fcx123108-10k.htm
UNITED
STATES
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SECURITIES
AND EXCHANGE COMMISSION
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Washington,
D.C. 20549
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FORM
10-K
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(Mark
One)
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[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For
the fiscal year ended December 31, 2008
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OR
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[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For
the transition period from
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to
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Commission
File Number: 1-9916
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Freeport-McMoRan
Copper & Gold Inc.
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(Exact
name of registrant as specified in its
charter)
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Delaware
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74-2480931
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(State
or other jurisdiction of
incorporation
or organization)
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(IRS
Employer Identification No.)
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One
North Central Avenue
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Phoenix,
Arizona
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85004-4414
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(Address
of principal executive offices)
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(Zip
Code)
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(602)
366-8100
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(Registrant's
telephone number, including area
code)
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Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
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Name
of each exchange on which registered
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Common
Stock, par value $0.10 per share
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New
York Stock Exchange
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7% Convertible
Senior Notes due 2011 of the registrant
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New
York Stock Exchange
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6¾%
Mandatory Convertible Preferred Stock, par value $0.10 per
share
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
Act R Yes 0
No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act. 0 Yes R
No
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 0
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of the registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. R
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. (Check one): R Large
accelerated filer 0 Accelerated
filer 0
Non-accelerated filer 0 Smaller
reporting company
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the
Act).
0 Yes R
No
The
aggregate market value of common stock held by non-affiliates of the registrant
was approximately $11.4 billion on February 17, 2009, and approximately $44.8
billion on June 30, 2008.
Common
stock issued and outstanding was 411,669,247 shares on February 17, 2009, and
383,956,672 shares on June 30, 2008.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of our proxy statement for our 2009 annual meeting of stockholders are
incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) of
this report.
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FREEPORT-McMoRan
COPPER & GOLD INC.
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All
of our periodic reports filed with the Securities and Exchange Commission
(SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended, are available, free of charge, through our web site, www.fcx.com,
including our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and any amendments to those reports. These reports
and amendments are available through our web site as soon as reasonably
practicable after we electronically file or furnish such material to the
SEC.
References
to “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. References to “Notes” refer to the “Notes to Consolidated
Financial Statements” included herein (see Item 8. “Financial Statements and
Supplementary Data”).
GENERAL
We are a
leading international mining company with headquarters in Phoenix,
Arizona. We are one of the world’s largest copper, gold and molybdenum
mining companies in terms of reserves and production. Our portfolio of assets
includes 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; significant mining operations in North and
South America; and the Tenke Fungurume development project in the Democratic
Republic of Congo (DRC).
As a
mining company, our principal assets are our reserves. At December 31, 2008,
consolidated recoverable proven and probable reserves totaled 102.0 billion
pounds of copper, 40.0 million ounces of gold, 2.48 billion pounds of
molybdenum, 266.6 million ounces of silver and 0.7 billion pounds of cobalt.
Approximately 35 percent of our copper reserves were in Indonesia, approximately
31 percent were in South America, approximately 28 percent were in North America
and approximately six percent were in Africa. Approximately 96 percent of our
gold reserves were in Indonesia, with our remaining gold reserves located in
South America. Our molybdenum reserves are primarily in North America
(approximately 85 percent), with our remaining molybdenum reserves in South
America (refer to “Ore Reserves”).
Our
mining revenues for 2008 include sales of copper (approximately 76 percent),
molybdenum (approximately 14 percent) and gold (approximately seven percent). We
currently have five operating copper mines in North America, four in South
America and the Grasberg minerals district in Indonesia. We also have one
operating primary molybdenum mine in North America. During 2008, approximately
60 percent of our consolidated copper production was from our Grasberg, Morenci
and Cerro Verde mines, and more than half of our mined copper was sold in
concentrate, approximately 27 percent as rod (principally from our North America
operations) and approximately 19 percent as cathodes. For 2008, approximately 55
percent of our consolidated molybdenum production was from the Henderson
molybdenum mine and approximately 45 percent was produced as a by-product
primarily at our North America copper mines. We also produce gold as a
by-product at our copper mines, primarily at the Grasberg minerals district in
Indonesia, which accounted for approximately 90 percent of our consolidated gold
production for 2008. Refer to “Mines” for further discussion of our mining
operations.
Prior to
March 19, 2007, we operated our Grasberg mine in Indonesia and our wholly owned
copper smelting and refining operation at Atlantic Copper in Spain. On March 19,
2007, we acquired Phelps Dodge, a fully integrated producer of copper and
molybdenum with mines in North and South America, and several development
projects, including Tenke Fungurume in the DRC, which we believe is one of the
world’s highest potential copper and cobalt concessions. After
completion of the Phelps Dodge acquisition, our business strategy was focused on
repaying acquisition-related debt, defining the potential of our resources and
developing expansion and growth plans to deliver additional volumes to a growing
marketplace. During 2007, we repaid $10.0 billion in term loans using a
combination of equity proceeds and internally generated cash flows. Because of
the significant reduction in debt and historically high prices for copper,
molybdenum and gold, our financial policy during most of 2008 was designed to
use our cash flow to invest in growth projects with anticipated high rates of
return and to return excess cash flows to shareholders in the form of dividends
and share purchases. In response to the severity of the decline in copper and
molybdenum prices and the deterioration of economic conditions and credit
environment during fourth-quarter 2008, we revised our near-term business
strategy to protect liquidity while preserving our large mineral resources and
growth options for the long term. For additional information, refer to Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
In North
America, we currently have five operating copper mines – Morenci, Sierrita,
Bagdad and Safford in Arizona, and Tyrone in New Mexico. In addition, the Chino
mine in New Mexico was placed on care-and-maintenance status in December 2008.
All of these operations are wholly owned, except for Morenci, an unincorporated
joint venture, in which we own an 85 percent undivided interest. In addition to
copper, the Morenci, Sierrita and Bagdad mines produce molybdenum as a
by-product.
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. In addition to copper, the Cerro
Verde mine produces molybdenum concentrate as a by-product and the Candelaria
and Ojos del Salado mines produce gold and silver as by-products.
In
Indonesia, PT Freeport Indonesia operates the Grasberg minerals district. We
have joint venture agreements with Rio Tinto plc (Rio Tinto), an international
mining company, with respect to a portion of our mining activities in Indonesia,
as described in the “Mines” section. We own 90.64 percent of PT Freeport
Indonesia and the Government of Indonesia owns the remaining 9.36 percent
interest. Our Grasberg minerals district also produces significant quantities of
gold and silver as by-products. PT Freeport Indonesia also owns 25 percent of PT
Smelting, a smelting and refining company in Gresik, Indonesia.
We
produce molybdenum at our wholly owned Henderson molybdenum mine in Colorado,
which is the largest primary producer of molybdenum in the world. Additionally,
we own the Climax molybdenum mine in Colorado which is currently on
care-and-maintenance status.
In
addition to our operating mines, we have several significant mines in
development. In Indonesia, we are developing our underground mines. In Africa,
we hold an effective 57.75 percent interest in the Tenke Fungurume copper and
cobalt concession in the DRC. The Tenke Fungurume mine will produce copper and
cobalt and is expected to commence mining operations in the second half of
2009.
For
information about our operating segments and financial data by geographic area
refer to Note 19 – “Business Segments.”
The
locations of our operating mines and the Tenke Fungurume development project are
shown on the map below.
The
diagram below shows our corporate structure.
COPPER,
MOLYBDENUM AND GOLD
Our mines
primarily produce copper, molybdenum and gold. A brief discussion of the
production and sales of these metals appears below; discussion of markets and
prices for these metals appears in Item 7. “Management’s Discussion and Analysis
of Financial Condition and Results of Operations.”
Copper
Copper,
in the form of copper cathode, is an internationally traded commodity, and its
prices are determined by the major metals exchanges – New York Mercantile
Exchange (COMEX), the London Metals Exchange (LME) and the Shanghai Futures
Exchange (SHFE). Prices on these exchanges generally reflect the worldwide
balance of copper supply and demand and can be volatile and
cyclical.
Our
copper ores are generally processed either by smelting and refining or by
solution extraction and electrowinning (SX/EW). In the smelting process, ore is
crushed and further treated to produce a copper concentrate with an average
copper content of about 30 percent. Copper concentrate is then smelted
(subjected to extreme heat) to produce copper anodes, which weigh between 800
and 900 pounds and have an average copper content of 99.5 percent. The anodes
are further treated by electrolytic refining to produce copper cathodes, which
weigh between 100 and 350 pounds and have a copper content of 99.99
percent.
In the
SX/EW process, copper is extracted from ore by dissolving it with a weak
sulfuric acid solution. The copper content of the solution is increased in two
additional solution-extraction stages and then the copper-bearing solution
undergoes an electrowinning process to produce cathode that is 99.99 percent
copper.
Our
copper cathodes are used as the raw material input for copper rod, brass mill
products and for other uses. In general, demand for copper reflects the rate of
underlying world economic growth, particularly in industrial production and
construction. According to Brook Hunt, a widely followed independent metals
market consultant, copper’s end-use markets (and their estimated shares of total
consumption) are:
Construction
|
35
|
%
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Electrical
applications
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32
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%
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Industrial
machinery
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12
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%
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Transportation
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11
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%
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Consumer
products
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10
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%
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Molybdenum
Molybdenum
is a key alloying element in steel and the raw material for several
chemical-grade products used in catalysts, lubrication, smoke suppression,
corrosion inhibition and pigmentation. Molybdenum as a high-purity metal is also
used in electronics such as flat-panel displays and in super alloys used in
aerospace. First end-user segments for molybdenum include:
Construction
steel
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35
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%
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Stainless
steel
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25
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%
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Chemicals
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14
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%
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Tool
and high-speed steel
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9
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%
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Cast
iron
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6
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%
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Molybdenum
metal
|
6
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%
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Super
alloys
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5
|
%
|
Molybdenum
is currently not traded on any public exchange. Reference prices for molybdenum
are available in several publications, including Platts Metals Week, Ryan’s Notes and Metal
Bulletin.
Gold
Gold is
used for jewelry, coinage and bullion as well as various industrial and
electronic applications. Gold can be readily sold on numerous markets throughout
the world. Benchmark prices are generally based on London Bullion Market
Association quotations.
PRODUCTS
AND SALES
Copper
Products
We are
one of the world’s leading producers of copper concentrate, cathode and
continuous cast copper rod. For 2008, more than half of our copper was sold in
concentrate, approximately 27 percent as rod (principally from our North America
operations) and approximately 19 percent as cathodes.
Copper
Concentrate. Through 2008, we produced copper concentrate at
eight mines, of which PT Freeport Indonesia is our largest producer. In 2008,
approximately 56 percent of PT Freeport Indonesia’s concentrate was refined at
affiliated smelters, Atlantic Copper and PT Smelting.
Copper
concentrate was also produced at our Morenci, Sierrita and Bagdad mines in
Arizona and our Chino mine in New Mexico, which was generally shipped to our
Miami smelter in Arizona. In South America we produced copper concentrate at our
Cerro Verde mine in Peru and our Candelaria and Ojos del Salado mines in Chile.
In late 2008, we suspended production of concentrates at Chino and plan to
suspend concentrate production at Morenci in first-quarter 2009 in response to
current market conditions.
Copper
Cathode. Through 2008, we produced copper cathode at two
electrolytic refineries and nine mines. Our refineries are located in El Paso,
Texas, and Huelva, Spain. PT Smelting also produces copper cathode. We produced
SX/EW cathode from our Morenci, Sierrita, Bagdad, Chino, Safford, Tyrone and
Miami mines in North America and our Cerro Verde and El Abra mines in South
America. In the second half of 2009 we will begin SX/EW production at our Tenke
Fungurume mine in the DRC.
Continuous
Cast Copper Rod. We manufacture continuous cast copper rod at
our facilities in El Paso, Texas; Norwich, Connecticut and Miami, Arizona. In
late 2008, we permanently closed our Chicago, Illinois, rod mill.
Other
Copper Products. We produce specialty copper products at our
Bayway operations in Elizabeth, New Jersey. These products include specialty
copper alloys in the forms of rod, bar and strip. We manufacture electrode wire
(for use in welding steel cans) at our Norwich, Connecticut and El Paso, Texas,
facilities. We also produce copper sulfate pentahydrate (for use in agricultural
and industrial applications) at our facility in Sierrita, Arizona.
Copper
Sales
North
America. The majority of the copper produced at our North
America copper mines and refined in our El Paso refinery is consumed at our rod
plants in El Paso, Texas; Norwich, Connecticut and Miami, Arizona. The remainder
of our North America copper production is sold in the form of copper cathode or
copper concentrate to third parties. Generally, copper rod and cathode are sold
to wire and cable fabricators and brass mills under
United
States (U.S.) dollar-denominated, annual contracts. Cathode and rod contract
prices are generally based on the prevailing COMEX monthly average spot price
for the month of shipment and include a premium.
South
America. Production from our
South America copper mines is generally sold as copper concentrate or copper
cathode under U.S. dollar-denominated, annual and multi-year contracts. Cerro
Verde sells approximately 70 percent of its production as concentrate and the
rest as cathode. Some of Cerro Verde’s cathode is sold under annual contract
terms to South American customers. A portion of Cerro Verde’s and Candelaria’s
concentrate production is sold at market rates to Atlantic Copper. A majority of
our Ojos del Salado concentrate production is sold to local Chilean smelters. El
Abra’s cathode production is sold primarily under annual or multi-year contracts
to Asian or European rod or brass mill customers, or to merchants. The remainder
of the cathode and concentrate production is primarily sold under long-term
contracts to external customers, largely located in Asia, with the balance sold
on a spot basis.
Our South
America sales are priced based on the LME monthly average spot price. Cathode
sales are generally priced in the month of arrival and generally include a
premium. Substantially all of our concentrate sales are priced in the third
calendar month following the month of arrival at the buyer’s facilities.
Revenues from South America concentrate sales are recorded net of treatment and
refining charges. Treatment and refining charges are fees paid to smelters
and refiners and are generally negotiated annually. Moreover, because a portion
of the metals contained in copper concentrates is unrecoverable from the
smelting process, our revenues from concentrate sales are also recorded net of
allowances based on the quantity and value of these unrecoverable metals. These
allowances are a negotiated term of our contracts and vary by
customer.
Indonesia. PT Freeport Indonesia
sells its production in the form of copper concentrate, which contains
significant quantities of by-product gold and silver, under U.S.
dollar-denominated sales agreements, with more than half of PT Freeport
Indonesia’s production sold to Atlantic Copper and PT Smelting. We sell
substantially all of our budgeted production of copper concentrates under
long-term contracts. In general, our concentrate sales are priced on the basis
of the LME average spot price for the third calendar month following the month
of arrival at the buyer’s facilities.
PT
Freeport Indonesia has a long-term contract to provide Atlantic Copper with
approximately 55 percent of its current concentrate requirements at market
prices.
PT Freeport
Indonesia’s contract with PT Smelting provides for the supply of 100
percent of the copper concentrate requirements necessary to produce 205,000
metric tons of copper annually (essentially the smelter’s original design
capacity) on a priority basis. Refer to “Smelting Facilities” for further
discussion.
We
anticipate that PT Freeport Indonesia will sell approximately 50 percent of its
annual concentrate production to Atlantic Copper and PT Smelting in 2009. A
summary of PT Freeport Indonesia’s aggregate percentage concentrate sales to PT
Smelting, Atlantic Copper and to other parties for the last three years
follows:
|
|
2008
|
|
2007
|
|
2006
|
PT
Smelting
|
|
41%
|
|
39%
|
|
27%
|
Atlantic
Copper
|
|
15%
|
|
25%
|
|
23%
|
Other
parties
|
|
44%
|
|
36%
|
|
50%
|
|
|
100%
|
|
100%
|
|
100%
|
|
|
|
|
|
|
|
PT
Freeport Indonesia’s sales to PT Smelting represented approximately eight
percent of our consolidated revenues in 2008, 11 percent of our consolidated
revenues in 2007 and approximately 21 percent of our consolidated revenues in
2006. No other customer accounted for more than 10 percent of our consolidated
revenues in any of the three years ended December 31, 2008.
Revenues
from our Indonesia concentrate sales are recorded net of royalties (refer to
“Mines – Indonesia – Contracts of Work”), and treatment and refining charges
(including price participation charges, if applicable, based on the market
prices of metals). Similar to our South America mines, Indonesia
concentrate sales are net of allowances for unrecoverable metals. PT Freeport
Indonesia sells a small amount of copper concentrates in the spot
market.
Europe. Atlantic Copper sells
copper cathode directly to rod and brass mills, primarily located in Europe.
Atlantic
Copper
has occasionally sold copper cathode to merchants. Copper cathode is generally
sold under annual contracts and priced based on the LME average spot price for
the month of arrival.
Molybdenum
Products and Sales
We are
the world’s largest producer of molybdenum and molybdenum-based chemicals. In
addition to production from our Henderson molybdenum mine, we have produced
by-product molybdenum at our Morenci, Sierrita and Bagdad mines in Arizona, our
Chino mine in New Mexico and our Cerro Verde mine in Peru. However, in December
2008 we temporarily curtailed the molybdenum circuit at Morenci, and in 2009 we
plan to temporarily curtail the molybdenum circuits at Chino and Cerro
Verde.
The
majority of our molybdenum concentrates are processed in our own conversion
facilities. Technical-grade oxide is produced from molybdenum concentrates in
Sierrita, Arizona; Fort Madison, Iowa and Rotterdam, the Netherlands.
Ferromolybdenum is produced from technical-grade oxide in Stowmarket, United
Kingdom through a metallothermic reduction process. High-quality molybdenum
concentrates are converted into molybdenum chemicals at Fort Madison, Iowa and
Rotterdam, the Netherlands. Approximately 90 percent of our expected 2009
molybdenum sales are expected to be priced at prevailing market
prices.
Gold
Products and Sales
Gold and
other by-products are primarily sold as a component of our copper concentrate or
in slimes, which are a by-product of the smelting and refining process. Gold
generally is priced at the average London Bullion Market Association price for a
specified month near the month of shipment.
For an
allocation of our consolidated revenues by geographic area, refer to Note 19 –
“Business Segments.”
MINES
Curtailed
Facilities
The
following table summarizes the temporary curtailments announced in late 2008 and
early 2009 in response to current market conditions. For additional information,
refer to Item 7. “Management’s Discussion and Analysis of Financial Condition
and Results of Operations.”
Facility
|
|
Date
of Announcement
|
|
Announced
Reductions
|
Copper
|
|
|
|
|
North America
|
|
|
|
|
· Morenci
|
|
December
2008 and
|
|
25
percent reduction in mining and crushed-leach
|
|
|
January
2009
|
|
rates
in December 2008 and an additional reduction
|
|
|
|
|
in
January 2009 for a total 50 percent reduction in
|
|
|
|
|
mining
and crushed-leach rates |
· Chino
|
|
December
2008
|
|
Suspension
of mining and milling activities
|
· Safford
|
|
December
2008
|
|
50
percent reduction in mining and stacking rates
|
· Tyrone
|
|
December
2008
|
|
50
percent reduction in mining rate
|
· Miami
|
|
December
2008
|
|
Deferral
of restart of the Miami mine
|
South America
|
|
|
|
|
· Candelaria/
|
|
|
|
|
Ojos del
Salado
|
|
January
2009
|
|
Reduction
in mining rates
|
|
|
|
|
|
Molybdenum
|
|
|
|
|
· Henderson
|
|
November
2008
|
|
25
percent reduction in mining and milling rates
|
· Climax
|
|
November
2008
|
|
Deferral
of restart of the Climax mine
|
· Morenci
|
|
January
2009
|
|
Suspension
of molybdenum by-product production
|
· Cerro
Verde
|
|
January
2009
|
|
Suspension
of molybdenum by-product
production
|
As a
result of these curtailments, copper production is expected to be reduced by 400
million pounds in 2009 and 800 million pounds in 2010 and molybdenum production
is expected to be reduced by 20 million pounds in 2009 and 40 million pounds in
2010, compared with our previously announced October 2008 estimated production
for
2009 and
2010. Projected copper production is expected to be 3.9 billion
pounds in 2009 and 3.8 billion pounds in 2010. Projected molybdenum
production is expected to be 60 million pounds in both 2009 and 2010. The
affected mine sites will be idling or reducing utilization of a portion of their
equipment fleets in connection with these curtailments.
We are continuing to closely
monitor market conditions and may make further reductions to our production and
sales plans.
Following
are maps and descriptions of our North America (including Molybdenum
operations), South America and Indonesia mining operations and the Tenke
Fungurume development project in Africa.
North
America
In the
U.S., most of the land occupied by our copper and molybdenum mines,
concentrators, SX/EW facilities, smelter, refinery, rod mills, molybdenum
roasters, processing facilities and the Climax technology center is generally
owned by us or is located on unpatented mining claims owned by us. Certain
portions of our Sierrita, Bagdad, Miami, Tyrone, Chino, Cobre and Henderson
operations are located on government-owned land and are operated under a Mine
Plan of Operations or other use permit. The Sierrita operation leases property
adjacent to its mine upon which its electrowinning tank house is located. The
lease expires in May 2009, but we expect to exercise the option to renew for an
additional five years. Various federal and state permits or leases on government
land are held for purposes incidental to mine operations.
Morenci
Morenci,
the largest copper mine in North America, is an open-pit copper mining complex
located in Greenlee County, Arizona, approximately 50 miles northeast of Safford
on U.S. Highway 191. The site is accessible by a paved highway and a
railway spur. We own an 85 percent undivided interest in Morenci, with the
remaining 15 percent owned by affiliates of Sumitomo Corporation. Each partner
takes in kind its share of Morenci’s production. The open-pit mine has been
in continuous operation since 1939 and previously was mined through
underground workings. The Morenci mine is a porphyry copper deposit that has
oxide and secondary sulfide mineralization, and primary sulfide mineralization.
The predominant oxide copper mineral is chrysocolla. Chalcocite is the most
important secondary copper sulfide mineral with chalcopyrite as the dominant
primary copper sulfide.
The
Morenci operation consists of a 49,000 metric ton-per-day concentrator that
produces copper and molybdenum concentrate, an 80,000 metric ton-per-day
crushed-ore leach pad and stacking system, a large low-grade run-of-mine (ROM)
leaching system, four SX plants, and three EW tank houses that produce copper
cathode. Total EW tank house capacity is approximately 916 million pounds of
copper per year. Copper production for 2008 was 737 million pounds, including
our partner’s share. In response to weak market conditions during fourth-quarter
2008 and January 2009, we revised our operating plans to reflect a 50 percent
reduction in the mining and crushed leach rates at Morenci. The available mining
fleet consists of 145 235-metric ton haul trucks loaded by 18 shovels with
bucket sizes ranging from 47 to 55 cubic meters, which are capable of moving
over 1,000,000 metric tons of material per day.
The
concentrate leach, direct-electrowinning facility at Morenci was commissioned in
third-quarter 2007. The concentrate-leach project included the restart of a
mill, which added 115 million pounds of copper production
capacity per year. We plan to temporarily curtail production at this
facility in first-quarter 2009 as part of our revised operating plan.
Morenci
is located in a desert environment with rainfall averaging 13 inches per year.
The highest bench elevation is 1,950 meters above sea level and the ultimate pit
bottom is expected to have an elevation of 900 meters above sea level. The
Morenci operation encompasses approximately 53,944 acres, comprising 47,609
acres of patented mining claims and other fee lands, 5,914 acres of unpatented
mining claims, and 421 acres of land held by state or federal permits, easements
and rights-of-way.
Morenci
receives electrical power from Tucson Electric Power Company, Arizona Public
Service and the Luna Energy facility in Deming, New Mexico (in which we own a
one-third interest). Although we believe the Morenci operation has sufficient
water sources to support currently planned mining operations, we are a party to
litigation that could adversely affect our water rights at Morenci and at
our other properties in Arizona. Refer to Item 3. “Legal Proceedings,” for
information concerning the status of these proceedings.
Sierrita
Sierrita
is an open-pit copper and molybdenum mining complex located in Pima County,
Arizona, approximately 20 miles southwest of Tucson and seven miles west of the
town of Green Valley and Interstate Highway 19. The site is accessible by a
paved highway and by rail. The mine has been in operation since 1959. The
Sierrita mine is a porphyry copper deposit that has oxide and secondary sulfide
mineralization, and primary sulfide mineralization. The predominant oxide copper
minerals are malachite, azurite and chrysocolla. Chalcocite is the most
important secondary copper sulfide mineral, and chalcopyrite and molybdenite are
the dominant primary sulfides.
The
Sierrita operation consists of a 102,000 metric ton-per-day concentrator, two
molybdenum roasters and a rhenium processing facility. The facility produces
copper and molybdenum concentrates. Sierrita also produces copper from a ROM
oxide-leaching system. Cathode copper is plated at the Twin Buttes EW
facility, that has a design capacity of approximately 50 million
pounds of copper per year. In 2004, a copper sulfate crystal plant began
production. The facility has the capacity to produce 40 million pounds of copper
sulfate per year. The molybdenum facility consists of a leaching circuit, two
molybdenum roasters and a packaging facility. The molybdenum facilities process
Sierrita concentrate, concentrate from our other mines and concentrate from
third-party sources. Copper production for 2008 was 188 million pounds and
molybdenum production was 20 million pounds. The available mining fleet has the
capacity to move an average of 200,000 metric tons of material per day
using 24 210- to 235-metric ton haul trucks loaded by five shovels
with bucket sizes ranging from 21 to 47 cubic meters.
Sierrita
is located in a desert environment with rainfall averaging 12 inches per year.
The highest bench elevation is 1,350 meters above sea level and the ultimate pit
bottom is expected to be 550 meters above sea level. The Sierrita
operation encompasses approximately 22,890 acres, comprising 14,426 acres of
patented mining claims and other fee lands, 5,870 acres of unpatented mining
claims (includes 3,748 acres overlaying federal minerals on previously counted
fee lands) and 2,194 acres of leased lands.
Sierrita
receives electrical power through long-term contracts with the Tucson Electric
Power Company. Although we believe the Sierrita operation has sufficient water
resources to support currently planned mining operations, we are a party to
litigation that could adversely affect our water rights at Sierrita and at our
other properties in Arizona. Refer to Item 3. “Legal Proceedings,” for
information concerning the status of these proceedings.
Bagdad
Bagdad is
an open-pit copper and molybdenum mining complex located in Yavapai County in
west-central Arizona. It is approximately 60 miles west of Prescott and 100
miles northwest of Phoenix. The property can be reached by Arizona Highway
96, which ends at the town of Bagdad. The closest railroad siding is at
Hillside, Arizona, approximately 24 miles southeast on Arizona Highway 96. The
open-pit mining operation has been ongoing since 1945, and prior mining was
conducted through underground workings. The Bagdad mine is a porphyry copper
deposit that has oxide and secondary sulfide mineralization, and primary sulfide
mineralization. The predominant oxide copper minerals are chrysocolla, malachite
and azurite. Chalcocite is the most important secondary copper sulfide mineral,
and chalcopyrite and molybdenite are the dominant primary sulfides.
The
Bagdad operation consists of a 75,000 metric ton-per-day concentrator that
produces copper and molybdenum concentrates, and an SX/EW plant that produces up
to 25 million pounds per year of copper cathode from solution generated by
low-grade ROM. Copper production for 2008 was 227 million pounds and
molybdenum production was eight million pounds. The available mining fleet has
the capacity to move in excess of 180,000 metric tons of material per day
using 24 235-metric ton haul trucks loaded by five shovels with bucket
sizes ranging from 40 to 56 cubic meters.
In 2002,
Bagdad constructed a high-temperature, concentrate-leaching demonstration plant
designed to recover commercial-grade copper cathode from chalcopyrite
concentrates. The facility is the first of its kind in the world to use
high-temperature, pressure leaching to process chalcopyrite concentrates. In
first-quarter 2009, the conversion of this facility to a molybdenum concentrate
leach facility will be completed and is expected to increase our annual capacity
to upgrade molybdenum sulfide to an oxide by approximately 20 million
pounds.
Bagdad is
located in a desert environment with rainfall averaging 15 inches per year. The
highest bench elevation is 1,200 meters above sea level and the ultimate pit
bottom is expected to be 475 meters above sea level. The Bagdad
operation encompasses approximately 21,743 acres, comprising 21,143 acres of
patented mining claims and other fee lands, and 600 acres of unpatented mining
claims.
Bagdad
receives electrical power from Arizona Public Service Company. Although we
believe the Bagdad operation has sufficient water resources to support currently
planned mining operations, we are a party to litigation that could adversely
affect our water rights at Bagdad and at our other properties in
Arizona. Refer to Item 3. “Legal Proceedings,” for information
concerning the status of these proceedings.
Safford
Safford is
an open-pit copper mining complex located in Graham County, Arizona,
approximately eight miles north of the town of Safford and 170 miles east of
Phoenix. The site is accessible by paved county road off U.S. Highway 70.
Initial production commenced in late 2007 with production ramping up to full
production capacity in the second half of 2008. The Safford mine includes two
copper deposits that have oxide mineralization overlaying primary copper
sulfide mineralization. The predominant oxide copper minerals are chrysocolla
and copper-bearing iron oxides with the predominant copper sulfide material
being chalcopyrite.
The
property is a mine-for-leach project and produces copper cathodes. The operation
consists of two open pits feeding a crushing facility with a capacity of 103,000
metric tons per day of crushed ore. The crushed ore is delivered to a single
leach pad by a series of overland and portable conveyors. Leach solutions feed
an SX/EW facility with a capacity of 240 million pounds of copper per year.
Copper production for 2008 was 133 million pounds. In response to weak market
conditions during fourth-quarter 2008 and January 2009, we revised our operating
plans to reflect a 50 percent reduction in mining and stacking rates at Safford.
The available mining fleet consists of 23 235-metric ton haul trucks loaded
by four shovels with bucket sizes ranging from 31 to 34 cubic meters, which are
capable of moving an average of approximately 285,000 metric tons of material
per day.
Safford
is located in a desert environment with rainfall averaging 10 inches per year.
The highest bench elevation is 1,250 meters above sea level and the
ultimate pit bottom is expected to have an elevation of 750 meters above sea
level. The Safford operation encompasses approximately 24,957 acres, comprising
20,994 acres of patented lands, 3,932 acres of unpatented lands and 31 acres of
land held by federal permit.
The
Safford operation’s electrical power is provided by Morenci Water and Electric
Company, a wholly owned subsidiary of FCX, through the transmission systems of
Southwest Transmission Cooperative, a subsidiary of Arizona Electric Power
Cooperative, Inc., with most of the power sourced from the Luna Energy facility.
Although we believe the Safford operation has sufficient water resources to
support currently planned mining operations, we are a party to litigation that
could adversely impact the water rights at Safford and at our other properties
in Arizona. Refer to Item 3. “Legal Proceedings,” for information concerning the
status of these proceedings.
Tyrone
Tyrone is
an open-pit copper mining complex located in southwestern New Mexico in Grant
County, approximately 10 miles south of Silver City, New Mexico, along State
Highway 90. The site is accessible by paved road. The open-pit mine has been in
operation since 1967. The Tyrone mine is a porphyry copper deposit.
Mineralization is predominantly secondary sulfide consisting of
chalcocite.
Copper
processing facilities consist of an SX/EW operation with a maximum capacity of
168 million pounds of copper cathodes per year. Copper production for 2008 was
76 million pounds. In response to weak market conditions during fourth-quarter
2008 and January 2009, we revised our operating plan to reflect a 50 percent
reduction in the mining rate at Tyrone. The available mining fleet has the
capacity to move an average of 120,000 metric tons of material per day
using 22 190-metric ton haul trucks loaded by three shovels with bucket
sizes ranging from 22 to 54 cubic meters. Historically, ore production has
occurred from numerous open pits throughout the site. Mining is currently
ongoing in a single, large, central open pit.
Tyrone is
located in a desert environment with rainfall averaging 16 inches per year. The
highest bench elevation is 2,000 meters above sea level and the ultimate pit
bottom is expected to have an elevation of 1,500 meters above sea level. The
Tyrone operation encompasses approximately 35,200 acres, comprising 18,755 acres
of patented mining claims and other fee lands, and 16,445 acres of unpatented
mining claims (includes 1,116 acres overlaying federal minerals on previously
counted fee lands).
Tyrone
receives electrical power from the Luna Energy facility and from the open
market. Tyrone also has the ability to self-generate power. We believe the
Tyrone operation has sufficient water resources to support currently
planned mining operations.
Henderson
The
Henderson molybdenum mine is located approximately 42 miles west of Denver,
Colorado, off U.S. Highway 40. Nearby communities include the towns of Empire,
Georgetown and Idaho Springs. The Henderson mill site is located approximately
15 miles west of the mine and is accessible from Colorado State Highway 9. The
Henderson mine and mill are connected by a 10-mile conveyor tunnel under the
Continental Divide and an additional five-mile surface conveyor. The tunnel
portal is located five miles east of the mill. The mine has been in operation
since 1976. The Henderson mine is a porphyry molybdenum deposit with
molybdenite as the primary sulfide mineral.
The
Henderson operation consists of a large block-cave underground mining complex
feeding a 36,000 metric ton-per-day concentrator. Henderson has the capacity to
produce approximately 40 million pounds of molybdenum per year. The majority of
the molybdenum concentrate produced is shipped to our Fort Madison, Iowa,
processing facility. Molybdenum production for 2008 was 40 million pounds. In
response to weak market conditions during fourth-quarter 2008, we revised our
operating plans to reflect an approximate 25 percent reduction in Henderson’s
annual production. The available underground mining equipment fleet consists of
20 nine-metric ton load-haul-dump (LHD) units and eight 36- and 73-metric
ton haul trucks, which feed a gyratory crusher feeding a series of three
overland conveyors to the mill stockpiles.
The
Henderson mine is located in a mountain region with the main access shaft at
3,180 meters above sea level. The main production levels are currently at
elevations of 2,200 and 2,350 meters above sea level. This region experiences
significant snowfall during the winter months.
The
Henderson mine and mill operations encompass approximately 11,878 acres,
comprising 11,843 acres of patented mining claims and other fee lands, and a
35-acre easement with the U.S. Forest Service for the surface portion of the
conveyor corridor.
Henderson
operations receive electrical power through long-term contracts with Xcel Energy
and natural gas through long-term contracts with BP Energy, with Xcel Energy as
the transporter. We believe the Henderson operation has sufficient
water resources to support currently planned mining
operations.
Non-Operating
Mines
In
addition to the currently operating mines described above, we have four
non-operating copper mines in Arizona: Ajo, Bisbee, Miami and Tohono; two in New
Mexico: Chino (with limited residual copper production from leaching operations)
and Cobre; and the Climax molybdenum mine in Colorado, all of which are
currently on care-and-maintenance status. In November 2008, in response to
current market conditions, we announced suspension of construction activities
associated with the restart of the Climax molybdenum mine and placed the Chino
mine on care-and-maintenance status in December 2008. The remainder of these
mines have been on care-and-maintenance status for several years and would
require significant capital investment to return them to operating status.
Several of the Arizona and New Mexico mines continue to produce copper cathode
from stockpiles. Copper production in 2008 from these mines totaled 180 million
pounds.
South
America
At our
operations in South America, mine properties and facilities are controlled
through mining claims or concessions under the general mining laws of the
relevant country. The claims or concessions are owned or controlled by the
operating companies in which we or our subsidiaries have an ownership interest.
Roads, power lines and aqueducts are controlled by easements.
Cerro
Verde
Cerro
Verde is an open-pit copper and molybdenum mining complex located 20 miles
southwest of Arequipa, Peru. The site is accessible by paved highway. We have a
53.56 percent ownership interest in Cerro Verde. The remaining 46.44 percent is
held by SMM Cerro Verde Netherlands B.V. (21.0 percent), Compañia de Minas
Buenaventura S.A.A. (18.5 percent) and other shareholders whose shares are
publicly traded on the Lima Stock Exchange (6.94 percent). The Cerro Verde mine
has been in operation since 1976.
The Cerro
Verde mine is a porphyry copper deposit that has oxide and secondary sulfide
mineralization, and primary sulfide mineralization. The predominant oxide copper
minerals are brochantite, chrysocolla, malachite and copper “pitch.” Chalcocite
and covellite are the most important secondary copper sulfide minerals.
Chalcopyrite and molybdenite are the dominant primary sulfides.
Cerro
Verde’s current operation consists of an open-pit copper mine, concentrator and
SX/EW leaching facilities. Leach copper production is derived from a 39,000
metric ton-per-day crushed leach facility and a ROM leach
system.
This leaching operation has a capacity of approximately 200 million pounds of
copper per year. A 108,000 metric ton-per-day concentrator was completed in late
2006 and began processing of sulfide ore in the fourth quarter of 2006. Copper
production for 2008 was 694 million pounds.
Cerro
Verde has sufficient equipment to move an average of 295,000 metric tons of
material per day using an available fleet of 29 180-metric ton and 230-metric
ton haul trucks loaded by five shovels with bucket sizes ranging in size from 21
to 46 cubic meters.
Approximately
one-third of Cerro Verde’s copper cathode production is sold locally and the
remaining copper cathodes and concentrate production are transported
approximately 70 miles by truck and rail to the Pacific Port of Matarani for
shipment to international markets.
Cerro
Verde is located in a desert environment with rainfall averaging 1.5 inches per
year and is in an active seismic zone. The highest bench elevation is 2,900
meters above sea level and the ultimate pit bottom is expected to be 2,000
meters above sea level. Cerro Verde has a mining concession covering
approximately 157,007 acres plus 24 acres of owned property and 79 acres of
rights-of-way outside the mining concession area.
Cerro
Verde receives electrical power under long-term contracts with Electroperu and
Empresa de Generación Eléctrica de Arequipa. The existing freshwater intake and
supply system on the Rio Chili was expanded for the Cerro Verde concentrator
project. Cerro Verde’s participation in the Pillones Reservoir Project has
secured water rights that we believe will be sufficient to support Cerro
Verde’s currently planned operations. However, rainfall in 2008 was below
normal and the rainy season in 2009, which ends in March, has been below
normal. Reservoir levels are currently about half of the five-year
average for this time of year.
El
Abra
El Abra
is an open-pit copper mining complex located 47 miles north of Calama in Chile’s
El Loa province, Region II. The site is accessible by paved highway and by rail.
We own a 51 percent interest in El Abra. The remaining 49 percent interest is
held by the state-owned copper enterprise Corporación Nacional del Cobre de
Chile (CODELCO). The mine has been in operation since 1996.
The El
Abra mine is a porphyry copper deposit that has oxide and sulfide
mineralization. The predominant oxide copper minerals are chrysocolla and
pseudomalachite. There are lesser amounts of copper-bearing clays and tenorite.
The predominant primary sulfide copper minerals are bornite and chalcopyrite.
There is a minor amount of secondary sulfide mineralization as
chalcocite.
The El
Abra operation consists of an open-pit copper mine and an SX/EW facility with a
capacity of 500 million pounds of copper cathode per year from a 120,000 metric
ton-per-day crushed leach circuit and a similar-sized, ROM leaching operation.
Copper production for 2008 was 366 million pounds. The mining operation has
sufficient equipment to move an average of 223,000 metric tons per day using an
available fleet of 26 220-metric ton haul trucks loaded by four shovels with
buckets ranging in size from 26 to 41 cubic meters.
We have
the opportunity to develop a large sulfide deposit at El Abra that will extend
the mine life by over 10 years. Copper production from the sulfide deposit is
estimated to average approximately 325 million pounds per
year,
replacing the depleting oxide production. We had previously planned to begin
development of this project in 2009 to reach full production in 2012; however,
in response to current market conditions, we are deferring construction
activities on this project. We will continue to assess the timing of this
project and will be prepared to proceed with construction activities when market
conditions improve. Total initial capital for the project is estimated to
approximate $450 million.
El Abra
is located in a desert environment with rainfall averaging less than one inch
per year and is in an active seismic zone. The highest bench elevation is 4,180
meters above sea level and the ultimate pit bottom is expected
to be 3,410 meters above sea level. El Abra controls a total of
110,268 acres of mining claims covering the ore deposit, stockpiles, process
plant, and water wellfield and pipeline. In addition, El Abra has acquired land
surface rights for the road between the processing plant and the mine, the water
wellfield, power transmission lines and for the water pipeline from the Salar de
Ascotán. Acquisition of additional land surface area required for the future
development of the sulfide project is in process.
El Abra
currently receives electrical power under a contract with Electroandina, which
will expire at the end of 2017. We believe El Abra has sufficient water rights
to support currently planned operations.
Candelaria
and Ojos del Salado
Candelaria. Candelaria
is an open-pit and underground copper mining complex located approximately 12
miles south of Copiapó in northern Chile’s Atacama province, Region III. The
site is accessible by two maintained dirt roads, one coming through the Tierra
Amarilla community and the other off of Route 5 of the International
Pan-American Highway. We have an 80 percent ownership interest in Candelaria.
The remaining 20 percent interest is owned by affiliates of the Sumitomo
Corporation. The open-pit copper mine has been in operation since 1993 and
the underground copper mine has been in operation since 2005.
The
Candelaria mine is an iron oxide, copper/gold deposit. Primary sulfide
mineralization consists of chalcopyrite.
The
Candelaria operation consists of an open-pit copper mine and a 6,000 metric
ton-per-day underground copper mine, which is mined by sublevel stoping,
feeding a 75,000 metric ton-per-day concentrator. On average, open-pit mining
operations move 210,000 metric tons of material per day using an available fleet
of 48 225-metric ton haul trucks loaded by six shovels with bucket sizes ranging
from 13 to 43 cubic meters. Copper concentrates are transported by truck to the
Punta Padrones port facility located in Caldera, approximately 50 miles
northwest of the mine. Copper production for 2008 was 383 million pounds and
gold production was 98,000 ounces. In early 2009, we revised our operating
plan to reduce the mining rate at Candelaria.
Candelaria
is located in a desert environment with rainfall averaging less than one inch
per year and is in an active seismic zone. The highest bench elevation
is 675 meters above sea level and the ultimate pit bottom is expected
to be 30 meters below sea level. The Candelaria property encompasses
approximately 13,390 acres, including approximately 544 acres for the port
facility in Caldera. The remaining property consists of mineral rights owned by
us in which the surface is not owned but controlled by us, which is
consistent with Chilean law.
Candelaria
receives electrical power through long-term contracts with Empresa Eléctrica
Guacolda S.A., a local energy company. Candelaria’s water supply comes from well
fields in the area of Tierra Amarilla and Copiapó that draw water from the
Copiapó River aquifer. Because of rapid depletion of that aquifer in recent
years, ongoing studies are addressing the adequacy of this water supply for
Candelaria’s currently planned operations.
Ojos del
Salado. Ojos del Salado consists of two underground copper
mines (Santos and Alcaparrosa) and a 3,800 metric ton-per-day concentrator. The
operation is located approximately 10 miles east of Copiapó in northern Chile’s
Atacama province, Region III, and is accessible by paved highway. We have an 80
percent ownership interest in Ojos del Salado. The remaining 20 percent interest
is owned by affiliates of the Sumitomo Corporation. The Ojos del Salado
operation began commercial production in 1929.
The Ojos
del Salado mines are iron oxide and copper/gold deposits. Primary sulfide
mineralization consists of chalcopyrite.
The Ojos
del Salado operation has a capacity of 3,800 metric tons per day of ore from the
Santos underground mine and 4,000 metric tons per day from the Alcaparrosa
underground mine. The ore from both mines is mined by sublevel stoping, since
both the ore and enclosing rocks are competent. The broken ore is removed from
the stopes using scoops and loaded into an available fleet of 18 28-metric ton
trucks, which transport the ore to the surface. The ore from the Santos mine is
hauled directly to the Ojos del Salado mill for processing, and the ore from the
Alcaparrosa mine is reloaded into five 54-metric ton trucks and hauled 12 miles
to the Candelaria mill for processing. The Ojos del Salado concentrator has the
capacity to produce over 30 million pounds of copper and 9,000 ounces of gold
per year. Copper production for 2008 was 63 million pounds and gold production
was 16,000 ounces. In early 2009, we revised our operating plan to reduce
the mining rate at Ojos del Salado. Tailings from the Ojos del Salado mill are
pumped to the Candelaria tailings facility for final deposition. The Candelaria
facility has sufficient capacity for the remaining Ojos del Salado tailings in
addition to Candelaria’s tailings.
Ojos del
Salado is located in a desert environment with rainfall averaging less than one
inch per year and is in an active seismic zone. The highest underground level is
at an elevation of 500 meters above sea level, with the lowest underground level
at 150 meters above sea level. The Ojos del Salado mineral rights encompass
approximately 15,815 acres, which includes approximately 6,784 acres of owned
land in and around the Ojos del Salado underground mines and plant site. The
remaining property consists of mineral rights owned by us in which the surface
is not owned but controlled by us, which is consistent with Chilean
law.
Ojos del
Salado receives electrical power through long-term contracts with Empresa
Eléctrica Guacolda S.A. Ojos del Salado’s water supply comes from the Copiapó
River aquifer. Because of rapid depletion of this aquifer in recent years,
ongoing studies are addressing the adequacy of this water supply for Ojos del
Salado’s currently planned operations.
Indonesia
Ownership
PT
Freeport Indonesia is a limited liability company organized under the laws of
the Republic of Indonesia and incorporated in Delaware. We directly own 81.28
percent of PT Freeport Indonesia, 9.36 percent indirectly through our wholly
owned subsidiary, PT Indocopper Investama, and the Government of Indonesia owns
the remaining 9.36 percent.
In July
2004, we received a request from the Indonesian Department of Energy and Mineral
Resources that we offer to sell shares in PT Indocopper Investama to Indonesian
nationals at fair market value. Refer to Note 16 – “Commitments and Guarantees”
for additional discussion.
In 1996,
we established joint ventures with Rio Tinto plc (Rio Tinto), an international
mining company with headquarters in London, England. One joint venture covers PT
Freeport Indonesia’s mining operations in Block A and gives Rio Tinto, through
2021, a 40 percent interest in certain assets and future production exceeding
specified annual amounts of copper, gold and silver in Block A, and, after 2021,
a 40 percent interest in all production from Block A. Operating, nonexpansion
capital and administrative costs are shared proportionately
between
PT Freeport Indonesia and Rio Tinto based on the ratio of (a) the incremental
revenues from production from our expansion completed in 1998 to (b) total
revenues from Block A, including production from PT Freeport Indonesia’s
previously existing reserves. PT Freeport Indonesia receives 100 percent of the
cash flow from specified annual amounts of copper, gold and silver through 2021,
calculated by reference to its proven and probable reserves as of December 31,
1994, and 60 percent of all remaining cash flow. PT Freeport Indonesia records
its joint venture interest using the proportionate consolidation method. Under
the joint venture agreements, virtually all of the 2008 cash flows from PT
Freeport Indonesia's operations were attributed to PT Freeport
Indonesia.
Contracts
of Work
Through a
Contract of Work (COW) with the Government of Indonesia, PT Freeport Indonesia
conducts its current exploration and mining operations in Indonesia.
The COW governs our rights and obligations relating to taxes, exchange
controls, royalties, repatriation and other matters, and was concluded pursuant
to the 1967 Foreign Capital Investment Law, which expresses Indonesia’s foreign
investment policy and provides basic guarantees of remittance rights and
protection against nationalization, a framework for economic incentives and
basic rules regarding other rights and obligations of foreign investors.
Specifically, the COW provides that the Government of Indonesia will not
nationalize or expropriate PT Freeport Indonesia’s mining operations. Any
disputes regarding the provisions of the COW are subject to international
arbitration. We have experienced no disputes requiring arbitration during the 40
years we have operated in Indonesia.
PT
Freeport Indonesia’s COW covers both Block A, which was first included in a 1967
COW that was replaced by a new COW in 1991, and Block B in which we gained
rights in 1991. The initial term of our COW expires in December 2021, but we can
extend it for two 10-year periods subject to Indonesian government approval that
cannot be withheld or delayed unreasonably. The COW allows us to conduct
exploration, mining and production activities in the 24,700-acre Block A area,
located in Papua. All of PT Freeport Indonesia’s proven and probable mineral
reserves and current mining operations are located in Block A. Under the COW, PT
Freeport Indonesia also conducts exploration activities (which had been
suspended, but resumed in 2007) in the approximate 500,000-acre Block B area, in
Papua. We originally had the rights to explore 6.5 million acres in Block B, but
pursuant to the COW we have only retained the rights to approximately 500,000
acres following significant geological assessment.
PT
Freeport Indonesia pays a copper royalty under its COW that varies from 1.5
percent of copper net revenue at a copper price of $0.90 or less per pound to
3.5 percent at a copper price of $1.10 or more per pound. The COW royalty rate
for gold and silver sales is 1.0 percent.
A large
part of the mineral royalties under Government of Indonesia regulations are
designated to the provinces from which the minerals are extracted. In connection
with our fourth concentrator mill expansion completed in 1998, PT Freeport
Indonesia agreed to pay the Government of Indonesia additional royalties
(royalties not required by our COW) to provide further support to the local
governments and the people of the Indonesia province of Papua. The additional
royalties are paid on production exceeding specified annual amounts of copper,
gold and silver expected to be generated when PT Freeport Indonesia’s milling
facilities operate above 200,000 metric tons of ore per day. The additional
royalty for copper equals the COW royalty rate and for gold and silver equals
twice the COW royalty rates. Therefore, PT Freeport Indonesia’s royalty rate on
copper net revenues from production above the agreed levels is double the COW
royalty rate, and royalty rates on gold and silver sales from production above
the agreed levels are triple the COW royalty rates. PT Freeport Indonesia’s
share of the combined royalties, including the additional royalties which became
effective January 1, 1999, totaled $113 million in 2008, $133 million in 2007
and $126 million in 2006.
PT Irja
Eastern Minerals (Eastern Minerals), of which we own 100 percent, conducts
exploration under a separate COW in an area covering approximately 450,000 acres
in Papua.
Under a
joint venture agreement through PT Nabire Bakti Mining, we conduct exploration
activities under a separate COW in an area covering approximately 500,000
acres in five parcels contiguous to PT Freeport Indonesia’s Block B and one of
Eastern Minerals’ blocks.
In 2008,
Indonesia enacted a new mining law, which will operate under a licensing system
as opposed to the COW system that applies to PT Freeport Indonesia and
Eastern Materials. The new law indicates that existing COWs will be honored
but that certain provisions should be adjusted to conform to the new law. It is
not clear
what
adjustments, if any, may be requested by the Government of Indonesia, but we are
committed to continuing to honor and abide by the terms of our COW and the
Government has consistently indicated that it will honor all existing
contracts.
Grasberg
Minerals District
PT
Freeport Indonesia operates in the remote highlands of the Sudirman Mountain
Range in the province of Papua, Indonesia, which is on the western half of the
island of New Guinea. We and our predecessors have conducted exploration and
mining operations in Block A since 1967 and have been the only operator of these
operations. We currently have two mines in operation: the Grasberg open pit and
the Deep Ore Zone (DOZ) underground block cave.
Grasberg Open
Pit. We began open-pit
mining of the Grasberg ore body in 1990. Open-pit operations are expected to
continue through 2015, at which time the Grasberg underground mining operations
are scheduled to begin. Production is currently at the 3,295- to
4,285-meter elevation level and totaled 49.0 million metric tons of ore
in 2008 and 57.5 million metric tons of ore in 2007, which provided 67
percent of our 2008 mill feed and 75 percent of our 2007 mill feed. Remaining
mill feed comes from our DOZ mine.
The
current Grasberg equipment fleet consists of over 500 units. At December 31,
2008, the larger mining equipment directly associated with production
included an available fleet of 157 haul trucks with payloads ranging from
approximately 215 metric tons to 330 metric tons and 19 shovels with bucket
sizes ranging from 30 cubic meters to 42 cubic meters, which in 2008 moved an
average of 669,000 metric tons per day.
Grasberg
crushing and conveying systems are integral to the mine and provide the capacity
to transport up to 225,000 metric tons per day of Grasberg ore to the mill and
135,000 metric tons per day of overburden to the overburden stockpiles. The
remaining ore and overburden is moved by haul trucks.
Deep Ore Zone. The DOZ ore body lies
vertically below the now depleted Intermediate Ore Zone. We began production
from the DOZ ore body in 1989 using open stope mining methods, but we suspended
production in 1991 in favor of production from the Grasberg deposit. Production
resumed in September 2000 using the block-cave method. Production is at the
3,110-meter elevation level and totaled 23.1 million metric tons of ore in 2008
and 19.5 million metric tons in 2007.
During
2008, we completed over 16,000 meters of development drifting in support of the
block-cave mining method for the DOZ mine. Further expansion of the DOZ
operation to 80,000 metric tons of ore per day is under way with completion
targeted by 2010. 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.
The DOZ
mine fleet consists of over 185 pieces of mobile heavy equipment, which in 2008
moved an average of 63,000 metric tons of ore per day. The primary mining
equipment directly associated with production and development includes an
available fleet of 50 LHD units and 19 haul trucks. Our production LHD units
typically carry approximately 11 metric tons of ore. Using ore passes and
chutes, the LHD units transfer ore into 55-ton capacity haul trucks. The trucks
dump into two gyratory crushers and the ore is then conveyed to the surface
stockpiles.
PT
Freeport Indonesia’s total production for 2008 was 1.1 billion pounds of
copper and 1.2 million ounces of gold.
Our
principal source of power for all our Indonesian operations is a coal-fired
power plant that we built in conjunction with our fourth concentrator mill
expansion. Diesel generators supply peaking and backup electrical power
generating capacity. A combination of naturally occurring mountain streams and
water derived from our underground operations provides water for our operations.
Our Indonesian operations are in an active seismic zone and experience average
annual rainfall of approximately 200 inches.
Description of Ore
Bodies. Our
Indonesia ore bodies are located within and around two main igneous intrusions,
the Grasberg monzodiorite and the Ertsberg diorite. The host rocks of these ore
bodies include both carbonate and clastic rocks that form the ridge crests and
upper flanks of the Sudirman Range, and the igneous rocks of monzonitic to
dioritic composition that intrude them. The igneous-hosted ore bodies (the
Grasberg open pit and block cave, and the DOZ block cave) occur as vein
stockworks and disseminations of copper sulfides, dominated by chalcopyrite and,
to a much lesser extent, bornite. The sedimentary-rock hosted ore bodies occur
as “magnetite-rich, calcium/magnesian skarn” replacements, whose location and
orientation are strongly influenced by major faults and by the chemistry of the
carbonate rocks along the margins of the intrusions.
The
copper mineralization in these skarn deposits is also dominated by chalcopyrite,
but higher bornite concentrations are common. Moreover, gold occurs in
significant concentrations in all of the district’s ore bodies, though rarely
visible to the naked eye. These gold concentrations usually occur as inclusions
within the copper sulfide minerals, though, in some deposits, these
concentrations can also be strongly associated with pyrite.
The
following diagram indicates the relative elevations (in meters) of our
reported ore bodies.
The
following map, which encompasses an area of approximately 42 square
kilometers (approximately 16 square miles), indicates the relative positions and
sizes of our reported ore bodies and their locations.
Africa
We are
developing the initial project at Tenke Fungurume in the DRC. At Tenke
Fungurume, mine properties and facilities are controlled through mining
concessions under general mining laws. The concessions are owned or controlled
by operating companies in which we or our subsidiaries have an ownership
interest.
Tenke
Fungurume
The Tenke
Fungurume deposits are located in the Katanga province of the DRC approximately
110 miles northwest of Lubumbashi. The deposits are accessible by unpaved roads
and by rail. We hold an effective 57.75 percent interest in the concessions
through our interest in Tenke Fungurume Mining, S.A.R.L., a company incorporated
under the laws of the DRC and are the operator of the project. The remaining
ownership interests
are held
by Tenke Mining Corp. (TMC), which is owned by Lundin Mining Corporation (an
effective 24.75 percent) and La Générale des Carrières et des Mines (Gécamines),
which is wholly owned by the Government of the DRC (17.5 percent). We are
responsible for funding 70 percent of project development costs and are also
responsible for financing our partner’s share of certain cost overruns on the
initial project. Gecamines has an undilutable carried interest and is not
responsible for funding any project costs. In accordance with the
terms of the agreement, Gecamines will receive asset transfer payments totaling
$100 million, $70 million of which has already been paid and the remainder of
which will be paid over a period of approximately three years.
The Tenke
Fungurume deposits are sediment-hosted copper and cobalt deposits with oxide,
mixed oxide-sulfide and sulfide mineralization. The dominant oxide minerals are
malachite, pseudomalachite and heterogenite. Important sulfide minerals consist
of bornite, carrollite, chalcocite and chalcopyrite.
Copper
and cobalt will be recovered through an agitation-leach plant capable of
processing 8,000 metric tons of ore per day. Construction activities are well
advanced and initial production is targeted during the second half of
2009 Annual production in the initial years is expected to
approximate 250 million pounds of copper and 18 million pounds of
cobalt. The initial project is based on mining and processing ore
reserves approximating 119 million metric tons with an average grade of 2.6
percent copper and 0.35 percent cobalt. We expect the results of drilling
activities will enable future expansion of initial production rates. The timing
of these expansions will depend on a number of factors, including general
economic and market conditions. The current equipment fleet includes 8
five-cubic meter front-end loaders, 29 45-metric ton haul trucks, surface
miners, production drills, sampling machines and crawler dozers.
Tenke
Fungurume is located in a tropical region; however, temperatures are moderated
by its higher altitudes. Weather in this region is characterized by a dry season
and a wet season, each lasting about six months with average rainfall of 47
inches per year. The highest bench elevation is expected to be 1,480 meters
above sea level and the ultimate pit bottom is expected to be 1,270 meters above
sea level. The Tenke Fungurume deposits are located within four concessions
totaling 394,455 acres.
Tenke
Fungurume has entered into long-term power supply and infrastructure funding
agreements with La Société Nationale d’Electricité (SNEL), the state-owned
electric utility company serving the region. The results of a recent water
exploration program, as well as the regional geological and hydro-geological
conditions, indicate that adequate water is available for the project,
and for hydro-electric generation during the expected life of the
operation.
In
February 2008, the Ministry of Mines, Government of the DRC, sent a letter
seeking comment on proposed material modifications to the mining contracts for
the Tenke Fungurume concession. Refer to Note 16 – “Commitments
and Guarantees” for additional discussion.
During
October 2008, fighting between rebel groups and the national Congolese army
erupted in the DRC and hostilities have continued in the eastern province of
North Kivu, which is more than 1,000 kilometers from our project site and not
easily accessible by road. This conflict has resulted in increased instability
in the DRC. We will continue to monitor the situation while continuing with our
development project.
PRODUCTION
DATA
For
comparative purposes, operating data shown below for the years ended December
31, 2007, 2006, 2005 and 2004, combines our historical data with Phelps Dodge
pre-acquisition data. As the pre-acquisition operating data represent the
results of these operations under Phelps Dodge management, such combined data is
not necessarily indicative of what past results would have been under FCX
management or of future operating results.
COPPER
|
|
Years
Ended December 31,
|
|
(millions
of recoverable pounds)
|
|
2008
|
|
|
2007a
|
|
|
2006a
|
|
|
2005a
|
|
|
2004a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINED COPPER (FCX’s net
interest in %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morenci
(85%)b
|
|
626
|
|
|
687
|
|
|
693
|
|
|
680
|
|
|
715
|
|
Bagdad
(100%)
|
|
227
|
|
|
202
|
|
|
165
|
|
|
201
|
|
|
220
|
|
Sierrita
(100%)
|
|
188
|
|
|
150
|
|
|
162
|
|
|
158
|
|
|
155
|
|
Chino
(100%)
|
|
155
|
|
|
190
|
|
|
186
|
|
|
210
|
|
|
183
|
|
Safford
(100%)
|
|
133
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Tyrone
(100%)
|
|
76
|
|
|
50
|
|
|
64
|
|
|
81
|
|
|
86
|
|
Miami
(100%)
|
|
19
|
|
|
20
|
|
|
19
|
|
|
25
|
|
|
20
|
|
Tohono
(100%)
|
|
2
|
|
|
3
|
|
|
5
|
|
|
5
|
|
|
-
|
|
Other
(100%)
|
|
4
|
|
|
17
|
|
|
11
|
|
|
5
|
|
|
5
|
|
Total
North America
|
|
1,430
|
|
|
1,320
|
c
|
|
1,305
|
|
|
1,365
|
|
|
1,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerro
Verde (53.56%)
|
|
694
|
|
|
594
|
|
|
222
|
|
|
206
|
|
|
195
|
|
Candelaria/Ojos
del Salado (80%)
|
|
446
|
|
|
453
|
|
|
429
|
|
|
421
|
|
|
461
|
|
El
Abra (51%)
|
|
366
|
|
|
366
|
|
|
482
|
|
|
464
|
|
|
481
|
|
Total
South America
|
|
1,506
|
|
|
1,413
|
c
|
|
1,133
|
|
|
1,091
|
|
|
1,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grasberg
(90.64%)d
|
|
1,094
|
|
|
1,151
|
|
|
1,201
|
|
|
1,456
|
|
|
997
|
|
Consolidated
|
|
4,030
|
|
|
3,884
|
|
|
3,639
|
|
|
3,912
|
|
|
3,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
minority participants’ share
|
|
693
|
|
|
653
|
|
|
537
|
|
|
543
|
|
|
512
|
|
Net
|
|
3,337
|
|
|
3,231
|
|
|
3,102
|
|
|
3,369
|
|
|
3,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GOLD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(thousands
of recoverable ounces)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINED GOLD (FCX’s net
interest in %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America (100%)b
|
|
14
|
|
|
15
|
|
|
19
|
|
|
17
|
|
|
13
|
|
South
America (80%)
|
|
114
|
|
|
116
|
e
|
|
112
|
|
|
117
|
|
|
122
|
|
Indonesia
(90.64%)d
|
|
1,163
|
|
|
2,198
|
|
|
1,732
|
|
|
2,789
|
|
|
1,456
|
|
Consolidated
|
|
1,291
|
|
|
2,329
|
|
|
1,863
|
|
|
2,923
|
|
|
1,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
minority participants’ share
|
|
132
|
|
|
229
|
|
|
184
|
|
|
284
|
|
|
160
|
|
Net
|
|
1,159
|
|
|
2,100
|
|
|
1,679
|
|
|
2,639
|
|
|
1,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MOLYBDENUM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(millions
of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINED MOLYBDENUM (FCX’s
net interest in %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henderson
(100%)
|
|
40
|
|
|
39
|
f
|
|
37
|
|
|
32
|
|
|
28
|
|
By-product
– North America (100%)b
|
|
30
|
|
|
30
|
|
|
31
|
|
|
30
|
|
|
29
|
|
By-product
– Cerro Verde (53.56%)
|
|
3
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Consolidated
|
|
73
|
|
|
70
|
|
|
68
|
|
|
62
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
minority participants’ share
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
|
|
72
|
|
|
70
|
|
|
68
|
|
|
62
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
For
comparative purposes, operating data for the years ended December 31,
2007, 2006, 2005 and 2004, combines our historical data with Phelps Dodge
pre-acquisition data. As the pre-acquisition data represent the results of
these operations under Phelps Dodge management, such combined data is not
necessarily indicative of what past results would have been under FCX
management or of future operating
results.
|
b.
|
Amounts
are net of Morenci’s 15 percent joint venture partner
interest.
|
c.
|
Includes
North America copper production of 258 million pounds and South America
copper production of 259 million pounds for Phelps Dodge’s pre-acquisition
results.
|
d.
|
Amounts
are net of Grasberg’s joint venture partner’s interest, which varies in
accordance with terms of the joint venture
agreement.
|
e.
|
Includes
gold production of 21 thousand ounces for Phelps Dodge’s pre-acquisition
results.
|
f.
|
Includes
molybdenum production of 14 million pounds for Phelps Dodge’s
pre-acquisition results.
|
SALES
DATA
For
comparative purposes, operating data shown below for the years ended December
31, 2007, 2006, 2005 and 2004, combines our historical data with Phelps Dodge
pre-acquisition data. As the pre-acquisition operating data represent the
results of these operations under Phelps Dodge management, such combined data is
not necessarily indicative of what past results would have been under FCX
management or of future operating results.
|
|
Years
Ended December 31,
|
|
COPPER
(millions of recoverable pounds)
|
|
2008
|
|
|
2007a
|
|
|
2006a
|
|
|
2005a
|
|
|
2004a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINED COPPER (FCX’s net
interest in %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morenci
(85%)b
|
|
646
|
|
|
693
|
|
|
692
|
|
|
680
|
|
|
715
|
|
Bagdad
(100%)
|
|
226
|
|
|
200
|
|
|
165
|
|
|
209
|
|
|
224
|
|
Sierrita
(100%)
|
|
184
|
|
|
157
|
|
|
161
|
|
|
165
|
|
|
158
|
|
Chino
(100%)
|
|
174
|
|
|
186
|
|
|
186
|
|
|
209
|
|
|
183
|
|
Safford
(100%)
|
|
107
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Tyrone
(100%)
|
|
71
|
|
|
53
|
|
|
64
|
|
|
81
|
|
|
86
|
|
Miami
(100%)
|
|
20
|
|
|
24
|
|
|
19
|
|
|
29
|
|
|
22
|
|
Tohono
(100%)
|
|
2
|
|
|
3
|
|
|
5
|
|
|
5
|
|
|
-
|
|
Other
(100%)
|
|
4
|
|
|
16
|
|
|
11
|
|
|
5
|
|
|
5
|
|
Total
North America
|
|
1,434
|
|
|
1,332
|
c
|
|
1,303
|
|
|
1,383
|
|
|
1,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerro
Verde (53.56%)
|
|
701
|
|
|
587
|
|
|
214
|
|
|
205
|
|
|
196
|
|
Candelaria/Ojos
del Salado (80%)
|
|
455
|
|
|
447
|
|
|
425
|
|
|
421
|
|
|
467
|
|
El
Abra (51%)
|
|
365
|
|
|
365
|
|
|
487
|
|
|
467
|
|
|
482
|
|
Total
South America
|
|
1,521
|
|
|
1,399
|
c
|
|
1,126
|
|
|
1,093
|
|
|
1,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grasberg
(90.64%)d
|
|
1,111
|
|
|
1,131
|
|
|
1,201
|
|
|
1,457
|
|
|
992
|
|
Consolidated
|
|
4,066
|
|
|
3,862
|
|
|
3,630
|
|
|
3,933
|
|
|
3,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
minority participants’ share
|
|
699
|
|
|
647
|
|
|
535
|
|
|
545
|
|
|
513
|
|
Net
|
|
3,367
|
|
|
3,215
|
|
|
3,095
|
|
|
3,388
|
|
|
3,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales from mines
|
|
4,066
|
|
|
3,862
|
|
|
3,630
|
|
|
3,933
|
|
|
3,530
|
|
Purchased
copper
|
|
483
|
|
|
650
|
|
|
736
|
|
|
821
|
|
|
866
|
|
Total
consolidated sales
|
|
4,549
|
|
|
4,512
|
|
|
4,366
|
|
|
4,754
|
|
|
4,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
realized price per pound
|
|
$2.69
|
|
|
$3.22
|
e
|
|
$2.80
|
e
|
|
$1.66
|
e
|
|
$1.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GOLD (thousands
of recoverable ounces)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINED GOLD (FCX’s net
interest in %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America (100%)b
|
|
16
|
|
|
21
|
|
|
19
|
|
|
18
|
|
|
12
|
|
South
America (80%)
|
|
116
|
|
|
114
|
f
|
|
111
|
|
|
117
|
|
|
122
|
|
Indonesia
(90.64%)d
|
|
1,182
|
|
|
2,185
|
|
|
1,736
|
|
|
2,790
|
|
|
1,443
|
|
Consolidated
|
|
1,314
|
|
|
2,320
|
|
|
1,866
|
|
|
2,925
|
|
|
1,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
minority participants’ share
|
|
134
|
|
|
228
|
|
|
185
|
|
|
285
|
|
|
159
|
|
Net
|
|
1,180
|
|
|
2,092
|
|
|
1,681
|
|
|
2,640
|
|
|
1,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales from mines
|
|
1,314
|
|
|
2,320
|
|
|
1,866
|
|
|
2,925
|
|
|
1,577
|
|
Purchased
gold
|
|
2
|
|
|
6
|
|
|
12
|
|
|
12
|
|
|
20
|
|
Total
consolidated sales
|
|
1,316
|
|
|
2,326
|
|
|
1,878
|
|
|
2,937
|
|
|
1,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
realized price per ounce
|
|
$861
|
|
|
$682
|
|
|
$566
|
g
|
|
$454
|
|
|
$411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MOLYBDENUM
(millions
of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales from mines
|
|
71
|
|
|
69
|
h
|
|
69
|
|
|
60
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
minority participants’ share
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
|
|
70
|
|
|
69
|
|
|
69
|
|
|
60
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales from mines
|
|
71
|
|
|
69
|
|
|
69
|
|
|
60
|
|
|
63
|
|
Purchased
molybdenum
|
|
8
|
|
|
9
|
|
|
8
|
|
|
13
|
|
|
13
|
|
Total
consolidated sales
|
|
79
|
|
|
78
|
|
|
77
|
|
|
73
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
realized price per pound
|
|
$30.55
|
|
|
$25.87
|
|
|
$21.87
|
|
|
$25.89
|
|
|
$12.71
|
|
a.
|
For
comparative purposes, operating data for the years ended December 31,
2007, 2006, 2005 and 2004, combines our historical data with Phelps Dodge
pre-acquisition data. As the pre-acquisition data represent the results of
these operations under Phelps Dodge management, such combined data is not
necessarily indicative of what past results would have been under FCX
management or of future operating
results.
|
b.
|
Amounts
are net of Morenci’s joint venture partner’s 15 percent
interest.
|
c.
|
Includes
North America copper sales of 283 million pounds and South America copper
sales of 222 million pounds for Phelps Dodge’s pre-acquisition
results.
|
d.
|
Amounts
are net of Grasberg’s joint venture partner’s interest, which varies in
accordance with terms of the joint venture
agreement.
|
e.
|
Before
charges for hedging losses related to copper price protection programs,
amounts were $3.27 per pound for 2007, $3.08 per pound for 2006 and $1.76
per pound for 2005.
|
f.
|
Includes
gold sales of 18 thousand ounces for Phelps Dodge’s pre-acquisition
results.
|
g.
|
Amount
was approximately $606 per ounce before a loss on redemption of our
Gold-Denominated Preferred Stock, Series
II.
|
h.
|
Includes
molybdenum sales of 17 million pounds for Phelps Dodge’s pre-acquisition
results.
|
DEVELOPMENT
PROJECTS AND EXPLORATION
We have
several projects and potential opportunities to expand our production volumes,
extend our mine lives and develop large-scale underground ore bodies. In
response to the sharp declines in copper and molybdenum prices and the
deterioration of the economic environment during fourth-quarter 2008, we have
deferred most of our project development activities, including incremental
expansions in North and South America, the planned restart of the Miami mine,
development of the El Abra sulfide project and the restart of the Climax
molybdenum mine, and have also reduced capital spending at Tenke Fungurume and
in Indonesia. For further discussion of our development projects and exploration
activities, refer to Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
In
addition to current development project activities for the Common Infrastructure
project, the Grasberg Block Cave, the Big Gossan underground mine and the DOZ
expansion discussed in Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” we have additional long-term
underground mine development projects in the Grasberg minerals district for
the Deep Mill Level Zone and Kucing Liar ore bodies, which are discussed below
and are based on our latest mine plans and proven and probable reserves as of
December 31, 2008.
