had concluded, with no
shareholders tendering their shares.
The
impact of the national strike in Peru that began
on November 5, 2007, has had minimal impact on Cerro Verde. Cerro
Verde continues to operate safely, and through the date of this filing there
has
been no impact on production. If the strike continues, production at Cerro
Verde may be affected.
Other
South American Mining Operations. 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 and is expected to provide an additional 325 million pounds of copper
per year. Copper production from the sulfides is expected to begin in 2010.
A
substantial portion of the existing facilities at El Abra will be used to
process the additional reserves, minimizing capital spending requirements.
We
estimate total capital for this project to approximate $450 million, the
majority of which will be spent between 2008 and 2011. An environmental impact
study associated with the sulfide project is being reviewed by Chilean
authorities.
South
American mining added $1.3 billion in revenues and $800 million of operating
income to our third-quarter 2007 results, and $2.8 billion in revenues and
$1.7
billion of operating income to our results for the first nine months of
2007.
The
following discussion of our South American mining operations covers the full
three and nine-month periods ended September 30, 2007 and 2006, including
periods prior to our acquisition of these operations:
|
|
|
|
Nine
Months Ended
|
|
|
|
Third-Quarter
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Consolidated
South American Mining Operations
|
|
(Actual)
|
|
(Pro
Forma)
|
|
(Pro
Forma)
|
|
(Pro
Forma)
|
|
Copper
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
377
|
|
|
281
|
|
|
1,022
|
|
|
853
|
|
Sales
|
|
|
376
|
|
|
295
|
|
|
1,020
|
|
|
860
|
|
Average
realized price per pound
|
|
$
|
3.63
|
|
$
|
3.52
|
|
$
|
3.48
|
|
$
|
3.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
31
|
|
|
27
|
|
|
83
|
|
|
86
|
|
Sales
|
|
|
31
|
|
|
27
|
|
|
84
|
|
|
85
|
|
Average
realized price per ounce
|
|
$
|
679.30
|
|
$
|
672.59
|
|
$
|
666.94
|
|
$
|
545.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solution
extraction/electrowinning (SX/EW) operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leach
ore placed in stockpiles (metric tons per day)
|
|
|
286,700
|
|
|
265,600
|
|
|
289,300
|
|
|
257,500
|
|
Average
copper ore grade (percent)
|
|
|
0.45
|
|
|
0.42
|
|
|
0.42
|
|
|
0.45
|
|
Copper
production (millions of recoverable pounds)
|
|
|
139
|
|
|
176
|
|
|
430
|
|
|
523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
181,400
|
|
|
69,300
|
|
|
163,700
|
|
|
64,300
|
|
Average
copper ore grade (percent)
|
|
|
0.76
|
|
|
0.81
|
|
|
0.72
|
|
|
0.88
|
|
Copper
production (millions of recoverable pounds)
|
|
|
238
|
|
|
105
|
|
|
592
|
|
|
330
|
|
South
American copper sales volumes for the third quarter and first nine months
of
2007 were higher than sales volumes in the comparable 2006 periods primarily
reflecting expanded production from Cerro Verde’s new concentrator, partly
offset by lower production 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 nine months of 2007,
sales from these operations totaled 1.0 billion pounds of copper, and are
expected to approximate 385 million pounds for fourth-quarter 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 second-quarter 2007.
Unit
Net Cash 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.
The
following tables summarize the actual unit net cash costs at the South American
copper mines for third-quarter 2007 and the pro forma unit net cash costs for
third-quarter 2006 and the full nine-month periods ended September 30, 2007
and
2006. The below tables reflect unit net cash costs per pound of copper under
the
by-product and co-product methods as the South American mines also had small
amounts of gold and silver sales in the three and nine-month periods ended
September 30, 2007. 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
Three
Months Ended September 30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
|
|
|
Method
|
|
Method
|
|
Revenues,
after adjustments shown below
|
$
|
3.82
|
|
$
|
3.82
|
|
Site
production and delivery, before net noncash and
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
0.98
|
|
|
0.95
|
|
By-product
credits
|
|
(0.09
|
)
|
|
–
|
|
Treatment
charges
|
|
0.24
|
|
|
0.24
|
|
Unit
net cash costs
|
|
1.14
|
|
|
1.19
|
|
Depreciation
and amortization
|
|
0.15
|
|
|
0.14
|
|
Noncash
and nonrecurring costs, net
|
|
–
|
|
|
–
|
|
Total
unit costs
|
|
1.28
|
|
|
1.33
|
|
Revenue
adjustments, primarily for pricing on prior period
|
|
|
|
|
|
|
open
sales and hedging
|
|
(0.09
|
)
|
|
(0.09
|
)
|
Idle
facility and other non-inventoriable costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
Gross
profit
|
$
|
2.43
|
|
$
|
2.38
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
376
|
|
|
376
|
|
Gross
Profit per Pound of Copper (Pro Forma)
Three
Months Ended September 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
|
|
|
Method
|
|
Method
|
|
Revenues,
after adjustments shown below
|
$
|
3.52
|
|
$
|
3.52
|
|
Site
production and delivery, before net noncash and
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
0.87
|
|
|
0.85
|
|
By-product
credits
|
|
(0.07
|
)
|
|
–
|
|
Treatment
charges
|
|
0.20
|
|
|
0.19
|
|
Unit
net cash costs
|
|
1.00
|
|
|
1.04
|
|
Depreciation
and amortization
|
|
0.17
|
|
|
0.17
|
|
Noncash
and nonrecurring costs, net
|
|
–
|
|
|
–
|
|
Total
unit costs
|
|
1.17
|
|
|
1.22
|
|
Revenue
adjustments, primarily for pricing on prior period
|
|
|
|
|
|
|
open
sales and hedging
|
|
0.03
|
|
|
0.03
|
|
Idle
facility and other non-inventoriable costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
Gross
profit
|
$
|
2.36
|
|
$
|
2.31
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
295
|
|
|
295
|
|
Nine
Months Ended September 30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
|
|
|
Method
|
|
Method
|
|
Revenues,
after adjustments shown below
|
$
|
3.47
|
|
$
|
3.47
|
|
Site
production and delivery, before net noncash and
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
0.89
|
|
|
0.86
|
|
By-product
credits
|
|
(0.08
|
)
|
|
–
|
|
Treatment
charges
|
|
0.21
|
|
|
0.21
|
|
Unit
net cash costs
|
|
1.02
|
|
|
1.07
|
|
Depreciation
and amortization
|
|
0.16
|
|
|
0.15
|
|
Noncash
and nonrecurring costs, net
|
|
–
|
|
|
–
|
|
Total
unit costs
|
|
1.18
|
|
|
1.22
|
|
Revenue
adjustments, primarily for pricing on prior period
|
|
|
|
|
|
|
open
sales and hedging
|
|
0.02
|
|
|
0.02
|
|
Idle
facility and other non-inventoriable costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
Gross
profit
|
$
|
2.29
|
|
$
|
2.25
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
1,020
|
|
|
1,020
|
|
Nine
Months Ended September 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
|
|
|
Method
|
|
Method
|
|
Revenues,
after adjustments shown below
|
$
|
3.24
|
|
$
|
3.24
|
|
Site
production and delivery, before net noncash and
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
0.77
|
|
|
0.75
|
|
By-product
credits
|
|
(0.08
|
)
|
|
–
|
|
Treatment
charges
|
|
0.18
|
|
|
0.18
|
|
Unit
net cash costs
|
|
0.87
|
|
|
0.93
|
|
Depreciation
and amortization
|
|
0.17
|
|
|
0.17
|
|
Noncash
and nonrecurring costs, net
|
|
–
|
|
|
–
|
|
Total
unit costs
|
|
1.04
|
|
|
1.10
|
|
Revenue
adjustments, primarily for pricing on prior period
|
|
|
|
|
|
|
open
sales and hedging
|
|
(0.05
|
)
|
|
(0.04
|
)
|
Idle
facility and other non-inventoriable costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
Gross
profit
|
$
|
2.13
|
|
$
|
2.09
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
860
|
|
|
860
|
|
South
American unit net cash costs in the third quarter and first nine months of
2007
were higher than in the comparable 2006 periods primarily because of higher
costs at Cerro Verde associated with its voluntary contribution programs,
including the additional liability recorded in third-quarter 2007 associated
with local mining fund contributions (refer to “Other Mining Matters” for
further discussion of the Cerro Verde local mining fund contributions).
