fcx1q08-10q.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 March 31, 2008
|
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
|
(I.R.S.
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, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer R
Accelerated filer o Non-accelerated
filer o Smaller
reporting company oÿ
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 April
30, 2008, there were issued and outstanding 383,219,916 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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16
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17
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53
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53
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53
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53
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54
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54
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54
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55
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E-1
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FREEPORT-McMoRan
COPPER & GOLD INC.
FREEPORT-McMoRan
COPPER & GOLD INC.
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
Millions)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,831
|
|
|
$
|
1,626
|
|
Trade
accounts receivable
|
|
|
1,949
|
|
|
|
1,099
|
|
Other
accounts receivable
|
|
|
181
|
|
|
|
196
|
|
Product
inventories and materials and supplies, net
|
|
|
2,187
|
|
|
|
2,178
|
|
Mill
and leach stockpiles
|
|
|
773
|
|
|
|
707
|
|
Prepaid
expenses and other current assets
|
|
|
97
|
|
|
|
97
|
|
Total
current assets
|
|
|
7,018
|
|
|
|
5,903
|
|
Property,
plant, equipment and development costs, net
|
|
|
25,814
|
|
|
|
25,715
|
|
Goodwill
|
|
|
6,048
|
|
|
|
6,105
|
|
Long-term
mill and leach stockpiles
|
|
|
1,153
|
|
|
|
1,106
|
|
Trust
assets
|
|
|
599
|
|
|
|
606
|
|
Intangible
assets, net
|
|
|
464
|
|
|
|
472
|
|
Other
assets and deferred charges
|
|
|
732
|
|
|
|
754
|
|
Total
assets
|
|
$
|
41,828
|
|
|
$
|
40,661
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
2,242
|
|
|
$
|
2,345
|
|
Accrued
income taxes
|
|
|
640
|
|
|
|
420
|
|
Current
portion of reclamation and environmental liabilities
|
|
|
226
|
|
|
|
263
|
|
Dividends
payable
|
|
|
212
|
|
|
|
212
|
|
Current
portion of long-term debt and short-term borrowings
|
|
|
36
|
|
|
|
31
|
|
Copper
price protection program
|
|
|
–
|
|
|
|
598
|
|
Total
current liabilities
|
|
|
3,356
|
|
|
|
3,869
|
|
Long-term
debt, less current portion:
|
|
|
|
|
|
|
|
|
Senior
notes
|
|
|
6,887
|
|
|
|
6,928
|
|
Project
financing, equipment loans and other
|
|
|
352
|
|
|
|
252
|
|
Revolving
credit facility
|
|
|
296
|
|
|
|
–
|
|
Total
long-term debt, less current portion
|
|
|
7,535
|
|
|
|
7,180
|
|
Deferred
income taxes
|
|
|
7,135
|
|
|
|
7,300
|
|
Reclamation
and environmental liabilities, less current portion
|
|
|
1,893
|
|
|
|
1,733
|
|
Other
liabilities
|
|
|
1,093
|
|
|
|
1,106
|
|
Total
liabilities
|
|
|
21,012
|
|
|
|
21,188
|
|
Minority
interests in consolidated subsidiaries
|
|
|
1,510
|
|
|
|
1,239
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
5½%
Convertible Perpetual Preferred Stock
|
|
|
1,100
|
|
|
|
1,100
|
|
6¾%
Mandatory Convertible Preferred Stock
|
|
|
2,875
|
|
|
|
2,875
|
|
Common
stock
|
|
|
50
|
|
|
|
50
|
|
Capital
in excess of par value
|
|
|
13,552
|
|
|
|
13,407
|
|
Retained
earnings
|
|
|
4,554
|
|
|
|
3,601
|
|
Accumulated
other comprehensive income
|
|
|
43
|
|
|
|
42
|
|
Common
stock held in treasury
|
|
|
(2,868
|
)
|
|
|
(2,841
|
)
|
Total
stockholders’ equity
|
|
|
19,306
|
|
|
|
18,234
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
41,828
|
|
|
$
|
40,661
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
|
Three
Months Ended
|
|
|
March
31,
|
|
|
2008
|
|
2007
|
|
|
(In
Millions, Except Per Share Amounts)
|
|
Revenues
|
$
|
5,672
|
|
$
|
2,246
|
|
Cost
of sales:
|
|
|
|
|
|
|
Production
and delivery
|
|
2,722
|
|
|
903
|
|
Depreciation,
depletion and amortization
|
|
418
|
|
|
116
|
|
Total
cost of sales
|
|
3,140
|
|
|
1,019
|
|
Selling,
general and administrative expenses
|
|
84
|
|
|
48
|
|
Exploration
and research expenses
|
|
52
|
|
|
7
|
|
Total
costs and expenses
|
|
3,276
|
|
|
1,074
|
|
Operating
income
|
|
2,396
|
|
|
1,172
|
|
Interest
expense, net
|
|
(165
|
)
|
|
(52
|
)
|
Losses
on early extinguishment of debt
|
|
(6
|
)
|
|
(88
|
)
|
Other
income, net
|
|
2
|
|
|
24
|
|
Equity
in affiliated companies’ net earnings
|
|
7
|
|
|
5
|
|
Income
from continuing operations before income taxes and minority
interests
|
|
2,234
|
|
|
1,061
|
|
Provision
for income taxes
|
|
(729
|
)
|
|
(458
|
)
|
Minority
interests in net income of consolidated subsidiaries
|
|
(319
|
)
|
|
(114
|
)
|
Income
from continuing operations
|
|
1,186
|
|
|
489
|
|
Income
from discontinued operations, net of taxes
|
|
–
|
|
|
4
|
|
Net
income
|
|
1,186
|
|
|
493
|
|
Preferred
dividends
|
|
(64
|
)
|
|
(17
|
)
|
Net
income applicable to common stock
|
$
|
1,122
|
|
$
|
476
|
|
|
|
|
|
|
|
|
Basic
net income per share of common stock:
|
|
|
|
|
|
|
Continuing
operations
|
$
|
2.93
|
|
$
|
2.18
|
|
Discontinued
operations
|
|
–
|
|
|
0.02
|
|
Basic
net income per share of common stock
|
$
|
2.93
|
|
$
|
2.20
|
|
|
|
|
|
|
|
|
Diluted
net income per share of common stock:
|
|
|
|
|
|
|
Continuing
operations
|
$
|
2.64
|
|
$
|
2.00
|
|
Discontinued
operations
|
|
–
|
|
|
0.02
|
|
Diluted
net income per share of common stock
|
$
|
2.64
|
|
$
|
2.02
|
|
|
|
|
|
|
|
|
Average
common shares outstanding:
|
|
|
|
|
|
|
Basic
|
|
383
|
|
|
217
|
|
Diluted
|
|
449
|
|
|
244
|
|
|
|
|
|
|
|
|
Dividends
declared per share of common stock
|
$
|
0.4375
|
|
$
|
0.3125
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
Millions)
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,186
|
|
|
$
|
493
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
418
|
|
|
|
116
|
|
Minority
interests in net income of consolidated subsidiaries
|
|
|
319
|
|
|
|
114
|
|
Noncash
compensation and benefits
|
|
|
37
|
|
|
|
26
|
|
Unrealized
losses on copper price protection program
|
|
|
–
|
|
|
|
38
|
|
Losses
on early extinguishment of debt
|
|
|
6
|
|
|
|
88
|
|
Deferred
income taxes
|
|
|
(48
|
)
|
|
|
(46
|
)
|
Other,
net
|
|
|
38
|
|
|
|
42
|
|
(Increases)
decreases in working capital, excluding amounts acquired
from
|
|
|
|
|
|
|
|
|
Phelps
Dodge:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(950
|
)
|
|
|
(398
|
)
|
Inventories
|
|
|
(81
|
)
|
|
|
81
|
|
Prepaid
expenses and other
|
|
|
1
|
|
|
|
1
|
|
Accounts
payable and accrued liabilities
|
|
|
(527
|
)
|
|
|
(30
|
)
|
Accrued
income taxes
|
|
|
216
|
|
|
|
144
|
|
Net
cash provided by operating activities
|
|
|
615
|
|
|
|
669
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from investing activities:
|
|
|
|
|
|
|
|
|
Phelps
Dodge capital expenditures
|
|
|
(388
|
)
|
|
|
(61
|
)
|
PT
Freeport Indonesia capital expenditures
|
|
|
(115
|
)
|
|
|
(74
|
)
|
Other
capital expenditures
|
|
|
(5
|
)
|
|
|
(7
|
)
|
Acquisition
of Phelps Dodge, net of cash acquired
|
|
|
(1
|
)
|
|
|
(13,888
|
)
|
Proceeds
from the sale of assets and other, net
|
|
|
22
|
|
|
|
–
|
|
Net
cash used in investing activities
|
|
|
(487
|
)
|
|
|
(14,030
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from term loans under bank credit facility
|
|
|
–
|
|
|
|
10,000
|
|
Repayments
of term loans under bank credit facility
|
|
|
–
|
|
|
|
(5,618
|
)
|
Net
proceeds from sales of senior notes
|
|
|
–
|
|
|
|
5,880
|
|
Net
proceeds from sale of common stock
|
|
|
–
|
|
|
|
2,816
|
|
Net
proceeds from sale of 6¾% Mandatory Convertible Preferred
Stock
|
|
|
–
|
|
|
|
2,803
|
|
Proceeds
from revolving credit facility and other debt
|
|
|
473
|
|
|
|
101
|
|
Repayments
of revolving credit facility and other debt
|
|
|
(118
|
)
|
|
|
(48
|
)
|
Cash
dividends paid:
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
(169
|
)
|
|
|
(63
|
)
|
Preferred
stock
|
|
|
(64
|
)
|
|
|
(15
|
)
|
Minority
interests
|
|
|
(49
|
)
|
|
|
(47
|
)
|
Net
payments for exercised stock options
|
|
|
(8
|
)
|
|
|
(45
|
)
|
Excess
tax benefit from exercised stock options
|
|
|
12
|
|
|
|
1
|
|
Bank
credit facilities fees and other, net
|
|
|
–
|
|
|
|
(185
|
)
|
Net
cash provided by financing activities
|
|
|
77
|
|
|
|
15,580
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
205
|
|
|
|
2,219
|
|
Cash
and cash equivalents at beginning of year
|
|
|
1,626
|
|
|
|
907
|
|
Cash
and cash equivalents at end of period
|
|
$
|
1,831
|
|
|
$
|
3,126
|
|
The
accompanying notes are an integral part of these 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
|
|
Income
|
|
Shares
|
|
Cost
|
|
Equity
|
|
|
|
(In
Millions)
|
|
Balance
at December 31, 2007
|
|
1
|
|
$
|
1,100
|
|
|
29
|
|
$
|
2,875
|
|
|
497
|
|
$
|
50
|
|
$
|
13,407
|
|
$
|
3,601
|
|
$
|
42
|
|
|
114
|
|
$
|
(2,841
|
)
|
$
|
18,234
|
|
Exercised
stock options, issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted
stock and other
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1
|
|
|
–
|
|
|
114
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
114
|
|
Stock-based
compensation costs
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
25
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
25
|
|
Tax
benefit for stock option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercises
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
6
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
6
|
|
Tender
of shares for exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
options and restricted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1
|
|
|
(27
|
)
|
|
(27
|
)
|
Dividends
on common stock
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(169
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(169
|
)
|
Dividends
on preferred stock
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(64
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(64
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1,186
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1,186
|
|
Other
comprehensive income,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined
benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unrecognized
amounts
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1
|
|
|
–
|
|
|
–
|
|
|
1
|
|
Other
comprehensive income
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1
|
|
|
–
|
|
|
–
|
|
|
1
|
|
Total
comprehensive income
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1,187
|
|
Balance
at March 31, 2008
|
|
1
|
|
$
|
1,100
|
|
|
29
|
|
$
|
2,875
|
|
|
498
|
|
$
|
50
|
|
$
|
13,552
|
|
$
|
4,554
|
|
$
|
43
|
|
|
115
|
|
$
|
(2,868
|
)
|
$
|
19,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
The
accompanying unaudited 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 2007 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-month period ended March 31, 2008, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2008.
As
further discussed in Note 2, on March 19, 2007, FCX completed its acquisition of
Phelps Dodge. First-quarter 2007 financial results include Phelps Dodge’s
results beginning March 20, 2007. Additionally, Phelps Dodge had an
international wire and cable business, Phelps Dodge International Corporation
(PDIC), which FCX sold on October 31, 2007. As a result of the sale, Phelps
Dodge’s first-quarter 2007 operating results have been restated to remove PDIC
from continuing operations and report PDIC as discontinued operations in the
consolidated statements of income (see Note 3).
2.
|
ACQUISITION
OF PHELPS DODGE
|
On March
19, 2007, Phelps Dodge became a wholly owned subsidiary of FCX. The estimated
fair value of assets acquired and liabilities assumed and the results of Phelps
Dodge’s operations are included in FCX’s consolidated financial statements
beginning March 20, 2007.
The
acquisition was 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. 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 stockholders for total consideration of $25.8
billion.
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 was
allocated to the assets acquired and liabilities assumed based upon their
estimated fair values on the closing date of March 19, 2007. In valuing acquired
assets and assumed liabilities, fair values were based on, but were not limited
to: quoted market prices, where available; the intent of FCX with respect to
whether the assets purchased were 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 fair
value of the net assets acquired has been recorded as goodwill. A 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. At the date of acquisition of Phelps Dodge, price projections used to
value the assets acquired ranged from a near-term price of $2.98 per pound for
copper and $26.20 per pound for molybdenum to a long-term average price of $1.20
per pound for copper and $8.00 per pound for molybdenum.
A summary
of the final purchase price allocation as of March 19, 2007, follows (in
billions):
|
|
|
|
|
Purchase
|
|
|
Historical
|
|
Fair
Value
|
|
Price
|
|
|
Balances
|
|
Adjustments
|
|
Allocation
|
|
Cash
and cash equivalents
|
$
|
4.2
|
|
$
|
–
|
|
$
|
4.2
|
|
Inventories,
including mill and leach stockpiles
|
|
0.9
|
|
|
2.8
|
|
|
3.7
|
|
Property,
plant and equipmenta
|
|
6.0
|
|
|
16.2
|
|
|
22.2
|
|
Other
assets
|
|
3.1
|
|
|
0.2
|
|
|
3.3
|
|
Allocation
to goodwill
|
|
–
|
|
|
6.2
|
|
|
6.2
|
b
|
Total
assets
|
|
14.2
|
|
|
25.4
|
|
|
39.6
|
|
Deferred
income taxes (current and long-term)c
|
|
(0.7
|
)
|
|
(6.3
|
)
|
|
(7.0
|
)
|
Other
liabilities
|
|
(4.1
|
)
|
|
(1.5
|
)
|
|
(5.6
|
)
|
Minority
interests
|
|
(1.2
|
)
|
|
–
|
|
|
(1.2
|
)
|
Total
|
$
|
8.2
|
|
$
|
17.6
|
|
$
|
25.8
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
amounts for proven and probable reserves and values assigned to value
beyond proven and probable reserves
(VBPP).
|
b.
|
Includes
$160 million of goodwill associated with PDIC, which was sold in the
fourth quarter of 2007.
|
c.
|
Deferred
income taxes have been recognized based on the difference between the tax
basis and the fair values assigned to net
assets.
|
Goodwill
arising from the acquisition of Phelps Dodge was $6.2 billion, which primiarily
related to the requirement to recognize a deferred tax liability for the
difference between the assigned values and the tax bases of the assets acquired
and liabilities assumed in a business combination. FCX allocated goodwill
to the individual mines it believes have contributed to the excess purchase
price and also included consideration of the mines’ potential for future growth
(see Note 10 for the allocation of goodwill to FCX's reportable
segments).
Pro Forma Financial
Information. The following pro forma information assumes that
FCX acquired Phelps Dodge effective January 1, 2007. The most significant
adjustments relate to the purchase accounting impacts on the carrying values of
acquired metal inventories (including mill and leach stockpiles) and property,
plant and equipment using March 19, 2007, metal prices and assumptions (in
millions, except per share data):
|
Historical
|
|
|
|
|
|
|
|
|
|
Phelps
|
|
Pro
Forma
|
|
Pro
Forma
|
|
Three months ended
March 31, 2007
|
FCX
|
|
Dodgea
|
|
Adjustments
|
|
Consolidated
|
|
Revenues
|
$
|
2,246
|
|
$
|
2,294
|
|
$
|
30
|
|
$
|
4,570
|
b
|
Operating
income
|
$
|
1,172
|
|
$
|
793
|
|
$
|
(489
|
)
|
$
|
1,476
|
b,c
|
Income
from continuing operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes and minority interests
|
$
|
1,061
|
|
$
|
837
|
|
$
|
(581
|
)
|
$
|
1,317
|
b,c,d,e
|
Net
income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
applicable
to common stock
|
$
|
472
|
|
$
|
493
|
|
$
|
(427
|
)
|
$
|
538
|
b,c,d,e
|
Diluted
net income per share of common
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
from continuing operations
|
$
|
2.00
|
|
|
N/A
|
|
|
N/A
|
|
$
|
1.35
|
b,c,d,e
|
Diluted
weighted-average shares of
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock outstanding
|
|
244
|
|
|
N/A
|
|
|
N/A
|
|
|
446
|
f
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
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
statements.
|
Additionally,
for comparative purposes, the historical Phelps Dodge financial information for
first-quarter 2007 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 the
copper price protection program totaling $58 million ($36 million to net
income or $0.08 per share) in the first quarter of 2007. Also includes pro
forma credits for amortization of acquired intangible liabilities totaling
$30 million ($19 million to net income or $0.04 per
share).
|
c.
|
Includes
charges associated with the impacts of the increases in the carrying
values of acquired metal inventories (including mill and leach stockpiles)
and property, plant and equipment, and also includes the amortization of
intangible assets and liabilities resulting from the acquisition totaling
$755 million ($476 million to net income or $1.07 per
share).
|
d.
|
Excludes
net losses on early extinguishment of debt totaling $88 million ($69
million to net income or $0.15 per share) for financing transactions
related to the acquisition of Phelps
Dodge.
|
e.
|
Includes
interest expense from the debt issued in connection with the acquisition
of Phelps Dodge totaling $186 million ($145 million to net income or $0.33
per share). Also includes accretion on the fair value of environmental
liabilities resulting from the acquisition totaling $24 million ($19
million to net income or $0.04 per
share).
|
f.
|
Estimated
pro forma diluted weighted-average shares of common stock outstanding for
the three months ended March 31, 2007, follows (in
millions):
|
Average
number of basic shares of FCX common stock
|
|
|
|
outstanding
prior to the acquisition of Phelps Dodge
|
|
197
|
|
Shares
of FCX common stock issued in the acquisition
|
|
137
|
|
Sale
of shares of FCX common stock
|
|
47
|
|
Assumed
conversion of Mandatory Convertible Preferred Stock
|
|
39
|
|
Assumed
conversion of other dilutive securities
|
|
26
|
|
Pro
forma weighted-average shares of FCX common stock
outstanding
|
|
446
|
|
|
|
|
|
The above
pro forma consolidated 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.
|
DISCONTINUED
OPERATIONS
|
On
October 31, 2007, FCX sold its international wire and cable business, PDIC, for
$735 million, which resulted in a net loss of $14 million ($9 million to net
income) for transaction-related costs. The transaction generated after-tax
proceeds of approximately $650 million (net proceeds of $597 million after
taxes, transaction-related costs and PDIC cash).