The Mill
Level Zone and Deep Mill Level Zone ore bodies are reported as one ore body as
the Deep Mill Level Zone. The Deep Mill Level Zone lies directly below the
DOZ mine at the 2,590-meter elevation. This ore represents the downward
continuation of mineralization in the Ertsberg East Skarn system and neighboring
Ertsberg porphyry. Drilling efforts continue to determine the extent of this ore
body. We expect to mine the Deep Mill Level Zone using a block-cave method near
completion of mining at the DOZ. We expect to complete the feasibility
study on this ore body in the second half of 2009. Pre-feasibility estimates of
aggregate capital costs for the Deep Mill Level Zone are expected to aggregate
$1.3 billion.
The
Kucing Liar ore body lies on the southern flank of and underneath the southern
portion of the Grasberg open pit at the 2,605-meter elevation level. We expect
to mine the Kucing Liar ore body using the block-cave method. Pre-feasibility
studies for the development of the Kucing Liar ore body indicate aggregate
capital costs of approximately $1.4 billion. A feasibility study is expected to
commence during 2009.
Based on
our current estimates, we expect aggregate expenditures for underground mine
development to average approximately $350 million annually during the
next 15 years. In addition, these costs will be shared with Rio Tinto in
accordance with our joint venture agreement.
Considering the long-term nature of these projects, actual costs
could differ materially from these estimates.
In addition to the mine development costs above, our current mine
development plans include approximately $3 billion of capital expenditures at
our processing facilities to optimize the handling of underground ore types once
Grasberg open-pit operations cease. We continue to review our mine
development and processing plans to maximize the value of our reserves.
RESEARCH
Following
our acquisition of Phelps Dodge in March 2007, we conduct research and
development programs relating to technology for exploration for minerals, mining
and recovery of metals from ores, concentrates and solutions, smelting and
refining of copper, metal processing, reclamation and remediation, and product
and engineered
materials
development. Most of our research is conducted at our technology centers in
Safford and Sahuarita, Arizona. Expenditures for research and development
programs, together with contributions to industry and government-supported
research programs, totaled $44 million in 2008 and $33 million in 2007.
Expenditures are expected to be substantially lower in 2009 in connection with
company-wide steps to reduce expenditures in response to lower copper and
molybdenum prices.
SMELTING
FACILITIES
Atlantic Copper, S.A. Atlantic
Copper is our wholly owned copper smelter and refinery located in Huelva, Spain.
Atlantic Copper completed the last expansion of its production capacity in
1997. The design capacity of the smelter is 290,000 metric tons of copper
per year and the refinery currently has a capacity of 260,000 metric tons of
copper per year. We have no present plans to expand Atlantic Copper’s production
capacity. Atlantic Copper’s facilities are located on land concessions from the
Huelva, Spain port authorities. The smelter and refinery concessions expire in
2022, and the office and warehouse concessions expire in 2014.
During
2008, Atlantic Copper treated 1,028,100 metric tons of concentrate and scrap and
produced 259,900
metric tons of copper anodes and 257,100 metric tons of copper cathodes. During
2007, Atlantic Copper treated 952,300 metric tons of concentrate and scrap and
produced 256,100 metric tons of copper anodes and 243,600 metric tons of copper
cathodes. In June 2007, Atlantic Copper completed a scheduled 23-day maintenance
turnaround. Major maintenance turnarounds typically occur approximately every 12
years for Atlantic Copper, with significantly shorter term maintenance
turnarounds occurring in the interim. The next scheduled maintenance activity at
Atlantic Copper is in 2011.
Atlantic
Copper purchased approximately 45 percent of its 2008 concentrate requirements
from PT Freeport Indonesia and approximately 12 percent from our South America
mines at market prices. Atlantic Copper has experienced no significant operating
problems.
We made
no capital contributions to Atlantic Copper from 2005 through 2008; however, we
contributed $202 million to Atlantic Copper in 2004. In addition, we loaned $190
million to Atlantic Copper in 2004 and Atlantic Copper repaid $60 million in
2008. The funds were used to improve Atlantic Copper’s financial structure
during its 2004 major maintenance turnaround and during a period of extremely
low rates for treatment and refining charges. Our net investment in Atlantic
Copper through December 31, 2008, was approximately $138 million.
PT Smelting. PT Freeport Indonesia’s
1991 COW required us to construct or cause to be constructed a smelter in
Indonesia if we and the Indonesian government determined that such a project
would be economically viable. In 1995, following the completion of a feasibility
study, we entered into agreements relating to the formation of PT Smelting, an
Indonesian company, and the construction of the copper smelter in Gresik,
Indonesia. PT Freeport Indonesia, Mitsubishi Materials Corporation
(Mitsubishi Materials), Mitsubishi Corporation (Mitsubishi) and Nippon Mining
& Metals Co., Ltd. (Nippon) own 25 percent, 60.5 percent, 9.5 percent, and 5
percent, respectively, of the outstanding PT Smelting common stock. PT Smelting
owns and operates the smelter and refinery in Gresik, Indonesia.
During
2006, PT Smelting completed an expansion of its production capacity to 275,000
metric tons of copper per year from 250,000 metric tons. PT Freeport Indonesia’s
contract with PT Smelting provides for the supply of 100 percent of the copper
concentrate requirements necessary for PT Smelting to produce 205,000 metric
tons of copper annually (essentially the smelter’s original design capacity) on
a priority basis. For the first 15 years of PT Smelting’s commercial operations,
beginning December 1998, PT Freeport Indonesia agreed that the combined
treatment and refining charges (fees paid to smelters by miners) would
approximate market rates, but will not fall below specified minimum rates. The
minimum rate, applicable to the period April 27, 2008 to April 27, 2014, is to
be determined annually and to be sufficient to cover PT Smelting’s annual cash
operating costs (net of credits and including costs of debt service) for 205,000
metric tons of copper. The maximum rate is $0.30 per pound. The agreement is an
amendment to the long-term contract, which is pending approval from the
Department of Energy and Mineral Resources of the Government of Indonesia. PT
Freeport Indonesia also sells copper concentrate to PT Smelting at market rates,
which are not subject to a minimum or maximum rate, for quantities in excess of
205,000 metric tons of copper annually.
During 2008, PT Smelting treated 978,100 metric tons of concentrate and
produced 261,300 metric tons of copper anodes and 253,400 metric tons of copper
cathodes. During 2007, PT Smelting treated 976,300 metric tons of concentrate
and produced 277,100 metric tons of copper anodes and 256,900 metric tons of
copper
cathodes.
Lower volumes of anodes in 2008, compared to 2007, primarily reflect a 25-day
maintenance turnaround in the second quarter of 2008. Major maintenance
turnarounds typically occur approximately every four years for PT Smelting, with
significantly shorter term maintenance turnarounds in the interim.
Miami
Smelter. We own and operate a smelter at our Miami, Arizona
mining operation. The Miami mine is currently on care-and-maintenance status,
but the smelter continues to process concentrate primarily from our Morenci,
Bagdad and Sierrita mines. The smelter has been in production for over 80 years
and has been upgraded during that period to implement new technologies, to
improve production and to comply with current air quality standards. Concentrate
processed through the smelter totaled approximately 719,000 metric tons in 2008
and 759,000 metric tons in 2007. The Miami smelter completed a 40-day major
maintenance turnaround in February 2009. Major maintenance
turnarounds typically occur approximately every 29 months for Miami, with
significantly shorter term maintenance turnarounds in the interim. Sulfuric acid
is a by-product of smelting concentrates, and the Miami smelter is the most
significant source of sulfuric acid for our domestic leaching
operations.
OTHER
PROPERTIES
Rod & Refining Operations. Our
Rod & Refining operations consist of conversion facilities located in
North America including a refinery in El Paso, Texas; rod mills in El Paso,
Texas, Norwich, Connecticut and Miami, Arizona; and a specialty copper products
facility in Bayway, New Jersey. We refine our anode copper production from
our smelter in Miami, Arizona, along with purchased anodes, at our El Paso
refinery. The El Paso refinery has an annual production capacity of about 900
million pounds of copper cathode, which is sufficient to refine all the copper
anode we produce at Miami. Our El Paso refinery also produces nickel carbonate,
copper telluride, and autoclaved slimes material containing gold, silver,
platinum and palladium.
Molybdenum Conversion Facilities. We
process molybdenum concentrates at our conversion plants in the U.S. and Europe
into such products as technical-grade molybdic oxide, ferromolybdenum, pure
molybdic oxide, ammonium molybdates, molybdenum disulfide and molybdenum metal
powder. We operate molybdenum roasters in Sierrita, Arizona; Fort Madison,
Iowa; and Rotterdam, the Netherlands.
The
conversion facility located at our Sierrita mine consists of two molybdenum
roasters that process molybdenum concentrates produced at our mines and on a
toll basis for third parties. The facility produces molybdenum oxide and related
products.
The Fort
Madison, Iowa, facility consists of two molybdenum roasters, a sulfuric acid
plant, a metallurgical (technical oxide) packaging facility, and a chemical
conversion plant, which includes a wet-chemicals plant, sublimation equipment
and molybdenum disulfide processing and packaging. In the chemical plant,
molybdic oxide is further refined into various high-purity molybdenum chemicals
for a wide range of uses by chemical and catalyst manufacturers. In addition to
metallurgical oxide products, the Fort Madison facility produces ammonium
dimolybdate, pure molybdic oxide, ammonium heptamolybdate, ammonium
octamolybdate, sodium molybdate, sublimed pure molybdic oxide and molybdenum
disulfide.
The
Rotterdam conversion facility consists of a molybdenum roaster, sulfuric acid
plant, metallurgical packaging facility and chemical conversion plant. The plant
produces metallurgical products primarily for third parties. Ammonium
dimolybdate and pure molybdic oxide are produced in the wet-chemicals
plant.
We also
produce ferromolybdenum for worldwide customers at our conversion plant located
in Stowmarket, United Kingdom. The plant is operated both as an internal and
external customer tolling facility.
SOURCES
AND AVAILABILITY OF RAW MATERIALS
Energy
(including electricity, diesel fuel, coal and natural gas), sulfuric acid and
water are the principal raw materials used in our operations. Most of our energy
is obtained from third parties under long-term contracts. For additional
information, refer to Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Sulfuric
acid is used in the SX/EW process and is produced as a by-product of the
smelting process at our smelters. Sulfuric acid needs in excess of the sulfuric
acid produced by our operations are purchased from third parties as
needed.
Our
mining operations require significant quantities of water for mining, ore
processing and related support facilities. Our operations in North and South
America are in areas where water is scarce and competition among users for
continuing access to water is significant. Continuous production at our mines is
dependent on our ability to maintain our water rights and claims and defeat
claims adverse to our current water uses in legal proceedings.
In North
America, under state law, our water rights give us only the right to use public
waters for a statutorily defined beneficial use at a designated location. In
Arizona, we are a participant in two active general stream adjudications in
which for 30 years the State of Arizona has been attempting to quantify and
prioritize surface water claims in two of the state’s largest river systems that
include three of our operating mines (Morenci, Sierrita and Safford) and which
may also affect our Bagdad mine in Arizona. Groundwater is not subject to
adjudication in Arizona, but is subject to the doctrine of reasonable use, which
requires balancing the utility of the use against the gravity of the harm to
others who have rights in the same aquifer; however, wells may be subject to
adjudication to the extent they are found to produce or affect surface water. In
Colorado, our surface water and groundwater rights are subject to adjudication
and we are involved in legal proceedings to resolve disputes regarding priority
of administration of rights, including priority of some of our rights for the
Climax mine. Our surface water and groundwater rights are fully licensed or have
been fully adjudicated in New Mexico.
In South
America, water for our mining operations at Candelaria and Ojos del Salado is
drawn from the Copiapó River aquifer. Because of rapid depletion of this aquifer
in recent years, ongoing studies are addressing the adequacy of this water
supply for our mining operations planned at these sites. Water for our Cerro
Verde processing operations comes from renewable sources through a series of
storage reservoirs. Rainfall in 2008 was below normal and the rainy season in
2009, which ends in March, has thus far been below normal. Reservoirs are
currently about half of the last five-year average for this time of
year.
Although
we believe our mining operations have sufficient water rights, the loss of water
rights for any of our mines, in whole or in part, or shortages of water to which
we have rights, could require us to curtail or shut down mining operations.
Additionally, we have not yet secured adequate water rights to support all of
our potential expansion projects and our inability to secure those rights could
prevent us from pursuing some of those expansion opportunities. See Item 1A.
“Risk Factors.”
COMPETITION
We are
one of the world’s largest copper, gold and molybdenum mining companies in terms
of reserves and production. With respect to copper, which generated
approximately 76 percent of our mining revenues in 2008, the top 10 producers
comprise approximately 55 percent of total worldwide mined copper production. We
currently rank second among those producers at approximately 10 percent of
total worldwide estimated mined copper production. Our competitive position is
based on the quality and grade of our ore bodies and our ability to manage costs
compared with other producers. We have a diverse portfolio of mining operations
with varying ore grades and cost structures. Our costs are driven by the
location, grade and nature of our ore bodies and the input costs, including
energy, labor and equipment. The metals markets are cyclical and our ability to
maintain our competitive position over the long term is based on our
ability to acquire and develop quality deposits, hire and retain a skilled
workforce and to manage our costs.
LABOR
MATTERS
At
December 31, 2008, we employed approximately 29,300 people. Additionally, there
are approximately 10,300 contractor employees working at our Grasberg minerals
district and approximately 400 contractor employees at Atlantic Copper.
Employees represented by unions are listed below, with the approximate number of
employees represented and the expiration date of the applicable union
agreements.
|
|
Number
of
|
|
|
|
Union-
|
|
|
Number
of
|
Represented
|
|
Location
|
Unions
|
Employees
|
Expiration
Date
|
PT
Freeport Indonesia – Indonesia
|
1
|
5,650
|
October
2009
|
Tenke
Fungurume – DRC
|
2
|
2,525
|
May
2010
|
Cerro
Verde – Peru
|
1
|
1,014
|
August
2011
|
Candelaria
– Chile
|
2
|
463
|
October
2009
|
El
Abra – Chile
|
2
|
566
|
July
2012
|
Chino
– New Mexico
|
1
|
231
|
November
2009
|
Atlantic
Copper – Spain
|
2
|
179
|
December
2007a
|
Stowmarket
– United Kingdom
|
1
|
36
|
May
2011
|
Bayway
– New Jersey
|
1
|
53
|
April
2010
|
Rotterdam
– The Netherlands
|
2
|
57
|
March
2011
|
Aurex
– Chile
|
1
|
32
|
February
2010
|
a.
|
The
contract has been provisionally extended and is currently being
renegotiated.
|
FM
Services Company (FM Services), a wholly owned subsidiary of FCX, furnishes
certain executive, administrative, financial, accounting, legal, tax and similar
services to us. As of December 31, 2008, FM Services had 184 employees. FM
Services employees also provide these services to two other publicly traded
companies.
ENVIRONMENTAL
AND RECLAMATION MATTERS
The costs
of complying with environmental laws is a fundamental and substantial cost of
our business. For information about environmental regulation, litigation and
related costs, please see Item 1A. “Risk Factors - Environmental Risks;” Item 3.
“Legal Proceedings;” Note 1 – “Summary of Significant Accounting Policies -
Environmental Expenditures and Asset Retirement Obligations;” and Note
15 – “Contingencies - Environmental and Asset Retirement
Obligations.”
COMMUNITY
AND HUMAN RIGHTS
We have
adopted policies that govern our working relationships with the communities
where we operate that are designed to guide our practices and programs in a
manner that respects basic human rights and the culture of the local people
impacted by our operations. We continue to make significant expenditures on
community development, education, training and cultural programs, which
include:
· comprehensive job training
programs
· basic education programs
· public health programs, including
malaria
control
· agricultural assistance
programs
· small and medium enterprise development
programs
· cultural preservation
programs
·
water and sewage treatment projects
·
clean water access
· charitable donations
In
December 2000, we endorsed the joint U.S. State Department-British Foreign
Office Voluntary Principles on Human Rights and Security (“Voluntary
Principles”). Several major natural resources companies and international human
rights organizations participated in developing the Voluntary Principles and
have endorsed them. We participated in developing these principles and they are
incorporated into our human rights policy.
We
believe that our social and economic development programs are responsive to the
issues raised by the local communities near our areas of operation and should
help us maintain good relations with the surrounding communities and avoid
disruptions of mining operations. Nevertheless, social and political instability
in the area
may
adversely impact our mining operations. See Item 1A. – “Risk
Factors.”
South
America. 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 contribute to the design
and construction of 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. We have
funded approximately 150 million Peruvian nuevo soles (approximately $49
million) as of December 31, 2008 to a designated bank account to be used
for financing Cerro Verde’s share of the construction costs of these
facilities.
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 when copper prices exceed certain levels that are adjusted annually. 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. Cerro Verde’s contributions totaled $28 million in 2008 and $49
million in 2007.
Indonesia. In
1996, PT Freeport Indonesia established the Freeport Partnership Fund for
Community Development (formerly the Freeport Fund for Irian Jaya Development),
through which PT Freeport Indonesia has made available funding and technical
assistance to support the economic, health, education and social development of
the area. PT Freeport Indonesia has committed through 2011 to provide one
percent of its annual revenue for the development of the local people in its
area of operation through the Partnership Fund. Our share of contributions to
the Partnership Fund totaled $34 million in 2008, $48 million in 2007 and $44
million in 2006. Our joint venture partner, Rio Tinto, also contributes to this
fund and, including their share, the contributions totaled $35 million in 2008,
$53 million in 2007 and $48 million in 2006.
The
Amungme and Kamoro Community Development Organization (Lembaga Pembangunan Masyarakat
Amungme dan Kamoro or LPMAK) oversees disbursement of the program
funds we contribute to the Partnership Fund. LPMAK is governed by a board of
commissioners and a board of directors, which are comprised of representatives
from the local Amungme and Kamoro tribal communities, government leaders, church
leaders, and one representative of PTFI on each board. The Amungme and Kamoro
people are original inhabitants of the land in our area of
operations.
Security Matters in
Indonesia. Consistent with our COW
in Indonesia and the requirement to protect our employees and property, we have
taken appropriate steps to provide a safe and secure working environment. As
part of its security program, PT Freeport Indonesia maintains its own internal
security department, which performs functions such as protecting company
facilities, monitoring the shipment of company goods through the airport and
terminal, assisting in traffic control and aiding rescue operations. PT Freeport
Indonesia’s civilian security employees (numbering approximately 750) are
unarmed and perform duties consistent with their internal security role. PT
Freeport Indonesia’s share of costs for its internal civilian security
department totaled approximately $22 million for 2008, $17 million for 2007 and
$14 million for 2006. The security department has received human rights training
and each member is required to certify his or her compliance with our human
rights policy.
PT
Freeport Indonesia, and all businesses and residents of Indonesia, rely on the
Government of Indonesia for the maintenance of public order, upholding the rule
of law and the protection of personnel and property. The Grasberg minerals
district has been designated by the Government of Indonesia as one of
Indonesia’s vital national assets. This designation results in the police and to
a lesser extent, the military, playing a significant role in protecting the area
of our operations. The Government of Indonesia is responsible for employing
police and military personnel and directing their operations.
From the
outset of PT Freeport Indonesia’s operations, the government has looked to PT
Freeport Indonesia to provide logistical and infrastructure support and
assistance for these necessary services because of the limited resources of the
Indonesian government and the remote location of and lack of development in
Papua. PT Freeport Indonesia’s financial support for the Indonesian government
security institutions assigned to the operations area represents a prudent
response to its requirements to protect its workforce and property, better
ensuring that personnel are properly fed and lodged, and have the logistical
resources to patrol PT Freeport Indonesia’s roads and secure its operating area.
In addition, provision of such support and oversight is consistent with PT
Freeport Indonesia’s obligations under the COW, reflects our philosophy of
responsible corporate citizenship, and is in keeping with our commitment to
pursue practices that will promote human rights.
PT
Freeport Indonesia’s share of support costs for the government-provided
security, currently involving approximately 1,850 Indonesian government security
personnel located in the general area of our operations, was $8 million for
2008, $9 million for 2007 and $9 million for 2006. This supplemental support
consists of various infrastructure and other costs, such as food, housing, fuel,
travel, vehicle repairs, allowances to cover incidental and administrative
costs, and community assistance programs conducted by the military and police.
PT Freeport Indonesia’s capital costs for associated infrastructure was less
than $1 million for each of the three years ended December 31,
2008.
As
reported in January 2006, we have received and responded to requests from U.S.
governmental authorities related to PT Freeport Indonesia’s support of
Indonesian security institutions. We are cooperating fully with these
requests.
Africa. Tenke
Fungurume has committed to assist the communities living within its concession
in the Katanga province of the DRC. Initiatives that have commenced over the
past two years include the building of two schools and the remodeling of a
third, development of over 30 community water wells, construction of roads,
implementation of a malaria control program, agricultural support programs to
local farmers, and support for the development of local small and medium
enterprises. Additionally, we have committed to contribute a portion of net
sales revenue from production to a community development fund to assist the
local communities with development of local infrastructure and related services,
such as those pertaining to health, education and economic development. This
fund will be a platform to work jointly with the local government and community
to further assist them to fulfill their local development plans, meet basic
community needs and promote good governance.
Similar
to our operations in Indonesia, Tenke Fungurume is required to engage government
security institutions to assist with security matters at its concession
area. In this regard, Tenke Fungurume provides food, housing,
monetary allowances and logistical support as well as direct payments to the
government for the provision of the security assigned to the concession
area.
ORE
RESERVES
Recoverable
proven and probable reserves summarized below and detailed on the following
pages have been calculated as of December 31, 2008, in accordance with Industry
Guide 7 as required by the Securities and Exchange Act of 1934. Proven and
probable reserves may not be comparable to similar information regarding mineral
reserves disclosed in accordance with the guidance of other countries. Proven
and probable reserves were determined by the use of mapping, drilling, sampling,
assaying and evaluation methods generally applied in the mining industry, as
more fully discussed below. The term “reserve,” as used in the reserve data
presented here, means that part of a mineral deposit that can be economically
and legally extracted or produced at the time of the reserve determination. The
term “proven reserves” means reserves for which (1) quantity is computed from
dimensions revealed in outcrops, trenches, workings or drill holes; (2) grade
and/or quality are computed from the results of detailed sampling; and (3) the
sites for inspection, sampling and measurements are spaced so closely and the
geologic character is sufficiently defined that size, shape, depth and mineral
content of reserves are well established. The term “probable reserves” means
reserves for which quantity and grade are computed from information similar to
that used for proven reserves but the sites for sampling are farther apart or
are otherwise less adequately spaced. The degree of assurance, although lower
than that for proven reserves, is high enough to assume continuity between
points of observation.
Our
reserve estimates are based on the latest available geological and geotechnical
studies. We conduct ongoing studies of our ore bodies to optimize economic
values and to manage risk. We revise our mine plans and estimates of recoverable
proven and probable mineral reserves as required in accordance with the latest
available studies. Our estimates of recoverable proven and probable reserves are
prepared by and are the responsibility of our employees, and a majority of these
estimates are reviewed and verified by independent experts in mining, geology
and reserve determination. Estimated recoverable proven and probable reserves
were determined using long-term average prices of $1.60 per pound for copper,
$550 per ounce for gold, $8.00 per pound for molybdenum, $12.00 per ounce for
silver and $10.00 per pound for cobalt. The London spot metal prices for the
past three years averaged $3.15 per pound for copper and $724 per ounce for
gold, and molybdenum prices for the past three years averaged approximately $28
per pound.
|
|
Recoverable
Proven and Probable Reservesa at
December 31, 2008
|
|
|
|
Copper
|
|
Gold
|
|
Molybdenum
|
|
Silver
|
|
Cobalt
|
|
|
|
(billion
pounds)
|
|
(million
ounces)
|
|
(billion
pounds)
|
|
(million
ounces)
|
|
(billion
pounds)
|
|
North
America
|
|
28.3
|
|
0.2
|
|
2.08
|
|
56.7
|
|
-
|
|
South
America
|
|
32.2
|
|
1.3
|
|
0.40
|
|
77.5
|
|
-
|
|
Indonesia
|
|
35.6
|
|
38.5
|
|
-
|
|
132.4
|
|
-
|
|
Africa
|
|
5.9
|
|
-
|
|
-
|
|
-
|
|
0.7
|
|
Consolidated
basisb
|
|
102.0
|
|
40.0
|
|
2.48
|
|
266.6
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
equity interestc
|
|
82.4
|
|
36.2
|
|
2.30
|
|
223.9
|
|
0.4
|
|
a.
|
Recoverable
proven and probable reserves are estimated metal quantities from which we
expect to be paid after application of estimated metallurgical recovery
rates and smelter recovery rates, where applicable. Recoverable reserves
are that part of a mineral deposit that we estimate can be economically
and legally extracted or produced at the time of the reserve
determination. Recoverable reserves include estimated recoverable copper
totaling 2.8 billion pounds in leach stockpiles and 1.1 billion
pounds in mill stockpiles, including our joint venture partner’s interest
in the Morenci mine.
|
b.
|
Consolidated
basis reserves represent estimated metal quantities after reduction for
joint venture partner interests at the Morenci mine in North America and
at the Grasberg minerals district in
Indonesia.
|
c.
|
Net
equity interest reserves represent estimated consolidated basis metal
quantities further reduced for minority interest
ownership.
|
Recoverable Proven and
Probable Reserves
|
Estimated at December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Proven
Reserves
|
|
Probable
Reserves
|
|
|
|
|
|
|
Average
Ore Grade
|
|
|
|
Average
Ore Grade
|
|
|
Processing
|
|
Million
|
|
Copper
|
|
Gold
|
|
Moly
|
|
Silver
|
|
Cobalt
|
|
Million
|
|
Copper
|
|
Gold
|
|
Moly
|
|
Silver
|
|
Cobalt
|
|
|
Method
|
|
metric
tons
|
|
%
|
|
g/t
|
|
%
|
|
g/t
|
|
%
|
|
metric
tons
|
|
%
|
|
g/t
|
|
%
|
|
g/t
|
|
%
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morenci
|
|
Mill
|
|
181
|
|
0.55
|
|
-
|
|
0.023
|
|
-
|
|
-
|
|
4
|
|
0.61
|
|
-
|
|
0.023
|
|
-
|
|
-
|
|
|
Crushed
leach
|
|
371
|
|
0.58
|
|
-
|
|
-
|
|
-
|
|
-
|
|
19
|
|
0.55
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
ROM
leach
|
|
2,133
|
|
0.20
|
|
-
|
|
-
|
|
-
|
|
-
|
|
105
|
|
0.23
|
|
-
|
|
-
|
|
-
|
|
-
|
Sierrita
|
|
Mill
|
|
1,325
|
|
0.26
|
|
-
|
d
|
0.029
|
|
1.49
|
|
-
|
|
142
|
|
0.24
|
|
-
|
d
|
0.024
|
|
1.35
|
|
-
|
|
|
ROM
leach
|
|
4
|
|
0.19
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2
|
|
0.16
|
|
-
|
|
-
|
|
-
|
|
-
|
Bagdad
|
|
Mill
|
|
591
|
|
0.36
|
|
-
|
d
|
0.021
|
|
1.79
|
|
-
|
|
175
|
|
0.31
|
|
-
|
d
|
0.019
|
|
1.51
|
|
-
|
|
|
ROM
leach
|
|
142
|
|
0.18
|
|
-
|
|
-
|
|
-
|
|
-
|
|
143
|
|
0.12
|
|
-
|
|
-
|
|
-
|
|
-
|
Safford
|
|
Crushed
leach
|
|
239
|
|
0.46
|
|
-
|
|
-
|
|
-
|
|
-
|
|
211
|
|
0.29
|
|
-
|
|
-
|
|
-
|
|
-
|
Tyrone
|
|
ROM
leach
|
|
289
|
|
0.30
|
|
-
|
|
-
|
|
-
|
|
-
|
|
45
|
|
0.23
|
|
-
|
|
-
|
|
-
|
|
-
|
Henderson
|
|
Mill
|
|
141
|
|
-
|
|
-
|
|
0.176
|
|
-
|
|
-
|
|
8
|
|
-
|
|
-
|
|
0.176
|
|
-
|
|
-
|
Chino
|
|
Mill
|
|
43
|
|
0.63
|
|
0.05
|
|
0.016
|
|
0.76
|
|
-
|
|
4
|
|
0.58
|
|
0.04
|
|
0.017
|
|
0.71
|
|
-
|
|
|
ROM
leach
|
|
83
|
|
0.48
|
|
-
|
|
-
|
|
-
|
|
-
|
|
13
|
|
0.34
|
|
-
|
|
-
|
|
-
|
|
-
|
Miami
|
|
ROM
leach
|
|
74
|
|
0.44
|
|
-
|
|
-
|
|
-
|
|
-
|
|
17
|
|
0.35
|
|
-
|
|
-
|
|
-
|
|
-
|
Climaxa
|
|
Mill
|
|
63
|
|
-
|
|
-
|
|
0.201
|
|
-
|
|
-
|
|
102
|
|
-
|
|
-
|
|
0.142
|
|
-
|
|
-
|
Cobrea
|
|
ROM
leach
|
|
71
|
|
0.40
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2
|
|
0.23
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
5,750
|
|
0.29
|
|
-
|
d
|
0.016
|
|
0.53
|
|
|
|
992
|
|
0.23
|
|
-
|
d
|
0.023
|
|
0.46
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
Mill
|
|
486
|
|
0.47
|
|
-
|
|
0.018
|
|
2.83
|
|
-
|
|
2,249
|
|
0.34
|
|
-
|
|
0.013
|
|
2.05
|
|
-
|
|
|
Crushed
leach
|
|
110
|
|
0.56
|
|
-
|
|
-
|
|
-
|
|
-
|
|
81
|
|
0.48
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
ROM
leach
|
|
39
|
|
0.28
|
|
-
|
|
-
|
|
-
|
|
-
|
|
58
|
|
0.35
|
|
-
|
|
-
|
|
-
|
|
-
|
El
Abra
|
|
Crushed
leach
|
|
477
|
|
0.56
|
|
-
|
|
-
|
|
-
|
|
-
|
|
149
|
|
0.52
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
ROM
leach
|
|
291
|
|
0.32
|
|
-
|
|
-
|
|
-
|
|
-
|
|
203
|
|
0.33
|
|
-
|
|
-
|
|
-
|
|
-
|
Candelaria
|
|
Mill
|
|
368
|
|
0.55
|
|
0.11
|
|
-
|
|
1.97
|
|
-
|
|
23
|
|
0.54
|
|
0.11
|
|
-
|
|
1.91
|
|
-
|
Ojos
del Salado
|
|
Mill
|
|
5
|
|
1.23
|
|
0.30
|
|
-
|
|
2.95
|
|
-
|
|
3
|
|
0.98
|
|
0.24
|
|
-
|
|
2.34
|
|
-
|
|
|
|
|
1,776
|
|
0.49
|
|
0.02
|
|
0.005
|
|
1.19
|
|
-
|
|
2,766
|
|
0.36
|
|
-
|
d
|
0.010
|
|
1.69
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grasberg
open pit
|
|
Mill
|
|
213
|
|
0.99
|
|
1.29
|
|
-
|
|
2.55
|
|
-
|
|
171
|
|
0.95
|
|
1.03
|
|
-
|
|
2.56
|
|
-
|
Deep
Ore Zoneb
|
|
Mill
|
|
97
|
|
0.67
|
|
0.66
|
|
-
|
|
3.41
|
|
-
|
|
185
|
|
0.59
|
|
0.68
|
|
-
|
|
2.75
|
|
-
|
Grasberg
block cavea
|
|
Mill
|
|
288
|
|
1.21
|
|
1.16
|
|
-
|
|
3.65
|
|
-
|
|
719
|
|
0.94
|
|
0.66
|
|
-
|
|
3.37
|
|
-
|
Kucing
Liara
|
|
Mill
|
|
156
|
|
1.32
|
|
1.15
|
|
-
|
|
7.51
|
|
-
|
|
285
|
|
1.20
|
|
1.06
|
|
-
|
|
6.57
|
|
-
|
Deep
Mill Level Zonea,c
|
|
Mill
|
|
59
|
|
1.00
|
|
0.78
|
|
-
|
|
4.94
|
|
-
|
|
435
|
|
0.88
|
|
0.74
|
|
-
|
|
4.40
|
|
-
|
Big
Gossana
|
|
Mill
|
|
9
|
|
2.50
|
|
1.30
|
|
-
|
|
16.72
|
|
-
|
|
47
|
|
2.18
|
|
1.16
|
|
-
|
|
14.16
|
|
-
|
|
|
|
|
822
|
|
1.11
|
|
1.11
|
|
-
|
|
4.30
|
|
-
|
|
1,842
|
|
0.97
|
|
0.79
|
|
-
|
|
4.25
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenke
Fungurumea
|
|
Agitation
leach
|
|
59
|
|
2.62
|
|
-
|
|
-
|
|
-
|
|
0.374
|
|
60
|
|
2.67
|
|
-
|
|
-
|
|
-
|
|
0.317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
8,407
|
|
0.43
|
|
0.11
|
|
0.012
|
|
1.05
|
|
0.003
|
|
5,660
|
|
0.56
|
|
0.26
|
|
0.009
|
|
2.29
|
|
0.003
|
|
a. Undeveloped
reserves requiring significant capital investment to bring into
production.
|
b. In
2007, we combined the Deep Ore Zone and the Erstberg Ore Zone reserves,
which we now refer to as the Deep Ore Zone.
|
c. In
2007, we combined the Mill Level Zone and the Deep Mill Level Zone
reserves, which we now refer to as the Deep Mill Level
Zone.
|
d. Grade
not shown because of
rounding.
|
|
The
reserve table above and the tables on pages 32 to 37 and 39 utilize the
following abbreviations:
|
·
|
g/t
– grams per metric ton
|
|
|
|
Recoverable Proven and Probable
Reserves
|
Estimated at December 31,
2008
|
|
|
|
|
|
|
|
Average
Ore Grade
|
|
Recoveriesa
|
|
|
|
|
Proven
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Probable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing
|
|
Million
|
|
Copper
|
|
Gold
|
|
Moly
|
|
Silver
|
|
Cobalt
|
|
Copper
|
|
Gold
|
|
Moly
|
|
Silver
|
|
Cobalt
|
|
|
Method
|
|
metric
tons
|
|
%
|
|
g/t
|
|
%
|
|
g/t
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morenci
|
|
Mill
|
|
185
|
|
0.55
|
|
-
|
|
0.023
|
|
-
|
|
-
|
|
77.3
|
|
-
|
|
29.8
|
|
-
|
|
-
|
|
|
Crushed
leach
|
|
390
|
|
0.58
|
|
-
|
|
-
|
|
-
|
|
-
|
|
76.3
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
ROM
leach
|
|
2,238
|
|
0.20
|
|
-
|
|
-
|
|
-
|
|
-
|
|
41.2
|
|
-
|
|
-
|
|
-
|
|
-
|
Sierrita
|
|
Mill
|
|
1,467
|
|
0.25
|
|
-
|
b
|
0.029
|
|
1.48
|
|
-
|
|
82.0
|
|
60.0
|
|
83.4
|
|
50.0
|
|
-
|
|
|
ROM
leach
|
|
6
|
|
0.18
|
|
-
|
|
-
|
|
-
|
|
-
|
|
51.0
|
|
-
|
|
-
|
|
-
|
|
-
|
Bagdad
|
|
Mill
|
|
766
|
|
0.35
|
|
-
|
b
|
0.021
|
|
1.73
|
|
-
|
|
84.6
|
|
60.0
|
|
72.3
|
|
50.0
|
|
-
|
|
|
ROM
leach
|
|
285
|
|
0.15
|
|
-
|
|
-
|
|
-
|
|
-
|
|
26.1
|
|
-
|
|
-
|
|
-
|
|
-
|
Safford
|
|
Crushed
leach
|
|
450
|
|
0.38
|
|
-
|
|
-
|
|
-
|
|
-
|
|
65.8
|
|
-
|
|
-
|
|
-
|
|
-
|
Tyrone
|
|
ROM
leach
|
|
334
|
|
0.29
|
|
-
|
|
-
|
|
-
|
|
-
|
|
58.7
|
|
-
|
|
-
|
|
-
|
|
-
|
Henderson
|
|
Mill
|
|
149
|
|
-
|
|
-
|
|
0.176
|
|
-
|
|
-
|
|
-
|
|
-
|
|
86.7
|
|
-
|
|
-
|
Chino
|
|
Mill
|
|
47
|
|
0.62
|
|
0.04
|
|
0.016
|
|
0.75
|
|
-
|
|
78.3
|
|
60.0
|
|
38.2
|
|
50.0
|
|
-
|
|
|
ROM
leach
|
|
96
|
|
0.47
|
|
-
|
|
-
|
|
-
|
|
-
|
|
67.4
|
|
-
|
|
-
|
|
-
|
|
-
|
Miami
|
|
ROM
leach
|
|
91
|
|
0.43
|
|
-
|
|
-
|
|
-
|
|
-
|
|
63.0
|
|
-
|
|
-
|
|
-
|
|
-
|
Climax
|
|
Mill
|
|
165
|
|
-
|
|
-
|
|
0.165
|
|
-
|
|
-
|
|
-
|
|
-
|
|
88.6
|
|
-
|
|
-
|
Cobre
|
|
ROM
leach
|
|
73
|
|
0.39
|
|
-
|
|
-
|
|
-
|
|
-
|
|
65.4
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
6,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
Mill
|
|
2,735
|
|
0.37
|
|
-
|
|
0.014
|
|
2.19
|
|
-
|
|
86.0
|
|
-
|
|
47.1
|
|
28.2
|
|
-
|
|
|
Crushed
leach
|
|
191
|
|
0.53
|
|
-
|
|
-
|
|
-
|
|
-
|
|
79.3
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
ROM
leach
|
|
97
|
|
0.32
|
|
-
|
|
-
|
|
-
|
|
-
|
|
44.7
|
|
-
|
|
-
|
|
-
|
|
-
|
El
Abra
|
|
Crushed
leach
|
|
626
|
|
0.55
|
|
-
|
|
-
|
|
-
|
|
-
|
|
54.8
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
ROM
leach
|
|
494
|
|
0.32
|
|
-
|
|
-
|
|
-
|
|
-
|
|
28.0
|
|
-
|
|
-
|
|
-
|
|
-
|
Candelaria
|
|
Mill
|
|
391
|
|
0.55
|
|
0.11
|
|
-
|
|
1.97
|
|
-
|
|
90.9
|
|
79.0
|
|
-
|
|
76.4
|
|
-
|
Ojos
del Salado
|
|
Mill
|
|
8
|
|
1.12
|
|
0.27
|
|
-
|
|
2.68
|
|
-
|
|
90.3
|
|
67.1
|
|
-
|
|
58.5
|
|
-
|
|
|
|
|
4,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grasberg
open pit
|
|
Mill
|
|
384
|
|
0.97
|
|
1.17
|
|
-
|
|
2.55
|
|
-
|
|
85.8
|
|
83.2
|
|
-
|
|
44.4
|
|
-
|
Deep
Ore Zone
|
|
Mill
|
|
282
|
|
0.62
|
|
0.67
|
|
-
|
|
2.98
|
|
-
|
|
84.2
|
|
75.9
|
|
-
|
|
57.0
|
|
-
|
Grasberg
block cave
|
|
Mill
|
|
1,007
|
|
1.02
|
|
0.81
|
|
-
|
|
3.45
|
|
-
|
|
85.6
|
|
67.7
|
|
-
|
|
60.6
|
|
-
|
Kucing
Liar
|
|
Mill
|
|
441
|
|
1.24
|
|
1.09
|
|
-
|
|
6.90
|
|
-
|
|
85.3
|
|
45.6
|
|
-
|
|
38.4
|
|
-
|
Deep
Mill Level Zone
|
|
Mill
|
|
494
|
|
0.89
|
|
0.75
|
|
-
|
|
4.47
|
|
-
|
|
86.0
|
|
76.7
|
|
-
|
|
62.7
|
|
-
|
Big
Gossan
|
|
Mill
|
|
56
|
|
2.23
|
|
1.18
|
|
-
|
|
14.57
|
|
-
|
|
92.2
|
|
67.8
|
|
-
|
|
64.3
|
|
-
|
|
|
|
|
2,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenke
Fungurume
|
|
Agitation
leach
|
|
119
|
|
2.64
|
|
-
|
|
-
|
|
-
|
|
0.35
|
|
84.8
|
|
-
|
|
-
|
|
-
|
|
76.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
14,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a. Recoveries
are net of estimated mill and smelter losses.
|
b. Grade
not shown because of
rounding.
|
Recoverable Proven and Probable
Reserves
|
Estimated at December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverable
Reserves
|
|
|
|
|
|
|
Copper
|
|
Gold
|
|
Moly
|
|
Silver
|
|
Cobalt
|
|
|
FCX’s
|
|
Processing
|
|
billion
|
|
million
|
|
billion
|
|
million
|
|
billion
|
|
|
Interest
|
|
Method
|
|
lbs.
|
|
ozs.
|
|
lbs.
|
|
ozs.
|
|
lbs.
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morenci
|
|
85%
|
|
Mill
|
|
1.7
|
|
-
|
|
0.03
|
|
-
|
|
-
|
|
|
|
|
Crushed
leach
|
|
3.8
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
ROM
leach
|
|
4.0
|
|
-
|
|
-
|
|
-
|
|
-
|
Sierrita
|
|
100%
|
|
Mill
|
|
6.8
|
|
0.1
|
|
0.77
|
|
34.9
|
|
-
|
|
|
|
|
ROM
leach
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Bagdad
|
|
100%
|
|
Mill
|
|
5.0
|
|
0.1
|
|
0.25
|
|
21.3
|
|
-
|
|
|
|
|
ROM
leach
|
|
0.3
|
|
-
|
|
-
|
|
-
|
|
-
|
Safford
|
|
100%
|
|
Crushed
leach
|
|
2.5
|
|
-
|
|
-
|
|
-
|
|
-
|
Tyrone
|
|
100%
|
|
ROM
leach
|
|
1.3
|
|
-
|
|
-
|
|
-
|
|
-
|
Henderson
|
|
100%
|
|
Mill
|
|
-
|
|
-
|
|
0.50
|
|
-
|
|
-
|
Chino
|
|
100%
|
|
Mill
|
|
0.5
|
|
-
|
|
0.01
|
|
0.5
|
|
-
|
|
|
|
|
ROM
leach
|
|
0.7
|
|
-
|
|
-
|
|
-
|
|
-
|
Miami
|
|
100%
|
|
ROM
leach
|
|
0.5
|
|
-
|
|
-
|
|
-
|
|
-
|
Climax
|
|
100%
|
|
Mill
|
|
-
|
|
-
|
|
0.53
|
|
-
|
|
-
|
Cobre
|
|
100%
|
|
ROM
leach
|
|
0.4
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
27.5
|
|
0.2
|
|
2.09
|
|
56.7
|
|
-
|
Recoverable
metal in stockpiles
|
|
|
|
2.3
|
|
-
|
|
-
|
|
-
|
|
-
|
100%
operations
|
|
|
|
29.8
|
|
0.2
|
|
2.09
|
|
56.7
|
|
-
|
Consolidated
basisa
|
|
|
|
28.3
|
|
0.2
|
|
2.08
|
|
56.7
|
|
-
|
Net
equity interestb
|
|
|
|
28.3
|
|
0.2
|
|
2.08
|
|
56.7
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
53.56%
|
|
Mill
|
|
18.9
|
|
-
|
|
0.39
|
|
54.4
|
|
-
|
|
|
|
|
Crushed
leach
|
|
1.7
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
ROM
leach
|
|
0.3
|
|
-
|
|
-
|
|
-
|
|
-
|
El
Abra
|
|
51%
|
|
Crushed
leach
|
|
4.2
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
ROM
leach
|
|
1.0
|
|
-
|
|
-
|
|
-
|
|
-
|
Candelaria
|
|
80%
|
|
Mill
|
|
4.3
|
|
1.1
|
|
-
|
|
18.6
|
|
-
|
Ojos
del Salado
|
|
80%
|
|
Mill
|
|
0.2
|
|
-
|
|
-
|
|
0.3
|
|
-
|
|
|
|
|
|
|
30.6
|
|
1.1
|
|
0.39
|
|
73.3
|
|
-
|
Recoverable
metal in stockpiles
|
|
|
|
1.6
|
|
0.2
|
|
0.01
|
|
4.2
|
|
-
|
100%
operations
|
|
|
|
32.2
|
|
1.3
|
|
0.40
|
|
77.5
|
|
-
|
Consolidated
basisa
|
|
|
|
32.2
|
|
1.3
|
|
0.40
|
|
77.5
|
|
-
|
Net
equity interestb
|
|
|
|
18.4
|
|
1.0
|
|
0.22
|
|
47.2
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grasberg
open pit
|
|
(c)
|
|
Mill
|
|
7.1
|
|
12.0
|
|
-
|
|
14.0
|
|
-
|
Deep
Ore Zone
|
|
(c)
|
|
Mill
|
|
3.3
|
|
4.6
|
|
-
|
|
15.4
|
|
-
|
Grasberg
block cave
|
|
(c)
|
|
Mill
|
|
19.4
|
|
17.7
|
|
-
|
|
67.7
|
|
-
|
Kucing
Liar
|
|
(c)
|
|
Mill
|
|
10.3
|
|
7.1
|
|
-
|
|
37.6
|
|
-
|
Deep
Mill Level Zone
|
|
(c)
|
|
Mill
|
|
8.3
|
|
9.1
|
|
-
|
|
44.5
|
|
-
|
Big
Gossan
|
|
(c)
|
|
Mill
|
|
2.5
|
|
1.4
|
|
-
|
|
16.7
|
|
-
|
|
|
|
|
|
|
50.9
|
|
51.9
|
|
-
|
|
195.9
|
|
-
|
Recoverable
metal in stockpiles
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
100%
operations
|
|
|
|
50.9
|
|
51.9
|
|
-
|
|
195.9
|
|
-
|
Consolidated
basisa
|
|
|
|
35.6
|
|
38.5
|
|
-
|
|
132.4
|
|
-
|
Net
equity interestb
|
|
|
|
32.3
|
|
35.0
|
|
-
|
|
120.0
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenke
Fungurume
|
|
57.75%
|
|
Agitation
leach
|
5.9
|
|
-
|
|
-
|
|
-
|
|
0.7
|
100%
operations
|
|
|
|
5.9
|
|
-
|
|
-
|
|
-
|
|
0.7
|
Consolidated
basisa
|
|
|
|
5.9
|
|
-
|
|
-
|
|
-
|
|
0.7
|
Net
equity interestb
|
|
|
|
3.4
|
|
-
|
|
-
|
|
-
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
– 100% operations
|
|
|
|
118.8
|
|
53.4
|
|
2.49
|
|
330.1
|
|
0.7
|
TOTAL
– Consolidated basisa
|
|
|
|
102.0
|
|
40.0
|
|
2.48
|
|
266.6
|
|
0.7
|
TOTAL
– Net equity interestb
|
|
|
|
82.4
|
|
36.2
|
|
2.30
|
|
223.9
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a. Consolidated
basis represents estimated metal quantities after reduction for joint
venture partner interests at the Morenci mine in North America and at the
Grasberg minerals district in Indonesia.
|
b. Net equity
interest represents estimated consolidated basis metal quantities further
reduced for minority interest ownership.
|
c. Our
joint venture agreement with Rio Tinto provides that PT Freeport Indonesia
will receive 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.
|
In
defining our open-pit reserves, we apply a “variable cutoff grade” strategy. The
objective of this strategy is to maximize the net present value of our
operations. We use a break-even cutoff grade to define the in-situ reserves for
our underground ore bodies. The break-even cutoff grade is defined for a metric
ton of ore as that equivalent copper grade, once produced and sold, that
generates sufficient revenue to cover all operating and administrative costs
associated with our production.
Our
copper mines may contain other commercially recoverable metals, such as gold,
molybdenum, silver and cobalt. We value all commercially recoverable metals in
terms of a copper equivalent percentage to determine a single break-even cutoff
grade. Copper equivalent percentage is used to express the relative value of
multi-metal ores in terms of one metal. The calculation expresses the relative
value of the ore using estimates of contained metal quantities, metals prices as
used for reserve determination, recovery rates, treatment charges and royalties.
Our molybdenum properties use a molybdenum cutoff grade. The table below shows
the minimum cutoff grade by process for each of our existing ore bodies as of
December 31, 2008:
|
|
|
|
Moly
Cutoff Grade
|
|
|
Copper
Equivalent Cutoff Grade (Percent)
|
|
(Percent)
|
|
|
|
|
Crushed
or
|
|
ROM
|
|
|
|
|
Mill
|
|
Agitation
Leach
|
|
Leach
|
|
Mill
|
North America
|
|
|
|
|
|
|
|
|
Morenci
|
|
0.27
|
|
0.23
|
|
0.10
|
|
N/A
|
Sierrita
|
|
0.24
|
|
N/A
|
|
0.07
|
|
N/A
|
Bagdad
|
|
0.24
|
|
N/A
|
|
0.08
|
|
N/A
|
Safford
|
|
N/A
|
|
0.12
|
|
N/A
|
|
N/A
|
Tyrone
|
|
N/A
|
|
N/A
|
|
0.05
|
|
N/A
|
Henderson
|
|
N/A
|
|
N/A
|
|
N/A
|
|
0.12
|
Chino
|
|
0.28
|
|
N/A
|
|
0.10
|
|
N/A
|
Miami
|
|
N/A
|
|
N/A
|
|
0.04
|
|
N/A
|
Climax
|
|
N/A
|
|
N/A
|
|
N/A
|
|
0.06
|
Cobre
|
|
N/A
|
|
N/A
|
|
0.10
|
|
N/A
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
0.14
|
|
0.24
|
|
0.18
|
|
N/A
|
El
Abra
|
|
N/A
|
|
0.20
|
|
0.07
|
|
N/A
|
Candelaria
|
|
0.21
|
|
N/A
|
|
N/A
|
|
N/A
|
Ojos
del Salado
|
|
0.81
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
Grasberg
open pit
|
|
0.53
|
|
N/A
|
|
N/A
|
|
N/A
|
Deep
Ore Zone
|
|
0.59
|
|
N/A
|
|
N/A
|
|
N/A
|
Grasberg
block cave
|
|
0.51
|
|
N/A
|
|
N/A
|
|
N/A
|
Kucing
Liar
|
|
0.73
|
|
N/A
|
|
N/A
|
|
N/A
|
Deep
Mill Level Zone
|
|
0.55
|
|
N/A
|
|
N/A
|
|
N/A
|
Big
Gossan
|
|
1.37
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
Tenke
Fungurume
|
|
N/A
|
|
1.50
|
|
N/A
|
|
N/A
|
Drill
hole spacing data is used by mining professionals, such as geologists and
geological engineers, in determining the suitability of data coverage (on a
relative basis) in a given deposit type and mining method scenario so as to
achieve a given level of confidence in the resource estimate. Drill hole spacing
is only one of several criteria necessary to establish resource classification.
Drilling programs are typically designed to achieve an optimum sample spacing to
support the level of confidence in results that apply to a particular stage of
development of a mineral deposit. The following table sets forth the average
drill hole spacing for proven and probable ore reserves by process
type:
|
|
|
|
Average
Spacing in Meters
|
|
|
|
|
Proven
|
|
Probable
|
|
|
Mining
Unit
|
|
Mill
|
|
Leach
|
|
Mill
|
|
Leach
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
Morenci
|
|
Open
Pit
|
|
86
|
|
86
|
|
122
|
|
122
|
Sierrita
|
|
Open
Pit
|
|
69
|
|
33
|
|
115
|
|
75
|
Bagdad
|
|
Open
Pit
|
|
86
|
|
86
|
|
122
|
|
122
|
Safford
|
|
Open
Pit
|
|
N/A
|
|
61
|
|
N/A
|
|
122
|
Tyrone
|
|
Open
Pit
|
|
N/A
|
|
86
|
|
N/A
|
|
86
|
Henderson
|
|
Block
Cave
|
|
38
|
|
N/A
|
|
85
|
|
N/A
|
Chino
|
|
Open
Pit
|
|
43
|
|
86
|
|
86
|
|
122
|
Miami
|
|
Open
Pit
|
|
N/A
|
|
61
|
|
N/A
|
|
91
|
Climax
|
|
Open
Pit
|
|
61
|
|
N/A
|
|
122
|
|
N/A
|
Cobre
|
|
Open
Pit
|
|
N/A
|
|
61
|
|
N/A
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
Open
Pit
|
|
50
|
|
50
|
|
100
|
|
100
|
El
Abra
|
|
Open
Pit
|
|
N/A
|
|
75
|
|
N/A
|
|
120
|
Candelaria
|
|
Open
Pit
|
|
35
|
|
N/A
|
|
70
|
|
N/A
|
Ojos
del Salado
|
|
Sublevel
Stoping
|
|
25
|
|
N/A
|
|
50
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
Grasberg
|
|
Open
Pit
|
|
36
|
|
N/A
|
|
92
|
|
N/A
|
Deep
Ore Zone
|
|
Block
Cave
|
|
20
|
|
N/A
|
|
51
|
|
N/A
|
Grasberg
|
|
Block
Cave
|
|
47
|
|
N/A
|
|
80
|
|
N/A
|
Kucing
Liar
|
|
Block
Cave
|
|
39
|
|
N/A
|
|
97
|
|
N/A
|
Deep
Mill Level Zone
|
|
Block
Cave
|
|
21
|
|
N/A
|
|
89
|
|
N/A
|
Big
Gossan
|
|
Open
Stope
|
|
13
|
|
N/A
|
|
42
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
Tenke
Fungurume
|
|
Open
Pit
|
|
N/A
|
|
50
|
|
N/A
|
|
100
|
The
following chart illustrates our current plans for sequencing and producing the
December 31, 2008, proven and probable reserves at each of our ore bodies and
the years in which we currently expect production of each ore body to begin and
end. The chart also shows the term of PT Freeport Indonesia’s COW. Production
volumes are typically lower in the first few years for each ore body as
development activities are ongoing and as the mine ramps up to full production,
and production volumes may also be lower as the mine reaches the end of its
life. The ultimate timing of the start of production from our undeveloped mines
is dependent upon a number of factors, including the results of our exploration
and development efforts, and may vary from the dates shown below. In addition,
we develop our mine plans based on maximizing the net present value from the ore
bodies.
Mill
and Leach Stockpiles
Mill and
leach stockpiles generally contain lower-grade ores that have been extracted
from the ore body and are available for copper recovery. For mill stockpiles,
recovery is through milling, concentrating, smelting and refining or,
alternatively, by concentrate leaching. For leach stockpiles, recovery is
through exposure to acidic solutions that dissolve contained copper and deliver
it in solution to extraction processing facilities.
Because
it is generally impracticable to determine copper contained in mill and leach
stockpiles by physical count, reasonable estimation methods are employed. The
quantity of material delivered to mill and leach stockpiles is based on surveyed
volumes of mined material and daily production records. Sampling and assaying of
blasthole cuttings determine the estimated copper grades of material delivered
to mill and leach stockpiles.
Expected
copper recovery rates for mill stockpiles are determined by metallurgical
testing. The recoverable copper in mill stockpiles, once entered into the
production process, can be extracted into copper concentrate almost
immediately.
Expected
copper recovery rates for leach stockpiles are determined using small-scale
laboratory tests, small- to large-scale column testing (which simulates the
production-scale process), historical trends and other factors, including
mineralogy of the ore and rock type. Ultimate recovery of copper contained in
leach stockpiles can vary significantly from a low percentage to more than 90
percent depending on several variables, including type of copper recovery,
mineralogy and particle size of the rock. For newly placed material on active
stockpiles, as much as 70 percent of the copper ultimately recoverable may be
extracted during the first year, and the remaining copper may be recovered over
many years.
Processes
and recovery rates are monitored continuously, and recovery rate estimates are
adjusted periodically as additional information becomes available and as related
technology changes.
Following
are our stockpiles and the estimated recoverable copper contained within those
stockpiles as of December 31, 2008:
Recoverable
Copper in Stockpiles
|
|
|
|
|
|
|
|
|
Recoverable
|
|
|
Millions
of
|
|
Average
|
|
Recovery
|
|
Copper
|
|
|
Metric
Tons
|
|
Grade
(%)
|
|
Rate
(%)
|
|
(Billion
Pounds)
|
Mill stockpiles
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
56
|
|
0.49
|
|
81.7
|
|
0.5
|
Candelaria
|
|
88
|
|
0.41
|
|
82.6
|
|
0.6
|
Subtotal
|
|
144
|
|
0.44
|
|
82.3
|
|
1.1
|
|
|
|
|
|
|
|
|
|
Leach stockpiles
|
|
|
|
|
|
|
|
|
Morenci
|
|
4,422
|
|
0.25
|
|
1.9
|
|
0.5
|
Sierrita
|
|
647
|
|
0.15
|
|
13.6
|
|
0.3
|
Bagdad
|
|
385
|
|
0.28
|
|
3.8
|
|
0.1
|
Safford
|
|
47
|
|
0.38
|
|
33.9
|
|
0.1
|
Tyrone
|
|
944
|
|
0.28
|
|
2.0
|
|
0.1
|
Chino
|
|
1,623
|
|
0.25
|
|
12.6
|
|
1.2
|
Miami
|
|
433
|
|
0.39
|
|
1.9
|
|
0.1
|
Cerro
Verde
|
|
336
|
|
0.54
|
|
3.2
|
|
0.1
|
El
Abra
|
|
252
|
|
0.33
|
|
18.0
|
|
0.3
|
Subtotal
|
|
9,089
|
|
0.27
|
|
5.2
|
|
2.8
|
|
|
|
|
|
|
|
|
|
Total
100% basis
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
Consolidated
basisa
|
|
|
|
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
Net
equity interestb
|
|
|
|
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
a. Consolidated
basis represents estimated metal quantities after reduction for our joint
venture partner’s interest in the Morenci mine in North
America.
|
b. Net equity
interest represents estimated consolidated basis metal quantities further
reduced for minority interest ownership.
|
|
MINERALIZED
MATERIAL
We hold
various properties containing mineralized material that we believe could be
brought into production should market conditions warrant. However, permitting
and significant capital expenditures would be required before operations could
commence at these properties. Mineralized material is a mineralized body that
has been delineated by appropriately spaced drilling and/or underground sampling
to support the reported tonnage and average metal grades. Such a deposit may not
qualify as recoverable proven and probable reserves until legal and economic
feasibility are confirmed based upon a comprehensive evaluation of development
costs, unit costs, grades, recoveries and other material factors. Estimated
mineralized materials as presented on the following page were assessed using
prices of $2.00 per pound of copper, $750 per ounce of gold and $12.00 per pound
of molybdenum. At these prices mineralized material totals 12.0 billion metric
tons on a consolidated basis. Using a copper price of $1.60 per
pound, estimated mineralized material on a consolidated basis would approximate
3.9 billion metric tons with an average copper grade of 0.56
percent.
Mineralized
Material
|
Estimated
at December 31, 2008
|
|
|
|
|
Milling
Material
|
|
Leaching
Material
|
|
Total
Mineralized Material
|
|
|
|
|
Million
|
|
|
|
|
|
|
|
Million
|
|
|
|
Million
|
|
|
|
|
|
|
|
|
FCX’s
|
|
metric
|
|
Copper
|
|
Gold
|
|
Moly
|
|
metric
|
|
Copper
|
|
metric
|
|
Copper
|
|
Gold
|
|
Moly
|
|
|
Interest
|
|
tons
|
|
%
|
|
g/t
|
|
%
|
|
tons
|
|
%
|
|
tons
|
|
%
|
|
g/t
|
|
%
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morenci
|
|
85%
|
|
304
|
|
0.38
|
|
-
|
|
-
|
|
1,950
|
|
0.22
|
|
2,254
|
|
0.24
|
|
-
|
|
-
|
Sierrita
|
|
100%
|
|
2,154
|
|
0.21
|
|
-
|
|
0.022
|
|
24
|
|
0.16
|
|
2,178
|
|
0.20
|
|
-
|
|
0.022
|
Bagdad
|
|
100%
|
|
460
|
|
0.33
|
|
-
|
|
0.019
|
|
131
|
|
0.10
|
|
591
|
|
0.28
|
|
-
|
|
0.014
|
Safford
|
|
100%
|
|
219
|
|
0.57
|
|
-
|
|
-
|
|
38
|
|
0.27
|
|
257
|
|
0.53
|
|
-
|
|
-
|
Tyrone
|
|
100%
|
|
-
|
|
-
|
|
-
|
|
-
|
|
320
|
|
0.32
|
|
320
|
|
0.32
|
|
-
|
|
-
|
Henderson
|
|
100%
|
|
65
|
|
-
|
|
-
|
|
0.126
|
|
-
|
|
-
|
|
65
|
|
-
|
|
-
|
|
0.126
|
Chino
|
|
100%
|
|
411
|
|
0.48
|
|
-
|
|
0.013
|
|
104
|
|
0.16
|
|
515
|
|
0.41
|
|
-
|
|
0.010
|
Miami
|
|
100%
|
|
-
|
|
-
|
|
-
|
|
-
|
|
52
|
|
0.45
|
|
52
|
|
0.45
|
|
-
|
|
-
|
Climax
|
|
100%
|
|
448
|
|
-
|
|
-
|
|
0.170
|
|
-
|
|
-
|
|
448
|
|
-
|
|
-
|
|
0.170
|
Cobre
|
|
100%
|
|
3
|
|
0.94
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3
|
|
0.94
|
|
-
|
|
-
|
Ajo
|
|
100%
|
|
639
|
|
0.36
|
|
-
|
|
-
|
|
-
|
|
-
|
|
639
|
|
0.36
|
|
-
|
|
-
|
Cochise/Bisbee
|
|
100%
|
|
-
|
|
-
|
|
-
|
|
-
|
|
301
|
|
0.44
|
|
301
|
|
0.44
|
|
-
|
|
-
|
Lone
Star
|
|
100%
|
|
-
|
|
-
|
|
-
|
|
-
|
|
767
|
|
0.44
|
|
767
|
|
0.44
|
|
-
|
|
-
|
Sanchez
|
|
100%
|
|
-
|
|
-
|
|
-
|
|
-
|
|
209
|
|
0.29
|
|
209
|
|
0.29
|
|
-
|
|
-
|
Tohono
|
|
100%
|
|
247
|
|
0.68
|
|
-
|
|
-
|
|
280
|
|
0.67
|
|
527
|
|
0.68
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
53.56%
|
|
191
|
|
0.29
|
|
-
|
|
0.012
|
|
20
|
|
0.35
|
|
211
|
|
0.29
|
|
-
|
|
0.011
|
El
Abra
|
|
51%
|
|
802
|
|
0.40
|
|
-
|
|
-
|
|
371
|
|
0.32
|
|
1,173
|
|
0.37
|
|
-
|
|
-
|
Candelariaa
|
|
80%
|
|
144
|
|
0.52
|
|
0.12
|
|
-
|
|
-
|
|
-
|
|
144
|
|
0.52
|
|
0.12
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grasberg
districtb
|
|
54.38%f
|
|
2,601
|
|
0.58
|
|
0.52
|
|
-
|
|
-
|
|
-
|
|
2,601
|
|
0.58
|
|
0.52
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenke
Fungurumec
|
|
57.75%
|
|
62
|
|
3.72
|
|
-
|
|
-
|
|
26
|
|
4.16
|
|
88
|
|
3.85
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
100% basis
|
|
|
|
8,750
|
|
|
|
|
|
|
|
4,593
|
|
|
|
13,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated basisd
|
|
|
|
7,663
|
|
|
|
|
|
|
|
4,301
|
|
|
|
11,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net equity intereste
|
|
|
|
6,981
|
|
|
|
|
|
|
|
4,099
|
|
|
|
11,080
|
|
|
|
|
|
|
|
a. Candelaria
stated tonnage also includes 1.7 grams of silver per metric
ton.
b. Grasberg
stated tonnage also includes 3.4 grams of silver per metric
ton.
c. Tenke
Fungurume stated tonnage also includes 0.29 percent cobalt.
d. Consolidated
basis represents estimated mineralized material after reduction for our
joint venture partners’ interest in the Morenci mine in North America and
at the Grasberg minerals district in Indonesia.
e. Net
equity interest represents estimated consolidated basis mineralized
material further reduced for minority interest ownership.
f. FCX’s
interest in the Grasberg minerals district reflects our 60 percent joint
venture ownership, further reduced by minority interest
ownership.
|
This
report contains “forward-looking statements” within the meaning of the federal
securities laws. Forward-looking statements are all statements other than
statements of historical facts, such as statements regarding anticipated
production volumes, unit net cash costs, sales volumes, ore grades, milling
rates, commodity prices, development and capital expenditures, mine production
and development plans, availability of power, water, labor and equipment,
environmental reclamation and closure cost and plans, environmental liabilities
and expenditures, litigation liabilities and expenses, dividend payments,
reserve estimates, political, economic and social conditions in our areas of
operations and exploration efforts and results. Except for our ongoing
obligations under the federal securities laws, we do not intend, and we
undertake no obligation, to update or revise any forward-looking statements.