Additionally, higher unit net cash costs in the 2007 periods reflect higher
energy costs, including increased consumption associated with Cerro Verde’s new
concentrator, and higher equipment maintenance and other input costs at
Candelaria, partly offset by higher volumes. 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
$1.00 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. 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.
|
|
|
|
Nine
Months Ended
|
|
|
|
Third-Quarter
|
|
September
30,
|
|
Indonesian
Mining Operations
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Consolidated,
net of Rio Tinto’s Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
177
|
|
|
308
|
|
|
943
|
|
|
766
|
|
Sales
|
|
|
197
|
|
|
324
|
|
|
948
|
|
|
769
|
|
Average
realized price per pound
|
|
$
|
3.63
|
|
$
|
3.43
|
|
$
|
3.48
|
|
$
|
3.38
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
182
|
|
|
449
|
|
|
2,051
|
|
|
1,218
|
|
Sales
|
|
|
234
|
|
|
478
|
|
|
2,061
|
|
|
1,228
|
|
Average
realized price per ounce
|
|
$
|
694.95
|
|
$
|
608.57
|
|
$
|
668.47
|
|
$
|
540.67
|
a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
Operating Data, including Rio Tinto’s Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
198,600
|
|
|
230,100
|
|
|
213,900
|
|
|
223,600
|
|
Average
ore grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(percent)
|
|
|
0.58
|
|
|
0.85
|
|
|
0.88
|
|
|
0.76
|
|
Gold
(grams per metric ton)
|
|
|
0.70
|
|
|
0.83
|
|
|
1.47
|
|
|
0.81
|
|
Recovery
rates (percent)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
89.1
|
|
|
85.9
|
|
|
90.9
|
|
|
84.3
|
|
Gold
|
|
|
83.0
|
|
|
80.5
|
|
|
87.4
|
|
|
79.4
|
|
Copper
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
194
|
|
|
325
|
|
|
984
|
|
|
831
|
|
Sales
|
|
|
214
|
|
|
343
|
|
|
989
|
|
|
834
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
327
|
|
|
456
|
|
|
2,362
|
|
|
1,253
|
|
Sales
|
|
|
383
|
|
|
487
|
|
|
2,371
|
|
|
1,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Amount
was $597.07 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 197 million pounds of copper and 234
thousand ounces of gold for third-quarter 2007, and 948 million pounds of copper
and 2.1 million ounces of gold for the first nine months of 2007. Sales volumes
for third-quarter 2007 decreased when compared to third-quarter 2006 primarily
because of mining in a relatively low-grade section of the Grasberg open pit.
However, overall sales volumes for the first nine months of 2007 increased
when
compared with the first nine months of 2006 primarily because of higher ore
grades during the first half of 2007 and higher recovery rates.
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. PT Freeport Indonesia expects to continue
mining in a relatively low-grade section of the Grasberg open pit in
fourth-quarter 2007 and in the first half of 2008. Consolidated copper sales
from PT Freeport Indonesia are expected to approximate 1.1 billion pounds for
2007, with approximately 165 million pounds in fourth-quarter 2007. Consolidated
gold sales from PT Freeport Indonesia are expected to approximate 2.1 million
ounces for 2007, with approximately 70 thousand ounces in fourth-quarter
2007.
Mill
throughput, which varies depending on ore types being processed, averaged
198,600 metric tons of ore per day in third-quarter 2007 and 213,900 metric
tons
of ore per day for the first nine months of 2007, compared with 230,100 metric
tons of ore per day in third-quarter 2006 and 223,600 metric tons of ore per
day
for the first nine months of 2006. Mill rates have varied during 2007 depending
on ore types mined and are expected to average approximately 188,000 metric
tons
of ore per day during fourth-quarter 2007.
Approximate
average daily throughput processed at PT Freeport Indonesia’s mill facilities
from each producing mine follows (metric tons of ore per day):
|
|
|
Nine
Months Ended
|
|
|
Third-Quarter
|
|
September
30,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Grasberg
open pit
|
143,000
|
|
182,900
|
|
162,300
|
|
177,500
|
|
Deep
Ore Zone (DOZ) underground mine
|
55,600
|
|
47,200
|
|
51,600
|
|
46,100
|
|
Total
mill throughput
|
198,600
|
|
230,100
|
|
213,900
|
|
223,600
|
|
|
|
|
|
|
|
|
|
|
Production
from the DOZ underground mine averaged 55,600 metric tons of ore per day in
third-quarter 2007, representing approximately 28 percent of mill throughput.
In
second-quarter 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, with third-quarter 2007 rates averaging 55,600 metric
tons
per day. Total cost for this expansion was $63 million, with PT Freeport
Indonesia’s 60 percent share totaling $38 million. PT Freeport Indonesia’s
further expansion of the DOZ mine to 80,000 metric tons of ore per day is under
way with completion targeted by 2010. The capital cost for this further
expansion is expected to approximate $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 September 30, 2007, has completed
89
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 $48
million for the first nine 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). As a result of higher costs
and scoping changes associated with this project, we have updated our capital
cost estimate to approximately $400 million. Capital expenditures incurred
to
date on this project total $153 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.
Indonesian
Mining Revenues. A summary of changes in PT Freeport Indonesia’s revenues
between periods follows (in millions):
|
Third
|
|
Nine
|
|
|
Quarter
|
|
Months
|
|
PT
Freeport Indonesia revenues – prior year period
|
$
|
1,262
|
|
$
|
3,094
|
|
Price
realizations:
|
|
|
|
|
|
|
Copper
|
|
39
|
|
|
97
|
|
Gold
|
|
20
|
|
|
263
|
|
Sales
volumes:
|
|
|
|
|
|
|
Copper
|
|
(434
|
)
|
|
607
|
|
Gold
|
|
(148
|
)
|
|
450
|
|
Adjustments,
primarily for copper pricing on prior
|
|
|
|
|
|
|
period/year
open sales
|
|
7
|
|
|
(173
|
)
|
Treatment
charges, royalties and other
|
|
91
|
|
|
(30
|
)
|
PT
Freeport Indonesia revenues – current year period
|
$
|
837
|
|
$
|
4,308
|
|
|
|
|
|
|
|
|
PT
Freeport Indonesia’s share of third-quarter 2007 sales decreased to 197 million
pounds of copper and 234 thousand ounces of gold, compared with 324 million
pounds and 478 thousand ounces in third-quarter 2006, primarily because of
mining in a relatively low-grade section of the Grasberg open pit. Realized
copper prices improved by $0.20 per pound to an average of $3.63 per pound
in
third-quarter 2007 compared with $3.43 per pound in third-quarter 2006. Realized
gold prices improved by $86.38 per ounce to an average of $694.95 per ounce
in
third-quarter 2007 compared with $608.57 per ounce in third-quarter
2006.
For
the
first nine months of 2007, PT Freeport Indonesia’s share of sales increased to
948 million pounds of copper and 2.1 million ounces of gold, compared with
769
million pounds and 1.2 million ounces for the first nine months of 2006
primarily because of higher ore grades during the first half of 2007 and higher
recovery rates. Realized copper prices improved by $0.10 per pound to an average
of $3.48 per pound for the first nine months of 2007 compared with $3.38 for
the
first nine months of 2006. Realized gold prices improved by $127.80 per ounce
to
an average of $668.47 per ounce for the first nine months of 2007 compared
with
$540.67 per ounce for the first nine months of 2006, which included a reduction
of $56.40 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.
Third-quarter 2007 royalties of $20 million decreased when compared with $37
million for third-quarter 2006 primarily because of lower sales volumes. For
the
first nine months of 2007 royalties increased to $117 million when compared
with
$80 million for the first nine months of 2006 reflecting higher overall sales
volumes and metal prices. Based on current 2007 sales estimates for PT Freeport
Indonesia, if copper prices average $3.50 per pound and gold prices average
$750
per ounce for fourth-quarter 2007, royalty costs would total approximately
$132
million ($0.12 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 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.
The
following tables summarize the unit net cash costs at our Indonesian mining
operations for the three and nine-month periods ended September 30, 2007
and
2006. For a reconciliation of unit cash costs per pound to production and
delivery applicable to sales reported in FCX’s consolidated financial
statements, refer to “Production Revenues and Production
Costs.”
Gross
Profit per Pound of Copper/per Ounce of Gold and
Silver
|
|
|
|
Three
Months Ended September 30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Revenues,
after adjustments shown below
|
$
|
3.63
|
|
$
|
3.63
|
|
$
|
694.95
|
|
$
|
12.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.76
|
|
|
1.43
|
|
|
270.62
|
|
|
4.33
|
|
Gold
and silver credits
|
|
(0.90
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.34
|
|
|
0.28
|
|
|
52.65
|
|
|
0.84
|
|
Royalty
on metals
|
|
0.10
|
|
|
0.08
|
|
|
15.57
|
|
|
–
|
|
Unit
net cash costs
|
|
1.30
|
|
|
1.79
|
|
|
338.84
|
|
|
5.17
|
|
Depreciation
and amortization
|
|
0.22
|
|
|
0.17
|
|
|
33.13
|
|
|
0.53
|
|
Noncash
and nonrecurring costs, net
|
|
0.02
|
|
|
0.02
|
|
|
3.75
|
|
|
0.06
|
|
Total
unit costs
|
|
1.54
|
|
|
1.98
|
|
|
375.72
|
|
|
5.76
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales
|
|
0.16
|
|
|
0.16
|
|
|
43.81
|
|
|
(1.24
|
)
|
PT
Smelting intercompany profit recognized
|
|
0.24
|
|
|
0.19
|
|
|
36.50
|
|
|
0.58
|
|
Gross
profit
|
$
|
2.49
|
|
$
|
2.01
|
|
$
|
399.54
|
|
$
|
6.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales, net of Rio Tinto’s interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
197
|
|
|
197
|
|
|
|
|
|
|
|
Gold
(in thousand ounces)
|
|
|
|
|
|
|
|
234
|
|
|
|
|
Silver
(in thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
427
|
|
Three
Months Ended September 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Revenues,
after adjustments shown below
|
$
|
3.43
|
|
$
|
3.43
|
|
$
|
608.57
|
|
$
|
5.25
|
a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.10
|
|
|
0.86
|
|
|
155.90
|
|
|
2.91
|
|
Gold
and silver credits
|
|
(0.95
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.44
|
|
|
0.34
|
|
|
62.19
|
|
|
1.16
|
|
Royalty
on metals
|
|
0.11
|
|
|
0.09
|
|
|
16.24
|
|
|
0.30
|
|
Unit
net cash costs
|
|
0.70
|
|
|
1.29
|
|
|
234.33
|
|
|
4.37
|
|
Depreciation
and amortization
|
|
0.15
|
|
|
0.12
|
|
|
21.94
|
|
|
0.41
|
|
Noncash
and nonrecurring costs, net
|
|
0.03
|
|
|
0.02
|
|
|
3.75
|
|
|
0.07
|
|
Total
unit costs
|
|
0.88
|
|
|
1.43
|
|
|
260.02
|
|
|
4.85
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales
|
|
0.07
|
b
|
|
0.12
|
|
|
8.11
|
|
|
(5.84
|
)
|
PT
Smelting intercompany profit elimination
|
|
(0.06
|
)
|
|
(0.05
|
)
|
|
(8.94
|
)
|
|
(0.17
|
)
|
Gross
profit
|
$
|
2.56
|
|
$
|
2.07
|
|
$
|
347.72
|
|
$
|
(5.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales, net of Rio Tinto’s interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
324
|
|
|
324
|
|
|
|
|
|
|
|
Gold
(in thousand ounces)
|
|
|
|
|
|
|
|
478
|
|
|
|
|
Silver
(in thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
1,096
|
|
a.