As a
result of the sale, the operating results of PDIC have been removed from
continuing operations in the consolidated statements of income. Selected
financial information related to discontinued operations for the period March
20, 2007, through March 31, 2007, follows (in millions):
Revenues
|
$
|
57
|
|
Operating
income
|
|
7
|
|
Provision
for income taxes
|
|
2
|
|
Income
from discontinued operations
|
|
4
|
|
|
|
|
|
4.
|
PENSION
AND POSTRETIREMENT BENEFITS
|
The
components of net periodic benefit cost for pension and postretirement benefits
(first-quarter 2007 included Phelps Dodge’s plans for the period March 20, 2007,
through March 31, 2007) follow (in millions):
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
2007
|
|
Service
cost
|
|
$
|
9
|
|
$
|
2
|
|
Interest
cost
|
|
|
27
|
|
|
6
|
|
Expected
return on plan assets
|
|
|
(32
|
)
|
|
(4
|
)
|
Amortization
of prior service cost
|
|
|
2
|
|
|
1
|
|
Net
periodic benefit cost
|
|
$
|
6
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
The
increase in service and interest costs and the expected return on plan assets
resulted primarily from the impact of Phelps Dodge for a full three months in
first-quarter 2008 compared with only 12 days in first-quarter
2007.
FCX’s
basic net income per share of common stock was calculated by dividing net income
applicable to common stock by the weighted-average shares of common stock
outstanding during the period. The following is a reconciliation of net income
and weighted-average shares of common stock outstanding for purposes of
calculating diluted net income per share (in millions, except per share
amounts):
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
2007
|
|
Income
from continuing operations
|
|
$
|
1,186
|
|
$
|
489
|
|
Preferred
dividends
|
|
|
(64
|
)
|
|
(17
|
)
|
Income
from continuing operations applicable to common stock
|
|
|
1,122
|
|
|
472
|
|
Plus
income impact of assumed conversion of:
|
|
|
|
|
|
|
|
6¾%
Mandatory Convertible Preferred Stock
|
|
|
49
|
|
|
2
|
|
5½%
Convertible Perpetual Preferred Stock
|
|
|
15
|
|
|
15
|
|
Diluted
net income from continuing operations applicable to common
stock
|
|
|
1,186
|
|
|
489
|
|
Income
from discontinued operations
|
|
|
–
|
|
|
4
|
|
Diluted
net income applicable to common stock
|
|
$
|
1,186
|
|
$
|
493
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares of common stock outstanding:
|
|
|
383
|
|
|
217
|
|
Add
stock issuable upon conversion, exercise or vesting of:
|
|
|
|
|
|
|
|
6¾%
Mandatory Convertible Preferred Stock
|
|
|
39
|
|
|
2
|
|
5½%
Convertible Perpetual Preferred Stock
|
|
|
23
|
|
|
23
|
|
Dilutive
stock options
|
|
|
2
|
|
|
1
|
|
Restricted
stock
|
|
|
2
|
|
|
1
|
|
Weighted-average
shares of common stock outstanding for purposes of
|
|
|
|
|
|
|
|
calculating
diluted net income per share
|
|
|
449
|
|
|
244
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share of common stock:
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
2.64
|
|
$
|
2.00
|
|
Discontinued
operations
|
|
|
–
|
|
|
0.02
|
|
Diluted
net income per share of common stock
|
|
$
|
2.64
|
|
$
|
2.02
|
|
|
|
|
|
|
|
|
|
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. No amounts were excluded for
first-quarter 2008. Excluded amounts
were
approximately one million stock options with a weighted-average exercise price
of $63.76 in first-quarter 2007.
6.
|
INVENTORIES,
AND MILL AND LEACH STOCKPILES
|
The
components of inventories follow (in millions):
|
|
March
31,
|
|
December
31,
|
|
|
|
2008
|
|
2007
|
|
Mining
Operations:
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
32
|
|
$
|
1
|
|
Work-in-process
|
|
|
77
|
|
|
71
|
|
Finished
goodsa
|
|
|
794
|
|
|
898
|
|
Atlantic
Copper:
|
|
|
|
|
|
|
|
Raw
materials (concentrates)
|
|
|
139
|
|
|
164
|
|
Work-in-process
|
|
|
237
|
|
|
220
|
|
Finished
goods
|
|
|
17
|
|
|
6
|
|
Total
product inventories
|
|
|
1,296
|
|
|
1,360
|
|
Total
materials and supplies, netb
|
|
|
891
|
|
|
818
|
|
Total
inventories
|
|
$
|
2,187
|
|
$
|
2,178
|
|
|
|
|
|
|
|
|
|
a.
|
Primarily
includes concentrates and cathodes.
|
b.
|
Materials
and supplies inventory is net of obsolescence reserves totaling $17
million at March 31, 2008, and $16 million at December 31,
2007.
|
The
following is a detail of mill and leach stockpiles (in millions):
|
|
March
31,
|
|
December
31,
|
|
|
|
2008
|
|
2007
|
|
Current:
|
|
|
|
|
|
|
|
Mill
stockpiles
|
|
$
|
4
|
|
$
|
6
|
|
Leach
stockpiles
|
|
|
769
|
|
|
701
|
|
Total
current mill and leach stockpiles
|
|
$
|
773
|
|
$
|
707
|
|
|
|
|
|
|
|
|
|
Long-terma:
|
|
|
|
|
|
|
|
Mill
stockpiles
|
|
$
|
279
|
|
$
|
248
|
|
Leach
stockpiles
|
|
|
874
|
|
|
858
|
|
Total
long-term mill and leach stockpiles
|
|
$
|
1,153
|
|
$
|
1,106
|
|
|
|
|
|
|
|
|
|
a.
|
Metals
in stockpiles not expected to be recovered within the next 12
months.
|
FCX’s
first-quarter 2008 income tax provision from continuing operations resulted from
taxes on international operations ($579 million) and U.S. taxes ($150 million).
The difference between FCX’s consolidated effective income tax rate of
approximately 33 percent for first-quarter 2008 and the U.S. federal statutory
rate of 35 percent primarily was attributable to a U.S. benefit for percentage
depletion and an international tax rate differential, partially offset by
withholding taxes on earnings from Indonesia and South America mining operations
and a U.S. foreign tax credit limitation.
FCX’s
first-quarter 2007 income tax provision from continuing operations resulted from
taxes on earnings at international operations ($504 million), partially offset
by a tax benefit from losses in the U.S. ($46 million). The first-quarter 2007
income tax provision primarily related to the operations of PT Freeport
Indonesia and also included $31 million associated with Phelps Dodge’s earnings
for the 12-day period ending March 31, 2007. The difference between FCX’s
consolidated effective income tax rate of approximately 43 percent for
first-
quarter
2007 and the U.S. federal statutory rate of 35 percent primarily was
attributable to withholding taxes incurred in connection with earnings from
Indonesia mining operations.
Interest
expense excludes capitalized interest of $22 million in first-quarter 2008 and
$7 million in first-quarter 2007.
9.
|
NEW
ACCOUNTING STANDARDS
|
Fair
Value Measurements. In September 2006, the
Financial Accounting Standards Board (FASB) issued SFAS No. 157, “Fair Value
Measurements,” which provides enhanced guidance for using fair value to measure
assets and liabilities. SFAS No. 157 does not require any new fair value
measurements under U.S. GAAP but rather establishes a common definition of fair
value, provides a framework for measuring fair value under U.S. GAAP and expands
disclosure requirements about fair value measurements. In February 2008, FASB
issued FSP FAS 157-2, which delays the effective date of SFAS No. 157 for
nonfinancial assets or liabilities that are not required or permitted to be
measured at fair value on a recurring basis to fiscal years beginning after
November 15, 2008, and interim periods within those years. Effective January 1,
2008, FCX adopted SFAS No. 157 for financial assets and liabilities recognized
at fair value on a recurring basis. This partial adoption of SFAS No. 157 did
not have a material impact on our financial reporting and disclosures as FCX’s
financial assets are measured using quoted market prices, or Level 1 inputs. FCX
is currently evaluating the impact that the adoption of SFAS No. 157 will have
on its financial reporting and disclosures for pension and postretirement
related financial assets and nonfinancial assets or liabilities not valued on a
recurring basis (at least annually).
Disclosures
about Derivative Instruments and Hedging Activities. In March 2008, FASB
issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities – an amendment of FASB Statement No. 133.” SFAS No. 161 amends the
disclosure requirements for derivative instruments and hedging activities
contained in SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities.” Under SFAS No 161, entities are required to provide enhanced
disclosures about (i) how and why an entity uses derivative instruments, (ii)
how derivative instruments and related hedged items are accounted for under SFAS
No. 133 and related interpretations and (iii) how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance and cash flows. SFAS No. 161 is effective for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. SFAS No. 161 encourages, but does not require disclosure for earlier
periods presented for comparative purposes at initial adoption. The adoption of
SFAS No. 161 will not affect FCX’s accounting for derivative financial
instruments; however, FCX is currently evaluating the impact on its related
disclosures.
FCX has a
regional approach to the management of its mining operations. FCX has organized
its mining operations geographically into three primary operating divisions –
North America mining, South America mining and Indonesia mining. Notwithstanding
this geographic structure, FCX internally reports information on a mine by mine
basis. Therefore, in accordance with SFAS No. 131, “Disclosures about Segments
of an Enterprise and Related Information,” FCX concluded that its operating
segments include individual mines. Operating segments that meet SFAS No. 131
thresholds are reportable segments. FCX has revised its segment disclosures for
first-quarter 2007 to conform with current year presentation. Further discussion
of the reportable segments included in FCX’s primary operating divisions, as
well as FCX’s other reportable segment – Atlantic Copper Smelting &
Refining, follows.
North America
Mining. North America mining operations are comprised of
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. FCX has six operating copper mines in
North America – Morenci, Bagdad, Sierrita and Safford in Arizona and Chino and
Tyrone in New Mexico, as well as one operating molybdenum mine – Henderson in
Colorado. The North America mining division includes the Morenci copper mine,
Rod & Refining operations and Molybdenum operations as reportable
segments.
Morenci. The Morenci open-pit
mine, located in southeastern Arizona, primarily produces copper cathodes and
copper concentrates. In addition to copper, the Morenci mine produces molybdenum
concentrates as a by-product. FCX owns an 85 percent undivided interest in
Morenci via an unincorporated joint venture.
Rod & Refining. The Rod
& Refining segment consists of copper conversion facilities, including a
refinery, rod mills and a specialty copper products facility. This segment
processes copper produced at FCX’s North America mines and purchased copper into
copper anode, cathode, rod and custom copper shapes. At times this segment
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, who pays FCX for processing its material into the
specified products.
Molybdenum. The Molybdenum
segment includes FCX’s wholly owned Henderson molybdenum mine in Colorado,
related conversion facilities and a technology center. The Henderson underground
mine produces high-purity, chemical-grade molybdenum concentrates, which are
typically further processed into value-added molybdenum chemical products. 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. This segment also includes a sales company that purchases
molybdenum from Henderson and FCX’s North America and South America copper mines
and sells it to third parties. 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, who 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.
The
Molybdenum segment also includes FCX’s wholly owned Climax molybdenum mine in
Colorado, which has been on care-and-maintenance status since 1995. In December
2007, FCX announced a $500 million project to restart the Climax mine with start
up expected in 2010.
Other North America Mining
Operations. Other North America mining operations include FCX’s other
operating southwestern U.S. copper mines – Bagdad, Sierrita, Safford, Chino and
Tyrone. In addition to copper, the Bagdad, Sierrita and Chino mines produce
molybdenum, gold and silver, and the Sierrita mine also produces rhenium. Other
North America mining operations also include the Miami copper mine, which FCX is
undertaking a project to restart; the Miami smelter, which processes our North
America concentrates and provides a significant source of sulfuric acid for the
various North America leaching operations; and a sales company, which functions
as an agent to purchase and sell copper from the North America mines and the Rod
& Refining operations and also purchases and sells any copper not sold by
the South America mines to third parties.
South America
Mining. FCX has four operating copper mines in South America –
Cerro Verde in Peru, and Candelaria, Ojos del Salado and El Abra in Chile. These
operations include open-pit and underground mining, sulfide ore concentrating,
leaching, solution extraction and electrowinning (SX/EW). The South America
mining division includes the Cerro Verde copper mine as a reportable
segment.
Cerro Verde. The Cerro Verde
open-pit copper mine, located near Arequipa, Peru, produces copper cathodes and
copper concentrates. In addition to copper, the Cerro Verde mine produces
molybdenum concentrates. FCX owns a 53.56 percent interest in Cerro
Verde.
Other South America Mining
Operations. Other South America mining operations include FCX’s Chilean
copper mines – Candelaria, Ojos del Salado and El Abra – which include open-pit
and underground mining, sulfide ore concentrating, leaching and SX/EW
operations. In addition to copper, the Candelaria and Ojos del Salado mines
produce gold and silver. FCX owns an 80 percent interest in both the Candelaria
and Ojos del Salado mines, and owns a 51 percent interest in the El Abra
mine.
Indonesia
Mining. Indonesia 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 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, 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.
Atlantic Copper Smelting &
Refining. Atlantic Copper, FCX’s wholly owned smelting unit in
Spain, smelts and refines copper concentrates and markets refined copper and
precious metals in slimes.
Other. Intersegment sales by
the Indonesia and South America mines are based on similar arms-length
transactions with third parties 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
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 what the actual
financial performance of each operating division or segment would be if it was
an independent entity.
Business Segments
(In
Millions)
|
North
America
|
|
South
America
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Total
|
|
|
|
Other
|
|
Total
|
|
|
|
Atlantic
|
|
Corporate,
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
North
|
|
|
|
South
|
|
South
|
|
|
|
Copper
|
|
Other
&
|
|
|
|
|
|
|
|
Rod
&
|
|
Molyb-
|
|
America
|
|
America
|
|
Cerro
|
|
America
|
|
America
|
|
|
|
Smelting
|
|
Elimi-
|
|
FCX
|
|
First-Quarter
2008
|
Morenci
|
|
Refining
|
|
denum
|
|
Mining
|
|
Mining
|
|
Verde
|
|
Mining
|
|
Mining
|
|
Grasberg
|
|
&
Refining
|
|
nations
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
$
|
50
|
|
$
|
1,680
|
|
$
|
719
|
|
$
|
823
|
|
$
|
3,272
|
|
$
|
462
|
|
$
|
503
|
|
$
|
965
|
|
$
|
887
|
a
|
$
|
665
|
|
$
|
(117
|
)
|
$
|
5,672
|
|
Intersegment
|
|
541
|
|
8
|
|
–
|
|
(548
|
)
|
1
|
|
253
|
|
375
|
|
628
|
|
165
|
|
–
|
|
(794
|
)
|
–
|
|
Production
and deliveryb
|
|
272
|
|
1,676
|
|
460
|
|
(270
|
)
|
2,138
|
|
162
|
|
270
|
|
432
|
|
399
|
|
651
|
|
(898
|
)
|
2,722
|
|
Depreciation,
depletion and amortizationb
|
|
81
|
|
2
|
|
39
|
|
105
|
|
227
|
|
43
|
|
87
|
|
130
|
|
45
|
|
9
|
|
7
|
|
418
|
|
Exploration
and research expenses
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
52
|
|
52
|
|
Selling,
general and administrative expenses
|
|
–
|
|
–
|
|
6
|
|
4
|
|
10
|
|
–
|
|
–
|
|
–
|
|
37
|
|
8
|
|
29
|
|
84
|
|
Operating
income (loss)b
|
|
238
|
|
10
|
|
214
|
|
436
|
|
898
|
|
510
|
|
521
|
|
1,031
|
|
571
|
|
(3
|
)
|
(101
|
)
|
2,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
1
|
|
1
|
|
–
|
|
10
|
|
12
|
|
1
|
|
–
|
|
1
|
|
1
|
|
4
|
|
147
|
|
165
|
|
Provision
for income taxes
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
173
|
|
160
|
|
333
|
|
239
|
|
–
|
|
157
|
|
729
|
|
Goodwill
|
|
1,912
|
|
–
|
|
703
|
|
2,299
|
|
4,914
|
|
763
|
|
366
|
|
1,129
|
|
–
|
|
–
|
|
5
|
|
6,048
|
|
Total
assets at March 31, 2008
|
|
6,932
|
|
604
|
|
4,179
|
|
12,746
|
|
24,461
|
|
5,464
|
|
4,833
|
|
10,297
|
|
3,932
|
|
994
|
|
2,144
|
|
41,828
|
|
Capital
expenditures
|
|
77
|
|
3
|
|
12
|
|
83
|
|
175
|
|
17
|
|
46
|
|
63
|
|
115
|
|
5
|
|
150
|
|
508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First-Quarter
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
|
–
|
|
206
|
|
52
|
|
61
|
|
319
|
|
14
|
|
126
|
|
140
|
|
1,332
|
a
|
454
|
|
1
|
|
2,246
|
|
Intersegment
|
|
21
|
|
2
|
|
–
|
|
(23
|
)
|
–
|
|
97
|
|
25
|
|
122
|
|
377
|
|
–
|
|
(499
|
)
|
–
|
|
Production
and deliveryb
|
|
29
|
|
206
|
|
52
|
|
40
|
|
327
|
|
44
|
|
72
|
|
116
|
|
323
|
|
427
|
|
(290
|
)
|
903
|
|
Depreciation,
depletion and amortizationb
|
|
5
|
|
–
|
|
3
|
|
6
|
|
14
|
|
9
|
|
19
|
|
28
|
|
59
|
|
10
|
|
5
|
|
116
|
|
Exploration
and research expenses
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
7
|
|
7
|
|
Selling,
general and administrative expenses
|
|
–
|
|
–
|
|
–
|
|
1
|
|
1
|
|
–
|
|
–
|
|
–
|
|
44
|
|
4
|
|
(1
|
)
|
48
|
|
Operating
income (loss)b
|
|
(13
|
)
|
2
|
|
(3
|
)
|
(9
|
)
|
(23
|
)
|
58
|
|
60
|
|
118
|
|
1,283
|
|
13
|
|
(219
|
)
|
1,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
4
|
|
7
|
|
41
|
|
52
|
|
Provision
for income taxes
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
22
|
|
19
|
|
41
|
|
462
|
|
–
|
|
(45
|
)
|
458
|
|
Total
assets at March 31, 2007
|
|
4,775
|
|
631
|
|
1,918
|
|
8,705
|
|
16,029
|
|
4,011
|
|
4,491
|
|
8,502
|
|
4,549
|
|
1,075
|
|
11,279
|
c
|
41,434
|
|
Capital
expenditures
|
|
15
|
|
1
|
|
2
|
|
35
|
|
53
|
|
1
|
|
1
|
|
2
|
|
74
|
|
7
|
|
6
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
PT Freeport Indonesia’s sales to PT Smelting totaling $464 million in
first-quarter 2008 and $584 million in first-quarter
2007.
|
b.
|
The
following tables summarize the impact of purchase accounting fair value
adjustments on first-quarters 2008 and 2007 operating income (loss)
primarily associated with the impacts of the increases in the carrying
values of Phelps Dodge’s metals inventories (including mill and leach
stockpiles) and property, plant and
equipment:
|
First-Quarter
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
and delivery
|
$
|
(18
|
)
|
$
|
–
|
|
$
|
(14
|
)
|
$
|
(15
|
)
|
$
|
(47
|
)
|
$
|
(9
|
)
|
$
|
(16
|
)
|
$
|
(25
|
)
|
N/A
|
|
N/A
|
|
$
|
–
|
|
$
|
(72
|
)
|
Depreciation,
depletion and amortization
|
|
(47
|
)
|
–
|
|
(34
|
)
|
(55
|
)
|
(136
|
)
|
(21
|
)
|
(49
|
)
|
(70
|
)
|
N/A
|
|
N/A
|
|
(1
|
)
|
(207
|
)
|
Reduction
of operating income
|
$
|
(65
|
)
|
$
|
–
|
|
$
|
(48
|
)
|
$
|
(70
|
)
|
$
|
(183
|
)
|
$
|
(30
|
)
|
$
|
(65
|
)
|
$
|
(95
|
)
|
N/A
|
|
N/A
|
|
$
|
(1
|
)
|
$
|
(279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First-Quarter
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
and delivery
|
$
|
(16
|
)
|
$
|
–
|
|
$
|
(13
|
)
|
$
|
(19
|
)
|
$
|
(48
|
)
|
$
|
(20
|
)
|
$
|
(28
|
)
|
$
|
(48
|
)
|
N/A
|
|
N/A
|
|
$
|
–
|
|
$
|
(96
|
)
|
Depreciation,
depletion and amortization
|
|
(3
|
)
|
–
|
|
(2
|
)
|
(1
|
)
|
(6
|
)
|
(6
|
)
|
(15
|
)
|
(21
|
)
|
N/A
|
|
N/A
|
|
(1
|
)
|
(28
|
)
|
Reduction
of operating income
|
$
|
(19
|
)
|
$
|
–
|
|
$
|
(15
|
)
|
$
|
(20
|
)
|
$
|
(54
|
)
|
$
|
(26
|
)
|
$
|
(43
|
)
|
$
|
(69
|
)
|
N/A
|
|
N/A
|
|
$
|
(1
|
)
|
$
|
(124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
c.
|
Includes
preliminary goodwill of $6.9 billion, which had not yet been allocated to
reporting units, and also includes assets of $1.1 billion associated
with discontinued operations (see Note
3).
|
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 March 31, 2008, the related consolidated statements of
income and cash flows for the three-month periods ended March 31, 2008 and 2007,
and the related consolidated statement of stockholders’ equity for the
three-month period ended March 31, 2008. 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, 2007, and the related
consolidated statements of income, cash flows, and stockholders’ equity for the
year then ended (not presented herein), and in our report dated February 29,
2008, we expressed an unqualified opinion on those consolidated financial
statements and which report included an explanatory paragraph for the Company’s
adoption of FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109,” effective January 1, 2007;
Statement of Financial Accounting Standards (SFAS) 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 SFAS 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, 2007, 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
May 6,
2008
OVERVIEW
In
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, “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 on March 19, 2007. You should read this discussion in conjunction with
our financial statements, the related Management’s 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, 2007,
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 included for 2007 include the
operations of Phelps Dodge for only 12 days, not the full first quarter of 2007
because of the accounting treatment for the acquisition. References to “Notes”
are Notes included in our “Notes to 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 on a
diluted basis, unless otherwise noted.