Readers are cautioned that forward-looking statements are not guarantees of
future performance and actual results may differ materially from those
projected, anticipated or assumed in the forward-looking statements. Important
factors that could cause our actual results to differ materially from those
anticipated in the forward-looking statements include the
following.
Financial
risks
Extended
declines in the market prices of copper, gold and/or molybdenum could continue
to adversely affect our earnings and cash flows and, if sustained, could
eventually adversely affect our ability to repay debt. Fluctuations in the
market prices of copper, gold and molybdenum can cause significant volatility in
our financial performance and can adversely affect the trading prices of our
debt and equity securities.
Our
earnings and cash flows are affected significantly by the market prices of
copper and, to a lesser extent, gold and molybdenum. The world market prices of
these commodities have fluctuated historically and are affected by numerous
factors beyond our control. Copper prices have declined significantly from their
recent historically high levels. Exchange inventories have increased
significantly since the first half of 2008. After averaging $3.61 per pound for
the first nine months of 2008, London Metal Exchange (LME) spot copper prices
declined to a four-year low of $1.26 per pound in December 2008 and the LME spot
copper price closed at $1.41 per pound on January 30, 2009. The price of
molybdenum averaging approximately $33 per pound for the first nine months of
2008, declining to a four-year low of $8.75 per pound in November 2008 and was
$9.30 per pound on January 30, 2009. Gold prices averaged approximately $872 per
ounce for 2008 and closed at $920 per ounce on January 30, 2009. An extended
decline in the market price of these commodities could (1) adversely affect our
earnings and cash flows, (2) adversely affect our ability to repay our debt and
meet our other fixed obligations, and (3) depress the trading prices of our
common and preferred stock and of our publicly traded debt
securities.
In
addition, substantially all of our copper concentrate sales and some of our
copper cathode sales are provisionally priced at the time of shipment, subject
to final pricing at a specified future date based on LME or New York Merchantile
Exchange (COMEX) prices on that date. Accordingly, in times of falling copper
prices, our revenues during a quarter are negatively affected by lower prices
received for sales priced at current market rates and also from a decrease
related to the final pricing of provisionally priced sales in prior
periods.
If the
market prices for the metals we produce fall below our production costs for a
sustained period of time, we may have to further revise our operating plans,
including further curtailing production, reducing operating costs and capital
expenditures and discontinuing certain exploration and development programs. We
may be unable to decrease our costs in an amount sufficient to offset reductions
in revenues, and may incur losses.
World
copper prices have historically fluctuated widely. During the three years ended
December 31, 2008, LME daily closing spot prices ranged from $1.26 to
$4.08 per pound for copper. World copper prices are affected by numerous
factors beyond our control, including:
·
|
the
strength of the U.S. economy and the economies of other industrialized and
developing nations, including China, which has become the largest consumer
of refined copper in the world;
|
·
|
available
supplies of copper from mine production and
inventories;
|
·
|
sales
by holders and producers of copper;
|
·
|
demand
for industrial products containing
copper;
|
·
|
investment
activity, including speculation, in copper as a
commodity;
|
·
|
the
availability and cost of substitute materials;
and
|
·
|
currency
exchange fluctuations, including the relative strength or weakness of the
U.S. dollar.
|
World
gold prices have historically fluctuated widely. During the three years ended
December 31, 2008, the daily closing prices on the London spot market ranged
from $525 to $1,011 per ounce for gold. World gold prices are affected by
numerous factors beyond our control, including:
·
|
the
strength of the U.S. economy and the economies of other
industrialized and developing nations, including
China;
|
·
|
global
or regional political or economic
crises;
|
·
|
the
relative strength of the U.S. dollar and other
currencies;
|
·
|
expectations
with respect to the rate of
inflation;
|
·
|
purchases
and sales of gold by central banks and other
holders;
|
·
|
demand
for jewelry containing gold; and
|
·
|
investment
activity, including speculation, in gold as a
commodity.
|
Molybdenum
prices also fluctuate widely. Molybdenum demand depends primarily on the global
steel industry, which uses the metal as a hardening and corrosion inhibiting
agent. Approximately 80 percent of molybdenum production is used in this
application. The remainder is used in specialty chemical applications such as
catalysts, water treatment agents and lubricants. Approximately 50 percent
of global molybdenum production is a by-product of copper mining, which is
relatively insensitive to molybdenum prices. Decreased demand for molybdenum
during the fourth quarter of 2008 resulted in a sudden and sharp decline in
molybdenum prices. During the three years ended December 31, 2008, the Metals Week Dealer Oxide
weekly average price for molybdenum ranged from $8.75 to $33.88 per pound.
Molybdenum prices are affected by numerous factors beyond our control,
including:
·
|
the
worldwide balance of molybdenum demand and
supply;
|
·
|
rates
of global economic growth, especially construction and infrastructure
activity that requires significant amounts of
steel;
|
·
|
the
volume of molybdenum produced as a by-product of copper
production;
|
·
|
currency
exchange fluctuations, including the relative strength or weakness of the
U.S. dollar; and
|
·
|
production
costs of U.S. and foreign
competitors.
|
The
agreements governing our indebtedness require us to meet certain financial tests
and other covenants and as a result may limit our flexibility in the operation
of our business and our ability to pay dividends on our common
stock.
We
incurred significant debt to fund a portion of the cash consideration paid to
acquire Phelps Dodge. As of December 31, 2008, the outstanding principal amount
of our indebtedness was $7.4 billion. The agreements governing our indebtedness
restrict, subject to certain exceptions, our ability to:
·
|
incur
additional indebtedness;
|
·
|
engage
in transactions with affiliates;
|
·
|
create
liens on our assets;
|
·
|
make
payments in respect of equity issued by us or our subsidiaries, including
the payment of dividends on our common
stock;
|
·
|
make
investments in, or loans, to entities that we do not control, including
joint ventures;
|
·
|
merge
with or into other companies;
|
·
|
enter
into sale and leaseback
transactions;
|
·
|
enter
into unrelated businesses;
|
·
|
enter
into agreements or arrangements that restrict the ability of certain of
our subsidiaries to pay dividends or other
distributions;
|
·
|
prepay
indebtedness; and
|
·
|
enter
into hedging transactions other than in the ordinary course of
business.
|
In
addition, our senior credit facilities require that we meet certain financial
tests at any time that borrowings are outstanding under our revolving credit
facility, including a leverage ratio test (Total Debt to Consolidated
EBITDA, as those terms are defined in the facility, for the preceding four
quarters cannot exceed 5.0 to 1.0 on the last day of any fiscal quarter) and a
secured leverage ratio test (Total Secured Debt to Consolidated EBITDA, as those
terms are defined in the facility, for the preceding four quarters cannot exceed
3.0 to 1.0 on the last day of any fiscal quarter). During periods in which
copper, gold or molybdenum prices or production volumes, or other conditions
reflect the adverse impact of cyclical market trends or other factors, we may
not be able to comply with the applicable financial covenants.
Our
senior credit facilities, the $6.0 billion 8.25%, 8.375%, and floating rate
senior notes and the 6⅞% senior notes contain covenants that limit our ability
to make certain payments. These restrictions vary among the instruments, but
generally limit our ability to pay certain dividends on common and preferred
stock, repurchase or redeem common and preferred equity, prepay subordinated
debt and make certain investments. At December 31, 2008, the most restrictive of
these covenants allowed for such payments up to a limit that exceeded $5
billion.
Our
obligations under our senior credit facilities are (i) guaranteed by
substantially all of our domestic subsidiaries and (ii) secured by a pledge of
(a) 100 percent of the equity in substantially all of our domestic subsidiaries
and (b) 66.5 percent of the equity in substantially all of our first tier
foreign subsidiaries.
Any
failure to comply with the restrictions of our senior credit facilities, senior
notes or any agreement governing our other indebtedness, after giving effect to
any applicable grace period, may result in an event of default. Such default may
allow the creditors to accelerate the related debt, which may trigger
cross-acceleration or cross-default provisions in other debt agreements. Our
assets and cash flow would not be sufficient to fully repay borrowings under our
debt instruments that are accelerated upon an event of default.
If we are
unable to repay, refinance or restructure our indebtedness under, or amend the
covenants contained in, our senior credit agreements at maturity or in the event
of a default, the lenders under our senior credit facilities could terminate
their commitments thereunder, cease making further loans, declare all borrowings
outstanding (together with accrued interest and other fees) immediately due and
payable and institute foreclosure proceedings against the security. Any such
actions could negatively affect our financial condition and results of
operations.
Under
U.S. federal and state laws that require closure and reclamation plans for our
mines, we are required to provide financial assurance sufficient to allow a
third party to implement those plans if we are unable to do so. The U.S.
Environmental Protection Agency (EPA) and state agencies may seek
financial assurance for investigation and
remediation
actions taken under the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA) or equivalent
state regulations. The failure to
comply with these requirements could have a material adverse effect on
us.
We are
required by U.S. federal and state laws to provide financial assurance
sufficient to allow a third party to implement approved closure and reclamation
plans if we are unable to do so. These laws are complex and vary from
jurisdiction to jurisdiction. The laws govern the determination of the
scope and cost of the closure and reclamation obligations and the amount and
forms of financial assurance.
As of
December 31, 2008, our financial assurance obligations associated with closure
and reclamation costs totaled approximately $715 million, of which approximately
$425 million was in the form of parent company guarantees and financial
capability demonstrations. Our ability to continue to provide financial
assurance in the form of parent guarantees and financial capability
demonstrations in New Mexico and Arizona depends on our ability to meet
financial tests. Certain of the ratios in these tests are significantly more
rigorous for companies that do not have an investment grade rating from a
state-approved ratings service. We are currently rated investment grade by
Standard & Poor’s and Fitch, but are not rated investment grade by Moody’s.
If we fail to maintain our investment grade rating, we would be subject to these
alternate tests, and as a result, the regulatory agencies may require us to
provide alternative forms of financial assurance to fully satisfy our financial
assurance obligations, such as letters of credit, surety bonds or
collateral. Depending on our financial condition and market conditions,
these other forms of financial assurance may be difficult or costly to provide.
Issuance of letters of credit under our credit facilities would reduce our
available liquidity. Failure to provide the required financial assurance
could result in the closure of mines. As of December 31, 2008, we have
limited financial assurance obligations associated with CERCLA-related actions,
although EPA and certain states are currently considering increasing the use of
financial assurance requirements. For
additional information, see the risk factor “Mine closure regulations impose
substantial costs on our operations” below.
We
need significant amounts of cash to service our debt. If we are unable to
generate sufficient cash to service our debt, our financial condition and
results of operations could be negatively affected.
We must
generate sufficient amounts of cash to service and repay our debt. Our ability
to generate cash will be affected by general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. Future
borrowings may not be available to us under our senior credit facilities or from
the capital markets in amounts sufficient to pay our obligations as they mature
or to fund other liquidity needs. If we are not able to obtain such borrowings
or generate sufficient cash from operations to service and repay our
indebtedness, we will need to refinance our indebtedness to avoid any default.
Such refinancing may not be available on favorable terms or at all. The
inability to service, repay or refinance our indebtedness could negatively
affect our financial condition and results of operations.
Our
indebtedness, as well as the current global recession, disruption in financial
markets and lower copper and/or molybdenum prices generally, could, among other
things, impede our access to capital or increase our cost of capital, which
would have an adverse effect on our ability to fund our working capital and
other capital requirements.
As of
December 31, 2008, the outstanding principal amount of our debt was
approximately $7.4 billion. The widely reported domestic and global recession,
the associated low copper and molybdenum prices, and the unprecedented levels of
disruption and continuing illiquidity in the credit markets have had an adverse
effect on our operating results and financial condition, and if sustained or
worsened such adverse effects could continue or worsen. Disruptions in the
credit and financial markets have adversely affected financial institutions,
inhibited lending and limited access to capital and credit for many companies,
including ours. These disruptions have made it difficult for us to obtain, or
increase our cost of obtaining, capital and financing for our operations and
have limited our flexibility to plan for, or react to, changes in our business
and the markets in which we operate. If these conditions persist or worsen, they
could, among other things, make it difficult for us to finance our working
capital requirements and service our existing debt.
If future
financing is not available to us when required, as a result of limited access to
the credit markets or
otherwise, or is not available on acceptable terms, we may be unable to
invest needed capital for our development and exploration programs, take
advantage of business opportunities or respond to competitive pressures, any of
which could have an adverse effect on our operating results and financial
condition.
Movements
in foreign currency exchange rates or interest rates could negatively affect our
operating results.
Substantially
all of our revenues and a significant portion of our costs are denominated in
U.S. dollars; however, some of our costs, and certain of our asset and
liability accounts, are denominated in Indonesian rupiah, Chilean pesos,
Peruvian nuevos soles, Australian dollars, Euros and other foreign currencies.
As a result, we will be generally less profitable when the U.S. dollar
weakens in relation to these foreign currencies.
As of
December 31, 2008, approximately 20 percent of our outstanding debt was subject
to variable interest rates. Increases in these rates will increase our interest
costs and reduce our profits and operating cash flows.
From time
to time, we may implement currency or interest rate hedges intended to reduce
our exposure to changes in foreign currency exchange or interest rates. However,
our hedging strategies may not be successful, and any of our unhedged foreign
exchange or interest payments will continue to be subject to market
fluctuations.
Operational
risks
The
volume and grade of ore reserves that we recover and our rate of production may
be more or less than anticipated.
Our ore
reserve amounts are determined in accordance with established mining industry
practices and standards, and are estimates of the mineral deposits that can be
recovered economically and legally based on currently available data. Estimates
of recoverable proven and probable reserves are subject to considerable
uncertainty. Ore bodies may not conform to standard geological expectations, and
estimates may change as new data becomes available. Because ore bodies do not
contain uniform grades and types of minerals, our metal recovery rates will vary
from time to time.
Additionally,
because the determination of reserves is based partially on estimates of future
selling prices, a sustained decrease in such prices may result in a reduction in
economically recoverable ore reserves. These factors may result in variations in
the volumes of mineral reserves that we report from period to
period.
There are
also uncertainties inherent in estimating quantities of ore reserves and copper
recovered from stockpiles. The quantity of copper contained in mill and leach
stockpiles is based on surveyed volumes of mined material and daily production
records. The volume and grade of ore reserves recovered, rates of production and
recovered copper from stockpiles may be less than anticipated.
We
must continually replace reserves depleted by production. Our exploration
activities may not result in additional discoveries.
Our
ability to replenish our ore reserves is important to our long-term viability.
Produced ore reserves must be replaced by further delineation of existing ore
bodies or by locating new deposits in order to maintain production levels over
the long term. Exploration is highly speculative in nature. Our exploration
projects involve many risks, require substantial expenditures and may not result
in the discovery of sufficient additional mineral deposits that can be mined
profitably. Once a site with mineralization is discovered, it may take several
years from the initial phases of drilling until production is possible, during
which time the economic feasibility of production may change. Substantial
expenditures are required to establish recoverable proven and probable reserves
and to construct mining and processing facilities. As a result, there is no
assurance that current or future exploration programs will be successful. There
is a risk that depletion of reserves will not be offset by discoveries or
acquisitions.
Our
business is subject to operational risks that are generally outside of our
control and could adversely affect our business.
Mines by
their nature are subject to many operational risks and factors that are
generally outside of our control and could adversely affect our business,
operating results and cash flows. These operational risks and factors
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unanticipated
ground and water conditions;
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adverse
claims to water rights and shortages of water to which we have
rights;
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adjacent
land ownership that results in constraints on current or future mine
operations;
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geological
problems, including earthquakes and other natural
disasters;
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metallurgical
and other processing problems;
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the
occurrence of unusual weather or operating conditions and other force
majeure events;
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lower
than expected ore grades or recovery
rates;
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delays
in the receipt of or failure to receive necessary government
permits;
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the
results of litigation, including appeals of agency
decisions;
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uncertainty
of exploration and development;
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delays
in transportation;
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interruption
of energy supply;
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inability
to obtain satisfactory insurance coverage;
and
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the
failure of equipment or processes to operate in accordance with
specifications or expectations.
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Continuation
of our mining production is dependent on the availability of a sufficient water
supply to support our mining operations.
Our
mining operations require significant quantities of water for mining, ore
processing and related support facilities. Our operations in North and South
America are in areas where water is scarce and competition among users for
continuing access to water is significant. Continuous production at our mines is
dependent on our ability to maintain our water rights and claims and defeat
claims adverse to our current water uses in legal proceedings. At our U.S.
operations, under state law, our water rights give us only the right to use
public waters for a statutorily defined beneficial use at a designated location.
In Arizona, we are a participant in two active general stream adjudications in
which for over 30 years the State of Arizona has been attempting to quantify and
prioritize surface water claims in two of the state’s largest river systems that
include three of our operating mines (Morenci, Sierrita and Safford) and which
may also affect our Arizona mine at Bagdad. Groundwater is not subject to
adjudication in Arizona, but is subject to the doctrine of reasonable use, which
requires balancing the utility of the use against the gravity of the harm to
others who have rights in the same aquifer; however, wells may be subject to
adjudication to the extent they are found to produce or affect surface
water. In Colorado, our surface water and groundwater rights are subject to
adjudication and we are involved in legal proceedings to resolve disputes
regarding priority of administration of rights, including priority of some of
our rights for the Climax mine. Our surface water and groundwater rights are
fully licensed or have been fully adjudicated in New Mexico.
In South
America, water for our mining operations at Candelaria and Ojos del Salado is
drawn from the Copiapo River aquifer. Because of rapid depletion of this aquifer
in recent years, ongoing studies are addressing the adequacy of this water
supply for our mining operations at these sites and a project to pump effluent
from a nearby sewerage treatment plant as an alternate water source is being
explored. At El Abra, regulatory agencies continue to evaluate the potential
hydrologic and ecologic effects from our groundwater pumping at the Salar de
Ascotán,
with a pending agency determination on the adequacy of our mitigation management
plan for this area.
Although
each operation currently has sufficient water rights and claims to cover its
operational demands, we cannot predict the potential outcome of pending or
future legal proceedings on our water rights, claims and uses. The loss of some
or all water rights for any of our mines, in whole or in part, or shortages of
water to which we have rights could require us to curtail or shut down mining
production and could prevent us from pursuing expansion opportunities.
Additionally, we have not yet secured adequate water rights to support all of
our potential expansion projects, and our inability to secure those rights could
prevent us from pursuing some of those opportunities.
An
interruption of energy supply could adversely affect our mining
operations.
Our
mining operations and development projects require significant amounts of
energy. Our principal energy sources are electricity, purchased petroleum
products, natural gas and coal. Our South America mining operations receive
electrical power under long-term contracts with local energy companies. Our
Africa development project, Tenke Fungurume, has entered into long-term power
supply and infrastructure funding agreements with the state-owned electric
utility company serving the Katanga province of the Democratic Republic of
Congo. A disruption in the transmission of energy, inadequate energy
transmission infrastructure, or the termination of any of our energy supply
contracts could interrupt our energy supply and adversely affect our
operations.
Increased
production costs could reduce our profitability and cash flow.
Energy
represents a significant portion of our production costs. An inability to
procure sufficient energy at reasonable prices could adversely affect our
profits, cash flow and growth opportunities. Our production costs are also
affected by the prices of commodities we consume or use in our operations, such
as sulfuric acid, grinding media, steel, reagents, liners, explosives and
diluents. The prices of such commodities are influenced by supply and demand
trends affecting the mining industry in general and other factors outside our
control and such prices are at times subject to volatile movements. Although our
cash costs increased significantly in 2008, principally for energy and sulfuric
acid, these costs began to decrease in the fourth quarter of 2008 as a result of
the recent sharp declines in prices of energy, steel and sulfuric acid. Future
increases in the cost of these commodities could make our operations less
profitable. Increases in the costs of commodities that we consume or use may
also significantly affect the capital costs of new projects.
In
addition to the usual risks encountered in the mining industry, our Indonesia
operations involve additional risks because they are located on unusually
difficult terrain in a very remote area.
Our
Grasberg mining operations are located in steep mountainous terrain in a very
remote area in Indonesia. Because of these conditions, we have had to overcome
special engineering difficulties and develop extensive infrastructure
facilities. In addition, the area receives considerable rainfall, which has led
to periodic floods and mudslides. The mine site is also in an active seismic
area and has experienced earth tremors from time to time. Our insurance may not
sufficiently cover an unexpected natural or operating disaster.
On
October 9, 2003, a slippage of material occurred in a section of the Grasberg
open pit, resulting in eight fatalities. On December 12, 2003, a debris flow
involving a relatively small amount of loose material occurred in the same
section of the open pit resulting in only minor property damage. The events
caused us to alter our short-term mine sequencing plans, which adversely
affected our 2003 and 2004 production. We resumed normal production activities
in the second quarter of 2004.
On March
23, 2006, a mud/topsoil slide involving approximately 75,000 metric tons of
material occurred from a mountain ridge above service facilities supporting PT
Freeport Indonesia’s mining facilities. Regrettably, three contract workers were
fatally injured in the event. The material damaged a mess hall and an adjacent
area. As a result of investigations by PT Freeport Indonesia and the Indonesian
Department of Energy and Mineral Resources, we conducted geotechnical studies to
identify and address any potential hazards to workers and facilities from
slides. The existing early warning system for potential slides, based upon
rainfall and other factors, has also been expanded.
On
September 10, 2008, a small scale failure encompassing approximately 75,000
metric tons of material occurred at our Grasberg open pit. There were no
injuries or property damage. The event caused a delay in our access to the
high-grade section of the open pit and, as a result, a portion of the metal
expected to be mined in the second half of 2008 was deferred to future
periods.
No
assurance can be given that similar events will not occur in the
future.
Development
projects are inherently risky and may require more capital than anticipated,
which could adversely affect our business. In addition, our most significant
development project, Tenke Fungurume, is located in a remote area of the
Democratic Republic of Congo.
There are
many risks and uncertainties inherent in all development projects, including our
significant future development of underground mines at the Grasberg minerals
district and our Tenke Fungurume project. The economic feasibility of
development projects is based on many factors, including the accuracy of
estimated reserves, metallurgical recoveries, capital and operating costs and
future prices of the relevant minerals. The capital expenditures and time
required to develop new mines or other projects are considerable, and changes in
costs or construction schedules can affect project economics. Thus it is
possible that actual costs and economic returns may differ materially from our
estimates.
New
development projects have no operating history upon which to base estimates of
future cash flow. These development projects also require the successful
completion of feasibility studies, acquisition of governmental permits,
acquisition of land, power and water and ensuring that appropriate community
infrastructure is developed by third parties to support such projects. It is
possible that we could fail to obtain the government approvals necessary for the
operation of a project, in which case, the project may not proceed, either on
its original timing or at all. It is not unusual for new mining operations to
experience unexpected problems during the start-up phase, resulting in delays in
producing revenue and increases in invested capital.
Our Tenke
Fungurume project is located in a remote area of the Democratic Republic of
Congo and is subject to additional challenges due to:
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severely
limited infrastructure, including road and rail
access;
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limited
and possibly unreliable energy
supply;
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limited
health care in an area plagued by disease and other potential endemic
health issues, including malaria.
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Consequently,
our Tenke Fungurume development project may be substantially affected by factors
beyond our control, which could increase the cost of the project and adversely
affect its ultimate contribution to our operating results.
Environmental
risks
Our
domestic and international operations are subject to complex and evolving
environmental laws and regulations, and compliance with environmental and
regulatory requirements involves significant costs.
Our
ongoing mining operations and exploration activities, both in the U.S. and
elsewhere, are subject to extensive laws and regulations governing exploration,
development, production, occupational health, mine safety, toxic substances,
waste disposal, protection and remediation of the environment, protection of
endangered and protected species, and other related matters. Compliance with
these laws and regulations imposes substantial costs and we expect these costs
to continue to increase in the future because of increased regulatory
enforcement, increased demand for remediation services and shortages of
equipment, supplies, labor and other factors. The Federal Clean Air Act has had
a significant impact, particularly on our domestic smelter and power plants. Any
change in waste management regulation of the mining industry under the Federal
Resource Conservation and Recovery Act could have a significant impact, both on
operational compliance and closure costs. In addition, environmental laws and
regulations may change in ways that could adversely affect our operations or
expansion opportunities.
In
addition to compliance with environmental regulation at our operating sites, we
incur significant costs for remediating environmental conditions on properties
that have not been operated in many years.
Phelps
Dodge Corporation, now named Freeport-McMoRan Corporation, and many of its
affiliates and predecessor companies have been involved in mining, milling, and
manufacturing in the U.S. for more than a century. Activities that occurred in
the late 19th century and the 20th century prior to the advent of modern
environmental laws were not subject to environmental regulation and were
conducted before American industrial companies understood the long-term effects
of their operations on the surrounding environment. With the passage of CERCLA
in 1980, companies like Phelps Dodge became legally responsible for
environmental remediation on properties previously owned or operated by them,
irrespective of when the damage to the environment occurred or who caused it.
That liability is often shared on a joint and several basis with all other
owners and operators, meaning that each owner or operator of the property is
fully responsible for the clean-up, although in many cases some or all of the
other historical owners or operators no longer exist, do not have the financial
ability to respond or cannot be found. As a result, because of our acquisition
of Phelps Dodge in 2007, many of the subsidiary companies we now own are
responsible for a wide variety of environmental remediation projects throughout
the U.S., and we expect to spend substantial sums annually for many years to
address these remediation issues. We are also subject to claims where the
release of hazardous substances is alleged to have damaged natural
resources. As of December 31, 2008, we had more than 100 active remediation
projects in the U.S. in approximately 25 states.
We
incurred aggregate environmental capital expenditure and other environmental
costs, including joint venture partners’ share, totaling $468 million in 2008,
$320 million in 2007 and $63 million in 2006. Refer to Note 15 –
“Contingencies” for more information on our environmental
liabilities.
An
adverse ruling in one or more pending legal proceedings involving environmental
matters could have a material adverse effect on us.
As
described in our Securities and Exchange Commission (SEC) filings, we are a
defendant in numerous and in some cases significant litigation involving
environmental cleanup costs, alleged environmental toxic torts and
interpretations of environmental regulations. An adverse ruling in one or more
of these matters could have a material adverse effect on our results of
operations, financial condition and cash flow.
Mine
closure regulations impose substantial costs on our
operations.
Our
domestic operations are subject to various federal and state permitting
requirements that include mine closure and mined-land reclamation obligations.
These requirements are complex and vary depending upon the jurisdiction. The
laws govern the determination of the scope and cost of the closure and
reclamation obligations and the amount and forms of financial assurance
sufficient to allow a third party to meet the obligations of those plans if we
are unable to do so. In general, our domestic mines are required to review
estimated closure and reclamation costs on either a periodic basis or at the
time of significant permit modifications and post increasing amounts of
financial assurance as required.
In
addition, our international mines are subject to various mine closure and
mined-land reclamation laws, and there have recently been significant changes in
closure and reclamation programs in both Peru and Chile that impose more
stringent obligations on us for closure and reclamation. Updated closure
plans for our three Chilean operations were submitted to the government in
February 2009.
Our asset
retirement obligations as of December 31, 2008, determined as required by
Statement of Financial Accounting Standards No. 143, “Asset Retirement
Obligations,” totaled approximately $712 million (including approximately $42
million for the current portion). At December 31, 2008, we had accrued
reclamation and closure costs of $372 million for our New Mexico operations,
$164 million for our Arizona operations and $83 million for PT Freeport
Indonesia. Asset retirement obligation cost estimates may increase or decrease
significantly in the future as a result of changes in regulations, engineering
designs and technology, permit modifications or updates, mine plans, cost of
inflation or other factors and as actual reclamation spending
occurs.
Regulation
of greenhouse gas emissions effects and climate change issues may
adversely affect our operations and markets.
Energy is
a significant input to our mining and processing operations. Our principal
energy sources are electricity, purchased petroleum products, natural gas and
coal. Many scientists believe that emissions from the combustion of carbon-based
fuels contribute to greenhouse effects and therefore potentially to climate
change.
A number
of governments or governmental bodies have introduced or are contemplating
regulatory changes in response to the potential impacts of climate change. The
December 1997 Kyoto Protocol established a set of greenhouse gas emission
targets for developed countries that have ratified the Protocol. Although the
Kyoto Protocol has not been ratified by the U.S., several states have initiated
legislative action on climate change. Climate change legislation has been
introduced in, but not yet passed by the U.S. Congress. Many believe that
federal climate change legislation is very likely to become effective in the
next few years, which will result in increased future energy and compliance
costs. From a medium and long-term perspective, we are likely to see an
increase in costs relating to our assets that emit significant amounts of
greenhouse gases as a result of regulatory initiatives in the U.S. and other
countries in which we operate. These regulatory initiatives will be either
voluntary or mandatory and may impact our operations directly or through our
suppliers or customers. Assessments of the potential impact of future climate
change regulation are uncertain, given the wide scope of potential regulatory
change in countries in which we operate.
The
potential physical impacts of climate change on our operations are highly
uncertain, and would be particular to the geographic circumstances. These may
include changes in rainfall patterns, water shortages, changing sea levels,
changing storm patterns and intensities, and changing temperatures. These
effects may adversely impact the cost, production and financial performance of
our operations.
Our
operating, inactive and historical domestic mining sites and facilities may be
subject to future regulation of radioactive materials that are
commonly associated with, or result from, our mining operations.
A number
of federal and state agencies are considering new regulations to
characterize, regulate and remediate potential workplace exposures and
environmental impacts of radioactive materials commonly associated with mining
operations. For example, the EPA could promulgate rules to regulate
technologically enhanced naturally occurring radioactive materials (TENORM) and
their impacts at mining operations. In addition, several states are promulgating
groundwater quality compliance and remediation standards for radioactive
materials, including uranium. Radioactive materials can be associated with
copper mineral deposits, including both our current and discontinued operations.
Consequently, our copper operations may generate, concentrate or release
radioactive materials that may subject our operations to new and increased
regulation. The impact of such future regulation on our operating, closure,
reclamation, and remediation costs is uncertain.
Our
mining operations in Indonesia create difficult and costly environmental
challenges, and future changes in environmental laws, or unanticipated
environmental impacts from those operations, could require us to incur increased
costs.
Mining
operations on the scale of our operations in Papua involve significant
environmental risks and challenges. Our primary challenge is to dispose of the
large amount of crushed and ground rock material, called tailings, that results
from the process by which we physically separate the copper-, gold- and
silver-bearing materials from the ore that we mine. Our tailings management
plan, which has been approved by the Government of Indonesia, uses the river
system near our mine to transport the tailings to the lowlands where the
tailings and natural sediments are deposited in a controlled area contained
within an engineered levee system that will be revegetated.
Another
major environmental challenge is managing overburden, which is the rock that
must be moved aside in the mining process in order to reach the ore. In the
presence of air, water and naturally occurring bacteria, some overburden can
cause acid rock drainage, or acidic water containing dissolved metals which, if
not properly managed, can have a negative impact on the
environment.
Certain
Indonesian governmental officials have from time to time raised issues with
respect to our tailings and overburden management plans, including a suggestion
that we implement a pipeline system rather than our river deposition system for
tailings disposal. Because our mining operations are remotely located in steep
mountainous
terrain
and in an active seismic area, a pipeline system would be costly, difficult to
construct and maintain, and more prone to catastrophic failure, and could
therefore involve significant potentially adverse environmental issues. Based on
our own studies and others conducted by third parties, we do not believe that a
pipeline system is necessary or practical.
In
connection with obtaining our environmental approvals from the Indonesian
government, we committed to perform a one-time environmental risk assessment on
the impacts of our tailings management plan. We completed this extensive
environmental risk assessment with more than 90 scientific studies conducted
over four years and submitted it to the Indonesian government in December 2002.
We developed the risk assessment study with input from an independent review
panel, which included representatives from the Indonesian government, academia
and non-governmental organizations. The risks that we identified during this
process were in line with our impact projections of the tailings management
program contained in our environmental approval documents.
In 2005,
PT Freeport Indonesia agreed to participate in the Government of Indonesia’s
PROPER (Program for Pollution Control, Evaluation and Rating) program. In March
2006, the Indonesian Ministry of Environment announced the preliminary results
of its PROPER environmental management audit, acknowledging the effectiveness of
PT Freeport Indonesia’s environmental management practices in some areas while
making several suggestions for improvement in others.
International
risks
Our
operations outside of the U.S. are subject to political, social and geographic
risks of doing business in foreign countries.
We are a
global mining company with substantial assets located outside of the U.S. We
conduct international mining operations in Indonesia, Chile and Peru. We also
have a significant development project in the Democratic Republic of Congo,
which is expected to begin production in 2009. Accordingly, our business may be
adversely affected by political, economic and social uncertainties in each of
these countries, in addition to the usual risks associated with conducting
business in foreign countries. Such risks include (1) forced modification of
existing contracts, (2) expropriation, (3) changes in a country’s laws and
policies, including those relating to labor, taxation, royalties, divestment,
imports, exports, trade regulations, currency and environmental matters, (4)
political instability and civil strife, (5) exchange controls, and (6) the risk
of having to submit to the jurisdiction of a foreign court or arbitration panel
or having to enforce the judgment of a foreign court or arbitration panel
against a sovereign nation within its own territory. Our insurance does not
cover most losses caused by these risks.
In
December 2008, we were notified by Peruvian tax authorities of their intent to
assess mining royalties related to the minerals processed by the Cerro Verde
concentrator. The amount claimed to be due through December 2007 is
approximately $33 million. We believe our royalty obligations with respect to
all minerals extracted at Cerro Verde are subject to our existing stability
agreement, regardless of the processing method applied after extraction, and
believe that Cerro Verde owes no royalties with respect to minerals processed
through our concentrator. We intend to work cooperatively with the authorities
in Peru to resolve this matter.
Because
our Grasberg minerals district in Papua, Indonesia remains our most significant
operating asset, our business may continue to be adversely affected by
Indonesian political, economic and social uncertainties.
Indonesia
has faced political, economic and social uncertainties, including separatist
movements and civil and religious strife in a number of provinces. In
particular, several separatist groups are opposing Indonesian rule over the
province of Papua, where our Grasberg minerals district is located, and have
sought political independence for the province. In response, Indonesia enacted
regional autonomy laws, which became effective January 1, 2001. The manner
in which the new laws are being implemented and the degree of political and
economic autonomy that they may bring to individual provinces, including Papua,
are uncertain and are ongoing issues in Indonesian politics. In Papua, there
have been sporadic attacks on civilians by separatists and sporadic but highly
publicized conflicts between separatists and the Indonesian military. Social,
economic and political instability in Papua could materially and adversely
affect us if it results in damage to our property or interruption of our
activities.
Maintaining
a good working relationship with the Indonesian government is important to us
because our mining operations there are among Indonesia’s most
significant business enterprises and are conducted pursuant to a Contract of
Work with the Indonesian government. Partially because of their significance to
Indonesia’s economy, the environmentally sensitive area in which they are
located, and the number of people employed, our operations are occasionally the
subject of criticism in the Indonesian press and in political debates, and have
been the target of protests and occasional violence. In October
2004, Susilo Bambang Yudhoyono was elected as President of Indonesia in the
nation's first direct Presidential election. Indonesia has a Presidential
election scheduled for July 2009. While we intend to continue to maintain
positive working relationships with the Indonesian government, we cannot predict
the impact that the 2009 elections will have on our relationships.
Grasberg
operated at reduced mining and milling rates during a four-day period from April
18, 2007 to April 21, 2007, as a result of peaceful protests by certain workers
regarding benefits. The protests ended on April 21 with an agreement on a
framework for minimum wages for its workers and Grasberg returned to normal
operations. The impacts to production were not significant. Illegal miners have
continued to operate along the river designated to transport the tailings from
the mill to the lowlands in PT Freeport Indonesia’s government-approved tailings
management area. The illegal miners who have trespassed from time to time in the
area of our facilities have clashed with police who have attempted to move them
away from our facilities. In 2006, the illegal miners temporarily blocked the
road leading to the Grasberg mine and mill in protest, and PT Freeport Indonesia
temporarily suspended mining and milling operations as a precautionary
measure.
We cannot
predict whether additional incidents will occur that could disrupt our
Indonesian operations, or whether similar incidents may occur in other countries
that could affect our other operations. If additional protests or other
disruptive incidents occur at any of our facilities, they could adversely affect
our business and profitability in ways that we cannot predict at this
time.
We
do not expect to mine all of our Indonesian ore reserves before the initial term
of our Contract of Work in Indonesia expires.
All of
our Indonesian proven and probable ore reserves, including the Grasberg deposit,
are located in Block A. The initial term of our Contract of Work covering these
ore reserves expires at the end of 2021. We can extend this term for two
successive 10-year periods, subject to the approval of the Indonesian
government, which under our Contract of Work cannot be withheld or delayed
unreasonably. Our ore reserves reflect estimates of minerals that can be
recovered through the end of 2041 (i.e., through the expiration of the two
10-year extensions) and our current mine plan has been developed, and our
operations are based on the assumption that we will receive the two 10-year
extensions. As a result, we will not mine all of these ore reserves during the
current term of our Contract of Work, and there can be no assurance that the
Indonesian government will approve the extensions. Prior to the end of 2021, we
expect to mine approximately 35 percent of aggregate proven and probable
recoverable ore at December 31, 2008, representing approximately 42 percent
of PT Freeport Indonesia’s share of recoverable copper reserves and
approximately 56 percent of its share of recoverable gold
reserves.
Our
Contracts of Work in Indonesia are subject to termination if we do not comply
with our contractual obligations, and if a dispute arises, we may have to submit
to the jurisdiction of a foreign court or arbitration panel.
PT
Freeport Indonesia’s Contract of Work and other Contracts of Work in which we
have an interest were entered into under Indonesia’s 1967 Foreign Capital
Investment Law, which provides guarantees of remittance rights and protection
against nationalization. Our Contracts of Work can be terminated by the
Government of Indonesia if we do not satisfy our contractual obligations, which
include the payment of royalties and taxes to the government and the
satisfaction of certain mining, environmental, safety and health
requirements.
At times,
certain government officials and others in Indonesia have questioned the
validity of contracts entered into by the Government of Indonesia prior to May
1998 (i.e., during the Suharto regime, which lasted over 30 years),
including PT Freeport Indonesia’s Contract of Work, which was signed in December
1991. We cannot assure you that the validity of, or our compliance with, the
Contracts of Work will not be challenged for political or other reasons. PT
Freeport Indonesia’s Contract of Work and our other Contracts of Work require
that disputes with the Indonesian government be submitted to international
arbitration. Consequently, if a dispute arises under the Contracts of Work, we
face the risk of having to submit to the jurisdiction of a foreign court or
arbitration panel, and if we prevail in such a dispute, we will face the
additional risk of having to enforce the judgment of a foreign court or
arbitration panel against Indonesia within its own territory.
Indonesian
government officials have periodically undertaken reviews regarding our
compliance with Indonesian environmental laws and regulations and the terms of
the Contracts of Work. In 2006, the Government of Indonesia created a joint team
for “Periodic Evaluation on Implementation of the PT-FI Contract of Work (COW)”
to conduct an evaluation every five years. The team consists of five working
groups, whose members are from relevant ministries or agencies, covering
production, state revenues, community development, environmental issues and
security issues. We have conducted numerous meetings with these groups. The
joint team has indicated that it will issue a report. While we believe that we
comply with PT Freeport Indonesia’s Contract of Work in all material respects,
we cannot assure you that the report will support that conclusion. Separately,
the Indonesian House of Representatives created a working committee on PT
Freeport Indonesia. Members of this group have also visited our operations and
held a number of hearings in Jakarta. We will continue to work with these groups
to respond to their questions about our operations and our compliance with PT
Freeport Indonesia’s Contract of Work.
Any
suspension of required activities under our Contracts of Work requires the
consent of the Indonesian government.
Our
Contracts of Work permits us to suspend certain contractually required
activities, including exploration, for a period of one year by making a written
request to the Indonesian government. These requests are subject to the approval
of the Indonesian government and are renewable annually. If we do not request a
suspension or are denied a suspension, then we are required to continue our
activities under the Contract of Work or potentially be declared in default.
Moreover, if a suspension continues for more than one year for reasons other
than force majeure and the Indonesian government has not approved such
continuation, then the government would be entitled to declare a default under
the Contract of Work.
We
suspended our field exploration activities outside of Block A in recent years
because of safety and security issues and regulatory uncertainty relating to a
possible conflict between our mining and exploration rights in certain forest
areas and an Indonesian Forestry law enacted in 1999 prohibiting open-pit mining
in forest preservation areas. In 2001, we requested and received from the
Government of Indonesia, formal temporary suspensions of our obligations under
the Contracts of Work in all areas outside of Block A. Recent Indonesian
legislation permits open-pit mining in PT Freeport Indonesia’s Block B area,
subject to certain requirements. Following an assessment of these requirements
and a review of security issues, in 2007 we resumed exploration activities in
certain prospective Contract of Work areas outside of Block A.
Our
Tenke Fungurume development project is located in the Democratic Republic of
Congo, and our business may be adversely affected by political, economic and
social instability in the Democratic Republic of Congo.
Our most
significant development project, Tenke Fungurume, is located in the Democratic
Republic of Congo, a nation that since 1960 has undergone outbreaks of political
violence, changes in national leadership and financial crisis. These factors
heighten the risk of abrupt changes in the national policy towards foreign
investors, which in turn could result in unilateral modification of concessions
or contracts, increased taxation, denial of permits or permit renewals or
expropriation of assets. Our ability to continue development is currently
subject to an ongoing review of all mining contracts by the Ministry of
Mines (Ministry) in the Democratic Republic of Congo, the outcome of
which cannot be predicted. We received notification on February 20, 2008
that the Ministry wishes to renegotiate several material provisions of our
mining concessions. We believe that the terms of the concessions are fair and
that they were negotiated transparently and are legally binding. However, we
cannot predict whether the Government of the Democratic Republic of Congo will
respect our contract rights. Other political, economic and social risks that are
outside of our control and could adversely affect our business
include:
·
|
political
risks associated with the limited tenure of the newly elected
government;
|
·
|
cancellation
or renegotiation of mining contracts by the
government;
|
·
|
royalty
and tax increases or claims by governmental entities, including
retroactive claims;
|
·
|
security
risks due to the remote location and violence in the northeastern
provinces of the Democratic Republic of
Congo;
|
·
|
risk
of loss of property due to expropriation or nationalization of property;
and
|
·
|
risk
of loss due to civil strife, acts of war, guerrilla activities,
insurrection and terrorism.
|
Consequently,
our Tenke Fungurume development project may be substantially affected by factors
beyond our control, any of which could adversely affect our financial position
or results of operations.
Terrorist
attacks throughout the world and the potential for additional future terrorist
acts have created economic and political uncertainties that could materially and
adversely affect our business.
On August
31, 2002, three people were killed and 11 others were wounded in an ambush by a
group of unidentified assailants on the road near Tembagapura, the mining town
where the majority of PT Freeport Indonesia’s personnel reside. The assailants
shot at several vehicles transporting international contract teachers from our
school in Tembagapura, their family members and other contractors to PT Freeport
Indonesia. The U.S. Federal Bureau of Investigation (FBI) investigated the
incident, which resulted in the U.S. indictment of an alleged operational
commander of the Free Papua Movement/National Freedom Force. In January 2006,
Indonesian police, accompanied by FBI agents, arrested the alleged operational
commander and 11 other Papuans. In November 2006, verdicts and sentencing were
announced for seven of those accused in the August 2002 shooting, including a
life sentence for the confessed leader of the attack.
On
October 12, 2002, a bombing killed 202 people in the Indonesian province of
Bali, which is 1,500 miles west of our mining and milling operations. Indonesian
authorities arrested 35 people in connection with this bombing and 29 of those
arrested have been tried and convicted. On August 5, 2003, 12 people were
killed and over 100 were injured by a car bomb detonated outside of the JW
Marriott Hotel in Jakarta, Indonesia. On September 9, 2004, 11 people were
killed and over 200 injured by a car bomb detonated in front of the Australian
embassy in Jakarta. On October 1, 2005, three suicide bombers killed 19
people and wounded over 100 in Bali. The same international terrorist
organizations are suspected in each of these incidents. In November 2005,
Indonesian police raided a house in East Java that resulted in the death of
other accused terrorists linked to the bombings discussed above. Our mining and
milling operations were not interrupted by these incidents, but PT Freeport
Indonesia’s corporate office in Jakarta had to relocate for several months
following the bombing in front of the Australian embassy. In addition to the
Bali, JW Marriott Hotel and Australian embassy bombings, there have been
anti-American demonstrations in certain sections of Indonesia reportedly led by
radical Islamic activists.
No
assurance can be given that additional terrorist incidents will not
occur. If there were to be additional violence, it could materially and
adversely affect our business in ways that we cannot predict at this
time.
Other
risks
If
market prices for our commodities decline, the carrying values of inventories
and long-lived assets may be further impaired, which could require charges to
operating income that could be material.
In the
fourth quarter of 2008, we recorded significant charges to reduce the carrying
values of inventories and long-lived assets, and to eliminate
goodwill. Further declines in the market price of copper, among other
factors, may cause us to record additional lower of cost or market inventory
adjustments and may also require us to further write down the carrying value of
long-lived assets, which would potentially have a material adverse impact on our
results of operations and shareholders' equity, but would have no effect on cash
flows.
Unanticipated
litigation or negative developments in pending litigation could have a material
adverse effect on our results of operations and financial
condition.
We are a
party to the litigation described in our SEC filings and a number of other
litigation matters, including asbestos exposure cases, disputes over the
allocation of environmental remediation obligations at Superfund and other
sites, disputes over water rights and disputes with regulatory authorities. The
outcome of litigation is inherently uncertain and adverse developments or
outcomes can result in significant monetary damages, penalties or injunctive
relief against us, limitations on our property rights, or regulatory
interpretations that increase our operating costs. If any of these disputes
results in a substantial monetary judgment against us or an adverse legal
interpretation, is settled on unfavorable terms, or otherwise affects our
operations, it could have a material adverse effect on our operating results and
financial condition.
We
depend on our senior management team and other key employees, and the loss of
any of these employees could adversely affect our business.
Our
success depends in part on our ability to attract, retain and motivate senior
management and other key employees. Achieving this objective may be difficult
due to many factors, including fluctuations in global economic and industry
conditions, competitors’ hiring practices, cost reduction activities, and the
effectiveness of our compensation programs. Competition for qualified personnel
can be very intense. We must continue to recruit, retain and motivate senior
management and other key employees sufficient to maintain our current business
and support our future projects. A loss of such personnel could prevent us from
capitalizing on business opportunities, and our operating results could be
adversely affected.
Our holding company structure may
impact your ability to receive dividends.
We are a
holding company with no material assets other than the capital stock of our
subsidiaries. As a result, our ability to repay our indebtedness and pay
dividends is dependent on the generation of cash flow by our subsidiaries and
their ability to make such cash available to us, by dividend, loan, debt
repayment or otherwise. Our subsidiaries do not have any obligation to make
funds available to us to repay our indebtedness or pay dividends. Dividends from
subsidiaries that are not wholly owned are shared with other equity owners. In
addition, cash at our international operations is subject to foreign withholding
taxes upon repatriation into the U.S.
In
addition, our subsidiaries may not be able to, or be permitted to, make
distributions to enable us to repay our indebtedness or pay dividends. Each of
our subsidiaries is a distinct legal entity and, under certain circumstances,
legal and contractual restrictions, as well as the financial condition and
operating requirements of our subsidiaries, may limit our ability to obtain cash
from our subsidiaries. Our rights to participate in any distribution of our
subsidiaries’ assets upon their liquidation, reorganization or insolvency would
generally be subject to the prior claims of the subsidiaries’ creditors,
including any trade creditors and preferred stockholders.
Anti-takeover
provisions in our charter documents and Delaware law may make an acquisition of
us more difficult.
Anti-takeover
provisions in our charter documents and Delaware law may make an acquisition of
us more difficult. These provisions:
·
|
authorize
our board of directors to issue preferred stock without stockholder
approval and to designate the rights, preferences and privileges of each
class; if issued, such preferred stock would increase the number of
outstanding shares of our capital stock and could include terms that may
deter an acquisition of us;
|
·
|
establish
advance notice requirements for nominations to the board of directors or
for proposals that can be acted on at stockholder
meetings;
|
·
|
limit
who may call stockholder meetings;
and
|
·
|
require
the approval of the holders of two thirds of our outstanding common stock
to enter into certain business combination transactions, subject to
certain exceptions, including if the consideration to be received by our
common stockholders in the transaction is deemed to be a fair
price.
|
These
provisions may discourage potential takeover attempts, discourage bids for our
common stock at a premium over market price or adversely affect the market price
of, and the voting and other rights of the holders of, our common stock. These
provisions could also discourage proxy contests and make it more difficult for
stockholders to elect directors other than the candidates nominated by our board
of directors.
In
addition, because we are incorporated in Delaware, we are governed by the
provisions of Section 203 of the Delaware General Corporation Law, which may
prohibit large stockholders from consummating a merger with, or acquisition of,
us.
These
provisions may deter an acquisition of us that might otherwise be attractive to
stockholders.
Not
applicable.
We are
involved from time to time in various legal proceedings of a character normally
incident to the ordinary course of our business. We believe that potential
liability in such proceedings would not have a material adverse effect on our
financial condition or results of operations. We maintain liability insurance to
cover some, but not all, potential liabilities normally incident to the ordinary
course of our business as well as other insurance coverage customary in our
business, with coverage limits that we deem prudent.
Environmental
Proceedings
Pinal Creek. We are a party to Pinal Creek Group, et al. v.
Newmont Mining Corporation, et al., United States District Court,
District of Arizona, Case No. CIV 91-1764 PHX DAE (LOA), filed on May 1, 1991.
The Pinal Creek site located near Miami, Arizona, was listed under the Arizona
Department of Environmental Quality’s (ADEQ) Water Quality Assurance Revolving
Fund program in 1989 for contamination in the shallow alluvial aquifers within
the Pinal Creek drainage near Miami, Arizona. Since that time, environmental
remediation has been performed by members of the Pinal Creek Group (PCG),
consisting of Phelps Dodge Miami, Inc. (Miami) (a wholly owned subsidiary of
Freeport-McMoRan Corporation, formerly Phelps Dodge Corporation) and two other
companies. In 1998, the District Court approved a Consent Decree between the PCG
members and the state of Arizona resolving all matters related to an enforcement
action contemplated by the state of Arizona against the PCG members with respect
to groundwater. The Consent Decree committed the PCG members to complete the
remediation work outlined in the Consent Decree. That work continues at this
time pursuant to the Consent Decree and consistent with state law and the
National Contingency Plan prepared by the U.S. Environmental Protection Agency
(EPA) under the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA).
Remediation
has been proceeding pursuant to an interim allocation of cost sharing among the
members of the PCG, with Miami’s interim allocation being approximately
two-thirds; however, there are significant disagreements among the members of
the PCG regarding the allocation of the cost of remediation, and other members
allege that Miami should be responsible for substantially all of the costs.
Discovery disputes resulted in a sanctions order against Miami that included
significant evidentiary restrictions on Miami’s case. The trial on the
allocation issue will be scheduled after the final determination of Miami’s
pending interlocutory appeal of a trial court ruling on the liability standard
that should apply to one of the remaining defendants. A final determination of
the allocation, if different from the interim allocation, would likely result in
a “true up” payment with respect to the remediation that has already been
completed from the party found to be responsible for a higher proportion than
the interim allocation, and would establish the cost-sharing proportions for the
remainder of the clean up. The overall cost of the clean up is expected to be
significant.
Blackwell, Oklahoma
Litigation. On April 14, 2008, a purported class action was filed
in the District Court of Kay County, Oklahoma against us, 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 our remediation
activities in Blackwell, Oklahoma, refer to Note
15 – “Contingencies – Environmental and Asset Retirement
Obligations.”
Arizona Notice of Violation
(NOV) – Sierrita operations. In September and October
2006, ADEQ issued two NOVs to the Phelps Dodge Sierrita, Inc. (Sierrita)
operations in southeastern Arizona. The two NOVs alleged certain visibility and
permit violations associated with dust emissions from Sierrita’s tailing
facility during high-wind events. Sierrita responded to the NOVs by
acknowledging that dust likely did exceed a visibility standard, but denying the
other allegations, and by implementing dust control response actions that ADEQ
has accepted. In January 2009, Sierrita and ADEQ agreed to a consent
decree that will be entered in court to settle the matter. The
consent decree obligates Sierrita to pay a $45,000 fine and $60,000 for a
supplemental environmental project.
New Mexico Environment
Department – Chino Mines. On October 24, 2007, Chino Mines Co.
(Chino) notified New Mexico Environment Department (NMED) that heavy rains
during July, August and September led to a release of diluted leach solutions
through a storm water outfall to an ephemeral stream on Chino’s property. Chino
sent a follow up notice to NMED on November 7, 2007, which identified the
interim corrective actions taken as a result of the discharge. On February 28,
2008, Chino received a proposed Administrative Compliance Order, which included
a demand for civil penalties in the amount of $276,600 for violation of legal
requirements in connection with Chino’s management of the solutions. Chino is
engaged in settlement discussions with NMED.
Asbestos
Claims
Since
approximately 1990, Phelps Dodge and various subsidiaries have been named as
defendants in a large number of product liability or premises lawsuits claiming
injury from exposure to asbestos contained in
electrical wire products produced or marketed many years ago, or from asbestos
at certain Phelps Dodge properties. Based on information available to us to
date, we believe our liability, if any, in these matters will not have a
material adverse effect, either individually or in the aggregate, upon our
business, financial condition, liquidity, results of operations or cash flow.
There can be no assurance, however, that future developments will not alter this
conclusion.
Water
Rights
Water law
in the western U.S. is generally based on the doctrine of prior appropriation
(first in time, first in right) and permits the water right holder the right to
use public waters for a statutorily defined beneficial use, at a designated
location. Our operations in the western U.S. require water for mining, ore
processing and related support facilities. Continuous operation of these mines
is dependent on our ability to maintain our water rights and claims. The loss of
water rights, in whole or in part, could have a significant adverse affect on
our mining operations.
Two water
rights adjudications have been initiated in the State of Arizona in order to
quantify and prioritize all surface water claims in two of the State’s river
systems that include three of our operating mines: Morenci, Sierrita and Safford
and which may affect our Bagdad, Arizona mine. These adjudications have
proceeded for many years, and we cannot predict when they will be concluded, but
the loss of water claims in these legal proceedings could have a significant
adverse affect on the operations of these mines.
In Re the General
Adjudication of All Rights to Use Water in the Little Colorado Water System and
Sources, Apache County, Superior Court, No. 6417, filed on or about
February 17, 1978. The principal parties, in addition to us, include: the State
of Arizona; the Salt River Project; the Arizona Public Service Company; the
Navajo Nation, the Hopi Indian Tribe; the San Juan Southern Paiute Tribe; and
the United States on its own behalf, on behalf of those Indian tribes, and on
behalf of the White Mountain Apache Tribe.
In Re The General
Adjudication of All Rights to Use Water in the Gila River System and
Sources,
Maricopa
County, Superior Court, Cause Nos. W-1 (Salt), W-2 (Verde), W-3 (Upper Gila),
and W-4 (San Pedro), filed on February 17, 1978. The principal parties, in
addition to us, include: the State of Arizona; the Gila Valley Irrigation
District; the San Carlos Irrigation and Drainage District; the Salt River
Project; the San Carlos Apache Tribe; the Gila River Indian Community; and the
United States on behalf of those Tribes, on its own behalf, and on behalf of the
White Mountain Apache Tribe, the Fort McDowell Mohave-Apache Indian Community,
the Salt River Pima-Maricopa Indian Community, and the Payson Community of
Yavapai Apache Indians.
In 1998,
we entered into a water rights settlement agreement with the Gila River Indian
Community (GRIC), which was later included in a comprehensive water rights
settlement under the Arizona Water Settlements Act of 2004. The GRIC settlement
is subject to contingencies that must be met before the agreement is fully
effective, and the comprehensive settlement has been challenged by other
parties. If we are unable to resolve the contingencies in the GRIC settlement
and defeat the third-party challenges, our water rights in the Gila River
watershed could be diminished, and our operations at Morenci, Sierrita and
Safford could be adversely affected.
Prior to
January 1, 1983, various Indian tribes filed suits in the U.S. District Court in
Arizona claiming superior rights to water being used by many other water users,
including us, and claiming damages for prior use in derogation of their
allegedly superior rights. These federal proceedings have been stayed pending
the Arizona
Superior Court adjudications.
United States v. Gila Valley
Irrigation District, United States District Court, District of Arizona,
was initiated in 1925 by the United States to settle conflicting claims to water
rights in portions of the Gila River watershed. A decree settling the claims of
various parties was entered in 1935, after Morenci had been dismissed from the
case without prejudice. In 1988, the Gila River Indian Community intervened,
challenging uses of water in the Gila River watershed, which may impact water
that we have the right to divert annually from Eagle Creek, Chase Creek or the
San Francisco River for operation of our Morenci mine, pursuant to decreed
rights and an agreement between us and the Gila Valley Irrigation District. Our
Morenci operations also purchased farm lands with water rights in 1997, 1998 and
2008 that are subject to this proceeding. Impairment of our water claims in the
Gila River watershed could adversely affect the operations of our Morenci and
Safford mines.
Not
applicable.
Certain
information as of February 15, 2009, about our executive officers, including
their position or office with FCX, PT Freeport Indonesia and Atlantic Copper, is
set forth in the following table and accompanying text:
Name
|
|
Age
|
|
Position
or Office
|
|
|
|
|
|
James
R. Moffett
|
|
70
|
|
Chairman
of the Board of FCX. President Commissioner
|
|
|
|
|
of
PT Freeport Indonesia.
|
|
|
|
|
|
Richard
C. Adkerson
|
|
62
|
|
Director,
President and Chief Executive Officer of FCX.
|
|
|
|
|
Director
and Executive Vice President of PT Freeport Indonesia. Chairman of the
Board of Directors of Atlantic Copper.
|
|
|
|
|
|
Michael
J. Arnold
|
|
56
|
|
Executive
Vice President and Chief Administrative
|
|
|
|
|
Officer
of FCX.
|
|
|
|
|
|
Kathleen
L. Quirk
|
|
45
|
|
Executive
Vice President, Chief Financial Officer and
|
|
|
|
|
Treasurer
of FCX. Commissioner of PT Freeport Indonesia. Director of Atlantic
Copper.
|
James R. Moffett has served
as Chairman of the Board of FCX since May 1992. Mr. Moffett previously served as
the Chief Executive Officer of FCX from July 1995 until December 2003. He is
also President Commissioner of PT Freeport Indonesia and Co-Chairman of the
Board of McMoRan Exploration Co. (McMoRan).
Richard C. Adkerson has
served as FCX’s President since January 2008 and also from April 1997 to March
2007, Chief Executive Officer since December 2003 and a director since October
2006. Mr. Adkerson previously served as FCX’s Chief Financial Officer from
October 2000 to December 2003. Mr. Adkerson is also a director and Executive
Vice President of PT Freeport Indonesia, Chairman of the Board of Directors of
Atlantic Copper, and Co-Chairman of the Board of McMoRan. From November 1998 to
February 2004, he also served as President and Chief Executive Officer of
McMoRan.
Michael J. Arnold has served
as the Chief
Administrative Officer of FCX since December 2003 and as Executive Vice
President of FCX since March 2007. He also served as a director and Executive
Vice President of PT Freeport Indonesia from May 1998 to July 2007.
Kathleen L. Quirk has served
as FCX’s Executive Vice President since March 2007, Chief Financial Officer
since December 2003 and Treasurer since February 2000. Ms. Quirk previously
served as FCX’s Senior Vice President from December 2003 to March 2007
and as Vice President from February 1999 to December 2003. Ms. Quirk
has also served as a Commissioner of PT Freeport Indonesia since April 2000, as
the Senior Vice President of McMoRan since April 2002 and as Treasurer since
January 2000.
Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Unregistered
Sales of Equity Securities
None.
Common
Stock
Our
common shares trade on the New York Stock Exchange (NYSE) under the symbol
“FCX.” The FCX share price is reported daily in the financial press under “FMCG”
in most listings of NYSE securities. Effective March 19, 2007, our certificate
of incorporation was amended to rename our Class B common stock to Common Stock.
NYSE composite tape common share price ranges during 2008 and 2007
follow:
|
|
2008
|
|
2007
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
First
Quarter
|
|
$
|
107.37
|
|
$
|
68.96
|
|
$
|
67.19
|
|
$
|
48.85
|
Second
Quarter
|
|
|
127.24
|
|
|
93.00
|
|
|
85.50
|
|
|
65.62
|
Third
Quarter
|
|
|
117.11
|
|
|
51.21
|
|
|
110.60
|
|
|
67.07
|
Fourth
Quarter
|
|
|
56.75
|
|
|
15.70
|
|
|
120.20
|
|
|
85.71
|
As of
February 17, 2009, there were approximately 19,000 holders of record of our
common stock.
Common
Stock Dividends
In
February 2003, the Board of Directors authorized the initiation of an annual
cash dividend on our common stock of $0.36 per share payable quarterly, and
authorized increases in the annual cash dividend in October 2003 to $0.80 per
share, in October 2004 to $1.00 per share and in November 2005 to $1.25 per
share. In December 2007, the Board of Directors authorized an increase in our
annual common stock dividend to $1.75 per share and in July 2008 to $2.00 per
share. Additionally, since December 2004, we have paid eight supplemental
dividends. In December 2008, in response to weak conditions in commodity and
financial markets, the Board of Directors suspended future common stock
dividends. The Board
of Directors will continue to review our dividend policy on an ongoing
basis.
Below is
a summary of common stock cash dividends declared and paid during 2008 and
2007:
|
|
2008
|
|
|
Per
Share
Amount
|
|
Record
Date
|
|
Payment
Date
|
First
Quarter
|
|
|
|
Jan.
15, 2008
|
|
Feb.
1, 2008
|
Second
Quarter
|
|
0.4375
|
|
Apr.
15, 2008
|
|
May
1, 2008
|
Third
Quarter
|
|
0.4375
|
|
July
15, 2008
|
|
Aug.
1, 2008
|
Fourth
Quarter
|
|
0.5000
|
|
Oct.
15, 2008
|
|
Nov.
1,
2008
|
|
|
2007
|
|
|
Per
Share
Amount
|
|
Record
Date
|
|
Payment
Date
|
First
Quarter
|
|
|
|
Jan.
16, 2007
|
|
Feb.
1, 2007
|
Second
Quarter
|
|
0.3125
|
|
Apr.
16, 2007
|
|
May
1, 2007
|
Third
Quarter
|
|
0.3125
|
|
July
16, 2007
|
|
Aug.
1, 2007
|
Fourth
Quarter
|
|
0.3125
|
|
Oct.
15, 2007
|
|
Nov.
1, 2007
|
The
declaration and payment of dividends is at the discretion of our Board and will
depend on our financial results, cash requirements, future prospects and other
factors deemed relevant by the Board. In addition, payment of dividends on our
common stock and purchases of common stock are subject to limitations under our
6⅞% Senior Notes and $6 billion in senior notes used to finance the acquisition
of Phelps Dodge and, in certain circumstances, our senior credit
facility.
Issuer
Purchases of Equity Securities
The
following table sets forth information with respect to shares of common stock of
FCX purchased by us during the three months ended December 31,
2008:
|
|
|
|
|
|
|
|
|
(d)
Maximum Number
|
|
|
|
|
|
|
|
(c)
Total Number of
|
|
(or
Approximate
|
|
|
(a)
Total
|
|
|
|
|
Shares
(or Units)
|
|
Dollar
Value) of Shares
|
|
|
Number
of
|
|
(b)
Average
|
|
Purchased
as Part of
|
|
(or
Units) That May
|
|
|
Shares
(or Units)
|
|
Price
Paid Per
|
|
Publicly
Announced
|
|
Yet
Be Purchased Under
|
Period
|
|
Purchaseda
|
|
Share
(or Unit)
|
|
Plans
or Programs
|
|
the
Plans or Programsb
|
October
1-31, 2008
|
|
-
|
|
$
|
-
|
|
-
|
|
-
|
November
1-30, 2008
|
|
156
|
|
$
|
28.62
|
|
-
|
|
-
|
December
1-31, 2008
|
|
84
|
|
$
|
23.40
|
|
-
|
|
-
|
Total
|
|
240
|
|
$
|
26.78
|
|
-
|
|
23,685,500
|
|
|
|
|
|
|
|
|
|
|
a.
|
This
category includes shares repurchased under FCX’s applicable stock
incentive plans (Plans) and its non-qualified supplemental savings plan
(SSP). Through the Plans, FCX repurchased 84 shares to satisfy tax
obligations on restricted stock awards and to cover the cost of option
exercises. Under the SSP, FCX repurchased 156 shares as a result of
dividends paid.
|
b.
|
In
December 2007, our Board of Directors approved an open market share
purchase program for up to 20 million shares. In July 2008, our Board of
Directors approved an increase in our open market share purchase program
for up to 30 million shares. The program does not have an expiration date.
No shares were purchased during the three-month period December 31,
2008.
|
FREEPORT-McMoRan
COPPER & GOLD INC.