|
Amount
was $11.68 per pound before the loss resulting from redemption of
our
Silver-Denominated Preferred Stock.
|
b.
|
Includes
a $13 million or $0.04 per pound loss on the redemption of our
Silver-Denominated Preferred Stock.
|
Nine
Months Ended September 30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Revenues,
after adjustments shown below
|
$
|
3.48
|
|
$
|
3.48
|
|
$
|
668.47
|
|
$
|
13.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.10
|
|
|
0.77
|
|
|
146.73
|
|
|
2.86
|
|
Gold
and silver credits
|
|
(1.50
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.35
|
|
|
0.24
|
|
|
46.84
|
|
|
0.91
|
|
Royalty
on metals
|
|
0.12
|
|
|
0.09
|
|
|
16.55
|
|
|
0.32
|
|
Unit
net cash costs
|
|
0.07
|
|
|
1.10
|
|
|
210.12
|
|
|
4.09
|
|
Depreciation
and amortization
|
|
0.17
|
|
|
0.11
|
|
|
22.21
|
|
|
0.43
|
|
Noncash
and nonrecurring costs, net
|
|
0.03
|
|
|
0.02
|
|
|
3.43
|
|
|
0.07
|
|
Total
unit costs
|
|
0.27
|
|
|
1.23
|
|
|
235.76
|
|
|
4.59
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales
|
|
0.04
|
|
|
0.04
|
|
|
1.19
|
|
|
–
|
|
PT
Smelting intercompany profit recognized
|
|
0.01
|
|
|
0.01
|
|
|
1.56
|
|
|
0.03
|
|
Gross
profit
|
$
|
3.27
|
|
$
|
2.29
|
|
$
|
435.46
|
|
$
|
8.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales, net of Rio Tinto’s interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
948
|
|
|
948
|
|
|
|
|
|
|
|
Gold
(in thousand ounces)
|
|
|
|
|
|
|
|
2,061
|
|
|
|
|
Silver
(in thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
3,121
|
|
Nine
Months Ended September 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Revenues,
after adjustments shown below
|
$
|
3.38
|
|
$
|
3.38
|
|
$
|
540.67
|
a
|
$
|
6.58
|
b
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.17
|
|
|
0.90
|
|
|
162.88
|
|
|
3.13
|
|
By-product
credits
|
|
(1.02
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.43
|
|
|
0.33
|
|
|
60.11
|
|
|
1.16
|
|
Royalty
on metals
|
|
0.11
|
|
|
0.08
|
|
|
14.44
|
|
|
0.28
|
|
Unit
net cash costs
|
|
0.69
|
|
|
1.31
|
|
|
237.43
|
|
|
4.57
|
|
Depreciation
and amortization
|
|
0.15
|
|
|
0.12
|
|
|
21.27
|
|
|
0.41
|
|
Noncash
and nonrecurring costs, net
|
|
0.04
|
|
|
0.03
|
|
|
5.54
|
|
|
0.11
|
|
Total
unit costs
|
|
0.88
|
|
|
1.46
|
|
|
264.24
|
|
|
5.09
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales
|
|
0.16
|
c
|
|
0.27
|
|
|
16.42
|
|
|
0.20
|
|
PT
Smelting intercompany profit elimination
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(1.33
|
)
|
|
(0.03
|
)
|
Gross
profit
|
$
|
2.65
|
|
$
|
2.18
|
|
$
|
291.52
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales, net of Rio Tinto’s interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(in million pounds)
|
|
769
|
|
|
769
|
|
|
|
|
|
|
|
Gold
(in thousand ounces)
|
|
|
|
|
|
|
|
1,228
|
|
|
|
|
Silver
(in thousand ounces)
|
|
|
|
|
|
|
|
|
|
|
2,638
|
|
a.
|
Amount
was $597.07 per pound before a loss resulting from redemption of
our
Gold-Denominated Preferred Stock, Series
II.
|
b.
|
Amount
was $11.31 per pound before the loss resulting from redemption of
our
Silver-Denominated Preferred Stock.
|
c.
|
Includes
a $69 million or $0.16 per pound loss on the redemption of our
Gold-Denominated Preferred Stock, Series II, and a $13 million or
$0.02
per pound loss on the redemption of our Silver-Denominated Preferred
Stock.
|
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. Higher unit site production and delivery costs
in third-quarter 2007 compared with third-quarter 2006 primarily reflects lower
sales volumes resulting from mine sequencing in the Grasberg open pit, which
resulted in mining in a relatively low-grade section during third-quarter 2007,
partly offset by higher gold prices. Lower unit site production and delivery
costs
for
first
nine months of 2007 compared with the 2006 period also resulted from mine
sequencing in the Grasberg open pit and reflects higher sales volumes associated
with mining in higher ore grade sections during the first half of 2007. Although
higher sales volumes more than offset increases in input costs during the
first
nine months of 2007, 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 700,000 metric
tons of
coal per year. Diesel prices have more than doubled and our coal costs are
approximately 45 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 (refer
to
“Foreign Currency Exchange Risk” for further discussion). We are continuing to
pursue cost reduction initiatives to mitigate the impacts of these
increases.
Lower
gold and silver credits in third-quarter 2007 compared with third-quarter 2006
reflects lower sales volumes in third-quarter 2007 resulting from mining in
a
lower-grade section of the Grasberg open pit. For the first nine months of
2007
gold and silver credits were higher when compared to the first nine months
of
2006 reflecting higher overall gold sales volumes and average realized gold
prices during 2007.
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 $3.50 per pound and average gold prices of $750 per
ounce for fourth-quarter 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 $0.36 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 fourth-quarter 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. As a result of various inflationary pressures and scope changes,
we
have updated our estimate for the capital investment to approximately $900
million. Capital cost estimates will continue to be reviewed as construction
progresses. FCX is responsible for funding 70 percent of project development
costs, and is also responsible for funding project overruns of more than 25
percent. As of September 30, 2007, $157 million has been spent on this project,
including amounts spent prior to the acquisition of Phelps Dodge. For
fourth-quarter 2007, we expect spending of approximately $150 million associated
with the development of the Tenke Fungurume project.
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 average annual
production of approximately 250 million pounds of copper and approximately
18
million pounds of cobalt 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.
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 our condensed consolidated balance sheets.
During
2006, the Peruvian government announced that all mining companies operating
in
Peru will make annual contributions to local development funds for a five-year
period. The contribution is equal to 3.75 percent of after-tax profits, of
which
2.75 percent is contributed to a local mining fund and 1.00 percent to a
regional mining fund. As the contribution program was being established, Cerro
Verde negotiated an agreement that would have allowed a credit against
contributions to the local mining fund for Cerro Verde’s contributions made to
the Arequipa region for construction of local water and sewage treatment
facilities. In September 2007, the agreement with the government was modified
and it was determined that Cerro Verde would not receive the previously
described credit. Accordingly, in third-quarter 2007 we recorded a charge of
approximately $33 million to production and delivery costs, which includes
the
additional liability associated with the local mining fund
contributions.
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 $135 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 and Bagdad
districts. We are conducting exploration efforts near the Henderson molybdenum
ore body. In South America, exploration is ongoing in and around the Cerro
Verde, Candelaria and Ojos del Salado deposits. In Africa, we are actively
pursuing targets outside of the area of initial development at Tenke
Fungurume. The number of drill rigs operating
on these
and other programs near the company’s mine sites has increased to 39 from 26 at
the end of March 2007.