We are
one of the world’s largest copper, gold and molybdenum mining companies in terms
of reserves and production. One of our principal assets is the Grasberg minerals
district in Indonesia, which contains the largest single recoverable copper
reserve and the largest single gold reserve of any mine in the world based on
the latest available reserve data provided by third-party industry
consultants.
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 Tenke Fungurume in the Democratic Republic of
Congo (DRC).
In North
America, we have six operating copper mines – Morenci, Bagdad, Sierrita and
Safford in Arizona and Chino and Tyrone in New Mexico, as well as one operating
molybdenum mine – Henderson in Colorado. In addition, we are restarting the
Miami copper mine in Arizona and the Climax molybdenum mine in Colorado. All of
these mining operations are wholly owned, except for Morenci. We have an 85
percent undivided interest in Morenci, an unincorporated joint venture. The
North America mining operations are operated in an integrated fashion and have
long-lived reserves with additional development potential.
In South
America, we have four operating copper mines – Cerro Verde in Peru, and
Candelaria, Ojos del Salado and El Abra in Chile. We own a 53.56 percent
interest in Cerro Verde, an 80 percent interest in both Candelaria and Ojos del
Salado and a 51 percent interest in El Abra.
We own
90.64 percent of PT Freeport Indonesia, including 9.36 percent owned through our
wholly owned subsidiary, PT Indocopper Investama. The Government of Indonesia
owns the remaining 9.36 percent of PT Freeport Indonesia. PT Freeport Indonesia
operates under an agreement, called a 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 called 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 called Block B in Papua. All of PT Freeport
Indonesia’s proven and probable mineral reserves and current mining operations,
including the Grasberg minerals district, are located in Block A.
We also
operate Atlantic Copper S.A. (Atlantic Copper), a wholly owned subsidiary,
located in Spain. Atlantic Copper’s operations involve the smelting and refining
of copper concentrates and the marketing of refined copper and precious metals
in slimes. Additionally, PT Freeport Indonesia owns a 25 percent interest in PT
Smelting, an Indonesian company, which operates a copper smelter and refinery in
Gresik, Indonesia.
Phelps
Dodge also had an international manufacturing division, Phelps Dodge
International Corporation (PDIC), which manufactured engineered wire and cable
products principally for the global energy sector. On October 31, 2007, we sold
PDIC, and as a result, the operating results of PDIC for the 12-day period ended
March 31, 2007, have been removed from continuing operations and reported as
discontinued operations in the consolidated statements of income.
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 $18.0 billion in cash to Phelps Dodge shareholders for total consideration
of $25.8 billion. The results of Phelps Dodge’s operations are included in our
consolidated financial statements beginning March 20, 2007.
Accounting for the
Acquisition. The acquisition of Phelps Dodge was 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. In
accordance with the purchase method of accounting, the purchase price has been
allocated to the assets acquired and liabilities assumed based upon their fair
values on the acquisition date of March 19, 2007. 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 were 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 fair value of net
tangible and identifiable intangible assets has been recorded as goodwill. At
March 31, 2008, the carrying value of goodwill associated with our acquisition
of Phelps Dodge totaled approximately $6.0 billion (refer to Note 2 for further
discussion of goodwill and to Note 10 for the allocation of goodwill to our
reportable segments).
The
following table summarizes the impacts of purchase accounting fair value
adjustments on first-quarter 2008 and 2007 operating income and income from
continuing operations, which are primarily associated with increases in the
carrying values of Phelps Dodge’s property, plant and equipment and metal
inventories, including mill and leach stockpiles (in millions):
|
First-Quarter
|
|
|
|
2008
|
|
2007a
|
|
|
Purchase
accounting impacts:
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
$
|
207
|
|
$
|
28
|
|
|
Production
and delivery costs
|
|
72
|
|
|
96
|
|
|
Reduction
of operating income
|
$
|
279
|
|
$
|
124
|
|
|
|
|
|
|
|
|
|
|
Reduction
of income from continuing operations
|
$
|
184
|
b
|
$
|
79
|
|
|
a.
|
Represents
purchase accounting impacts for the 12-day period ended March 31,
2007.
|
b.
|
Includes
net purchase accounting fair value adjustments related to other
non-operating income and expenses of $15 million ($9 million to net
income).
|
COPPER,
GOLD AND MOLYBDENUM MARKETS
The
graphs below are intended to illustrate the movements in metals prices during
the periods presented. World metal prices for copper have fluctuated
significantly from 1992 through April 2008, with the London Metal Exchange (LME)
spot copper price varying from a low of $0.60 per pound in 2001 to record
highs above $4.00 per pound in March 2008. World gold prices have also
fluctuated widely from 1998 through April 2008 from a low of approximately $250
per ounce in 1999 to record highs above $1,000 per ounce in March 2008.
During the period from 1998 through April 2008, Metals Week Molybdenum Dealer
Oxide prices have ranged from a low of $2.00 per pound in 1998 to a high of
$40.00 per pound in 2005. Copper, gold and molybdenum prices are affected by
numerous factors beyond our control as described further in our “Risk Factors”
contained in Part I, Item 1A of our Form 10-K for the year ended December 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 April 30, 2008. Since 2003
global demand has exceeded supply, evidenced by the decline in exchange
warehouse inventories. Combined LME and COMEX stocks of approximately 123,000
metric tons at March 31, 2008, remain at historically low levels, representing
less than three days of global consumption. Disruptions associated with strikes,
unrest and other operational issues resulted in low levels of inventory
throughout 2006 and 2007. During first-quarter 2008, copper prices were strong,
with LME copper prices ranging from $3.02 per pound to record highs above $4.00
per pound and averaging $3.52 per pound. Future copper prices may continue to be
volatile and are expected to be influenced by demand from China, economic
activity in the United States (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 and continue to pursue
opportunities to expand production. The LME spot price closed at $3.93 per pound
on April 30, 2008.
Gold
prices continue to be supported by increased investment demand for gold, ongoing
geopolitical tensions, a weak U.S. dollar, inflationary pressures and reduced
mine supply. During first-quarter 2008, gold prices ranged from approximately
$847 per ounce to record highs above $1,000 per ounce and averaged approximately
$925 per ounce. On April 30, 2008, London gold prices closed at approximately
$871 per ounce.
Molybdenum
markets have been strong in recent years with growing demand and limited supply.
During first-quarter 2008, molybdenum prices ranged from $32.00 per pound to
$33.80 per pound and averaged $33.24 per pound. The Metals Week Molybdenum Dealer
Oxide price closed at $32.45 per pound on April 28, 2008.
OUTLOOK
Consolidated
sales volumes for first-quarter 2008 totaled 911 million pounds of copper, 280
thousand ounces of gold and 20 million pounds of molybdenum, compared with 520
million pounds of copper, 956 thousand ounces of gold and 2 million pounds of
molybdenum for first-quarter 2007. Pro forma sales volumes for first-quarter
2007, including Phelps Dodge sales volumes prior to the acquisition, totaled 1.0
billion pounds of copper, 977 thousand ounces of gold and 19 million pounds of
molybdenum.
Because
of mine sequencing at Grasberg and the ramp up of production at the Safford
mine, second-half 2008 production and sales are expected to be higher than the
first half of 2008. Approximately 56 percent of projected 2008 copper sales and
64 percent of projected 2008 gold sales are expected in the second half of the
year. Projected consolidated sales volumes for the full year 2008 are estimated
to be 4.2 billion pounds of copper, 1.4 million ounces of gold and 75 million
pounds of molybdenum, including 930 million pounds of copper, 225 thousand
ounces of gold and 18 million pounds of molybdenum for second-quarter 2008.
Achievement of these sales estimates depends on the achievement of targeted
mining rates and expansion plans, the successful operation of production
facilities, the impact of weather conditions and other factors. Additionally,
sales volumes may vary from these estimates depending on the areas being mined
within the Grasberg open pit, with quarterly sales volumes expected to vary
significantly. Refer to “Mining Operations” for further discussion of sales
volumes at our North America, South America and Indonesia mining
operations.
Consolidated
revenues, operating cash flows 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 sales volumes (excluding
purchased copper and molybdenum) for 2008 and assuming an average price of $3.75
per pound of copper, $900 per ounce of gold and $30 per pound of molybdenum for
the remainder of 2008, our consolidated operating cash flow would exceed $6.5
billion in 2008, including net reductions for estimated working capital
requirements totaling $1.1 billion. Each $0.20 per pound change in copper prices
for the balance of the year would have an approximate $450 million impact on
2008 operating cash flows.
CONSOLIDATED
RESULTS
|
First-Quarter
|
|
|
2008
|
|
2007
|
|
Financial Data (in
millions, except per share amounts)
|
|
|
|
|
|
|
Revenues
|
$
|
5,672
|
a
|
$
|
2,246
|
a,b
|
Operating
income
|
|
2,396
|
a,c
|
|
1,172
|
a,b,c
|
Income
from continuing operations applicable to common stockd
|
|
1,122
|
c,e
|
|
472
|
b,c,f
|
Net
income applicable to common stockd
|
|
1,122
|
c,e
|
|
476
|
b,c,f
|
Diluted
net income per share of common stockg:
|
|
|
|
|
|
|
Continuing
operations
|
$
|
2.64
|
|
$
|
2.00
|
|
Discontinued
operations
|
|
–
|
|
|
0.02
|
|
Diluted
net income per share of common stockh
|
$
|
2.64
|
c,e
|
$
|
2.02
|
b,c,f
|
Diluted
average common shares outstandingg,h
|
|
449
|
|
|
244
|
|
|
|
|
|
|
|
|
Operating
Data - Sales from Mines, Excluding Sales of Purchased
Metal
|
|
|
|
|
|
|
Copper
|
|
|
|
|
|
|
Consolidated
share (millions of recoverable pounds)
|
|
911
|
|
|
520
|
|
Average
realized price per pound
|
$
|
3.69
|
|
$
|
3.00
|
b
|
Gold
|
|
|
|
|
|
|
Consolidated
share (thousands of recoverable ounces)
|
|
280
|
|
|
956
|
|
Average
realized price per ounce
|
$
|
932.55
|
|
$
|
654.63
|
|
Molybdenum
|
|
|
|
|
|
|
Consolidated
share (millions of recoverable pounds)
|
|
20
|
|
|
2
|
|
Average
realized price per pound
|
$
|
31.67
|
|
|
23.26
|
|
a.
|
A
summary of revenues and operating income (loss) by operating division, for
first-quarter 2008 and 2007 follows (in
millions):
|
|
First-Quarter
2008
|
|
|
First-Quarter
2007
|
|
|
|
|
Operating
|
|
|
|
|
Operating
|
|
|
|
|
Income
|
|
|
|
|
Income
|
|
|
Revenues
|
|
(Loss)
|
|
|
Revenues
|
|
(Loss)
|
|
North
America mining
|
$
|
3,273
|
|
$
|
898
|
|
|
$
|
319
|
|
$
|
(23
|
)
|
South
America mining
|
|
1,593
|
|
|
1,031
|
|
|
|
262
|
|
|
118
|
|
Indonesia
mining
|
|
1,052
|
|
|
571
|
|
|
|
1,709
|
|
|
1,283
|
|
Atlantic
Copper smelting & refining
|
|
665
|
|
|
(3
|
)
|
|
|
454
|
|
|
13
|
|
Corporate,
other & eliminations
|
|
(911
|
)
|
|
(101
|
)
|
|
|
(498
|
)
|
|
(219
|
)
|
Total
FCX
|
$
|
5,672
|
|
$
|
2,396
|
|
|
$
|
2,246
|
|
$
|
1,172
|
|
Refer to
Note 10 for further discussion of our operating divisions.
b.
|
Includes
charges to revenues for mark-to-market accounting adjustments on the 2007
copper price protection program totaling $38 million ($23 million to net
income or $0.10 per share) and a reduction in average realized copper
prices of $0.07 per pound.
|
c.
|
First-quarter
2008 includes the impact of purchase accounting fair value adjustments
associated with the acquisition of Phelps Dodge totaling $279 million to
operating income ($175 million to net income or $0.39 per share), and also
includes $9 million to net income or $0.02 per share for other
non-operating income and expenses. First-quarter 2007 includes impacts
totaling $124 million to operating income ($79 million to net income or
$0.32 per share).
|
d.
|
After
preferred dividends.
|
e.
|
Includes
a loss on early extinguishment of debt totaling $6 million ($5 million to
net income or $0.01 per share) associated with an open-market purchase of
our 9.5% Senior Notes.
|
f.
|
Includes
net losses on early extinguishment of debt totaling $88 million ($75
million to net income or $0.31 per share) primarily related to premiums
paid and the accelerated recognition of deferred financing costs
associated with prepayments of
debt.
|
g.
|
Reflects
assumed conversion of our 7% Convertible Senior Notes, 5½% Convertible
Perpetual Preferred Stock and 6¾% Mandatory Convertible Preferred
Stock.
|
h.
|
On
March 19, 2007, we issued 137 million common shares to acquire Phelps
Dodge, and on March 28, 2007, we sold 47 million common shares. Common
shares outstanding on March 31, 2008, totaled 383 million. Assuming
conversion of the instruments discussed in Note g above and including
dilutive stock options and restricted stock units, total common shares
outstanding would approximate 449 million at March 31,
2008.
|
Revenues
Consolidated
revenues include the sales of copper, gold, molybdenum and other metals and
metal-related products by our North and South America mining operations, our
Indonesia mining operation’s sale of copper concentrates, which also contain
significant quantities of gold and silver, and the sale by Atlantic Copper of
copper anodes, copper cathodes, and gold in anodes and slimes. Consolidated
revenues for first-quarter 2008 were approximately $3.4 billion higher than
first-quarter 2007. The increase in revenues reflects higher overall copper and
molybdenum sales volumes because of a full three months of activity from Phelps
Dodge operations, compared with only 12 days in first-quarter 2007. Higher
first-quarter 2008 revenues also reflect higher copper, gold and molybdenum
prices. These favorable factors were partly offset by lower copper and gold
sales volumes at our Indonesia mining operations associated with mining
lower-grade ore during first-quarter 2008 (refer to “Indonesia Mining” for
further discussion).
Approximately
two-thirds of our copper is sold in concentrate and cathodes and the remaining
one-third is sold primarily as rod (principally from our North America
operations). Substantially all of our concentrate sales contracts and some of
our cathode sales contracts provide final copper pricing in a specified future
period (generally one to four months from the shipment date) based on quoted LME
or COMEX prices. We ultimately receive market prices based on prices in the
specified future period; however, the accounting rules applied to these sales
result in changes recorded to revenues until the specified future period. We
record revenues and
invoice
customers at the time of shipment based on then-current LME or COMEX prices,
which results in an embedded derivative on our provisional priced concentrate
and cathode sales that is adjusted to fair value through earnings each period
until the date of final pricing. To the extent final prices are higher or lower
than what was recorded on a provisional basis, an increase or decrease to
revenues is recorded each reporting period until the date of final pricing.
Accordingly, in times of rising copper prices, our revenues during a quarter
benefit from higher prices received for contracts priced at current market rates
and also from an increase related to the final pricing of provisionally priced
contracts entered into in prior periods; in times of falling copper prices, the
opposite occurs.
While
first-quarter 2008 LME copper prices averaged $3.52 per pound, our average
recorded price of $3.69 per pound was heavily weighted to the applicable forward
curve price at the end of the quarter ($3.82 per pound). Approximately half of
our consolidated copper sales during first-quarter 2008 were provisionally
priced at the time of shipment and are subject to final pricing later in 2008.
At December 31, 2007, 402 million pounds of copper (net of minority interests)
were provisionally priced at $3.02 per pound. Copper prices increased in
first-quarter 2008 resulting in adjustments to these prior period sales that
increased consolidated revenues by $294 million ($127 million to net income or
$0.28 per share), compared with a decrease of $15 million ($8 million to net
income or $0.03 per share) in first-quarter 2007.
At March
31, 2008, our consolidated copper sales included 362 million pounds of copper
(net of minority interests) priced at an average of $3.82 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 March 31, 2008, provisional price recorded
would impact our 2008 consolidated revenues by $25 million ($11 million to net
income).
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. Also, in
connection with the Phelps Dodge acquisition, FCX assumed the 2007 copper price
protection program, which resulted in charges to revenues for first-quarter 2007
totaling $38 million ($23 million to net income or $0.10 per share). The 2007
copper price protection program matured on December 31, 2007, and in January
2008, we made a $598 million payment upon the settlement of contracts. We do not
intend to enter into similar hedging programs in the future.
Production
and Delivery Costs
Consolidated
production and delivery costs for first-quarter 2008 were approximately $1.8
billion higher than first-quarter 2007 reflecting a full three months of costs
associated with Phelps Dodge operations, compared with only 12 days in
first-quarter 2007. Also impacting first-quarter 2008 production and delivery
costs were higher costs of concentrate purchases at Atlantic Copper associated
with higher copper and gold prices.
Energy Costs. Energy,
including electricity, diesel fuel, coal and natural gas, is a significant
portion of our production costs. As a result, we have been negatively impacted
by rising energy prices and could continue to be impacted by future energy
availability issues and/or additional increases in energy prices. For 2008, we
expect energy costs to approximate 25 percent of our production
costs.
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
portion of the electricity demands of our New Mexico and Arizona operations.
Electricity in excess of our demand is sold on the wholesale market. This
efficient, low-cost plant is expected to continue to stabilize our southwest
North America 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. In
addition to energy, costs have been affected by the prices of commodity input
costs, royalties and profit sharing arrangements, equipment consumed or used in
our operations and labor costs.