SELECTED
FINANCIAL AND OPERATING DATA
|
Years
Ended December 31,
|
|
|
2008
|
|
2007a
|
|
2006
|
|
2005
|
|
2004
|
|
FCX
CONSOLIDATED FINANCIAL DATA
|
(In
Millions, Except Per Share Amounts)
|
|
Revenues
|
$
|
17,796
|
b
|
$
|
16,939
|
b,c
|
$
|
5,791
|
|
$
|
4,179
|
|
$
|
2,372
|
|
Operating
(loss) income
|
|
(12,710
|
)b,d,e,f
|
|
6,555
|
b,c,f
|
|
2,869
|
|
|
2,177
|
|
|
704
|
|
(Loss)
income from continuing operations applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
common stock
|
|
(11,341
|
)
|
|
2,734
|
|
|
1,396
|
|
|
935
|
|
|
157
|
|
Net
(loss) income applicable to common stock
|
|
(11,341
|
)b,d,e,f,g
|
|
2,769
|
b,c,f,g
|
|
1,396
|
g,h
|
|
935
|
g
|
|
157
|
g
|
Basic
net (loss) income per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
(29.72
|
)
|
$
|
8.02
|
|
$
|
7.32
|
|
$
|
5.18
|
|
$
|
0.86
|
|
Discontinued
operations
|
|
–
|
|
|
0.10
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Basic
net (loss) income per share of common stock
|
$
|
(29.72
|
)
|
$
|
8.12
|
|
$
|
7.32
|
|
$
|
5.18
|
|
$
|
0.86
|
|
Basic
average shares outstanding
|
|
382
|
|
|
341
|
|
|
191
|
|
|
180
|
|
|
182
|
|
Diluted
net (loss) income per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
(29.72
|
)
|
$
|
7.41
|
|
$
|
6.63
|
|
$
|
4.67
|
|
$
|
0.85
|
|
Discontinued
operations
|
|
–
|
|
|
0.09
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Diluted
net (loss) income per share of common stock
|
$
|
(29.72
|
)b,d,e,f,g
|
$
|
7.50
|
b,c,f,g
|
$
|
6.63
|
g,h
|
$
|
4.67
|
g
|
$
|
0.85
|
g
|
Diluted
average shares outstanding
|
|
382
|
|
|
397
|
|
|
221
|
|
|
220
|
|
|
185
|
|
Dividends
declared per common share
|
$
|
1.375
|
|
$
|
1.375
|
|
$
|
5.0625
|
|
$
|
2.50
|
|
$
|
1.10
|
|
At
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$
|
872
|
|
$
|
1,626
|
|
$
|
907
|
|
$
|
764
|
|
$
|
552
|
|
Property,
plant, equipment and development costs, net
|
|
16,002
|
|
|
25,715
|
|
|
3,099
|
|
|
3,089
|
|
|
3,199
|
|
Goodwill
|
|
–
|
|
|
6,105
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Total
assets
|
|
23,353
|
|
|
40,661
|
|
|
5,390
|
h
|
|
5,550
|
|
|
5,087
|
|
Total
debt, including current portion and short-term borrowings
|
|
7,351
|
|
|
7,211
|
|
|
680
|
|
|
1,256
|
|
|
1,952
|
|
Total
stockholders’ equity
|
|
5,773
|
|
|
18,234
|
|
|
2,445
|
h
|
|
1,843
|
|
|
1,164
|
|
The
selected consolidated financial data shown above is derived from our audited
consolidated financial statements. These historical results are not necessarily
indicative of results that you can expect for any future period. You should read
this data in conjunction with Management’s Discussion and Analysis of Financial
Condition and Results of Operations and our full consolidated financial
statements and notes thereto contained in this annual report.
a.
|
Includes
the results of Phelps Dodge Corporation (Phelps Dodge) beginning March 20,
2007.
|
b.
|
Includes
charges totaling $78 million ($52 million to net loss or $0.14 per share)
in 2008 and $30 million ($18 million to net income or $0.05 per share) in
2007 for unrealized losses on copper derivative contracts entered into
with our domestic copper rod
customers.
|
c.
|
Includes
charges totaling $175 million ($106 million to net income or $0.27 per
share) for mark-to-market accounting adjustments on the 2007 copper price
protection program assumed in the acquisition of Phelps
Dodge.
|
d.
|
Includes
charges totaling $17.0 billion ($12.7 billion to net loss or $33.21 per
share) associated with asset impairment, restructuring and other
charges.
|
e.
|
Includes
charges for lower of cost or market inventory adjustments totaling $782
million ($479 million to net loss or $1.26 per
share).
|
f.
|
Includes
purchase accounting impacts related to the acquisition of Phelps Dodge
totaling $1.1 billion, including $1.0 billion to operating loss and $93
million for non-operating income and expenses ($679 million to net loss or
$1.78 per share) in 2008 and $1.3 billion to operating income ($793
million to net income or $2.00 per share) in
2007.
|
g.
|
Includes
net losses on early extinguishment and conversion of debt totaling $5
million ($0.01 per share) in 2008, $132 million ($0.33 per share) in 2007,
$30 million ($0.14 per share) in 2006, $40 million ($0.18 per share) in
2005 and $7 million ($0.04 per share) in 2004; 2008 also includes charges
totaling $22 million ($0.06 per share) associated with privately
negotiated transactions to induce conversion of a portion of our 5½%
Convertible Perpetual Preferred Stock into FCX common
stock.
|
h.
|
Effective
January 1, 2006, we adopted Emerging Issues Task Force Issue No. 04-6,
“Accounting for Stripping Costs Incurred during Production in the Mining
Industry” (EITF 04-6), and recorded a cumulative effect adjustment ($149
million) to reduce beginning retained earnings for our deferred mining
costs asset ($285 million) as of December 31, 2005, net of taxes, minority
interest share and inventory effects ($136 million). As a result of
adopting EITF 04-6, income from continuing operations before income taxes
and minority interests was $35 million lower and net income was $19
million ($0.08 per share) lower than if we had not adopted EITF 04-6.
Effective January 1, 2006, we also adopted Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment”
(SFAS No. 123R). As a result of adopting SFAS No. 123R, income from
continuing operations before income taxes and minority interests was $28
million lower and net income was $16 million ($0.07 per share) lower than
if we had not adopted SFAS No. 123R. Results for prior years have not been
restated.
|
FREEPORT-McMoRan
COPPER & GOLD INC.
SELECTED
FINANCIAL AND OPERATING DATA (Continued)
For
comparative purposes, operating data shown below for the years ended December
31, 2007, 2006, 2005 and 2004, combines our historical data with Phelps Dodge
pre-acquisition data. As the pre-acquisition operating data represent the
results of these operations under Phelps Dodge management, such combined data is
not necessarily indicative of what past results would have been under FCX
management or of future operating results.
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007a
|
|
|
2006a
|
|
|
2005a
|
|
|
2004a
|
|
FCX
OPERATING DATA, Net of Joint Venture Interests
|
|
Copper
(recoverable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
(millions of pounds)
|
|
4,030
|
|
|
3,884
|
|
|
3,639
|
|
|
3,912
|
|
|
3,518
|
|
Production
(thousands of metric tons)
|
|
1,828
|
|
|
1,762
|
|
|
1,651
|
|
|
1,774
|
|
|
1,596
|
|
Sales
(millions of pounds)
|
|
4,066
|
|
|
3,862
|
|
|
3,630
|
|
|
3,933
|
|
|
3,530
|
|
Sales
(thousands of metric tons)
|
|
1,844
|
|
|
1,752
|
|
|
1,647
|
|
|
1,784
|
|
|
1,601
|
|
Average
realized price per pound
|
$
|
2.69
|
|
$
|
3.22
|
b
|
$
|
2.80
|
b
|
$
|
1.66
|
b
|
$
|
1.33
|
|
Gold
(recoverable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
(thousands of ounces)
|
|
1,291
|
|
|
2,329
|
|
|
1,863
|
|
|
2,923
|
|
|
1,591
|
|
Sales
(thousands of ounces)
|
|
1,314
|
|
|
2,320
|
|
|
1,866
|
|
|
2,925
|
|
|
1,577
|
|
Average
realized price per ounce
|
$
|
861
|
|
$
|
682
|
|
$
|
566
|
c
|
$
|
454
|
|
$
|
411
|
|
Molybdenum
(recoverable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
(millions of pounds)
|
|
73
|
|
|
70
|
|
|
68
|
|
|
62
|
|
|
57
|
|
Sales
(millions of pounds)
|
|
71
|
|
|
69
|
|
|
69
|
|
|
60
|
|
|
63
|
|
Average
realized price per pound
|
$
|
30.55
|
|
$
|
25.87
|
|
$
|
21.87
|
|
$
|
25.89
|
|
$
|
12.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NORTH
AMERICA COPPER MINES
|
|
Operating
Data, Net of Joint Venture Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(recoverable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
(millions of pounds)
|
|
1,430
|
|
|
1,320
|
|
|
1,305
|
|
|
1,365
|
|
|
1,384
|
|
Production
(thousands of metric tons)
|
|
649
|
|
|
599
|
|
|
592
|
|
|
619
|
|
|
628
|
|
Sales
(millions of pounds)
|
|
1,434
|
|
|
1,332
|
|
|
1,303
|
|
|
1,383
|
|
|
1,393
|
|
Sales
(thousands of metric tons)
|
|
650
|
|
|
604
|
|
|
591
|
|
|
627
|
|
|
632
|
|
Average
realized price per pound
|
$
|
3.07
|
|
$
|
3.10
|
d
|
$
|
2.29
|
d
|
$
|
1.49
|
d
|
$
|
1.29
|
|
Molybdenum
(by-product)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
(millions of recoverable pounds)
|
|
30
|
|
|
30
|
|
|
31
|
|
|
30
|
|
|
30
|
|
100%
Operating Data, Including Joint Venture Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solution extraction/electrowinning (SX/EW)
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leach
ore placed in stockpiles (metric tons per day)
|
|
1,095,200
|
|
|
798,200
|
|
|
801,200
|
|
|
778,500
|
|
|
742,800
|
|
Average
copper ore grade (percent)
|
|
0.22
|
|
|
0.23
|
|
|
0.30
|
|
|
0.26
|
|
|
0.27
|
|
Copper
production (millions of recoverable pounds)
|
|
943
|
|
|
940
|
|
|
1,013
|
|
|
1,066
|
|
|
1,134
|
|
Mill operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
249,600
|
|
|
223,800
|
|
|
199,300
|
|
|
194,800
|
|
|
166,400
|
|
Average
ore grade (percent):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
0.40
|
|
|
0.35
|
|
|
0.33
|
|
|
0.33
|
|
|
0.36
|
|
Molybdenum
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
|
0.03
|
|
|
0.03
|
|
Copper
recovery rate (percent)
|
|
82.9
|
|
|
84.5
|
|
|
85.0
|
|
|
83.9
|
|
|
85.6
|
|
Production
(millions of recoverable pounds):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
599
|
|
|
501
|
|
|
414
|
|
|
419
|
|
|
375
|
|
Molybdenum
(by-product)
|
|
30
|
|
|
30
|
|
|
31
|
|
|
30
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOUTH
AMERICA COPPER MINES OPERATING DATA
|
|
Copper
(recoverable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
(millions of pounds)
|
|
1,506
|
|
|
1,413
|
|
|
1,133
|
|
|
1,091
|
|
|
1,137
|
|
Production
(thousands of metric tons)
|
|
683
|
|
|
641
|
|
|
514
|
|
|
495
|
|
|
516
|
|
Sales
(millions of pounds)
|
|
1,521
|
|
|
1,399
|
|
|
1,126
|
|
|
1,093
|
|
|
1,145
|
|
Sales
(thousands of metric tons)
|
|
690
|
|
|
635
|
|
|
511
|
|
|
496
|
|
|
519
|
|
Average
realized price per pound
|
$
|
2.57
|
|
$
|
3.25
|
|
$
|
3.03
|
|
$
|
1.63
|
e
|
$
|
1.33
|
|
Gold
(recoverable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
(thousands of ounces)
|
|
114
|
|
|
116
|
|
|
112
|
|
|
117
|
|
|
122
|
|
Sales
(thousands of ounces)
|
|
116
|
|
|
114
|
|
|
111
|
|
|
117
|
|
|
122
|
|
Average
realized price per ounce
|
$
|
853
|
|
$
|
683
|
|
$
|
552
|
|
$
|
425
|
|
$
|
409
|
|
Molybdenum
(by-product)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
(millions of recoverable pounds)
|
|
3
|
|
|
1
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007a
|
|
|
2006a
|
|
|
2005a
|
|
|
2004a
|
|
SOUTH
AMERICA COPPER MINES OPERATING DATA (continued)
|
|
SX/EW operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leach
ore placed in stockpiles (metric tons per day)
|
|
279,700
|
|
|
289,100
|
|
|
257,400
|
|
|
264,600
|
|
|
233,600
|
|
Average
copper ore grade (percent)
|
|
0.45
|
|
|
0.43
|
|
|
0.45
|
|
|
0.46
|
|
|
0.51
|
|
Copper
production (millions of recoverable pounds)
|
|
560
|
|
|
569
|
|
|
695
|
|
|
670
|
|
|
676
|
|
Mill operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
181,400
|
|
|
167,900
|
|
|
68,500
|
|
|
68,700
|
|
|
69,700
|
|
Average
ore grade (percent):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
0.75
|
|
|
0.74
|
|
|
0.87
|
|
|
0.84
|
|
|
0.91
|
|
Molybdenum
|
|
0.02
|
|
|
0.02
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Copper
recovery rate (percent)
|
|
89.2
|
|
|
87.1
|
|
|
93.8
|
|
|
93.9
|
|
|
94.1
|
|
Production
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
946
|
|
|
844
|
|
|
438
|
|
|
421
|
|
|
462
|
|
Molybdenum
|
|
3
|
|
|
1
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INDONESIA
MINING
|
|
Operating
Data, Net of Joint Venture Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(recoverable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
(millions of pounds)
|
|
1,094
|
|
|
1,151
|
|
|
1,201
|
|
|
1,456
|
|
|
997
|
|
Production
(thousands of metric tons)
|
|
496
|
|
|
522
|
|
|
545
|
|
|
660
|
|
|
452
|
|
Sales
(millions of pounds)
|
|
1,111
|
|
|
1,131
|
|
|
1,201
|
|
|
1,457
|
|
|
992
|
|
Sales
(thousands of metric tons)
|
|
504
|
|
|
513
|
|
|
545
|
|
|
661
|
|
|
450
|
|
Average
realized price per pound
|
$
|
2.36
|
|
$
|
3.32
|
|
$
|
3.13
|
|
$
|
1.85
|
|
$
|
1.37
|
|
Gold
(recoverable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
(thousands of ounces)
|
|
1,163
|
|
|
2,198
|
|
|
1,732
|
|
|
2,789
|
|
|
1,456
|
|
Sales
(thousands of ounces)
|
|
1,182
|
|
|
2,185
|
|
|
1,736
|
|
|
2,790
|
|
|
1,443
|
|
Average
realized price per ounce
|
$
|
861
|
|
$
|
681
|
|
$
|
567
|
c
|
$
|
456
|
|
$
|
412
|
|
100%
Operating Data, Including Joint Venture Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
192,900
|
|
|
212,600
|
|
|
229,400
|
|
|
216,200
|
|
|
185,100
|
|
Average
ore grade (percent):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
0.83
|
|
|
0.82
|
|
|
0.85
|
|
|
1.13
|
|
|
0.87
|
|
Gold
|
|
0.66
|
|
|
1.24
|
|
|
0.85
|
|
|
1.65
|
|
|
0.88
|
|
Recovery
rates (percent):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
90.1
|
|
|
90.5
|
|
|
86.1
|
|
|
89.2
|
|
|
88.6
|
|
Gold
|
|
79.9
|
|
|
86.2
|
|
|
80.9
|
|
|
83.1
|
|
|
81.8
|
|
Production
(recoverable):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(millions of pounds)
|
|
1,109
|
|
|
1,211
|
|
|
1,300
|
|
|
1,689
|
|
|
1,099
|
|
Gold
(thousands of ounces)
|
|
1,163
|
|
|
2,608
|
|
|
1,824
|
|
|
3,440
|
|
|
1,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MOLYBDENUM
OPERATING DATA
|
Molybdenum
sales (millions of pounds)f
|
|
71
|
|
|
69
|
|
|
69
|
|
|
60
|
|
|
63
|
|
Average
realized price per pound
|
$
|
30.55
|
|
$
|
25.87
|
|
$
|
21.87
|
|
$
|
25.89
|
|
$
|
12.71
|
|
Henderson
Molybdenum Mine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum
production (millions of recoverable pounds)
|
|
40
|
|
|
39
|
|
|
37
|
|
|
32
|
|
|
27
|
|
Ore
milled (metric tons per day)
|
|
24,100
|
|
|
24,000
|
|
|
22,200
|
|
|
20,300
|
|
|
16,800
|
|
Average
molybdenum ore grade (percent)
|
|
0.23
|
|
|
0.23
|
|
|
0.23
|
|
|
0.22
|
|
|
0.23
|
|
a.
|
For
comparative purposes, operating data for the years ended December 31,
2007, 2006, 2005 and 2004, combines our historical data with Phelps Dodge
pre-acquisition data. As the pre-acquisition data represents the results
of these operations under Phelps Dodge management, such combined data is
not necessarily indicative of what past results would have been under FCX
management or of future operating
results.
|
b.
|
Before
charges for hedging losses related to copper price protection programs,
amounts were $3.27 per pound for 2007, $3.08 per pound for 2006 and $1.76
per pound for 2005.
|
c.
|
Amount
was approximately $606 per ounce before a loss resulting from the
redemption of FCX’s Gold-Denominated Preferred Stock, Series
II.
|
d.
|
Before
charges for hedging losses related to copper price protection programs,
amounts were $3.25 per pound for 2007, $3.06 per pound for 2006 and $1.69
per pound for 2005.
|
e.
|
Amount
was $1.75 per pound before charges for hedging losses related to copper
price protection programs.
|
f.
|
Includes
sales of molybdenum produced as a by-product at our North and South
America copper mines.
|
For the
ratio of earnings to fixed charges calculation, earnings consist of income
(loss) from continuing operations before income taxes, minority interests in
consolidated subsidiaries, equity in affiliated companies' net earnings,
cumulative effect of accounting changes and fixed charges. Fixed charges
include interest and that portion of rent deemed representative of interest. For
the ratio of earnings to fixed charges and preferred stock dividends
calculation, we assumed that our preferred stock dividend requirements were
equal to the pre-tax earnings that would be required to cover those dividend
requirements. We computed those pre-tax earnings using the effective tax rate
for each year. Our ratio of earnings to fixed charges was as follows for
the years presented:
|
Years
Ended December 31,
|
|
2008
|
2007
|
2006
|
2005
|
2004
|
Ratio
of earnings to fixed charges
|
-a
|
9.9x
|
33.1x
|
15.9x
|
4.9x
|
Ratio
of earnings to fixed charges
|
|
|
|
|
|
and
preferred stock dividends
|
-b
|
6.6x
|
14.3x
|
8.2x
|
2.9x
|
a.
|
As
a result of the loss recorded in 2008, the ratio coverage was less
than 1:1. We would have needed to generate additional earnings of $13.4
billion to achieve coverage of 1:1 in
2008.
|
b.
|
As
a result of the loss recorded in 2008, the ratio coverage was less
than 1:1. We would have needed to generate additional earnings of $13.8
billion to achieve coverage of 1:1 in
2008.
|
Items 7. and 7A. Management’s
Discussion and Analysis of Financial Condition and Results of Operations and
Quantitative and Qualitative Disclosures About Market Risk.
FREEPORT-McMoRan
COPPER & GOLD INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
and OUTLOOK
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. The results of operations reported and summarized
below are not necessarily indicative of future operating results. In particular,
the financial results for 2007 include the operations of Phelps Dodge from March
20, 2007, through December 31, 2007, not the full twelve-month period 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. Our portfolio of assets includes 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; significant mining operations in North and South America; and the
Tenke Fungurume development project in the Democratic Republic of Congo
(DRC).
Our
mining revenues for 2008 include sales of copper (approximately 76 percent),
molybdenum (approximately 14 percent) and gold (approximately seven percent). We
currently have five operating copper mines in North America, four in South
America and the Grasberg minerals district in Indonesia. We also have one
operating primary molybdenum mine in North America. During 2008, approximately
60 percent of our consolidated copper production was from our Grasberg, Morenci
and Cerro Verde mines, and more than half of our mined copper was sold in
concentrate, approximately 27 percent as rod (principally from our North America
operations) and approximately 19 percent as cathodes. For 2008, approximately 55
percent of our consolidated molybdenum production was from the Henderson
molybdenum mine and approximately 45 percent was produced as a by-product
primarily at our North America copper mines. We also produce gold as a
by-product at our copper mines, primarily at the Grasberg minerals district in
Indonesia, which accounted for approximately 90 percent of our consolidated gold
production for 2008. Refer to “Operations” for further discussion of our mining
operations.
Prior
to March 19, 2007, we operated our Grasberg mine in Indonesia and our wholly
owned copper smelting and refining operation at Atlantic Copper in Spain. On
March 19, 2007, we acquired Phelps Dodge, a fully integrated producer of copper
and molybdenum with mines in North and South America, and several development
projects, including Tenke Fungurume in the DRC, which we believe is one of the
world’s highest potential copper and cobalt concessions. After completion
of the Phelps Dodge acquisition, our business strategy was focused on repaying
acquisition-related debt, defining the potential of our resources and developing
expansion and growth plans to deliver additional volumes to a growing
marketplace. During 2007, we repaid $10.0 billion in term loans using a
combination of equity proceeds and internally generated cash flows. Because of
the significant reduction in debt and historically high prices for copper,
molybdenum and gold, our financial policy during most of 2008 was designed to
use our cash flow to invest in growth projects with anticipated high rates of
return and to return excess cash flows to shareholders in the form of dividends
and share purchases.
During
fourth-quarter 2008, there was a dramatic decline in copper and molybdenum
prices. After averaging $3.05 per pound in 2006, $3.23 per pound in 2007 and
$3.61 per pound for the first nine months of 2008, London Metal Exchange (LME)
spot copper prices declined to a four-year low of $1.26 per pound in December
2008 and averaged $1.78 per pound in fourth-quarter 2008. Additionally, while
molybdenum markets have been strong in recent years with prices averaging
approximately $25 per pound in 2006, $30 per pound in 2007 and $33 per pound for
the first nine months of 2008, molybdenum prices declined significantly to a
four-year low of $8.75 per pound in November 2008 and averaged approximately $16
per pound in fourth-quarter 2008.
Although
our long-term strategy of developing our resources to their full potential
remains in place, the severity of the decline in copper and molybdenum prices
and the deterioration of the economic and credit environment during
fourth-quarter
2008 have limited our ability to invest in growth projects and required us to
make adjustments to our near-term plans. Our near-term strategy has been
designed to protect liquidity while preserving our large mineral resources and
growth options for the longer term; accordingly, our operating and financial
plans were revised to reflect the following changes:
·
|
Curtailment
of copper production at high-cost North America operations and of
molybdenum production at the Henderson molybdenum mine (refer to
“Operations” for further
discussion);
|
·
|
Capital
cost reductions, including deferral of most of our project development
activities and also reduced capital spending on the Tenke Fungurume
project and projects in Indonesia (refer to “Development Projects” for
further discussion);
|
·
|
Aggressive
cost control, including workforce reductions, reduced equipment purchases
that were planned to support expansion projects, a reduction in material
and supplies inventory and reductions in exploration, research and
administrative costs; and
|
·
|
The
suspension of our annual common stock dividend (refer to “Capital
Resources and Liquidity – Financing Activities” for further
discussion).
|
While
we view the long-term outlook for our business positively, supported by
limitations on supplies of copper and by the requirements for copper in the
world’s economy, we have responded to the sudden downturn and uncertain
near-term outlook and will continue to adjust our operating strategy as market
conditions change.
At
December 31, 2008, we had $872 million in consolidated cash ($454 million of
which was available to our parent company). We also had $150 million of
borrowings and $74 million of letters of credit issued under our $1.5 billion
revolving credit facilities, resulting in availability of approximately $1.3
billion ($926 million of which could be used for additional letters of credit).
During 2009, we may use the facilities from time to time for working capital and
short-term funding requirements, but do not intend to use the facilities for
long-term funding. In addition, in February 2009, we completed a public offering
of 26.8 million shares of FCX common stock and realized net proceeds of
approximately $740 million, which will be used for general corporate purposes
(refer to “Capital Resources and Liquidity – Financing Activities” for further
discussion). We have no significant debt maturities in the near-term (refer to
“Debt Maturities and Other Contractual Obligations”).
The
sharp declines in copper and molybdenum prices during fourth-quarter 2008, among
other factors, significantly impacted our consolidated financial results for
2008. Net loss applicable to common stock totaled $11.3 billion ($29.72 per
share) in 2008, which included charges totaling $13.1 billion ($34.29 per share)
for long-lived asset and goodwill impairment charges and lower of cost or market
(LCM) inventory adjustments. Following is additional discussion of these
charges:
·
|
Impairment
charges – During fourth-quarter 2008, we evaluated the carrying
values of our long-lived assets, including goodwill associated with the
acquisition of Phelps Dodge, for impairment. These evaluations resulted in
the recognition of impairment charges of $10.9 billion ($6.6 billion to
net loss or $17.34 per share) associated with long-lived assets and $6.0
billion ($6.0 billion to net loss or $15.69 per share) associated with
goodwill. Refer to Notes 2 and 7 and “Critical Accounting Estimates –
Asset Impairments” for further discussion of these impairment
charges.
|
·
|
LCM
inventory adjustments – Inventories are required to be recorded at
the lower of cost or market. In connection with the March 2007 acquisition
of Phelps Dodge, acquired inventories, including long-term mill and leach
stockpiles, were recorded at fair value using near-term price forecasts
reflecting the then-current price environment and management’s projections
for long-term average metal prices. As a result of the declines in copper
and molybdenum prices during fourth-quarter 2008, we recorded charges for
LCM inventory adjustments totaling $782 million ($479 million to net loss
or $1.26 per share).
|
Refer
to “Consolidated Results” for further discussion of our consolidated financial
results for the years ended December 31, 2008, 2007 and 2006.
Outlook
Following
is a summary of our actual results for 2008 and our projected consolidated
sales volumes for 2009:
|
|
2008 |
|
2009
|
|
|
|
(Actual)
|
|
(Projected)
|
|
Copper
(billions of recoverable pounds):
|
|
|
|
|
|
North
America copper mines
|
|
1.4
|
|
|
1.1
|
|
South
America copper mines
|
|
1.5
|
|
|
1.4
|
|
Indonesia
mining
|
|
1.1
|
|
|
1.3
|
|
Africa
mininga
|
|
–
|
|
|
0.1
|
|
|
|
4.1
|
b
|
|
3.9
|
|
Gold
(millions of recoverable ounces)
|
|
|
|
|
|
Indonesia
mining
|
|
1.2
|
|
|
2.1
|
|
South
America copper mines
|
|
0.1
|
|
|
0.1
|
|
|
|
1.3
|
|
|
2.2
|
|
|
|
|
|
|
|
Molybdenum
(millions of recoverable pounds)c
|
|
71
|
|
|
60
|
|
|
|
|
|
|
|
|
a.
|
Represents
projected sales from the Tenke Fungurume copper and cobalt mine, which is
expected to commence production during the second half of
2009.
|
b.
|
Represents
the sum of copper sales before
rounding.
|
c.
|
Includes
sales of molybdenum produced as a by-product at our North and South
America copper mines.
|
Estimated
sales volumes of approximately 3.9 billion pounds of copper for 2009 are lower
than 2008 sales of 4.1 billion pounds primarily reflecting the effects of
curtailed production rates at our North America copper mines, partly offset by
higher volumes in Indonesia as a result of mining in a higher-grade section of
the Grasberg open pit and also includes additional volumes from the Tenke
Fungurume copper and cobalt project, which is expected to commence production
during the second half of 2009. Estimated sales volumes of approximately 2.2
million ounces of gold for 2009 are higher than 2008 sales of 1.3 million ounces
as a result of projected mining in a higher-grade section of the Grasberg open
pit. Estimated sales volumes of approximately 60 million pounds of molybdenum
for 2009 are lower than 2008 sales of 71 million pounds reflecting curtailed
production rates at our Henderson molybdenum mine and adjustments to by-product
molybdenum production plans at our North and South America copper
mines.
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 for 2009 and
assuming average prices of $1.50 per pound of copper, $800 per ounce of gold and
$9.00 per pound of molybdenum in 2009, our consolidated operating cash flows
would approximate $1.0 billion in 2009, which is net of an estimated $0.6
billion for working capital requirements. Working capital requirements for 2009
principally reflect the impact of the declines in copper prices during
fourth-quarter 2008 and resulting settlements with customers on 2008
provisionally priced sales. Operating cash flows for 2009 would be impacted by
approximately $260 million for each $0.10 per pound change in copper prices, $60
million for each $50 per ounce change in gold prices and $50 million for each $1
per pound change in molybdenum prices.
Assuming
average prices of $1.50 per pound of copper, $800 per ounce of gold and $9.00
per pound of molybdenum for 2009, we estimate our consolidated unit net cash
costs related to our copper mining operations (after by-product credits) will
average approximately $0.71 per pound in 2009, which is lower than consolidated
unit net cash costs of $1.16 per pound in 2008 (refer to “Consolidated Results –
Production and Delivery Costs” for further discussion). Lower estimated
consolidated unit net cash costs in 2009 primarily reflect the effects of
reduced energy prices and other commodity-based input costs and lower operating
rates. Consolidated unit net cash costs would be impacted by $0.025 per pound
for each $50 per ounce change in gold prices and $0.01 per pound for each $1 per
pound change in molybdenum prices.
COPPER,
GOLD AND MOLYBDENUM MARKETS
The
graphs below illustrate the movements in metals prices from January 1992 through
January 2009. World prices for copper, gold and molybdenum have fluctuated
significantly during this period. The LME spot copper price varied from a low of
$0.60 per pound in 2001 to a high of $4.08 per pound in July 2008, the London
gold price fluctuated from a low of approximately $250 per ounce in 1999 to a
high of $1,011 per ounce in March 2008, and the Metals
Week Molybdenum Dealer Oxide price ranged from a low of $1.82 per pound
in 1992 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, 2008.
* 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 the New York Mercantile Exchange (COMEX) from January 1992 through
January 2009. During the period 2003 to 2006, global consumption exceeded
production, evidenced by the decline in exchange warehouse inventories.
Disruptions associated with strikes and other operational issues, combined with
growing demand from China and other emerging economies resulted in low levels of
inventory from 2006 through most of 2008. However, slowing consumption has led
to increases in inventory levels in recent months, with combined LME and COMEX
stocks rising to approximately 370 thousand metric tons at December 31, 2008,
compared to approximately 208 thousand metric tons at September 30, 2008.
Combined LME and COMEX stocks have increased further to approximately 530
thousand metric tons at January 30, 2009.
Turmoil
in the United States (U.S.) financial markets and concerns about the global
economy have negatively impacted copper prices in recent months. After averaging
$3.05 per pound in 2006, $3.23 per pound in 2007 and $3.61 per pound for the
first nine months of 2008, LME spot copper prices declined to a four-year low of
$1.26 per pound in December 2008. For the year 2008, LME spot copper prices
ranged from $1.26 per pound to $4.08 per pound, averaged $3.15 per pound and
closed at $1.32 per pound on December 31, 2008. While the near-term outlook is
weak and uncertain, we believe the underlying fundamentals of the copper
business remain positive, supported by supply side constraints and the absence
of significant new development projects. Future copper prices may continue to be
volatile and are expected to be influenced by demand from China, economic
activity in the U.S. and other industrialized countries, the timing of the
development of new supplies of copper and
production
levels of mines and copper smelters. The LME spot copper price closed at $1.41
per pound on January 30, 2009.
The
graph above presents London gold prices from January 1992 through January 2009.
During 2008, the environment for gold has been positive, but volatile. For the
year 2008, gold prices ranged from approximately $713 per ounce to $1,011 per
ounce and averaged approximately $872 per ounce. Growing investment demand,
economic uncertainty and a weak U.S. dollar are continuing to support gold
prices. London gold prices closed at approximately $920 per ounce on January 30,
2009.
The
graph above presents the Metals
Week Molybdenum Dealer Oxide price from January 1992 through January
2009. While molybdenum markets have been strong in recent years with growing
demand and limited supply and prices averaging approximately $25 per pound
in 2006, $30 per pound in 2007 and $33 per pound for the first nine months of
2008, molybdenum prices declined significantly in fourth-quarter 2008 as a
result of the financial market turmoil and a decline in demand. For the year
2008, the price of molybdenum ranged from approximately $9 per
pound
to approximately $34 per pound and averaged $29 per pound. The Metals
Week Molybdenum Dealer Oxide price was $9.50 per pound on December 31,
2008, and $9.30 per pound on January 30, 2009.
CRITICAL
ACCOUNTING ESTIMATES
Management’s
Discussion and Analysis of Financial Condition and Results of Operations is
based on our consolidated financial statements, which have been prepared in
conformity with generally accepted accounting principles (GAAP) in the U.S. The
preparation of these statements requires that we make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses.
We base these estimates on historical experience and on assumptions that we
consider reasonable under the circumstances; however, reported results could
differ from those based on the current estimates under different assumptions or
conditions. The areas requiring the use of management’s estimates are also
discussed in Note 1 under the subheading “Use of Estimates.” Management has
reviewed the following discussion of its development and selection of critical
accounting estimates with the Audit Committee of our Board of
Directors.
Asset
Impairments. We evaluate our long-lived assets (to be held and used) for
impairment when events or changes in circumstances indicate that the related
carrying amount of such assets may not be recoverable. During fourth-quarter
2008, we concluded that the current economic environment and the significant
declines in copper and molybdenum prices represented significant adverse changes
in the business, and therefore, evaluated our long-lived assets, other than
goodwill and indefinite-lived intangible assets, for impairment as of December
31, 2008, under the two-step model established by Statement of Financial
Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets.” In addition, goodwill is required to be evaluated at
least annually and at any other time if an event or change in circumstances
indicates that the fair value of a reporting unit is below its carrying amount.
We had selected the fourth quarter of each year to perform our annual impairment
test of goodwill.
In
evaluating our long-lived assets for recoverability, estimates of after-tax
undiscounted future cash flows of our individual mining operations were used,
with impairment losses measured by reference to fair value. As quoted market
prices are unavailable for our individual mining operations, fair value was
determined through the use of discounted estimated future cash flows. The
estimated cash flows used to assess recoverability of our long-lived assets and
measure fair value of our mining operations were derived from current business
plans developed using near-term price forecasts reflective of the current price
environment and management’s projections for long-term average metal prices and
operating costs.
Our
asset impairment evaluations, including our annual goodwill impairment test,
required us to make several assumptions in determining estimates of future cash
flows to determine fair value of our individual mining operations, including
near and long-term metal price assumptions; estimates of commodity-based and
other input costs; proven and probable reserve estimates, including any costs to
develop the reserves and the timing of producing the reserves; and the use of
appropriate current escalation and discount rates. Projected long-term average
metal prices represented the most significant assumption used in the cash flow
estimates. In connection with the March 2007 acquisition of Phelps Dodge, we
allocated the $25.8 billion purchase price to the estimated fair values of net
assets acquired, including $6.2 billion for goodwill (refer to Note 18 for a
summary of the final purchase price allocation). Metal price projections used to
value the net assets acquired at the acquisition date ranged from near-term
prices of $2.98 per pound for copper declining over an eight-year period to
$1.20 per pound and $26.20 per pound for molybdenum declining over a five-year
period to $8.00 per pound, reflecting price expectations at that time. Our
December 31, 2008, impairment evaluations were based on price assumptions
reflecting prevailing copper futures prices for three years, which ranged from
approximately $1.40 per pound to $1.50 per pound, and a long-term average price
of $1.60 per pound. Molybdenum prices were assumed to average $8.00 per
pound.
Our
evaluation of long-lived assets, other than goodwill, resulted in the
recognition of asset impairment charges totaling $10.9 billion ($6.6 billion to
net loss or $17.34 per share) for 2008. Additionally, our annual impairment test
of goodwill resulted in the full impairment of goodwill, resulting in the
recognition of goodwill impairment charges totaling $6.0 billion ($6.0 billion
to net loss or $15.69 per share) for 2008. Neither of these impairment charges
had an impact on our operating cash flows.
We
believe events that could result in additional impairment of our long-lived
assets include, but are not limited to, (i) decreases in future metal
prices, (ii) decreases in estimated recoverable proven and probable reserves and
(iii) any event that might otherwise have a material adverse effect on mine
site production levels or costs.
Mineral
Reserves and Depreciation, Depletion and Amortization.
As discussed in Note 1, we depreciate our life-of-mine mining and milling assets
and values assigned to proven and probable reserves using the unit-of-production
method based on our estimated recoverable proven and probable copper reserves
(for primary copper mines) and estimated recoverable proven and probable
molybdenum reserves (for the primary molybdenum mine). We have other assets that
we depreciate on a straight-line basis over their estimated useful lives. Our
estimates of recoverable proven and probable copper and molybdenum reserves and
the useful lives of our straight-line assets impact our depreciation, depletion
and amortization expense. These estimates affect the results of operations of
our operating segments.
Accounting
for depreciation, depletion and amortization represents a critical accounting
estimate because the determination of reserves involves uncertainties with
respect to the ultimate geology of our reserves and the assumptions used in
determining the economic feasibility of mining those reserves, including
estimated copper, gold and molybdenum prices and costs of conducting future
mining activities. Additionally, changes in estimated recoverable proven and
probable reserves and useful asset lives could have a material impact on our
results of operations. We perform annual assessments of our existing assets,
including a review of asset costs and depreciable lives, in connection with the
review of mine operating and development plans. When we determine that assigned
asset lives do not reflect the expected remaining period of benefit, we make
prospective changes to those depreciable lives.
There
are a number of uncertainties inherent in estimating quantities of reserves,
including many factors beyond our control. Ore reserve estimates are based upon
engineering evaluations of samplings of drill holes, tunnels and other
underground workings. Our estimates of recoverable proven and probable reserves
are prepared by and are the responsibility of our employees, and a majority of
these estimates are reviewed and verified by independent experts in mining,
geology and reserve determination. At December 31, 2008, consolidated
recoverable reserves include 102.0 billion pounds of copper, 40.0 million ounces
of gold and 2.48 billion pounds of molybdenum. Refer to Note 20 and “Proven and
Probable Reserves” for further details of estimated recoverable reserves. These
estimates involve assumptions regarding future copper, gold and molybdenum
prices, the geology of our mines, the mining methods we use and the related
costs we incur to develop and mine our reserves. Changes in these assumptions
could result in material adjustments to our reserve estimates, which could
result in changes to depreciation, depletion and amortization expense in future
periods, with corresponding adjustments to net income. If estimated copper
reserves at our mines were 10 percent higher at December 31, 2008, based on our
current sales projections for 2009, we estimate that our annual depreciation,
depletion and amortization expense for 2009 would decrease by $29 million ($14
million to net income), and a 10 percent decrease would increase depreciation,
depletion and amortization expense by $36 million ($17 million to net
income).
As
discussed in Note 1, we review and evaluate our long-lived assets for impairment
when events or changes in circumstances indicate that the related carrying
amount of such assets may not be recoverable. Our long-lived assets include
amounts assigned to proven and probable reserves totaling $4.1 billion at
December 31, 2008. Changes to our estimates of recoverable proven and probable
reserves could have an impact on our assessment of asset impairment. Revisions
to our estimates of recoverable proven and probable copper, gold and molybdenum
reserves could give rise to an impairment of our assets.
Recoverable
Copper.
We record, as inventory, applicable costs for copper contained in mill and leach
stockpiles that are expected to be processed in the future based on proven
processing technologies. Mill and leach stockpiles are evaluated periodically to
ensure that they are stated at the lower of cost or market (refer to Note 5 and
“Consolidated Results” for further discussion of LCM inventory adjustments
recorded in 2008). Accounting for recoverable copper from mill and leach
stockpiles represents a critical accounting estimate because (i) it is generally
impracticable to determine copper contained in mill and leach stockpiles by
physical count, and therefore, requires management to employ reasonable
estimation methods and (ii) recovery rates from leach stockpiles can vary
significantly. The quantity of material delivered to mill and leach stockpiles
is based on surveyed volumes of mined material and daily production records.
Sampling and assaying of blasthole cuttings determine the estimated copper grade
contained in the material delivered to the mill and leach
stockpiles.
Expected
copper recovery rates for mill stockpiles are determined by metallurgical
testing. The recoverable copper in mill stockpiles, once entered into the
production process, can be extracted into copper concentrate almost
immediately.
Expected
copper recovery rates for leach stockpiles are determined using small-scale
laboratory tests, small- to large-scale column testing (which simulates the
production-scale process), historical trends and other factors, including
mineralogy of the ore and rock type. Ultimate recovery of copper contained in
leach stockpiles can vary significantly from a low percentage to more than 90
percent depending on several variables, including type of copper recovery,
mineralogy and particle size of the rock. For newly placed material on active
stockpiles, as much as 70 percent of the copper ultimately recoverable may be
extracted during the first year, and the remaining copper may be recovered over
many years.
Processes
and recovery rates are monitored regularly, and recovery rate estimates are
adjusted periodically as additional information becomes available and as related
technology changes.
At
December 31, 2008, estimated recoverable copper was 2.7 billion pounds in leach
stockpiles (with a carrying value of $1.4 billion) and 1.1 billion pounds in
mill stockpiles (with a carrying value of $350 million).
Reclamation
and Closure Costs.
Reclamation is an ongoing activity that occurs throughout the life of a mine. In
accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations,” we
record the fair value of our estimated asset retirement obligations (AROs)
associated with tangible long-lived assets in the period incurred. Fair value is
measured as the present value of cash flow estimates after considering inflation
and then applying a market risk premium. Our cost estimates are reflected on a
third-party cost basis and comply with our legal obligation to retire tangible,
long-lived assets as defined by SFAS No. 143. These cost estimates may differ
from financial assurance cost estimates for reclamation activities because of a
variety of factors, including obtaining updated cost estimates for reclamation
activities, the timing of reclamation activities, changes in scope and the
exclusion of certain costs not accounted for under SFAS No. 143. Refer to Note 1
for further discussion of our accounting policy for reclamation and closure
costs.
Generally,
ARO activities are specified by regulations or in permits issued by the relevant
governing authority, and management judgment is required to estimate the extent
and timing of expenditures based on life-of-mine planning. Accounting for
reclamation and closure costs represents a critical accounting estimate because
(i) we will not incur most of these costs for a number of years, requiring us to
make estimates over a long period, (ii) reclamation and closure laws and
regulations could change in the future and/or circumstances affecting our
operations could change, either of which could result in significant changes to
our current plans, (iii) calculating the fair value of our AROs in accordance
with SFAS No. 143 requires management to estimate projected cash flows, make
long-term assumptions about inflation rates, determine our credit-adjusted,
risk-free interest rates and determine market risk premiums that are appropriate
for our operations and (iv) given the magnitude of our estimated reclamation and
closure costs, changes in any or all of these estimates could have a significant
impact on our results of operations.
At
least annually, we review our ARO estimates for changes in the projected timing
of certain reclamation costs, changes in cost estimates, and additional AROs
incurred during the period. Following is a summary of changes in our AROs for
the years ended December 31, 2008, 2007 and 2006 (in millions):
|
|
2008
|
|
2007
|
|
2006
|
|
|
Balance
at beginning of year
|
|
$
|
728
|
|
$
|
30
|
|
$
|
27
|
|
|
Liabilities
assumed in the acquisition of Phelps Dodge
|
|
|
–
|
|
|
531
|
a
|
|
–
|
|
|
Liabilities
incurred
|
|
|
5
|
|
|
1
|
|
|
–
|
|
|
Revisions
to cash flow estimates
|
|
|
21
|
|
|
179
|
b
|
|
–
|
|
|
Accretion
expense
|
|
|
51
|
|
|
27
|
|
|
3
|
|
|
Spending
|
|
|
(91
|
)
|
|
(40
|
)
|
|
–
|
|
|
Foreign
currency translation adjustment
|
|
|
(2
|
)
|
|
–
|
|
|
–
|
|
|
Balance
at end of year
|
|
$
|
712
|
|
$
|
728
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
The
fair value of AROs assumed in the acquisition of Phelps Dodge was
estimated based on projected cash flows, an estimated long-term annual
inflation rate of 2.4 percent, a discount rate based on FCX’s estimated
credit-adjusted, risk-free interest rate of 7.8 percent and a market risk
premium of 10 percent to reflect what a third-party might require to
assume these AROs.
|
b.
|
The
most significant revisions to cash flow estimates in 2007 were related to
changes at Chino, Tyrone and PT Freeport Indonesia. During 2007, Chino and
Tyrone each submitted updated third-party closure cost estimates to the
state of New Mexico as part of the permit renewal process. As a result, we
revised our cash flow estimates and increased our ARO by $95 million for
Chino and $45 million for Tyrone. Additional adjustments may be required
based upon the state’s review of the updated closure plans and any permit
conditions imposed by the state of New Mexico. Additionally, PT Freeport
Indonesia
|
updated
its cost estimates primarily for changes to its plans for the treatment of
acidic water, resulting in an increase of $33 million.
Refer
to Note 15 for further discussion of reclamation and closure costs.
Environmental
Obligations.
Our mining, exploration, production and historical operating activities are
subject to stringent laws and regulations governing the protection of the
environment, and compliance with those laws requires significant expenditures.
Environmental expenditures for closed facilities and closed portions of
operating facilities are expensed or capitalized depending upon their future
economic benefits. The general guidance provided by U.S. GAAP requires that
liabilities for contingencies be recorded when it is probable that a liability
has been incurred and the amount can be reasonably estimated. Refer to Note 1
for further discussion of our accounting policy for environmental
expenditures.
Accounting
for environmental obligations represents a critical accounting estimate because
changes to environmental laws and regulations and/or circumstances affecting our
operations, could result in significant changes to our estimates, which could
have a significant impact on our results of operations. We review changes in
facts and circumstances associated with the environmental obligations on a
quarterly basis. Judgments and estimates are based upon available facts,
existing technology, presently enacted laws and regulations, remediation
experience, whether or not we are a potentially responsible party (PRP), the
ability of other PRPs to pay their allocated portions and take into
consideration reasonably possible outcomes. Our estimates can change
substantially as additional information becomes available regarding the nature
or extent of site contamination, required remediation methods and actions by or
against governmental agencies or private parties.
At
December 31, 2008, environmental reserves recorded in our consolidated balance
sheets totaled approximately $1.4 billion, which reflect obligations for
environmental liabilities attributed to the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA) or analogous state programs
and for estimated future costs associated with environmental matters at closed
facilities and closed portions of certain operating facilities.
Following
is a summary of changes in our estimated environmental obligations for the years
ended December 31, 2008 and 2007 (in millions):
|
|
2008
|
|
2007
|
|
|
Balance
at beginning of year
|
|
$
|
1,268
|
|
$
|
–
|
|
|
Liabilities
assumed in the acquisition of Phelps Dodge
|
|
|
117
|
|
|
1,334
|
|
|
Accretion
expensea
|
|
|
95
|
|
|
–
|
|
|
Additions
|
|
|
36
|
|
|
6
|
|
|
Reductions
|
|
|
(1
|
)
|
|
(1
|
)
|
|
Spending
|
|
|
(114
|
)
|
|
(71
|
)
|
|
Balance
at end of year
|
|
$
|
1,401
|
|
$
|
1,268
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Represents
accretion of the fair values of environmental obligations assumed in the
acquisition of Phelps Dodge, which were determined on a discounted cash
flow basis.
|
Refer
to Note 15 for further discussion of environmental obligations.
Deferred
Taxes.
In preparing our annual consolidated financial statements, we estimate the
actual amount of taxes currently payable or receivable as well as deferred tax
assets and liabilities attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which these temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates and laws is recognized in income in the period in which such changes are
enacted.
A
valuation allowance is provided for those deferred tax assets for which it is
more likely than not that the related benefits will not be realized. In
determining the amount of the valuation allowance, we consider estimated future
taxable income as well as feasible tax planning strategies in each jurisdiction.
If we determine that we will not realize all or a portion of our deferred tax
assets, we will increase our valuation allowance with a charge to income tax
expense. Conversely, if we determine that we will ultimately be able to realize
all or a portion of the related benefits for which a valuation allowance has
been provided, all or a portion of the related valuation allowance will be
reduced with a credit to income tax expense.
At
December 31, 2008, our valuation allowances totaled $1.8 billion and covered all
of our U.S. foreign tax credit carryforwards, U.S. minimum tax credit
carryforwards, foreign net operating loss carryforwards and U.S. state net
operating loss carryforwards, and also covered a portion of our net U.S.
deferred tax assets. At December 31, 2007, our valuation allowances totaled $1.2
billion and covered all of our U.S. foreign tax credit carryforwards, a portion
of our foreign net operating loss carryforwards and a portion of our U.S. state
net operating loss carryforwards. The $598 million increase in the valuation
allowance during 2008 was primarily the result of the declines in copper and
molybdenum prices and long-lived asset impairment charges recorded in
fourth-quarter 2008. Refer to Note 14 for further discussion.
CONSOLIDATED
RESULTS
|
Years
Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
Financial Data (in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
17,796
|
a,b
|
$
|
16,939
|
a,b,c
|
$
|
5,791
|
a,d
|
Operating
(loss) income
|
|
(12,710
|
)a,b,e,f,g
|
|
6,555
|
a,b,c,g
|
|
2,869
|
a,d
|
(Loss)
income from continuing operations applicable to common stockh
|
|
(11,341
|
)
|
|
2,734
|
|
|
1,396
|
|
Net
(loss) income applicable to common stockh
|
|
(11,341
|
)b,e,f,g,i
|
|
2,769
|
b,c,g,i
|
|
1,396
|
d,i
|
Diluted
net (loss) income per share of common stock:
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
(29.72
|
)
|
$
|
7.41
|
|
$
|
6.63
|
|
Discontinued
operations
|
|
–
|
|
|
0.09
|
|
|
–
|
|
Diluted
net (loss) income per share of common stock
|
$
|
(29.72
|
)b,e,f,g,i
|
$
|
7.50
|
b,c,g,i
|
$
|
6.63
|
d,i
|
Diluted
average common shares outstandingj,k
|
|
382
|
|
|
397
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Data - Sales from Mines
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
|
|
|
|
|
|
|
Consolidated
share (millions of recoverable pounds)
|
|
4,066
|
|
|
3,357
|
|
|
1,201
|
|
Average
realized price per pound
|
$
|
2.69
|
|
$
|
3.29
|
c
|
$
|
3.13
|
|
Site
production and delivery costs per poundl
|
$
|
1.51
|
|
$
|
1.18
|
|
$
|
1.03
|
|
Unit
net cash costs per poundl
|
$
|
1.16
|
|
$
|
0.76
|
|
$
|
0.60
|
|
Gold
|
|
|
|
|
|
|
|
|
|
Consolidated
share (thousands of recoverable ounces)
|
|
1,314
|
|
|
2,298
|
|
|
1,736
|
|
Average
realized price per ounce
|
$
|
861
|
|
$
|
682
|
|
$
|
567
|
d
|
Molybdenum
|
|
|
|
|
|
|
|
|
|
Consolidated
share (millions of recoverable pounds)
|
|
71
|
|
|
52
|
|
|
N/A
|
|
Average
realized price per pound
|
$
|
30.55
|
|
$
|
26.81
|
|
|
N/A
|
|
a.
|
As
discussed in Note 19, we have revised the presentation of our operating
divisions to better reflect management’s view of our consolidated
operations, and have also reclassified amounts for 2007 to conform to the
current year presentation. Following is a summary of revenues by operating
division (in millions):
|
|
Years
Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
North
America copper mines
|
$
|
5,265
|
|
$
|
4,093
|
|
$
|
–
|
|
South
America copper mines
|
|
4,166
|
|
|
3,879
|
|
|
–
|
|
Indonesia
mining
|
|
3,412
|
|
|
4,808
|
|
|
4,395
|
|
Africa
mining
|
|
–
|
|
|
–
|
|
|
–
|
|
Molybdenum
|
|
2,488
|
|
|
1,746
|
|
|
–
|
|
Rod
& Refining
|
|
5,557
|
|
|
5,140
|
|
|
–
|
|
Atlantic
Copper Smelting & Refining
|
|
2,341
|
|
|
2,388
|
|
|
2,242
|
|
Corporate,
other & eliminations
|
|
(5,433
|
)
|
|
(5,115
|
)
|
|
(846
|
)
|
Total
FCX revenues
|
$
|
17,796
|
|
$
|
16,939
|
|
$
|
5,791
|
|
Following
is a summary of operating (loss) income by operating division (in
millions):
|
Years
Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
North
America copper mines
|
$
|
(11,522
|
)
|
$
|
1,428
|
|
$
|
–
|
|
South
America copper mines
|
|
(694
|
)
|
|
2,224
|
|
|
–
|
|
Indonesia
mining
|
|
1,307
|
|
|
3,033
|
|
|
2,721
|
|
Africa
mining
|
|
(26
|
)
|
|
(12
|
)
|
|
–
|
|
Molybdenum
|
|
(1,473
|
)
|
|
353
|
|
|
–
|
|
Rod
& Refining
|
|
2
|
|
|
14
|
|
|
–
|
|
Atlantic
Copper Smelting & Refining
|
|
10
|
|
|
3
|
|
|
74
|
|
Corporate,
other & eliminations
|
|
(314
|
)
|
|
(488
|
)
|
|
74
|
|
Total
FCX operating (loss) income
|
$
|
(12,710
|
)
|
$
|
6,555
|
|
$
|
2,869
|
|
b.
|
Includes
charges to revenues totaling $78 million ($52 million to net loss or $0.14
per share) in 2008 and $30 million ($18 million to net income or $0.05 per
share) in 2007 for unrealized losses on copper derivative contracts
entered into with our U.S. copper rod customers, which allows us to
receive market prices in the month of shipment while the customer pays the
fixed price they requested. Refer to Note 17 for further
discussion.
|
c.
|
Includes
charges to revenues for mark-to-market accounting adjustments on the 2007
copper price protection program totaling $175 million ($106 million to net
income or $0.27 per share) and a reduction in average realized copper
prices of $0.05 per pound.
|
d.
|
Includes
charges to revenues for redemptions of our Gold-Denominated Preferred
Stock, Series II, and Silver-Denominated Preferred Stock totaling $82
million ($44 million to net income or $0.20 per share) and a reduction in
average realized gold prices of approximately $39 per ounce. Refer to Note
17 for further discussion.
|
e.
|
Includes
charges for LCM inventory adjustments totaling $782 million ($479 million
to net loss or $1.26 per share).
|
f.
|
Includes
long-lived asset impairments and other charges totaling $11.0 billion
($6.7 billion to net loss or $17.52 per share), and also includes goodwill
impairment charges totaling $6.0 billion ($6.0 billion to net loss or
$15.69 per share). Refer to Notes 2 and 7 and “Critical Accounting
Estimates – Asset Impairments” for further
discussion.
|
g.
|
Includes
the impacts of purchase accounting fair value adjustments associated with
the acquisition of Phelps Dodge, which are primarily because of increased
carrying values of acquired property, plant and equipment and metal
inventories, including mill and leach stockpiles, and also includes
amounts for non-operating income and expense mostly related to accretion
of the fair values of assumed environmental obligations (determined on a
discounted cash flow basis). These impacts totaled $1.1 billion, including
$1.0 billion to operating loss and $93 million for non-operating income
and expenses, ($679 million to net loss or $1.78 per share) in 2008 and
$1.3 billion to operating income ($793 million to net income or $2.00 per
share) in 2007. Refer to Note 19 for a summary of the impacts of purchase
accounting fair value adjustments on our business segments for the years
ended December 31, 2008 and 2007.
|
h.
|
After
preferred dividends. The year ended December 31, 2008, also includes
charges of $22 million ($0.06 per share) associated with privately
negotiated transactions to induce conversion of 0.3 million shares of our
5½% Convertible Perpetual Preferred Stock into approximately 5.8 million
shares of FCX common stock (refer to Note 13 and “Capital Resources and
Liquidity – Financing Activities” for further
discussion).
|
i.
|
Includes
net losses on early extinguishment and conversions of debt totaling $5
million ($0.01 per share) in 2008 associated with an open-market purchase
of our 9½% Senior Notes; $132 million ($0.33 per share) in 2007 primarily
related to premiums paid and the accelerated recognition of deferred
financing costs associated with early repayments of debt; and $30 million
($0.14 per share) in 2006 primarily related to the completion of a tender
offer and privately negotiated transactions to induce conversion of our 7%
Convertible Senior Notes into FCX common stock and open-market purchases
of our 10⅛% Senior Notes.
|
j.
|
Reflects
assumed conversion of our 5½% Convertible Perpetual Preferred Stock and
6¾% Mandatory Convertible Preferred Stock for 2007 and of our 5½%
Convertible Perpetual Preferred Stock for
2006.
|
k.
|
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 December 31, 2008, totaled 384
million.
|
l.
|
Reflects
per pound weighted average production and delivery costs and unit net cash
costs (net of by-product credits) for all copper mines. For
reconciliations of the per pound costs by operating division to production
and delivery costs applicable to sales reported in our consolidated
financial statements, refer to “Operations – Unit Net Cash Costs” and to
“Product Revenues and Production
Costs.”
|
Revenues
Consolidated
revenues include the sale of copper rod, copper cathodes, copper concentrates,
molybdenum, gold and other metals by our North and South America copper mines,
the sale of copper concentrates (which also contain significant quantities of
gold and silver) by our Indonesia mining operation, the sale of molybdenum in
various forms by our Molybdenum operations, and the sale of copper anodes,
copper cathodes, and gold in
anodes and slimes by Atlantic Copper. Consolidated revenues
totaled $17.8 billion in 2008, compared with $16.9 billion in 2007 and $5.8
billion in 2006. Following is a summary of changes in our consolidated revenues
between years (in millions):
|
2008
|
|
2007
|
|
Consolidated
revenues – prior year
|
$
|
16,939
|
|
$
|
5,791
|
|
Sales
volumes:
|
|
|
|
|
|
|
Copper
|
|
2,367
|
|
|
6,742
|
|
Gold
|
|
(671
|
)
|
|
341
|
|
Molybdenum
|
|
505
|
|
|
1,495
|
a
|
Price
realizations:
|
|
|
|
|
|
|
Copper
|
|
(2,631
|
)
|
|
702
|
|
Gold
|
|
235
|
|
|
174
|
|
Molybdenum
|
|
266
|
|
|
N/A
|
|
Purchased
copper and molybdenum
|
|
(5
|
)
|
|
1,901
|
|
Adjustments,
primarily for copper pricing on prior year open sales
|
|
309
|
|
|
(175
|
)
|
Treatment
charges
|
|
104
|
|
|
(114
|
)
|
Impact
of the 2007 copper price protection program
|
|
175
|
|
|
(175
|
)
|
Atlantic
Copper revenues
|
|
(47
|
)
|
|
146
|
|
Other,
net
|
|
250
|
|
|
111
|
|
Consolidated
revenues – current year
|
$
|
17,796
|
|
$
|
16,939
|
|
a.
|
As
FCX was not a producer of molybdenum prior to the acquisition of Phelps
Dodge, the change in sales volumes for 2007 reflects sales of produced
molybdenum beginning March 20,
2007.
|
2008
Compared with 2007
Consolidated
sales volumes in 2008 totaled 4.1 billion pounds of copper, 1.3 million ounces
of gold and 71 million pounds of molybdenum, compared with 3.4 billion pounds of
copper, 2.3 million ounces of gold and 52 million pounds of molybdenum in 2007.
Higher copper and molybdenum sales volumes in 2008 reflected a full twelve
months of sales at our North and South America copper mines and Molybdenum
operations, compared with 2007, which included sales from these operations
beginning March 20, 2007. Higher copper sales volumes in 2008 also reflected
additional copper production from the Safford mine, which began production in
December 2007, and higher production from the Cerro Verde concentrator, which
reached design capacity in mid-2007. At the Grasberg open-pit 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. As a result, gold sales volumes for 2008 were lower than in
2007 because of mining in a lower-grade section of the Grasberg open pit during
the first nine months of 2008, which resulted in lower grades and recovery
rates.
Realized
copper prices decreased in 2008 to an average of $2.69 per pound, compared with
$3.34 per pound (excluding the impact from the 2007 copper price protection
program) in 2007. Realized gold and molybdenum prices increased in 2008 to an
average of $861 per ounce for gold and $30.55 per pound for molybdenum, compared
with $682 per ounce for gold and $26.81 per pound for molybdenum in
2007.
For
2008, more than half of our mined copper was sold in concentrate, approximately
27 percent as rod (principally from our North America operations) and
approximately 19 percent as cathodes. 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 primarily on quoted LME prices. We receive market prices based on
prices in the specified future period, and 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 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 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 sales pursuant to contracts entered into in prior years; in
times of falling copper prices, the opposite occurs.
LME
spot copper prices averaged $3.15 per pound in 2008, compared with our average
recorded price of $2.69 per pound. At December 31, 2008, we had provisionally
priced copper sales totaling 508 million pounds of copper (net of minority
interests) recorded at an average of $1.39 per pound, subject to final pricing
over the next several months. We estimate that each $0.05 change in the price
realized from the December 31, 2008, provisional price recorded would impact our
2009 consolidated revenues by $33 million ($16 million to net
income).
At
December 31, 2007, we had provisionally priced copper sales of 402 million
pounds of copper (net of minority interests) recorded at an average of $3.02 per
pound. Higher prices during the first half of 2008 resulted in adjustments to
these prior year copper sales and increased consolidated revenues by $268
million ($114 million to net loss or $0.30 per share) in 2008, compared with a
decrease of $42 million ($18 million to net income or $0.05 per share) in 2007
from adjustments to prior year copper sales.
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, we assumed the 2007 copper price
protection program, which resulted in charges to revenues in 2007 totaling $175
million ($106 million to net income or $0.27 per share). The 2007 copper price
protection program matured on December 31, 2007. We do not intend to enter into
similar hedging programs in the future.
2007
Compared with 2006
Consolidated
sales volumes in 2007 totaled 3.4 billion pounds of copper, 2.3 million ounces
of gold and 52 million pounds of molybdenum, compared with 1.2 billion pounds of
copper and 1.7 million ounces of gold in 2006. Higher copper and molybdenum
sales volumes in 2007 reflected sales at our North and South America copper
mines and Molybdenum operations beginning March 20, 2007. Sales from these
operations from March 20, 2007, through December 31, 2007, totaled approximately
2.2 billion pounds of copper and 52 million pounds of molybdenum. The increase
in gold sales volumes for 2007, compared with 2006, was related to higher grades
and recovery rates at the Grasberg mine in Indonesia.
Realized
copper and gold prices improved in 2007 to an average of $3.34 per pound for
copper (excluding the impact from the 2007 copper price protection program) and
$682 per ounce for gold, compared with $3.13 per pound for copper and $606 per
ounce for gold (excluding adjustments associated with the redemption of our
Gold-Denominated Preferred Stock, Series II) in 2006.
Adjustments
to prior year copper sales decreased consolidated revenues by $42 million ($18
million to net income or $0.05 per share) in 2007, compared with an increase of
$126 million ($65 million to net income or $0.29 per share) in
2006.
The
2007 copper price protection program resulted in charges to revenues totaling
$175 million ($106 million to net income or $0.27 per share) in
2007.
Production
and Delivery Costs
2008
Compared with 2007
Consolidated
production and delivery costs totaled $10.4 billion in 2008 compared with $8.5
billion in 2007. Higher production and delivery costs for 2008 reflect a full
year of costs associated with our acquired copper and molybdenum operations in
North and South America and the impact of higher costs, principally for
commodity-based
input costs such as energy and sulfuric acid. Partly offsetting these higher
costs were $656 million of lower purchase accounting impacts associated with
increased inventory values that were mostly realized in 2007.
Consolidated
unit net cash costs related to our copper mining operations totaled $1.16 per
pound of copper in 2008, compared with $0.76 per pound of copper in 2007 (for
reconciliations of per pound costs by operating division to production and
delivery costs applicable to sales reported in our consolidated financial
statements, refer to “Operations – Unit Net Cash Costs” and to “Product Revenues
and Production Costs”). The increase in unit net cash costs in 2008 primarily
reflected higher commodity-based input costs, principally related to energy and
sulfuric acid, and also reflected lower by-product credits mostly associated
with lower gold volumes in 2008.
Energy
costs approximated 25 percent of our consolidated copper production costs in
2008 (compared with approximately 20 percent in 2007) and included purchases of
approximately 230 million gallons of diesel fuel, 800 thousand metric tons of
coal, 6,500 gigawatt hours of electricity and 3 million MMBTU (million british
thermal units) of natural gas. Commodity-based input costs have declined
dramatically in late 2008, and we expect to realize the
benefits
of these declines in 2009 (refer to “Overview and Outlook” for further
discussion). For 2009, we estimate energy costs will approximate 20 percent of
our consolidated copper production costs.
2007
Compared with 2006
Consolidated
production and delivery costs totaled $8.5 billion in 2007 compared with $2.5
billion in 2006. Higher production and delivery costs in 2007 primarily
reflected amounts associated with the acquired copper and molybdenum operations
in North and South America ($6.0 billion), which included purchase accounting
impacts of $781 million principally associated with increased inventory
values.
Depreciation,
Depletion and Amortization
2008
Compared with 2007
Consolidated
depreciation, depletion and amortization expense totaled $1.8 billion in 2008
compared with $1.2 billion in 2007. The increase in depreciation, depletion and
amortization expense reflected higher purchase accounting impacts of $293
million primarily related to a full twelve months in 2008, and also reflected
higher depreciation expense under the unit-of-production method resulting from a
full year of production from our North and South America copper mines in
2008.
We
estimate that our annual depreciation, depletion and amortization expense for
2009 will approximate $1.0 billion. The decrease in projected 2009 depreciation,
depletion and amortization expense, compared with 2008, primarily reflects the
impact of long-lived asset impairments recognized at December 31, 2008 (refer to
“Critical Accounting Estimates – Asset Impairments” for further discussion), and
also reflects lower expense for assets that are depreciated under the
unit-of-production method.
2007
Compared with 2006
Consolidated
depreciation, depletion and amortization expense totaled $1.2 billion in 2007
compared with $228 million in 2006. The increase in depreciation, depletion and
amortization expense in 2007 reflected amounts associated with the acquired
Phelps Dodge operations ($1.0 billion), which included purchase accounting
impacts of $595 million related to increased carrying values of acquired
property, plant and equipment.
LCM
Inventory Adjustments
Inventories
are required to be recorded at the lower of cost or market. In connection with
the acquisition of Phelps Dodge, acquired inventories (including long-term mill
and leach stockpiles) were recorded at fair value using near-term price
forecasts reflecting the then-current price environment and management’s
projections for long-term average metal prices. As a result of the declines in
copper and molybdenum prices in fourth-quarter 2008, we recognized charges of
$782 million ($479 million to net loss or $1.26 per share) for LCM inventory
adjustments in 2008. These charges were based on prevailing copper futures
prices for three years, which ranged from approximately $1.40 per pound to $1.50
per pound, and a long-term average price of $1.60 per pound. Molybdenum prices
were assumed to average $8.00 per pound.
Selling,
General and Administrative Expenses
2008
Compared with 2007
Consolidated
selling, general and administrative expenses totaled $269 million in 2008
compared with $466 million in 2007. Lower selling, general and administrative
expenses primarily reflected lower incentive compensation costs in 2008 ($210
million) because of weaker financial results.
2007
Compared with 2006
Consolidated
selling, general and administrative expenses totaled $466 million in 2007
compared with $157 million in 2006. Higher selling, general and administrative
expenses in 2007 primarily reflected the additional amounts associated with the
acquired Phelps Dodge operations ($272 million) and higher stock-based
compensation costs ($39 million) primarily related to second-quarter 2007 stock
option grants.
Exploration
and Research Expenses
2008
Compared with 2007
Consolidated
exploration and research expenses totaled $292 million in 2008 compared with
$145 million in 2007. We are conducting exploration activities near our existing
mines with a focus on opportunities to expand reserves that will support
additional future production capacity in the large mineral districts where we
currently operate. Drilling activities were significantly expanded in 2008, and
we identified additional ore adjacent to existing ore bodies. Results to date
have been positive, providing us with opportunities for significant future
potential reserve additions at Morenci,
Sierrita
and Bagdad in North America, at Cerro Verde in South America and in the high
potential Tenke Fungurume district.
The
number of drill rigs in operation, which expanded from 26 in March 2007 to
approximately 100 in third-quarter 2008, declined to approximately 44 at
December 31, 2008 in response to weak market conditions. We plan to incorporate
the information obtained through exploration activities into our future plans
during 2009, enabling a significant reduction in 2009 exploration costs, as we
analyze drilling results to further define our significant resources. For 2009,
exploration expenditures are expected to approximate $75 million, compared with
$248 million in 2008.