PT
Freeport Indonesia’s 2007 exploration efforts in Indonesia will continue to test
extensions of the Deep Grasberg and Kucing Liar mine complex and continues
to
evaluate targets in the area between the Ertsberg East and Grasberg mineral
systems from the new Common Infrastructure tunnels. Initial drill results
from
the Common Infrastructure tunnel are positive and additional drilling is
in
process. We continue efforts to resume exploration activities in certain
prospective areas in Papua, outside Block A (the Grasberg contract
area).
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.
|
|
|
Nine
Months Ended
|
|
Atlantic
Copper Operating Results
|
Third-Quarter
|
|
September
30,
|
|
(in
millions)
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Gross
profit
|
$
|
6
|
|
$
|
24
|
|
$
|
25
|
|
$
|
66
|
|
Add
depreciation and amortization expense
|
|
8
|
|
|
8
|
|
|
27
|
|
|
23
|
|
Cash
margin
|
$
|
14
|
|
$
|
32
|
|
$
|
52
|
|
$
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) (in millions)
|
$
|
1
|
|
$
|
20
|
|
$
|
10
|
|
$
|
55
|
|
Concentrate
and scrap treated (thousand metric tons)
|
|
263
|
|
|
244
|
|
|
687
|
|
|
724
|
|
Anodes
production (million pounds)
|
|
148
|
|
|
148
|
|
|
409
|
|
|
444
|
|
Treatment
rates per pound
|
$
|
0.24
|
|
$
|
0.32
|
|
$
|
0.29
|
|
$
|
0.32
|
|
Cathodes
sales (million pounds)
|
|
145
|
|
|
125
|
|
|
414
|
|
|
393
|
|
Gold
sales in anodes and slimes (thousand ounces)
|
|
219
|
|
|
124
|
|
|
507
|
|
|
569
|
|
On
June
7, 2007, Atlantic Copper successfully completed a scheduled 23-day maintenance
turnaround, which had a $24 million impact on production and delivery costs
for
the first nine months of 2007, including the impact of lower volumes. 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 third-quarter 2007 compared with
third-quarter 2006 reflects lower treatment rates and higher operating costs
resulting from a stronger euro and higher energy costs. 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 $0.24 per pound during third-quarter 2007 compared with
$0.32 per pound for third-quarter 2006. The decrease in treatment rates per
pound primarily resulted from lower treatment rates negotiated for 2007 under
the terms of Atlantic Copper’s concentrate purchase and sales
agreements.
Atlantic
Copper’s cash margin and operating results for the first nine months of 2007
compared with the 2006 period reflects the impact of the scheduled maintenance
turnaround completed in June 2007 and also reflects lower treatment rates and
higher operating costs resulting from a stronger Euro and higher energy costs.
Atlantic Copper’s treatment rates for the first nine months of 2007 averaged
$0.29 per pound compared with $0.32 per pound for the first nine months of
2006.
The decrease in treatment rates per pound primarily resulted from lower
treatment rates negotiated for 2007 under the terms of Atlantic Copper’s
concentrate purchase and sales agreements, partly offset by higher treatment
rates recognized in first-quarter 2007, which mostly reflected 2006
terms.
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 $172 million ($91 million to net income
or
$0.20 per share) in third-quarter 2007 and a reduction of $21 million ($11
million to net income or $0.03 per share) for the first nine months of 2007,
compared with reductions of $83 million ($44 million to net income or $0.20
per
share) in third-quarter 2006 and an addition to net income of $25 million
($13
million to net income or $0.06 per share) for the first nine months of 2006.
At
September 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
$112 million. Based on copper prices of $3.50 per pound and gold prices of
$750
per ounce for the remainder 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 $40 million for fourth-quarter 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.
DISCONTINUED
OPERATIONS
On
September 12, 2007, we entered into an agreement to sell PDIC, our international
wire and cable business, for $735 million (including the acquisition of minority
interests) subject to an adjustment that takes into account the net effect
of
dividends from and contributions to PDIC from March 31, 2007, through the close
of the transaction. Under the terms of the agreement, FCX expects to
realize net proceeds of approximately $620 million, after taxes and net of
transaction related costs. FCX expects to use the net proceeds to repay debt.
The transaction was complete on October 31, 2007, and is not expected to result
in a material gain or loss, other than transaction and related costs of up
to
approximately $20 million ($12 million to net income).
As
a
result of the sale, the operating results of PDIC have been reported separately
from continuing operations as discontinued operations in the condensed
consolidated statements of income. Additionally, the assets and
liabilities of PDIC have been presented separately as held for sale in the
condensed consolidated balance sheets. Although not separately identified in
the
condensed consolidated statements of cash flows, operating cash flows from
discontinued operations for the period March 20, 2007 to September 30, 2007
totaled $40 million. The absence of PDIC cash flows is not expected
to have a material impact on future periods.
Refer
to
Note 4 for further discussion of discontinued operations.
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
September 30, 2007, we had consolidated cash and cash equivalents of
approximately $2.4 billion. The following table reflects the U.S. and
international components of consolidated cash and cash equivalents at September
30, 2007, and December 31, 2006 (in billions):
|
September
30,
|
|
December
31,
|
|
|
2007
|
|
2006
|
|
Cash
from U.S. operations
|
$
|
0.1
|
|
$
|
–
|
|
Cash
from international operations
|
|
2.3
|
|
|
0.9
|
|
Total
consolidated cash and cash equivalents
|
|
2.4
|
|
|
0.9
|
|
Less:
minority interests’ share
|
|
(0.6
|
)
|
|
–
|
|
Cash,
net of minority interests’ share
|
|
1.8
|
|
|
0.9
|
|
Withholding
taxes if distributeda
|
|
(0.2
|
)
|
|
(0.1
|
)
|
Net
cash available to FCX
|
$
|
1.6
|
|
$
|
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 fourth-quarter 2007 (refer to “Outlook”) and
assuming average prices of $3.50 per pound of copper, $750 per ounce of gold
and
$30 per pound of molybdenum for fourth-quarter 2007, our consolidated operating
cash flows would approximate $6.2 billion for 2007. Each $0.20 per pound change
in copper prices would affect 2007 cash flows by approximately $140
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
fourth-quarter 2007, and assuming excess cash is applied to reduce debt,
including net proceeds received from the sale of PDIC, total debt at year-end
2007 would approximate $7.3 billion and consolidated cash would approximate
$1.5
billion. Based on these assumptions, our term debt would be substantially repaid
by year-end 2007.
Operating
Activities
Net
cash
provided by operating activities totaled $4.9 billion for the first nine months
of 2007, including $643 million from working capital sources. For the first
nine
months of 2006, net cash provided by operating activities totaled $1.1 billion,
net of $300 million used for working capital requirements. Operating cash flows
for the first nine months of 2007 benefited from higher net income primarily
associated with higher metals prices and approximately $2.7 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 $1.1 billion for the
first
nine months of 2007 and $178 million for the first nine months of 2006. PT
Freeport Indonesia capital expenditures for the first nine months of 2007
totaled $273 million, which included approximately $74 million for Big Gossan
and approximately $48 million for the development of the underground Grasberg
ore body. Also included in capital expenditures for the first nine months of
2007 was $834 million of capital expenditures from Phelps Dodge’s operations
beginning March 20, 2007, including approximately $255 million associated with
the Safford project and approximately $115 million associated with Tenke
Fungurume.
Capital
expenditures, including approximately $900 million for long-term projects,
are
estimated to approximate $1.9 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 (beginning March 20, 2007), which
is
expected to approximate $1.2 billion, and includes amounts for the development
of the Tenke Fungurume copper/cobalt mining project (approximately $265 million)
and the Safford copper mine (approximately $350 million). PT Freeport
Indonesia’s projected capital expenditures for 2007 include approximately $100
million for Big Gossan.
During
the first nine months of 2007, proceeds from the sales of assets totaled $125
million primarily associated with the sale of marketable
securities.
Financing
Activities
At
September 30, 2007, we had approximately $8.7 billion in debt, including $7.6
billion in acquisition debt, $0.7 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.
Following
the close of the Phelps Dodge acquisition and in accordance with our plan to
reduce debt, we have completed the following transactions:
·
|
During
first-quarter 2007, we 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. 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 Tranche B term
loan.
|
·
|
During
second-quarter 2007, we prepaid an additional $1.9 billion of debt
under
the Tranche B term loan.
|
·
|
During
third-quarter 2007, we refinanced the remaining $2.5 billion balance
outstanding under the Tranche B term loan under the $11.5 billion
senior
credit facility with proceeds from a new senior term loan due March
2012
(the Tranche A term loan).
|
·
|
Also
during third-quarter 2007, we prepaid $0.9 billion of debt under
the
Tranche A term loan.
|
Refer
to
Note 9 for a summary table of the financing transactions for the first nine
months of 2007.
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 nine months of 2007, common stock dividends paid totaled $301 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
September 30, 2007, our annual common stock dividend totals approximately $475
million. On September 27, 2007, FCX declared a regular quarterly dividend,
which
was paid on November 1, 2007, to common shareholders of record at the close
of
business on October 15, 2007.
For
the
first nine months of 2007, preferred stock dividends paid totaled $112 million
representing dividends on our 5½% Convertible Perpetual Preferred Stock and 6¾%
Mandatory Convertible Preferred Stock.