Additionally,
we are developing large-scale underground operations in Indonesia that are more
sensitive to labor costs than our large-scale open pit and mill processing
operations. Increasing labor costs without corresponding productivity gains will
adversely impact our current and future underground development and
operations.
Depreciation,
Depletion and Amortization
Consolidated
depreciation, depletion and amortization expense of $418 million for
first-quarter 2008 was $302 million higher than first-quarter 2007. The increase
reflects higher purchase accounting impacts of $179 million related to the
increase in the carrying values of acquired property, plant and equipment, and
also includes the impact of higher overall copper sales volumes under the
unit-of-production method resulting from a full three months of Phelps Dodge
operations, compared with only 12 days in first-quarter 2007.
Exploration
and Research Expenses
Consolidated
exploration and research expenses totaled $52 million for first-quarter 2008,
compared with $7 million for first-quarter 2007. The increase in expenditures
for first-quarter 2008 primarily reflects a full three months, or $46 million,
of exploration and research expenses associated with Phelps Dodge operations,
compared with $3 million for the 12-day period ended March 31, 2007. Refer to
“Exploration Activities” for further discussion of our exploration
activities.
Selling,
General and Administrative Expenses
Consolidated
selling, general and administrative expenses for first-quarter 2008 were $36
million higher than first-quarter 2007 primarily related to a full three months
of expense associated with the Phelps Dodge operations, compared with only 12
days in first-quarter 2007, partly offset by reductions totaling approximately
$40 million to adjust 2007 incentive compensation to actual cash and stock-based
awards approved by the Corporate Personnel Committee of FCX’s Board of Directors
in January 2008.
Interest
Expense, Net
Consolidated
interest expense (before capitalization) totaled $187 million for first-quarter
2008, compared with $59 million for first-quarter 2007. The increase in
first-quarter 2008 primarily relates to a full three months of interest on the
debt incurred in connection with the March 19, 2007, acquisition of Phelps
Dodge. Additionally, first-quarter 2008 consolidated interest expense includes
net purchase accounting impacts of $19 million primarily related to accretion on
assumed environmental obligations.
Capitalized
interest totaled $22 million for first-quarter 2008, compared with $7 million
for first-quarter 2007. Higher capitalized interest for first-quarter 2008
primarily relates to our development projects, including Tenke Fungurume (refer
to “Development Projects” for further discussion).
Losses
on Early Extinguishment of Debt
During
first-quarter 2008, we purchased, in an open market transaction, $33 million of
the 9.5% Senior Notes for $46 million, which resulted in a net charge of $6
million ($5 million to net income or $0.01 per share) for early extinguishment
of debt.
During
first-quarter 2007, we recorded net charges totaling $88 million ($75 million to
net income or $0.31 per share) for early extinguishment of debt primarily
related to the accelerated recognition of deferred financing costs associated
with early repayment of amounts under our $11.5 billion senior credit
facility.
Other
Income, Net
Other
income, net, for first-quarter 2008 was $22 million lower than first-quarter
2007 primarily because of higher foreign currency exchange losses caused by a
weaker U.S. dollar. Foreign currency losses totaled $20 million for
first-quarter 2008, compared with minimal foreign currency exchange gains for
first-quarter 2007.
Provision
for Income Taxes
Our
first-quarter 2008 income tax provision from continuing operations resulted from
taxes on international operations ($579 million) and U.S. taxes ($150 million).
The difference between FCX’s consolidated effective income tax rate of
approximately 33 percent for first-quarter 2008 and the U.S. federal statutory
rate of 35 percent primarily was attributable to a U.S. benefit for percentage
depletion and an international tax rate differential, partly offset by
withholding taxes on earnings from our Indonesia and South America mining
operations and a U.S. foreign tax credit limitation.
Our
first-quarter 2007 income tax provision from continuing operations resulted from
taxes on earnings at international operations ($504 million), partly offset by a
tax benefit from losses in the U.S. ($46 million). The
first-quarter
2007 income tax provision primarily related to the operations of PT Freeport
Indonesia, and also included $31 million associated with Phelps Dodge’s earnings
for the 12-day period ended March 31, 2007. The difference between FCX’s
consolidated effective income tax rate of approximately 43 percent for
first-quarter 2007 and the U.S. federal statutory rate of 35 percent primarily
was attributable to withholding taxes incurred in connection with earnings from
Indonesia mining operations.
A summary
of the approximate amounts in the calculation of our consolidated provision for
income taxes for first-quarter 2008 and 2007 follows (in millions, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First-Quarter
2008
|
|
First-Quarter
2007
|
|
|
|
|
|
|
|
Effective
|
|
Provision
for
|
|
|
|
|
|
Effective
|
|
Provision
for
|
|
|
|
Incomea
|
|
|
Tax
Rate
|
|
Income
Tax
|
|
Incomea
|
|
|
Tax
Rate
|
|
Income
Tax
|
|
U.S.
|
|
$
|
978
|
|
|
23%
|
|
$
|
228
|
|
$
|
(76
|
)
|
|
32%
|
|
$
|
(25
|
)
|
South
America
|
|
|
1,118
|
|
|
33%
|
|
|
365
|
|
|
187
|
|
|
34%
|
|
|
65
|
|
Indonesia
|
|
|
577
|
|
|
42%
|
|
|
239
|
|
|
1,086
|
|
|
43%
|
|
|
462
|
|
Eliminations
and other
|
|
|
(145
|
)
|
|
N/A
|
|
|
(3
|
)
|
|
(13
|
)
|
|
N/A
|
|
|
1
|
|
Purchase
accounting adjustments
|
|
|
(294
|
)
|
|
37%
|
|
|
(110
|
)
|
|
(124
|
)
|
|
37%
|
|
|
(45
|
)
|
Annualized
rate adjustmentb
|
|
|
N/A
|
|
|
N/A
|
|
|
10
|
|
|
N/A
|
|
|
N/A
|
|
|
–
|
|
Consolidated
FCX
|
|
$
|
2,234
|
|
|
33%
|
|
$
|
729
|
|
$
|
1,060
|
|
|
43%
|
|
$
|
458
|
|
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,” we adjust our interim
provision for income taxes to equal our estimated annualized tax
rate.
|
Minority
Interests in Net Income of Consolidated Subsidiaries
Minority
interests in net income of consolidated subsidiaries for first-quarter 2008 was
$205 million higher than first-quarter 2007 because of higher minority interests
associated with our South America mining operations reflecting a full three
months of Phelps Dodge operations, compared with only 12 days for first-quarter
2007. Greater minority interest shares in our South America mining operations’
net income were partly offset by a lower minority interest share of PT Freeport
Indonesia net income because of lower earnings in first-quarter
2008.
MINING
OPERATIONS
North
America Mining
Our North
America mining operations include 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. We
have six operating copper mines in North America – Morenci, Bagdad, Sierrita,
Safford, Chino and Tyrone, and one operating molybdenum mine –
Henderson.
The North
America mining division includes the Morenci copper mine, Rod & Refining
operations and Molybdenum operations as reportable segments. Following is
further discussion of these reportable segments, as well as other operations
included in the North America mining division.
Morenci. We have an
85 percent undivided interest in the Morenci open-pit mine, located in
southeastern Arizona, which primarily produces copper cathodes and copper
concentrates. In addition to copper, Morenci produces molybdenum concentrates as
a by-product. The concentrate-leach, direct-electrowinning facility at Morenci
is ramping up production following commissioning in third-quarter 2007. The
facility uses FCX’s proprietary medium-temperature, pressure-leaching and
direct-electrowinning technology, which enhances cost savings by processing
concentrates on-site instead of shipping concentrates to smelters for treatment
and by providing acid for leaching operations.
Rod & Refining.
The Rod & Refining segment consists of copper conversion facilities,
including a refinery, rod mills and a specialty copper products facility. This
segment processes copper produced at our North America mines and purchased
copper into copper anode, cathode, rod and custom copper shapes. At times this
segment 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, who pays us for
processing their material into the specified products.
Molybdenum. The
Molybdenum segment includes our wholly owned Henderson molybdenum mine in
Colorado, related conversion facilities and a technology center. The Henderson
underground mine produces high-purity, chemical-grade molybdenum concentrates,
which are typically further processed into value-added molybdenum chemical
products. 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. The Molybdenum segment also includes a sales company
that purchases molybdenum from Henderson and our North America and South America
copper mines and sells it to third parties. 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, who
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
Molybdenum segment also includes our wholly owned Climax molybdenum mine in
Colorado, which has been on care-and-maintenance status since 1995. In December
2007, we announced a project to restart the Climax mine, which is believed to be
the largest, highest-grade and lowest-cost undeveloped molybdenum ore body in
the world (refer to “Development Projects” for further discussion).
Other North America mining
operations. Other North America mining operations include our other
operating southwestern U.S. copper mines – Bagdad, Sierrita, Safford, Chino and
Tyrone. In addition to copper, the Bagdad, Sierrita and Chino mines produce
molybdenum, gold and silver, and the Sierrita mine also produces rhenium. Other
North America mining operations also include the Miami copper mine, which we are
undertaking a project to restart (refer to “Development Projects” for further
discussion); the Miami smelter, which processes our North America concentrates
and provides a significant source of sulfuric acid for the various North America
leaching operations; and a sales company, which functions as an agent to
purchase and sell copper from the North America mines and from the Rod &
Refining operations and also sells any copper not sold by our South America
mines to third parties.
North
America Mining Revenues. A summary of
changes in revenues at our North America mining operations from first-quarter
2007 to first-quarter 2008 follows (in millions):
First-quarter
2007 North America mining revenues
|
$
|
319
|
|
Sales
volumesa:
|
|
|
|
Copper
|
|
896
|
|
Molybdenum
|
|
437
|
|
Price
realizations:
|
|
|
|
Copper
|
|
224
|
|
Molybdenum
|
|
172
|
|
Purchased
copper and molybdenum
|
|
1,125
|
b
|
Impact
of the 2007 copper price protection program
|
|
38
|
|
Other
|
|
62
|
|
First-quarter
2008 North America mining revenues
|
$
|
3,273
|
|
a.
|
The
significant increase in sales volumes reflects a full three months of
sales for first-quarter 2008, compared with only 12 days in first-quarter
2007.
|
b.
|
Includes
a change of $505 million related to revenues associated with purchases of
copper and molybdenum from our South America mines, which is sold to third
parties by our North America copper and molybdenum sales
companies.
|
North
America Mining Operating Results. The following
discussion of our North America mining operations covers actual first-quarter
2008 results and pro forma first-quarter 2007 results, which includes the period
prior to our acquisition of these operations:
|
|
First-Quarter
|
|
|
|
2008
|
|
2007
|
|
|
|
(Actual)
|
|
(Pro
Forma)
|
|
Consolidated
Operating Data, Net of Joint Venture Interest
|
|
|
|
|
|
|
|
Copper (millions of
recoverable pounds)
|
|
|
|
|
|
|
|
Production
|
|
|
327
|
|
|
301
|
|
Sales,
excluding purchases
|
|
|
339
|
|
|
307
|
|
Average
realized price per pound
|
|
$
|
3.50
|
|
$
|
2.51
|
a
|
|
|
|
|
|
|
|
|
Molybdenum (millions of
recoverable pounds)
|
|
|
|
|
|
|
|
Production
|
|
|
17
|
|
|
17
|
|
Sales,
excluding purchases
|
|
|
20
|
|
|
19
|
|
Average
realized price per pound
|
|
$
|
31.67
|
|
$
|
23.00
|
|
|
|
|
|
|
|
|
|
100%
Operating Data, Including Joint Venture Interest
|
|
|
|
|
|
|
|
Solution
extraction/electrowinning (SX/EW) operations
|
|
|
|
|
|
|
|
Leach
ore placed in stockpiles (metric tons per day)
|
|
|
1,134,900
|
|
|
677,300
|
|
Average
copper ore grade (percent)
|
|
|
0.19
|
|
|
0.29
|
|
Copper
production (millions of recoverable pounds)
|
|
|
217
|
|
|
228
|
|
|
|
|
|
|
|
|
|
Mill
operations
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
244,000
|
|
|
209,000
|
|
Average
ore grade (percent):
|
|
|
|
|
|
|
|
Copper
|
|
|
0.39
|
|
|
0.31
|
|
Molybdenum
|
|
|
0.02
|
|
|
0.02
|
|
Production
(millions of recoverable pounds):
|
|
|
|
|
|
|
|
Copper
|
|
|
136
|
|
|
101
|
|
Molybdenum
(by-product)
|
|
|
8
|
|
|
7
|
|
|
|
|
|
|
|
|
|
Molybdenum operations
(Henderson)
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
25,000
|
|
|
24,500
|
|
Average
molybdenum ore grade (percent)
|
|
|
0.22
|
|
|
0.22
|
|
Molybdenum
production (millions of recoverable pounds)
|
|
|
9
|
|
|
10
|
|
a.
|
Amount
was $2.70 per pound before charges for mark-to-market accounting
adjustments on the 2007 copper price protection
program.
|
First-Quarter
2008 Compared with Pro Forma First-Quarter 2007. Consolidated copper
sales from North America operations totaled approximately 339 million pounds in
first-quarter 2008, compared with 307 million pounds in first-quarter 2007. The
increase in North America copper sales volumes in first-quarter 2008 primarily
reflects higher copper production from the recently commissioned Safford mine.
Consolidated copper sales volumes from our North America mining operations are
expected to total approximately 1.5 billion pounds in 2008. During first-quarter
2008, average realized copper prices for the North America mining operations
improved by $0.80 per pound to an average of $3.50 per pound, compared with
$2.70 per pound in first-quarter 2007, which excluded the impact of the 2007
copper price protection program.
Consolidated
molybdenum sales volumes increased to approximately 20 million pounds in
first-quarter 2008, compared with 19 million pounds in first-quarter 2007,
reflecting production from the Cerro Verde mill operations in first-quarter
2008, which is sold by our molybdenum sales company. Consolidated molybdenum
sales volumes are expected to approximate 75 million pounds in 2008.
Approximately 85 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.
During first-quarter 2008, average realized molybdenum prices improved by $8.67
per pound to an average of $31.67 per pound, compared with $23.00 per pound in
first-quarter 2007.
Unit Net Cash Costs.
Unit net cash costs per pound of copper and molybdenum are measures 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 the North America copper
mines for first-quarter 2008 and pro forma first-quarter 2007, which includes
the period prior to our acquisition of these operations. Beginning in
first-quarter 2008, we have included the impacts of purchase accounting fair
value adjustments as additional depreciation, depletion and amortization and
noncash and nonrecurring costs. Accordingly, we have revised the first-quarter
2007 pro forma disclosures to conform to the current period presentation.
Henderson, our operating molybdenum mine, is not included in these tables – see
“Henderson Unit Net Cash Costs.” For an explanation of the “by-product” and
“co-product” methods and a reconciliation of unit net cash costs per pound to
production and delivery costs applicable to sales reported in FCX’s consolidated
financial statements for first-quarter 2008 and FCX’s pro forma consolidated
financial results for first-quarter 2007, refer to “Product Revenues and
Production Costs.”
Gross Profit per Pound of
Copper and Molybdenum for North America Copper Mines
Three Months Ended
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
|
Method
|
|
|
Copper
|
|
|
Molybdenum
|
a
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown below
|
$
|
3.50
|
|
$
|
3.50
|
|
$
|
32.75
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash and
|
|
|
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
1.64
|
|
|
1.43
|
|
|
9.75
|
|
By-product
creditsa
|
|
(0.77
|
)
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.09
|
|
|
0.09
|
|
|
–
|
|
Unit
net cash costs
|
|
0.96
|
|
|
1.52
|
|
|
9.75
|
|
Depreciation,
depletion and amortization
|
|
0.53
|
|
|
0.47
|
|
|
2.47
|
|
Noncash
and nonrecurring costs, net
|
|
0.09
|
|
|
0.09
|
|
|
0.11
|
|
Total
unit costs
|
|
1.58
|
|
|
2.08
|
|
|
12.33
|
|
Revenue
adjustments, primarily for pricing on prior period
|
|
|
|
|
|
|
|
|
|
open
sales
|
|
0.13
|
|
|
0.13
|
|
|
–
|
|
Idle
facility and other non-inventoriable costs
|
|
(0.04
|
)
|
|
(0.04
|
)
|
|
(0.02
|
)
|
Gross
profit
|
$
|
2.01
|
|
$
|
1.51
|
|
$
|
20.40
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales (millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
Copper
|
|
337
|
|
|
337
|
|
|
|
|
Molybdenum
|
|
|
|
|
|
|
|
8
|
|
a.
|
Molybdenum
by-product credits and revenues reflect volumes produced at market-based
pricing and also include tolling revenues at
Sierrita.
|
Three Months Ended
March 31, 2007 (Pro Forma)
|
|
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
|
Method
|
|
|
Copper
|
|
|
Molybdenum
|
a
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown below
|
$
|
2.70
|
|
$
|
2.70
|
|
$
|
25.13
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash and
|
|
|
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
1.31
|
|
|
1.15
|
|
|
9.59
|
|
By-product
creditsa
|
|
(0.54
|
)
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.07
|
|
|
0.07
|
|
|
–
|
|
Unit
net cash costs
|
|
0.84
|
|
|
1.22
|
|
|
9.59
|
|
Depreciation,
depletion and amortization
|
|
0.48
|
|
|
0.40
|
|
|
3.33
|
|
Noncash
and nonrecurring costs, net
|
|
1.12
|
|
|
0.93
|
|
|
7.87
|
|
Total
unit costs
|
|
2.44
|
|
|
2.55
|
|
|
20.79
|
|
Revenue
adjustments, primarily for pricing on prior period
|
|
|
|
|
|
|
|
|
|
open
sales and hedging
|
|
0.02
|
|
|
0.02
|
|
|
–
|
|
Idle
facility and other non-inventoriable costs
|
|
(0.03
|
)
|
|
(0.03
|
)
|
|
–
|
|
Gross
profit
|
$
|
0.25
|
|
$
|
0.14
|
|
$
|
4.34
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales (millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
Copper
|
|
301
|
|
|
301
|
|
|
|
|
Molybdenum
|
|
|
|
|
|
|
|
7
|
|
a.
|
Molybdenum
by-product credits and revenues reflect volumes produced at market-based
pricing and also include tolling revenues at
Sierrita.
|
First-Quarter
2008 Compared with Pro Forma First-Quarter 2007. The North America
mining operations have experienced production cost increases in recent years
primarily as a result of higher energy costs and costs of other consumables,
higher mining and milling rates, labor costs and other factors.
First-quarter
2008 unit net cash costs for the North America copper mines were higher,
compared with first-quarter 2007, primarily because of an increase in tons mined
and lower ore grades at Morenci, combined with higher unit net cash costs at
Safford as the mine ramps up to full production rates. Other increases for
first-quarter 2008 related to higher energy and labor costs, partly offset by
higher copper production. Also offsetting these higher costs in the by-product
calculation were higher molybdenum credits in first-quarter 2008 resulting from
higher average molybdenum prices and production.
The North
America copper mines had lower noncash and nonrecurring costs for first-quarter
2008, compared with first quarter 2007, primarily because of higher purchase
accounting impacts in first-quarter 2007 associated with the carrying value of
inventories.
Assuming
average prices of $3.75 per pound of copper and $30 per pound of molybdenum for
the remainder of 2008 and achievement of current sales estimates, we estimate
that the 2008 average unit net cash costs for our North America copper mines,
including molybdenum credits, would approximate $1.14 per pound of
copper.
Henderson Unit Net Cash
Costs. The following table summarizes the unit net cash costs at our
Henderson operation for first-quarter 2008 and pro forma first-quarter 2007,
which includes the period prior to our acquisition of these operations.