2007
Compared with 2006
Consolidated
exploration and research expenses totaled $145 million in 2007 compared with $12
million in 2006. Higher expenditures in 2007 primarily reflected exploration and
research expenses associated with the acquired Phelps Dodge operations ($127
million).
Goodwill
Impairment
Goodwill
is required to be evaluated for impairment at least annually and at any other
time if events or circumstances indicate that the fair value of a reporting unit
is below its carrying amount. We completed our annual impairment test of
goodwill at December 31, 2008, which resulted in the recognition of goodwill
impairment charges totaling $6.0 billion ($6.0 billion to net loss or $15.69 per
share). Refer to Note 7 and “Critical Accounting Estimates – Asset Impairments”
for further discussion.
Long-Lived
Asset Impairments and Other Charges
During
fourth-quarter 2008, we concluded that the declines in copper and molybdenum
prices and the deterioration of the current economic environment represented
significant adverse changes in the business, and therefore evaluated our
long-lived assets for impairment as of December 31, 2008. Our evaluation of our
long-lived assets resulted in the recognition of asset impairment charges
totaling $10.9 billion ($6.6 billion to net loss or $17.34 per share). Refer to
Note 2 and “Critical Accounting Estimates – Asset Impairments” for further
discussion.
Other
charges of $111 million ($67 million to net loss or $0.18 per share) recognized
in 2008 include restructuring charges and pension and postretirement charges for
special retirement benefits and curtailments. Refer to Note 2 for further
discussion of these charges.
Interest
Expense, Net
2008
Compared with 2007
Consolidated
interest expense (before capitalization) totaled $706 million in 2008 compared
with $660 million in 2007. Higher interest expense in 2008 primarily reflected
net purchase accounting impacts of $101 million recorded in 2008 principally
associated with accretion of the fair values of environmental obligations
(determined on a discounted cash flow basis) assumed in the acquisition of
Phelps Dodge. This increase was partly offset by lower interest expense in 2008
associated with net repayments of debt during 2007 (refer to “Capital Resources
and Liquidity – Financing Activities” for discussion of 2007 repayments of
debt).
Capitalized
interest totaled $122 million in 2008 compared with $147 million in 2007.
Capitalized interest is primarily related to our development projects (refer to
“Development Projects” for further discussion), which included Tenke Fungurume
during 2008 and 2007, and also included Safford in 2007.
2007
Compared with 2006
Total
consolidated interest expense (before capitalization) totaled $660 million in
2007 compared with $87 million in 2006. The increase in interest expense in 2007
primarily related to the debt incurred in connection with the acquisition of
Phelps Dodge.
Capitalized
interest totaled $147 million in 2007 and $11 million in 2006. The increase in
capitalized interest in 2007 primarily relates to the development projects at
Safford and Tenke Fungurume.
Losses
on Early Extinguishment and Conversion of Debt, Net
During
2008, we recorded net charges totaling $6 million ($5 million to net loss or
$0.01 per share) for early extinguishment of debt associated with an open-market
purchase of $33 million of our 9½% Senior Notes.
During
2007, we recorded net charges totaling $173 million ($132 million to net income
or $0.33 per share) for early extinguishment of debt primarily related to the
accelerated recognition of deferred financing costs
associated
with
early repayment of amounts under the $11.5 billion senior credit facility,
including the refinancing of the Tranche B term loan. Also included was $17
million ($10 million to net income or $0.02 per share) related to premiums paid
and the accelerated recognition of deferred financing costs associated with the
May 2007 redemption of our 10⅛% Senior Notes.
During
2006, we recorded net charges totaling $32 million ($30 million to net income or
$0.14 per share) for early extinguishment and conversion of debt primarily
associated with the completion of a tender offer and privately negotiated
transactions to induce conversion of our 7% Convertible Senior Notes into FCX
common stock, and also included charges associated with open-market purchases of
our 10⅛% Senior Notes.
Gains
on Sales of Assets
Gains
on sales of assets totaled $13 million ($8 million to net loss or $0.02 per
share) in 2008, $85 million ($52 million to net income or $0.13 per share) in
2007 primarily associated with sales of marketable securities, and $31 million
($30 million to net income or $0.13 per share) in 2006 primarily associated with
the disposition of land and certain royalty rights at Atlantic
Copper.
Other
(Expense) Income, Net
Other
(expense) income, net, totaled $(22) million in 2008, $157 million in 2007 and
$28 million in 2006. The decrease in 2008, compared with 2007, primarily related
to lower interest income ($82 million) and higher foreign currency exchange
losses ($64 million) mostly associated with estimated Chilean tax payments. The
increase in 2007, compared with 2006, primarily related to higher interest
income ($110 million).
Benefit
from (Provision for) Income Taxes
The
benefit from income taxes in 2008 resulted from U.S. operations ($3.4 billion),
partly offset by taxes on international operations ($604 million). Our effective
tax rate changed from a 39 percent provision in 2007 to a 21 percent benefit in
2008. The difference between our consolidated effective income tax rate in 2008
and the U.S. federal statutory rate of 35 percent primarily was attributable to
goodwill impairment charges, which were non-deductible for tax purposes, and the
recognition of a valuation allowance against U.S. federal alternative minimum
tax credits, partly offset by benefits for percentage depletion and U.S. state
income taxes.
The
income tax provision from continuing operations for 2007 resulted from taxes on
international operations ($2.2 billion) and U.S. operations ($215 million). The
difference between our consolidated effective income tax rate of approximately
39 percent for 2007 and the U.S. federal statutory rate of 35 percent primarily
was attributable to (i) withholding taxes related to earnings from Indonesia and
South America mining operations, (ii) a U.S. foreign tax credit limitation and
(iii) an adjustment associated with the reversal of the Phelps Dodge APB Opinion
No. 23, “Accounting for Income Taxes – Special Areas,” indefinite reinvestment
assertion on certain earnings in South America, partly offset by a U.S. benefit
for percentage depletion and an international tax rate
differential.
The
income tax provision for 2006 ($1.2 billion) primarily reflected taxes on PT
Freeport Indonesia’s earnings. The difference between our effective income tax
rate of approximately 43 percent for 2006 and PT Freeport Indonesia’s Contract
of Work rate of 35 percent primarily was attributable to withholding taxes
related to earnings from Indonesia mining operations and income taxes incurred
by PT Indocopper Investama.
A
summary of the approximate amounts in the calculation of our consolidated
(benefit from) provision for income taxes for 2008 and 2007 follows (in
millions, except percentages):
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
December
31, 2008
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
Income
Tax
|
|
|
|
|
|
|
|
Income
Tax
|
|
|
|
Income
|
|
|
Effective
|
|
Provision
|
|
Income
|
|
|
Effective
|
|
Provision
|
|
|
|
(Loss)a
|
|
|
Tax
Rate
|
|
(Benefit)
|
|
(Loss)a
|
|
|
Tax
Rate
|
|
(Benefit)
|
|
U.S.
|
|
$
|
2,023
|
|
|
24%
|
|
$
|
489
|
|
$
|
1,871
|
|
|
30%
|
|
$
|
568
|
|
South
America
|
|
|
2,086
|
|
|
32%
|
|
|
677
|
|
|
2,623
|
|
|
33%
|
|
|
868
|
|
Indonesia
|
|
|
1,432
|
|
|
43%
|
|
|
612
|
|
|
2,860
|
|
|
46%
|
|
|
1,326
|
|
Asset
impairment charges
|
|
|
(10,867
|
)
|
|
39%
|
|
|
(4,212
|
)
|
|
–
|
|
|
N/A
|
|
|
–
|
|
Goodwill
impairment charges
|
|
|
(5,987
|
)
|
|
N/A
|
|
|
–
|
|
|
–
|
|
|
N/A
|
|
|
–
|
|
LCM
inventory adjustments
|
|
|
(782
|
)
|
|
38%
|
|
|
(299
|
)
|
|
–
|
|
|
N/A
|
|
|
–
|
|
Purchase
accounting adjustments
|
|
|
(1,102
|
)
|
|
38%
|
|
|
(423
|
)
|
|
(1,264
|
)
|
|
38%
|
|
|
(479
|
)
|
Eliminations
and other
|
|
|
(112
|
)
|
|
N/A
|
|
|
(47
|
)
|
|
21
|
|
|
N/A
|
|
|
6
|
|
Adjustments
|
|
|
N/A
|
|
|
N/A
|
|
|
359
|
b
|
|
N/A
|
|
|
N/A
|
|
|
111
|
c
|
Consolidated
FCX
|
|
$
|
(13,309
|
)
|
|
21%
|
|
$
|
(2,844
|
)
|
$
|
6,111
|
|
|
39%
|
|
$
|
2,400
|
|
a.
|
Represents
income (loss) from continuing operations before income taxes, minority
interests and equity in affiliated companies’ net
earnings.
|
b.
|
Represents
an adjustment to establish a valuation allowance against U.S. federal
alternative minimum tax credits.
|
c.
|
Represents
an adjustment for a one-time charge associated with the reversal of the
Phelps Dodge APB Opinion No. 23 indefinite reinvestment assertion on
certain earnings in South America. This adjustment was fully offset by a
reduction in minority interests’ share of net
income.
|
Our
effective tax rate for 2009 is expected to be highly sensitive to changes in
commodity prices and the mix of income between U.S. and international
operations. At current prices, we would generate losses in the U.S. that could
not be used to offset income generated from international operations, and for
which we would not record a tax benefit. Taxes provided on income generated from
our South America and Indonesia operations are recorded at the applicable
statutory rates. As a result, our consolidated effective tax rate may be
substantially higher than the U.S. federal statutory rate of 35 percent.
Assuming average prices of $1.50 per pound of copper, $800 per ounce of gold and
$9.00 per pound of molybdenum, we estimate our consolidated effective tax rate
for 2009 would approximate 75 percent and would increase with lower prices and
decrease with higher prices.
Refer
to Note 14 for further discussion of income taxes.
Minority
Interests in Consolidated Subsidiaries
2008
Compared with 2007
Minority
interests in consolidated subsidiaries totaled $617 million in 2008 compared
with $791 million in 2007. Lower minority interests in 2008 primarily reflected
lower net income at PT Freeport Indonesia and at our South America copper mines
during 2008.
Because
of the decline in copper prices minority interests in consolidated subsidiaries
is expected to be significantly lower in 2009, compared with 2008.
2007
Compared with 2006
Minority
interests in consolidated subsidiaries totaled $791 million in 2007 compared
with $168 million in 2006. Higher minority interests in 2007 primarily reflected
amounts associated with our acquired South America operations ($603 million) and
an increase related to higher earnings at PT Freeport Indonesia ($20
million).
OPERATIONS
For
comparative purposes, certain of the operating data included in this section for
our North America copper mines, South America copper mines and Molybdenum
operations for the year 2007, combines our historical data beginning March 20,
2007, with Phelps Dodge pre-acquisition data through March 19, 2007, and for the
year 2006 reflects Phelps Dodge pre-acquisition data. As the pre-acquisition
data represents the results of these operations under Phelps Dodge management,
such combined data is not necessarily indicative of what past results would have
been under FCX management or of future operating results.
North
America Copper Mines
We
currently have five operating copper mines in North America – Morenci, Sierrita,
Bagdad and Safford in Arizona, and Tyrone in New Mexico. In addition to copper,
the Morenci, Sierrita and Bagdad mines produce molybdenum as a by-product. All of
these mining operations are wholly owned, except for Morenci, an unincorporated
joint venture, in which we own an 85 percent undivided interest.
The
North America copper mines include open-pit mining, sulfide ore concentrating,
leaching and solution extraction/electrowinning (SX/EW) operations. A majority
of the copper produced at our North America copper mines is cast into copper rod
by our Rod & Refining operations. Rod and wire sales to outside wire and
cable manufacturers represented approximately 77 percent of North America copper
sales in 2008. The remainder of our North America copper sales is primarily in
the form of copper cathode or copper concentrate.
In
response to the severity of the declines in copper and molybdenum prices and the
deterioration of market conditions in fourth-quarter 2008, operating plans were
revised at our North America copper mines. The revised operating plans reflect a
50 percent reduction in mining and crushed-leach rates at Morenci, a 50 percent
reduction in mining and stacking rates at the Safford mine, a 50 percent
reduction in the mining rate at the Tyrone mine and a suspension of mining and
milling activities at the Chino mine. The revised operating plans also include
the deferral of capital projects, including the incremental expansion projects
at the Sierrita and Bagdad mines and the planned restart of the Miami mine. The
revised operating plans also incorporate the impacts of lower costs for energy,
acid and other consumables, and reduced labor costs. Our operating plans for the
North America copper mines will continue to be reviewed and additional
adjustments may be made as market conditions warrant.
Operating
Data. Following is summary operating data for the North America copper
mines for the years ended December 31, 2008, 2007 and 2006. The operating data
for 2007 combines our historical data beginning March 20, 2007, with Phelps
Dodge pre-acquisition data through March 19, 2007, and 2006 reflects Phelps
Dodge pre-acquisition data. As the pre-acquisition data represents the results
of these operations under Phelps Dodge management, such combined data is not
necessarily indicative of what past results would have been under FCX management
or of future operating results.
|
|
2008
|
|
2007a
|
|
2006a
|
|
Operating
Data, Net of Joint Venture Interest
|
|
|
|
|
|
|
|
|
|
|
Copper (millions of
recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
1,430
|
|
|
1,320
|
|
|
1,305
|
|
Sales,
excluding purchases
|
|
|
1,434
|
|
|
1,332
|
|
|
1,303
|
|
Average
realized price per pound
|
|
$
|
3.07
|
|
$
|
3.10
|
b
|
$
|
2.29
|
b
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum (millions of
recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
Production
(by-product)c
|
|
|
30
|
|
|
30
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
Operating Data, Including Joint Venture Interest
|
|
|
|
|
|
|
|
|
|
|
SX/EW
operations
|
|
|
|
|
|
|
|
|
|
|
Leach
ore placed in stockpiles (metric tons per day)
|
|
|
1,095,200
|
|
|
798,200
|
|
|
801,200
|
|
Average
copper ore grade (percent)
|
|
|
0.22
|
|
|
0.23
|
|
|
0.30
|
|
Copper
production (millions of recoverable pounds)
|
|
|
943
|
|
|
940
|
|
|
1,013
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
operations
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
249,600
|
|
|
223,800
|
|
|
199,300
|
|
Average
ore grade (percent):
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
0.40
|
|
|
0.35
|
|
|
0.33
|
|
Molybdenum
|
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
Copper
recovery rate (percent)
|
|
|
82.9
|
|
|
84.5
|
|
|
85.0
|
|
Production
(millions of recoverable pounds):
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
599
|
|
|
501
|
|
|
414
|
|
Molybdenum
(by-product)
|
|
|
30
|
|
|
30
|
|
|
31
|
|
a.
|
The
North America copper mines’ operating data for 2007 combines our
historical data beginning March 20, 2007, with Phelps Dodge
pre-acquisition data through March 19, 2007, and 2006 reflects Phelps
Dodge pre-acquisition data. As the pre-acquisition data represents the
results of these operations under Phelps Dodge management, such combined
data is not necessarily indicative of what past results would have been
under FCX management or of future operating
results.
|
b.
|
Before
charges for mark-to-market accounting adjustments on the copper price
protection programs, amounts were $3.25 per pound for 2007 and $3.06 per
pound for 2006.
|
c.
|
Reflects
by-product molybdenum production from the North America copper mines.
Sales of by-product molybdenum are reflected in the Molybdenum
division.
|
2008
Compared with 2007
Copper
sales from the North America mines totaled 1.4 billion pounds in 2008, compared
with 1.3 billion pounds for the combined year 2007. The increase in copper sales
volumes during 2008 primarily reflected additional copper production from the
Safford mine, which began production in December 2007. Copper sales volumes from
our North America copper mines are expected to approximate 1.1 billion pounds in
2009 and by-product molybdenum production is expected to approximate 28 million
pounds in 2009. The decrease in 2009 copper sales volumes primarily reflects the
effects of curtailed production rates at our North America copper mines. If we
continue operating at reduced rates, production at our North America copper
mines for 2010 would be expected to decline by an additional 200 million pounds
because of impacts of 2009 mining activities on 2010 leaching
operations.
2007
Compared with 2006
Copper
sales from the North America mines totaled 1.3 billion pounds for both the
combined year 2007 and in 2006. The slight increase in copper sales volumes
during 2007 primarily reflected higher production from mill operations resulting
from higher ore grades and the incremental production from the Morenci mill
because of a full year of concentrator activity in 2007. These increases were
partly offset by lower production from SX/EW operations in 2007 because of lower
ore grades.
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 measure may not be comparable
to similarly titled measures reported by other companies.
Gross
Profit per Pound of Copper and Molybdenum
The
following tables summarize unit net cash costs and gross profit at the North
America copper mines (which were acquired on March 19, 2007) for the year ended
December 31, 2008, and for the period March 20, 2007, through December 31, 2007.
Refer to “Product Revenues and Production 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
our consolidated financial statements.
|
2008
|
|
2007a
|
|
|
By-
|
|
Co-Product
Method
|
|
By-
|
|
Co-Product
Method
|
|
|
Product
|
|
|
|
|
Molyb-
|
|
Product
|
|
|
|
|
Molyb-
|
|
|
Method
|
|
Copper
|
|
denumb
|
|
Method
|
|
Copper
|
|
denumb
|
|
Revenues,
excluding adjustments shown below
|
$
|
3.07
|
|
$
|
3.07
|
|
$
|
30.25
|
|
$
|
3.40
|
|
$
|
3.40
|
|
$
|
30.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.88
|
|
|
1.63
|
|
|
12.67
|
|
|
1.46
|
|
|
1.25
|
|
|
10.85
|
|
By-product
creditsb
|
|
(0.64
|
)
|
|
–
|
|
|
–
|
|
|
(0.69
|
)
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.09
|
|
|
0.09
|
|
|
–
|
|
|
0.10
|
|
|
0.10
|
|
|
–
|
|
Unit
net cash costs
|
|
1.33
|
|
|
1.72
|
|
|
12.67
|
|
|
0.87
|
|
|
1.35
|
|
|
10.85
|
|
Depreciation,
depletion and amortization
|
|
0.53
|
|
|
0.46
|
|
|
2.81
|
|
|
0.47
|
|
|
0.40
|
|
|
2.89
|
|
Noncash
and nonrecurring costs, net
|
|
0.52
|
|
|
0.49
|
|
|
1.34
|
|
|
0.35
|
|
|
0.33
|
|
|
0.15
|
|
Total
unit costs
|
|
2.38
|
|
|
2.67
|
|
|
16.82
|
|
|
1.69
|
|
|
2.08
|
|
|
13.89
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales and hedging
|
|
(0.05
|
)
|
|
(0.05
|
)
|
|
–
|
|
|
(0.20
|
)
|
|
(0.20
|
)
|
|
–
|
|
Idle
facility and other non-inventoriable costs
|
|
(0.06
|
)
|
|
(0.06
|
)
|
|
(0.05
|
)
|
|
(0.05
|
)
|
|
(0.05
|
)
|
|
(0.03
|
)
|
Gross
profit
|
$
|
0.58
|
|
$
|
0.29
|
|
$
|
13.38
|
|
$
|
1.46
|
|
$
|
1.07
|
|
$
|
16.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
sales (millions of recoverable pounds)
|
|
1,430
|
|
|
1,430
|
|
|
|
|
|
1,038
|
|
|
1,038
|
|
|
|
|
Molybdenum
sales (millions of recoverable pounds)c
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
23
|
|
a.
|
Reflects
the period from March 20, 2007, through December 31,
2007.
|
b.
|
Molybdenum
by-product credits and revenues reflect volumes produced at market-based
pricing and also include tolling revenues at
Sierrita.
|
c.
|
Reflects
molybdenum produced by the North America copper
mines.
|
The
North America copper mines 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.
Unit net cash costs, after by-product credits, increased to $1.33 per pound of
copper in 2008, compared with $0.87 per pound of copper for the period March 20,
2007, through December 31, 2007, primarily reflecting higher input costs,
including higher mining costs and milling rates, higher energy and acid costs
and higher costs associated with Safford as the mine ramps up to full production
rates.
Our
operating North America copper mines have varying cost structures because of
differences in ore grades and ore characteristics, processing costs, by-products
and other factors. During 2008, unit net cash costs for the North America copper
mines averaged $1.33 per pound and ranged from a net credit of $0.89 per pound
to net costs of $1.92 per pound at the individual mines. Based on current
operating plans and assuming average prices of $1.50 per pound of copper and
$9.00 per pound of molybdenum for 2009 and estimates for commodity-based input
costs, we estimate that average unit net cash costs, including molybdenum
credits, for our North America copper mines would approximate $1.17 per pound of
copper in 2009 and would range from approximately $0.90 per pound to $1.25 per
pound at the individual mines. If copper prices were to decline significantly
from current levels, our operating plans for the North America copper mines
would be revised further.
The
fair values of acquired inventory and property, plant and equipment were based
on preliminary estimates in 2007, with adjustments made until such values were
finalized in first-quarter 2008; accordingly, depreciation,
depletion
and amortization reflect changes in purchase accounting impacts associated with
adjustments to the carrying values of these assets.
The
increase in noncash and nonrecurring costs for 2008 reflects charges for LCM
inventory adjustments in 2008 totaling $661 million ($0.46 per pound), partly
offset by lower purchase accounting impacts related to increased carrying values
of acquired inventory, which totaled $24 million ($0.02 per pound) in 2008 and
$344 million ($0.33 per pound) in 2007.
Revenue
adjustments primarily reflect unrealized losses on copper derivative contracts
entered into with our U.S. copper rod customers, which allow us to receive
market prices in the month of shipment while the customer pays the fixed price
they requested. In 2007, revenue adjustments also reflected mark-to-market
accounting adjustments on the 2007 copper price protection program totaling $175
million ($0.17 per pound).
Combined
Unit Net Cash Costs per Pound of Copper and Molybdenum
For
comparative purposes, the following tables summarize unit net cash costs at the
North America copper mines for the year ended December 31, 2007, which reflects
our historical data beginning March 20, 2007, combined with Phelps Dodge
pre-acquisition data through March 19, 2007, and for the year ended December 31,
2006, which reflects Phelps Dodge pre-acquisition data. Refer to “Product
Revenues and Production Costs” for a reconciliation of unit net cash costs per
pound to revenues and production and delivery costs included in FCX’s pro forma
consolidated financial statements (refer to Note 18) for the year ended December
31, 2007, and as reported in Phelps Dodge’s Form 10-K for the year ended
December 31, 2006. As the pre-acquisition data represents the results of these
operations under Phelps Dodge management, such combined data is not necessarily
indicative of what past results would have been under FCX management or of
future operating results.
|
2007a
|
|
2006a
|
|
|
By-
|
|
Co-Product
Method
|
|
By-
|
|
Co-Product
Method
|
|
|
Product
|
|
|
|
|
Molyb-
|
|
Product
|
|
|
|
|
Molyb-
|
|
|
Method
|
|
Copper
|
|
denumb
|
|
Method
|
|
Copper
|
|
denumb
|
|
Revenues,
excluding adjustments primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales and hedging
|
$
|
3.25
|
|
$
|
3.25
|
|
$
|
29.31
|
|
$
|
3.06
|
|
$
|
3.06
|
|
$
|
24.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs
|
$
|
1.43
|
|
$
|
1.23
|
|
$
|
10.42
|
|
$
|
1.14
|
|
$
|
0.93
|
|
$
|
9.34
|
|
By-product
creditsb
|
|
(0.66
|
)
|
|
–
|
|
|
–
|
|
|
(0.60
|
)
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.09
|
|
|
0.09
|
|
|
–
|
|
|
0.07
|
|
|
0.06
|
|
|
–
|
|
Combined
unit net cash costs
|
$
|
0.86
|
|
$
|
1.32
|
|
$
|
10.42
|
|
$
|
0.61
|
|
$
|
0.99
|
|
$
|
9.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
sales (millions of recoverable pounds)
|
|
1,316
|
|
|
1,316
|
|
|
|
|
|
1,292
|
|
|
1,292
|
|
|
|
|
Molybdenum
sales (millions of recoverable pounds)c
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
31
|
|
a.
|
For
comparative purposes, 2007 combines our historical data beginning March
20, 2007, with Phelps Dodge pre-acquisition data through March 19, 2007,
and 2006 reflects Phelps Dodge pre-acquisition data. As the
pre-acquisition data represents the results of these operations under
Phelps Dodge management, such combined data is not necessarily indicative
of what past results would have been under FCX management or of future
operating results.
|
b.
|
Molybdenum
by-product credits and revenues reflect volumes produced at market-based
pricing and also include tolling revenues at
Sierrita.
|
c.
|
Reflects
molybdenum produced by the North America copper
mines.
|
Unit
net cash costs, after by-product credits, for the North America copper mines
increased to $0.86 per pound of copper in 2007, compared with $0.61 per pound of
copper in 2006, primarily because of higher input costs associated with labor,
maintenance, operating supplies and energy, and also reflected higher costs
associated with the ramp-up of the Morenci mill operations. Partly offsetting
these higher costs were higher molybdenum credits in 2007 because of higher
molybdenum prices.
South
America Copper Mines
We
have four operating copper mines in South America – 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. These operations are consolidated
in our financial statements, with outside ownership reported as minority
interests.
The
South America copper mines include open-pit and underground mining, sulfide ore
concentrating, leaching and SX/EW operations. In addition to copper, the Cerro
Verde mine produces molybdenum concentrates as a by-product, and the Candelaria
and Ojos del Salado mines produce gold and silver as by-products. Production
from our South America copper mines is sold as copper concentrate or copper
cathode under long-term contracts.
In
response to the severity of the declines in copper and molybdenum prices and the
deterioration of market conditions in fourth-quarter 2008, operating plans were
revised at our South America copper mines. The revised operating plans
principally reflect the incorporation of reduced input costs and the impacts of
favorable foreign exchange rates on operating costs; reduced mining rates at the
Candelaria and Ojos del Salado mines to reduce costs; a significant reduction in
capital spending plans, including deferral of the planned incremental expansion
project at the Cerro Verde mine and a delay in the sulfide project at El Abra;
and reduced spending for discretionary items. In addition, we plan to
temporarily curtail the molybdenum circuit at Cerro Verde. Our operating plans
for the South America copper mines will continue to be reviewed and additional
adjustments may be made as market conditions warrant.
Operating
Data. Following is summary operating data for the South America copper
mines for the years ended December 31, 2008, 2007 and 2006. The below operating
data for 2007 combines our historical data beginning March 20, 2007, with Phelps
Dodge pre-acquisition data through March 19, 2007, and 2006 reflects Phelps
Dodge pre-acquisition data. As the pre-acquisition data represents the results
of these operations under Phelps Dodge management, such combined data is not
necessarily indicative of what past results would have been under FCX management
or of future operating results.
|
|
2008
|
|
2007a
|
|
2006a
|
|
Copper (millions of
recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
1,506
|
|
|
1,413
|
|
|
1,133
|
|
Sales
|
|
|
1,521
|
|
|
1,399
|
|
|
1,126
|
|
Average
realized price per pound
|
|
$
|
2.57
|
|
$
|
3.25
|
|
$
|
3.03
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold (thousands of recoverable
ounces)
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
114
|
|
|
116
|
|
|
112
|
|
Sales
|
|
|
116
|
|
|
114
|
|
|
111
|
|
Average
realized price per ounce
|
|
$
|
853
|
|
$
|
683
|
|
$
|
552
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
Production
(by-product)b
|
|
|
3
|
|
|
1
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
SX/EW
operations
|
|
|
|
|
|
|
|
|
|
|
Leach
ore placed in stockpiles (metric tons per day)
|
|
|
279,700
|
|
|
289,100
|
|
|
257,400
|
|
Average
copper ore grade (percent)
|
|
|
0.45
|
|
|
0.43
|
|
|
0.45
|
|
Copper
production (millions of recoverable pounds)
|
|
|
560
|
|
|
569
|
|
|
695
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
operations
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
181,400
|
|
|
167,900
|
|
|
68,500
|
|
Average
copper ore grade (percent):
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
0.75
|
|
|
0.74
|
|
|
0.87
|
|
Molybdenum
|
|
|
0.02
|
|
|
0.02
|
|
|
N/A
|
|
Copper
recovery rate (percent)
|
|
|
89.2
|
|
|
87.1
|
|
|
93.8
|
|
Production
(millions of recoverable pounds):
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
946
|
|
|
844
|
|
|
438
|
|
Molybdenum
|
|
|
3
|
|
|
1
|
|
|
–
|
|
a.
|
The
South America copper mines’ operating data for 2007 combines our
historical data beginning March 20, 2007, with Phelps Dodge
pre-acquisition data through March 19, 2007, and 2006 reflects Phelps
Dodge pre-acquisition data. As the pre-acquisition data represents the
results of these operations under Phelps Dodge management, such combined
data is not necessarily indicative of what past results would have been
under FCX management or of future operating
results.
|
b.
|
Reflects
by-product molybdenum production from our Cerro Verde copper mine. Sales
of by-product molybdenum are reflected in the Molybdenum
segment.
|
2008
Compared with 2007
Copper
sales from the South America mines totaled 1.5 billion pounds in 2008, compared
with 1.4 billion for the combined year 2007. Higher copper sales volumes in 2008
primarily reflected higher production from the Cerro Verde concentrator, which
reached design capacity in mid-2007. Consolidated sales volumes from our South
America mines are expected to approximate 1.4 billion pounds of copper and 100
thousand ounces of gold in
2009.
Our revised operating plans for the South America copper mines do not have a
significant effect on 2009 production volumes, but are expected to result in
lower 2010 production by approximately 100 million pounds of
copper.
2007
Compared with 2006
Copper
sales from the South America mines totaled approximately 1.4 billion pounds in
the combined year 2007 and approximately 1.1 billion pounds in 2006. Higher
copper sales volumes in 2007 primarily reflected higher production from the
Cerro Verde concentrator, which reached design capacity in mid-2007, partly
offset by lower production at El Abra in 2007 resulting from lower ore
grades.
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 measure may not be comparable
to similarly titled measures reported by other companies.
Gross
Profit per Pound of Copper
The
following tables summarize unit net cash costs and gross profit at the South
America copper mines (which were acquired on March 19, 2007) for the year ended
December 31, 2008, and for the period March 20, 2007, through December 31, 2007.
The below tables reflect unit net cash costs per pound of copper under the
by-product and co-product methods as the South America copper mines also had
small amounts of molybdenum, gold and silver sales. Refer to “Product Revenues
and Production 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 our consolidated financial
statements.
|
2008
|
|
2007a
|
|
|
By-Product
|
|
Co-Product
|
|
By-Product
|
|
Co-Product
|
|
|
Method
|
|
Method
|
|
Method
|
|
Method
|
|
Revenues,
excluding adjustments shown below
|
$
|
2.57
|
|
$
|
2.57
|
|
$
|
3.30
|
|
$
|
3.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.13
|
|
|
1.07
|
|
|
0.92
|
|
|
0.88
|
|
By-product
credits
|
|
(0.13
|
)
|
|
–
|
|
|
(0.09
|
)
|
|
–
|
|
Treatment
charges
|
|
0.14
|
|
|
0.14
|
|
|
0.20
|
|
|
0.20
|
|
Unit
net cash costs
|
|
1.14
|
|
|
1.21
|
|
|
1.03
|
|
|
1.08
|
|
Depreciation,
depletion and amortization
|
|
0.33
|
|
|
0.32
|
|
|
0.32
|
|
|
0.32
|
|
Noncash
and nonrecurring costs, net
|
|
0.07
|
|
|
0.06
|
|
|
0.14
|
|
|
0.14
|
|
Total
unit costs
|
|
1.54
|
|
|
1.59
|
|
|
1.49
|
|
|
1.54
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales
|
|
0.15
|
|
|
0.15
|
|
|
0.06
|
|
|
0.06
|
|
Idle
facility and other non-inventoriable costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
Gross
profit
|
$
|
1.16
|
|
$
|
1.11
|
|
$
|
1.85
|
|
$
|
1.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
sales (millions of recoverable pounds)
|
|
1,521
|
|
|
1,521
|
|
|
1,177
|
|
|
1,177
|
|
a.
|
Reflects
the period from March 20, 2007, through December 31,
2007.
|
The
South America copper mines have 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. Unit net cash costs, after by-product credits, increased to $1.14 per
pound of copper in 2008, compared with $1.03 per pound for the period March 20,
2007, through December 31, 2007, reflecting higher input costs, including higher
mining costs and milling rates and higher energy, acid and other commodity-based
input costs. The increase in input costs during 2008 was partly offset by higher
volumes, higher by-product credits and lower treatment charges.
Our
South America copper mines have varying cost structures because of differences
in ore grades and ore characteristics, processing costs, by-products and other
factors. During 2008, unit net cash costs for the South America copper mines
averaged $1.14 per pound and ranged from $0.96 per pound to $1.59 per pound at
the
individual
mines. Assuming average prices of $1.50 per pound of copper for 2009 and
achievement of current 2009 sales and estimates for commodity-based input costs,
we estimate that average unit net cash costs, including gold credits, for our
South America copper mines would approximate $1.00 per pound of copper in 2009
and would range from approximately $0.90 per pound to $1.25 per pound at the
individual mines. Lower unit net cash costs at our South America copper mines
for 2009, compared with 2008, reflect reduced input costs and currency exchange
rates, partly offset by mining lower ore grades in 2009.
Noncash
and nonrecurring costs for 2008 reflect lower purchase accounting impacts
related to increased carrying values of acquired inventory, which totaled $46
million ($0.03 per pound) in 2008 and $169 million ($0.14 per pound) in 2007.
Noncash and nonrecurring costs for 2008 also included charges for LCM inventory
adjustments totaling $10 million ($0.01 per pound).
Combined
Unit Net Cash Costs per Pound of Copper
For
comparative purposes, the following tables summarize unit net cash costs at the
South America copper mines for the year ended December 31, 2007, which combines
our historical data beginning March 20, 2007, with Phelps Dodge pre-acquisition
data through March 19, 2007, and for the year ended December 31, 2006, which
reflects Phelps Dodge pre-acquisition data. Refer to “Product Revenues and
Production Costs” for a reconciliation of unit net cash costs per pound to
revenues and production and delivery costs included in FCX’s pro forma
consolidated financial statements (refer to Note 18) for the year ended December
31, 2007, and as reported in Phelps Dodge’s Form 10-K for the year ended
December 31, 2006. As the pre-acquisition data represents the results of these
operations under Phelps Dodge management, such combined data is not necessarily
indicative of what past results would have been under FCX management or of
future operating results.
|
2007a
|
|
2006a
|
|
|
By-Product
|
|
Co-Product
|
|
By-Product
|
|
Co-Product
|
|
|
Method
|
|
Method
|
|
Method
|
|
Method
|
|
Revenues,
excluding adjustments primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
$
|
3.25
|
|
$
|
3.25
|
|
$
|
3.03
|
|
$
|
3.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs
|
$
|
0.91
|
|
$
|
0.87
|
|
$
|
0.82
|
|
$
|
0.79
|
|
By-product
credits
|
|
(0.09
|
)
|
|
–
|
|
|
(0.08
|
)
|
|
–
|
|
Treatment
charges
|
|
0.20
|
|
|
0.20
|
|
|
0.17
|
|
|
0.17
|
|
Combined
unit net cash costs
|
$
|
1.02
|
|
$
|
1.07
|
|
$
|
0.91
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
sales (millions of recoverable pounds)
|
|
1,399
|
|
|
1,399
|
|
|
1,126
|
|
|
1,126
|
|
a.
|
For
comparative purposes, 2007 combines our historical data beginning March
20, 2007, with Phelps Dodge pre-acquisition data through March 19, 2007,
and 2006 reflects Phelps Dodge pre-acquisition data. As the
pre-acquisition data represents the results of these operations under
Phelps Dodge management, such combined data is not necessarily indicative
of what past results would have been under FCX management or of future
operating results.
|
Unit
net cash costs, after by-product credits, increased to $1.02 per pound of copper
in 2007, compared with $0.91 per pound in 2006, primarily reflecting higher
costs at El Abra because of lower copper sales, and also reflected the impact of
Cerro Verde’s voluntary contribution programs. These higher costs were partly
offset by lower unit costs at Cerro Verde in 2007 associated with significantly
higher production resulting from the new concentrator.
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. PT Freeport
Indonesia operates under an agreement, called a Contract of Work, with the
Government of Indonesia that 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 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.
PT
Freeport Indonesia produces copper concentrates, which contain significant
quantities of gold and silver. Substantially all of PT Freeport Indonesia’s
copper concentrates are sold under long-term contracts.
We
have established certain unincorporated joint ventures with Rio Tinto plc (Rio
Tinto), an international mining company with headquarters in London, England.
Pursuant to the joint venture agreement, Rio Tinto has a 40 percent interest in
certain assets and future production exceeding specified annual amounts of
copper, gold and silver through 2021 in Block A of PT Freeport Indonesia’s
Contract of Work, and, after 2021, a 40 percent interest in all production from
Block A. Refer to Note 3 for further discussion of joint ventures with Rio
Tinto.
Operating
Data. Following is summary operating data for our Indonesia mining
operations for the years ended December 31, 2008, 2007 and 2006:
|
|
2008
|
|
2007
|
|
2006
|
|
Consolidated
Operating Data, Net of Joint Venture Interest
|
|
|
|
|
|
|
|
|
|
|
Copper
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
1,094
|
|
|
1,151
|
|
|
1,201
|
|
Sales
|
|
|
1,111
|
|
|
1,131
|
|
|
1,201
|
|
Average
realized price per pound
|
|
$
|
2.36
|
|
$
|
3.32
|
|
$
|
3.13
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
1,163
|
|
|
2,198
|
|
|
1,732
|
|
Sales
|
|
|
1,182
|
|
|
2,185
|
|
|
1,736
|
|
Average
realized price per ounce
|
|
$
|
861
|
|
$
|
681
|
|
$
|
567
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
Operating Data, Including Joint Venture Interest
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day):
|
|
|
|
|
|
|
|
|
|
|
Grasberg
open pita
|
|
|
129,800
|
|
|
159,100
|
|
|
184,200
|
|
Deep
Ore Zone (DOZ) underground minea
|
|
|
63,100
|
|
|
53,500
|
|
|
45,200
|
|
Total
|
|
|
192,900
|
|
|
212,600
|
|
|
229,400
|
|
Average
ore grade:
|
|
|
|
|
|
|
|
|
|
|
Copper
(percent)
|
|
|
0.83
|
|
|
0.82
|
|
|
0.85
|
|
Gold
(grams per metric ton)
|
|
|
0.66
|
|
|
1.24
|
|
|
0.85
|
|
Recovery
rates (percent):
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
90.1
|
|
|
90.5
|
|
|
86.1
|
|
Gold
|
|
|
79.9
|
|
|
86.2
|
|
|
80.9
|
|
Production
(recoverable):
|
|
|
|
|
|
|
|
|
|
|
Copper
(millions of pounds)
|
|
|
1,109
|
|
|
1,211
|
|
|
1,300
|
|
Gold
(thousands of ounces)
|
|
|
1,163
|
|
|
2,608
|
|
|
1,824
|
|
a.
|
Amounts
represent the approximate average daily throughput processed at PT
Freeport Indonesia’s mill facilities from each producing
mine.
|
2008
Compared with 2007
PT
Freeport Indonesia’s share of sales totaled approximately 1.1 billion pounds of
copper and 1.2 million ounces of gold in 2008, compared with 1.1 billion pounds
of copper and 2.2 million ounces of gold in 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. Lower gold sales volumes in 2008 resulted from mining in a
lower-grade section of the Grasberg open pit for the first nine months of 2008.
PT Freeport Indonesia’s sales for 2009 are expected to approximate 1.3 billion
pounds of copper and 2.1 million ounces of gold as a result of the expected
mining in a higher-grade section of the Grasberg open pit throughout
2009.
2007
Compared with 2006
PT
Freeport Indonesia’s share of sales totaled approximately 1.1 billion pounds of
copper and 2.2 million ounces of gold in 2007, compared with 1.2 billion pounds
of copper and 1.7 million ounces of gold in 2006. Lower copper sales volumes in
2007 resulted from mining in a relatively low-grade section of the Grasberg open
pit during the second half of 2007, partly offset by higher ore grades during
the first half of 2007 and higher recovery rates. The increase in gold sales
volumes in 2007 resulted from higher ore grades and recovery rates.
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 measure may not be
comparable to similarly titled measures reported by other
companies.
Gross
Profit per Pound of Copper/per Ounce of Gold
The
following tables summarize the unit net cash costs and gross profit at our
Indonesia mining operations. Refer to “Production Revenues and Production Costs”
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 our consolidated financial statements.
|
2008
|
|
2007
|
|
|
By-
|
|
Co-Product
Method
|
|
By-
|
|
Co-Product
Method
|
|
|
Product
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Method
|
|
Copper
|
|
Gold
|
|
Revenues,
after adjustments shown below
|
$
|
2.36
|
|
$
|
2.36
|
|
$
|
861.43
|
|
$
|
3.32
|
|
$
|
3.32
|
|
$
|
680.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.59
|
|
|
1.13
|
|
|
412.72
|
|
|
1.19
|
|
|
0.85
|
|
|
172.23
|
|
Gold
and silver credits
|
|
(0.97
|
)
|
|
–
|
|
|
–
|
|
|
(1.36
|
)
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.24
|
|
|
0.17
|
|
|
62.69
|
|
|
0.34
|
|
|
0.24
|
|
|
49.45
|
|
Royalty
on metals
|
|
0.10
|
|
|
0.07
|
|
|
26.50
|
|
|
0.12
|
|
|
0.08
|
|
|
17.05
|
|
Unit
net cash costs
|
|
0.96
|
|
|
1.37
|
|
|
501.91
|
|
|
0.29
|
|
|
1.17
|
|
|
238.73
|
|
Depreciation
and amortization
|
|
0.20
|
|
|
0.14
|
|
|
52.09
|
|
|
0.17
|
|
|
0.12
|
|
|
25.54
|
|
Noncash
and nonrecurring costs, net
|
|
0.03
|
|
|
0.02
|
|
|
7.18
|
|
|
0.04
|
|
|
0.03
|
|
|
5.90
|
|
Total
unit costs
|
|
1.19
|
|
|
1.53
|
|
|
561.18
|
|
|
0.50
|
|
|
1.32
|
|
|
270.17
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales
|
|
0.09
|
|
|
0.09
|
|
|
5.86
|
|
|
0.03
|
|
|
0.03
|
|
|
1.07
|
|
PT
Smelting intercompany profit
|
|
0.01
|
|
|
0.01
|
|
|
4.18
|
|
|
0.01
|
|
|
0.01
|
|
|
1.71
|
|
Gross
profit
|
$
|
1.27
|
|
$
|
0.93
|
|
$
|
310.29
|
|
$
|
2.86
|
|
$
|
2.04
|
|
$
|
413.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(millions of recoverable pounds)
|
|
1,111
|
|
|
1,111
|
|
|
|
|
|
1,131
|
|
|
1,131
|
|
|
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
1,182
|
|
|
|
|
|
|
|
|
2,185
|
|
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 and milling
costs, labor costs and other factors. Unit net cash costs, after gold and silver
credits, increased to $0.96 per pound of copper in 2008, compared with $0.29 per
pound in 2007, reflecting lower gold and silver credits associated with lower
gold volumes in 2008, higher input costs, including higher mining rates and
energy costs, and also reflected the impact of changes in cost sharing with the
joint venture partner. Partly offsetting these increases were lower treatment
charges, which vary with the volume of metals sold and the price of copper.
Market rates for treatment charges have decreased since 2006 and will vary based
on PT Freeport Indonesia’s customer mix.
Royalties
vary with the volume of metals sold and the prices of copper and gold. Royalties
totaled $113 million ($0.10 per pound of copper) in 2008, compared with $133
million ($0.12 per pound of copper) in 2007. The reduction in royalties for 2008
primarily reflects lower copper prices and lower gold sales
volumes.
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.
Assuming
average copper prices of $1.50 per pound and average gold prices of $800 per
ounce in 2009 and achievement of current 2009 sales estimates and revised
estimates for energy, currency exchange rates and other factors, we estimate
that average unit net cash costs for PT Freeport Indonesia, including gold and
silver credits, would approximate zero in 2009 and each $50 per ounce change in
gold prices during the year would have an approximate $0.08 per pound impact on
PT Freeport Indonesia’s 2009 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; accordingly, we expect PT Freeport Indonesia’s unit net cash
costs to be significantly lower than 2008 levels because of higher gold volumes
and reduced commodity-based input costs.
|
2007
|
|
2006
|
|
|
By-
|
|
Co-Product
Method
|
|
By-
|
|
Co-Product
Method
|
|
|
Product
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Method
|
|
Copper
|
|
Gold
|
|
Revenues,
after adjustments shown below
|
$
|
3.32
|
|
$
|
3.32
|
|
$
|
680.74
|
|
$
|
3.13
|
|
$
|
3.13
|
|
$
|
566.51
|
a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.19
|
|
|
0.85
|
|
|
172.23
|
|
|
1.03
|
|
|
0.79
|
|
|
156.24
|
|
Gold
and silver credits
|
|
(1.36
|
)
|
|
–
|
|
|
–
|
|
|
(0.93
|
)
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.34
|
|
|
0.24
|
|
|
49.45
|
|
|
0.40
|
|
|
0.31
|
|
|
60.41
|
|
Royalty
on metals
|
|
0.12
|
|
|
0.08
|
|
|
17.05
|
|
|
0.10
|
|
|
0.08
|
|
|
15.94
|
|
Unit
net cash costs
|
|
0.29
|
|
|
1.17
|
|
|
238.73
|
|
|
0.60
|
|
|
1.18
|
|
|
232.59
|
|
Depreciation
and amortization
|
|
0.17
|
|
|
0.12
|
|
|
25.54
|
|
|
0.15
|
|
|
0.12
|
|
|
23.25
|
|
Noncash
and nonrecurring costs, net
|
|
0.04
|
|
|
0.03
|
|
|
5.90
|
|
|
0.04
|
|
|
0.03
|
|
|
5.60
|
|
Total
unit costs
|
|
0.50
|
|
|
1.32
|
|
|
270.17
|
|
|
0.79
|
|
|
1.33
|
|
|
261.44
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales
|
|
0.03
|
|
|
0.03
|
|
|
1.07
|
|
|
0.10
|
b
|
|
0.17
|
|
|
11.53
|
|
PT
Smelting intercompany profit
|
|
0.01
|
|
|
0.01
|
|
|
1.71
|
|
|
–
|
|
|
–
|
|
|
(0.37
|
)
|
Gross
profit
|
$
|
2.86
|
|
$
|
2.04
|
|
$
|
413.35
|
|
$
|
2.44
|
|
$
|
1.97
|
|
$
|
316.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(millions of recoverable pounds)
|
|
1,131
|
|
|
1,131
|
|
|
|
|
|
1,201
|
|
|
1,201
|
|
|
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
2,185
|
|
|
|
|
|
|
|
|
1,736
|
|
a.
|
Amount
was approximately $606 per ounce before a loss resulting from redemption
of our Gold-Denominated Preferred Stock, Series
II.
|
b.
|
Includes
a $0.06 per pound loss on the redemption of our Gold-Denominated Preferred
Stock, Series II.
|
Unit
net cash costs, after gold and silver credits, decreased to $0.29 per pound of
copper in 2007, compared with $0.60 per pound in 2006, reflecting higher gold
and silver credits associated with higher gold sales volumes and higher average
realized gold prices in 2007, and also reflected lower treatment charges in
2007. These were partly offset by higher input costs, lower copper sales volumes
and higher royalties primarily related to higher metal prices.
Africa
Mining
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. Construction activities are well advanced and initial
production is targeted during the second half of 2009. Annual production in the
initial years is expected to approximate 250 million pounds of copper and 18
million pounds of cobalt. The initial project at Tenke Fungurume is based on
mining and processing ore reserves approximating 119 million metric tons with
average ore grades of 2.6 percent copper and 0.35 percent cobalt. Refer to
“Development Projects” for further discussion of the Tenke Fungurume
project.
Molybdenum
Our
Molybdenum operation is an integrated producer of molybdenum, with mining,
sulfide ore concentrating, 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, and
includes the wholly owned Henderson molybdenum mine in Colorado and related
conversion facilities. The Henderson underground mine produces high-purity,
chemical-grade molybdenum concentrates, which are typically further processed
into value-added molybdenum chemical products. The Molybdenum operation also
includes the wholly owned Climax molybdenum mine in Colorado, which has been on
care-and-maintenance status since 1995; a sales company that purchases and sells
molybdenum from our Henderson mine and from our North and South America copper
mines that produce molybdenum as a by-product; and related conversion facilities
that, at times, roast and/or process 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.
Molybdenum
markets have been strong in recent years; however, slowing demand for
molybdenum, principally in the metallurgical sector has resulted in declines in
molybdenum prices at the end of 2008. As a result, we revised the operating plan
for our Henderson molybdenum mine to operate at a curtailed rate, reflecting an
approximate 25 percent reduction in annual production. In addition to curtailed
production rates at Henderson, we have also
suspended
construction activities associated with the restart of the Climax molybdenum
mine (refer to “Development Projects” for further discussion).
Operating
Data. Following is summary operating data for the Molybdenum operations
for the years ended December 31, 2008, 2007 and 2006. The operating data for
2007 combines our historical data beginning March 20, 2007, with Phelps Dodge
pre-acquisition data through March 19, 2007, and 2006 reflects Phelps Dodge
pre-acquisition data. As the pre-acquisition data represents the results of
these operations under Phelps Dodge management, such combined data is not
necessarily indicative of what past results would have been under FCX management
or of future operating results.
|
|
2008
|
|
2007a
|
|
2006a
|
|
Molybdenum (millions of
recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
40
|
|
|
39
|
|
|
37
|
|
Sales,
excluding purchasesb
|
|
|
71
|
|
|
69
|
|
|
69
|
|
Average
realized price per pound
|
|
$
|
30.55
|
|
$
|
25.87
|
|
$
|
21.87
|
|
|
|
|
|
|
|
|
|
|
|
|
Henderson
molybdenum mine
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
24,100
|
|
|
24,000
|
|
|
22,200
|
|
Average
molybdenum ore grade (percent)
|
|
|
0.23
|
|
|
0.23
|
|
|
0.23
|
|
Molybdenum
production (millions of recoverable pounds)
|
|
|
40
|
|
|
39
|
|
|
37
|
|
a.
|
The
Molybdenum operating data for 2007 combines our historical data beginning
March 20, 2007, with Phelps Dodge pre-acquisition data through March 19,
2007, and 2006 reflects Phelps Dodge pre-acquisition data. As the
pre-acquisition data represents the results of these operations under
Phelps Dodge management, such combined data is not necessarily indicative
of what past results would have been under FCX management or of future
operating results.
|
b.
|
Includes
sales of molybdenum produced as a by-product at our North and South
America copper mines.
|
Molybdenum
sales volumes totaled 71 million pounds in 2008 and 69 million pounds for both
2007 and 2006. For 2009, molybdenum sales volumes are expected to approximate 60
million pounds. The decrease in expected molybdenum sales volumes for 2009
reflects the curtailed production rate at our Henderson molybdenum mine and
adjustments to by-product molybdenum production plans at our North and South
America copper mines. We are continuing to closely monitor market conditions and
may make further reductions to our molybdenum production and sales plans. For
2009, approximately 90 percent of molybdenum sales are expected to be priced at
prevailing market prices.
Unit
Net Cash Costs. Unit net cash costs per pound of molybdenum is a measure
intended to provide investors with information about the cash-generating
capacity of our mining operations expressed on a basis relating to the primary
metal product for our respective operations. We use this measure for the same
purpose and for monitoring operating performance by our mining operations. This
information differs from measures of performance determined in accordance with
U.S. GAAP and should not be considered in isolation or as a substitute for
measures of performance determined in accordance with U.S. GAAP. This measure is
presented by other mining companies, although our measure may not be comparable
to similarly titled measures reported by other companies.
Gross
Profit per Pound of Molybdenum
The
following tables summarize the unit net cash costs and gross profit at our
Henderson molybdenum mine (which was acquired on March 19, 2007) for the year
ended December 31, 2008, and for the period March 20, 2007, through December 31,
2007. Refer to “Product Revenues and Production Costs” for a reconciliation of
unit net cash costs per pound to production and delivery costs applicable to
sales reported in our consolidated financial statements.
|
2008
|
|
2007a
|
|
Revenues
|
$
|
29.27
|
|
$
|
27.12
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
5.36
|
|
|
4.37
|
|
Unit
net cash costs
|
|
5.36
|
|
|
4.37
|
|
Depreciation,
depletion and amortization
|
|
4.25
|
|
|
2.55
|
|
Noncash
and nonrecurring costs, net
|
|
0.18
|
b
|
|
0.05
|
|
Total
unit costs
|
|
9.79
|
|
|
6.97
|
|
Gross
profitc
|
$
|
19.48
|
|
$
|
20.15
|
|
|
|
|
|
|
|
|
Molybdenum
sales (millions of recoverable pounds)d
|
|
40
|
|
|
31
|
|
a.
|
Reflects
the period from March 20, 2007, through December 31,
2007.
|
b.
|
Includes
charges of $0.03 per pound associated with LCM inventory
adjustments.
|
c.
|
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.
|
d.
|
Reflects
molybdenum produced by the Henderson molybdenum
mine.
|
Henderson’s
unit net cash costs were $5.36 per pound of molybdenum in 2008, compared with
$4.37 per pound of molybdenum for the period March 20, 2007, through December
31, 2008. Higher costs in 2008 primarily reflected higher input costs, including
outside services, supplies and energy.
The
estimated fair values of acquired property, plant and equipment were based on
preliminary estimates for the 2007 periods, with adjustments made until such
values were finalized in first-quarter 2008; accordingly, depreciation,
depletion and amortization reflect changes in purchase accounting impacts
associated with adjustments to the carrying values of these assets.
Assuming
achievement of current 2009 sales estimates, we estimate that the 2009 average
unit net cash costs for Henderson would approximate $5.50 per pound of
molybdenum.
Combined
Unit Net Cash Costs per Pound of Molybdenum
For
comparative purposes, the following tables summarize unit net cash costs at the
Henderson molybdenum mine for the year ended December 31, 2007, which reflects
our historical data beginning March 20, 2007, combined with Phelps Dodge
pre-acquisition data through March 19, 2007, and for the year ended December 31,
2006, which reflects Phelps Dodge pre-acquisition data. Refer to “Product
Revenues and Production Costs” for a reconciliation of unit net cash costs per
pound to revenues and production and delivery costs included in FCX’s pro forma
consolidated financial statements (refer to Note 18) for the year ended December
31, 2007, and as reported in Phelps Dodge’s Form 10-K for the year ended
December 31, 2006. As the pre-acquisition data represents the results of these
operations under Phelps Dodge management, such combined data is not necessarily
indicative of what past results would have been under FCX management or of
future operating results.
|
2007a
|
|
2006a
|
|
Revenues
|
$
|
26.10
|
|
$
|
22.14
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
and
nonrecurring costs
|
$
|
4.32
|
|
$
|
3.71
|
|
Combined
unit net cash costs
|
$
|
4.32
|
|
$
|
3.71
|
|
|
|
|
|
|
|
|
Molybdenum
sales (millions of recoverable pounds)b
|
|
39
|
|
|
37
|
|
a.
|
For
comparative purposes, 2007 combines our historical data beginning March
20, 2007, with Phelps Dodge pre-acquisition data through March 19, 2007,
and 2006 reflects Phelps Dodge pre-acquisition data. As the
pre-acquisition data represents the results of these operations under
Phelps Dodge management, such combined data is not necessarily indicative
of what past results would have been under FCX management or of future
operating results.
|
b.
|
Reflects
molybdenum produced by the Henderson molybdenum
mine.
|
Henderson’s
unit net cash costs were $4.32 per pound of molybdenum in 2007, compared with
$3.71 per pound of molybdenum in 2006. Higher costs in 2007 primarily reflected
higher input costs, including labor, supplies and service costs, and higher
taxes, partly offset by lower energy costs resulting from energy credits
received during 2007.
Rod
& Refining
The
Rod & Refining operations consist of copper conversion facilities located in
North America, including a refinery, three rod mills and a specialty copper
products facility. These operations process copper produced at our North America
mines and purchased copper into copper cathode, rod and custom copper shapes. At
times these operations refine copper and produce 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.
In
response to the significant decrease in copper prices and weak conditions in the
rod market, our revised operating plans included a decision in late 2008 to
permanently close one of our rod mills.
Atlantic
Copper Smelting & Refining
Atlantic
Copper is our 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. 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,
beginning in 2008, certain of our South America mining operations began selling
a portion of their copper 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 our
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. Our
North America copper mines are not significantly affected by changes in
treatment and refining charges because these operations are fully integrated
with our Miami smelter located in Arizona.
Atlantic
Copper has a labor contract covering certain employees, which expired in
December 2007. During 2008, we continued efforts to negotiate a new agreement;
however, to date, we have been unable to successfully negotiate a new labor
contact. During January 2009, the union went on strike, which has not materially
impacted Atlantic Copper’s operations.
We
defer recognizing profits on PT Freeport Indonesia’s and our South America
copper mines’ sales to Atlantic Copper and on 25 percent of PT Freeport
Indonesia’s sales to PT Smelting (PT Freeport Indonesia’s 25-percent owned
copper smelter and refinery in Indonesia – refer to Note 3 for further
discussion) until final sales to third parties occur. Changes in these net
deferrals resulted in net additions to net income totaling $65 million ($0.17
per share) in 2008, $8 million ($0.02 per share) in 2007 and $17 million ($0.08
per share) in 2006. At December 31, 2008, our net deferred profits on PT
Freeport Indonesia’s and the South America copper mines’ inventories at Atlantic
Copper and PT Smelting to be recognized in future periods’ net income after
taxes and minority interests totaled $28 million.
DEVELOPMENT
PROJECTS
We
have several projects and potential opportunities to expand our production
volumes, extend our mine lives and develop large-scale ore bodies. In response
to the declines in copper and molybdenum prices and the deterioration of the
economic environment during fourth-quarter 2008, we have deferred most of our
project development activities, including incremental expansions in North and
South America; the planned restart of the Miami mine; development of the El Abra
sulfide project; and the restart of the Climax molybdenum mine. Current major
development projects include underground development in the Grasberg minerals
district and the Tenke Fungurume project in the DRC, although we have reduced
capital spending on these projects.
North
America Copper Mines
We
have deferred the incremental expansion projects at the Sierrita and Bagdad
mines and the planned restart of the Miami mine. These projects were previously
expected to add production of 180 million pounds of copper and six million
pounds of molybdenum per year beginning in 2010.
South
America Copper Mines
El
Abra. We
have the opportunity to develop a large sulfide deposit at El Abra that will
extend the mine life by over 10 years. Copper production from the sulfides is
estimated to average approximately 325 million pounds of copper per year,
replacing depleting oxide production. We had previously planned to begin
development of this project in 2009 to reach full production in 2012; however,
in response to current market conditions, we have deferred construction
activities on this project. We will continue to assess the timing of this
project and will be prepared to proceed with construction activities when market
conditions improve. Total initial capital for the project is estimated to
approximate $450 million.
Cerro
Verde. We have also deferred the incremental expansion project for the
Cerro Verde concentrator, which is designed to add 30 million pounds of
additional copper production per year.
Indonesia
PT
Freeport Indonesia has several projects in progress throughout the Grasberg
minerals district, including developing its large-scale, high-grade underground
ore bodies located beneath and adjacent to the Grasberg open pit. Current
projects include the continued development of the Common Infrastructure project,
the Grasberg Block Cave and Big Gossan underground mines and a further expansion
of the DOZ underground mine.
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. The tunnel system has reached the Big
Gossan terminal and we are proceeding with development of the lower Big Gossan
infrastructure. We have also advanced development of the Grasberg spur, and as
of December 31, 2008, we have completed the tunneling required to reach the
Grasberg underground ore body.
Grasberg
Block Cave. In 2008, we completed the feasibility study for the
development of the Grasberg Block Cave, which accounts for over one-third of our
reserves in Indonesia. Production at the Grasberg Block Cave is currently
scheduled to commence at the end of mining the Grasberg open pit, which is
expected to continue until the end of 2015. The
timing of the underground Grasberg Block Cave development will continue to be
assessed.
Based
on the 2008 feasibility study, 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. During 2008, aggregate
project costs incurred totaled $44 million.
Big
Gossan. The
Big Gossan underground mine is a high-grade deposit located near PT Freeport
Indonesia’s 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 designed to ramp up to 7,000 metric
tons per day by late 2012 (equal to 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, of which $336 million has been incurred
through December 31, 2008.
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 expansion is expected to approximate $100 million, with PT
Freeport Indonesia’s 60 percent share totaling approximately $60 million. The
success of the development of the DOZ mine, one of the world’s largest
underground mines, provides confidence in the future development of PT Freeport
Indonesia’s large-scale undeveloped underground ore bodies.
Africa
Tenke
Fungurume. We continue to engage in drilling activities, exploration
analyses and metallurgical testing to evaluate the potential of this highly
prospective district and expect its ore reserves to increase significantly over
time. Approximately $1.4 billion in aggregate project costs have been incurred
through December 31, 2008. Construction activities are well advanced and initial
production is targeted during the second half of 2009. We estimate remaining
costs to complete the initial project will be slightly below our previous
estimate of $1.75 billion. We are responsible for funding 70 percent of project
development costs and are also responsible for certain cost overruns on the
initial project. In response to current market conditions, we have deferred
spending on certain expenditures not required for the initial project. Capital
costs and timing of expenditures associated with this project will
continue to be assessed.
Annual
production in the initial years is expected to approximate 250 million pounds of
copper and 18 million pounds of cobalt. The initial project is based on mining
and processing ore reserves approximating 119 million metric tons with average
ore grades of 2.6 percent copper and 0.35 percent cobalt (5.9 billion pounds of
recoverable copper and 0.7 billion pounds of recoverable cobalt). We expect the
results of drilling activities will enable future expansion of initial
production rates. The timing of these expansions will depend on a number of
factors, including general economic and market conditions.
Refer
to Note 16 for further discussion of the February 2008 letter received from the
Ministry of Mines, Government of the DRC, seeking comment on proposed material
modifications to the mining contracts for the Tenke Fungurume
concession.
Molybdenum
Climax.
We have suspended construction activities associated with the project to restart
the Climax molybdenum mine near Leadville, Colorado. Reclamation and
environmental projects will continue, and we will preserve the significant
Climax reserves and resources for better market conditions. We had previously
estimated capital costs of approximately $500 million for the project to restart
Climax. Approximately $180 million in project costs have been incurred through
December 31, 2008, and remaining near-term commitments total $12 million. The
project was previously expected to commence production in 2010 ramping up to
expected annual production of 30 million pounds of molybdenum per year. Once a
decision is made to resume construction activities, the project would be capable
of starting up within a 12 to 18 month timeframe.
PROVEN
AND PROBABLE RESERVES
|
Recoverable
proven and probable reserves are estimated metal quantities from which we expect
to be paid after application of estimated metallurgical recovery rates and
smelter recovery rates, where applicable. Recoverable reserves are that part of
a mineral deposit that can be economically and legally extracted or produced at
the time of the reserve determination. FCX’s estimated consolidated recoverable
reserves include 102.0 billion pounds of copper, 40.0 million ounces of gold and
2.48 billion pounds of molybdenum. Estimated recoverable reserves were
determined using long-term average prices of $1.60 per pound for copper, $550
per ounce for gold and $8.00 per pound for molybdenum, compared with our 2007
assumptions of $1.20 per pound for copper, $450 per ounce for gold, and $6.50
per pound for molybdenum. The London spot metal prices for the past three years
averaged $3.15 per pound for copper and $724 per ounce for gold, and the
molybdenum prices for the past three years averaged approximately $28 per
pound.
The
following table summarizes the changes in our estimated consolidated recoverable
proven and probable copper, gold and molybdenum reserves for 2008:
|
Copper
|
|
Gold
|
|
Molybdenum
|
|
|
(billion
|
|
(million
|
|
(billion
|
|
|
pounds)
|
|
ounces)
|
|
pounds)
|
|
Reserves
at December 31, 2007
|
93.2
|
|
41.0
|
|
2.04
|
|
Net
additions/revisions
|
12.8
|
|
0.3
|
|
0.51
|
|
Production
|
(4.0)
|
|
(1.3)
|
|
(0.07)
|
|
Reserves
at December 31, 2008
|
102.0
|
|
40.0
|
|
2.48
|
|
Net
additions to recoverable copper reserves totaled approximately 12.8 billion
pounds, including additions of 3.9 billion pounds at our North America copper
mines, 7.5 billion pounds at the Cerro Verde mine in South America and 1.6
billion pounds at the Tenke Fungurume project in the DRC. These additions
reflect positive results of drilling programs undertaken during 2007 and 2008,
and have replaced over 300 percent of our 2008 copper production and 700 percent
of our 2008 molybdenum production.
Refer
to Note 20 for further information regarding estimated recoverable proven and
probable reserves.
CAPITAL
RESOURCES AND LIQUIDITY
As
a result of weak economic conditions, there is significant uncertainty about the
near-term price outlook for our principal products. While we view the long-term
outlook for our business positively, supported by limitations on supplies of
copper and by the requirements for copper in the world’s economy, we have
responded to the sudden downturn and uncertain near-term outlook and will
continue to adjust our operating strategy as market conditions change. Operating
plans were revised to curtail production at high-cost operations, defer or
eliminate capital projects and target reductions in costs, including reduced
exploration, research and administrative costs. We also suspended our annual
common stock dividend.
At
December 31, 2008, we had $150 million of borrowings and $74 million of letters
of credit issued under our $1.5 billion revolving credit facilities, resulting
in availability of approximately $1.3 billion ($926 million of which could be
used for additional letters of credit). During 2009, we may use the facilities
from time to time for working capital and short-term funding requirements but do
not intend to use the facilities for long-term funding items. In addition, in
February 2009 we completed a public offering of 26.8 million shares of FCX
common stock and realized net proceeds of approximately $740 million, which will
be used for general corporate purposes (refer to “Financing Activities” for
further discussion).
Based
on current mine plans and subject to future copper, gold and molybdenum prices,
we expect estimated 2009 cash flows combined with net proceeds from the equity
offering discussed above and borrowings under our revolving credit facilities
during 2009 to be greater than our budgeted capital expenditures, scheduled debt
maturities, minority interest distributions, preferred dividends and other cash
requirements.
Cash
and Cash Equivalents
At
December 31, 2008, we had consolidated cash and cash equivalents of $872
million. The following table reflects the U.S. and international components of
consolidated cash and cash equivalents at December 31, 2008 and 2007 (in
millions):
|
December
31,
|
|
December
31,
|
|
|
2008
|
|
2007
|
|
Cash
at domestic companiesa
|
$
|
95
|
|
$
|
211
|
|
Cash
at international operations
|
|
777
|
|
|
1,415
|
|
Total
consolidated cash and cash equivalents
|
|
872
|
|
|
1,626
|
|
Less:
Minority interests’ share
|
|
(267
|
)
|
|
(363
|
)
|
Cash,
net of minority interests’ share
|
|
605
|
|
|
1,263
|
|
Taxes
and other costs if distributed
|
|
(151
|
)
|
|
(241
|
)
|
Net
cash available to FCX
|
$
|
454
|
|
$
|
1,022
|
|
a.
|
Includes
cash at our parent company and North America
operations.
|
Operating
Activities
We
generated operating cash flows totaling $3.4 billion in 2008, which is net of
$1.2 billion used for working capital requirements. Operating cash flows in 2007
totaled $6.2 billion, including $1.0 billion from working capital sources, and
operating cash flows in 2006 totaled $1.9 billion, net of $114 million used for
working capital requirements.