Each
share of our 5½% Convertible 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 November 1, 2007, each share of preferred
stock is now convertible into 21.2419 shares of FCX common stock, or an
aggregate of approximately 23 million shares of FCX common stock. On September
27, 2007, FCX declared a regular quarterly dividend of $13.75 per share of
FCX’s
5½% Convertible Perpetual Preferred Stock, which was paid on November 1, 2007,
to shareholders of record at the close of business on October 15,
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, which reflects the time period
from issuance through August 1, 2007 was paid on August 1, 2007. On September
27, 2007, FCX declared a regular quarterly dividend of $1.6875 per share
of
FCX’s 6¾% Mandatory Convertible Preferred Stock, which was paid on November 1,
2007, to shareholders of record at the close of business on October 15,
2007.
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 $440 million for the first nine months of
2007 primarily reflect dividends paid to the minority interest owners of PT
Freeport Indonesia and our South America mines.
We
have
restricted payment covenants in our $11.5 billion senior credit facility and
the
$6 billion in senior notes used to finance the acquisition of Phelps Dodge.
The
amount available for dividend payments, purchases of our common stock and other
restricted payments as of September 30, 2007, was approximately $4.8 billion
under the $11.5 billion senior credit facility and approximately $6.9 billion
under the $6 billion in senior notes.
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 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 9,145 rupiah at September 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 9,145 rupiah to one U.S. dollar, a
one-thousand-rupiah increase in the exchange rate would result in an approximate
$17 million decrease in aggregate annual operating costs; and a
one-thousand-rupiah decrease in the exchange rate would result in an approximate
$21 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 $0.89 at September 30, 2007, and $0.79 at December
31,
2006. Based on estimated annual payments of 250 million Australian dollars
and
an exchange rate of $0.89 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
$1.42 at September 30, 2007, and $1.32 at December 31, 2006. Based on estimated
annual payments of approximately 100 million euros and an exchange rate of
$1.42
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 512
Chilean pesos and 3.15 Peruvian nuevos soles at September 30, 2007, and 532
Chilean pesos and 3.20 Peruvian nuevos soles at December 31, 2006. Based on
estimated
annual payments of 170 billion Chilean peso
for
operating costs and an exchange rate of 512 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 180 million Peruvian nuevos soles for operating
costs and an exchange rate of 3.15 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 $2 million change in annual operating costs.
Interest
Rate Risk
At
September 30, 2007, we had total debt of approximately $8.7 billion, of which
approximately 32 percent was variable-rate debt with interest rates based on
the
London Interbank Offered Rate (LIBOR). The LIBOR rate was 5.12 percent at
September 30, 2007, and 5.32 percent at June 30, 2007. 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 with those disclosed at December
31, 2006. The following table, as of September 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
debt
|
$
|
8,732
|
|
$
|
67
|
|
$
|
70
|
|
$
|
1,704
|
|
$
|
6,891
|
Scheduled
interest payment obligationsa
|
|
6,109
|
|
|
675
|
|
|
1,346
|
|
|
1,275
|
|
|
2,813
|
Asset
retirement obligationsb
|
|
102
|
|
|
58
|
|
|
33
|
|
|
9
|
|
|
2
|
Take-or-pay
contractsc
|
|
1,053
|
|
|
752
|
|
|
210
|
|
|
61
|
|
|
30
|
Total
contractual cash obligationsd
|
$
|
15,996
|
|
$
|
1,552
|
|
$
|
1,659
|
|
$
|
3,049
|
|
$
|
9,736
|
a.
|
Scheduled
interest payment obligations were calculated using stated coupon
rates for
fixed-rate debt and interest rates applicable at September 30, 2007,
for
variable-rate debt.
|
b.
|
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 September 30, 2007. The timing
and
the amount of these payments could change as a result of changes
in
regulatory requirements, changes in scope and costs of reclamation
activities and as actual reclamation spending occurs. The table excludes
remaining cash payments of $61 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 $536
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.
|
c.
|
Take-or-pay
contracts acquired in the acquisition of Phelps Dodge primarily include
contracts for copper deliveries of specified volumes at market-based
prices ($597 million), transportation and port fee commitments ($169
million) and contracts for electricity ($101 million). Approximately
30
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.
|
d.
|
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 where 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 16). 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 $44 million ($26 million to net income or $0.06 per share) in
third-quarter 2007 and $212 million ($129 million to net income or $0.34
per
share) from March 20, 2007, through September 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 September 30, 2007, the liability associated with these
contracts totaled $635 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 October 31, 2007, we estimate that mark-to-market
accounting adjustments would increase revenues by approximately $9 million
($5
million to net income) in fourth-quarter 2007. The 2007 copper collars and
put
contracts will settle in first-quarter 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 13 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 September 30, 2007, we had $527 million
recorded for Phelps Dodge AROs in current and long-term liabilities on the
condensed consolidated balance sheet. At September 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 $1.5 billion
(unescalated, undiscounted and on a third-party cost basis), with approximately
$925 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, cost of inflation 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
September 30, 2007, we had trust assets totaling $433 million
that are dedicated to funding global reclamation and remediation
activities, and also had trust assets totaling $103 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 13 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 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 10 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 cost 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 September
30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Molybdenum
|
a
|
Other
|
b
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
1,320
|
|
$
|
1,320
|
|
$
|
245
|
|
$
|
14
|
|
$
|
1,579
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
528
|
|
|
459
|
|
|
75
|
|
|
6
|
|
|
540
|
|
By-product
credits
a
|
|
(247
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
33
|
|
|
33
|
|
|
–
|
|
|
–
|
|
|
33
|
|
Net
cash costs
|
|
314
|
|
|
492
|
|
|
75
|
|
|
6
|
|
|
573
|
|
Depreciation
and amortization
|
|
69
|
|
|
62
|
|
|
7
|
|
|
1
|
|
|
69
|
|
Noncash
and nonrecurring costs, net
|
|
5
|
|
|
5
|
|
|
–
|
|
|
–
|
|
|
5
|
|
Total
costs
|
|
388
|
|
|
559
|
|
|
82
|
|
|
7
|
|
|
648
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging
|
|
(56
|
)
|
|
(56
|
)
|
|
–
|
|
|
–
|
|
|
(56
|
)
|
Idle
facility and other non-inventoriable costs
|
|
(8
|
)
|
|
(8
|
)
|
|
–
|
|
|
–
|
|
|
(8
|
)
|
Gross
profit
|
$
|
867
|
|
$
|
697
|
|
$
|
163
|
|
$
|
7
|
|
$
|
867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,579
|
|
$
|
540
|
|
$
|
69
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
5
|
|
|
N/A
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
N/A
|
|
|
33
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and hedging per above
|
|
(56
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
174
|
|
|
115
|
|
|
|
|
|
|
|
Other
North America operations
|
|
1,488
|
|
|
1,413
|
|
|
22
|
|
|
|
|
|
|
|
Total
North American mining operations
|
|
3,011
|
|
|
2,165
|
|
|
206
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
2,055
|
|
|
497
|
|
|
150
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
statements
|
$
|
5,066
|
|
$
|
2,662
|
|
$
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Molybdenum
by-product credits reflect volumes produced at market-based pricing,
and
also includes tolling revenues at
Sierrita.
|
b.
|
Includes
gold and silver product revenues and production
costs.
|
North
America Mining Product Revenues and Production Costs (Pro
Forma)
Three
Months Ended September 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Molybdenum
|
a
|
Other
|
b
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
1,024
|
|
$
|
1,024
|
|
$
|
198
|
|
$
|
12
|
|
$
|
1,234
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
369
|
|
|
310
|
|
|
65
|
|
|
5
|
|
|
380
|
|
By-product
credits
a
|
|
(199
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
22
|
|
|
21
|
|
|
–
|
|
|
1
|
|
|
22
|
|
Net
cash costs
|
|
192
|
|
|
331
|
|
|
65
|
|
|
6
|
|
|
402
|
|
Depreciation
and amortization
|
|
33
|
|
|
29
|
|
|
4
|
|
|
–
|
|
|
33
|
|
Noncash
and nonrecurring costs, net
|
|
5
|
|
|
5
|
|
|
–
|
|
|
–
|
|
|
5
|
|
Total
costs
|
|
230
|
|
|
365
|
|
|
69
|
|
|
6
|
|
|
440
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging
|
|
(123
|
)
|
|
(123
|
)
|
|
–
|
|
|
–
|
|
|
(123
|
)
|
Idle
facility and other non-inventoriable costs
|
|
(7
|
)
|
|
(7
|
)
|
|
–
|
|
|
–
|
|
|
(7
|
)
|
Gross
profit
|
$
|
664
|
|
$
|
529
|
|
$
|
129
|
|
$
|
6
|
|
$
|
664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,234
|
|
$
|
380
|
|
$
|
33
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
5
|
|
|
N/A
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
N/A
|
|
|
22
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and hedging per above
|
|
(123
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
223
|
|
|
159
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
3,668
|
|
|
1,999
|
|
|
134
|
|
|
|
|
|
|
|
As
reported in FCX’s pro forma consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
statements
|
$
|
4,779
|
|
$
|
2,629
|
|
$
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Molybdenum
by-product credits reflect volumes produced at market-based pricing,
and
also includes tolling revenues at
Sierrita.
|
b.
|
Includes
gold and silver product revenues and production
costs.