Beginning in first-quarter 2008, we have included the impacts of purchase
accounting fair value adjustments as additional depreciation and amortization
and noncash and nonrecurring costs. Accordingly, we have revised the
first-quarter 2007 pro forma disclosures to conform to the current period
presentation. For an explanation of the “by-product” and “co-product” methods
and a reconciliation of unit net cash costs per pound to production and delivery
costs applicable to sales reported in FCX’s consolidated financial statements
for first-quarter 2008 and FCX’s pro forma consolidated financial results for
first-quarter 2007, refer to “Product Revenues and Production
Costs.”
Gross Profit per Pound of
Molybdenum for Henderson Molybdenum Mine
|
|
|
|
|
|
|
|
|
|
First-Quarter
|
|
|
|
2008
|
|
2007
|
|
|
|
(Actual)
|
|
(Pro
Forma)
|
|
|
Revenues
|
$
|
29.45
|
|
$
|
22.17
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
5.10
|
|
|
4.15
|
|
|
Unit
net cash costs
|
|
5.10
|
|
|
4.15
|
|
|
Depreciation,
depletion and amortization
|
|
4.26
|
|
|
3.93
|
|
|
Noncash
and nonrecurring costs, net
|
|
0.10
|
|
|
0.02
|
|
|
Total
unit costs
|
|
9.46
|
|
|
8.10
|
|
|
Gross
profita
|
$
|
19.99
|
|
$
|
14.07
|
|
|
|
|
|
|
|
|
|
|
Consolidated
molybdenum sales (millions of recoverable pounds)
|
|
9
|
|
|
10
|
|
|
a.
|
Gross
profit reflects sales of Henderson products based on volumes produced at
market-based pricing. On a consolidated basis, the Molybdenum segment
includes profits on sales as they are made to third parties and
realizations based on actual contract terms. As a result, the actual gross
profit realized will differ from the amounts reported in this
table.
|
First-Quarter
2008 Compared with Pro Forma First-Quarter 2007. Henderson’s unit net
cash costs per pound of molybdenum for first-quarter 2008 were higher than
first-quarter 2007 primarily because of higher input costs, including labor,
maintenance supplies and energy costs.
Assuming
achievement of current sales estimates, we estimate that the 2008 average unit
net cash costs for Henderson would approximate $4.75 per pound of
molybdenum.
South
America Mining
We have
four operating copper mines in South America – Cerro Verde in Peru, and
Candelaria, Ojos del Salado and El Abra in Chile. These operations include
open-pit and underground mining, sulfide ore concentrating, leaching and
SX/EW.
The South
America mining division includes the Cerro Verde copper mine as a reportable
segment. Following is further discussion of this reportable segment, as well as
other operations included in the South America mining division.
Cerro Verde. We own a
53.56 percent interest in Cerro Verde. The Cerro Verde open-pit mine, located
near Arequipa, Peru, produces copper cathodes and copper concentrates. In
addition to copper, the Cerro Verde mine produces molybdenum concentrates. In
mid-2007, the recently expanded mill at Cerro Verde reached design capacity of
108,000 metric tons of ore per day. The expansion enables Cerro Verde to produce
approximately 650 million pounds of copper per year (approximately 348 million
pounds per year for our share) and approximately 8 million pounds of molybdenum
per year (approximately 4 million pounds per year for our share) for the next
several years.
Cerro
Verde has provided a variety of community support projects over the years.
During 2006, as a result of discussions with local mayors in the Arequipa
region, Cerro Verde agreed to design domestic water and sewage
treatment
plants for the benefit of the region. These facilities are being designed in a
modular fashion so that initial installations can be readily expanded in the
future. The cost associated with the construction of these facilities, which
will be split equally between Cerro Verde and local municipalities, is currently
under review.
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 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. During
third-quarter 2007, the agreement with the government was modified to exclude
this credit. The first-quarter 2008 includes a $14 million charge to production
and delivery costs for local mining fund contributions. At March 31, 2008, Cerro
Verde’s liability associated with the local mining fund contributions totaled
$62 million, which is recorded as a current liability in our consolidated
balance sheets.
Other South America Mining
Operations. Other South America
mining operations include our Chilean copper mines – Candelaria, Ojos del Salado
and El Abra – which include open-pit and underground mining, sulfide ore
concentrating, leaching and SX/EW operations. In addition to copper, the
Candelaria and Ojos del Salado mines produce gold and silver. We own an 80
percent interest in both the Candelaria and Ojos del Salado mines, and own a 51
percent interest in the El Abra mine.
El Abra
has a labor agreement covering certain of its employees, which expires October
2008. In late April 2008, El Abra and its workers successfully negotiated a new
four-year agreement, effective August 1, 2008. The new agreement provides for an
increase in base wages, bonuses and an employee loan program. The estimated cost
of the increased wages and bonuses over the four year term is approximately $40
million.
South
America Mining Revenues. A summary of
changes in revenues at our South America mining operations from first-quarter
2007 to first-quarter 2008 follows (in millions):
First-quarter
2007 South America mining revenues
|
$
|
262
|
|
Sales
volumesa:
|
|
|
|
Copper
|
|
880
|
|
Gold
|
|
13
|
|
Price
realizations:
|
|
|
|
Copper
|
|
253
|
|
Gold
|
|
7
|
|
Adjustments,
primarily for copper pricing on prior year open sales
|
|
190
|
|
Treatment
charges and other
|
|
(12
|
)
|
First-quarter
2008 South America mining revenues
|
$
|
1,593
|
|
a.
|
The
significant increase in sales volumes reflects a full three months of
sales for first-quarter 2008, compared with only 12 days in first-quarter
2007.
|
South
America Mining Operating Results. The following
discussion of our South America mining operations covers actual first-quarter
2008 results and pro forma first-quarter 2007 results, which includes the period
prior to our acquisition of these operations:
|
|
First-Quarter
|
|
|
|
2008
|
|
2007
|
|
|
|
(Actual)
|
|
(Pro
Forma)
|
|
Copper (millions of
recoverable pounds)
|
|
|
|
|
|
|
|
Production
|
|
|
353
|
|
|
307
|
|
Sales
|
|
|
365
|
|
|
301
|
|
Average
realized price per pound
|
|
$
|
3.78
|
|
$
|
2.73
|
|
|
|
|
|
|
|
|
|
Gold (thousands of
recoverable ounces)
|
|
|
|
|
|
|
|
Production
|
|
|
26
|
|
|
24
|
|
Sales
|
|
|
27
|
|
|
25
|
|
Average
realized price per ounce
|
|
$
|
936.08
|
|
$
|
538.12
|
|
|
|
|
|
|
|
|
|
Molybdenum (millions of
recoverable pounds)
|
|
|
|
|
|
|
|
Production
|
|
|
1
|
|
|
–
|
|
|
|
|
|
|
|
|
|
SX/EW
operations
|
|
|
|
|
|
|
|
Leach
ore placed in stockpiles (metric tons per day)
|
|
|
274,100
|
|
|
276,000
|
|
Average
copper ore grade (percent)
|
|
|
0.39
|
|
|
0.39
|
|
Copper
production (millions of recoverable pounds)
|
|
|
135
|
|
|
149
|
|
|
|
|
|
|
|
|
|
Mill
operations
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
170,700
|
|
|
141,300
|
|
Average
copper ore grade (percent):
|
|
|
|
|
|
|
|
Copper
|
|
|
0.74
|
|
|
0.66
|
|
Molybdenum
|
|
|
0.02
|
|
|
N/A
|
|
Production
(millions of recoverable pounds):
|
|
|
|
|
|
|
|
Copper
|
|
|
218
|
|
|
158
|
|
Molybdenum
|
|
|
1
|
|
|
–
|
|
First-Quarter
2008 Compared with Pro Forma First-Quarter 2007. Consolidated copper
sales from South America operations increased to approximately 365 million
pounds in first-quarter 2008, compared with 301 million pounds in first-quarter
2007, primarily reflecting higher production from the Cerro Verde concentrator,
which reached design capacity in mid-2007. Consolidated copper sales volumes
from our South America mining operations are expected to approximate 1.5 billion
pounds in 2008. During first-quarter 2008, average realized copper prices for
the South America mining operations improved by $1.05 per pound to an average of
$3.78 per pound, compared with $2.73 per pound in first-quarter
2007.
Unit Net Cash Costs.
Unit net cash costs per pound of copper 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 the South America copper
mines for first-quarter 2008 and pro forma first-quarter 2007, which includes
the period prior to our acquisition of these operations. The below tables
reflect unit net cash costs per pound of copper under the by-product and
co-product methods as the South America mines also had small amounts of gold and
silver sales. Additionally, beginning in first-quarter 2008 we have included the
impacts of purchase accounting fair value adjustments as additional
depreciation, depletion and amortization, and noncash and nonrecurring costs.
Accordingly, we have revised the first-quarter 2007 pro forma disclosures to
conform to the current period presentation. For an explanation of the
“by-product”
and
“co-product” methods and a reconciliation of unit net cash costs per pound to
production and delivery costs applicable to sales reported in FCX’s consolidated
financial statements for first-quarter 2008 and FCX’s pro forma consolidated
financial results for first-quarter 2007, refer to “Product Revenues and
Production Costs.”
Gross Profit per Pound of
Copper for South America Copper Mines
Three Months Ended
March 31, 2008
|
|
|
|
|
|
By-Product
|
|
Co-Product
|
|
|
Method
|
|
Method
|
|
Revenues,
after adjustments shown below
|
$
|
3.78
|
|
$
|
3.78
|
|
Site
production and delivery, before net noncash and
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
1.08
|
|
|
1.05
|
|
By-product
credits
|
|
(0.14
|
)
|
|
–
|
|
Treatment
charges
|
|
0.21
|
|
|
0.21
|
|
Unit
net cash costs
|
|
1.15
|
|
|
1.26
|
|
Depreciation,
depletion and amortization
|
|
0.35
|
|
|
0.34
|
|
Noncash
and nonrecurring costs, net
|
|
0.07
|
|
|
0.07
|
|
Total
unit costs
|
|
1.57
|
|
|
1.67
|
|
Revenue
adjustments, primarily for pricing on prior period
|
|
|
|
|
|
|
open
sales
|
|
0.63
|
|
|
0.63
|
|
Other
non-inventoriable costs
|
|
(0.02
|
)
|
|
(0.01
|
)
|
Gross
profit
|
$
|
2.82
|
|
$
|
2.73
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
Copper
(millions of recoverable pounds)
|
|
365
|
|
|
365
|
|
Three Months Ended
March 31, 2007 (Pro Forma)
|
|
|
|
|
|
By-Product
|
|
Co-Product
|
|
|
Method
|
|
Method
|
|
Revenues,
after adjustments shown below
|
$
|
2.73
|
|
$
|
2.73
|
|
Site
production and delivery, before net noncash and
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
0.84
|
|
|
0.81
|
|
By-product
credits
|
|
(0.08
|
)
|
|
–
|
|
Treatment
charges
|
|
0.18
|
|
|
0.18
|
|
Unit
net cash costs
|
|
0.94
|
|
|
0.99
|
|
Depreciation,
depletion and amortization
|
|
0.32
|
|
|
0.31
|
|
Noncash
and nonrecurring costs, net
|
|
0.54
|
|
|
0.52
|
|
Total
unit costs
|
|
1.80
|
|
|
1.82
|
|
Revenue
adjustments, primarily for pricing on prior period
|
|
|
|
|
|
|
open
sales
|
|
0.20
|
|
|
0.20
|
|
Other
non-inventoriable costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
Gross
profit
|
$
|
1.11
|
|
$
|
1.09
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
Copper
(millions of recoverable pounds)
|
|
301
|
|
|
301
|
|
First-Quarter
2008 Compared with Pro Forma First-Quarter 2007. Because of the fixed
nature of a large portion of our South America mining costs, unit costs vary
significantly from period to period depending on volumes of copper sold during
the period. The South America mining operations have also experienced production
cost increases 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.
South
America unit net cash costs were higher in first-quarter 2008, compared with
first-quarter 2007, reflecting higher energy costs at all sites and higher
profit sharing and contributions at Cerro Verde. Other first-quarter 2008
increases at our South America mining operations included higher crushing and
milling costs at Cerro Verde and Candelaria. Offsetting these factors in the
by-product calculation were higher by-product credits reflecting higher average
gold prices and first-quarter 2008 molybdenum production at Cerro
Verde.
South
America mining operations had lower noncash and nonrecurring costs for
first-quarter 2008, compared with first quarter 2007, primarily because of
higher purchase accounting impacts in first-quarter 2007 associated with the
carrying value of inventories.
Assuming
average prices of $3.75 per pound of copper for the remainder of 2008 and
achievement of current sales estimates, we estimate that 2008 average unit net
cash costs for our South America mines, including gold and molybdenum credits,
would approximate $1.07 per pound of copper.
Indonesia
Mining
We own
90.64 percent of PT Freeport Indonesia, including 9.36 percent owned through our
wholly owned subsidiary, PT Indocopper Investama. The Government of Indonesia
owns the remaining 9.36 percent of PT Freeport Indonesia. 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 agreed, at that time, 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.
Joint
Ventures with Rio Tinto plc (Rio Tinto). In 1996, we established joint
ventures with 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. All of PT Freeport Indonesia’s current mining
operations and reserves are in Block A.
Operating,
nonexpansion capital and administrative costs are shared proportionately between
PT Freeport Indonesia and Rio Tinto based on the ratio of the incremental
revenues from production from our expansion completed in 1998 to 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.
Indonesia
Mining Revenues. A summary of
changes in PT Freeport Indonesia’s revenues from first-quarter 2007 to
first-quarter 2008 follows (in millions):
First-quarter
2007 PT Freeport Indonesia revenues
|
$
|
1,709
|
|
Sales
volumes:
|
|
|
|
Copper
|
|
(649
|
)
|
Gold
|
|
(456
|
)
|
Price
realizations:
|
|
|
|
Copper
|
|
151
|
|
Gold
|
|
70
|
|
Adjustments,
primarily for copper pricing on prior year open sales
|
|
112
|
|
Treatment
charges, royalties and other
|
|
115
|
|
First-quarter
2008 PT Freeport Indonesia revenues
|
$
|
1,052
|
|
|
|
|
|
Indonesia
Mining Operating Results. The following
discussion of our Indonesia mining operations covers first-quarter 2008 and
2007:
|
|
First-Quarter
|
|
|
|
2008
|
|
2007
|
|
Consolidated
Operating Data, Net of Joint Venture Interest
|
|
|
|
|
|
|
|
Copper (millions of
recoverable pounds)
|
|
|
|
|
|
|
|
Production
|
|
|
200
|
|
|
468
|
|
Sales
|
|
|
207
|
|
|
417
|
|
Average
realized price per pound
|
|
$
|
3.82
|
|
$
|
3.09
|
|
|
|
|
|
|
|
|
|
Gold (thousands of
recoverable ounces)
|
|
|
|
|
|
|
|
Production
|
|
|
246
|
|
|
1,074
|
|
Sales
|
|
|
251
|
|
|
947
|
|
Average
realized price per ounce
|
|
$
|
931.71
|
|
$
|
654.79
|
|
|
|
|
|
|
|
|
|
100%
Operating Data, Including Joint Venture Interest
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day):
|
|
|
|
|
|
|
|
Grasberg
open pita
|
|
|
118,600
|
|
|
179,300
|
|
Deep
Ore Zone (DOZ) underground minea
|
|
|
61,200
|
|
|
49,200
|
|
Total
|
|
|
179,800
|
|
|
228,500
|
|
Average
ore grade:
|
|
|
|
|
|
|
|
Copper
(percent)
|
|
|
0.70
|
|
|
1.21
|
|
Gold
(grams per metric ton)
|
|
|
0.61
|
|
|
2.01
|
|
Recovery
rates (percent):
|
|
|
|
|
|
|
|
Copper
|
|
|
89.7
|
|
|
91.0
|
|
Gold
|
|
|
79.0
|
|
|
87.8
|
|
Production
(recoverable):
|
|
|
|
|
|
|
|
Copper
(millions of pounds)
|
|
|
214
|
|
|
480
|
|
Gold
(thousands of ounces)
|
|
|
246
|
|
|
1,146
|
|
a.
|
Amounts
represent the approximate average daily throughput processed at PT
Freeport Indonesia’s mill facilities from each producing
mine.
|
First-Quarter
2008 Compared with First-Quarter 2007. PT Freeport Indonesia’s share of
sales totaled 207 million pounds of copper and 251 thousand ounces of gold for
first-quarter 2008, compared with 417 million pounds of copper and 947 thousand
ounces of gold for first-quarter 2007. 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.
Copper and gold sales volumes for first-quarter 2008 decreased, compared to
first-quarter 2007, as a result of mining in a lower ore grade section of the
Grasberg open pit. PT Freeport Indonesia expects to continue mining in a
relatively low-grade section of the Grasberg open pit in second-quarter 2008 and
a higher-grade section in the second half of 2008, with approximately 64 percent
of its projected copper sales and 65 percent of its projected gold sales
expected in the second half of 2008. Total consolidated sales from PT Freeport
Indonesia for 2008 are expected to approximate 1.2 billion pounds of copper and
1.3 million ounces of gold.
During
first-quarter 2008, realized copper prices at PT Freeport Indonesia improved by
$0.73 per pound to an average of $3.82 per pound, compared with $3.09 per pound
in first-quarter 2007. Additionally, realized gold prices improved by $276.92
per ounce in first-quarter 2008 to an average of $931.71 per ounce, compared
with $654.79 per ounce in first-quarter 2007.
Treatment
charges vary with the volume of metals sold and the price of copper, and
royalties vary with the volume of metals sold and the prices of copper and gold.
Royalties decreased to $25 million in first-quarter 2008, compared with $50
million in first-quarter 2007, primarily reflecting lower copper and gold sales
volumes; partly offset by higher metal prices. Assuming average prices of $3.75
per pound of copper and $900 per ounce of gold for the remainder of 2008 and
achievement of current sales estimates for PT Freeport Indonesia, royalty costs
would total approximately $154 million ($0.13 per pound of copper) in
2008.
Unit Net Cash Costs.
Unit net cash costs per pound of copper 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 Indonesia mining
operations for the three months ended March 31, 2008 and 2007. For an
explanation of “by-product” and “co-product” methods and 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 “Production
Revenues and Production Costs.”
Gross Profit per Pound of
Copper/per Ounce of Gold for PT Freeport Indonesia
Three Months Ended
March 31, 2008
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Revenues,
after adjustments shown below
|
$
|
3.82
|
|
$
|
3.82
|
|
$
|
931.71
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash and
|
|
|
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
1.86
|
|
|
1.41
|
|
|
349.08
|
|
Gold
and silver credits
|
|
(1.23
|
)
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.33
|
|
|
0.25
|
|
|
61.71
|
|
Royalty
on metals
|
|
0.12
|
|
|
0.09
|
|
|
22.69
|
|
Unit
net cash costs
|
|
1.08
|
|
|
1.75
|
|
|
433.48
|
|
Depreciation
and amortization
|
|
0.22
|
|
|
0.17
|
|
|
40.82
|
|
Noncash
and nonrecurring costs, net
|
|
0.07
|
|
|
0.05
|
|
|
12.76
|
|
Total
unit costs
|
|
1.37
|
|
|
1.97
|
|
|
487.06
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
0.48
|
|
|
0.48
|
|
|
27.32
|
|
PT
Smelting intercompany profit elimination
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(4.27
|
)
|
Gross
profit
|
$
|
2.91
|
|
$
|
2.31
|
|
$
|
467.70
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
Copper
(millions of recoverable pounds)
|
|
207
|
|
|
207
|
|
|
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
251
|
|
Three Months Ended
March 31, 2007
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Revenues,
after adjustments shown below
|
$
|
3.09
|
|
$
|
3.09
|
|
$
|
654.79
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash and
|
|
|
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
0.75
|
|
|
0.50
|
|
|
106.26
|
|
Gold
and silver credits
|
|
(1.54
|
)
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.37
|
|
|
0.25
|
|
|
51.94
|
|
Royalty
on metals
|
|
0.12
|
|
|
0.08
|
|
|
16.86
|
|
Unit
net cash costs (credits)
|
|
(0.30
|
)
|
|
0.83
|
|
|
175.06
|
|
Depreciation
and amortization
|
|
0.14
|
|
|
0.10
|
|
|
20.05
|
|
Noncash
and nonrecurring costs, net
|
|
0.02
|
|
|
0.01
|
|
|
2.99
|
|
Total
unit costs (credits)
|
|
(0.14
|
)
|
|
0.94
|
|
|
198.10
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
(0.04
|
)
|
|
(0.04
|
)
|
|
2.72
|
|
PT
Smelting intercompany profit elimination
|
|
(0.09
|
)
|
|
(0.06
|
)
|
|
(12.09
|
)
|
Gross
profit
|
$
|
3.10
|
|
$
|
2.05
|
|
$
|
447.32
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
Copper
(millions of recoverable pounds)
|
|
417
|
|
|
417
|
|
|
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
947
|
|
First-Quarter
2008 Compared with First-Quarter 2007. 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. PT Freeport Indonesia has also experienced significant increases in
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.