Operating
cash flows for 2008 were lower than in 2007 primarily because of higher
operating costs and higher working capital requirements, including $598 million
to settle the 2007 copper price protection program contract. Operating cash
flows for 2007 were higher than in 2006 primarily reflecting an additional $4.1
billion of cash flows from the acquired Phelps Dodge operations and also
benefited from higher metal prices.
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 for 2009 and
assuming average prices of $1.50 per pound of copper, $800 per ounce of gold and
$9.00 per pound of molybdenum in 2009, our consolidated operating cash flows
would approximate $1.0 billion in 2009, which is net of an estimated $0.6
billion for working capital requirements. Refer to “Overview and Outlook” for
further discussion of projected 2009 operating cash flows.
Investing
Activities
Capital
expenditures, including capitalized interest, totaled $2.7 billion in 2008,
compared with $1.8 billion in 2007 and $251 million for 2006. The increase in
capital expenditures in 2008, compared with 2007, primarily reflected higher
costs associated with our major development projects. Capital expenditures,
excluding capitalized interest, for our major development projects totaled
approximately $1.6 billion in 2008, compared with $0.8 billion in 2007 (refer to
“Development Projects” for further discussion). In response to weak economic
conditions, we have deferred capital spending for most of our project
development activities and have also reduced sustaining capital budgets for
2009. Capital expenditures are expected to approximate $1.3 billion for 2009,
including $0.6 billion for sustaining capital and $0.7 billion for the Tenke
Fungurume development project in Africa and development projects in
Indonesia.
The
increase in capital expenditures for 2007, compared with 2006, primarily
resulted from the addition of Phelps Dodge capital spending beginning March 20,
2007 (approximately $1.3 billion, which included $345 million associated with
the Safford project in Arizona and $218 million associated with the Tenke
Fungurume project in the DRC).
During
2008, our global reclamation and remediation trusts decreased by $430 million
resulting primarily from reimbursement of previously incurred costs for
reclamation and environmental activities.
On
March 19, 2007, we issued 136.9 million shares of common stock and paid $13.9
billion (net of cash acquired) to acquire Phelps Dodge (refer to Note 18 for
further discussion).
During
2007, we received net proceeds of $597 million associated with the sale of
Phelps Dodge International Corporation (PDIC) (refer to Note 4 for further
discussion), and also received proceeds totaling $260 million primarily related
to sales of marketable securities.
Financing
Activities
Total
debt approximated $7.4 billion at December 31, 2008 and $7.2 billion at December
31, 2007.
In
February 2009, we completed a public offering of 26.8 million shares of our
common stock at an average price of $28.00 per share, which generated gross
proceeds of $750 million (net proceeds of approximately $740 million). Net
proceeds will be used for general corporate purposes, including the repayment of
amounts outstanding under our revolving credit facilities, working capital and
capital expenditures. As of February 17, 2009, we have approximately 412 million
common shares outstanding. Assuming conversion of our 6¾% Mandatory Convertible
Preferred Stock and 5½% Convertible Perpetual Preferred Stock, we would
have approximately 469 million common shares outstanding.
We
have revolving credit facilities available through March 2012. The revolving
credit facilities are composed of (i) a $1.0 billion revolving credit facility
available to FCX and (ii) a $0.5 billion revolving credit facility available to
both FCX and PT Freeport Indonesia. Interest on the revolving credit facilities
accrues at the London Interbank Offered Rate (LIBOR) plus 1.00 percent, subject
to an increase or decrease in the interest rate margin based on the credit
ratings assigned by Standard & Poor’s Rating Services and Moody’s Investor
Services. At December 31, 2008, we
had
$150 million of borrowings and $74 million of letters of credit issued under the
facilities, resulting in availability of approximately $1.3 billion ($926
million of which could be used for additional letters of credit). The revolving
credit facilities contain restrictions on the amount available for dividend
payments, purchases of our common stock and certain debt prepayments (refer to
Note 11 for further discussion). However, these restrictions do not apply as
long as availability under the revolvers plus domestic cash exceeds $750
million. As of December 31, 2008, we had availability under the revolvers plus
available domestic cash totaling approximately $1.4 billion.
In
February 2008, we purchased, in an open market transaction, $33 million of our
9½% Senior Notes for $46 million.
In
connection with financing the acquisition of Phelps Dodge, we used $2.5 billion
of available cash (including cash acquired from Phelps Dodge) and funded the
remainder with term loan borrowings totaling $10.0 billion under a new $11.5
billion senior credit facility and from the offering of $6.0 billion in senior
notes (which generated net proceeds of $5.9 billion). Following the close of the
acquisition of Phelps Dodge and in accordance with our plan to reduce debt,
during 2007, we fully repaid the $10.0 billion in term loans (including
incremental borrowings and payments of approximately $2.5 billion) using a
combination of equity proceeds and internally generated cash flows. The equity
transactions included the sale of 47.15 million shares of common stock at $61.25
per share for net proceeds of $2.8 billion and 28.75 million shares of 6¾%
Mandatory Convertible Preferred Stock for net proceeds of $2.8 billion. In
addition to repaying the term loans, we had net repayments of other debt
totaling $325 million in 2007.
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 in our 6⅞%
Senior Notes were suspended (refer to Note 11 for further discussion). To the
extent the rating is downgraded below investment grade, the covenants would
again become effective.
During
2006, we had a net reduction to debt of $576 million, primarily reflecting the
completion of a tender offer and privately negotiated transactions to induce
conversion of $317 million of our 7% Convertible Senior Notes into FCX common
stock, and the mandatory redemption of $167 million of our Gold-Denominated
Preferred Stock, Series II.
In
July 2008, our Board of Directors approved an increase in the open-market share
purchase program for up to 30 million shares. During 2008, we acquired 6.3
million shares for $500 million ($79.15 per share average). Because of recent
financial market turmoil and the declines in copper and molybdenum prices, we
suspended purchases of shares under this program during September 2008. There
are 23.7 million shares remaining under this program. The timing of future
purchases of our common stock is dependent on many factors, including our
operating results; cash flows and financial position; copper, gold and
molybdenum prices; the price of our common shares; and general economic and
market conditions. This program replaced our previous open-market
share purchase program that was approved in 2003 for up to 20 million shares and
under which we acquired 2.0 million shares for $100 million ($49.94 per share
average) in 2006.
The
declaration and payment of dividends is at the discretion of our Board of
Directors. In December 2007, our Board of Directors increased the annual cash
dividend on our common stock from $1.25 per share to $1.75 per share; the annual
cash dividend on our common stock was again increased on July 21, 2008, to $2.00
per share. In December 2008, our Board of Directors suspended the cash dividend
on our common stock because of further deterioration in copper and molybdenum
prices and economic conditions. The Board of Directors will continue to review
our financial policy on an ongoing basis. The amount of our cash dividend on our
common stock is dependent upon our financial results, cash requirements, future
prospects and other factors deemed relevant by our Board of Directors. Common
stock dividends paid totaled $693 million ($1.8125 per share) in 2008, $421
million ($1.25 per share) in 2007 and $916 million ($4.75 per share) in 2006,
which included four supplemental dividends totaling $678 million ($3.50 per
share).
In
December 2008, through privately negotiated transactions, we induced conversion
of 0.3 million shares of our 5½% Convertible Perpetual Preferred Stock with a
liquidation preference of $268 million into 5.8 million shares of FCX common
stock. To induce conversion of these shares, we issued to the holders an
additional 1.0 million shares of FCX common stock valued at $22 million.
Preferred dividend savings from these transactions will total approximately $15
million per year.
Preferred
stock dividends paid totaled $255 million in 2008 and $175 million in 2007
representing dividends on our 5½% Convertible Perpetual Preferred Stock and 6¾%
Mandatory Convertible Preferred Stock (refer to Note 13 for further discussion).
In 2006, preferred stock dividends totaled approximately $61 million
representing dividends on our 5½% Convertible Perpetual Preferred Stock. Annual
preferred stock dividends currently approximate $240 million.
On
December 30, 2008, FCX declared a regular quarterly dividend of $1.6875 per
share on our 6¾% Mandatory Convertible Preferred Stock and a regular quarterly
dividend of $13.75 per share on our 5½% Convertible Perpetual Preferred Stock,
which were paid on February 1, 2009, to shareholders of record at the close of
business on January 15, 2009.
Cash
dividends paid to minority interests totaled $730 million in 2008 and $967
million in 2007, reflecting dividends paid to the minority interest owners of PT
Freeport Indonesia and of our South America copper mines. Cash dividends of $161
million in 2006 primarily reflected dividends paid to the minority interest
owners of PT Freeport Indonesia.
DEBT
MATURITIES AND OTHER CONTRACTUAL OBLIGATIONS
Below
is a summary of our total debt maturities at December 31, 2008 (in
millions):
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Thereafter
|
Equipment
loans and other
|
|
$
|
67
|
|
$
|
10
|
|
$
|
19
|
|
$
|
96
|
|
$
|
14
|
|
$
|
111
|
Senior
notes
|
|
|
–
|
|
|
–
|
|
|
116
|
|
|
–
|
|
|
–
|
|
|
6,768
|
Revolving
credit facilities
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
150
|
|
|
–
|
|
|
–
|
|
|
$
|
67
|
|
$
|
10
|
|
$
|
135
|
|
$
|
246
|
|
$
|
14
|
|
$
|
6,879
|
In
addition to debt maturities shown above, we have other contractual obligations,
which we expect to fund with projected operating cash flows, proceeds from the
equity offering completed in February 2009, availability under our revolving
credit facilities or future financing transactions, if necessary. A summary of
these various obligations at December 31, 2008, follows (in
millions):
|
|
|
|
|
2010
to
|
|
2012
to
|
|
|
|
Total
|
|
2009
|
|
2011
|
|
2013
|
|
Thereafter
|
Scheduled
interest payment obligationsa
|
$
|
4,734
|
|
$
|
570
|
|
$
|
1,131
|
|
$
|
1,103
|
|
$
|
1,930
|
Reclamation
and environmental obligationsb
|
|
9,612
|
|
|
174
|
|
|
305
|
|
|
259
|
|
|
8,874
|
Take-or-pay
contractsc
|
|
1,214
|
|
|
694
|
|
|
306
|
|
|
63
|
|
|
151
|
Operating
lease obligations
|
|
82
|
|
|
26
|
|
|
39
|
|
|
12
|
|
|
5
|
Atlantic
Copper obligation to insurance companyd
|
|
80
|
|
|
10
|
|
|
20
|
|
|
20
|
|
|
30
|
PT
Freeport Indonesia mine closure and reclamation funde
|
|
18
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
15
|
Total
contractual cash obligationsf
|
$
|
15,740
|
|
$
|
1,475
|
|
$
|
1,802
|
|
$
|
1,458
|
|
$
|
11,005
|
a.
|
Scheduled
interest payment obligations were calculated using stated coupon rates for
fixed-rate debt and interest rates applicable at December 31, 2008, for
variable-rate debt.
|
b.
|
Represents
estimated cash payments, on an escalated basis, associated with
reclamation and environmental activities. The timing and the amount of
these payments could change as a result of changes in regulatory
requirements, changes in scope and costs of reclamation activities and as
actual spending occurs. Refer to Note 15 for additional discussion of
environmental and reclamation
matters.
|
c.
|
Represents
contractual obligations for purchases of goods or services that are
defined by us as agreements that are enforceable and legally binding and
that specify all significant terms. Take-or-pay contracts primarily
comprise the procurement of copper concentrates and cathodes ($522
million), transportation ($184 million) and oxygen ($163 million). Some of
our take-or-pay contracts are settled based on the prevailing market rate
for the service or commodity purchased, and in some cases, the amount of
the actual obligation may change over time because of market conditions.
Obligations for copper concentrates and cathodes provide for deliveries of
specified volumes, at market-based prices, primarily to Atlantic Copper
and the North America copper mines. Transportation obligations are
primarily for South America contracted ocean freight rates and for North
America natural gas transportation. Oxygen obligations provide for
deliveries of specified volumes, at fixed prices, primarily to Atlantic
Copper.
|
d.
|
In
August 2002, Atlantic Copper complied with Spanish legislation by agreeing
to fund 7.2 million euros annually for 15 years to an approved insurance
company for an estimated 72 million euro contractual obligation to
supplement amounts paid to certain retired employees. Atlantic Copper had
$62 million recorded for this obligation at December 31,
2008.
|
e.
|
Represents
PT Freeport Indonesia’s commitments to contribute amounts to a cash fund
designed to accumulate at least $100 million, including interest, by the
end of our Indonesian mining activities to pay for mine closure and
reclamation.
|
f.
|
This
table excludes certain other obligations in our consolidated balance
sheets, including estimated funding for pension obligations as the funding
may vary from year-to-year based on changes in the fair value of plan
assets and actuarial assumptions and accrued liabilities totaling $159
million that relate to unrecognized tax benefits where the timing of
settlement is not determinable. This table also excludes purchase orders
for the purchase of inventory and other goods and services, as purchase
orders typically represent authorizations to purchase rather than binding
agreements.
|
In
addition to the debt maturities and other contractual obligations shown above,
we have other commitments, which we expect to fund with projected operating cash
flows, available credit facilities or future financing transactions, if
necessary. These include (i) PT Freeport Indonesia’s commitment to provide one
percent of its annual revenue for the development of the local people in its
area of operations through the Freeport Partnership Fund for Community
Development, (ii) Cerro Verde’s local mining fund contributions equal to 3.75
percent of after-tax profits and (iii) other commercial commitments, including
standby letters of credit, surety bonds and guarantees (refer to Notes 15 and 16
for further discussion).
ENVIRONMENTAL
AND RECLAMATION MATTERS
Environmental
The
cost of complying with environmental laws is a fundamental and substantial cost
of our business. We had $1.4 billion at December 31, 2008, and $1.3 billion at
December 31, 2007, recorded in our consolidated balance sheets for environmental
obligations attributed to CERCLA or analogous state programs and for estimated
future costs associated with environmental matters at closed facilities and
closed portions of certain operating facilities.
During
2008, we incurred environmental capital expenditures and other environmental
costs (including our joint venture partners’ shares) of $468 million for
programs to comply with applicable environmental laws and regulations that
affect our operations. Environmental capital expenditures and other
environmental costs totaled $320 million in 2007, which included $228 million
incurred from March 20, 2007, through December 31, 2007, related to the acquired
Phelps Dodge operations, and $63 million in 2006. The increase for 2008,
compared with 2007, primarily related to a full twelve months of Phelps Dodge
expenditures in 2008, plus increased expenditures on accelerated reclamation and
remediation activities. For 2009, we expect to incur approximately $415 million
of aggregate environmental capital expenditures and other environmental costs,
which are part of our overall 2009 operating budget.
Refer
to Note 15 for further information about environmental regulation, including
significant environmental matters.
Asset
Retirement Obligations
We
recognize AROs as liabilities when incurred, with the initial measurement at
fair value. These liabilities, which are initially estimated based on discounted
cash flow estimates, are accreted to full value over time through charges to
income. Reclamation costs for future disturbances are recorded as an ARO in the
period of disturbance. Our cost estimates are reflected on a third-party cost
basis and comply with our legal obligation to retire tangible, long-lived
assets. We had $712 million at December 31, 2008, and $728 million at December
31, 2007, recorded for AROs in current and long-term liabilities on the
consolidated balance sheets. Refer to Note 15 for further discussion of
reclamation and closure costs.
DISCLOSURES
ABOUT MARKET RISKS
Commodity Price
Risk
Our
consolidated revenues include the sale of copper rod, copper cathodes, copper
concentrates, molybdenum, gold and other metals by our North and South America
copper mines, the sale of copper concentrates (which also contain significant
quantities of gold and silver) by our Indonesia mining operation, the sale of
molybdenum in various forms by our Molybdenum operations, and the sale of copper
anodes, copper cathodes and gold in anodes and slimes by Atlantic Copper.
Consolidated revenues, net income and cash flows vary significantly with
fluctuations in the market prices of copper, gold and molybdenum, sales volumes
and other factors. Based on estimated sales volumes for 2009 and assuming
average prices of $1.50 per pound of copper, $800 per ounce of gold and $9.00
per pound of molybdenum, our consolidated operating cash flows for 2009 would
approximate $1.0 billion (which is net of $0.6 billion of working capital
requirements). The impact on our annual cash flow would approximate $260 million
for each $0.10 per pound change in copper prices, $60 million for each $50 per
ounce change in gold prices and $50 million for each $1 per pound change in
molybdenum prices.
For
2008, more than half of our mined copper was sold in concentrate, approximately
27 percent as rod (principally from our North America operations) and
approximately 19 percent as cathodes. 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 primarily on quoted LME prices. We receive market prices based on
prices in the specified future period, and 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 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 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 sales pursuant to contracts entered into in prior years; in
times of falling copper prices, the opposite occurs.
At
December 31, 2008, we had provisionally priced copper sales totaling 508 million
pounds (net of minority interests) recorded at a weighted-average price of $1.39
per pound, subject to final pricing over the next several months. We estimate
that each $0.05 change in the price realized from the December 31, 2008,
provisional price recorded would impact our 2009 consolidated revenues by $33
million ($16 million to net income).
At
December 31, 2007, we had provisionally priced copper sales totaling 402 million
pounds (net of minority interests) recorded at a weighted-average price of $3.02
per pound. Consolidated revenues for 2008 include net additions for adjustments
related to these prior year copper sales of $268 million ($114 million to net
loss or $0.30 per share), compared with a decrease of $42 million ($18 million
to net income or $0.05 per share) in 2007 and an increase of $126 million ($65
million to net income or $0.29 per share) in 2006. In addition, adjustments to
provisionally priced sales can significantly impact our quarterly revenues. At
September 30, 2008, 467 million pounds of copper (net of minority interests)
were provisionally priced at $2.89 per pound. Adjustments to these
provisionally priced copper sales decreased consolidated fourth-quarter 2008
revenues by $745 million ($343 million to net loss).
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. In
connection with the acquisition of Phelps Dodge, we assumed the 2007 copper
price protection program, which matured on December 31, 2007, and settled in
January 2008. FCX does not intend to enter into similar hedging programs in the
future.
Foreign
Currency Exchange Risk
The
functional currency for most of our operations is the U.S. dollar. All of our
revenues and a significant portion of our costs are denominated in U.S. dollars;
however, some costs and certain assets and liability accounts are denominated in
local currencies, including Indonesian rupiah, Australian dollars, Chilean
pesos, Peruvian nuevo soles and euros. Generally, our results are positively
affected when the U.S. dollar strengthens in relation to those foreign
currencies and adversely affected when the U.S. dollar weakens in relation to
those foreign currencies.
Approximately
25 percent of PT Freeport Indonesia’s operating costs are denominated in the
Indonesian rupiah and Australian dollars. One U.S. dollar was equivalent to
10,850 rupiah at December 31, 2008, 9,390 rupiah at December 31, 2007, and 8,989
rupiah at December 31, 2006. Based on estimated annual payments of 2.7 trillion
rupiah for operating costs and an exchange rate of 10,850 rupiah to one U.S.
dollar, a 10 percent increase in the exchange rate would result in an
approximate $23 million decrease in aggregate annual operating costs; and a 10
percent decrease in the exchange rate would result in an approximate $28 million
increase in annual operating costs.
One
Australian dollar was equivalent to $0.70 at December 31, 2008, $0.88 at
December 31, 2007, and $0.79 at December 31, 2006. Based on estimated annual
payments of 270 million Australian dollars and an exchange rate of $0.70 to one
Australian dollar, a 10 percent change in the Australian dollar would result in
an approximate $19 million impact in annual operating costs.
Approximately
one-third of the South America copper mines’ operating costs are denominated in
the local currencies. One U.S. dollar was equivalent to 648 Chilean pesos and
3.17 Peruvian nuevo soles at December 31, 2008, 498 Chilean pesos and 3.05
Peruvian nuevo soles at December 31, 2007, and 532 Chilean pesos and 3.20
Peruvian nuevo soles at December 31, 2006. Based on estimated annual payments of
235 billion Chilean pesos
for
operating costs and an exchange rate of 648 Chilean pesos to one U.S. dollar, a
10 percent increase in the exchange rate would result in an approximate $33
million decrease in annual operating costs; and a 10 percent decrease in the
exchange rate would result in an approximate $40 million increase in annual
operating costs. Based on estimated annual payments of 365 million Peruvian
nuevo soles for operating costs and an exchange rate of 3.17 Peruvian nuevo
soles to one U.S. dollar, a 10 percent increase in the exchange rate would
result in an approximate $10 million decrease in annual operating costs; and a
10 percent decrease in the exchange rate would result in an approximate $13
million increase in annual operating costs.
The
majority of Atlantic Copper’s revenues are denominated in U.S. dollars; however,
operating costs, other than concentrate purchases, and certain asset and
liability accounts are denominated in the euro. Atlantic Copper’s estimated
annual euro payments total approximately 120 million euros. One euro was
equivalent to $1.39 at December 31, 2008, $1.47 at December 31, 2007, and $1.32
at December 31, 2006. Based on estimated annual payments of approximately 120
million euros and an exchange rate of $1.39 to one euro, a 10 percent change in
the euro would result in an approximate $17 million impact in annual operating
costs.
Interest
Rate Risk
At
December 31, 2008, we had total debt of $7.4 billion, of which approximately 20
percent was variable-rate debt with interest rates based on LIBOR or the Euro
Interbank Offered Rate (EURIBOR). The table below presents average interest
rates for our scheduled maturities of principal for our outstanding debt and the
related fair values at December 31, 2008 (in millions, except
percentages):
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Thereafter
|
|
Fair
Value
|
|
Fixed-rate
debt
|
$
|
–
|
|
$
|
–
|
|
$
|
118
|
|
$
|
–
|
|
$
|
1
|
|
$
|
5,770
|
|
$
|
4,767
|
|
Average
interest rate
|
|
–
|
|
|
–
|
|
|
8.7
|
%
|
|
–
|
|
|
5.6
|
%
|
|
8.2
|
%
|
|
8.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate
debt
|
$
|
67
|
|
$
|
10
|
|
$
|
17
|
|
$
|
246
|
|
$
|
13
|
|
$
|
1,109
|
|
$
|
1,122
|
|
Average
interest rate
|
|
3.5
|
%
|
|
5.4
|
%
|
|
6.4
|
%
|
|
1.7
|
%
|
|
6.7
|
%
|
|
7.0
|
%
|
|
6.0
|
%
|
Refer
to Note 1 for information on new accounting standards.
PRODUCT
REVENUES AND PRODUCTION 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
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 measure 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 LCM inventory adjustments,
stock-based compensation costs and/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. Presentations under both the by-product and co-product
methods are shown below together with reconciliations to amounts reported in our
consolidated
financial
statements.
In
addition, for comparative purposes, we have presented revenues and net cash
costs for the North America copper mines, South America copper mines and
Henderson molybdenum mine for the year ended December 31, 2007, on a combined
basis, which reflects our historical data beginning March 20, 2007, combined
with Phelps Dodge pre-acquisition data through March 19, 2007, and for the year
ended December 31, 2006, which reflects Phelps Dodge pre-acquisition
data. As the pre-acquisition data represents the results of the these
operations under Phelps Dodge management, such data is not necessarily
indicative of what past results would have been under FCX management or of
future operating results. Presentations for these periods are shown below
together with reconciliations to amounts reported in our consolidated pro forma
financial data for the year ended December 31, 2007 (refer to Note 18) and
Phelps Dodge’s 2006 Form 10-K for the year ended December 31, 2006.
North
America Copper Mines Product Revenues and Production Costs
Year Ended December 31,
2008
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Molybdenuma
|
|
Otherb
|
|
Total
|
|
Revenues,
excluding adjustments shown below
|
$
|
4,382
|
|
$
|
4,382
|
|
$
|
892
|
|
$
|
72
|
|
$
|
5,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
2,681
|
|
|
2,326
|
|
|
374
|
|
|
35
|
|
|
2,735
|
|
By-product
creditsa
|
|
(910
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
134
|
|
|
130
|
|
|
–
|
|
|
4
|
|
|
134
|
|
Net
cash costs
|
|
1,905
|
|
|
2,456
|
|
|
374
|
|
|
39
|
|
|
2,869
|
|
Depreciation,
depletion and amortization
|
|
753
|
|
|
664
|
|
|
83
|
|
|
6
|
|
|
753
|
|
Noncash
and nonrecurring costs, net
|
|
743
|
c
|
|
701
|
|
|
39
|
|
|
3
|
|
|
743
|
|
Total
costs
|
|
3,401
|
|
|
3,821
|
|
|
496
|
|
|
48
|
|
|
4,365
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging
|
|
(71
|
)
|
|
(71
|
)
|
|
–
|
|
|
–
|
|
|
(71
|
)
|
Idle
facility and other non-inventoriable costs
|
|
(85
|
)
|
|
(83
|
)
|
|
(2
|
)
|
|
–
|
|
|
(85
|
)
|
Gross
profit
|
$
|
825
|
|
$
|
407
|
|
$
|
394
|
|
$
|
24
|
|
$
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
Depletion
and
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
5,346
|
|
$
|
2,735
|
|
$
|
753
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
743
|
c
|
|
N/A
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
N/A
|
|
|
134
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging per above
|
|
(71
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
(10
|
)
|
|
96
|
|
|
17
|
|
|
|
|
|
|
|
North
America copper mines
|
|
5,265
|
|
|
3,708
|
|
|
770
|
|
|
|
|
|
|
|
South
America copper mines
|
|
4,166
|
|
|
1,854
|
|
|
511
|
|
|
|
|
|
|
|
Indonesia
mining
|
|
3,412
|
|
|
1,792
|
|
|
222
|
|
|
|
|
|
|
|
Africa
mining
|
|
–
|
|
|
16
|
|
|
6
|
|
|
|
|
|
|
|
Molybdenum
|
|
2,488
|
|
|
1,629
|
|
|
192
|
|
|
|
|
|
|
|
Rod
& Refining
|
|
5,557
|
|
|
5,527
|
|
|
8
|
|
|
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
2,341
|
|
|
2,276
|
|
|
35
|
|
|
|
|
|
|
|
Corporate,
other & eliminations
|
|
(5,433
|
)
|
|
(5,604
|
)
|
|
38
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
17,796
|
|
$
|
11,198
|
d
|
$
|
1,782
|
|
|
|
|
|
|
|
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
charges totaling $661 million for LCM inventory
adjustments.
|
d.
|
Includes
LCM inventory adjustments of $782
million.
|
March
20, 2007, through December 31, 2007a
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Molybdenumb
|
|
Otherc
|
|
Total
|
|
Revenues,
excluding adjustments shown below
|
$
|
3,526
|
|
$
|
3,526
|
|
$
|
717
|
|
$
|
47
|
|
$
|
4,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1,516
|
|
|
1,296
|
|
|
253
|
|
|
18
|
|
|
1,567
|
|
By-product
creditsb
|
|
(713
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
100
|
|
|
98
|
|
|
–
|
|
|
2
|
|
|
100
|
|
Net
cash costs
|
|
903
|
|
|
1,394
|
|
|
253
|
|
|
20
|
|
|
1,667
|
|
Depreciation,
depletion and amortization
|
|
487
|
|
|
418
|
|
|
67
|
|
|
2
|
|
|
487
|
|
Noncash
and nonrecurring costs, net
|
|
361
|
|
|
341
|
|
|
4
|
|
|
16
|
|
|
361
|
|
Total
costs
|
|
1,751
|
|
|
2,153
|
|
|
324
|
|
|
38
|
|
|
2,515
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging
|
|
(203
|
)
|
|
(203
|
)
|
|
–
|
|
|
–
|
|
|
(203
|
)
|
Idle
facility and other non-inventoriable costs
|
|
(56
|
)
|
|
(55
|
)
|
|
(1
|
)
|
|
–
|
|
|
(56
|
)
|
Gross
profit
|
$
|
1,516
|
|
$
|
1,115
|
|
$
|
392
|
|
$
|
9
|
|
$
|
1,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported for the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
Depletion
and
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
4,290
|
|
$
|
1,567
|
|
$
|
487
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
361
|
|
|
N/A
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
N/A
|
|
|
100
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging per above
|
|
(203
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
6
|
|
|
138
|
|
|
12
|
|
|
|
|
|
|
|
North
America copper mines
|
|
4,093
|
|
|
2,166
|
|
|
499
|
|
|
|
|
|
|
|
South
America copper mines
|
|
3,879
|
|
|
1,277
|
|
|
378
|
|
|
|
|
|
|
|
Indonesia
mining
|
|
4,808
|
|
|
1,388
|
|
|
199
|
|
|
|
|
|
|
|
Africa
mining
|
|
–
|
|
|
10
|
|
|
2
|
|
|
|
|
|
|
|
Molybdenum
|
|
1,746
|
|
|
1,287
|
|
|
94
|
|
|
|
|
|
|
|
Rod
& Refining
|
|
5,140
|
|
|
5,119
|
|
|
7
|
|
|
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
2,388
|
|
|
2,329
|
|
|
36
|
|
|
|
|
|
|
|
Corporate,
other & eliminations
|
|
(5,115
|
)
|
|
(5,049
|
)
|
|
31
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
16,939
|
|
$
|
8,527
|
|
$
|
1,246
|
|
|
|
|
|
|
|
a.
|
Reflects
the results of the North America copper mines under FCX
management.
|
b.
|
Molybdenum
by-product credits and revenues reflect volumes produced at market-based
pricing and also include tolling revenues at
Sierrita.
|
c.
|
Includes
gold and silver product revenues and production
costs.
|
Combined
Product Revenues and Production Costs
For
comparative purposes, the following tables summarize net cash costs for the
North America copper mines for the year ended December 31, 2007, which combines
our historical data beginning March 20, 2007, with Phelps Dodge pre-acquisition
data through March 19, 2007, and for the year ended December 31, 2006, which
reflects Phelps Dodge pre-acquisition data. As the pre-acquisition data
represents the results of the North America copper mines under Phelps Dodge
management, such data is not necessarily indicative of what past results would
have been under FCX management or of future operating results. Presentations
shown below have been reconciled to the revenues and production and delivery
costs included in our pro forma consolidated financial results for the year
ended December 31, 2007, and as reported in Phelps Dodge’s Form 10-K for the
year ended December 31, 2006.
Year
Ended December 31, 2007a
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Molybdenumb
|
|
Otherc
|
|
Total
|
|
Revenues,
excluding adjustments primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales and hedging
|
$
|
4,273
|
|
$
|
4,273
|
|
$
|
865
|
|
$
|
61
|
|
$
|
5,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs
|
$
|
1,883
|
|
$
|
1,616
|
|
$
|
308
|
|
$
|
21
|
|
$
|
1,945
|
|
By-product
creditsb
|
|
(865
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
119
|
|
|
116
|
|
|
–
|
|
|
3
|
|
|
119
|
|
Net
cash costs
|
$
|
1,137
|
|
$
|
1,732
|
|
$
|
308
|
|
$
|
24
|
|
$
|
2,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Pro Forma Revenues and Production and Delivery Costs
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
5,199
|
|
$
|
1,945
|
|
|
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs
|
|
N/A
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
N/A
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging
|
|
(170
|
)
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Purchase
accounting adjustments
|
|
–
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
17
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
Combined
North America copper mines
|
|
5,046
|
|
|
2,595
|
|
|
|
|
|
|
|
|
|
|
Combined
South America copper mines
|
|
4,438
|
|
|
1,465
|
|
|
|
|
|
|
|
|
|
|
Indonesia
mining
|
|
4,808
|
|
|
1,388
|
|
|
|
|
|
|
|
|
|
|
Combined
Africa mining
|
|
–
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Combined
Molybdenum
|
|
2,193
|
|
|
1,593
|
|
|
|
|
|
|
|
|
|
|
Combined
Rod & Refining
|
|
6,437
|
|
|
6,411
|
|
|
|
|
|
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
2,388
|
|
|
2,329
|
|
|
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
(6,077
|
)
|
|
(5,979
|
)
|
|
|
|
|
|
|
|
|
|
As
reported in FCX’s pro forma consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
resultsd
|
$
|
19,233
|
|
$
|
9,810
|
|
|
|
|
|
|
|
|
|
|
a.
|
Reflects
our historical data beginning March 20, 2007, combined with Phelps Dodge
pre-acquisition data through March 19, 2007. As the pre-acquisition data
represents the results under Phelps Dodge management, such data is not
necessarily indicative of what past results would have been under FCX
management or of future operating
results.
|
b.
|
Molybdenum
by-product credits and revenues reflect volumes produced at market-based
pricing and also include tolling revenues at
Sierrita.
|
c.
|
Includes
gold and silver product revenues and production
costs.
|
d.
|
Refer
to Note 18 for summary of unaudited pro forma financial information for
year ended December 31, 2007.
|
Year
Ended December 31, 2006a
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Molybdenum
b
|
|
Other
c
|
|
Total
|
|
Revenues,
excluding adjustments primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales and hedging
|
$
|
3,962
|
|
$
|
3,962
|
|
$
|
772
|
|
$
|
44
|
|
$
|
4,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs
|
$
|
1,472
|
|
$
|
1,199
|
|
$
|
291
|
|
$
|
25
|
|
$
|
1,515
|
|
By-product
creditsb
|
|
(773
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
87
|
|
|
83
|
|
|
–
|
|
|
4
|
|
|
87
|
|
Net
cash costs
|
$
|
786
|
|
$
|
1,282
|
|
$
|
291
|
|
$
|
29
|
|
$
|
1,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Pro Forma Revenues and Production and Delivery Costs
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
4,778
|
|
$
|
1,515
|
|
|
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs
|
|
N/A
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
N/A
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging
|
|
(1,046
|
)
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
(81
|
)
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
North
America copper mines
|
|
3,651
|
|
|
1,578
|
|
|
|
|
|
|
|
|
|
|
South
America copper mines
|
|
3,442
|
|
|
965
|
|
|
|
|
|
|
|
|
|
|
Molybdenum
|
|
1,748
|
|
|
1,257
|
|
|
|
|
|
|
|
|
|
|
Eliminations
and otherd
|
|
3,069
|
|
|
3,007
|
|
|
|
|
|
|
|
|
|
|
As
reported in Phelps Dodge consolidated financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
resultse
|
$
|
11,910
|
|
$
|
6,807
|
|
|
|
|
|
|
|
|
|
|
a.
|
Reflects
Phelps Dodge pre-acquisition data. As the pre-acquisition data represents
the results under Phelps Dodge management, such data is not necessarily
indicative of what past results would have been under FCX management or of
future operating results.
|
b.
|
Molybdenum
by-product credits and revenues reflect volumes produced at market-based
pricing and also include tolling revenues at
Sierrita.
|
c.
|
Includes
gold and silver product revenues and production
costs.
|
d.
|
Includes
revenues and production and delivery costs associated with the PDIC
manufacturing operation, which was sold by FCX on October 31,
2007.
|
e.
|
Obtained
from the Phelps Dodge Form 10-K for the year ended December 31, 2006.
As the
pre-acquisition data represents the results under Phelps Dodge management,
such data is not necessarily indicative of what past results would have
been under FCX management or of future operating
results.
|
South
America Copper Mines Product Revenues and Production Costs
Year Ended December 31,
2008
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Other
a
|
|
Total
|
|
Revenues,
excluding adjustments shown below
|
$
|
3,910
|
|
$
|
3,910
|
|
$
|
216
|
|
$
|
4,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
1,711
|
|
|
1,631
|
|
|
102
|
|
|
1,733
|
|
By-product
credits
|
|
(194
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
211
|
|
|
211
|
|
|
–
|
|
|
211
|
|
Net
cash costs
|
|
1,728
|
|
|
1,842
|
|
|
102
|
|
|
1,944
|
|
Depreciation,
depletion and amortization
|
|
508
|
|
|
483
|
|
|
25
|
|
|
508
|
|
Noncash
and nonrecurring costs, net
|
|
103
|
b
|
|
100
|
|
|
3
|
|
|
103
|
|
Total
costs
|
|
2,339
|
|
|
2,425
|
|
|
130
|
|
|
2,555
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
230
|
|
|
230
|
|
|
–
|
|
|
230
|
|
Other
non-inventoriable costs
|
|
(37
|
)
|
|
(34
|
)
|
|
(3
|
)
|
|
(37
|
)
|
Gross
profit
|
$
|
1,764
|
|
$
|
1,681
|
|
$
|
83
|
|
$
|
1,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
Production
|
|
Depletion
and
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Amortization
|
|
|
|
|
Totals
presented above
|
$
|
4,126
|
|
$
|
1,733
|
|
$
|
508
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
103
|
b
|
|
N/A
|
|
|
|
|
Less:
Treatment charges per above
|
|
(211
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
230
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Purchased
metal
|
|
196
|
|
|
193
|
|
|
N/A
|
|
|
|
|
Eliminations
and other
|
|
(175
|
)
|
|
(175
|
)
|
|
3
|
|
|
|
|
South
America copper mines
|
|
4,166
|
|
|
1,854
|
|
|
511
|
|
|
|
|
North
America copper mines
|
|
5,265
|
|
|
3,708
|
|
|
770
|
|
|
|
|
Indonesia
mining
|
|
3,412
|
|
|
1,792
|
|
|
222
|
|
|
|
|
Africa
mining
|
|
–
|
|
|
16
|
|
|
6
|
|
|
|
|
Molybdenum
|
|
2,488
|
|
|
1,629
|
|
|
192
|
|
|
|
|
Rod
& Refining
|
|
5,557
|
|
|
5,527
|
|
|
8
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
2,341
|
|
|
2,276
|
|
|
35
|
|
|
|
|
Corporate,
other & eliminations
|
|
(5,433
|
)
|
|
(5,604
|
)
|
|
38
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
17,796
|
|
$
|
11,198
|
c
|
$
|
1,782
|
|
|
|
|
a.
|
Includes
molybdenum, gold and silver product revenues and production
costs.
|
b.
|
Includes
charges totaling $10 million for LCM inventory
adjustments.
|
c.
|
Includes
LCM inventory adjustments of $782
million.
|
March
20, 2007, through December 31, 2007a
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Other
b
|
|
Total
|
|
Revenues,
excluding adjustments shown below
|
$
|
3,882
|
|
$
|
3,882
|
|
$
|
123
|
|
$
|
4,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
1,078
|
|
|
1,040
|
|
|
52
|
|
|
1,092
|
|
By-product
credits
|
|
(109
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
240
|
|
|
239
|
|
|
1
|
|
|
240
|
|
Net
cash costs
|
|
1,209
|
|
|
1,279
|
|
|
53
|
|
|
1,332
|
|
Depreciation,
depletion and amortization
|
|
377
|
|
|
364
|
|
|
13
|
|
|
377
|
|
Noncash
and nonrecurring costs, net
|
|
171
|
|
|
170
|
|
|
1
|
|
|
171
|
|
Total
costs
|
|
1,757
|
|
|
1,813
|
|
|
67
|
|
|
1,880
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
75
|
|
|
75
|
|
|
–
|
|
|
75
|
|
Other
non-inventoriable costs
|
|
(28
|
)
|
|
(27
|
)
|
|
(1
|
)
|
|
(28
|
)
|
Gross
profit
|
$
|
2,172
|
|
$
|
2,117
|
|
$
|
55
|
|
$
|
2,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported for the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
Production
|
|
Depletion
and
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Amortization
|
|
|
|
|
Totals
presented above
|
$
|
4,005
|
|
$
|
1,092
|
|
$
|
377
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
171
|
|
|
N/A
|
|
|
|
|
Less:
Treatment charges per above
|
|
(240
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
75
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Purchased
metal
|
|
179
|
|
|
179
|
|
|
N/A
|
|
|
|
|
Eliminations
and other
|
|
(140
|
)
|
|
(165
|
)
|
|
1
|
|
|
|
|
South
America copper mines
|
|
3,879
|
|
|
1,277
|
|
|
378
|
|
|
|
|
North
America copper mines
|
|
4,093
|
|
|
2,166
|
|
|
499
|
|
|
|
|
Indonesia
mining
|
|
4,808
|
|
|
1,388
|
|
|
199
|
|
|
|
|
Africa
mining
|
|
–
|
|
|
10
|
|
|
2
|
|
|
|
|
Molybdenum
|
|
1,746
|
|
|
1,287
|
|
|
94
|
|
|
|
|
Rod
& Refining
|
|
5,140
|
|
|
5,119
|
|
|
7
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
2,388
|
|
|
2,329
|
|
|
36
|
|
|
|
|
Corporate,
other & eliminations
|
|
(5,115
|
)
|
|
(5,049
|
)
|
|
31
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
16,939
|
|
$
|
8,527
|
|
$
|
1,246
|
|
|
|
|
a.
|
Reflects
the results of the South America copper mines under FCX
management.
|
b.
|
Includes
molybdenum, gold and silver product revenues and production
costs.
|
Combined
Product Revenues and Production Costs
For
comparative purposes, the following tables summarize net cash costs for the
South America copper mines for the year ended December 31, 2007, which reflects
our historical data beginning March 20, 2007, combined with Phelps Dodge
pre-acquisition data through March 19, 2007, and for the year ended December 31,
2006, which reflects Phelps Dodge pre-acquisition data. As the pre-acquisition
data represents the results of the South America copper mines under Phelps Dodge
management, such data is not necessarily indicative of what past results would
have been under FCX management or of future operating results. Presentations
shown below have been reconciled to the revenues and production and delivery
costs included in our pro forma consolidated financial results for the year
ended December 31, 2007, and as reported in Phelps Dodge’s Form 10-K for the
year ended December 31, 2006.
Year
Ended December 31, 2007a
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Other
b
|
|
Total
|
|
Revenues,
excluding adjustments primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales
|
$
|
4,550
|
|
$
|
4,550
|
|
$
|
140
|
|
$
|
4,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
nonrecurring
costs
|
$
|
1,268
|
|
$
|
1,224
|
|
$
|
58
|
|
$
|
1,282
|
|
By-product
credits
|
|
(126
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
282
|
|
|
279
|
|
|
3
|
|
|
282
|
|
Net
cash costs
|
$
|
1,424
|
|
$
|
1,503
|
|
$
|
61
|
|
$
|
1,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Pro Forma Revenues and Production and Delivery Costs
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
|
|
|
|
|
Totals
presented above
|
$
|
4,690
|
|
$
|
1,282
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs
|
|
N/A
|
|
|
3
|
|
|
|
|
|
|
|
Less:
Treatment charges per above
|
|
(282
|
)
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior period
|
|
|
|
|
|
|
|
|
|
|
|
|
open
sales
|
|
25
|
|
|
N/A
|
|
|
|
|
|
|
|
Purchased
metal
|
|
218
|
|
|
218
|
|
|
|
|
|
|
|
Purchase
accounting adjustments
|
|
9
|
|
|
169
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
(222
|
)
|
|
(207
|
)
|
|
|
|
|
|
|
Combined
South America copper mines
|
|
4,438
|
|
|
1,465
|
|
|
|
|
|
|
|
Combined
North America copper mines
|
|
5,046
|
|
|
2,595
|
|
|
|
|
|
|
|
Indonesia
mining
|
|
4,808
|
|
|
1,388
|
|
|
|
|
|
|
|
Combined
Africa mining
|
|
–
|
|
|
8
|
|
|
|
|
|
|
|
Combined
Molybdenum
|
|
2,193
|
|
|
1,593
|
|
|
|
|
|
|
|
Combined
Rod & Refining
|
|
6,437
|
|
|
6,411
|
|
|
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
2,388
|
|
|
2,329
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
(6,077
|
)
|
|
(5,979
|
)
|
|
|
|
|
|
|
As
reported in FCX’s pro forma consolidated financial resultsc
|
$
|
19,233
|
|
$
|
9,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Reflects
our historical data beginning March 20, 2007, combined with Phelps Dodge
pre-acquisition data through March 19, 2007. As the pre-acquisition data
represents the results under Phelps Dodge management, such data is not
necessarily indicative of what past results would have been under FCX
management or of future operating
results.
|
b.
|
Includes
molybdenum, gold and silver product revenues and production
costs.
|
c.
|
Refer
to Note 18 for summary of unaudited pro forma financial information for
year ended December 31, 2007.
|
Year
Ended December 31, 2006a
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Other
b
|
|
Total
|
|
Revenues,
excluding adjustments primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales
|
$
|
3,413
|
|
$
|
3,413
|
|
$
|
91
|
|
$
|
3,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash and
|
|
|
|
|
|
|
|
|
|
|
|
|
nonrecurring
costs
|
$
|
918
|
|
$
|
891
|
|
$
|
27
|
|
$
|
918
|
|
By-product
credits
|
|
(91
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
194
|
|
|
194
|
|
|
–
|
|
|
194
|
|
Net
cash costs
|
$
|
1,021
|
|
$
|
1,085
|
|
$
|
27
|
|
$
|
1,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported by Phelps Dodge
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
|
|
|
|
Totals
presented above
|
$
|
3,504
|
|
$
|
918
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs
|
|
N/A
|
|
|
2
|
|
|
|
|
|
|
|
Less:
Treatment charges per above
|
|
(194
|
)
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior period
|
|
|
|
|
|
|
|
|
|
|
|
|
open
sales
|
|
94
|
|
|
N/A
|
|
|
|
|
|
|
|
Purchased
metal
|
|
213
|
|
|
213
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
(175
|
)
|
|
(168
|
)
|
|
|
|
|
|
|
South
America copper mines
|
|
3,442
|
|
|
965
|
|
|
|
|
|
|
|
North
America copper mines
|
|
3,651
|
|
|
1,578
|
|
|
|
|
|
|
|
Molybdenum
|
|
1,748
|
|
|
1,257
|
|
|
|
|
|
|
|
Eliminations
and otherc
|
|
3,069
|
|
|
3,007
|
|
|
|
|
|
|
|
As
reported in Phelps Dodge consolidated financial resultsd
|
$
|
11,910
|
|
$
|
6,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Reflects
Phelps Dodge pre-acquisition data. As the pre-acquisition data represents
the results under Phelps Dodge management, such data is not necessarily
indicative of what past results would have been under FCX management or of
future operating results.
|
b.
|
Includes
gold and silver product revenues and production
costs.
|
c.
|
Includes
revenues and production and delivery costs associated with the PDIC
manufacturing operation, which was sold by FCX on October 31,
2007.
|
d.
|
Obtained
from the Phelps Dodge Form 10-K for the year ended December 31, 2006. As
the pre-acquisition data represents the results under Phelps Dodge
management, such data is not necessarily indicative of what past results
would have been under FCX management or of future operating
results.
|
Indonesia
Mining Product Revenues and Production Costs
Year Ended December 31,
2008
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
2,628
|
|
$
|
2,628
|
|
$
|
1,025
|
|
$
|
50
|
|
$
|
3,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1,762
|
|
|
1,252
|
|
|
487
|
|
|
23
|
|
|
1,762
|
|
Gold
and silver credits
|
|
(1,075
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
268
|
|
|
190
|
|
|
74
|
|
|
4
|
|
|
268
|
|
Royalty
on metals
|
|
113
|
|
|
80
|
|
|
31
|
|
|
2
|
|
|
113
|
|
Net
cash costs
|
|
1,068
|
|
|
1,522
|
|
|
592
|
|
|
29
|
|
|
2,143
|
|
Depreciation
and amortization
|
|
222
|
|
|
158
|
|
|
61
|
|
|
3
|
|
|
222
|
|
Noncash
and nonrecurring costs, net
|
|
30
|
|
|
22
|
|
|
8
|
|
|
–
|
|
|
30
|
|
Total
costs
|
|
1,320
|
|
|
1,702
|
|
|
661
|
|
|
32
|
|
|
2,395
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
90
|
|
|
90
|
|
|
–
|
|
|
–
|
|
|
90
|
|
PT
Smelting intercompany profit
|
|
17
|
|
|
12
|
|
|
5
|
|
|
–
|
|
|
17
|
|
Gross
profit
|
$
|
1,415
|
|
$
|
1,028
|
|
$
|
369
|
|
$
|
18
|
|
$
|
1,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depletion
and
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
3,703
|
|
$
|
1,762
|
|
$
|
222
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
30
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Treatment charges per above
|
|
(268
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Royalty per above
|
|
(113
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
90
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Indonesia
mining
|
|
3,412
|
|
|
1,792
|
|
|
222
|
|
|
|
|
|
|
|
North
America copper mines
|
|
5,265
|
|
|
3,708
|
|
|
770
|
|
|
|
|
|
|
|
South
America copper mines
|
|
4,166
|
|
|
1,854
|
|
|
511
|
|
|
|
|
|
|
|
Africa
mining
|
|
–
|
|
|
16
|
|
|
6
|
|
|
|
|
|
|
|
Molybdenum
|
|
2,488
|
|
|
1,629
|
|
|
192
|
|
|
|
|
|
|
|
Rod
& Refining
|
|
5,557
|
|
|
5,527
|
|
|
8
|
|
|
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
2,341
|
|
|
2,276
|
|
|
35
|
|
|
|
|
|
|
|
Corporate,
other & eliminations
|
|
(5,433
|
)
|
|
(5,604
|
)
|
|
38
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
17,796
|
|
$
|
11,198
|
a
|
$
|
1,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
LCM inventory adjustments of $782
million.
|
Year Ended December 31,
2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
3,777
|
|
$
|
3,777
|
|
$
|
1,490
|
|
$
|
48
|
|
$
|
5,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1,342
|
|
|
954
|
|
|
376
|
|
|
12
|
|
|
1,342
|
|
Gold
and silver credits
|
|
(1,538
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
385
|
|
|
274
|
|
|
108
|
|
|
3
|
|
|
385
|
|
Royalty
on metals
|
|
133
|
|
|
94
|
|
|
38
|
|
|
1
|
|
|
133
|
|
Net
cash costs
|
|
322
|
|
|
1,322
|
|
|
522
|
|
|
16
|
|
|
1,860
|
|
Depreciation
and amortization
|
|
199
|
|
|
141
|
|
|
56
|
|
|
2
|
|
|
199
|
|
Noncash
and nonrecurring costs, net
|
|
46
|
|
|
33
|
|
|
12
|
|
|
1
|
|
|
46
|
|
Total
costs
|
|
567
|
|
|
1,496
|
|
|
590
|
|
|
19
|
|
|
2,105
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
11
|
|
|
11
|
|
|
–
|
|
|
–
|
|
|
11
|
|
PT
Smelting intercompany profit
|
|
13
|
|
|
10
|
|
|
3
|
|
|
–
|
|
|
13
|
|
Gross
profit
|
$
|
3,234
|
|
$
|
2,302
|
|
$
|
903
|
|
$
|
29
|
|
$
|
3,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depletion
and
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
5,315
|
|
$
|
1,342
|
|
$
|
199
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
46
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Treatment charges per above
|
|
(385
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Royalty per above
|
|
(133
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
11
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Indonesia
mining
|
|
4,808
|
|
|
1,388
|
|
|
199
|
|
|
|
|
|
|
|
North
America copper mines
|
|
4,093
|
|
|
2,166
|
|
|
499
|
|
|
|
|
|
|
|
South
America copper mines
|
|
3,879
|
|
|
1,277
|
|
|
378
|
|
|
|
|
|
|
|
Africa
mining
|
|
–
|
|
|
10
|
|
|
2
|
|
|
|
|
|
|
|
Molybdenum
|
|
1,746
|
|
|
1,287
|
|
|
94
|
|
|
|
|
|
|
|
Rod
& Refining
|
|
5,140
|
|
|
5,119
|
|
|
7
|
|
|
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
2,388
|
|
|
2,329
|
|
|
36
|
|
|
|
|
|
|
|
Corporate,
other & eliminations
|
|
(5,115
|
)
|
|
(5,049
|
)
|
|
31
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
16,939
|
|
$
|
8,527
|
|
$
|
1,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
3,764
|
|
$
|
3,764
|
|
$
|
1,072
|
|
$
|
47
|
|
$
|
4,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1,235
|
|
|
952
|
|
|
271
|
|
|
12
|
|
|
1,235
|
|
Gold
and silver credits
|
|
(1,119
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
477
|
|
|
368
|
|
|
104
|
|
|
5
|
|
|
477
|
|
Royalty
on metals
|
|
126
|
|
|
97
|
|
|
28
|
|
|
1
|
|
|
126
|
|
Net
cash costs
|
|
719
|
|
|
1,417
|
|
|
403
|
|
|
18
|
|
|
1,838
|
|
Depreciation
and amortization
|
|
184
|
|
|
142
|
|
|
40
|
|
|
2
|
|
|
184
|
|
Noncash
and nonrecurring costs, net
|
|
44
|
|
|
34
|
|
|
10
|
|
|
–
|
|
|
44
|
|
Total
costs
|
|
947
|
|
|
1,593
|
|
|
453
|
|
|
20
|
|
|
2,066
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
115
|
a
|
|
197
|
|
|
(69
|
)
|
|
(13
|
)
|
|
115
|
|
PT
Smelting intercompany profit
|
|
(3
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|
–
|
|
|
(3
|
)
|
Gross
profit
|
$
|
2,929
|
|
$
|
2,366
|
|
$
|
549
|
|
$
|
14
|
|
$
|
2,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depletion
and
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
4,883
|
|
$
|
1,235
|
|
$
|
184
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
44
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Treatment charges per above
|
|
(477
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Royalty per above
|
|
(126
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
115
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Indonesia
mining
|
|
4,395
|
|
|
1,279
|
|
|
184
|
|
|
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
2,242
|
|
|
2,119
|
|
|
33
|
|
|
|
|
|
|
|
Corporate,
other & eliminations
|
|
(846
|
)
|
|
(873
|
)
|
|
11
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
5,791
|
|
$
|
2,525
|
|
$
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
a $69 million loss on the redemption of FCX’s Gold-Denominated Preferred
Stock, Series II, and a $13 million loss on the redemption of FCX’s
Silver-Denominated Preferred Stock.
|
Henderson
Molybdenum Mine Product Revenues and Production Costs
|
Years
Ended December 31,
|
|
(in
millions)
|
2008
|
|
2007a
|
|
Revenues
|
$
|
1,182
|
|
$
|
853
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
216
|
|
|
137
|
|
Net
cash costs
|
|
216
|
|
|
137
|
|
Depreciation,
depletion and amortization
|
|
172
|
|
|
80
|
|
Noncash
and nonrecurring costs, net
|
|
7
|
b
|
|
2
|
|
Total
costs
|
|
395
|
|
|
219
|
|
Gross
profitc
|
$
|
787
|
|
$
|
634
|
|
Reconciliation
to Amounts Reported
|
|
|
|
Production
|
|
Depreciation,
|
|
(In
millions)
|
|
|
|
and
|
|
Depletion
and
|
|
|
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
Year Ended December 31,
2008
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,182
|
|
$
|
216
|
|
$
|
172
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
7
|
b
|
|
N/A
|
|
Henderson
mine
|
|
1,182
|
|
|
223
|
|
|
172
|
|
Other
molybdenum operations and eliminationsd
|
|
1,306
|
|
|
1,406
|
e
|
|
20
|
|
Molybdenum
|
|
2,488
|
|
|
1,629
|
|
|
192
|
|
North
America copper mines
|
|
5,265
|
|
|
3,708
|
|
|
770
|
|
South
America copper mines
|
|
4,166
|
|
|
1,854
|
|
|
511
|
|
Indonesia
mining
|
|
3,412
|
|
|
1,792
|
|
|
222
|
|
Africa
mining
|
|
–
|
|
|
16
|
|
|
6
|
|
Rod
& Refining
|
|
5,557
|
|
|
5,527
|
|
|
8
|
|
Atlantic
Copper Smelting & Refining
|
|
2,341
|
|
|
2,276
|
|
|
35
|
|
Corporate,
other & eliminations
|
|
(5,433
|
)
|
|
(5,604
|
)
|
|
38
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
17,796
|
|
$
|
11,198
|
f
|
$
|
1,782
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2007
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
853
|
|
$
|
137
|
|
$
|
80
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
2
|
|
|
N/A
|
|
Henderson
mine
|
|
853
|
|
|
139
|
|
|
80
|
|
Other
molybdenum operations and eliminationsd
|
|
893
|
|
|
1,148
|
|
|
14
|
|
Molybdenum
|
|
1,746
|
|
|
1,287
|
|
|
94
|
|
North
America copper mines
|
|
4,093
|
|
|
2,166
|
|
|
499
|
|
South
America copper mines
|
|
3,879
|
|
|
1,277
|
|
|
378
|
|
Indonesia
mining
|
|
4,808
|
|
|
1,388
|
|
|
199
|
|
Africa
mining
|
|
–
|
|
|
10
|
|
|
2
|
|
Rod
& Refining
|
|
5,140
|
|
|
5,119
|
|
|
7
|
|
Atlantic
Copper Smelting & Refining
|
|
2,388
|
|
|
2,329
|
|
|
36
|
|
Corporate,
other & eliminations
|
|
(5,115
|
)
|
|
(5,049
|
)
|
|
31
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
16,939
|
|
$
|
8,527
|
|
$
|
1,246
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Reflects
the period from March 20, 2007, through December 31, 2007, which
represents the results of the Henderson molybdenum mine under FCX
management.
|
b.
|
Includes
charges totaling $1 million for LCM inventory
adjustments.
|
c.
|
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.
|
d.
|
Primarily
includes amounts associated with the molybdenum sales company, which
includes sales of molybdenum produced as a by-product at our North and
South America copper mines.
|
e.
|
Includes
LCM inventory adjustments of $100
million.
|
f.
|
Includes
LCM inventory adjustments of $782
million.
|
Combined
Product Revenues and Production Costs
For
comparative purposes, the following tables summarize net cash costs for the
Henderson molybdenum mine for the year ended December 31, 2007, which reflects
our historical data beginning March 20, 2007, combined with Phelps Dodge
pre-acquisition data through March 19, 2007, and for the year ended December 31,
2006, which reflects Phelps Dodge pre-acquisition data. As the pre-acquisition
data represents the results of the Henderson molybdenum mine under Phelps Dodge
management, such data is not necessarily indicative of what past results would
have been under FCX management or of future operating results. Presentations
shown below have been reconciled to the revenues and production and delivery
costs included in our pro forma consolidated financial results for the year
ended December 31, 2007, and as reported in Phelps Dodge’s Form 10-K for the
year ended December 31, 2006.
|
Years
Ended December 31,
|
|
|
2007a
|
|
2006a
|
|
Revenues
|
$
|
1,029
|
|
$
|
821
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
and
nonrecurring costs
|
$
|
171
|
|
$
|
137
|
|
Net
cash costs
|
$
|
171
|
|
$
|
137
|
|
|
|
|
|
|
|
|
Reconciliation
to Revenues and Production and Delivery Costs
|
|
|
|
|
|
(In
millions)
|
|
|
|
Production
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Year Ended December 31,
2007
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,029
|
|
$
|
171
|
|
Net
noncash and nonrecurring costs
|
|
N/A
|
|
|
1
|
|
Combined
Henderson mine
|
|
1,029
|
|
|
172
|
|
Other
molybdenum operations and eliminationsb
|
|
1,164
|
|
|
1,421
|
|
Combined
Molybdenum
|
|
2,193
|
|
|
1,593
|
|
Combined
North America copper mines
|
|
5,046
|
|
|
2,595
|
|
Combined
South America copper mines
|
|
4,438
|
|
|
1,465
|
|
Indonesia
mining
|
|
4,808
|
|
|
1,388
|
|
Combined
Africa mining
|
|
–
|
|
|
8
|
|
Combined
Rod & Refining
|
|
6,437
|
|
|
6,411
|
|
Atlantic
Copper Smelting & Refining
|
|
2,388
|
|
|
2,329
|
|
Eliminations
and other
|
|
(6,077
|
)
|
|
(5,979
|
)
|
As
reported in FCX’s pro forma consolidated financial resultsc
|
$
|
19,233
|
|
$
|
9,810
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2006
|
|
|
|
|
|
|
Totals
presented above
|
$
|
821
|
|
$
|
137
|
|
Net
noncash and nonrecurring costs
|
|
N/A
|
|
|
1
|
|
Henderson
mine
|
|
821
|
|
|
138
|
|
Other
molybdenum operations and eliminationsb
|
|
927
|
|
|
1,119
|
|
Molybdenum
|
|
1,748
|
|
|
1,257
|
|
North
America copper mines
|
|
3,651
|
|
|
1,578
|
|
South
America copper mines
|
|
3,442
|
|
|
965
|
|
Eliminations
and otherd
|
|
3,069
|
|
|
3,007
|
|
As
reported in Phelps Dodge consolidated financial resultse
|
$
|
11,910
|
|
$
|
6,807
|
|
|
|
|
|
|
|
|
a.
|
The
year ended December 31, 2007, combines our historical data beginning March
20, 2007, with Phelps Dodge pre-acquisition data through March 19, 2007,
and for the year ended December 31, 2006, which reflects Phelps Dodge
pre-acquisition data. As the pre-acquisition data represents the results
under Phelps Dodge management, such data is not necessarily indicative of
what past results would have been under FCX management or of future
operating results.
|
b.
|
Primarily
includes amounts associated with the molybdenum sales company, which
includes sales of molybdenum produced as a by-product at our North and
South America copper mines.
|
c.
|
Refer
to Note 18 for summary of unaudited pro forma financial information for
year ended December 31, 2007.
|
d.
|
Includes
revenues and production and delivery costs associated with the PDIC
manufacturing operation, which was sold by FCX on October 31,
2007.
|
e.
|
Obtained
from the Phelps Dodge Form 10-K for the year ended December 31, 2006. As
the pre-acquisition data represents the results under Phelps Dodge
management, such data is not necessarily indicative of what past results
would have been under FCX management or of future operating
results.
|
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 statements of historical facts, such as those
statements regarding anticipated production volumes, sales volumes, unit net
cash costs, ore grades, milling rates, commodity prices, development and capital
expenditures, mine production and development plans, availability of power,
water, labor and equipment, anticipated environmental reclamation and closure
costs and plans, environmental liabilities and expenditures, litigation
liabilities and expenses, potential future dividend payments, reserve estimates,
anticipated political, economic and social conditions in our areas of
operations, projected exploration efforts and results, operating cash flows, the
impact of copper, gold and molybdenum price changes, the impact of deferred
intercompany profits on earnings, liquidity, other financial commitments and tax
rates. The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,”
“expects,” “projects,” “intends,” “likely,” “will,” “should,” “to be” and any
similar expressions and/or statements that are not historical facts, in each
case as they relate to us or our management, are intended to identify those
assertions as forward-looking statements.
In
making any of those statements, the person making them believes that the
expectations are based on reasonable assumptions. We caution readers that those
statements are not guarantees of future performance, and our actual results may
differ materially from those anticipated, projected or assumed in the
forward-looking statements. Important factors that can cause our actual results
to differ materially from those anticipated in the forward-looking statements
include commodity prices, mine sequencing, production rates, industry risks,
regulatory changes, 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 our Form
10-K for the year ended December 31, 2008.
Accordingly,
no assurances can be given that any of the events anticipated by the
forward-looking statements will transpire or occur, or if any of them do so,
what impact they will have on our results of operations or financial condition.
Except for our ongoing obligations under the federal securities laws, we do not
intend and undertake no obligation to update or revise any forward-looking
statements.
Item 8. Financial Statements and Supplementary
Data.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO
THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
FREEPORT-McMoRan
COPPER & GOLD INC.
We
have audited the accompanying consolidated balance sheets of Freeport-McMoRan
Copper & Gold Inc. as of December 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for
each of the three years in the period ended December 31, 2008. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Freeport-McMoRan
Copper & Gold Inc. at December 31, 2008 and 2007, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles.
As
discussed in Note 1 to the consolidated financial statements, effective January
1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109,” and
effective December 31, 2006, the Company adopted SFAS No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans – an
amendment of FASB Statements No. 87, 88, 106 and 132R.”
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), Freeport-McMoRan Copper & Gold
Inc.’s internal control over financial reporting as of December 31, 2008, based
on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated February 18, 2009 expressed an unqualified opinion thereon.
/s/
Ernst & Young LLP
Phoenix,
Arizona
February
18, 2009
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Freeport-McMoRan
Copper & Gold Inc.’s (the Company’s) management is responsible for
establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rule 13a-15(f) or
15d-15(f) under the Securities Exchange Act of 1934 as a process designed by, or
under the supervision of, the Company’s principal executive and principal
financial officers and effected by the Company’s Board of Directors, management
and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
·
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the Company’s
assets;
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and
directors of the Company; and
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Our
management, including our principal executive officer and principal financial
officer, assessed the effectiveness of our internal control over financial
reporting as of the end of the fiscal year covered by this annual report on Form
10-K. In making this assessment, our management used the criteria set forth in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on our management’s
assessment, management concluded that, as of December 31, 2008, our Company’s
internal control over financial reporting is effective based on the COSO
criteria.
Ernst
& Young LLP, an independent registered public accounting firm, who audited
the Company’s consolidated financial statements included in this Form 10-K, has
issued an attestation report on the Company’s internal control over financial
reporting, which is included herein.
/s/
Richard C. Adkerson
|
|
/s/ Kathleen L.
Quirk
|
Richard
C. Adkerson
|
|
Kathleen
L. Quirk
|
President
and Chief Executive Officer
|
|
Executive
Vice President,
|
|
|
Chief
Financial Officer and
Treasurer
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO
THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
FREEPORT-McMoRan
COPPER & GOLD INC.
We
have audited Freeport-McMoRan Copper & Gold Inc.’s internal control over
financial reporting as of December 31, 2008, based on criteria established
in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Freeport-McMoRan Copper &
Gold Inc.’s management is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our opinion, Freeport-McMoRan Copper & Gold Inc. maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2008, based on the COSO criteria.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Freeport-McMoRan Copper & Gold Inc. as of December 31, 2008 and 2007 and the
related consolidated statements of operations, stockholders’ equity and cash
flows for each of the three years in the period ended December 31, 2008, and our
report dated February 18, 2009 expressed an unqualified opinion
thereon.