|
Nine
Months Ended September 30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Molybdenum
|
a
|
Other
|
b
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
3,206
|
|
$
|
3,206
|
|
$
|
658
|
|
$
|
43
|
|
$
|
3,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1,398
|
|
|
1,204
|
|
|
226
|
|
|
19
|
|
|
1,449
|
|
By-product
credits
a
|
|
(650
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
85
|
|
|
83
|
|
|
–
|
|
|
2
|
|
|
85
|
|
Net
cash costs
|
|
833
|
|
|
1,287
|
|
|
226
|
|
|
20
|
|
|
1,534
|
|
Depreciation
and amortization
|
|
142
|
|
|
120
|
|
|
22
|
|
|
1
|
|
|
142
|
|
Noncash
and nonrecurring costs, net
|
|
16
|
|
|
15
|
|
|
1
|
|
|
–
|
|
|
16
|
|
Total
costs
|
|
991
|
|
|
1,422
|
|
|
249
|
|
|
21
|
|
|
1,692
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging
|
|
(135
|
)
|
|
(135
|
)
|
|
–
|
|
|
–
|
|
|
(135
|
)
|
Idle
facility and other non- inventoriable costs
|
|
(26
|
)
|
|
(26
|
)
|
|
–
|
|
|
–
|
|
|
(26
|
)
|
Gross
profit
|
$
|
2,054
|
|
$
|
1,623
|
|
$
|
409
|
|
$
|
22
|
|
$
|
2,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
3,907
|
|
$
|
1,449
|
|
$
|
142
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
16
|
|
|
N/A
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
N/A
|
|
|
85
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and hedging per above
|
|
(135
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
188
|
|
|
126
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
11,277
|
|
|
5,768
|
|
|
800
|
|
|
|
|
|
|
|
As
reported in FCX’s pro forma consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
results
|
$
|
15,049
|
|
$
|
7,506
|
|
$
|
1,068
|
|
|
|
|
|
|
|
a.
|
Molybdenum
by-product credits reflect volumes produced at market-based pricing,
and
also includes tolling revenues at
Sierrita.
|
b.
|
Includes
gold and silver product revenues and production
costs.
|
Nine
Months Ended September
30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Molybdenum
|
a
|
Other
|
b
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
3,025
|
|
$
|
3,025
|
|
$
|
576
|
|
$
|
34
|
|
$
|
3,635
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1,041
|
|
|
823
|
|
|
229
|
|
|
20
|
|
|
1,072
|
|
By-product
credits
a
|
|
(579
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
66
|
|
|
63
|
|
|
–
|
|
|
3
|
|
|
66
|
|
Net
cash costs
|
|
528
|
|
|
886
|
|
|
229
|
|
|
23
|
|
|
1,138
|
|
Depreciation
and amortization
|
|
104
|
|
|
85
|
|
|
18
|
|
|
1
|
|
|
104
|
|
Noncash
and nonrecurring costs, net
|
|
15
|
|
|
14
|
|
|
1
|
|
|
–
|
|
|
15
|
|
Total
costs
|
|
647
|
|
|
985
|
|
|
248
|
|
|
24
|
|
|
1,257
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging
|
|
(1,351
|
)
|
|
(1,351
|
)
|
|
–
|
|
|
–
|
|
|
(1,351
|
)
|
Idle
facility and other non-inventoriable costs
|
|
(20
|
)
|
|
(20
|
)
|
|
–
|
|
|
–
|
|
|
(20
|
)
|
Gross
profit
|
$
|
1,007
|
|
$
|
669
|
|
$
|
328
|
|
$
|
10
|
|
$
|
1,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
3,635
|
|
$
|
1,072
|
|
$
|
104
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
15
|
|
|
N/A
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
N/A
|
|
|
66
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and hedging per above
|
|
(1,351
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
1,281
|
|
|
481
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
9,692
|
|
|
5,126
|
|
|
358
|
|
|
|
|
|
|
|
As
reported in FCX’s pro forma consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
statements
|
$
|
11,976
|
|
$
|
7,560
|
|
$
|
943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Molybdenum
by-product credits reflect volumes produced at market-based pricing,
and
also includes tolling revenues at
Sierrita.
|
b.
|
Includes
gold and silver product revenues and production
costs.
|
Primary
Molybdenum (Henderson) Product Revenues and Production Costs (Pro
Forma)a
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
September
30,
|
|
September
30,
|
|
(In
Millions)
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Revenues
|
$
|
278
|
|
$
|
200
|
|
$
|
741
|
|
$
|
607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
43
|
|
|
34
|
|
|
123
|
|
|
101
|
|
Net
cash costs
|
|
43
|
|
|
34
|
|
|
123
|
|
|
101
|
|
Depreciation
and amortization
|
|
9
|
|
|
8
|
|
|
25
|
|
|
25
|
|
Noncash
and nonrecurring costs, net
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1
|
|
Total
costs
|
|
52
|
|
|
43
|
|
|
149
|
|
|
126
|
|
Gross
profitb
|
$
|
226
|
|
$
|
157
|
|
$
|
592
|
|
$
|
481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
Three
Months Ended September 30, 2007
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
Totals
presented above
|
$
|
278
|
|
$
|
43
|
|
$
|
9
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
40
|
|
|
9
|
|
|
|
|
Other
molybdenum operations
|
|
241
|
|
|
297
|
|
|
4
|
|
|
|
|
Primary
molybdenum segment
|
|
519
|
|
|
380
|
|
|
22
|
|
|
|
|
Eliminations
and other
|
|
4,547
|
|
|
2,282
|
|
|
334
|
|
|
|
|
As
reported in FCX’s consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
statements
|
$
|
5,066
|
|
$
|
2,662
|
|
$
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
200
|
|
$
|
34
|
|
$
|
8
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
223
|
|
|
159
|
|
|
|
|
Eliminations
and other
|
|
4,579
|
|
|
2,372
|
|
|
159
|
|
|
|
|
As
reported in FCX’s pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
financial results
|
$
|
4,779
|
|
$
|
2,629
|
|
$
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
741
|
|
$
|
123
|
|
$
|
25
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
188
|
|
|
126
|
|
|
|
|
Eliminations
and other
|
|
14,308
|
|
|
7,195
|
|
|
917
|
|
|
|
|
As
reported in FCX’s pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
financial results
|
$
|
15,049
|
|
$
|
7,506
|
|
$
|
1,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
607
|
|
$
|
101
|
|
$
|
25
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
1,281
|
|
|
481
|
|
|
|
|
Eliminations
and other
|
|
11,369
|
|
|
6,178
|
|
|
437
|
|
|
|
|
As
reported in FCX’s pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
financial results
|
$
|
11,976
|
|
$
|
7,560
|
|
$
|
943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Three
months ended September 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 September
30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Other
|
a
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
1,436
|
|
$
|
1,436
|
|
$
|
36
|
|
$
|
1,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
369
|
|
|
358
|
|
|
15
|
|
|
373
|
|
By-product
credits
|
|
(32
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
90
|
|
|
88
|
|
|
2
|
|
|
90
|
|
Net
cash costs
|
|
427
|
|
|
446
|
|
|
17
|
|
|
463
|
|
Depreciation
and amortization
|
|
55
|
|
|
54
|
|
|
1
|
|
|
55
|
|
Noncash
and nonrecurring costs, net
|
|
1
|
|
|
1
|
|
|
–
|
|
|
1
|
|
Total
costs
|
|
483
|
|
|
501
|
|
|
18
|
|
|
519
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging
|
|
(33
|
)
|
|
(33
|
)
|
|
–
|
|
|
(33
|
)
|
Idle
facility and other non-inventoriable costs
|
|
(7
|
)
|
|
(7
|
)
|
|
–
|
|
|
(7
|
)
|
Gross
profit
|
$
|
913
|
|
$
|
895
|
|
$
|
18
|
|
$
|
913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
and
|
|
|
and
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
|
Amortization
|
|
|
|
|
Totals
presented above
|
$
|
1,472
|
|
$
|
373
|
|
$
|
55
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
1
|
|
|
N/A
|
|
|
|
|
Less:
Treatment charges per above
|
|
(90
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging per above
|
|
(33
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Purchased
metal
|
|
43
|
|
|
43
|
|
|
N/A
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
76
|
|
|
40
|
|
|
|
|
Eliminations
and other
|
|
(43
|
)
|
|
(38
|
)
|
|
(1
|
)
|
|
|
|
Total
South American mining operations
|
|
1,349
|
|
|
455
|
|
|
94
|
|
|
|
|
Eliminations
and other
|
|
3,717
|
|
|
2,207
|
|
|
262
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
5,066
|
|
$
|
2,662
|
|
$
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
gold, silver and molybdenum product revenues and production
costs.
|
South
America Mining Product Revenues and Production Costs (Pro
Forma)
Three
Months Ended September
30, 2006
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Other
|
a
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
1,038
|
|
$
|
1,038
|
|
$
|
22
|
|
$
|
1,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
257
|
|
|
251
|
|
|
6
|
|
|
257
|
|
By-product
credits
|
|
(22
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
59
|
|
|
57
|
|
|
2
|
|
|
59
|
|
Net
cash costs
|
|
294
|
|
|
308
|
|
|
8
|
|
|
316
|
|
Depreciation
and amortization
|
|
51
|
|
|
50
|
|
|
1
|
|
|
51
|
|
Noncash
and nonrecurring costs, net
|
|
1
|
|
|
1
|
|
|
-
|
|
|
1
|
|
Total
costs
|
|
346
|
|
|
359
|
|
|
9
|
|
|
368
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging
|
|
8
|
|
|
8
|
|
|
-
|
|
|
8
|
|
Idle
facility and other non-inventoriable costs
|
|
(6
|
)
|
|
(6
|
)
|
|
-
|
|
|
(6
|
)
|
Gross
profit
|
$
|
694
|
|
$
|
681
|
|
$
|
13
|
|
$
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
Totals
presented above
|
$
|
1,060
|
|
$
|
257
|
|
$
|
51
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
1
|
|
|
N/A
|
|
|
|
|
Less:
Treatment charges per above
|
|
(59
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and hedging per above
|
|
8
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Purchased
metal
|
|
59
|
|
|
59
|
|
|
N/A
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
223
|
|
|
159
|
|
|
|
|
Eliminations
and other
|
|
3,711
|
|
|
2,089
|
|
|
116
|
|
|
|
|
As
reported in FCX’s pro forma consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
results
|
$
|
4,779
|
|
$
|
2,629
|
|
$
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
Includes gold and silver product revenues and production costs.