PT
Freeport Indonesia’s higher unit net cash costs in first-quarter 2008, compared
with first-quarter 2007, primarily reflected lower copper and gold sales volumes
resulting from mine sequencing, attributable to mining in a lower ore grade
section of the Grasberg open pit during first-quarter 2008. Partly offsetting
lower volumes in the by-product calculation were higher average realized gold
prices, which benefited gold credits in first-quarter 2008.
Unit
treatment charges vary with the price of copper, and unit royalty costs vary
with prices of copper and gold. Market rates for treatment charges have
decreased since 2006 and will vary based on PT Freeport Indonesia’s customer
mix.
Because
certain assets are depreciated on a straight-line basis, PT Freeport Indonesia’s
unit depreciation rate varies with the level of copper production and sales.
Accordingly, PT Freeport Indonesia’s unit depreciation rate increased in
first-quarter 2008, compared with first-quarter 2007, resulting from lower
first-quarter 2008 copper volumes.
Assuming
average copper prices of $3.75 per pound and average gold prices of $900 per
ounce for the remainder of 2008 and achievement of current sales estimates, PT
Freeport Indonesia estimates that its annual 2008 unit net cash costs, including
gold and silver credits, would approximate $0.73 per pound, and each $25 per
ounce change in gold prices for the remainder of the year would have an
approximate $0.02 per pound impact on PT Freeport Indonesia’s 2008 unit net cash
costs. Because the majority of PT Freeport Indonesia’s costs are fixed, unit
costs vary with volumes sold and the price of gold, and are currently projected
to be higher during 2008 than in 2007 primarily because of lower projected gold
sales volumes.
DEVELOPMENT
PROJECTS
We have
significant development activities recently completed or under way to expand our
production volumes, extend our mine lives and develop large-scale underground
ore bodies. Capital costs have continued to be affected by the prices of input
costs, including equipment, materials and supplies and labor. We will continue
to review and update our capital cost estimates for major development projects
as engineering and construction activities progress. Following is further
discussion of our major development projects.
Safford. Construction of a major
new copper mine in Safford, Arizona, is complete and the mine is ramping up to
design capacity of 240 million pounds per year. During first-quarter 2008,
Safford produced over 20 million pounds of copper and is expected to reach
design capacity in the second half of 2008. The Safford copper mine will produce
ore from two open-pit mines and includes a SX/EW facility. The total capital
investment for this project approximated $675 million. We are continuing to
pursue additional exploration and development potential in this district,
including the Lone Star project, a potentially large mineral resource that is
currently being evaluated with a drilling program.
Climax.
In December 2007, our Board of Directors approved the restart of the Climax
molybdenum mine near Leadville, Colorado. The Climax mine, which has been on
care-and-maintenance status since 1995, is believed to be the largest,
highest-grade and lowest-cost undeveloped molybdenum ore body in the world. The
initial $500 million project involves the restart of open-pit mining and the
construction of new milling facilities. A new air permit was received from the
state of Colorado in March 2008. Engineering is in progress and construction
activities are scheduled to commence in second-quarter 2008.
Annual
production is expected to approximate 30 million pounds of molybdenum beginning
in 2010. The project is designed to enable the consideration of a further
large-scale expansion of the Climax mine. We continue to evaluate a second phase
of the Climax project, which could potentially double future annual molybdenum
production to approximately 60 million pounds.
We also
plan to increase our annual molybdenum processing capacity by 20 million pounds
through the conversion of our copper concentrate leach facility at Bagdad,
Arizona, to a molybdenum concentrate leach facility by 2010.
Miami.
We are pursuing a project to restart the Miami copper mine in Arizona as we
continue to conduct reclamation activities associated with historical mining
operations. We expect full rates of production of approximately 100 million
pounds of copper per year by 2010, and an approximate five-year mine life. The
capital investment for this project is expected to total approximately $100
million, primarily for mining equipment.
El
Abra. We
are advancing the development of a large sulfide deposit at El Abra that will
extend the mine life by over 10 years. Initial production from the sulfides is
targeted to begin in 2010 and is expected to average approximately 325 million
pounds of copper per year beginning in 2012, replacing depleting oxide
production. Existing facilities at El Abra will be used to process the
additional sulfide reserves. We estimate total capital for this project to
approximate $450 million. In March 2008, we received approval of the
environmental impact study associated with this project.
Incremental
Expansions. As an initial step in evaluating our potential for expansion
opportunities associated with existing ore bodies, we are developing projects
for incremental expansions at the Morenci, Sierrita and Bagdad mines in Arizona
and the Cerro Verde mine in Peru. Based on scoping level estimates, these
projects are expected to provide incremental production ramping up to over 200
million pounds of copper and 7 million pounds of molybdenum by 2011, with
preliminary capital cost estimates of approximately $400 million. Detailed
engineering for these projects is under way, which is expected to result in
revised capital estimates and potential project scope changes.
DOZ
Expansion. In mid-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.
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. We
believe that 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 underground ore
bodies.
Grasberg
Block Cave (and associated Common Infrastructure). In 2004, PT Freeport
Indonesia commenced its Common Infrastructure project to 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. We are completing the feasibility study for the
development of the Grasberg block cave, which accounts for over one-third of our
reserves in Indonesia, and expect to initiate multi-year mine development
activities during 2008. Aggregate mine development capital for the Grasberg
block cave (and associated Common Infrastructure) is expected to approximate
$3.1 billion to be incurred between 2008 and 2021, with PT Freeport Indonesia’s
share totaling approximately $2.8 billion. Industry-wide increases in
construction, labor and equipment costs have resulted in higher development cost
estimates. Our underground operations
in Indonesia are more sensitive to changes in labor costs than our open-pit and
process operations. We will continue to pursue productivity initiatives to
mitigate the impact of increased labor costs.
Big
Gossan. 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 2011 (average annual aggregate incremental production of 125
million pounds of copper and 65,000 ounces of gold, with PT Freeport Indonesia
receiving 60 percent of these amounts). The total capital investment for this
project is currently estimated at approximately $480 million. Capital
expenditures incurred to date on this project total $224 million ($206 million
for PT Freeport Indonesia’s share).
Tenke
Fungurume. We hold an
effective 57.75 percent interest in the Tenke Fungurume copper and cobalt mining
concessions in the Katanga province of the DRC and are the operator of the
project. The initial project at Tenke Fungurume is based on initial ore reserve
estimates of approximately 100 million metric tons with ore grades of 2.3
percent copper and 0.3 percent cobalt. We are currently engaged in drilling
activities, exploration and metallurgical testing to evaluate the potential of
this highly prospective district, and expect that the results of drilling
activities will significantly increase ore reserves over time. We are
responsible for funding 70 percent of project development costs and for
financing our partner’s share of certain project overruns.
Construction
activities are being advanced with over 2,200 construction personnel onsite.
Current activities are focused on concrete placement, steel tank erection,
structural steel and infrastructure development, including shops, warehouses and
extensive social and regional infrastructure programs. All long lead-time
equipment has been ordered and initial production is targeted during the second
half of 2009, with average annual production of approximately 250 million pounds
of copper and approximately 18 million pounds of cobalt. We expect the results
of current drilling activities will enable significant future expansion of the
initial production.
Capital
expenditures incurred to date on this project total approximately $475 million.
Capital cost estimates for the project were previously estimated to be $900
million (approximately $1 billion including loans to a third party for the
refurbishment of provincial power facilities). A capital cost review prepared in
April 2008 indicates estimated capital costs of approximately $1.75 billion for
this project (approximately $1.9 billion including loans to a third party for
power development). These revised estimates include substantial amounts for
infrastructure to support a larger-scale operation than the initial phase of the
project, including the provision for expanded electrical power-generating
capacity and improved power reliability for the region. The regional power
infrastructure investment is now estimated to approximate $175 million, the
majority of which is expected to be funded through a loan to the DRC power
authority. The current estimates also include expanded housing and support
facilities for the project work force; enhancements to national roads and
bridges; and also reflect the industry-wide escalation in construction costs and
the incremental costs for project development in Central Africa where
infrastructure and logistics are challenging in developing a greenfield project.
We continue to review these costs with our partners and will strive to enhance
the economic returns of the project while progressing with plans to develop
infrastructure in areas that will enable rapid expansion of this high-potential
resource. We will continue to review and, as necessary, update our capital cost
estimate as construction activities progress.
In
February 2008, we received a letter from the Ministry of Mines, Government of
the DRC, seeking our comment on proposed material modifications to our mining
contract for the Tenke Fungurume concession, including the amount of transfer
payments payable to the government, the government’s percentage ownership and
involvement in the management of the mine, regularization of certain matters
under Congolese law and the implementation of social plans. Our mining contract
was negotiated transparently and approved by the Government of the DRC following
extended negotiations, and we believe it complies with Congolese law and is
enforceable without modifications. We are currently working cooperatively with
the government to resolve these matters while continuing with our project
development activities.
EXPLORATION
ACTIVITIES
We are
conducting exploration activities near our existing mines and in other high
potential areas around the world. Aggregate exploration expenditures are
expected to approximate $180 million for the full year 2008.
Our
exploration efforts in North America include drilling of the Lone Star deposit
located approximately four miles from the Safford mine, as well as targets in
the Morenci and Bagdad districts, and 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 and on the
potential to add additional oxide reserves in the near term.
PT
Freeport Indonesia’s exploration efforts in Indonesia include testing extensions
of the Grasberg underground and Kucing Liar mine complex and evaluating 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).
The
number of drill rigs operating on these and other programs near FCX’s mine sites
increased from 26 at the end of March 2007 to 80 currently.
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.
Additionally, during first-quarter 2008 certain of our South America mining
operations began selling a portion of their concentrate and cathode inventories
to Atlantic Copper. Treatment charges for smelting and refining copper
concentrates represent a cost to PT Freeport Indonesia and our South America
mining operations 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 America mining operations are not
significantly affected by changes in treatment and refining charges because
these operations are fully integrated.
Atlantic
Copper has a labor contract covering certain employees, which expired in
December 2007. The contract has been provisionally extended and a further
extension is currently being negotiated.
The
following discussion of Atlantic Copper’s operations covers the first quarters
of 2008 and 2007:
|
|
First-Quarter
|
|
|
|
2008
|
|
2007
|
|
Gross
profit (in millions)
|
|
$
|
5
|
|
$
|
17
|
|
Add
depreciation and amortization expense (in millions)
|
|
|
9
|
|
|
10
|
|
Cash
margin (in millions)
|
|
$
|
14
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) (in millions)
|
|
$
|
(3
|
)
|
$
|
13
|
|
Concentrate
and scrap treated (thousands of metric tons)
|
|
|
261
|
|
|
243
|
|
Anodes
production (millions of pounds)
|
|
|
142
|
|
|
149
|
|
Treatment
rates per pound
|
|
$
|
0.24
|
|
$
|
0.35
|
|
Cathodes
sales (millions of pounds)
|
|
|
142
|
|
|
135
|
|
Gold
sales in anodes and slimes (thousands of ounces)
|
|
|
110
|
|
|
114
|
|
|
|
|
|
|
|
|
|
First-Quarter
2008 Compared with First-Quarter 2007. Atlantic Copper’s operating cash
margin was $14 million in first-quarter 2008, compared with $27 million in
first-quarter 2007, and operating losses totaled $3 million in first-quarter
2008, compared with operating income of $13 million in first-quarter 2007. The
reduction in Atlantic Copper’s cash margin and operating income for
first-quarter 2008, compared with first-quarter 2007, reflected lower treatment
rates and higher operating costs primarily resulting from a stronger euro and
increased energy costs.
Atlantic
Copper’s treatment charges, including price participation, which are what PT
Freeport Indonesia, our South America mines and third parties pay Atlantic
Copper to smelt and refine concentrates, averaged $0.24 per pound in
first-quarter 2008, compared with $0.35 per pound in first-quarter 2007. Market
treatment rates have been volatile in recent years. Rates began declining in
2006 as a result of limited concentrate availability, and this has continued
into 2008. Assuming average copper prices of $3.75 per pound for the remainder
of 2008, we expect these rates to average approximately $0.19 per pound in
2008.
We defer
recognizing profits on PT Freeport Indonesia’s and our South America mines’
sales to Atlantic Copper and on 25 percent of PT Freeport Indonesia’s sales to
PT Smelting until final sales to third parties occur. Changes in these net
deferrals resulted in additions to net income totaling $6 million or $0.01 per
share in first-quarter 2008, compared with reductions to net income totaling
$109 million to net income or $0.45 per share in first-quarter 2007. At March
31, 2008, our net deferred profits on inventories at Atlantic Copper and PT
Smelting to be recognized in future periods’ net income after taxes and minority
interests totaled $87 million. Assuming average copper prices of $3.75 per pound
and gold prices of $900 per ounce for the remainder of 2008 and current shipping
schedules, we estimate the net change in deferred profits on intercompany sales
would not have a significant impact on second-quarter 2008 net income. 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.
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, during 2008
we expect to generate cash flows greater than our budgeted capital expenditures,
minority interest distributions, dividends and other cash
requirements.
Cash
and Cash Equivalents
At March
31, 2008, we had consolidated cash and cash equivalents of $1.8 billion. The
following table reflects the U.S. and international components of consolidated
cash and cash equivalents at March 31, 2008, and December 31, 2007 (in
billions):
|
March
31,
|
|
December
31,
|
|
|
2008
|
|
2007
|
|
Cash
at parent companya
|
$
|
0.3
|
|
$
|
0.3
|
|
Cash
from international operations
|
|
1.5
|
|
|
1.3
|
|
Total
consolidated cash and cash equivalents
|
|
1.8
|
|
|
1.6
|
|
Less:
minority interests’ share
|
|
(0.5
|
)
|
|
(0.3
|
)
|
Cash,
net of minority interests’ share
|
|
1.3
|
|
|
1.3
|
|
Withholding
and other taxes if distributedb
|
|
(0.2
|
)
|
|
(0.2
|
)
|
Net
cash available to FCX
|
$
|
1.1
|
|
$
|
1.1
|
|
a.
|
Includes
cash at our North America mining
operations.
|
b.
|
Cash
at our international operations is subject to foreign withholding taxes of
up to 22 percent upon repatriation into the
U.S.
|
Operating
Activities
We
generated operating cash flows totaling $615 million for first-quarter 2008, net
of $1.3 billion used for working capital, which included a $598 million payment
made in January 2008 upon the settlement of contracts related to the 2007 copper
price protection program. Operating cash flows for first-quarter 2007 totaled
$669 million, net of $202 million used for working capital. Excluding the $598
million payment made upon the settlement of the contracts related to the copper
price protection program, first-quarter 2008 operating cash flows, which
reflected the benefit of a full three months of operating cash flows from Phelps
Dodge operations, were higher when compared with first-quarter 2007, which only
included 12 days of Phelps Dodge results.
Operating
activities are expected to generate positive cash flows for the foreseeable
future based on anticipated operating results and metal prices. Based on
estimated sales volumes (refer to “Outlook”) and assuming average prices of
$3.75 per pound of copper, $900 per ounce of gold and $30 per pound of
molybdenum for the remainder of 2008, operating cash flows in 2008 would exceed
$6.5 billion, including approximately $6 billion for the remainder of 2008.
Based on these pricing assumptions for the remainder of the year, second-half
2008 operating cash flows would be significantly higher than the first
half.
Investing
Activities
Capital
expenditures, including capitalized interest, totaled $508 million for
first-quarter 2008, compared with $142 million for first-quarter 2007. The
increase in capital expenditures for first-quarter 2008 primarily resulted from
a full three months of capital spending associated with Phelps Dodge operations,
compared with only 12 days in first-quarter 2007. Capital expenditures for
first-quarter 2008 included $143 million associated with the Tenke Fungurume
project in the DRC (refer to “Development Projects” for further
discussion).
Capital
expenditures are expected to approximate $3.0 billion for 2008, including $1.8
billion for major projects. Following is a summary of capital expenditures
(excluding capitalized interest) for first-quarter 2008 and projected capital
expenditures (excluding capitalized interest) for the full year 2008 associated
with major projects (refer to “Development Projects” for further discussion of
these projects) (in millions):
|
First-Quarter
|
|
Full
Year
|
|
|
2008
|
|
2008
|
|
Tenke
Fungurume mine development
|
$
|
127
|
|
$
|
1,000
|
|
Climax
molybdenum mine restart
|
|
5
|
|
|
160
|
|
Incremental
expansions
|
|
21
|
|
|
170
|
|
Big
Gossan mine development
|
|
38
|
|
|
160
|
|
Grasberg
Block Cave/Common Infrastructure
|
|
11
|
|
|
75
|
|
El
Abra sulfide mine
|
|
–
|
|
|
70
|
|
Other
major projects
|
|
48
|
|
|
165
|
|
|
$
|
250
|
|
$
|
1,800
|
|
Capital
costs have been affected by the prices of input costs, including energy,
equipment, materials and supplies, and labor. We will continue to review and
update our capital cost estimates as engineering and construction activities
progress on our major projects.
Financing
Activities
At March
31, 2008, we had $7.6 billion in debt, compared with $7.2 billion at December
31, 2007. During first-quarter 2008, we borrowed under our $1.5 billion
revolving credit facilities to fund significant working capital requirements,
which we expect to repay over the next several months. At March 31, 2008, we had
$296 million of borrowings and $62 million of letters of credit issued,
resulting in total availability of approximately $1.1 billion under the
facilities. Our $1.5 billion revolving credit facilities contain restrictions on
the amount available for dividend payments, purchases of our common stock and
certain debt prepayments. With the repayment of the $10 billion of term loans at
year-end 2007, these restrictions do not apply as long as pro forma availability
under the revolvers plus domestic cash exceeds $750 million. As of March 31,
2008, we had availability under the revolvers plus available domestic cash
totaling approximately $1.6 billion.
During
first-quarter 2008, we purchased in the open market $33 million of our 9.5%
Senior Notes for $46 million.
In April
2008, Standard & Poor’s Rating Services and Fitch Ratings raised our
corporate credit rating and the ratings on our unsecured debt to BBB-
(investment grade). As a result of the upgrade of our unsecured notes to
investment grade, the restricted payment covenants contained in our $6.0 billion
in senior notes used to finance the acquisition of Phelps Dodge and 6⅞% Senior
Notes have been suspended. To the extent the rating is lowered below investment
grade, the covenants would again be effective.
In
December 2007, our Board of Directors approved a new open market share purchase
program for up to 20 million shares. As of April 30, 2008, no shares have been
purchased under this program. The timing of future purchases of our common stock
is dependent on many factors, including the price of our common shares, our
operating results, cash flows and financial position, copper, gold and
molybdenum prices, and general economic and market conditions.