/s/
Ernst & Young LLP
Phoenix,
Arizona
February
18, 2009
FREEPORT-McMoRan
COPPER & GOLD INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
Years
Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In
Millions, Except Per Share Amounts)
|
|
Revenues
|
$
|
17,796
|
|
$
|
16,939
|
|
$
|
5,791
|
|
Cost
of sales:
|
|
|
|
|
|
|
|
|
|
Production
and delivery
|
|
10,416
|
|
|
8,527
|
|
|
2,525
|
|
Depreciation,
depletion and amortization
|
|
1,782
|
|
|
1,246
|
|
|
228
|
|
Lower
of cost or market inventory adjustments
|
|
782
|
|
|
–
|
|
|
–
|
|
Total
cost of sales
|
|
12,980
|
|
|
9,773
|
|
|
2,753
|
|
Selling,
general and administrative expenses
|
|
269
|
|
|
466
|
|
|
157
|
|
Exploration
and research expenses
|
|
292
|
|
|
145
|
|
|
12
|
|
Goodwill
impairment
|
|
5,987
|
|
|
–
|
|
|
–
|
|
Long-lived
asset impairments and other charges
|
|
10,978
|
|
|
–
|
|
|
–
|
|
Total
costs and expenses
|
|
30,506
|
|
|
10,384
|
|
|
2,922
|
|
Operating
(loss) income
|
|
(12,710
|
)
|
|
6,555
|
|
|
2,869
|
|
Interest
expense, net
|
|
(584
|
)
|
|
(513
|
)
|
|
(76
|
)
|
Losses
on early extinguishment and conversion of debt, net
|
|
(6
|
)
|
|
(173
|
)
|
|
(32
|
)
|
Gains
on sales of assets
|
|
13
|
|
|
85
|
|
|
31
|
|
Other
(expense) income, net
|
|
(22
|
)
|
|
157
|
|
|
28
|
|
(Loss)
income from continuing operations before income taxes,
|
|
|
|
|
|
|
|
|
|
minority
interests and equity in affiliated companies’ net earnings
|
|
(13,309
|
)
|
|
6,111
|
|
|
2,820
|
|
Benefit
from (provision for) income taxes
|
|
2,844
|
|
|
(2,400
|
)
|
|
(1,201
|
)
|
Minority
interests in consolidated subsidiaries
|
|
(617
|
)
|
|
(791
|
)
|
|
(168
|
)
|
Equity
in affiliated companies’ net earnings
|
|
15
|
|
|
22
|
|
|
6
|
|
(Loss)
income from continuing operations
|
|
(11,067
|
)
|
|
2,942
|
|
|
1,457
|
|
Income
from discontinued operations, net of taxes
|
|
–
|
|
|
35
|
|
|
–
|
|
Net
(loss) income
|
|
(11,067
|
)
|
|
2,977
|
|
|
1,457
|
|
Preferred
dividends and losses on induced conversions
|
|
(274
|
)
|
|
(208
|
)
|
|
(61
|
)
|
Net
(loss) income applicable to common stock
|
$
|
(11,341
|
)
|
$
|
2,769
|
|
$
|
1,396
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net (loss) income per share of common stock:
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
(29.72
|
)
|
$
|
8.02
|
|
$
|
7.32
|
|
Discontinued
operations
|
|
–
|
|
|
0.10
|
|
|
–
|
|
Basic
net (loss) income per share of common stock
|
$
|
(29.72
|
)
|
$
|
8.12
|
|
$
|
7.32
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net (loss) income per share of common stock:
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
(29.72
|
)
|
$
|
7.41
|
|
$
|
6.63
|
|
Discontinued
operations
|
|
–
|
|
|
0.09
|
|
|
–
|
|
Diluted
net (loss) income per share of common stock
|
$
|
(29.72
|
)
|
$
|
7.50
|
|
$
|
6.63
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
382
|
|
|
341
|
|
|
191
|
|
Diluted
|
|
382
|
|
|
397
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share of common stock
|
$
|
1.375
|
|
$
|
1.375
|
|
$
|
5.0625
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these financial statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
(In
Millions)
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(11,067
|
)
|
$
|
2,977
|
|
$
|
1,457
|
|
Adjustments
to reconcile net (loss) income to net cash provided by
|
|
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
1,782
|
|
|
1,264
|
|
|
228
|
|
Minority
interests in consolidated subsidiaries
|
|
|
617
|
|
|
802
|
|
|
168
|
|
Asset
impairments, including goodwill
|
|
|
16,854
|
|
|
–
|
|
|
–
|
|
Lower
of cost or market inventory adjustments
|
|
|
782
|
|
|
–
|
|
|
–
|
|
Pension
and postretirement special benefits and curtailments
|
|
|
61
|
|
|
–
|
|
|
–
|
|
Stock-based
compensation
|
|
|
98
|
|
|
144
|
|
|
55
|
|
Charges
for reclamation and environmental obligations, including
accretion
|
|
|
181
|
|
|
32
|
|
|
3
|
|
Unrealized
losses on copper price protection program
|
|
|
–
|
|
|
175
|
|
|
–
|
|
Losses
on early extinguishment and conversion of debt, net
|
|
|
6
|
|
|
173
|
|
|
32
|
|
Deferred
income taxes
|
|
|
(4,653
|
)
|
|
(288
|
)
|
|
16
|
|
Gains
on sales of assets
|
|
|
(13
|
)
|
|
(85
|
)
|
|
(31
|
)
|
Decrease
in long-term mill and leach stockpiles
|
|
|
(225
|
)
|
|
(48
|
)
|
|
–
|
|
Amortization
of intangible assets/liabilities and other, net
|
|
|
117
|
|
|
45
|
|
|
52
|
|
(Increases)
decreases in working capital, excluding amounts
|
|
|
|
|
|
|
|
|
|
|
acquired
from Phelps Dodge:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
542
|
|
|
428
|
|
|
196
|
|
Inventories
|
|
|
(478
|
)
|
|
272
|
|
|
(146
|
)
|
Prepaid
expenses and other current assets
|
|
|
(91
|
)
|
|
21
|
|
|
(27
|
)
|
Accounts
payable, accrued liabilities and copper price protection
program
|
|
|
(171
|
)
|
|
400
|
|
|
15
|
|
Accrued
income taxes
|
|
|
(767
|
)
|
|
24
|
|
|
(152
|
)
|
Settlement
of reclamation and environmental obligations
|
|
|
(205
|
)
|
|
(111
|
)
|
|
–
|
|
Net
cash provided by operating activities
|
|
|
3,370
|
|
|
6,225
|
|
|
1,866
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from investing activities:
|
|
|
|
|
|
|
|
|
|
|
North
America capital expenditures
|
|
|
(846
|
)
|
|
(933
|
)
|
|
–
|
|
South
America capital expenditures
|
|
|
(323
|
)
|
|
(123
|
)
|
|
–
|
|
Indonesia
capital expenditures
|
|
|
(444
|
)
|
|
(368
|
)
|
|
(234
|
)
|
Africa
capital expenditures
|
|
|
(1,058
|
)
|
|
(266
|
)
|
|
–
|
|
Other
capital expenditures
|
|
|
(37
|
)
|
|
(65
|
)
|
|
(17
|
)
|
Acquisition
of Phelps Dodge, net of cash acquired
|
|
|
(1
|
)
|
|
(13,910
|
)
|
|
(5
|
)
|
Net
proceeds from the sale of Phelps Dodge International
Corporation
|
|
|
–
|
|
|
597
|
|
|
–
|
|
Proceeds
from sales of assets
|
|
|
47
|
|
|
260
|
|
|
34
|
|
Decrease
in global reclamation and remediation trust assets
|
|
|
430
|
|
|
–
|
|
|
–
|
|
Other,
net
|
|
|
(86
|
)
|
|
(53
|
)
|
|
(2
|
)
|
Net
cash used in investing activities
|
|
|
(2,318
|
)
|
|
(14,861
|
)
|
|
(224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from term loans under bank credit facility
|
|
|
–
|
|
|
12,450
|
|
|
–
|
|
Repayments
of term loans under bank credit facility
|
|
|
–
|
|
|
(12,450
|
)
|
|
–
|
|
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
|
|
|
890
|
|
|
744
|
|
|
103
|
|
Repayments
of other debt and redemption of preferred stock
|
|
|
(766
|
)
|
|
(1,069
|
)
|
|
(394
|
)
|
Purchases
of FCX common stock
|
|
|
(500
|
)
|
|
–
|
|
|
(100
|
)
|
Cash
dividends paid:
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
(693
|
)
|
|
(421
|
)
|
|
(916
|
)
|
Preferred
stock
|
|
|
(255
|
)
|
|
(175
|
)
|
|
(61
|
)
|
Minority
interests
|
|
|
(730
|
)
|
|
(967
|
)
|
|
(161
|
)
|
Minority
interest contribution related to Tenke Fungurume
|
|
|
201
|
|
|
–
|
|
|
–
|
|
Net
proceeds from (payments for) exercised stock options
|
|
|
22
|
|
|
(14
|
)
|
|
15
|
|
Excess
tax benefit from stock-based awards
|
|
|
25
|
|
|
16
|
|
|
21
|
|
Bank
credit facilities fees and other, net
|
|
|
–
|
|
|
(258
|
)
|
|
(6
|
)
|
Net
cash (used in) provided by financing activities
|
|
|
(1,806
|
)
|
|
9,355
|
|
|
(1,499
|
)
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(754
|
)
|
|
719
|
|
|
143
|
|
Cash
and cash equivalents at beginning of year
|
|
|
1,626
|
|
|
907
|
|
|
764
|
|
Cash
and cash equivalents at end of year
|
|
$
|
872
|
|
$
|
1,626
|
|
$
|
907
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these financial statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
CONSOLIDATED
BALANCE SHEETS
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
Millions, Except Par Values)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
872
|
|
|
$
|
1,626
|
|
Trade
accounts receivable
|
|
|
374
|
|
|
|
1,099
|
|
Income
tax receivables
|
|
|
611
|
|
|
|
67
|
|
Other
accounts receivable
|
|
|
227
|
|
|
|
129
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Product
|
|
|
1,068
|
|
|
|
1,360
|
|
Materials
and supplies, net
|
|
|
1,124
|
|
|
|
818
|
|
Mill
and leach stockpiles
|
|
|
571
|
|
|
|
707
|
|
Prepaid
expenses and other current assets
|
|
|
386
|
|
|
|
97
|
|
Total
current assets
|
|
|
5,233
|
|
|
|
5,903
|
|
Property,
plant, equipment and development costs, net
|
|
|
16,002
|
|
|
|
25,715
|
|
Goodwill
|
|
|
–
|
|
|
|
6,105
|
|
Long-term
mill and leach stockpiles
|
|
|
1,145
|
|
|
|
1,106
|
|
Intangible
assets, net
|
|
|
364
|
|
|
|
472
|
|
Trust
assets
|
|
|
142
|
|
|
|
606
|
|
Other
assets
|
|
|
467
|
|
|
|
754
|
|
Total
assets
|
|
$
|
23,353
|
|
|
$
|
40,661
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
2,722
|
|
|
$
|
2,345
|
|
Accrued
income taxes
|
|
|
163
|
|
|
|
420
|
|
Current
portion of reclamation and environmental obligations
|
|
|
162
|
|
|
|
263
|
|
Current
portion of long-term debt and short-term borrowings
|
|
|
67
|
|
|
|
31
|
|
Dividends
payable
|
|
|
44
|
|
|
|
212
|
|
Copper
price protection program
|
|
|
–
|
|
|
|
598
|
|
Total
current liabilities
|
|
|
3,158
|
|
|
|
3,869
|
|
Long-term
debt, less current portion:
|
|
|
|
|
|
|
|
|
Senior
notes
|
|
|
6,884
|
|
|
|
6,928
|
|
Project
financing, equipment loans and other
|
|
|
250
|
|
|
|
252
|
|
Revolving
credit facility
|
|
|
150
|
|
|
|
–
|
|
Total
long-term debt, less current portion
|
|
|
7,284
|
|
|
|
7,180
|
|
Deferred
income taxes
|
|
|
2,339
|
|
|
|
7,300
|
|
Reclamation
and environmental obligations, less current portion
|
|
|
1,951
|
|
|
|
1,733
|
|
Other
liabilities
|
|
|
1,520
|
|
|
|
1,106
|
|
Total
liabilities
|
|
|
16,252
|
|
|
|
21,188
|
|
Minority
interests in consolidated subsidiaries
|
|
|
1,328
|
|
|
|
1,239
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
5½%
Convertible Perpetual Preferred Stock, 1 shares issued
|
|
|
|
|
|
|
|
|
and
outstanding
|
|
|
832
|
|
|
|
1,100
|
|
6¾%
Mandatory Convertible Preferred Stock, 29 shares issued
|
|
|
|
|
|
|
|
|
and
outstanding
|
|
|
2,875
|
|
|
|
2,875
|
|
Common
stock, par value $0.10, 505 shares and 497 shares
|
|
|
|
|
|
|
|
|
issued,
respectively
|
|
|
51
|
|
|
|
50
|
|
Capital
in excess of par value
|
|
|
13,989
|
|
|
|
13,407
|
|
Retained
earnings (accumulated deficit)
|
|
|
(8,267
|
)
|
|
|
3,601
|
|
Accumulated
other comprehensive income (loss)
|
|
|
(305
|
)
|
|
|
42
|
|
Common
stock held in treasury – 121 shares and 114 shares,
|
|
|
|
|
|
|
|
|
respectively,
at cost
|
|
|
(3,402
|
)
|
|
|
(2,841
|
)
|
Total
stockholders’ equity
|
|
|
5,773
|
|
|
|
18,234
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
23,353
|
|
|
$
|
40,661
|
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these financial statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
Convertible
Perpetual
|
|
Mandatory
Convertible
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
Preferred
Stock
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
Retained
|
|
Accumulated
|
|
Held
in Treasury
|
|
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Capital
in
|
|
Earnings
|
|
Other
|
|
Number
|
|
|
|
|
|
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
Excess
of
|
|
(Accumulated
|
|
Comprehensive
|
|
of
|
|
At
|
|
Stockholders’
|
|
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Par
Value
|
|
Deficit)
|
|
Income
(Loss)
|
|
Shares
|
|
Cost
|
|
Equity
|
|
|
|
(In
Millions)
|
|
Balance
at January 1, 2006
|
|
1
|
|
$
|
1,100
|
|
|
-
|
|
$
|
-
|
|
|
297
|
|
$
|
30
|
|
$
|
2,212
|
|
$
|
1,086
|
|
$
|
11
|
|
|
110
|
|
$
|
(2,596
|
)
|
$
|
1,843
|
|
Conversions
of 7% Convertible Senior Notes
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10
|
|
|
1
|
|
|
311
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
312
|
|
Exercised
and issued stock-based awards
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3
|
|
|
-
|
|
|
93
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
93
|
|
Stock-based
compensation costs
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
28
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
28
|
|
Tax
benefit for stock-based awards
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
24
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
24
|
|
Tender
of shares for stock-based awards
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
(53
|
)
|
|
(53
|
)
|
Shares
purchased
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2
|
|
|
(100
|
)
|
|
(100
|
)
|
Cumulative
effect adjustment to initially
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
apply
EITF 04-6
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(149
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(149
|
)
|
Dividends
on common stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(918
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(918
|
)
|
Dividends
on preferred stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(61
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(61
|
)
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,457
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,457
|
|
Other
comprehensive income (loss),
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized derivatives’ fair value
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(9
|
)
|
|
-
|
|
|
-
|
|
|
(9
|
)
|
Reclassification
to earnings
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4
|
|
|
-
|
|
|
-
|
|
|
4
|
|
Other
comprehensive loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5
|
)
|
|
-
|
|
|
-
|
|
|
(5
|
)
|
Total
comprehensive income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,452
|
|
Adjustment
for adoption of SFAS No. 158,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes of $7 million
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(26
|
)
|
|
-
|
|
|
-
|
|
|
(26
|
)
|
Balance
at December 31, 2006
|
|
1
|
|
$
|
1,100
|
|
|
-
|
|
$
|
-
|
|
|
310
|
|
$
|
31
|
|
$
|
2,668
|
|
$
|
1,415
|
|
$
|
(20
|
)
|
|
113
|
|
$
|
(2,749
|
)
|
$
|
2,445
|
|
FREEPORT-McMoRan
COPPER & GOLD INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
(continued)
|
|
Convertible
Perpetual
|
|
Mandatory
Convertible
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
Preferred
Stock
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
Retained
|
|
Accumulated
|
|
Held
in Treasury
|
|
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Capital
in
|
|
Earnings
|
|
Other
|
|
Number
|
|
|
|
|
|
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
Excess
of
|
|
(Accumulated
|
|
Comprehensive
|
|
of
|
|
At
|
|
Stockholders’
|
|
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Par
Value
|
|
Deficit)
|
|
Income
(Loss)
|
|
Shares
|
|
Cost
|
|
Equity
|
|
|
|
(In
Millions)
|
|
Balance
at December 31, 2006
|
|
1
|
|
$
|
1,100
|
|
|
-
|
|
$
|
-
|
|
|
310
|
|
$
|
31
|
|
$
|
2,668
|
|
$
|
1,415
|
|
$
|
(20
|
)
|
|
113
|
|
$
|
(2,749
|
)
|
$
|
2,445
|
|
Sale
of 6¾% Mandatory Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
-
|
|
|
-
|
|
|
29
|
|
|
2,875
|
|
|
-
|
|
|
-
|
|
|
(72
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,803
|
|
Common
stock issued to acquire Phelps Dodge
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
137
|
|
|
14
|
|
|
7,767
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,781
|
|
Sale
of common stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
47
|
|
|
5
|
|
|
2,811
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,816
|
|
Conversions
of 7% Convertible Senior Notes
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6
|
|
Exercised
and issued stock-based awards
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3
|
|
|
-
|
|
|
131
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
131
|
|
Stock-based
compensation costs
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
86
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
86
|
|
Tax
benefit for stock-based awards
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10
|
|
Tender
of shares for stock-based awards
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
(92
|
)
|
|
(92
|
)
|
Cumulative
effect adjustment to initially
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
apply
FIN 48
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4
|
|
Dividends
on common stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(587
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(587
|
)
|
Dividends
on preferred stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(208
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(208
|
)
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,977
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,977
|
|
Other
comprehensive income (loss),
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on securities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2
|
|
|
-
|
|
|
-
|
|
|
2
|
|
Translation
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3
|
)
|
|
-
|
|
|
-
|
|
|
(3
|
)
|
Change
in unrealized derivatives’ fair value
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3
|
)
|
|
-
|
|
|
-
|
|
|
(3
|
)
|
Reclassification
to earnings
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7
|
|
|
-
|
|
|
-
|
|
|
7
|
|
Defined
benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain during period, net of taxes of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$34
million
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
53
|
|
|
-
|
|
|
-
|
|
|
53
|
|
Amortization
of unrecognized amounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6
|
|
|
-
|
|
|
-
|
|
|
6
|
|
Other
comprehensive income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
62
|
|
|
-
|
|
|
-
|
|
|
62
|
|
Total
comprehensive income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,039
|
|
Balance
at December 31, 2007
|
|
1
|
|
$
|
1,100
|
|
|
29
|
|
$
|
2,875
|
|
|
497
|
|
$
|
50
|
|
$
|
13,407
|
|
$
|
3,601
|
|
$
|
42
|
|
|
114
|
|
$
|
(2,841
|
)
|
$
|
18,234
|
|
FREEPORT-McMoRan
COPPER & GOLD INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
(continued)
|
|
Convertible
Perpetual
|
|
Mandatory
Convertible
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
Preferred
Stock
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
Retained
|
|
Accumulated
|
|
Held
in Treasury
|
|
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Capital
in
|
|
Earnings
|
|
Other
|
|
Number
|
|
|
|
|
|
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
Excess
of
|
|
(Accumulated
|
|
Comprehensive
|
|
of
|
|
At
|
|
Stockholders’
|
|
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Par
Value
|
|
Deficit)
|
|
Income
(Loss)
|
|
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
|
|
Conversions
of 5½% Convertible Perpetual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
-
|
|
|
(268
|
)
|
|
-
|
|
|
-
|
|
|
7
|
|
|
1
|
|
|
290
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
23
|
|
Exercised
and issued stock-based awards
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
-
|
|
|
179
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
179
|
|
Stock-based
compensation costs
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
100
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
100
|
|
Tax
benefit for stock-based awards
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13
|
|
Tender
of shares for stock-based awards
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
(61
|
)
|
|
(61
|
)
|
Shares
purchased
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6
|
|
|
(500
|
)
|
|
(500
|
)
|
Dividends
on common stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(527
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(527
|
)
|
Dividends
on preferred stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(274
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(274
|
)
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(11,067
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(11,067
|
)
|
Other
comprehensive income (loss),
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on securities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(9
|
)
|
|
-
|
|
|
-
|
|
|
(9
|
)
|
Translation
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4
|
)
|
|
-
|
|
|
-
|
|
|
(4
|
)
|
Defined
benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss during period, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
$190 million
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(341
|
)
|
|
-
|
|
|
-
|
|
|
(341
|
)
|
Amortization
of unrecognized amounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7
|
|
|
-
|
|
|
-
|
|
|
7
|
|
Other
comprehensive loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(347
|
)
|
|
-
|
|
|
-
|
|
|
(347
|
)
|
Total
comprehensive loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(11,414
|
)
|
Balance
at December 31, 2008
|
|
1
|
|
$
|
832
|
|
|
29
|
|
$
|
2,875
|
|
|
505
|
|
$
|
51
|
|
$
|
13,989
|
|
$
|
(8,267
|
)
|
$
|
(305
|
)
|
|
121
|
|
$
|
(3,402
|
)
|
$
|
5,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these financial statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of
Presentation. The consolidated financial statements of
Freeport-McMoRan Copper & Gold Inc. (FCX) include the accounts of those
subsidiaries where FCX directly or indirectly has more than 50 percent of the
voting rights and has the right to control significant management decisions. The
most significant entities that FCX consolidates include its 90.64 percent-owned
subsidiary PT Freeport Indonesia and its wholly owned subsidiaries,
Freeport-McMoRan Corporation (FMC, formerly Phelps Dodge Corporation) and
Atlantic Copper, S.A. (Atlantic Copper). FCX acquired Phelps Dodge Corporation
(Phelps Dodge) on March 19, 2007. FCX’s results of operations include
Phelps Dodge’s results beginning March 20, 2007 (see Note 18). FCX changed
Phelps Dodge’s legal name to Freeport-McMoRan Corporation in 2008; therefore,
references to FMC and Phelps Dodge in these notes represent the same entity.
FCX’s unincorporated joint ventures with Rio Tinto plc (Rio Tinto) and Sumitomo
Metal Mining Arizona, Inc. (Sumitomo) are reflected using the proportionate
consolidation method (see Note 3). All significant intercompany transactions
have been eliminated. Dollar amounts in tables are stated in millions, except
per share amounts.
Investments
in unconsolidated companies owned 20 percent or more are recorded using the
equity method. Investments in companies owned less than 20 percent, and for
which FCX does not exercise significant influence, are carried at
cost.
Use of
Estimates. The preparation of FCX’s financial statements in
conformity with accounting principles generally accepted in the United States
(U.S.) requires management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes. The more
significant areas requiring the use of management estimates include fair values
of assets acquired and liabilities assumed in the acquisition of Phelps Dodge;
mineral reserve estimation; useful asset lives for depreciation, depletion and
amortization; reclamation and closure costs; environmental obligations;
estimates of recoverable copper in mill and leach stockpiles; pension,
postretirement, postemployment and other employee benefits; deferred taxes and
valuation allowances; reserves for contingencies and litigation; and asset
impairment, including estimates used to derive future cash flows associated with
those assets. Actual results could differ from those estimates.
Foreign Currencies. For
foreign subsidiaries whose functional currency is the local currency, assets and
liabilities are translated at current exchange rates, while revenues and
expenses are translated at average rates in effect for the period. The related
translation gains and losses are included in accumulated other comprehensive
income (loss) within stockholders’ equity.
For
foreign subsidiaries whose functional currency is the U.S. dollar, assets
receivable and liabilities payable in cash are translated at current exchange
rates, and inventories and other non-monetary assets and liabilities are
translated at historical rates. Gains and losses resulting from translation of
such account balances are included in operating results, as are gains and losses
from foreign currency transactions.
Cash
Equivalents. Highly liquid investments purchased with
maturities of three months or less are considered cash equivalents.
Inventories. As
shown in Note 5, the largest components of inventories include finished goods
(primarily concentrates and cathodes) at mining operations, concentrates and
work-in-process at Atlantic Copper’s smelting and refining operations, and
materials and supplies inventories. Inventories of materials and supplies, as
well as salable products, are stated at the lower of weighted-average cost or
market. Costs of finished goods and work-in-process (i.e., not materials and
supplies) inventories include labor and benefits, supplies, energy,
depreciation, depletion, amortization, site overhead costs, and other necessary
costs associated with the extraction and processing of ore, including, depending
on the process, mining, haulage, milling, concentrating, smelting, leaching,
solution extraction, refining, roasting and chemical processing. Corporate
general and administrative costs are not included in inventory
costs.
Work-in-Process. In-process
inventories represent materials that are currently in the process of being
converted to a salable product. Conversion processes for mining operations vary
depending on the nature of the copper ore and the specific mining operation. For
sulfide ores, processing includes milling and concentrating and results
in
the
production of copper and molybdenum concentrates or, alternatively, copper
cathode by concentrate leaching. For oxide ores and certain secondary sulfide
ores, processing includes leaching of stockpiles, solution extraction and
electrowinning (SX/EW) and results in the production of copper cathodes.
In-process material is measured based on assays of the material included in
these processes and projected recoveries. In-process inventories are valued
based on the costs incurred to various points in the process, including
depreciation relating to associated process facilities. For Atlantic Copper,
in-process inventories represent copper concentrates at various stages of
conversion into anodes and cathodes. Atlantic Copper’s in-process inventories
are valued at the weighted-average cost of the material fed to the smelting and
refining process plus in-process conversion costs.
Finished Goods. Finished
goods include salable products (e.g., copper and molybdenum
concentrates, copper anodes, copper cathodes, copper rod, copper wire,
molybdenum oxide, high-purity molybdenum chemicals and other metallurgical
products). Finished goods are valued based on the weighted-average cost of
source material plus applicable conversion costs relating to associated process
facilities.
Mill and Leach
Stockpiles. Mill and leach stockpiles are stated at the lower
of weighted-average cost or market.
Both mill
and leach stockpiles generally contain lower-grade ores that have been extracted
from the ore body and are available for copper recovery. For mill stockpiles,
recovery is through milling, concentrating, smelting and refining or,
alternatively, by concentrate leaching. For leach stockpiles, recovery is
through exposure to acidic solutions that dissolve contained copper and deliver
it in solution to extraction processing facilities. The recorded cost of mill
and leach stockpiles includes mining and haulage costs incurred to deliver ore
to stockpiles, depreciation, depletion, amortization and site overhead
costs.
Because
it is generally impracticable to determine copper contained in mill and leach
stockpiles by physical count, reasonable estimation methods are employed. The
quantity of material delivered to mill and leach stockpiles is based on surveyed
volumes of mined material and daily production records. Sampling and assaying of
blasthole cuttings determine the estimated copper grade of the material
delivered to mill and leach stockpiles.
Expected
copper recovery rates for mill stockpiles are determined by metallurgical
testing. The recoverable copper in mill stockpiles, once entered into the
production process, can be produced into copper concentrate almost
immediately.
Expected
copper recovery rates for leach stockpiles are determined using small-scale
laboratory tests, small- to large-scale column testing (which simulates the
production-scale process), historical trends and other factors, including
mineralogy of the ore and rock type. Ultimate recovery of copper contained in
leach stockpiles can vary significantly from a low percentage to more than 90
percent depending on several variables, including type of copper recovery,
mineralogy and particle size of the rock. For newly placed material on active
stockpiles, as much as 70 percent of the copper ultimately recoverable may be
extracted during the first year, and the remaining copper may be recovered over
many years.
Processes
and recovery rates are monitored regularly, and recovery rate estimates are
adjusted periodically as additional information becomes available and as related
technology changes.
Property, Plant, Equipment and
Development Costs. Property, plant, equipment and development
costs are carried at cost. Mineral exploration costs, as well as drilling and
other costs incurred for the purpose of converting mineral resources to proven
and probable reserves or identifying new mineral resources at development or
production stage properties, are charged to expense as incurred. Development
costs are capitalized beginning after proven and probable reserves have been
established. Development costs include costs incurred resulting from mine
pre-production activities undertaken to gain access to proven and probable
reserves including shafts, adits, drifts, ramps, permanent excavations,
infrastructure and removal of overburden. Additionally, interest expense
allocable to the cost of developing mining properties and to constructing new
facilities is capitalized until assets are ready for their intended
use.
Expenditures
for replacements and improvements are capitalized. Costs related to periodic
scheduled maintenance (i.e., turnarounds) are
expensed as incurred. Depreciation for mining and milling life-of-mine assets,
infrastructure and other common costs is determined using the unit-of-production
method based on total estimated recoverable proven and probable copper reserves
(for primary copper mines) and proven and probable molybdenum reserves (for the
primary molybdenum mine). Development costs and acquisition costs for proven and
probable reserves that relate to a specific ore body are depreciated using the
unit-of-production method based
on
estimated recoverable proven and probable reserves for the ore body benefited.
Depreciation, depletion and amortization using the unit-of-production method is
recorded upon extraction of the recoverable copper or molybdenum from the ore
body, at which time it is allocated to inventory cost and then included as a
component of cost of goods sold. Other assets are depreciated on a straight-line
basis over estimated useful lives of up to 30 years for buildings, three to 20
years for machinery and equipment, and three to 20 years for mobile
equipment.
Included
in property, plant, equipment and development costs is value beyond proven and
probable reserves (VBPP) resulting from FCX’s acquisition of Phelps
Dodge. The concept of VBPP is described in Financial Accounting Standards
Board (FASB) Emerging Issues Task Force (EITF) Issue No. 04-3, “Mining
Assets: Impairment and Business Combinations,” and has been interpreted
differently by different mining companies. FCX’s VBPP is attributable to
(i) mineralized material, which includes measured and indicated amounts,
that FCX believes could be brought into production with the establishment or
modification of required permits and should market conditions and technical
assessments warrant, (ii) inferred mineral resources and
(iii) exploration potential.
Mineralized
material is a mineralized body that has been delineated by appropriately spaced
drilling and/or underground sampling to support reported tonnage and average
grade of minerals. Such a deposit does not qualify as proven and probable
reserves until legal and economic feasibility are confirmed based upon a
comprehensive evaluation of development costs, unit costs, grades, recoveries
and other material factors. Inferred mineral resources are that part of a
mineral resource for which the overall tonnages, grades and mineral contents can
be estimated with a reasonable level of confidence based on geological evidence
and apparent geological and grade continuity after applying economic parameters.
An inferred mineral resource has a lower level of confidence than that applying
to an indicated mineral resource. Exploration potential is the estimated value
of potential mineral deposits that FCX has the legal right to access. The value
assigned to exploration potential was determined by interpreting the known
exploration information and exploration results, including geological data
and/or geological information, that were available as of the acquisition
date.
Carrying
amounts assigned to VBPP are not charged to expense until the VBPP becomes
associated with additional proven and probable reserves and they are produced or
the VBPP is determined to be impaired. Additions to proven and probable reserves
for properties with VBPP will carry with them the value assigned to VBPP at the
date FCX acquired Phelps Dodge, less any impairment amounts.
Goodwill. FCX recorded
goodwill as a result of the acquisition of Phelps Dodge. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other
Intangible Assets,” goodwill has an indefinite useful life and is not amortized,
but rather is tested for impairment at least annually, unless events occur or
circumstances change between annual tests that would more likely than not reduce
the fair value of a related reporting unit below its carrying amount. FCX uses
discounted cash flow models to determine if the carrying value of the reporting
unit is less than the fair value of the reporting unit. FCX’s annual impairment
test in the fourth quarter of 2008 resulted in the full impairment of goodwill
(see Note 7 for further discussion).
Intangible Assets and Liabilities. FCX recorded
intangible assets and liabilities as a result of the acquisition of Phelps
Dodge. Indefinite-lived intangibles primarily include water rights.
Definite-lived intangibles include favorable and unfavorable contracts
(primarily related to molybdenum sales contracts, treatment and refining
contract rates, power contracts and tire contracts), royalty payments, patents
and process technology. The fair value of identifiable intangible assets was
estimated based principally upon comparable market transactions and discounted
future cash flow projections. The ranges for estimated useful lives are one to
10 years for molybdenum sales, treatment and refining, power and tire contracts;
one to 12 years for royalty payments; and principally 10 to 20 years for patents
and process technology. All indefinite-lived intangible assets are subject to
impairment testing at least annually, unless events occur or circumstances
change between annual tests that would more likely than not reduce the
indefinite-lived intangible asset’s fair value below its carrying
value.
Asset
Impairment. FCX reviews and evaluates its long-lived assets
for impairment when events or changes in circumstances indicate that the related
carrying amounts may not be recoverable. Long-lived assets, other than goodwill
and indefinite-lived intangible assets, are evaluated for impairment under the
two-step model established by SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.” An impairment loss is measured as the amount by
which asset carrying value exceeds its fair value. Fair value is generally
determined using valuation techniques such as estimated future cash flows. An
impairment is considered to exist if total estimated future cash flows on an
undiscounted basis are less than the carrying amount of the asset.
In
evaluating mining operations’ long-lived assets for recoverability, estimates of
after-tax undiscounted future cash flows of FCX’s individual mining operations
are used, with impairment losses measured by reference to fair value. As quoted
market prices are unavailable for FCX’s individual mining operations, fair value
is determined through the use of discounted estimated future cash flows.
Estimated cash flows used to assess recoverability of long-lived assets and
measure the fair value of FCX’s mining operations are derived from current
business plans developed using near-term price forecasts reflective of the
current price environment and management’s projections for long-term average
metal prices. Estimates of future cash flows include near and long-term metal
price assumptions; estimates of commodity-based and other input costs; proven
and probable reserve estimates; and the use of appropriate current escalation
and discount rates.
Deferred Mining
Costs. In accordance with EITF Issue No. 04-6, “Accounting for
Stripping Costs Incurred during Production in the Mining Industry” (EITF 04-6),
stripping costs (i.e.,
the costs of removing overburden and waste material to access mineral deposits)
incurred during the production phase of a mine are considered variable
production costs and are included as a component of inventory produced during
the period in which stripping costs are incurred. Major development
expenditures, including stripping costs to prepare unique and identifiable areas
outside the current mining area for future production that are considered to be
pre-production mine development, are capitalized and amortized on the
unit-of-production method based on estimated recoverable proven and probable
reserves for the ore body benefited. However, where a second or subsequent pit
or major expansion is considered to be a continuation of existing mining
activities, stripping costs are accounted for as current production cost and a
component of the associated inventory.
Prior to
the adoption of EITF 04-6, FCX applied the deferred mining cost method in
accounting for its post-production stripping costs, which FCX referred to as
overburden removal costs. The deferred mining cost method was used by some
companies in the metals mining industry; however, industry practice varied. The
deferred mining cost method matched the cost of production with the sale of the
related metal from the open pit by assigning each metric ton of ore removed an
equivalent amount of overburden tonnage, thereby averaging overburden removal
costs over the life of the mine. The mining cost capitalized in inventory and
the amounts charged to cost of goods sold did not represent the actual costs
incurred to mine the ore in any given period. Upon adoption of EITF 04-6 on
January 1, 2006, FCX recorded a cumulative effect adjustment ($149 million) to
reduce beginning retained earnings for its deferred mining costs asset ($285
million) as of December 31, 2005, net of taxes, minority interest share and
inventory effects ($136 million).
Environmental
Expenditures. Environmental
expenditures are expensed or capitalized, depending upon their future economic
benefits. Liabilities for such expenditures are recorded when it is probable
that obligations have been incurred and the costs can be reasonably estimated.
For closed facilities and closed portions of operating facilities with
environmental obligations, an environmental obligation is accrued when a
decision to close a facility, or a portion of a facility, is made by management
and the environmental obligation is considered to be probable. Environmental
obligations attributed to the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA) or analogous state programs are
considered probable when a claim is asserted, or is probable of assertion, and
FCX, or any of its subsidiaries, have been associated with the site. Other
environmental remediation obligations are considered probable based on specific
facts and circumstances. FCX’s estimates of these costs are based on an
evaluation of various factors, including currently available facts, existing
technology, presently enacted laws and regulations, remediation experience,
whether or not FCX is a potentially responsible party (PRP) and the ability of
other PRPs to pay their allocated portions. With the exception of those
obligations assumed in the acquisition of Phelps Dodge that were recorded at
estimated fair values (see Note 15), environmental obligations are recorded on
an undiscounted basis. Where the available information is sufficient to estimate
the amount of liability, that estimate has been used. Where the information is
only sufficient to establish a range of probable liability and no point within
the range is more likely than any other, the lower end of the range has been
used. Possible recoveries of some of these costs from other parties are not
recognized in the consolidated financial statements until they become probable.
Legal costs associated with environmental remediation, as defined in American
Institute of Certified Public Accountants Statement of Position (SOP) 96-1,
“Environmental Remediation Liabilities,” are included as part of the estimated
liability.
Asset Retirement
Obligations. In accordance with SFAS No. 143, “Accounting for
Asset Retirement Obligations,” FCX records the fair value of estimated asset
retirement obligations (AROs) associated with tangible long-lived assets in the
period incurred. Retirement obligations associated with long-lived assets
included within the scope of SFAS No. 143 are those for which there is a legal
obligation to settle under existing or enacted law, statute, written or oral
contract or by legal construction. These liabilities, which are initially
estimated based on discounted cash flow estimates, are accreted to full value
over time through charges to income. In addition, asset
retirement
costs (ARCs) are capitalized as part of the related asset’s carrying value and
are depreciated (primarily on a unit-of-production basis) over the asset’s
respective useful life. Reclamation costs for future disturbances are recognized
as an ARO and as a related ARC in the period of the disturbance. FCX’s AROs
consist primarily of costs associated with mine reclamation and closure
activities. These activities, which are site specific, generally include costs
for earthwork, revegetation, water treatment and demolition (see Note
15).
Income Taxes. FCX
accounts for income taxes pursuant to SFAS No. 109, “Accounting for Income
Taxes.” Deferred income taxes are provided to reflect the future tax
consequences of differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements (see Note 14). A valuation
allowance is provided for those deferred tax assets for which it is more likely
than not that the related benefits will not be realized. The effect on deferred
income tax assets and liabilities of a change in tax rates and laws is
recognized in income in the period in which such changes are
enacted.
On
January 1, 2007, FCX adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN
48), which prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. Upon adoption of FIN 48, FCX recorded a
cumulative effect adjustment of $4 million to increase beginning retained
earnings. Following adoption of FIN 48, for amounts accrued for unrecognized tax
benefits, FCX includes accrued interest in interest expense and accrued
penalties in other income and expenses rather than in its provision for income
taxes. FCX had previously included interest and penalties in its provision for
income taxes.
Derivative
Instruments. FCX and its subsidiaries have entered into
derivative contracts to manage certain risks resulting from fluctuations in
commodity prices (primarily copper and gold), foreign currency exchange rates
and interest rates by creating offsetting market exposures. FCX accounts for
derivatives pursuant to SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities.” SFAS No. 133, as subsequently amended, established
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The accounting for changes in the fair value of a derivative
instrument depends on the intended use of the derivative and the resulting
designation. See Note 17 for a summary of FCX’s outstanding derivative
instruments at December 31, 2008, and a discussion of FCX’s risk management
strategies for those designated as hedges.
FCX
elected to continue its historical accounting for its mandatorily redeemable
preferred stock indexed to commodities under the provisions of SFAS No. 133,
which allow such instruments issued before January 1, 1998, to be excluded from
those instruments required to be adjusted for changes in their fair values.
Mandatorily redeemable preferred stock indexed to commodities was treated as a
hedge of future production and was carried at its original issue value. As
redemption payments occurred, differences between the carrying value and the
payments were recorded as adjustments to revenues. In 2006, FCX made the final
redemptions of its preferred stock indexed to commodities. Under SFAS No. 150,
“Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity,” FCX classified its mandatorily redeemable preferred
stock as debt. Dividend payments on FCX’s mandatorily redeemable preferred stock
were classified as interest expense (see Notes 11 and 17).
Revenue
Recognition. FCX sells its products pursuant to sales
contracts entered into with its customers. Revenue for all FCX’s products is
recognized when title and risk of loss pass to the customer and when
collectibility is reasonably assured. The passing of title and risk of loss to
the customer is based on terms of the sales contract, generally upon shipment or
delivery of product.
Revenues
from FCX’s concentrate and cathodes sales are recorded based on either 100
percent of a provisional sales price or a final sales price calculated in
accordance with the terms specified in the relevant sales contract. Revenues
from concentrate sales are recorded net of treatment and all refining charges
(including price participation, if applicable, as discussed below) and the
impact of derivative contracts, including the impact of redemptions of FCX’s
mandatorily redeemable preferred stock indexed to commodities and the copper
collars acquired from Phelps Dodge (see Notes 11 and 17). Moreover, because a
portion of the metals contained in copper concentrates is unrecoverable as a
result of the smelting process, FCX’s revenues from concentrate sales are also
recorded net of allowances based on the quantity and value of these
unrecoverable metals. These allowances are a negotiated term of FCX’s contracts
and vary by customer. Treatment and refining charges
represent
payments or price adjustments to smelters and refiners and are either fixed or,
in certain cases, vary with the price of copper (referred to as price
participation).
Under the
long-established structure of sales agreements prevalent in the industry, copper
contained in concentrates and cathodes is generally provisionally priced at the
time of shipment. The provisional prices are finalized in a specified future
period (generally one to four months from the shipment date) based on the quoted
London Metal Exchange (LME) or the New York Mercantile Exchange (COMEX) prices.
FCX receives market prices based on prices in the specified future period, and,
under SFAS No. 133, these sales result in changes recorded to revenues until the
specified future period. FCX records revenues and invoices customers at the time
of shipment based on then-current LME or COMEX prices, which results in an
embedded derivative (i.e., a pricing mechanism
that is finalized after the time of delivery) that is required to be bifurcated
from the host contract. The host contract is the sale of the metals contained in
the concentrates or cathodes at the then-current LME or COMEX price. FCX applies
the normal purchase and sale exception allowed by SFAS No. 133 to the host
contract in its concentrate or cathode sales agreements because the sales
agreements do not allow for net settlement and always result in physical
delivery. Under SFAS No. 133, as amended, the embedded derivative does not
qualify for hedge accounting. At December 31, 2008, revenues based on
provisional sales prices totaled $768 million. At December 31, 2008, FCX had
outstanding provisionally priced sales of 508 million pounds of copper (net of
minority interests), priced at an average of $1.39 per pound, subject to final
pricing. Final prices on these sales will be established over the first several
months of 2009 pursuant to terms of sales contracts.
Gold
sales are priced according to individual contract terms, generally the average
London Bullion Market Association price for a specified month near the month of
shipment.
Approximately
85 percent of FCX’s 2008 molybdenum sales were priced based on prices published
in Platts Metals Week,
Ryan’s Notes or Metal Bulletin, plus
conversion premiums for products that undergo additional processing, such as
ferromolybdenum and molybdenum chemical products. The majority of these sales
use the average of the previous month. FCX’s remaining molybdenum sales
generally have pricing that is either based on a fixed price or adjusts within
certain price ranges.
PT
Freeport Indonesia concentrate sales are subject to certain royalties, which are
recorded as a reduction to revenues (see Note 16 for further
discussion).
Stock-Based
Compensation. As of December 31, 2008, FCX has five
stock-based employee compensation plans and one stock-based director
compensation plan. Prior to 2007, the market price for stock options was defined
as the average of the high and low price of FCX common stock on the date of
grant. Effective January 2007, the plans were amended to define the market price
for future grants as the closing price of FCX common stock on the date of
grant.
Effective
January 1, 2006, FCX adopted the fair value recognition provisions of SFAS No.
123 (revised 2004), “Share-Based Payment” (SFAS No. 123R), using the modified
prospective transition method. Under that transition method, compensation costs
recognized in the consolidated statements of operations include: (i)
compensation costs for all stock option awards granted to employees prior to but
not yet vested as of January 1, 2006, based on the grant-date fair value
estimated in accordance with the original provisions of SFAS No. 123,
“Accounting for Stock-Based Compensation,” and (ii) compensation costs for all
stock option awards granted subsequent to January 1, 2006, based on the
grant-date fair value estimated in accordance with the provisions of SFAS No.
123R. In addition, for other stock-based awards under the plans, compensation
costs are recognized based on the fair value on the date of grant for restricted
stock units and the intrinsic value on the reporting or exercise date for
cash-settled stock appreciation rights (SARs). FCX has elected to recognize
compensation costs for stock option awards that vest over several years on a
straight-line basis over the vesting period. FCX’s stock option awards provide
for employees to receive the next year’s vesting after an employee retires. For
awards granted after January 1, 2006, FCX accelerates one year of amortization
for retirement-eligible employees. Certain restricted stock units are
performance-based awards with accelerated vesting upon retirement. Therefore, in
accordance with SFAS No. 123R, FCX recognizes compensation costs for restricted
stock units granted to retirement-eligible employees in the period during which
the employee performs the service related to the grant. The services may be
performed in the calendar year preceding the date of grant. FCX includes
estimated forfeitures in its compensation costs and updates the estimated
forfeiture rate through the final vesting date of the awards.
Earnings Per
Share. FCX’s basic net (loss) income per share of common stock
was calculated by dividing net (loss) income applicable to common stock by the
weighted-average number of common shares outstanding during the year. The
following is a reconciliation of net (loss) income and weighted-average common
shares outstanding for purposes of calculating diluted net (loss) income per
share for the years ended December 31, 2008, 2007 and 2006:
|
|
2008
|
|
2007
|
|
2006
|
|
(Loss)
income from continuing operations
|
|
$
|
(11,067
|
)
|
$
|
2,942
|
|
$
|
1,457
|
|
Preferred
dividends and losses on induced conversions
|
|
|
(274
|
)
|
|
(208
|
)
|
|
(61
|
)
|
(Loss)
income from continuing operations applicable
|
|
|
|
|
|
|
|
|
|
|
to
common stock
|
|
|
(11,341
|
)
|
|
2,734
|
|
|
1,396
|
|
Plus
income impact of assumed conversion of:
|
|
|
|
|
|
|
|
|
|
|
6¾%
Mandatory Convertible Preferred Stock
|
|
|
–
|
|
|
147
|
|
|
–
|
|
5½%
Convertible Perpetual Preferred Stock
|
|
|
–
|
|
|
61
|
|
|
61
|
|
7%
Convertible Senior Notes
|
|
|
–
|
|
|
–
|
|
|
12
|
|
Diluted
net (loss) income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
applicable
to common stock
|
|
|
(11,341
|
)
|
|
2,942
|
|
|
1,469
|
|
Income
from discontinued operations
|
|
|
–
|
|
|
35
|
|
|
–
|
|
Diluted
net (loss) income applicable to common shares
|
|
$
|
(11,341
|
)
|
$
|
2,977
|
|
$
|
1,469
|
|
Weighted-average
common shares outstanding
|
|
|
382
|
|
|
341
|
|
|
191
|
|
Add
shares issuable upon conversion, exercise
|
|
|
|
|
|
|
|
|
|
|
or
vesting of:
|
|
|
|
|
|
|
|
|
|
|
6¾%
Mandatory Convertible Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
(see
Note 13)
|
|
|
–
|
a
|
|
30
|
|
|
–
|
|
5½%
Convertible Perpetual Preferred Stock (see Note 13)
|
|
|
–
|
b
|
|
23
|
|
|
22
|
|
7%
Convertible Senior Notes (see Note 11)
|
|
|
–
|
|
|
–
|
|
|
7
|
|
Dilutive
stock options (see Note 13)
|
|
|
–
|
c
|
|
2
|
|
|
1
|
|
Restricted
stock (see Note 13)
|
|
|
–
|
d
|
|
1
|
|
|
–
|
|
Weighted-average
common shares outstanding for
|
|
|
|
|
|
|
|
|
|
|
purposes
of calculating diluted net (loss) income per share
|
|
|
382
|
|
|
397
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net (loss) income per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(29.72
|
)
|
$
|
7.41
|
|
$
|
6.63
|
|
Discontinued
operations
|
|
|
–
|
|
|
0.09
|
|
|
–
|
|
Diluted
net (loss) income per share of common stock
|
|
$
|
(29.72
|
)
|
$
|
7.50
|
|
$
|
6.63
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Conversion
of preferred shares to common stock of approximately 39 million was
anti-dilutive.
|
b.
|
Conversion
of preferred shares to common stock of approximately 23 million was
anti-dilutive.
|
c.
|
Potential
additional shares of common stock of approximately 2 million were
anti-dilutive.
|
d.
|
Potential
additional shares of common stock of approximately 1 million were
anti-dilutive.
|
FCX’s
convertible instruments are excluded from the computation of diluted net (loss)
income per share of common stock when including the conversion of these
instruments results in an anti-dilutive effect on earnings per share (see
footnotes a and b in the table above). 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 (loss) income per share
of common stock. There were approximately two million stock options with a
weighted-average exercise price of $69.89 excluded in 2008, none in 2007 and
approximately one million stock options with a weighted-average exercise price
of $63.77 in 2006.
New Accounting
Standards. Fair Value Measurements. In
September 2006, 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. generally accepted accounting principles (GAAP); rather this statement
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 FASB Staff Position (FSP)
No. 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. FCX adopted
SFAS No. 157 for financial assets and liabilities recognized at fair value on a
recurring basis effective
January
1, 2008. 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 for nonfinancial assets or liabilities not valued on a recurring basis
(at least annually).
Fair Value Option for Financial
Assets and Liabilities. In February 2007, FASB issued SFAS No. 159, “The
Fair Value Option for Financial Assets and Liabilities – Including an amendment
of FASB No. 115,” which permits entities to choose to measure many financial
instruments and certain other items at fair value that are not currently
required to be measured at fair value. FCX adopted SFAS No. 159 effective
January 1, 2008, and FCX did not measure any additional financial instruments at
fair value that are not required to be measured at fair value.
Business Combinations. In
December 2007, FASB issued SFAS No. 141 (revised 2007), “Business Combinations”
(SFAS No. 141R). Under SFAS No. 141R, all business combinations will be
accounted for under the acquisition method, and the new standard makes certain
other changes to the accounting for business combinations, of which the most
significant are as follows: (i) whether all or a partial interest is
acquired, the acquirer will recognize the full value of assets acquired,
liabilities assumed and noncontrolling interests; (ii) direct costs of a
business combination will be charged to expense if they are not associated with
issuing debt or equity securities; (iii) any contingent consideration will
be recognized and measured at fair value on the acquisition date, with
subsequent changes to the fair value recognized in earnings; and (iv) equity
issued in consideration for a business combination will be measured at fair
value as of the acquisition date. SFAS No. 141R applies prospectively to
business combinations for which the acquisition date is on or after fiscal years
beginning after December 15, 2008. Early adoption is prohibited.
Noncontrolling Interests in
Consolidated Financial Statements. In December 2007, FASB issued SFAS No.
160, “Noncontrolling Interests in Consolidated Financial Statements – an
amendment of ARB No. 51,” which clarifies that noncontrolling interests
(minority interests) are to be treated as a separate component of equity and any
changes in the ownership interest (in which control is retained) are to be
accounted for as capital transactions. However, a change in ownership of a
consolidated subsidiary that results in a loss of control is considered a
significant event that triggers gain or loss recognition, with the establishment
of a new fair value basis in any remaining ownership interests. SFAS No. 160
also provides additional disclosure requirements for each reporting period. SFAS
No. 160 applies to fiscal years beginning on or after December 15, 2008, with
early adoption prohibited. This statement is required to be adopted
prospectively, except for the following provisions, which are expected to be
applied retrospectively: (i) the reclassification of noncontrolling interests to
equity in the consolidated balance sheets and (ii) the adjustment to
consolidated net income to include net income attributable to both the
controlling and noncontrolling interests.
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. FCX adopted SFAS No. 161 for the
year ended December 31, 2008.
The Hierarchy of Generally Accepted
Accounting Principles. In May 2008, FASB issued SFAS No. 162, “The
Hierarchy of Generally Accepted Accounting Principles,” which identifies the
sources of accounting and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with U.S. GAAP. SFAS No. 162 was effective November 15,
2008, and adoption did not result in a change in FCX’s accounting
practices.
Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion. In May 2008,
FASB issued FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement),”
which will change the accounting treatment for convertible debt securities that
the issuer may settle fully or partially in cash. FSP No. APB 14-1 requires
bifurcation of convertible debt instruments into a debt component that is
initially recorded at fair value and an equity component that
represents
the difference between the initial proceeds from issuance of the instrument and
the fair value allocated to the debt component. The debt component is
subsequently accreted (as a component of interest expense) to par value over its
expected life. FSP No. APB 14-1 is effective for fiscal years and interim
periods beginning after December 15, 2008, and must be retrospectively applied
to all prior periods presented, even if an instrument has matured, converted, or
otherwise been extinguished as of the FSP’s effective date. FCX will adopt FSP
No. APB 14-1 on January 1, 2009, and will be required to retrospectively apply
its provisions to its 7% Convertible Senior Notes. FCX is currently evaluating
the impact that the adoption of FSP No. APB 14-1 will have on its consolidated
financial statements.
Determining the Fair Value of a
Financial Asset when the Market for That Asset is Not Active. In October
2008, FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial
Asset when the Market for That Asset is Not Active,” which clarifies the
application of SFAS No. 157 in a market that is not active and provides key
considerations in determining the fair value of the financial asset. FSP FAS
157-3 is effective upon issuance, including prior periods for which financial
statements have not been issued. Revisions resulting from a change in the
valuation technique or its application shall be accounted for as a change in
accounting estimate. The adoption of FSP No. FAS 157-3 did not have a material
impact on FCX’s financial reporting and disclosures.
Employers’ Disclosures about
Postretirement Benefit Plan Assets. In December 2008, FASB issued FSP No.
FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets,”
which provides enhanced guidance on an employer’s disclosures about plan assets
of a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1
revises disclosure requirements on pension and postretirement plan assets from
those required in the original SFAS No. 132 after the FASB decided disclosures
about fair value measurements for postretirement plan assets were not within the
scope of SFAS No. 157. The disclosures about plan assets required by FSP FAS
132(R)-1 are effective for fiscal years ending after December 15, 2009, with
early application permitted. Upon initial application, disclosures are not
required for earlier periods that are presented for comparative purposes. FCX is
currently evaluating the impact that the adoption of FSP No. FAS
132(R)-1 will have on its financial disclosures.
Reclassifications. For
comparative purposes, primarily the revision to FCX’s presentation of its
business segments, certain prior year amounts have been reclassified to conform
with the current year presentation.
NOTE
2. ASSET IMPAIRMENTS AND OTHER CHARGES
The
following table summarizes long-lived asset impairments, other than goodwill,
and other charges recorded during the year ended December 31, 2008
(see Note 19 for long-lived asset impairments and other charges by FCX’s
reportable segments):
|
|
|
|
|
Long-lived
asset impairments
|
|
$
|
10,867
|
|
Pension
and postretirement special benefits and curtailments
|
|
|
61
|
|
Restructuring
costs
|
|
|
50
|
|
Total
long-lived asset impairments and other charges
|
|
$
|
10,978
|
|
|
|
|
|
|
During
the fourth quarter of 2008, there was a dramatic decline in copper and
molybdenum prices. After averaging $3.05 per pound in 2006, $3.23 per pound in
2007 and $3.61 per pound for the first nine months of 2008, LME spot copper
prices declined to a four-year low of $1.26 per pound in December 2008 and
averaged $1.78 per pound in the fourth quarter of 2008 and closed at $1.32 per
pound on December 31, 2008. Additionally, while molybdenum markets have been
strong in recent years with prices averaging approximately $25 per pound in
2006, $30 per pound in 2007 and $33 per pound for the first nine months of 2008,
molybdenum prices declined significantly to a four-year low of $8.75 per pound
in November 2008 and averaged approximately $16 per pound in the fourth quarter
of 2008 and closed at $9.50 per pound on December 31, 2008.
Although
FCX’s long-term strategy of developing its resources to their full potential
remains in place,
the decline in copper and molybdenum prices and the deterioration of the
economic and credit environment during the fourth quarter of 2008 have limited
FCX’s ability to invest in growth projects and required FCX to make adjustments
to its near-term plans. FCX responded to the sudden downturn and uncertain
near-term outlook by revising its near-term strategy to protect liquidity while
preserving its mineral resources and growth options for the longer term.
Accordingly, operating plans were revised to reflect: (i) curtailment of
copper production at high-cost North America operations and of molybdenum
production at the Henderson molybdenum mine; (ii) capital cost reductions;
(iii) aggressive cost control, including workforce reductions, reduced
equipment purchases that were
planned
to support expansion projects, a reduction in material and supplies inventory
and reductions in exploration, research and administrative costs; and
(iv) suspension of FCX’s annual common stock dividend.
In
connection with these significant adverse changes during the fourth quarter of
2008, FCX evaluated its long-lived assets, other than goodwill and
indefinite-lived intangible assets, for impairment as of December 31, 2008.
Goodwill and indefinite-lived intangible assets are evaluated for impairment
annually as of December 31.
FCX’s
asset impairment evaluations, including its annual goodwill impairment test,
required FCX to make several assumptions in determining estimates of future cash
flows to determine fair value of its individual mining operations, including:
near and long-term metal price assumptions; estimates of commodity-based and
other input costs; proven and probable reserve estimates, including any costs to
develop the reserves and the timing of producing the reserves; and the use of
appropriate current escalation and discount rates. Projected long-term average
metal prices represented the most significant assumption used in the cash flow
estimates. In connection with the March 2007 acquisition of Phelps Dodge, FCX
allocated the $25.8 billion purchase price to the estimated fair values of
net assets acquired, including $6.2 billion for goodwill. Metal price
projections used to value the net assets acquired at the acquisition date ranged
from near-term prices of $2.98 per pound for copper declining over an eight-year
period to $1.20 per pound and $26.20 per pound for molybdenum declining over a
five-year period to $8.00 per pound, reflecting price expectations at that time.
FCX’s impairment evaluations at December 31, 2008, were based on price
assumptions reflecting prevailing copper futures prices for three years, which
ranged from approximately $1.40 per pound to $1.50 per pound, and a long-term
average price of $1.60 per pound. Molybdenum prices were assumed to average
$8.00 per pound.
FCX’s
evaluation of long-lived assets (other than goodwill) for impairment resulted in
the recognition of asset impairment charges totaling $10.9 billion ($6.6 billion
to net loss or $17.34 per diluted share) for 2008. See Note 7 for discussion of
impairment charges relating to goodwill.
Other
charges relating to FCX’s revised operating plans in the fourth quarter of 2008
include pension and postretirement charges of $61 million ($37 million to net
loss or $0.10 per diluted share) for special retirement benefits and
curtailments and restructuring charges of $50 million ($30 million to net loss
or $0.08 per diluted share) for employee severance and benefit costs, contract
termination costs and other project cancellation costs. The restructuring charge
reflects workforce reductions of approximately 3,000 employees and other charges
resulting from revised operating plans that reflect a 25 percent reduction in
mining and crushed-leach rates at the Morenci mine in Arizona, a 50 percent
reduction in mining and stacking rates at the Safford mine in Arizona, a 50
percent reduction in the mining rate at the Tyrone mine in New Mexico,
suspension of mining and milling activities at the Chino mine in New Mexico, and
a 25 percent reduction in annual production at the Henderson molybdenum mine in
Colorado. In addition, the revised operating plans included decisions to defer
certain capital projects, including the (i) incremental expansion projects
at the Sierrita and Bagdad mines in Arizona, the Cerro Verde mine in Peru and
the sulfide project at the El Abra mine in Chile, (ii) the planned restart
of the Miami mine in Arizona and (iii) the suspension of construction
activities associated with the restart of the Climax molybdenum mine in
Colorado. In the first quarter of 2009, Morenci’s operating plans were revised
to reflect an additional reduction in mining and crushed-leach rates for a total
50 percent reduction.
The
following table reflects 2008 activities associated with the liabilities
(included in accounts payable and accrued liabilities) incurred in connection
with the restructuring:
|
2008
|
|
|
|
December
31,
|
|
|
Additions
|
|
Payments
|
|
2008
|
|
North America Copper Mines
|
|
|
|
|
|
|
|
|
|
Morenci
|
|
|
|
|
|
|
|
|
|
Employee
severance and benefit costs
|
$
|
3
|
|
$
|
(1
|
)
|
$
|
2
|
|
Sierrita
|
|
|
|
|
|
|
|
|
|
Contract
cancellation and other costs
|
|
2
|
|
|
(2
|
)
|
|
–
|
|
Other
mines
|
|
|
|
|
|
|
|
|
|
Employee
severance and benefit costs
|
|
12
|
|
|
–
|
|
|
12
|
|
Contract
cancellation and other costs
|
|
6
|
|
|
(5
|
)
|
|
1
|
|
|
|
23
|
|
|
(8
|
)
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
South America Copper Mines
|
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
|
|
|
|
|
|
|
|
Contract
cancellation and other costs
|
|
1
|
|
|
–
|
|
|
1
|
|
Other
mines
|
|
|
|
|
|
|
|
|
|
Employee
severance and benefit costs
|
|
6
|
|
|
–
|
|
|
6
|
|
|
|
7
|
|
|
–
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
|
Employee
severance and benefit costs
|
|
2
|
|
|
–
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum
|
|
|
|
|
|
|
|
|
|
Employee
severance and benefit costs
|
|
1
|
|
|
–
|
|
|
1
|
|
Contract
cancellation and other costs
|
|
3
|
|
|
(3
|
)
|
|
–
|
|
|
|
4
|
|
|
(3
|
)
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
Rod & Refining
|
|
|
|
|
|
|
|
|
|
Employee
severance and benefit costs
|
|
4
|
|
|
–
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
Corporate & Other
|
|
|
|
|
|
|
|
|
|
Employee
severance and benefit costs
|
|
7
|
|
|
(1
|
)
|
|
6
|
|
Contract
cancellation and other costs
|
|
3
|
|
|
–
|
|
|
3
|
|
|
|
10
|
|
|
(1
|
)
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
50
|
|
$
|
(12
|
)
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
|
NOTE
3. OWNERSHIP IN SUBSIDIARIES, JOINT VENTURES AND INVESTMENT IN PT
SMELTING
Ownership in
Subsidiaries. On March 19, 2007, FMC became a wholly owned
subsidiary of FCX. FMC is a fully integrated producer of copper and molybdenum,
with mines in North America and South America, copper and molybdenum conversion
facilities, and several development projects, including Tenke Fungurume in the
Democratic Republic of Congo (DRC). At December 31, 2008, FMC’s major operating
copper mines in North America were Morenci, Sierrita, Bagdad and Safford located
in Arizona, and Tyrone located in New Mexico. FCX has an 85 percent interest in
Morenci (see “Joint Ventures – Sumitomo”) and owns 100 percent of the other
North America mines. At December 31, 2008, operating copper mines in South
America were Cerro Verde (53.56 percent owned) located in Peru and Candelaria
(80 percent owned), Ojos del Salado (80 percent owned) and El Abra (51 percent
owned) located in Chile. FMC also owns the Henderson and Climax molybdenum mines
located in Colorado. The Henderson mine is currently operating, while the Climax
mine is on care-and-maintenance status. In addition to copper and molybdenum,
certain mines produce other minerals as by-products, such as gold, silver and
rhenium. At December 31, 2008, FMC’s net assets totaled $9.4 billion and
its accumulated deficit totaled $16.1 billion. As of December 31, 2008, FCX had
a $137 million loan outstanding to FMC.
FCX owns
an effective 57.75 percent interest (through its ownership in FMC) in Tenke
Fungurume Mining, S.A.R.L. (Tenke Fungurume), a company incorporated under the
laws of the DRC. The remaining ownership interests are held by Tenke Mining
Corp. (TMC), which is owned by Lundin Mining Corporation (an effective 24.75
percent) and La Générale des Carrières et des Mines (Gécamines), which is wholly
owned by the Government of the DRC (17.5 percent). FCX is responsible for
funding 70 percent of project development costs and is also responsible for
certain cost overruns on the initial project. Gécamines has an undilutable
carried interest and is not
responsible
for funding any project costs. In accordance with the terms of the agreement,
Gécamines will receive asset transfer payments totaling $100 million, $70
million of which has already been paid and the remainder of which will be paid
over a period of approximately three years. Tenke Fungurume will produce copper
and cobalt and is expected to commence mining operations during the second half
of 2009.
FCX’s
direct ownership in PT Freeport Indonesia totals 81.28 percent. PT Indocopper
Investama, an Indonesian company, owns 9.36 percent of PT Freeport Indonesia and
FCX owns 100 percent of PT Indocopper Investama. At December 31, 2008, PT
Freeport Indonesia’s net assets totaled $2.3 billion and its retained earnings
totaled $2.1 billion. As of December 31, 2008, FCX had no outstanding loans to
PT Freeport Indonesia.
FCX owns
100 percent of the outstanding Atlantic Copper common stock. At December 31,
2008, Atlantic Copper’s net assets totaled $155 million and its accumulated
deficit totaled $235 million. FCX had a $130 million loan outstanding to
Atlantic Copper, and Atlantic Copper’s debt under financing arrangements that
are guaranteed by FCX totaled $82 million at December 31, 2008.
In 2003,
FCX acquired the 85.71 percent ownership interest in PT Puncakjaya Power
(Puncakjaya Power) owned by affiliates of Duke Energy Corporation for $68
million cash, net of $10 million of cash acquired. Puncakjaya Power is the owner
of assets supplying power to PT Freeport Indonesia’s operations, including the
3x65 megawatt coal-fired power facilities. PT Freeport Indonesia purchases power
from Puncakjaya Power under infrastructure asset financing arrangements. In
2005, FCX prepaid $187 million of bank debt associated with Puncakjaya
Power’s operations. At December 31, 2008, FCX had a $37 million loan
outstanding to Puncakjaya Power, PT Freeport Indonesia had infrastructure asset
financing obligations payable to Puncakjaya Power totaling $132 million and
Puncakjaya Power had a receivable from PT Freeport Indonesia for $172 million,
including Rio Tinto’s share. FCX consolidates PT Freeport Indonesia and
Puncakjaya Power. FCX’s consolidated balance sheets reflect receivables of $37
million ($10 million in other accounts receivable and $27 million in long-term
assets) at December 31, 2008, and $46 million ($9 million in other accounts
receivable and $37 million in long-term assets) at December 31, 2007, for Rio
Tinto’s share of Puncakjaya Power’s receivable as provided for in FCX’s joint
venture agreement with Rio Tinto.
Joint Ventures. FCX
has the following unincorporated joint ventures with third parties.
Rio Tinto. In 2004, FCX
purchased Rio Tinto’s 23.9 million shares of FCX common stock for
$882 million (approximately $36.85 per share) with a portion of the
proceeds from the sale of the 5½% Convertible Perpetual Preferred Stock (see
Note 13). Rio Tinto acquired these shares from FCX’s former parent company in
1995 in connection with the spin-off of FCX as an independent company. FCX and
Rio Tinto have established certain unincorporated joint ventures that were not
impacted by FCX’s purchase of its shares from Rio Tinto. Under the joint venture
arrangements, Rio Tinto has a 40 percent interest in PT Freeport Indonesia’s
Contract of Work and the option to participate in 40 percent of any other future
exploration projects in Papua, Indonesia.
Pursuant
to the joint venture agreement, Rio Tinto has a 40 percent interest in certain
assets and future production exceeding specified annual amounts of copper, gold
and silver through 2021 in Block A of PT Freeport Indonesia’s Contract of Work,
and, after 2021, a 40 percent interest in all production from Block A. All of PT
Freeport Indonesia’s proven and probable reserves and its mining operations are
located in the Block A area. Operating, nonexpansion capital and administrative
costs are shared proportionately between PT Freeport Indonesia and Rio Tinto
based on the ratio of (i) the incremental revenues from production from PT
Freeport Indonesia’s most recent expansion completed in 1998 to (ii) total
revenues from production from Block A, including production from PT Freeport
Indonesia’s previously existing reserves. PT Freeport Indonesia will continue to
receive 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.
The joint
venture agreement provides for adjustments to the specified annual amounts of
copper, gold and silver attributable 100 percent to PT Freeport Indonesia upon
the occurrence of certain events that cause an extended interruption in
production to occur, including events such as the fourth-quarter 2003 Grasberg
open-pit slippage and debris flow. As a result of the Grasberg slippage and
debris flow events, the 2004 specified amounts attributable 100 percent to PT
Freeport Indonesia were reduced by 172 million recoverable pounds for copper and
272,000 recoverable ounces for gold. Pursuant to agreements in 2005 and early
2006 with Rio Tinto, these reductions were partially offset by increases in the
specified amounts attributable 100 percent to PT Freeport Indonesia totaling 62
million recoverable pounds for copper and 170,000 recoverable ounces for gold in
2005, and
110
million recoverable pounds for copper and 102,000 recoverable ounces for gold in
2021. The payable to Rio Tinto for its share of joint venture cash flows was
less than $1 million at December 31, 2008, and $68 million at December 31,
2007.