Nine
Months Ended September
30, 2007
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Other
|
a
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
3,543
|
|
$
|
3,543
|
|
$
|
86
|
|
$
|
3,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
903
|
|
|
876
|
|
|
34
|
|
|
910
|
|
By-product
credits
|
|
(79
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
216
|
|
|
211
|
|
|
5
|
|
|
216
|
|
Net
cash costs
|
|
1,040
|
|
|
1,087
|
|
|
39
|
|
|
1,126
|
|
Depreciation
and amortization
|
|
160
|
|
|
157
|
|
|
3
|
|
|
160
|
|
Noncash
and nonrecurring costs, net
|
|
2
|
|
|
2
|
|
|
–
|
|
|
2
|
|
Total
costs
|
|
1,202
|
|
|
1,246
|
|
|
42
|
|
|
1,288
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging
|
|
18
|
|
|
18
|
|
|
–
|
|
|
18
|
|
Idle
facility and other non-inventoriable costs
|
|
(21
|
)
|
|
(20
|
)
|
|
(1
|
)
|
|
(21
|
)
|
Gross
profit
|
$
|
2,338
|
|
$
|
2,295
|
|
$
|
43
|
|
$
|
2,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
Totals
presented above
|
$
|
3,629
|
|
$
|
910
|
|
$
|
160
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
2
|
|
|
N/A
|
|
|
|
|
Less:
Treatment charges per above
|
|
(216
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and hedging per above
|
|
18
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Purchased
metal
|
|
191
|
|
|
191
|
|
|
N/A
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
188
|
|
|
126
|
|
|
|
|
Eliminations
and other
|
|
11,427
|
|
|
6,215
|
|
|
782
|
|
|
|
|
As
reported in FCX’s pro forma consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
results
|
$
|
15,049
|
|
$
|
7,506
|
|
$
|
1,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
gold, silver and molybdenum product revenues and production costs,
and
also includes start-up costs related to molybdenum production at
Cerro
Verde.
|
Nine
Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Other
|
a
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
2,789
|
|
$
|
2,789
|
|
$
|
72
|
|
$
|
2,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
660
|
|
|
642
|
|
|
18
|
|
|
660
|
|
By-product
credits
|
|
(72
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
159
|
|
|
155
|
|
|
4
|
|
|
159
|
|
Net
cash costs
|
|
747
|
|
|
797
|
|
|
22
|
|
|
819
|
|
Depreciation
and amortization
|
|
147
|
|
|
145
|
|
|
2
|
|
|
147
|
|
Noncash
and nonrecurring costs, net
|
|
1
|
|
|
1
|
|
|
-
|
|
|
1
|
|
Total
costs
|
|
896
|
|
|
943
|
|
|
25
|
|
|
968
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging
|
|
(47
|
)
|
|
(38
|
)
|
|
(9
|
)
|
|
(47
|
)
|
Idle
facility and other non-inventoriable costs
|
|
(15
|
)
|
|
(15
|
)
|
|
-
|
|
|
(15
|
)
|
Gross
profit
|
$
|
1,831
|
|
$
|
1,793
|
|
$
|
38
|
|
$
|
1,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
Totals
presented above
|
$
|
2,861
|
|
$
|
660
|
|
$
|
147
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
1
|
|
|
N/A
|
|
|
|
|
Less:
Treatment charges per above
|
|
(159
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging per above
|
|
(47
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Purchased
metal
|
|
185
|
|
|
185
|
|
|
N/A
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
1,281
|
|
|
481
|
|
|
|
|
Eliminations
and other
|
|
9,136
|
|
|
5,433
|
|
|
315
|
|
|
|
|
As
reported in FCX’s pro forma consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
results
|
$
|
11,976
|
|
$
|
7,560
|
|
$
|
943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
gold and silver product revenues and production
costs.
|
Indonesia
Mining Product Revenues and Production Costs
Three
Months Ended September 30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown below
|
$
|
769
|
|
$
|
769
|
|
$
|
173
|
|
$
|
5
|
|
$
|
947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
347
|
|
|
282
|
|
|
63
|
|
|
2
|
|
|
347
|
|
Gold
and silver credits
|
|
(178
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
67
|
|
|
55
|
|
|
12
|
|
|
–
|
|
|
67
|
|
Royalty
on metals
|
|
20
|
|
|
16
|
|
|
4
|
|
|
–
|
|
|
20
|
|
Net
cash costs
|
|
256
|
|
|
353
|
|
|
79
|
|
|
2
|
|
|
434
|
|
Depreciation
and amortization
|
|
43
|
|
|
35
|
|
|
8
|
|
|
–
|
|
|
43
|
|
Noncash
and nonrecurring costs, net
|
|
5
|
|
|
4
|
|
|
1
|
|
|
–
|
|
|
5
|
|
Total
costs
|
|
304
|
|
|
391
|
|
|
88
|
|
|
2
|
|
|
482
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
(23
|
)
|
|
(23
|
)
|
|
–
|
|
|
–
|
|
|
(23
|
)
|
PT
Smelting intercompany profit recognized
|
|
47
|
|
|
38
|
|
|
9
|
|
|
–
|
|
|
47
|
|
Gross
profit
|
$
|
489
|
|
$
|
393
|
|
$
|
94
|
|
$
|
3
|
|
$
|
489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
947
|
|
$
|
347
|
|
$
|
43
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
5
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Treatment charges per above
|
|
(67
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Royalty per above
|
|
(20
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
(23
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Total
Indonesia mining operations
|
|
837
|
|
|
351
|
|
|
43
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
4,229
|
|
|
2,311
|
|
|
313
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
5,066
|
|
$
|
2,662
|
|
$
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown below
|
$
|
1,097
|
|
$
|
1,097
|
|
$
|
295
|
|
$
|
13
|
|
$
|
1,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
355
|
|
|
277
|
|
|
75
|
|
|
3
|
|
|
355
|
|
Gold
and silver credits
|
|
(307
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
141
|
|
|
110
|
|
|
30
|
|
|
1
|
|
|
141
|
|
Royalty
on metals
|
|
37
|
|
|
29
|
|
|
8
|
|
|
-
|
|
|
37
|
|
Net
cash costs
|
|
226
|
|
|
416
|
|
|
112
|
|
|
5
|
|
|
533
|
|
Depreciation
and amortization
|
|
50
|
|
|
39
|
|
|
10
|
|
|
1
|
|
|
50
|
|
Noncash
and nonrecurring costs, net
|
|
9
|
|
|
7
|
|
|
2
|
|
|
-
|
|
|
9
|
|
Total
costs
|
|
285
|
|
|
462
|
|
|
124
|
|
|
6
|
|
|
592
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
37
|
a
|
|
50
|
|
|
-
|
|
|
(13
|
)
|
|
37
|
|
PT
Smelting intercompany profit elimination
|
|
(20
|
)
|
|
(16
|
)
|
|
(4
|
)
|
|
-
|
|
|
(20
|
)
|
Gross
profit
|
$
|
829
|
|
$
|
669
|
|
$
|
166
|
|
$
|
(6
|
)
|
$
|
829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,404
|
|
$
|
355
|
|
$
|
50
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
9
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Treatment charges per above
|
|
(141
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Royalty per above
|
|
(37
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
37
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Total
Indonesia mining operations
|
|
1,262
|
|
|
363
|
|
|
50
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
374
|
|
|
429
|
|
|
10
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
1,636
|
|
$
|
792
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
Includes a $13 million loss on the
redemption of FCX’s Silver-Denominated Preferred Stock.