For
first-quarter 2008, common stock dividends paid totaled $169 million. In
December 2007, our Board of Directors increased our annual cash dividend on our
common stock from $1.25 per share to its current rate of $1.75 per share, which
is paid at a quarterly rate of $0.4375 per share. On March 27, 2008, FCX
declared a regular quarterly dividend, which was paid on May 1, 2008, to common
shareholders of record at the close of business on April 15, 2008. 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
and possible payment of additional future supplemental cash dividends will be
dependent upon our financial results, cash requirements, future prospects and
other factors deemed relevant by our Board of Directors. Based on outstanding
common shares on March 31, 2008, our annual common stock dividend totals
approximately $670 million.
For
first-quarter 2008, preferred stock dividends paid totaled $64 million
representing dividends on our 5½% Convertible Perpetual Preferred Stock and 6¾%
Mandatory Convertible Preferred Stock. Annual preferred stock
dividends
on our 5½% Convertible Perpetual Preferred Stock and 6¾% Mandatory Convertible
Preferred Stock total approximately $255 million.
Each
share of our 5½% Convertible Perpetual 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 May 1, 2008, each share of preferred stock
is now convertible into 21.3414 shares of FCX common stock, or an aggregate of
23.5 million shares of FCX common stock. Beginning March 30, 2009, we may redeem
shares of the 5½% Convertible Perpetual Preferred Stock by paying cash, our
common stock or any combination thereof for $1,000 per share plus unpaid
dividends, but only if our common stock has exceeded 130 percent of the
conversion price for at least 20 trading days within a period of 30 consecutive
trading days immediately preceding the notice of redemption. On March 27, 2008,
FCX declared a regular quarterly dividend of $13.75 per share of FCX’s 5½%
Convertible Perpetual Preferred Stock, which was paid on May 1, 2008, to
shareholders of record at the close of business on April 15, 2008.
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 is
adjustable upon the occurrence of certain events, including any quarter that our
common stock dividend exceeds $0.3125 per share. However, adjustments that do
not exceed one percent are carried forward and must be made no later than August
of each year. For this reason, no adjustment was required to be made as a result
of the quarterly common stock dividends paid on February 1, 2008, and May 1,
2008. 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. On March 27, 2008, FCX declared a regular
quarterly dividend of $1.6875 per share of FCX’s 6¾% Mandatory Convertible
Preferred Stock, which was paid on May 1, 2008, to shareholders of record at the
close of business on April 15, 2008.
Cash
dividends paid to minority interests for first-quarter 2008 totaled $49 million
reflecting dividends paid to the minority interest owners of our South America
mines. First-quarter 2007 dividends paid to the minority interest owner of PT
Freeport Indonesia totaled $47 million.
CONTRACTUAL
OBLIGATIONS
Other
than in the ordinary course of business, there have been no material changes in
our contractual obligations since year-end 2007. Refer to Item 7 in our report
on Form 10-K for the year ended December 31, 2007, for further information
regarding our contractual obligations.
ENVIRONMENTAL
AND RECLAMATION MATTERS
Our
mining, exploration, production and historical operating activities are subject
to stringent laws and regulations governing the protection of the environment.
Other than in the ordinary course of business, there have been no material
changes to our environmental and reclamation obligations since year-end 2007.
Refer to Note 15 in our report on Form 10-K for the year ended December 31,
2007, for further information regarding our environmental and reclamation
obligations.
Fair
Value Measurements. In September 2006, the
Financial Accounting Standards Board (FASB) issued SFAS No. 157, “Fair Value
Measurements,” which provides enhanced guidance for using fair value to measure
assets and liabilities. SFAS No. 157 does not require any new fair value
measurements under U.S. GAAP but rather establishes a common definition of fair
value, provides a framework for measuring fair value under U.S. GAAP and expands
disclosure requirements about fair value measurements. In February 2008, the
FASB issued FSP FAS 157-2, which delays the effective date of SFAS No. 157 for
nonfinancial assets or liabilities that are not required or permitted to be
measured at fair value on a recurring basis to fiscal years beginning after
November 15, 2008, and interim periods within those years. Effective January 1,
2008, we adopted SFAS No. 157 for financial assets and liabilities recognized at
fair value on a recurring basis. This partial adoption of SFAS No. 157 did not
have a material impact on our financial reporting and disclosures as our
financial assets are measured using quoted market prices, or Level 1 inputs. We
are currently evaluating the impact that the adoption of SFAS No. 157 will have
on our financial reporting and disclosures for pension and postretirement
related financial
assets
and on nonfinancial assets or liabilities that are not required or permitted to
be measured at fair value on a recurring basis.
Disclosures
about Derivative Instruments and Hedging Activities. In March 2008, the
FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities – an amendment of FASB Statement No. 133.” SFAS No. 161 amends the
disclosure requirements for derivative instruments and hedging activities
contained in SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities.” Under SFAS No. 161, entities are required to provide enhanced
disclosures about (i) how and why an entity uses derivative instruments, (ii)
how derivative instruments and related hedged items are accounted for under SFAS
No. 133 and related interpretations, and (iii) how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance and cash flows. SFAS No. 161 is effective for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. SFAS No. 161 encourages, but does not require disclosure for earlier
periods presented for comparative purposes at initial adoption. The adoption of
SFAS No. 161 will not affect our accounting for derivative financial
instruments; however, we are currently evaluating its impact on our related
disclosures.
PRODUCT
REVENUES AND PRODUCTION COSTS
Unit net
cash cost per pound of copper and molybdenum are measures 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, 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, 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. As
discussed above, gold, molybdenum and other metal revenues at copper mines are
reflected as credits against site production and delivery costs in the
by-product method. Additionally, beginning in first-quarter 2008 we have
included the impacts of purchase accounting fair value adjustments as additional
depreciation, depletion and amortization, and noncash and nonrecurring costs.
Accordingly, we have revised the first-quarter 2007 pro forma disclosures for
our North America copper mining operations, Henderson molybdenum mine, and South
America mining operations to conform to the current period presentation.
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 Copper Mining
Product Revenues and Production Costs
Three Months Ended
March 31, 2008
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Molybdenum
|
a
|
Other
|
b
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
1,179
|
|
$
|
1,179
|
|
$
|
256
|
|
$
|
16
|
|
$
|
1,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
553
|
|
|
481
|
|
|
76
|
|
|
7
|
|
|
564
|
|
By-product
creditsa
|
|
(261
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
31
|
|
|
31
|
|
|
–
|
|
|
–
|
|
|
31
|
|
Net
cash costs
|
|
323
|
|
|
512
|
|
|
76
|
|
|
7
|
|
|
595
|
|
Depreciation,
depletion and amortization
|
|
180
|
|
|
159
|
|
|
19
|
|
|
2
|
|
|
180
|
|
Noncash
and nonrecurring costs, net
|
|
30
|
|
|
29
|
|
|
1
|
|
|
–
|
|
|
30
|
|
Total
costs
|
|
533
|
|
|
700
|
|
|
96
|
|
|
9
|
|
|
805
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
42
|
|
|
42
|
|
|
–
|
|
|
–
|
|
|
42
|
|
Idle
facility and other non-inventoriable costs
|
|
(13
|
)
|
|
(13
|
)
|
|
–
|
|
|
–
|
|
|
(13
|
)
|
Gross
profit
|
$
|
675
|
|
$
|
508
|
|
$
|
160
|
|
$
|
7
|
|
$
|
675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
Depletion
and
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,451
|
|
$
|
564
|
|
$
|
180
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
30
|
|
|
N/A
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
N/A
|
|
|
31
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
42
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
North
America copper mines
|
|
1,493
|
|
|
625
|
|
|
180
|
|
|
|
|
|
|
|
Henderson
molybdenum operations
|
|
282
|
|
|
50
|
|
|
41
|
|
|
|
|
|
|
|
Other
North America mining operations, including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
molybdenum operations and eliminationsc
|
|
1,498
|
|
|
1,463
|
|
|
6
|
|
|
|
|
|
|
|
Total
North America mining operations
|
|
3,273
|
|
|
2,138
|
|
|
227
|
|
|
|
|
|
|
|
South
America mining operations
|
|
1,593
|
|
|
432
|
|
|
130
|
|
|
|
|
|
|
|
Indonesia
mining operations
|
|
1,052
|
|
|
399
|
|
|
45
|
|
|
|
|
|
|
|
Atlantic
Copper smelting & refining
|
|
665
|
|
|
651
|
|
|
9
|
|
|
|
|
|
|
|
Corporate,
other & eliminations
|
|
(911
|
)
|
|
(898
|
)
|
|
7
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
5,672
|
|
$
|
2,722
|
|
$
|
418
|
|
|
|
|
|
|
|
a.
|
Molybdenum
by-product credits and revenues reflect volumes produced at market-based
pricing and also include tolling revenues at
Sierrita.
|
b.
|
Includes
gold and silver product revenues and production
costs.
|
c.
|
Includes
amounts associated with the copper and molybdenum sales companies and Rod
& Refining, which are included in North America mining
operations.
|
Three Months Ended
March 31, 2007 (Pro Forma)
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Molybdenum
|
a
|
Other
|
b
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
812
|
|
$
|
812
|
|
$
|
178
|
|
$
|
10
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
394
|
|
|
347
|
|
|
68
|
|
|
6
|
|
|
421
|
|
By-product
creditsa
|
|
(161
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
22
|
|
|
22
|
|
|
–
|
|
|
–
|
|
|
22
|
|
Net
cash costs
|
|
255
|
|
|
369
|
|
|
68
|
|
|
6
|
|
|
443
|
|
Depreciation,
depletion and amortization
|
|
144
|
|
|
120
|
|
|
24
|
|
|
–
|
|
|
144
|
|
Noncash
and nonrecurring costs, net
|
|
336
|
|
|
280
|
|
|
56
|
|
|
–
|
|
|
336
|
|
Total
costs
|
|
735
|
|
|
769
|
|
|
148
|
|
|
6
|
|
|
923
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging
|
|
8
|
|
|
8
|
|
|
–
|
|
|
–
|
|
|
8
|
|
Idle
facility and other non-inventoriable costs
|
|
(10
|
)
|
|
(10
|
)
|
|
–
|
|
|
–
|
|
|
(10
|
)
|
Gross
profit
|
$
|
75
|
|
$
|
41
|
|
$
|
30
|
|
$
|
4
|
|
$
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
Depletion
and
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,000
|
|
$
|
421
|
|
$
|
144
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
336
|
|
|
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
|
|
8
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
3,562
|
|
|
1,845
|
|
|
211
|
|
|
|
|
|
|
|
As
reported in FCX’s pro forma consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
results
|
$
|
4,570
|
|
$
|
2,624
|
|
$
|
355
|
|
|
|
|
|
|
|
a.
|
Molybdenum
by-product credits and revenues reflect volumes produced at market-based
pricing and also include tolling revenues at
Sierrita.
|
b.
|
Includes
gold and silver product revenues and production
costs.
|
Henderson Product Revenues
and Production Costs
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
(In
millions)
|
(Actual)
|
|
(Pro
Forma)
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
282
|
|
$
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
49
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Net
cash costs
|
|
49
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
41
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
Noncash
and nonrecurring costs, net
|
|
1
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Total
costs
|
|
91
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
Gross
profita
|
$
|
191
|
|
$
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
Production
|
|
Depletion
and
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Amortization
|
|
|
Three Months Ended
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
282
|
|
$
|
49
|
|
$
|
41
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
1
|
|
|
N/A
|
|
|
Other
molybdenum operations and eliminationsb
|
|
437
|
|
|
410
|
|
|
(2
|
)
|
|
Total
Molybdenum operations
|
|
719
|
|
|
460
|
|
|
39
|
|
|
Other
North America copper mining operations and eliminations
|
|
2,554
|
|
|
1,678
|
|
|
188
|
|
|
Total
North America mining operations
|
|
3,273
|
|
|
2,138
|
|
|
227
|
|
|
South
America mining operations
|
|
1,593
|
|
|
432
|
|
|
130
|
|
|
Indonesia
mining operations
|
|
1,052
|
|
|
399
|
|
|
45
|
|
|
Atlantic
Copper smelting & refining
|
|
665
|
|
|
651
|
|
|
9
|
|
|
Corporate,
other & eliminations
|
|
(911
|
)
|
|
(898
|
)
|
|
7
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
5,672
|
|
$
|
2,722
|
|
$
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Month Ended
March 31, 2007 (Pro Forma)
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
208
|
|
$
|
39
|
|
$
|
37
|
|
|
Eliminations
and other
|
|
4,362
|
|
|
2,585
|
|
|
318
|
|
|
As
reported in FCX’s pro forma consolidated financial results
|
$
|
4,570
|
|
$
|
2,624
|
|
$
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Gross
profit reflects sales of Henderson products based on volumes produced at
market-based pricing. On a consolidated basis, the Molybdenum segment
includes profits on sales as they are made to third parties and
realizations based on actual contract terms. As a result, the actual gross
profit realized will differ from the amounts reporting in this
table.
|
b.
|
Primarily
includes amounts associated with the molybdenum sales company that are
included in Molybdenum operations.
|
South America Mining Product
Revenues and Production Costs
Three Months Ended
March 31, 2008
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Other
a
|
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
1,380
|
|
$
|
1,380
|
|
$
|
59
|
|
$
|
1,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
395
|
|
|
381
|
|
|
20
|
|
|
401
|
|
By-product
credits
|
|
(53
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
76
|
|
|
76
|
|
|
–
|
|
|
76
|
|
Net
cash costs
|
|
418
|
|
|
457
|
|
|
20
|
|
|
477
|
|
Depreciation,
depletion and amortization
|
|
130
|
|
|
126
|
|
|
4
|
|
|
130
|
|
Noncash
and nonrecurring costs, net
|
|
25
|
|
|
25
|
|
|
–
|
|
|
25
|
|
Total
costs
|
|
573
|
|
|
608
|
|
|
24
|
|
|
632
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
230
|
|
|
230
|
|
|
–
|
|
|
230
|
|
Other
non-inventoriable costs
|
|
(9
|
)
|
|
(8
|
)
|
|
(1
|
)
|
|
(9
|
)
|
Gross
profit
|
$
|
1,028
|
|
$
|
994
|
|
$
|
34
|
|
$
|
1,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
Production
|
|
Depletion
and
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Amortization
|
|
|
|
|
Totals
presented above
|
$
|
1,439
|
|
$
|
401
|
|
$
|
130
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
25
|
|
|
N/A
|
|
|
|
|
Less:
Treatment charges per above
|
|
(76
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
230
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Purchased
metal
|
|
74
|
|
|
74
|
|
|
N/A
|
|
|
|
|
Eliminations
and other
|
|
(74
|
)
|
|
(68
|
)
|
|
–
|
|
|
|
|
Total
South America mining operations
|
|
1,593
|
|
|
432
|
|
|
130
|
|
|
|
|
North
America mining operations
|
|
3,273
|
|
|
2,138
|
|
|
227
|
|
|
|
|
Indonesia
mining operations
|
|
1,052
|
|
|
399
|
|
|
45
|
|
|
|
|
Atlantic
Copper smelting & refining
|
|
665
|
|
|
651
|
|
|
9
|
|
|
|
|
Corporate,
other & eliminations
|
|
(911
|
)
|
|
(898
|
)
|
|
7
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
5,672
|
|
$
|
2,722
|
|
$
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
gold, silver and molybdenum product revenues and production
costs.
|
Three Months Ended
March 31, 2007 (Pro Forma)
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Other
a
|
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
824
|
|
$
|
824
|
|
$
|
24
|
|
$
|
848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
253
|
|
|
243
|
|
|
10
|
|
|
253
|
|
By-product
credits
|
|
(24
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
55
|
|
|
55
|
|
|
–
|
|
|
55
|
|
Net
cash costs
|
|
284
|
|
|
298
|
|
|
10
|
|
|
308
|
|
Depreciation,
depletion and amortization
|
|
96
|
|
|
94
|
|
|
2
|
|
|
96
|
|
Noncash
and nonrecurring costs, net
|
|
163
|
|
|
159
|
|
|
4
|
|
|
163
|
|
Total
costs
|
|
543
|
|
|
551
|
|
|
16
|
|
|
567
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
61
|
|
|
62
|
|
|
(1
|
)
|
|
61
|
|
Other
non-inventoriable costs
|
|
(6
|
)
|
|
(6
|
)
|
|
–
|
|
|
(6
|
)
|
Gross
profit
|
$
|
336
|
|
$
|
329
|
|
$
|
7
|
|
$
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
Production
|
|
Depletion
and
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Amortization
|
|
|
|
|
Totals
presented above
|
$
|
848
|
|
$
|
253
|
|
$
|
96
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
163
|
|
|
N/A
|
|
|
|
|
Less:
Treatment charges per above
|
|
(55
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
61
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Purchased
metal
|
|
68
|
|
|
68
|
|
|
N/A
|
|
|
|
|
Eliminations
and other
|
|
3,648
|
|
|
2,140
|
|
|
259
|
|
|
|
|
As
reported in FCX’s pro forma consolidated financial results
|
$
|
4,570
|
|
$
|
2,624
|
|
$
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
gold and silver product revenues and production
costs.
|
Indonesia Mining Product
Revenues and Production Costs
Three Months Ended
March 31, 2008
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
802
|
|
$
|
802
|
|
$
|
241
|
|
$
|
15
|
|
$
|
1,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
385
|
|
|
292
|
|
|
88
|
|
|
5
|
|
|
385
|
|
Gold
and silver credits
|
|
(256
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
68
|
|
|
52
|
|
|
15
|
|
|
1
|
|
|
68
|
|
Royalty
on metals
|
|
25
|
|
|
19
|
|
|
6
|
|
|
–
|
|
|
25
|
|
Net
cash costs
|
|
222
|
|
|
363
|
|
|
109
|
|
|
6
|
|
|
478
|
|
Depreciation
and amortization
|
|
45
|
|
|
34
|
|
|
10
|
|
|
1
|
|
|
45
|
|
Noncash
and nonrecurring costs, net
|
|
14
|
|
|
11
|
|
|
3
|
|
|
–
|
|
|
14
|
|
Total
costs
|
|
281
|
|
|
408
|
|
|
122
|
|
|
7
|
|
|
537
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
87
|
|
|
87
|
|
|
–
|
|
|
–
|
|
|
87
|
|
PT
Smelting intercompany profit elimination
|
|
(5
|
)
|
|
(3
|
)
|
|
(2
|
)
|
|
–
|
|
|
(5
|
)
|
Gross
profit
|
$
|
603
|
|
$
|
478
|
|
$
|
117
|
|
$
|
8
|
|
$
|
603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depletion
and
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,058
|
|
$
|
385
|
|
$
|
45
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
14
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Treatment charges per above
|
|
(68
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Royalty per above
|
|
(25
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
87
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Total
Indonesia mining operations
|
|
1,052
|
|
|
399
|
|
|
45
|
|
|
|
|
|
|
|
North
America mining operations
|
|
3,273
|
|
|
2,138
|
|
|
227
|
|
|
|
|
|
|
|
South
America mining operations
|
|
1,593
|
|
|
432
|
|
|
130
|
|
|
|
|
|
|
|
Atlantic
Copper smelting & refining
|
|
665
|
|
|
651
|
|
|
9
|
|
|
|
|
|
|
|
Corporate,
other & eliminations
|
|
(911
|
)
|
|
(898
|
)
|
|
7
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
statements
|
$
|
5,672
|
|
$
|
2,722
|
|
$
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
1,298
|
|
$
|
1,298
|
|
$
|
622
|
|
$
|
21
|
|
$
|
1,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
314
|
|
|
210
|
|
|
101
|
|
|
3
|
|
|
314
|
|
Gold
and silver credits
|
|
(643
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
153
|
|
|
102
|
|
|
49
|
|
|
2
|
|
|
153
|
|
Royalty
on metals
|
|
50
|
|
|
33
|
|
|
16
|
|
|
1
|
|
|
50
|
|
Net
cash costs (credits)
|
|
(126
|
)
|
|
345
|
|
|
166
|
|
|
6
|
|
|
517
|
|
Depreciation
and amortization
|
|
59
|
|
|
40
|
|
|
19
|
|
|
–
|
|
|
59
|
|
Noncash
and nonrecurring costs, net
|
|
9
|
|
|
6
|
|
|
3
|
|
|
–
|
|
|
9
|
|
Total
costs (credits)
|
|
(58
|
)
|
|
391
|
|
|
188
|
|
|
6
|
|
|
585
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
(29
|
)
|
|
(29
|
)
|
|
–
|
|
|
–
|
|
|
(29
|
)
|
PT
Smelting intercompany profit elimination
|
|
(36
|
)
|
|
(24
|
)
|
|
(11
|
)
|
|
(1
|
)
|
|
(36
|
)
|
Gross
profit
|
$
|
1,291
|
|
$
|
854
|
|
$
|
423
|
|
$
|
14
|
|
$
|
1,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depletion
and
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,941
|
|
$
|
314
|
|
$
|
59
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
9
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Treatment charges per above
|
|
(153
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Royalty per above
|
|
(50
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
(29
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Total
Indonesia mining operations
|
|
1,709
|
|
|
323
|
|
|
59
|
|
|
|
|
|
|
|
North
America mining operations
|
|
319
|
|
|
327
|
|
|
14
|
|
|
|
|
|
|
|
South
America mining operations
|
|
262
|
|
|
116
|
|
|
28
|
|
|
|
|
|
|
|
Atlantic
Copper smelting & refining
|
|
454
|
|
|
427
|
|
|
10
|
|
|
|
|
|
|
|
Corporate,
other & eliminations
|
|
(498
|
)
|
|
(290
|
)
|
|
5
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
statements
|
$
|
2,246
|
|
$
|
903
|
|
$
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, unit net cash costs,
operating cash flows, royalty costs, capital expenditures, the impact of copper,
gold and molybdenum price changes, the impact of changes in deferred
intercompany profits on earnings, treatment charge rates, depreciation 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 I, Item 1A. of our report on Form 10-K for the year ended
December 31, 2007.