Nine
Months Ended September 30, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown below
|
$
|
3,325
|
|
$
|
3,325
|
|
$
|
1,380
|
|
$
|
41
|
|
$
|
4,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1,040
|
|
|
729
|
|
|
302
|
|
|
9
|
|
|
1,040
|
|
Gold
and silver credits
|
|
(1,421
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
332
|
|
|
232
|
|
|
97
|
|
|
3
|
|
|
332
|
|
Royalty
on metals
|
|
117
|
|
|
82
|
|
|
34
|
|
|
1
|
|
|
117
|
|
Net
cash costs
|
|
68
|
|
|
1,043
|
|
|
433
|
|
|
13
|
|
|
1,489
|
|
Depreciation
and amortization
|
|
158
|
|
|
111
|
|
|
46
|
|
|
1
|
|
|
158
|
|
Noncash
and nonrecurring costs, net
|
|
24
|
|
|
17
|
|
|
7
|
|
|
–
|
|
|
24
|
|
Total
costs
|
|
250
|
|
|
1,171
|
|
|
486
|
|
|
14
|
|
|
1671
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
11
|
|
|
11
|
|
|
–
|
|
|
–
|
|
|
11
|
|
PT
Smelting intercompany profit recognized
|
|
11
|
|
|
8
|
|
|
3
|
|
|
–
|
|
|
11
|
|
Gross
profit
|
$
|
3,097
|
|
$
|
2,173
|
|
$
|
897
|
|
$
|
27
|
|
$
|
3,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
4,746
|
|
$
|
1,040
|
|
$
|
158
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
24
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Treatment charges per above
|
|
(332
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Royalty per above
|
|
(117
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
11
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Total
Indonesia mining operations
|
|
4,308
|
|
|
1,064
|
|
|
158
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
8,447
|
|
|
5,041
|
|
|
688
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
12,755
|
|
$
|
6,105
|
|
$
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown below
|
$
|
2,607
|
|
$
|
2,607
|
|
$
|
753
|
|
$
|
31
|
|
$
|
3,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
901
|
|
|
692
|
|
|
200
|
|
|
8
|
|
|
901
|
|
Gold
and silver credits
|
|
(784
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
332
|
|
|
256
|
|
|
74
|
|
|
3
|
|
|
332
|
|
Royalty
on metals
|
|
80
|
|
|
61
|
|
|
18
|
|
|
1
|
|
|
80
|
|
Net
cash costs
|
|
529
|
|
|
1,009
|
|
|
292
|
|
|
12
|
|
|
1,313
|
|
Depreciation
and amortization
|
|
118
|
|
|
90
|
|
|
26
|
|
|
1
|
|
|
118
|
|
Noncash
and nonrecurring costs, net
|
|
31
|
|
|
24
|
|
|
7
|
|
|
-
|
|
|
31
|
|
Total
costs
|
|
677
|
|
|
1,123
|
|
|
325
|
|
|
13
|
|
|
1,461
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and gold hedging
|
|
115
|
a
|
|
197
|
|
|
(69
|
)
|
|
(13
|
)
|
|
115
|
|
PT
Smelting intercompany profit elimination
|
|
(7
|
)
|
|
(6)
|
|
|
(1
|
)
|
|
-
|
|
|
(7
|
)
|
Gross
profit
|
$
|
2,038
|
|
$
|
1,675
|
|
$
|
358
|
|
$
|
4
|
|
$
|
2,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
3,391
|
|
$
|
901
|
|
$
|
118
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
31
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Treatment charges per above
|
|
(332
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Royalty per above
|
|
(80
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging per above
|
|
115
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Total
Indonesia mining operations
|
|
3,094
|
|
|
931
|
|
|
118
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
1,054
|
|
|
944
|
|
|
29
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
4,148
|
|
$
|
1,875
|
|
$
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
a $69 million loss on the redemption of FCX’s Gold-Denominated Preferred
Stock, Series II, and a $13 million loss on the redemption of FCX’s
Silver-Denominated Preferred Stock.
|
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 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, the projected sale of
PDIC, 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 September 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 Part II. Other Information of the Freeport-McMoRan Copper &
Gold Inc. (FCX) Form 10-Q for the quarter ended June 30, 2007.
A
hearing
before the New Mexico Water Quality Control Commission began on July 23, 2007
and is ongoing.
Pinal
Creek. Reference is made to Item 1. Legal Proceedings of Part II.
Other Information of the FCX Form 10-Q for the quarter ended March 31,
2007.
On
August
29, 2007, the court ruled against Phelps Dodge Miami, Inc. (PDMI) and its
co-plaintiff in a discovery sanctions dispute. Having resolved the discovery
dispute, the court has scheduled the remedial cost allocation trial to commence
in May 2008.
Antitrust
Claims. Reference is made to Item 1. Legal
Proceedings of Part II. Other Information of the FCX Form 10-Q for the quarters
ended March 31, 2007, and June 30, 2007.
On
September 27, 2007, the U.S. District Court in Boston, Massachusetts, entered
an
order approving the proposed settlement and dismissing, with prejudice, all
claims against Columbian Chemicals Company (Columbian), formerly a subsidiary
of
Phelps Dodge, and other defendants in the actions consolidated under the caption
In Re Carbon Black Antitrust Litigation. FCX settled these
claims for a payment of $6 million.
Columbian,
and the other defendants, have entered into an agreement to settle the separate
action entitled Carlisle Companies Incorporated, et al. v. Cabot Corporation,
et al., which was filed against Columbian and other defendants on behalf of
a group of affiliated companies that opted out of the federal class action.
FCX
agreed to pay $115,000. All claims in that action were dismissed, with
prejudice, on October 16, 2007. Columbian, and the other defendants, have also
entered into an agreement to settle the action brought in state court in
California on behalf of a purported class of indirect purchasers of carbon
black
in that state. FCX has agreed to pay $495,000, which has been
recorded as a liability. The agreement is subject to court approval
following notice to the class. Actions remain pending in state courts
in 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, were dismissed. Columbian also received a demand for relief
on
behalf of indirect purchasers in Massachusetts, but no lawsuit has been
filed.
Shareholder
Litigation. Reference is made to Item
1. Legal Proceedings of Part II. Other Information of the FCX Form 10-Q for
the
quarter ended June 30, 2007.
On
October 24, 2007, the parties received a final judgment order from the court
dated October 19, 2007, that adopted the stipulation of settlement and approved
counsel fees of $1,950,000 to plaintiffs’ counsel, which was paid by FCX on
October 26, 2007.
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 September 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 September 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
|
|
Purchaseda
|
|
Share
(or Unit)
|
|
Plans
or Programs
|
|
the
Plans or Programs
|
July
1-31, 2007
|
|
4,054
|
|
$
|
88.75
|
|
-
|
|
-
|
August
1-31, 2007
|
|
624
|
|
$
|
82.64
|
|
-
|
|
-
|
September
1-30, 2007
|
|
118
|
|
$
|
108.43
|
|
-
|
|
-
|
Total
|
|
4,796
|
|
$
|
88.44
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
a
|
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.
|
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: November
7, 2007
Freeport-McMoRan
Copper & Gold Inc.
Exhibit
|
|
Description
|
Number |
|
|
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
|
|
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.
|
|
|
|
4.7
|
|
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.
|
|
|
|
4.8
|
|
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.
|
|
|
|
4.9
|
|
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.
|
|
|
|
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.
|
|
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
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).
|
|
|
|
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).
|
|
|
|
10.26
|
|
Form
of Restricted Stock Unit Agreement under the 1999 Stock Incentive
Plan. Incorporated by reference to Exhibit 10.26 to the
Quarterly Report on Form 10-Q of FCX for the quarter ended June
30, 2007
(the FCX 2007 Second Quarter Form 10-Q).
|
|
|
|
10.27
|
|
Form
of Performance-Based Restricted Stock Unit Agreement under the
1999 Stock
Incentive Plan. Incorporated by reference to Exhibit 10.27 to
the FCX 2007 Second Quarter Form 10-Q.
|
|
|
|
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.
|
|
|
|
10.32
|
|
Form
of Restricted Stock Unit Agreement under the 2003 Stock Incentive
Plan. Incorporated by reference to Exhibit 10.32 to the FCX
2007 Second Quarter Form 10-Q.
|
|
|
|
10.33
|
|
Form
of Performance-Based Restricted Stock Unit Agreement under the
2003 Stock
Incentive Plan. Incorporated by reference to Exhibit 10.33 to
the FCX 2007 Second Quarter Form 10-Q.
|
|
|
|
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.
|
|
|
|
10.39
|
|
Form
of Restricted Stock Unit Agreement under the 2006 Stock Incentive
Plan. Incorporated by reference to Exhibit 10.39 to the FCX
2007 Second Quarter Form 10-Q.
|
|
|
|
10.40
|
|
Form
of Performance-Based Restricted Stock Unit Agreement under the
2006 Stock
Incentive Plan. Incorporated by reference to Exhibit 10.40 to
the FCX 2007 Second Quarter Form 10-Q.
|
|
|
|
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.
|
|
|
|
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).
|
|
|
|
|
|
Supplemental
Consulting Agreement with Kissinger Associates and Kent Associates,
effective as of January 1, 2008.
|
|
|
|
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, 2000.
|
|
|
|
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.
|
|
|
|
|
|
Supplemental
Consulting Agreement between FMS and J. Bennett Johnston, Jr.,
effective
as of January 1, 2008.
|
|
|
|
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.
|
|
|
|
|
|
Supplemental
Letter Agreement, between FMS and Gabrielle K. McDonald, effective
as of
January 1, 2008.
|
|
|
|
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.
|