There
have been no material changes in FCX’s market risks during the three months
ended March 31, 2008. For additional information on market risk, refer to
“Disclosures About Market Risks” included in Part II, Item 7A of our report on
Form 10-K for the year ended December 31, 2007.
(a)
|
Evaluation of
disclosure controls and procedures. Our chief executive officer and
chief financial officer, with the participation of management, have
evaluated the effectiveness of our “disclosure controls and procedures”
(as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange
Act of 1934) as of the end of the period covered by this 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.
|
(b)
|
Changes in internal
controls. There has been no change in our internal control over
financial reporting that occurred during the three months ended March 31,
2008, that has materially affected, or is reasonably likely to materially
affect our internal controls over financial
reporting.
|
Environmental
Proceedings
EPA Notice re Violation of
Consent Decree – Sierrita operations. Information regarding this
legal proceeding is incorporated by reference to Item 3. Legal Proceedings of
Part I of the FCX Form 10-K for the year ended December 31, 2007. At the joint
request of all parties, the court found that Sierrita satisfied all Consent
Decree terms and, therefore, terminated the Consent Decree on March 10,
2008.
Blackwell, Oklahoma
Litigation. On April 14, 2008, a purported class action was filed in the
District Court of Kay County, Oklahoma against FCX, and several direct and
indirect subsidiaries, including Blackwell Zinc Company (BZC), and several other
parties, entitled Coffey, et al., Plaintiffs,
v. Freeport-McMoRan Copper & Gold, Inc., et al., Defendants, Kay County,
Oklahoma District Court, Case No. CJ-2008-68. The suit alleges that the
operations of BZC’s zinc smelter in Blackwell, Oklahoma, from 1918 to 1974
resulted in contamination of the soils and groundwater in Blackwell and the
surrounding area. Unspecified compensatory and punitive damages are sought on
behalf of the putative class members for alleged diminution in property values.
There is also a request for an order compelling remediation of alleged
contaminated properties and the establishment of a monetary fund to monitor the
present and future health of the putative class members. We intend to defend
this matter vigorously. For more information about FCX’s remediation activities
in Blackwell, Oklahoma, refer to Note
15 to
FCX’s consolidated financial statements contained in its Form 10-K for the year
ended December 31, 2007.
There
have been no material changes to our risk factors during the three months ended
March 31, 2008. For additional information on risk factors, refer to “Risk
Factors” included in Part I, Item IA of our report on Form 10-K for the year
ended December 31, 2007.
(c) The
following table sets forth information with respect to shares of common stock of
FCX purchased by FCX during the three months ended March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
Total Number of
|
|
(d)
Maximum Number
|
|
|
(a)
Total Number
|
|
(b)
Average
|
|
Shares
Purchased as Part
|
|
of
Shares That May
|
|
|
of
Shares
|
|
Price
Paid
|
|
of
Publicly Announced
|
|
Yet
Be Purchased Under
|
Period
|
|
Purchaseda
|
|
Per
Share
|
|
Plans
or Programsb
|
|
the
Plans or Programsb
|
January
1-31, 2008
|
|
953
|
|
$
|
95.50
|
|
–
|
|
20,000,000
|
February
1-29, 2008
|
|
153,377
|
|
|
90.89
|
|
–
|
|
20,000,000
|
March
1-31, 2008
|
|
88,748
|
|
|
104.34
|
|
–
|
|
20,000,000
|
Total
|
|
243,078
|
|
|
95.82
|
|
–
|
|
20,000,000
|
|
|
|
|
|
|
|
|
|
|
a.
|
Consists
of shares repurchased under FCX’s applicable stock incentive plans (Plans)
and its non-qualified supplemental savings plan (SSP). Through the Plans,
FCX repurchased 243,031 shares to satisfy tax obligations on restricted
stock awards and to cover the cost of option exercises. Under the
SSP, FCX repurchased 47 shares as a result of dividends
paid.
|
b.
|
In
December 2007, 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 March 31, 2008, and 20
million shares remain available for
purchase.
|
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: May
12, 2008
FREEPORT-McMoRan
COPPER & GOLD INC.
|
|
Filed
|
|
|
|
|
Exhibit
|
|
with
this
|
Incorporated
by Reference
|
|
|
|
|
|
|
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.
|
|
S-4
|
333-139252
|
12/11/2006
|
3.1
|
Amended
and Restated Certificate of Incorporation of FCX.
|
|
8-K
|
001-11307-01
|
03/19/2007
|
3.2
|
Amended
and Restated By-Laws of FCX, as amended through May 1,
2007.
|
|
8-K
|
001-11307-01
|
05/04/2007
|
4.1
|
Certificate
of Designations of 5½% Convertible Perpetual Preferred Stock of
FCX.
|
|
8-K
|
001-11307-01
|
03/31/2004
|
4.2
|
Certificate
of Designations of 6¾% Mandatory Convertible Preferred Stock of
FCX.
|
|
8-K
|
001-11307-01
|
03/27/2007
|
4.3
|
Rights
Agreement dated as of May 3, 2000, between FCX and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent.
|
|
10-Q
|
001-09916
|
05/15/2000
|
4.4
|
Amendment
No. 1 to Rights Agreement dated as of February 26, 2002, between FCX and
Mellon Investor Services.
|
|
10-Q
|
001-09916
|
05/07/2002
|
4.5
|
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.
|
|
8-K
|
001-09916
|
02/25/2003
|
4.6
|
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.
|
|
8-K
|
001-11307-01
|
03/19/2007
|
4.7
|
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.
|
|
8-K
|
001-11307-01
|
03/19/2007
|
4.8
|
Amendment
Agreement dated as of July 3, 2007, amending the Credit Agreement dated as
of March 19, 2007, among FCX, 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.
|
|
8-K
|
001-11307-01
|
07/11/2007
|
4.9
|
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.
|
|
8-K
|
001-11307-01
|
03/19/2007
|
4.10
|
Amendment
Agreement dated as of July 3, 2007, amending the Amended and Restated
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 FCX, 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.
|
|
8-K
|
001-11307-01
|
07/11/2007
|
|
|
|
|
|
|
|
|
Filed
|
|
|
|
|
Exhibit
|
|
with
this
|
Incorporated
by Reference
|
|
|
|
|
|
|
10.1
|
Contract
of Work dated December 30, 1991, between the Government of the Republic of
Indonesia and PT Freeport Indonesia.
|
|
S-3
|
333-72760
|
11/05/2001
|
10.2
|
Contract
of Work dated August 15, 1994, between the Government of the Republic of
Indonesia and PT Irja Eastern Minerals Corporation.
|
|
S-3
|
333-72760
|
11/05/2001
|
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.
|
|
S-3
|
333-72760
|
11/05/2001
|
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.
|
|
8-K
|
001-09916
|
11/13/1996
|
10.5
|
Concentrate
Purchase and Sales Agreement dated effective December 11, 1996, between PT
Freeport Indonesia and PT Smelting.
|
|
S-3
|
333-72760
|
11/05/2001
|
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.
|
|
S-3
|
333-72760
|
11/05/2001
|
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.
|
|
8-K
|
001-00082
|
03/22/2005
|
10.8
|
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.
|
|
8-K
|
001-00082
|
06/07/2005
|
10.9
|
Master
Agreement and Plan of Merger between Columbian Chemicals Company,
Columbian Chemicals Acquisition LLC and Columbian Chemicals Merger Sub,
Inc., dated November 15, 2005.
|
|
10-K
|
001-00082
|
02/27/2006
|
10.10
|
Reclamation
and Remediation Trust Agreement between Phelps Dodge Corporation and Wells
Fargo Delaware Trust Company, dated December 22, 2005.
|
|
10-K
|
001-00082
|
02/27/2006
|
10.11*
|
FCX
Director Compensation
|
|
10-K
|
001-11307-01
|
03/16/2005
|
10.12*
|
Consulting
Agreement dated December 22, 1988, with Kissinger Associates, Inc.
(Kissinger Associates).
|
|
10-K405
|
001-09916
|
03/31/1998
|
10.13*
|
Letter
Agreement dated May 1, 1989, with Kent Associates, Inc. (Kent Associates,
predecessor in interest to Kissinger Associates).
|
|
10-K405
|
001-09916
|
03/31/1998
|
10.14*
|
Letter
Agreement dated January 27, 1997, among Kissinger Associates, Kent
Associates, FCX, Freeport-McMoRan Inc. (FTX), and FM Services Company
(FMS).
|
|
10-K405
|
001-09916
|
03/08/2002
|
10.15*
|
Supplemental
Agreement with Kissinger Associates and Kent Associates, effective as of
January 1, 2008.
|
|
10-Q
|
001-11307-01
|
11/07/2007
|
10.16*
|
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).
|
|
10-K405
|
001-09916
|
03/31/1998
|
10.17*
|
Supplemental
Agreement dated December 15, 1997, between FMS and B. M. Rankin,
Jr.
|
|
10-K405
|
001-09916
|
03/31/1998
|
|
|
Filed
|
|
|
|
|
Exhibit
|
|
with
this
|
Incorporated
by Reference
|
|
|
|
|
|
|
10.18*
|
Supplemental
Letter Agreement between FMS and B. M. Rankin, Jr., effective as of
January 1, 2008.
|
|
10-K
|
001-11307-01
|
02/29/2008
|
10.19*
|
Letter
Agreement effective as of January 7, 1997, between Senator J. Bennett
Johnston, Jr. and FMS.
|
|
10-K405
|
001-09916
|
03/08/2002
|
10.20*
|
Supplemental
Letter Agreement dated July 14, 2003, between J. Bennett Johnston, Jr. and
FMS.
|
|
10-Q
|
001-11307-01
|
08/12/2003
|
10.21*
|
Supplemental
Letter Agreement between FMS and J. Bennett Johnston, Jr., dated January
18, 2005.
|
|
10-K
|
001-11307-01
|
03/16/2005
|
10.22*
|
Supplemental
Agreement between FMS and J. Bennett Johnston, Jr., effective as of
January 1, 2008.
|
|
10-Q
|
001-11307-01
|
11/07/2007
|
10.23*
|
Letter
Agreement dated November 1, 1999, between FMS and Gabrielle K.
McDonald.
|
|
10-K405
|
001-09916
|
03/20/2000
|
10.24*
|
Supplemental
Letter Agreement between FMS and Gabrielle K. McDonald, effective as of
January 1, 2008.
|
|
10-Q
|
001-11307-01
|
11/07/2007
|
10.25*
|
Agreement
for Consulting Services between FMS and Dr. J. Taylor Wharton, effective
as of January 11, 2008.
|
|
10-K
|
001-11307-01
|
02/29/2008
|
10.26*
|
Executive
Employment Agreement dated April 30, 2001, between FCX and James R.
Moffett.
|
|
10-Q
|
001-09916
|
07/30/2001
|
10.27*
|
Change
of Control Agreement dated April 30, 2001, between FCX and James R.
Moffett.
|
|
10-Q
|
001-09916
|
07/30/2001
|
10.28*
|
First
Amendment to Executive Employment Agreement dated December 10, 2003,
between FCX and James R. Moffett.
|
|
10-K
|
001-11307-01
|
03/10/2004
|
10.29*
|
First
Amendment to Change of Control Agreement dated December 10, 2003, between
FCX and James R. Moffett.
|
|
10-K
|
001-11307-01
|
03/10/2004
|
10.30*
|
Change
of Control Agreement dated February 3, 2004, between FCX and Michael J.
Arnold.
|
|
10-K
|
001-11307-01
|
03/10/2004
|
10.31*
|
Executive
Employment Agreement effective January 29, 2008, between FCX and Richard
C. Adkerson.
|
|
10-K
|
001-11307-01
|
02/29/2008
|
10.32*
|
Executive
Employment Agreement effective January 29, 2008, between FCX and Kathleen
L. Quirk.
|
|
10-K
|
001-11307-01
|
02/29/2008
|
10.33*
|
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.
|
|
10-K/A
|
001-00082
|
03/19/2007
|
10.34*
|
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.
|
|
10-K/A
|
001-00082
|
03/19/2007
|
10.35*
|
FCX
Executive Services Program.
|
|
8-K
|
001-11307-01
|
05/05/2006
|
10.36*
|
FCX
Supplemental Executive Retirement Plan, as amended and
restated.
|
|
8-K
|
001-11307-01
|
02/05/2007
|
10.37*
|
FCX
President’s Award Program.
|
|
S-3
|
333-72760
|
11/05/2001
|
|
FCX
Supplemental Executive Capital Accumulation Plan.
|
X
|
|
|
|
|
FCX
Supplemental Executive Capital Accumulation Plan Amendment
One.
|
X
|
|
|
|
10.40*
|
FCX
1995 Stock Option Plan, as amended and restated.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
10.41*
|
FCX
1995 Stock Option Plan for Non-Employee Directors, as amended and
restated.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
10.42*
|
FCX
Amended and Restated 1999 Stock Incentive Plan, as amended and
restated.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
10.43*
|
FCX
1999 Long-Term Performance Incentive Plan.
|
|
10-K
|
001-09916
|
03/20/2000
|
10.44*
|
FM
Services Company Performance Incentive Awards Program, as amended
effective February 2, 1999.
|
|
10-K
|
001-09916
|
03/19/1999
|
|
|
Filed
|
|
|
|
|
Exhibit
|
|
with
this
|
Incorporated
by Reference
|
|
|
|
|
|
|
10.45*
|
FCX
Stock Appreciation Rights Plan dated May 2, 2000.
|
|
10-Q
|
001-09916
|
07/30/2001
|
10.46*
|
FCX
2003 Stock Incentive Plan, as amended and restated.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
10.47*
|
Phelps
Dodge 2003 Stock Option and Restricted Stock Plan, as
amended.
|
|
S-8
|
333-141358
|
03/16/2007
|
10.48*
|
FCX
2004 Director Compensation Plan.
|
|
10-K
|
001-11307-01
|
03/16/2005
|
10.49*
|
Form
of Amendment No. 1 to Notice of Grant of Nonqualified Stock Options and
Stock Appreciation Rights under the 2004 Director Compensation
Plan.
|
|
8-K
|
001-11307-01
|
05/05/2006
|
10.50*
|
FCX
2004 Director Compensation Plan, as amended and restated.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
10.51*
|
FCX
2005 Annual Incentive Plan.
|
|
8-K
|
001-11307-01
|
05/06/2005
|
10.52*
|
The
Phelps Dodge Corporation Supplemental Retirement Plan, amended and
restated effective January 1, 2005 and adopted on March 16,
2007.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
|
First
Amendment to the Phelps Dodge Corporation Supplemental Retirement Plan,
dated as of November 9, 2007.
|
X
|
|
|
|
10.54*
|
The
Phelps Dodge Corporation Supplemental Savings Plan, amended and restated
effective January 1, 2005, and adopted on March 16, 2007.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
10.55*
|
First
Amendment to the Phelps Dodge Corporation Supplemental Savings Plan, dated
March 16, 2007.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
10.56*
|
Second
Amendment to the Phelps Dodge Corporation Supplemental Savings Plan, dated
as of March 16, 2007.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
|
Third
Amendment to the Phelps Dodge Corporation Supplemental Savings Plan, dated
as of November 14, 2007.
|
X
|
|
|
|
10.58*
|
FCX
Amended and Restated 2006 Stock Incentive Plan.
|
|
8-K
|
001-11307-01
|
07/13/2007
|
10.59*
|
FCX
Performance Incentive Awards Program, as amended effective December 4,
2007.
|
|
10-K
|
001-11307-01
|
02/29/2008
|
10.60*
|
Form
of Notice of Grant of Nonqualified Stock Options for grants under the FCX
1999 Stock Incentive Plan, the 2003 Stock Incentive Plan and the 2006
Stock Incentive Plan.
|
|
10-K
|
001-11307-01
|
02/29/2008
|
10.61*
|
Form
of Restricted Stock Unit Agreement for grants under the FCX 1999 Stock
Incentive Plan, the 2003 Stock Incentive Plan and the 2006 Stock Incentive
Plan.
|
|
10-K
|
001-11307-01
|
02/29/2008
|
10.62*
|
Form
of Performance-Based Restricted Stock Unit Agreement for grants under the
FCX 1999 Stock Incentive Plan, the 2003 Stock Incentive Plan and the 2006
Stock Incentive Plan.
|
|
10-K
|
001-11307-01
|
02/29/2008
|
10.63*
|
Form
of Restricted Stock Unit Agreement (form used in connection with
participant elections) for grants under the FCX 1999 Stock Incentive Plan,
the 2003 Stock Incentive Plan and the 2006 Stock Incentive
Plan.
|
|
10-K
|
001-11307-01
|
02/29/2008
|
10.64*
|
Form
of Performance-Based Restricted Stock Unit Agreement (form used in
connection with participant elections) for grants under the FCX 1999 Stock
Incentive Plan, the 2003 Stock Incentive Plan and the 2006 Stock Incentive
Plan.
|
|
10-K
|
001-11307-01
|
02/29/2008
|
10.65*
|
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.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
10.66*
|
Letter
of employment by and between FCX and Timothy R. Snider, dated April 4,
2007.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
|
Letter
from Ernst & Young LLP regarding unaudited interim financial
statements.
|
X
|
|
|
|
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a)/15d –
14(a).
|
X
|
|
|
|
|
|
Filed
|
|
|
|
|
Exhibit
|
|
with
this
|
Incorporated
by Reference
|
|
|
|
|
|
|
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a)/15d –
14(a).
|
X
|
|
|
|
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section
1350.
|
X
|
|
|
|
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C Section
1350.
|
X
|
|
|
|
_______________________
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.
* Indicates
management contract or compensatory plan or arrangement.