Under the
joint venture arrangements, Rio Tinto funded $100 million in 1996 for approved
exploration costs in the areas covered by Contracts of Work held by FCX
subsidiaries. Agreed-upon exploration costs in the joint venture areas are
shared 60 percent by FCX and 40 percent by Rio Tinto. In September 2008, Rio
Tinto notified FCX that it no longer planned to participate in exploration joint
ventures in the PT Nabire Bakti Mining and PT Irja Eastern Minerals Contract of
Work areas in Indonesia for the remainder of 2008. As a result, as long as Rio
Tinto continues not to fund these exploration projects, FCX has the option to
fund 100 percent of future exploration costs in these areas and Rio Tinto's
interest in these areas will decline over time in accordance with the joint
venture agreement. Rio Tinto has the option to resume participation in PT Irja
Eastern Minerals on a monthly basis and in PT Nabire Bakti Mining on an annual
basis. Rio Tinto continues to participate in exploration joint ventures in PT
Freeport Indonesia's Contract of Work areas.
Sumitomo. FCX owns an 85
percent undivided interest in Morenci via an unincorporated joint venture. The
remaining 15 percent is owned by Sumitomo, a jointly owned subsidiary of
Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation. Each partner takes in
kind its share of Morenci’s production. FMC purchased 90 million pounds of
Morenci’s copper cathode from Sumitomo for $281 million during 2008 and 87
million pounds for $299 million during the period March 20, 2007 to December 31,
2007. FCX had a $2 million net receivable from Sumitomo at December 31, 2008,
and a $10 million net payable at December 31, 2007.
Investment in PT
Smelting. PT Smelting, an Indonesian company, operates a
smelter/refinery in Gresik, Indonesia. During 2006, PT Smelting completed an
expansion of its production capacity to 275,000 metric tons of copper per year
from 250,000 metric tons. PT Freeport Indonesia, Mitsubishi Materials
Corporation (Mitsubishi Materials), Mitsubishi Corporation (Mitsubishi) and
Nippon Mining & Metals Co., Ltd. (Nippon) own 25 percent, 60.5 percent, 9.5
percent, and 5 percent, respectively, of the outstanding PT Smelting common
stock.
PT
Freeport Indonesia’s contract with PT Smelting provides for the supply of 100
percent of the copper concentrate requirements necessary for PT Smelting to
produce 205,000 metric tons of copper annually (essentially the smelter’s
original design capacity) on a priority basis. For the first 15 years of PT
Smelting’s commercial operations, beginning December 1998, PT Freeport Indonesia
agreed that the combined treatment and refining charges (fees paid to smelters
by miners) would approximate market rates, but will not fall below specified
minimum rates. The minimum rate, applicable to the period April 27, 2008 to
April 27, 2014, is to be determined annually and be sufficient to cover PT
Smelting’s annual cash operating costs (net of credits and including costs of
debt service) for 205,000 metric tons of copper. The maximum rate is $0.30 per
pound. The agreement is an amendment to the long-term sales contract, which is
pending approval from the Department of Energy and Mineral Resources of the
Government of Indonesia. PT Freeport Indonesia also sells copper concentrate to
PT Smelting at market rates, which are not subject to a minimum or maximum rate,
for quantities in excess of 205,000 metric tons of copper annually.
FCX’s
investment in PT Smelting totaled $99 million at December 31, 2008, and $71
million at December 31, 2007. PT Smelting had project-specific debt, nonrecourse
to PT Freeport Indonesia, totaling $240 million at December 31, 2008, and
$219 million at December 31, 2007. PT Freeport Indonesia had a trade receivable
from PT Smelting totaling $37 million at December 31, 2008, and $91 million at
December 31, 2007.
NOTE
4. DISCONTINUED OPERATIONS
On
October 31, 2007, FCX sold its international wire and cable
business, Phelps Dodge International Corporation (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 and reported as discontinued operations in the
consolidated statements of operations. Selected financial information that has
been reported as discontinued operations for the period March 20, 2007, through
December 31, 2007, follows:
Revenues
|
|
$
|
937
|
|
Operating
income
|
|
|
78
|
|
Provision
for income taxes
|
|
|
(24
|
)
|
Income
from discontinued operations
|
|
|
35
|
|
|
|
|
|
|
Cash
flows from discontinued operations for the year ended December 31, 2007, have
not been separately identified in the consolidated statements of cash
flows.
NOTE
5. INVENTORIES, AND MILL AND LEACH STOCKPILES
The
components of inventories follow:
|
|
December
31,
|
|
|
|
2008
|
|
2007
|
|
Mining
Operations:
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
1
|
|
$
|
1
|
|
Work-in-process
|
|
|
128
|
|
|
71
|
|
Finished
goodsa
|
|
|
703
|
|
|
898
|
|
Atlantic
Copper:
|
|
|
|
|
|
|
|
Raw
materials (concentrates)
|
|
|
164
|
|
|
164
|
|
Work-in-process
|
|
|
71
|
|
|
220
|
|
Finished
goods
|
|
|
1
|
|
|
6
|
|
Total
product inventories
|
|
|
1,068
|
|
|
1,360
|
|
Total
materials and supplies, netb
|
|
|
1,124
|
|
|
818
|
|
Total
inventories
|
|
$
|
2,192
|
|
$
|
2,178
|
|
|
|
|
|
|
|
|
|
a.
|
Primarily
includes copper concentrates, anodes, cathodes and rod, and
molybdenum.
|
b.
|
Materials
and supplies inventory is net of obsolescence reserves totaling $22
million at December 31, 2008, and $16 million at December 31,
2007.
|
The
following summarizes mill and leach stockpiles as of December 31,
2008:
|
North
|
|
South
|
|
|
|
|
|
|
America
|
|
America
|
|
Africa
|
|
Total
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
stockpiles
|
$
|
–
|
|
$
|
10
|
|
$
|
–
|
|
$
|
10
|
|
Leach
stockpiles
|
|
489
|
|
|
72
|
|
|
–
|
|
|
561
|
|
Total
current mill and leach
|
|
|
|
|
|
|
|
|
|
|
|
|
stockpiles
|
$
|
489
|
|
$
|
82
|
|
$
|
–
|
|
$
|
571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-terma:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
stockpiles
|
$
|
2
|
|
$
|
335
|
|
$
|
3
|
|
$
|
340
|
|
Leach
stockpiles
|
|
625
|
|
|
180
|
|
|
–
|
|
|
805
|
|
Total
long-term mill and leach
|
|
|
|
|
|
|
|
|
|
|
|
|
stockpiles
|
$
|
627
|
|
$
|
515
|
|
$
|
3
|
|
$
|
1,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Materials
in stockpiles not expected to be recovered within the next 12
months.
|
The
following summarizes mill and leach stockpiles as of December 31,
2007:
|
|
|
North
|
|
South
|
|
|
|
|
|
|
America
|
|
America
|
|
Total
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
stockpiles
|
|
|
|
$
|
–
|
|
$
|
6
|
|
$
|
6
|
|
Leach
stockpiles
|
|
|
|
|
630
|
|
|
71
|
|
|
701
|
|
Total
current mill and leach stockpiles
|
|
|
|
$
|
630
|
|
$
|
77
|
|
$
|
707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-terma:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
stockpiles
|
|
|
|
$
|
–
|
|
$
|
248
|
|
$
|
248
|
|
Leach
stockpiles
|
|
|
|
|
685
|
|
|
173
|
|
|
858
|
|
Total
long-term mill and leach stockpiles
|
|
|
|
$
|
685
|
|
$
|
421
|
|
$
|
1,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Materials
in stockpiles not expected to be recovered within the next 12
months.
|
In
connection with the March 2007 acquisition of Phelps Dodge, acquired
inventories, including mill and leach stockpiles, were recorded at fair value
using near-term price forecasts reflecting the then-current price environment
and management’s projections for long-term average metal prices. As a result of
the declines in copper and molybdenum prices in the fourth quarter of 2008 and
the impact of higher operating costs on inventory balances during 2008, FCX
recorded charges of $782 million ($479 million to net loss or $1.26 per diluted
share) for lower of cost or market (LCM) inventory adjustments.
NOTE
6. PROPERTY, PLANT, EQUIPMENT AND DEVELOPMENT COSTS, NET
The
components of net property, plant, equipment and development costs, along with
2008 impairment charges, follow:
|
|
December
31,
|
|
|
2008
|
|
|
|
2008
|
|
2007
|
|
|
Impairments
|
|
Proven
and probable reserves
|
|
$
|
4,052
|
|
$
|
13,797
|
|
|
$
|
10,056
|
|
VBPP
|
|
|
1,341
|
|
|
2,103
|
|
|
|
471
|
|
Development
and other
|
|
|
2,572
|
|
|
2,516
|
|
|
|
279
|
|
Buildings
and infrastructure
|
|
|
2,381
|
|
|
2,300
|
|
|
|
167
|
|
Machinery
and equipment
|
|
|
5,713
|
|
|
6,023
|
|
|
|
938
|
|
Mobile
equipment
|
|
|
1,801
|
|
|
2,106
|
|
|
|
393
|
|
Construction
in progress
|
|
|
2,686
|
|
|
1,197
|
|
|
|
27
|
|
Property,
plant, equipment and
|
|
|
|
|
|
|
|
|
|
|
|
development
costs
|
|
|
20,546
|
|
|
30,042
|
|
|
|
12,331
|
|
Accumulated
depreciation, depletion and
|
|
|
|
|
|
|
|
|
|
|
|
amortization
|
|
|
(4,544
|
)
|
|
(4,327
|
)
|
|
|
(1,583
|
)
|
Property,
plant, equipment and
|
|
|
|
|
|
|
|
|
|
|
|
development
costs, net
|
|
$
|
16,002
|
|
$
|
25,715
|
|
|
$
|
10,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCX
recorded $2.2 billion for VBPP in connection with the Phelps Dodge acquisition
in 2007 and transferred $287 million during 2008 and $93 million during 2007 to
proven and probable reserves.
FCX’s
capitalized interest totaled $122 million in 2008, $147 million in 2007 and $11
million in 2006. Capitalized interest primarily related to development projects
at Tenke Fungurume in 2008 and Safford and Tenke Fungurume in 2007.
In
connection with the decline in copper and molybdenum prices and the
deterioration of the economic environment during the fourth quarter of 2008, FCX
evaluated its long-lived assets for impairment as of December 31, 2008. FCX’s
evaluations were based on current business plans developed using near-term price
forecasts reflective of the current price environment and management’s
projections for long-term average metal prices. These evaluations resulted in
the recognition of asset impairment charges of $10.9 billion ($6.6 billion to
net loss or $17.34 per diluted share), consisting of $10,748 million to reduce
the carrying values of property, plant, equipment and development costs and $119
million to reduce the carrying values of definite-lived intangible assets (see
Note 2 for further discussion).
NOTE
7. GOODWILL, AND INTANGIBLE ASSETS AND LIABILITIES
Goodwill. Changes
in the carrying amount of goodwill for the years ended December 31, 2008 and
2007, follow:
Balance
at January 1, 2007
|
|
$
|
–
|
|
Acquisition
of Phelps Dodge
|
|
|
6,265
|
|
Additionsa
|
|
|
21
|
|
Disposal
of PDIC (see Note 4)
|
|
|
(181
|
)
|
Balance
at December 31, 2007
|
|
|
6,105
|
|
Purchase
accounting adjustment
|
|
|
(57
|
)
|
Deferred
tax liability adjustment associated with the
|
|
|
|
|
purchase
of Phelps Dodgeb
|
|
|
(61
|
)
|
Impairment
losses
|
|
|
(5,987
|
)
|
Balance
at December 31, 2008
|
|
$
|
–
|
|
|
|
|
|
|
a.
|
In
2007, FCX acquired minority shareholders’ interests in several of its
subsidiaries, which were subsequently included in the sale of
PDIC.
|
b.
|
Adjustment
was allocated to the Morenci mine.
|
FCX
recorded goodwill in connection with the Phelps Dodge acquisition, which
primarily related to the requirement to recognize a deferred tax liability for
the difference between the assigned values and the tax basis of assets acquired
and liabilities assumed in a business combination. In accordance with accounting
rules, goodwill resulting from a business combination is assigned to the
acquiring entity's reporting units that are expected to benefit from the
business combination. The allocation of goodwill to the reporting units, which
FCX determined included its individual mines, was completed in the first quarter
of 2008.
Goodwill
has an indefinite useful life and is not amortized, but rather is tested for
impairment at least annually, unless events occur or circumstances change
between annual tests that would more likely than not reduce the fair value of a
related reporting unit below its carrying amount. FCX performed its annual
goodwill impairment testing in the fourth quarter of 2008. FCX’s evaluations
were based on current business plans developed using near-term price forecasts
reflective of the current price environment and management’s projections for
long-term average metal prices. These evaluations resulted in the recognition of
impairment charges of $6.0 billion ($6.0 billion to net loss or $15.69 per
diluted share) to eliminate the full carrying value of goodwill (see Note 2
for further discussion of assumptions used in determining fair
value).
Intangible Assets and
Liabilities. The components of intangible assets and
intangible liabilities (included in other liabilities) as of December 31, 2008,
follow:
|
December
31, 2008
|
|
|
Gross
|
|
|
|
Net
|
|
|
Carrying
|
|
Accumulated
|
|
Book
|
|
|
Valuea
|
|
Amortizationa
|
|
Value
|
|
Indefinite-lived
water rights
|
$
|
256
|
|
$
|
–
|
|
$
|
256
|
|
Patents
and process technology
|
|
48
|
|
|
(6
|
)
|
|
42
|
|
Royalty
payments
|
|
47
|
|
|
(7
|
)
|
|
40
|
|
Power
contracts
|
|
26
|
|
|
(11
|
)
|
|
15
|
|
Tire
contracts
|
|
9
|
|
|
(2
|
)
|
|
7
|
|
Other
intangibles
|
|
4
|
|
|
–
|
|
|
4
|
|
Total
intangible assets
|
$
|
390
|
|
$
|
(26
|
)
|
$
|
364
|
|
|
|
|
|
|
|
|
|
|
|
Treatment
and refining terms in
|
|
|
|
|
|
|
|
|
|
sales
contracts
|
$
|
52
|
|
$
|
(15
|
)
|
$
|
37
|
|
Molybdenum
sales contracts
|
|
108
|
|
|
(108
|
)
|
|
–
|
|
Total
intangible liabilities
|
$
|
160
|
|
$
|
(123
|
)
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
After
impairments recorded in 2008.
|
In
connection with the decline in copper and molybdenum prices and the
deterioration of the economic environment during the fourth quarter of 2008, FCX
evaluated its long-lived assets for impairment as of December 31, 2008. FCX’s
evaluations were based on current business plans developed using near-term price
forecasts reflective of the current price environment and management’s
projections for long-term average metal prices. These evaluations resulted in
the recognition of asset impairment charges of $119 million ($74 million to
net loss or $0.19 per diluted share) to reduce the carrying values of
definite-lived intangible assets (see Note 2 for further
discussion).
Indefinite-lived
intangible assets are tested for impairment at least annually, unless events
occur or circumstances change between annual tests that would more likely than
not reduce the indefinite-lived intangible asset’s fair value below its carrying
value. FCX performed its annual impairment testing in the fourth quarter of 2008
and concluded that there was no impairment of indefinite-lived intangible
assets.
The
components of intangible assets and intangible liabilities (included in other
liabilities) as of December 31, 2007, follow:
|
December
31, 2007
|
|
|
Gross
|
|
|
|
|
Net
|
|
|
Carrying
|
|
Accumulated
|
|
Book
|
|
|
Value
|
|
Amortization
|
|
Value
|
|
Indefinite-lived
water rights
|
$
|
200
|
|
$
|
–
|
|
$
|
200
|
|
Patents
and process technology
|
|
48
|
|
|
(2
|
)
|
|
46
|
|
Royalty
payments
|
|
39
|
|
|
(2
|
)
|
|
37
|
|
Power
contracts
|
|
169
|
|
|
(38
|
)
|
|
131
|
|
Tire
contracts
|
|
39
|
|
|
(4
|
)
|
|
35
|
|
Other
intangibles
|
|
24
|
|
|
(1
|
)
|
|
23
|
|
Total
intangible assets
|
$
|
519
|
|
$
|
(47
|
)
|
$
|
472
|
|
|
|
|
|
|
|
|
|
|
|
Treatment
and refining terms in
|
|
|
|
|
|
|
|
|
|
sales
contracts
|
$
|
52
|
|
$
|
(9
|
)
|
$
|
43
|
|
Molybdenum
sales contracts
|
|
115
|
|
|
(111
|
)
|
|
4
|
|
Total
intangible liabilities
|
$
|
167
|
|
$
|
(120
|
)
|
$
|
47
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangible assets recognized in production and delivery costs was $63 million
in 2008 and $47 million in 2007. Amortization of intangible liabilities
recognized in revenues totaled $3 million in 2008 and $120 million in 2007. The
estimated net amortization expense for the next five years totals $7 million in
2009, $9 million in 2010, $5 million in 2011, $5 million in 2012 and $3 million
in 2013.
NOTE
8. TRUST ASSETS
The
components of trust assets follow:
|
December
31,
|
|
|
2008
|
|
|
2007
|
|
Employee
and retiree benefit trustsa
|
$
|
117
|
|
$
|
18
|
|
Global
reclamation and remediationb
|
|
114
|
|
|
544
|
|
Change
of control
|
|
15
|
|
|
21
|
|
Rabbi
trust
|
|
14
|
|
|
23
|
|
Total
trust assets
|
|
260
|
|
|
606
|
|
Less
current portion (included in other current assets)
|
|
(118
|
)
|
|
–
|
|
Long-term
trust assets
|
$
|
142
|
|
$
|
606
|
|
|
|
|
|
|
|
|
a.
|
During
2008, the Voluntary Employees’ Beneficiary Association (VEBA) trusts were
amended to allow benefit payments for active as well as retired employees;
therefore, these trusts no longer qualify under applicable accounting
rules as plan assets under FCX’s postretirement medical and life insurance
benefit plans.
|
b.
|
Decrease
results primarily from reimbursement of previously incurred costs for
reclamation and environmental activities. Includes $114 million in 2008
and $106 million in 2007 of legally restricted funds for AROs at the
Chino, Tyrone and Cobre mines. See Note 15 for further
discussion.
|
NOTE
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The
following provides additional information regarding accounts payable and accrued
liabilities.
|
|
December
31,
|
|
|
|
2008
|
|
2007
|
|
Accounts
payable
|
|
$
|
1,164
|
|
$
|
1,195
|
|
Provisionally
priced sales adjustmentsa
|
|
|
698
|
|
|
59
|
|
Pension,
postretirement, postemployment and other
|
|
|
|
|
|
|
|
employee
benefitsb
|
|
|
156
|
|
|
108
|
|
Accrued
interestc
|
|
|
136
|
|
|
144
|
|
Salaries,
wages and other compensation
|
|
|
129
|
|
|
278
|
|
Current
deferred tax liability
|
|
|
78
|
|
|
171
|
|
Community
development programs
|
|
|
74
|
|
|
118
|
|
Other
|
|
|
287
|
|
|
272
|
|
Total
accounts payable and accrued liabilities
|
|
$
|
2,722
|
|
$
|
2,345
|
|
|
|
|
|
|
|
|
|
a.
|
Represents
payables to customers as a result of adjusting embedded derivatives in
provisionally priced sales to market prices (see “Revenue Recognition” in
Note 1 for further discussion).
|
b.
|
See
Note 10 for long-term portion and Note 12 for further
discussion.
|
c.
|
Third-party
interest paid by FCX was $741 million in 2008, $504 million in 2007 and
$80 million in 2006.
|
NOTE
10. OTHER LIABILITIES
The
following provides additional information regarding other
liabilities.
|
|
December
31,
|
|
|
|
2008
|
|
2007
|
|
Pension,
postretirement, postemployment and other
|
|
|
|
|
|
|
|
employment
benefits and long-term incentive
|
|
|
|
|
|
|
|
compensationa
|
|
$
|
964
|
|
$
|
644
|
|
Reserve
for uncertain tax benefits
|
|
|
159
|
|
|
115
|
|
Accrued
long-term tax liability
|
|
|
82
|
|
|
80
|
|
Atlantic
Copper contractual obligation to
|
|
|
|
|
|
|
|
insurance
company (see Note 12)
|
|
|
62
|
|
|
72
|
|
Community
development programs
|
|
|
59
|
|
|
–
|
|
Insurance
claim reserve
|
|
|
50
|
|
|
44
|
|
Other
|
|
|
144
|
|
|
151
|
|
Total
other liabilities
|
|
$
|
1,520
|
|
$
|
1,106
|
|
|
|
|
|
|
|
|
|
a.
|
See
Note 9 for short-term portion and Note 12 for further
discussion.
|
NOTE
11. LONG-TERM DEBT
The
components of long-term debt follow:
|
|
December
31,
|
|
|
|
2008
|
|
2007
|
|
Senior
Credit Facility
|
|
$
|
150
|
|
$
|
–
|
|
Senior
Notes:
|
|
|
|
|
|
|
|
8.375%
Senior Notes due 2017
|
|
|
3,500
|
|
|
3,500
|
|
8.25%
Senior Notes due 2015
|
|
|
1,500
|
|
|
1,500
|
|
Senior
Floating Rate Notes due 2015
|
|
|
1,000
|
|
|
1,000
|
|
6⅞%
Senior Notes due 2014
|
|
|
340
|
|
|
340
|
|
9½%
Senior Notes due 2031
|
|
|
198
|
|
|
239
|
|
8¾%
Senior Notes due 2011
|
|
|
115
|
|
|
118
|
|
6⅛%
Senior Notes due 2034
|
|
|
115
|
|
|
115
|
|
7⅛%
Debentures due 2027
|
|
|
115
|
|
|
115
|
|
7%
Convertible Senior Notes due 2011
|
|
|
1
|
|
|
1
|
|
Other
(including equipment capital leases and
|
|
|
|
|
|
|
|
short-term
borrowings)
|
|
|
317
|
|
|
283
|
|
Total
debt
|
|
|
7,351
|
|
|
7,211
|
|
Less
current portion of long-term debt and
|
|
|
|
|
|
|
|
short-term
borrowings
|
|
|
(67
|
)
|
|
(31
|
)
|
Long-term
debt
|
|
$
|
7,284
|
|
$
|
7,180
|
|
|
|
|
|
|
|
|
|
Senior Credit
Facility. In connection with financing FCX’s acquisition of
Phelps Dodge, FCX used proceeds from its borrowings under its $11.5 billion
senior credit facility. At the close of the Phelps Dodge acquisition, the senior
credit facility consisted of a $2.5 billion senior term loan due March 2012, a
$7.5 billion Tranche B term loan due March 2014 and $1.5 billion in revolving
credit facilities due March 2012, with no amounts drawn on the revolving credit
facilities. The revolving credit facilities are composed of (i) a $1.0 billion
revolving credit facility available to FCX and (ii) a $0.5 billion revolving
credit facility available to both FCX and PT Freeport Indonesia. FCX used
proceeds from equity offerings, operating cash flows and asset sales to prepay
the $10 billion of term loans by December 31, 2007. FCX had borrowings of $150
million and $74 million of letters of credit issued under the revolving credit
facilities at December 31, 2008, resulting in availability of approximately $1.3
billion, of which $926 million could be used for additional letters of
credit.
Interest
on the revolving credit facilities is based on the London Interbank Offered Rate
(LIBOR) plus 1.00 percent, subject to an increase or decrease in the interest
rate margin based on the credit ratings assigned by Standard & Poor’s Rating
Services and Moody’s Investor Services. The interest rate on the revolving
credit facilities was 1.44 percent at December 31, 2008.
The
senior credit facility also contains covenants, including limitations on
indebtedness, liens, asset sales, restricted payments and transactions with
affiliates. In addition, the senior credit facility requires that FCX meet
certain financial tests at any time that borrowings are outstanding under the
facility, including a leverage ratio test (Total Debt to Consolidated EBITDA, as
those terms are defined in the facility, for the preceding four quarters cannot
exceed 5.0 to 1.0 on the last day of any fiscal quarter) and a secured leverage
ratio test (Total Secured Debt to Consolidated EBITDA, as those terms are
defined in the facility, for the preceding four quarters cannot exceed 3.0 to
1.0 on the last day of any fiscal quarter). For the four quarters ended December
31, 2008, the Total Debt to Consolidated EBITDA ratio was 1.1 to 1.0 and the
Total Secured Debt to Consolidated EBITDA ratio was 0.07 to 1.0. In January
2009, the facility was amended to adjust the calculation for Consolidated EBITDA
to reduce the third quarter of 2008 and increase the fourth quarter of 2008 by
$715 million, which is associated with the adjustment for provisionally priced
copper sales from prior periods that resulted from the decline in copper prices.
The amendment avoids a distortion in the fourth quarter of 2008 Consolidated
EBITDA for purposes of quarterly calculations through third quarter of 2009. The
senior credit facility is guaranteed by certain wholly owned subsidiaries of FCX
and is secured by the pledge of equity in substantially all of these subsidiary
guarantors and certain other non-guarantor subsidiaries of FCX, and intercompany
indebtedness owed to FCX. Borrowings by FCX and PT Freeport Indonesia under the
$0.5 billion revolver are also secured with a pledge of 50.1 percent of the
outstanding stock of PT Freeport Indonesia, over 90 percent of the assets of PT
Freeport Indonesia and, with respect to borrowings by PT Freeport Indonesia, a
pledge of the Contract of Work.
During
2007, FCX recorded net charges totaling $154 million ($120 million to net income
or $0.30 per diluted share) for early extinguishment of debt related to the
accelerated recognition of deferred financing costs associated with the
repayment of amounts under the senior credit facility.
Senior Notes. In
March 2007, in connection with financing FCX’s acquisition of Phelps Dodge, FCX
sold $3.5 billion of 8.375% Senior Notes due April 2017, $1.5 billion of 8.25%
Senior Notes due April 2015 and $1.0 billion of Senior Floating Rate Notes due
April 2015 for total net proceeds of $5.9 billion. Interest on the senior notes
is payable semiannually on April 1 and October 1. Interest on the Senior
Floating Rate Notes accrues at six-month LIBOR plus 3.25 percent. The interest
rate on the Senior Floating Rate Notes was 7.08 percent at December 31,
2008. These notes are redeemable in whole or in part, at the option of FCX, at
make-whole redemption prices prior to the redemption dates, and afterwards at
stated redemption prices. The terms of the agreements allow for optional
make-whole redemptions prior to April 1, 2009, for the Senior Floating Rate
Notes; April 1, 2011, for the 8.25% Senior Notes; and April 1, 2012, for the
8.375% Senior Notes. The indenture governing the notes contains covenants that
include, among others, restrictions on incurring debt, creating liens, selling
assets, making restricted payments and entering into certain transactions with
affiliates. In April 2008, Standard & Poor’s Rating Services (S&P) and
Fitch Ratings raised FCX’s corporate credit rating and the ratings on FCX’s
unsecured debt to BBB- (investment grade). As a result of the upgrade by
S&P, the restrictions on incurring debt, making restricted payments and
selling assets were suspended. To the extent the rating is downgraded below
investment grade, these covenants would again become effective.
In
February 2004, FCX sold $350 million of 6⅞% Senior Notes due February 2014 for
net proceeds of $344 million. Interest on the notes is payable semiannually
on February 1 and August 1. These notes are redeemable in whole or in part, at
the option of FCX, at stated redemption prices. During 2004, FCX purchased in
open-market transactions $10 million of its 6⅞% Senior Notes. The indenture
governing the notes contains covenants that include, among others, certain
restrictions on incurring debt, creating liens, selling assets, making
restricted payments and entering into certain transactions with
affiliates. At the time of the Phelps Dodge acquisition, the
6⅞% Senior Notes received the benefit of the same guarantees and subsidiary
pledges provided under the FCX senior credit facility. This security could be
released under certain circumstances involving changes in FCX’s capital
structure. As a result of the aforementioned upgrade to investment grade by
S&P, the restrictions on incurring debt, making restricted payments, selling
assets and entering into certain transactions with affiliates were suspended. To
the extent the rating is downgraded below investment grade, these covenants
would again become effective.
The 9½%
Senior Notes due June 2031 and the 8¾% Senior Notes due June 2011 bear
interest payable semiannually on June 1 and December 1. These notes are
redeemable in whole or in part, at the option of FCX, at a make-whole redemption
price. In March 2007, in connection with the acquisition of Phelps Dodge, FCX
assumed these senior notes with a stated value of $306 million, which was
increased by $54 million to reflect the fair market value of these obligations
at the acquisition date. The increase in value is being amortized over the
term of the notes and recorded as a reduction of interest expense. In February
2008, FCX purchased in an open-market transaction $33 million of the 9½% Senior
Notes for $46 million and recorded charges of $6 million ($5 million to net
loss or $0.01 per diluted share). At December 31, 2008, the outstanding
principal amount of the 9½% Senior Notes was $161 million and the 8¾% Senior
Notes was $108 million.
The 6⅛%
Senior Notes due March 2034 bear interest payable semiannually on March 15 and
September 15. These notes are redeemable in whole or in part, at the option of
FCX, at a make-whole redemption price. In March 2007, in connection with
the acquisition of Phelps Dodge, FCX assumed these senior notes with a stated
value of $150 million, which was reduced by $11 million to reflect the fair
market value of these obligations at the acquisition date. The decrease in
value is being amortized over the term of the notes and recorded as
additional interest expense. During 2007, FCX purchased in an open-market
transaction $26 million of these notes and recorded charges of $2 million
($2 million to net income or less than $0.01 per diluted share). At December 31,
2008, the outstanding principal amount of these senior notes was $124
million.
The 7⅛%
Debentures due November 2027 bear interest payable semiannually on May 1 and
November 1. The debentures are redeemable in whole or in part, at the option of
FCX, at a make-whole redemption price. In March 2007, in connection with
the acquisition of Phelps Dodge, FCX assumed these debentures with a stated and
fair value of $115 million. At December 31, 2008, the outstanding principal
amount of these debentures was $115 million.
In
February 2003, FCX sold $575 million of 7% Convertible Senior Notes due February
2011 for net proceeds of $559 million. Interest on the notes is payable
semiannually on March 1 and September 1. The notes were initially
convertible, at the option of the holder, at any time on or prior to
maturity into shares of FCX’s common stock at a conversion price of $30.87 per
share, which was equal to a conversion rate of approximately 32.39 shares of
common stock per $1,000 principal amount of notes. The conversion rate is
adjustable when dividends over a twelve-month period exceed a certain threshold.
As a result of FCX’s cumulative twelve-month dividends through February 2007,
the conversion price was adjusted to $30.16 per share, which is equal to a
conversion rate of approximately 33.16 shares of common stock per $1,000
principal amount of notes. No further adjustments to the conversion price have
been required since that time. In 2005, FCX privately negotiated transactions to
induce conversion of $251 million of these notes into 8.1 million shares of
FCX common stock, which resulted in a 2005 net charge of $25 million
($23 million to net income or $0.11 per diluted share). In 2006, FCX completed a
tender offer and privately negotiated transactions to induce conversions of $317
million of these notes into 10.3 million shares of FCX common stock, which
resulted in a 2006 net charge of $31 million ($30 million to net income or $0.13
per diluted share). In 2007, $6 million of these notes were converted into 0.2
million shares of FCX common stock and the balance at December 31, 2008, was $1
million.
In
January 2003, FCX sold $500 million of 10⅛% Senior Notes due 2010 for net
proceeds of $487 million. In 2005, FCX purchased in open-market transactions
$216 million of these notes and recorded transaction-related charges of $27
million ($17 million to net income or $0.08 per diluted share). In 2006, FCX
purchased in an open-market transaction $11 million of these notes and recorded
transaction-related charges of $1 million ($1 million to net income or less
than $0.01 per diluted share). During 2007, FCX purchased in an open-market
transaction the remaining $273 million of these notes and recorded
transaction-related charges of $17 million ($10 million to net income or $0.02
per diluted share).
All of
FCX’s senior notes are unsecured, except for the 6⅞% Senior Notes.
Redeemable Preferred
Stock. As discussed in Note 1, pursuant to SFAS No. 150,
mandatorily redeemable preferred stock is classified as debt.
At
December 31, 2005, FCX had outstanding 4.3 million depositary shares
representing 215,279 shares of its Gold-Denominated Preferred Stock, Series II
totaling $167 million. Each depositary share had a cumulative quarterly cash
dividend equal to the value of 0.0008125 ounce of gold and was redeemed in
February 2006 for the cash value of 0.1 ounce of gold ($236 million). The
mandatory redemption resulted in a $167 million decrease in debt and a loss
recognized in 2006 revenues of $69 million ($37 million to net income or $0.17
per diluted share).
At
December 31, 2005, FCX had outstanding 4.8 million depositary shares
representing 14,875 shares of its Silver-Denominated Preferred Stock totaling
$13 million. Each depositary share had a cumulative quarterly cash dividend
equal to the value of 0.0051563 ounce of silver. On August 1, 2006, FCX funded
the last of eight scheduled annual redemption payments on its Silver-Denominated
Preferred Stock for $26 million, resulting in a $13 million decrease in debt.
The mandatory redemptions also resulted in losses recognized in revenues
totaling $13 million in 2006 ($7 million to net income or $0.03 per diluted
share).
Restrictive
Covenants. The senior credit facility, the $6.0 billion of
senior notes used to finance the acquisition of Phelps Dodge and the 6⅞% Senior
Notes contain covenants that limit FCX’s ability to make certain payments. These
restrictions vary among the instruments, but generally limit FCX’s ability to
pay certain dividends on common and preferred stock, repurchase or redeem common
and preferred equity, prepay subordinated debt and make certain investments. As
a result of the upgrade of FCX’s unsecured notes to investment grade, the
restricted payment covenants contained in its $6.0 billion of senior notes used
to finance the acquisition of Phelps Dodge and 6⅞% Senior Notes have been
suspended. To the extent the rating is downgraded below investment grade, the
covenants would again become effective. At December 31, 2008, the most
restrictive of these covenants allowed for such payments up to a limit in excess
of $5 billion.
Maturities. Maturities of
debt instruments based on the amounts and terms outstanding at December 31,
2008, total $67 million in 2009, $10 million in 2010,
$135 million in 2011, $246 million in 2012, $14 million in 2013
and $6,879 million thereafter.
NOTE
12. EMPLOYEE BENEFITS
Pension
Plans. Following is a discussion of FCX’s pension
plans.
FMC Plans. As a result of the
acquisition of Phelps Dodge, FCX acquired trusteed, non-contributory pension
plans covering substantially all of FMC’s U.S. employees and some employees of
its international subsidiaries. The applicable
FMC plan design determines the manner in which benefits are calculated for any
particular group of employees. For certain of these plans, benefits are
calculated based on final average monthly compensation and years of service. In
the case of other plans, benefits are calculated based on a fixed amount for
each year of service. Participants in the FMC plans generally vest in their
accrued benefits after five years of service. Non-bargained FMC employees hired
after December 31, 2006, are not eligible to participate in the FMC U.S. pension
plan.
FCX’s
funding policy for these plans provides that contributions to pension trusts
shall be at least equal to the minimum funding requirements of the Employee
Retirement Income Security Act of 1974, as amended, for U.S. plans; or, in the
case of international plans, the minimum legal requirements that may be
applicable in the various countries. Additional contributions also may be made
from time to time.
FCX’s
policy for determining asset-mix targets for the Phelps Dodge Corporation
Defined Benefit Master Trust (Master Trust) includes the periodic development of
asset/liability studies to determine expected long-term rates of return and
expected risk for various investment portfolios. Management considers these
studies in the formal establishment of asset-mix targets that are reviewed by
FCX’s retirement plan administration and investment committee. The expected rate
of return on plan assets is evaluated at least annually, taking into
consideration its asset allocation, historical returns on the types of assets
held in the Master Trust and the current economic environment. For U.S. plans,
the determination of the expected long-term rate of return on plan assets is
based on expected future performance of the plan asset mix and active plan asset
management. Based on these factors, FCX expects the pension assets will earn an
average of 8.5 percent per annum during the 10 years beginning January 1,
2009, with a standard deviation of 8.8 percent. The 8.5 percent estimation
was based on a passive return on a compound basis of 8.0 percent and a
premium for active management of 0.5 percent reflecting the target asset
allocation and current investment array. On an arithmetic average basis, the
passive return would have been 8.0 percent with a premium for active
management of 0.5 percent.
For
estimation purposes, FCX assumes the long-term asset mix for these plans
generally will be consistent with the current mix. Changes in the asset mix
could impact the amount of recorded pension income or expense, the funded status
of the plans and the need for future cash contributions. A lower-than-expected
return on assets also would decrease plan assets and increase the amount of
recorded pension expense in future years. When calculating the expected return
on plan assets, FCX uses the market value of assets.
Among the
assumptions used to estimate the benefit obligation is a discount rate used to
calculate the present value of expected future benefit payments for service to
date. The discount rate assumption for FCX’s U.S. plans is designed to reflect
yields on high-quality, fixed-income investments for a given duration. The
determination of the discount rate for these plans is based on expected future
benefit payments for service to date together with the Citibank Pension Discount
Curve. Changes in this assumption are reflected in FCX’s benefit obligation and,
therefore, in the liabilities and income or expense that are
recorded.
Other FCX Plans. During 2000, FCX and
FM Services Company, FCX’s wholly owned subsidiary, elected to terminate their
defined benefit pension plans covering substantially all U.S. and certain
overseas expatriate employees and replace these plans with defined contribution
programs, as further discussed below. All participants’ account balances in the
defined benefit plans were fully vested on June 30, 2000, and interest credits
continued to accrue under the plans until the assets were liquidated and
distributed in 2008 after obtaining final approval from the Internal Revenue
Service.
In
February 2004, FCX established an unfunded Supplemental Executive Retirement
Plan (SERP) for its two most senior executive officers. The SERP provides for
retirement benefits payable in the form of a joint and survivor annuity or an
equivalent lump sum. The annuity will equal a percentage of the executive’s
highest average compensation for any consecutive three-year period during the
five years immediately preceding the earlier of the executive’s retirement or
completion of 25 years of credited service. The SERP benefit will be reduced by
the value of all benefits paid or due under any defined benefit or defined
contribution plan sponsored by FM Services Company, FCX or its predecessor, but
not including accounts funded exclusively by deductions from participant’s pay.
FCX also has an unfunded pension plan for its directors and an excess benefits
plan for its executives.
PT Freeport Indonesia Plan.
PT Freeport Indonesia has a defined benefit pension plan denominated in
Indonesian rupiah covering substantially all of its Indonesian national
employees. PT Freeport Indonesia funds the plan and invests the assets in
accordance with Indonesian pension guidelines. The pension obligation was valued
at an exchange rate of 10,850 rupiah to one U.S. dollar on December 31, 2008,
and 9,390 rupiah to one U.S. dollar on December 31, 2007. Indonesian
labor laws enacted in 2003 require that companies provide a minimum level of
benefits to employees upon employment termination based on the reason for
termination and the employee’s years of service. PT Freeport Indonesia’s pension
benefit disclosures include benefits related to this law. PT Freeport
Indonesia’s expected rate of return on plan assets is evaluated at least
annually, taking into consideration its historical yield and the long range
estimated return for the plan based on the asset mix.
Atlantic Copper Plan.
Atlantic Copper has a contractual obligation denominated in euros to supplement
amounts paid to certain retired Spanish national employees. As required by
Spanish law, beginning in August 2002, Atlantic Copper began funding 7.2 million
euros ($10 million based on a December 31, 2008, exchange rate of $1.39 per
euro) annually for 15 years to an approved insurance company for its estimated
72 million euro contractual obligation to the retired employees. The insurance
company invests the plan assets in accordance with Spanish regulations, and
Atlantic Copper has no control over these investments. Atlantic Copper is
amortizing the unrecognized net actuarial loss over the remaining eight-year
funding period.
Plan Information. FCX uses a
measurement date of December 31 for its plans. In some plans, the plan assets
exceed the accumulated benefit obligations, while in the remainder, the
accumulated benefit obligations exceed the plan assets. The following table
presents the projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for those plans where the accumulated benefit
obligations exceed the plan assets:
|
|
December
31,
|
|
|
|
2008
|
|
2007
|
|
Projected
benefit obligation
|
|
$
|
1,486
|
|
$
|
230
|
|
Accumulated
benefit obligation
|
|
|
1,403
|
|
|
259
|
|
Fair
value of plan assets
|
|
|
968
|
|
|
66
|
|
|
|
|
|
|
|
|
|
Information
as of December 31, 2008 and 2007, on the FCX (including FMC’s plans; FCX’s SERP,
director and excess benefits plans; and FM Services Company’s plans), PT
Freeport Indonesia and Atlantic Copper plans follows:
|
|
|
PT
Freeport
|
|
|
|
|
FCX
|
|
Indonesia
|
|
Atlantic
Copper
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Change
in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
year
|
$
|
1,342
|
|
$
|
50
|
|
$
|
65
|
|
$
|
54
|
|
$
|
87
|
|
$
|
83
|
|
Acquisition
of Phelps Dodge
|
|
–
|
|
|
1,370
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Service
cost
|
|
29
|
|
|
24
|
|
|
6
|
|
|
5
|
|
|
–
|
|
|
–
|
|
Interest
cost
|
|
80
|
|
|
62
|
|
|
6
|
|
|
5
|
|
|
4
|
|
|
5
|
|
Amendments
|
|
(6
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Actuarial
(gains) losses
|
|
62
|
|
|
(78
|
)
|
|
(5
|
)
|
|
7
|
|
|
1
|
|
|
–
|
|
Divestitures
|
|
–
|
|
|
(5
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Foreign
exchange (gain) loss
|
|
(4
|
)
|
|
2
|
|
|
(9
|
)
|
|
(3
|
)
|
|
(3
|
)
|
|
8
|
|
Curtailmentsa
|
|
(19
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Special
retirement benefitsa
|
|
39
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Benefits
paid
|
|
(111
|
)
|
|
(83
|
)
|
|
(4
|
)
|
|
(3
|
)
|
|
(8
|
)
|
|
(9
|
)
|
Benefit
obligation at end of year
|
$ |
1,412
|
|
$
|
1,342
|
|
$ |
59
|
|
$
|
65
|
|
$
|
81
|
|
$
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PT
Freeport
|
|
|
|
|
FCX
|
|
Indonesia
|
|
Atlantic
Copper
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Change
in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
beginning
of year
|
$
|
1,442
|
|
$
|
13
|
|
$
|
38
|
|
$
|
30
|
|
$
|
15
|
|
$
|
14
|
|
Acquisition
of Phelps Dodge
|
|
–
|
|
|
1,374
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Actual
return on plan assets
|
|
(390
|
)
|
|
113
|
|
|
(2
|
)
|
|
4
|
|
|
–
|
|
|
–
|
|
Employer
contributionsb
|
|
21
|
|
|
24
|
|
|
15
|
|
|
8
|
|
|
12
|
|
|
10
|
|
Foreign
exchange gain (loss)
|
|
(3
|
)
|
|
1
|
|
|
(6
|
)
|
|
(1
|
)
|
|
–
|
|
|
–
|
|
Benefits
paid
|
|
(111
|
)
|
|
(83
|
)
|
|
(3
|
)
|
|
(3
|
)
|
|
(8
|
)
|
|
(9
|
)
|
Fair
value of plan assets at end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
year
|
|
959
|
|
|
1,442
|
|
|
42
|
|
|
38
|
|
|
19
|
|
|
15
|
|
|
|
|
|
|
|
|
Funded
status
|
$
|
(453
|
)
|
$
|
100
|
|
$
|
(17
|
)
|
$
|
(27
|
)
|
$
|
(62
|
)
|
$
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
benefit obligation
|
$
|
1,329
|
|
$
|
1,252
|
|
$
|
37
|
|
$
|
39
|
|
$
|
81
|
|
$
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
used
to determine benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
ratec
|
|
6.10
|
%
|
|
6.30
|
%
|
|
12.00
|
%
|
|
10.25
|
%
|
|
6.77
|
%
|
|
6.77
|
%
|
Rate
of compensation increased
|
|
4.25
|
%
|
|
4.25
|
%
|
|
8.00
|
%
|
|
8.00
|
%
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet classification of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
funded
status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
$
|
3
|
|
$
|
195
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
Accounts
payable and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accrued
liabilities
|
|
(5
|
)
|
|
(7
|
)
|
|
–
|
|
|
(1
|
)
|
|
–
|
|
|
–
|
|
Other
liabilities
|
|
(451
|
)
|
|
(88
|
)
|
|
(17
|
)
|
|
(26
|
)
|
|
(62
|
)
|
|
(72
|
)
|
Total
|
$
|
(453
|
)
|
$
|
100
|
|
$
|
(17
|
)
|
$
|
(27
|
)
|
$
|
(62
|
)
|
$
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Resulted
from revised mine operating plans and reductions in the workforce (see
Note 2 for further discussion).
|
b.
|
Employer
contributions for 2009 are expected to approximate $6 million for the
FCX plans, $14 million for the PT Freeport Indonesia plan (based on a
December 31, 2008, exchange rate of 10,850 Indonesian rupiah to one
U.S. dollar) and $10 million for the Atlantic Copper plan (based on a
December 31, 2008, exchange rate of $1.39 per
euro).
|
c.
|
The
discount rate shown in 2008 for the FCX plans relates to all plans except
the SERP plan. The discount rate shown in 2007 for the FCX plans relates
to the FMC plans and the excess benefit plan. The SERP plan’s discount
rate in 2008 and 2007 was 4.00
percent.
|
d.
|
The
rate of compensation increase shown for the FCX plans only relates to the
FMC plans.
|
The
weighted-average assumptions used to determine net periodic benefit cost and the
components of net periodic benefit cost for FCX’s pension plans (including FMC’s
plans for the year ended December 31, 2008, and the period March 20, 2007,
through December 31, 2007; FCX’s SERP, director and excess benefits plans; and
FM Services Company’s plans) for the years ended December 31, 2008, 2007 and
2006, follow:
|
2008
|
|
2007
|
|
2006
|
|
Weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
|
|
|
|
|
|
|
FCX
SERP
|
|
4.00
|
%
|
|
4.00
|
%
|
|
6.00
|
%
|
FMC
plans
|
|
6.30
|
%
|
|
5.78
|
%
|
|
N/A
|
|
Expected
return on plan assetsa
|
|
8.50
|
%
|
|
8.50
|
%
|
|
N/A
|
|
Rate
of compensation increasea
|
|
4.25
|
%
|
|
4.25
|
%
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
$
|
29
|
|
$
|
24
|
|
$
|
–
|
|
Interest
cost
|
|
80
|
|
|
62
|
|
|
2
|
|
Expected
return on plan assets
|
|
(118
|
)
|
|
(90
|
)
|
|
–
|
|
Amortization
of prior service cost
|
|
4
|
|
|
4
|
|
|
4
|
|
Special
retirement benefitsb
|
|
39
|
|
|
–
|
|
|
–
|
|
Net
periodic benefit cost
|
$
|
34
|
|
$
|
–
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
The
assumptions shown only relate to the FMC
plans.
|
b.
|
Resulted
from revised mine operating plans and reductions in the workforce (see
Note 2 for further discussion).
|
The
weighted-average assumptions used to determine net periodic benefit cost and the
components of net periodic benefit cost for PT Freeport Indonesia’s and Atlantic
Copper’s pension plans for the years ended December 31, 2008, 2007 and 2006,
follow:
|
PT
Freeport Indonesia
|
|
|
2008
|
|
2007
|
|
2006
|
|
Weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
10.25
|
%
|
|
10.50
|
%
|
|
12.00
|
%
|
Expected
return on plan assets
|
|
9.00
|
%
|
|
10.00
|
%
|
|
10.00
|
%
|
Rate
of compensation increase
|
|
8.00
|
%
|
|
9.00
|
%
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
$
|
6
|
|
$
|
5
|
|
$
|
4
|
|
Interest
cost
|
|
6
|
|
|
5
|
|
|
5
|
|
Expected
return on plan assets
|
|
(3
|
)
|
|
(3
|
)
|
|
(3
|
)
|
Amortization
of prior service cost
|
|
1
|
|
|
1
|
|
|
1
|
|
Amortization
of net actuarial loss
|
|
1
|
|
|
1
|
|
|
1
|
|
Net
periodic benefit cost
|
$
|
11
|
|
$
|
9
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlantic
Copper
|
|
|
2008
|
|
2007
|
|
2006
|
|
Weighted-average
assumption:
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
6.77
|
%
|
|
6.77
|
%
|
|
6.77
|
%
|
|
|
|
|
|
|
|
|
|
|
Interest
cost
|
$
|
4
|
|
$
|
5
|
|
$
|
5
|
|
Amortization
of net actuarial loss
|
|
2
|
|
|
–
|
|
|
1
|
|
Net
periodic benefit cost
|
$
|
6
|
|
$
|
5
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
Included
in accumulated other comprehensive income (loss) are the following amounts that
have not been recognized in net periodic pension cost: unrecognized prior
service credits of $3 million ($2 million net of tax and minority interest
share) and unrecognized actuarial losses of $470 million ($305 million net of
tax and minority interest share) at December 31, 2008; and unrecognized prior
service costs of $9 million ($7 million net of tax and minority interest share)
and unrecognized actuarial gains of $75 million ($44 million net of tax and
minority interest
share) at December 31, 2007. The amounts expected to be recognized in net
periodic pension cost for 2009 are less than $1 million for prior service
credits and $33 million ($20 million net of tax and minority interest
share) for actuarial losses.
FCX does
not expect to have any plan assets returned to it in 2009. The pension plan
weighted-average asset allocations for the FCX and PT Freeport Indonesia plans
at December 31, 2008 and 2007, follow:
|
FCX
|
|
PT
Freeport Indonesia
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Equity
securities
|
45
|
%
|
55
|
%
|
9
|
%
|
19
|
%
|
Fixed
income
|
43
|
|
35
|
|
91
|
|
74
|
|
Real
estate
|
8
|
|
7
|
|
–
|
|
–
|
|
Other
|
4
|
|
3
|
|
–
|
|
7
|
|
Total
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Atlantic
Copper’s plan is administered by a third-party insurance company, and Atlantic
Copper is not provided asset allocations.
The
expected benefit payments for FCX’s (including FMC’s plans, and FCX’s SERP,
director and excess benefits plans), PT Freeport Indonesia’s and Atlantic
Copper’s pension plans follow.
|
|
|
PT
Freeport
|
|
Atlantic
|
|
|
FCX
|
|
Indonesiaa
|
|
Copperb
|
|
2009
|
$
|
87
|
|
$
|
3
|
|
$
|
8
|
|
2010
|
|
85
|
|
|
11
|
|
|
8
|
|
2011
|
|
85
|
|
|
6
|
|
|
8
|
|
2012
|
|
136
|
|
|
7
|
|
|
8
|
|
2013
|
|
88
|
|
|
8
|
|
|
8
|
|
2014
through 2018
|
|
477
|
|
|
52
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Based
on a December 31, 2008, exchange rate of 10,850 Indonesian rupiah to
one U.S. dollar.
|
b.
|
Based
on a December 31, 2008, exchange rate of $1.39 per
euro.
|
Postretirement and Other
Benefits. FCX also provides postretirement medical and life
insurance benefits for certain U.S employees and, in some cases, employees of
certain international subsidiaries. These postretirement benefits vary among
plans, and many plans require contributions from retirees. The expected cost of
providing such postretirement benefits is accrued during the years employees
render service.
As a
result of the acquisition of Phelps Dodge, FCX acquired postretirement
obligations with a fair value of $82 million (representing a benefit obligation
of $255 million less the fair value of plan assets of $173 million). Assets for
these plans consisted of two VEBA trusts. One trust was dedicated to funding
postretirement medical obligations and the other to funding postretirement life
insurance obligations for eligible U.S. retirees of FMC. During 2008, the VEBA
trusts were amended to allow FCX to pay benefits for both active employees and
retirees from the trusts. As a result, in accordance with SFAS No. 106,
“Employers’ Accounting for Postretirement Benefits Other Than Pensions,” the
VEBA trusts no longer qualify as plan assets for purposes of FCX’s
postretirement medical and life insurance benefit obligations.
The
discount rate for FCX’s postretirement medical and life insurance benefit plans
was determined on the same basis as FCX’s pension plans.
Information
as of December 31, 2008 and 2007, on the postretirement benefit plans
follows:
|
2008
|
|
2007
|
|
Change
in benefit obligation:
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
$
|
256
|
|
$
|
4
|
|
Acquisition
of Phelps Dodge
|
|
–
|
|
|
255
|
|
Service
cost
|
|
1
|
|
|
1
|
|
Interest
cost
|
|
14
|
|
|
11
|
|
Actuarial
(gains) losses
|
|
(8
|
)
|
|
8
|
|
Curtailmentsa
|
|
23
|
|
|
–
|
|
Benefits
paid, net of employee contributions and
|
|
|
|
|
|
|
Medicare
Part D subsidy
|
|
(29
|
)
|
|
(23
|
)
|
Benefit
obligation at end of year
|
|
257
|
|
|
256
|
|
|
|
|
|
|
|
|
Change
in plan assets:
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of year
|
|
150
|
|
|
–
|
|
Acquisition
of Phelps Dodge
|
|
–
|
|
|
173
|
|
Actual
return on plans assets
|
|
3
|
|
|
5
|
|
Employer
contributionsb
|
|
2
|
|
|
2
|
|
Benefits
paid
|
|
(40
|
)
|
|
(30
|
)
|
Transfer
of plan assetsc
|
|
(115
|
)
|
|
–
|
|
Fair
value of plan assets at end of year
|
|
–
|
|
|
150
|
|
|
|
|
|
|
|
|
Funded
status
|
$
|
(257
|
)
|
$
|
(106
|
)
|
|
|
|
|
|
|
|
Discount
rate assumption
|
|
6.30
|
%
|
|
6.00
|
%
|
|
|
|
|
|
|
|
Balance
sheet classification of funded status:
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
$
|
(32
|
)
|
$
|
(2
|
)
|
Other
liabilities
|
|
(225
|
)
|
|
(104
|
)
|
Total
|
$
|
(257
|
)
|
$
|
(106
|
)
|
|
|
|
|
|
|
|
a.
|
Resulted
from revised mine operating plans and reductions in the workforce (see
Note 2 for further discussion).
|
b.
|
Employer
contributions for 2009 are expected to approximate
$32 million.
|
c.
|
During
2008, the VEBA trusts were amended to allow benefit payments for both
active employees and retirees; therefore, the VEBA trusts no longer
qualify as plan assets.
|
Expected
benefit payments for these plans total $32 million for 2009,
$30 million for 2010, $29 million for 2011, $27 million for 2012,
$25 million for 2013, and $100 million for 2014 through
2018.
The
weighted-average assumptions used to determine net periodic benefit cost and the
components of net periodic benefit cost for FCX’s postretirement benefits for
the years ended December 31, 2008 and 2007, follow:
|
|
2008
|
|
|
2007
|
|
Weighted-average
assumptionsa:
|
|
|
|
|
|
|
Discount
rate – medical retiree
|
|
6.00
|
%
|
|
5.62
|
%
|
Discount
rate – life retiree
|
|
6.00
|
%
|
|
5.66
|
%
|
Expected
return on plan assets – medical retiree
|
|
3.30
|
%
|
|
3.70
|
%
|
Expected
return on plan assets – life retiree
|
|
4.30
|
%
|
|
4.50
|
%
|
|
|
|
|
|
|
|
Service
cost
|
$
|
1
|
|
$
|
1
|
|
Interest
cost
|
|
14
|
|
|
11
|
|
Expected
return on plan assets
|
|
(4
|
)
|
|
(5
|
)
|
Curtailmentsb
|
|
23
|
|
|
–
|
|
Net
periodic benefit cost
|
$
|
34
|
|
$
|
7
|
|
|
|
|
|
|
|
|
a.
|
The
assumptions shown only relate to the FMC
plans.
|
b.
|
Resulted
from revised mine operating plans and reductions in the workforce (see
Note 2 for further discussion).
|
FCX’s
postretirement net periodic benefit costs were less than $1 million for
2006.
Included
in accumulated other comprehensive income (loss) are the following amounts that
have not been recognized in net periodic benefit cost: unrecognized prior
service credits of less than $1 million and unrecognized actuarial gains of $4
million ($2 million net of tax and minority interest share) at December 31,
2008; and unrecognized prior service credits of $1 million ($1 million net of
tax and minority interest share) and unrecognized actuarial losses of $8 million
($5 million net of tax and minority interest share) at December 31, 2007. The
amount expected to be recognized in net periodic benefit cost for 2009 is less
than $1 million for prior service credits and actuarial losses.
The
assumed medical-care trend rates at December 31, 2008 and 2007,
follow:
|
2008
|
|
2007
|
|
Medical-care
cost trend rate assumed for
|
|
|
|
|
|
|
the
next year
|
|
9
|
%
|
|
9
|
%
|
Rate
to which the cost trend rate is assumed
|
|
|
|
|
|
|
to
decline (the ultimate trend rate)
|
|
5
|
%
|
|
5
|
%
|
Year
that the rate reaches the ultimate trend rate
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
The
effect of a one percent increase or decrease in the medical-care cost trend
rates assumed for postretirement medical benefits would result in increases or
decreases of approximately $1 million in the aggregate service and interest
cost components; in the postretirement benefit obligation the effect of a
one-percent increase is approximately $8 million and the effect of a one-percent
decrease is approximately $7 million.
As a
result of the Phelps Dodge acquisition, FCX has a number of postemployment plans
covering severance, long-term disability income, continuation of health and life
insurance coverage for disabled employees or other welfare benefits. The
accumulated postemployment benefit consisted of a current portion of $6 million
(included in accounts payable and accrued liabilities) and a long-term portion
of $41 million (included in other liabilities) at December 31, 2008, and a
current portion of $6 million and a long-term portion of $43 million at December
31, 2007.
FCX also
sponsors savings plans for the majority of its U.S. employees. The plans allow
employees to contribute a portion of their pre-tax and/or after-tax income in
accordance with specified guidelines. These savings plans are principally
qualified 401(k) plans for all U.S. salaried and non-bargained hourly employees.
In these plans, participants exercise control and direct the investment of their
contributions and account balances among a broad range of investment options.
FCX matches a percentage of employee pre-tax deferral contributions up to
certain limits, which varies by plan. In addition, the FMC principal savings
plan includes a profit sharing feature for its non-bargained
employees.
During
2000, FCX and FM Services Company enhanced their primary savings plan for
substantially all their employees following their decision to terminate their
defined benefit pension plans. Subsequent to the enhancement, FCX and FM
Services Company contribute amounts to individual accounts totaling either 4
percent or 10 percent of each employee’s pay, depending on a combination of each
employee’s age and years of service as of June 30, 2000. For employees whose
eligible compensation exceeds certain levels, FCX provides an unfunded defined
contribution plan. The balance of this liability totaled $43 million on December
31, 2008, and $32 million on December 31, 2007.
As a
result of the acquisition of Phelps Dodge, FCX also has a defined contribution
plan for eligible FMC employees hired on or after January 1, 2007. Under this
plan, FCX contributes amounts to individual accounts depending on a combination
of each employee’s annual salary and years of service.
The costs
charged to operations for FCX’s, FM Services Company’s, and FMC’s employee
savings plans and defined contribution plans totaled $58 million in 2008, $43
million in 2007 and $7 million in 2006.
FCX has
other employee benefit plans, certain of which are related to FCX’s financial
results, which are recognized in operating costs.
NOTE
13. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION
Common Stock. At
the 2008 annual stockholder meeting, FCX’s stockholders approved an increase in
FCX’s authorized shares of capital stock to 1.85 billion shares, consisting of
1.8 billion shares of common stock and 50 million shares of preferred
stock.
In July
2008, FCX’s Board of Directors approved an increase in the open-market share
purchase program for up to 30 million shares, which replaced FCX’s previous
program. During 2008, FCX acquired 6.3 million shares for $500 million
($79.15 per share average) and 23.7 million shares remain available under this
program. Under a previous 20 million share purchase program, FCX acquired
2.0 million shares for $100 million ($49.94 per share average) in 2006. The
timing of future purchases of FCX’s common stock is dependent on many factors,
including FCX’s operating results, cash flows and financial position; copper,
molybdenum and gold prices; the price of FCX’s common stock; and general
economic and market conditions. During September 2008, because of the financial
turmoil and the decline in copper and molybdenum prices, FCX suspended its
purchases of shares under its open-market share purchase program.
In
February 2009, FCX completed a public offering of 26.8 million shares of FCX
common stock at an average price of $28.00 per share, which generated gross
proceeds of $750 million (net proceeds of approximately $740
million).
Preferred Stock. On
March 28, 2007, FCX sold 28.75 million shares of 6¾% Mandatory Convertible
Preferred Stock, with a liquidation preference of $100 per share, for net
proceeds of $2.8 billion. The 6¾% Mandatory Convertible Preferred Stock will
automatically convert on May 1, 2010, into shares of FCX common stock. The
conversion rate is adjustable upon the occurrence of certain events, including
the payment in any quarter of common stock dividends exceeding $0.3125 per
share; however, adjustments required as a result of dividends that do not exceed
one percent are carried forward and must be made no later than August 1 of each
year. As a result of the quarterly common stock dividends paid through December
31, 2008, each share of preferred stock is now convertible on May 1, 2010, into
between 1.3654 and 1.6386 shares of FCX common stock, depending on the
applicable market value of FCX’s common stock. The conversion rate per $100 face
amount of the preferred stock will be 1.6386 when the FCX common stock price is
at or below $61.03 and 1.3654 when the FCX common stock price is at or above
$73.24. For FCX common stock prices between these levels, the conversion rate
will be equal to $100 divided by FCX’s common stock price. Holders may elect to
convert at any time prior to May 1, 2010, at a conversion rate equal to 1.3654
shares of FCX common stock, or an aggregate of approximately 39 million shares.
Dividends are payable quarterly on February 1, May 1, August 1 and November
1.
In March
2004, FCX sold 1.1 million shares of 5½% Convertible Perpetual Preferred Stock
for net proceeds of $1.1 billion. The conversion rate is adjustable upon the
occurrence of certain events, including the payment in any quarter of common
stock dividends exceeding $0.20 per share. As a result of the quarterly and
supplemental common stock dividends paid through December 31, 2008, each share
of preferred stock is now convertible into 21.5305 shares of FCX common stock,
equivalent to a conversion price of approximately $46.45 per common share, or an
aggregate of approximately 18 million shares of FCX common stock. Beginning
March 30, 2009, FCX may redeem shares of the preferred stock by paying cash, FCX
common stock or any combination thereof for
$1,000 per share plus unpaid dividends, but only if FCX’s common stock
price 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. FCX used a portion of the proceeds from the sale to
purchase 23.9 million shares of FCX common stock owned by Rio Tinto for
$882 million (approximately $36.85 per share) and used the remainder for general
corporate purposes. Rio Tinto no longer owns an equity interest in FCX; however,
it is still PT Freeport Indonesia’s joint venture partner (see Note 3). In
December 2008, through privately negotiated transactions, FCX induced conversion
of 0.3 million shares of its 5½% Perpetual Preferred Stock with a liquidation
preference of $268 million into 5.8 million shares of FCX common stock. To
induce conversion of these shares, FCX issued to the holders an additional 1.0
million shares of FCX common stock valued at $22 million, which was recorded as
losses on induced conversions in the consolidated statements of
operations.
Stock Award
Plans. FCX currently has six stock-based compensation plans,
including two Phelps Dodge plans resulting from the acquisition. As of December
31, 2008, only four of the plans, all of which are stockholder approved (which
are discussed below), have awards available for grant.
FCX’s
1999 Stock Incentive Plan (the 1999 Plan) and 2003 Stock Incentive Plan (the
2003 Plan) provide for the issuance of stock options, SARs, restricted stock,
restricted stock units and other stock-based awards. Each plan allows FCX to
grant awards for up to 8 million common shares to eligible participants. In
2004, FCX’s stockholders approved the 2004 Director Compensation Plan (the 2004
Plan). The 2004 Plan authorizes awards of options and restricted stock units for
up to 1 million shares of common stock and the one-time grant of 66,882 SARs. In
2006, FCX’s stockholders approved the 2006 Stock Incentive Plan (the 2006 Plan),
and in 2007, FCX’s stockholders approved amendments to the plan primarily to
increase the number of shares. The 2006 Plan provides for the issuance of stock
options, SARs, restricted stock, restricted stock units and other stock-based
awards for up to 37 million common shares. As of December 31, 2008, there were
28.8 million shares under the 2006 Plan, 0.1 million shares under the 2004 Plan,
0.1 million shares under the 2003 Plan and less than 6,000 shares under the 1999
Plan available for grant.
In
connection with the Phelps Dodge acquisition, former Phelps Dodge stock options
and restricted stock awards were converted into 806,595 FCX stock options and
87,391 FCX restricted stock awards, which retain the terms by which they were
originally granted under Phelps Dodge’s plans. The stock options carry a maximum
term of 10 years with 672,134 stock options vested upon the acquisition of
Phelps Dodge and 134,461 stock options that vest ratably over a three-year
period or the period until the participant becomes retirement-eligible,
whichever is shorter. Restricted stock awards generally become fully vested in
five years, with a majority of these shares having graded-vesting features in
which 25 percent of the shares will vest on the third and fourth anniversaries
of the award and the remaining 50 percent in the fifth year. The fair value of
the restricted stock awards was determined based on the quoted market price at
the time of the acquisition.
Stock-Based Compensation
Cost. Compensation cost charged against earnings for stock-based awards
is shown below for the years ended December 31, 2008, 2007 and 2006. FCX did not
capitalize any stock-based compensation costs during the years ended December
31, 2008, 2007 and 2006.
|
|
2008
|
|
2007
|
|
2006
|
|
Stock
options awarded to employees (including directors)
|
|
$
|
66
|
|
$
|
71
|
|
$
|
28
|
|
Stock
options awarded to nonemployees
|
|
|
5
|
|
|
5
|
|
|
3
|
|
Restricted
stock units awarded to employees
|
|
|
52
|
|
|
–
|
|
|
–
|
|
Restricted
stock units in lieu of cash awards
|
|
|
(29
|
)a
|
|
67
|
|
|
23
|
|
Restricted
stock awards to employees
|
|
|
3
|
|
|
6
|
|
|
–
|
|
Restricted
stock units awarded to directors
|
|
|
4
|
|
|
3
|
|
|
1
|
|
Stock
appreciation rights
|
|
|
(6
|
)
|
|
7
|
|
|
1
|
|
Total
stock-based compensation costb
|
|
|
95
|
|
|
159
|
|
|
56
|
|
Tax
benefit
|
|
|
(36
|
)
|
|
(62
|
)
|
|
(20
|
)
|
Minority
interests share
|
|
|
(2
|
)
|
|
(4
|
)
|
|
(3
|
)
|
Impact
on net (loss) income
|
|
$
|
57
|
|
$
|
93
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Reflects
an adjustment related to 2007
awards.
|
b.
|
Amounts
are before Rio Tinto’s share of the cost of employee exercises of
in-the-money stock options, which decreased consolidated selling, general
and administrative expenses by $1 million in 2008, $4 million in 2007
and $7 million in 2006.
|
Options and SARs. Stock
options and SARs granted under the plans generally expire 10 years after the
date of grant and vest in 25 percent annual increments beginning one year
from the date of grant. The plans and award agreements provide that participants
will receive the following year’s vesting after retirement and provide for
accelerated vesting if there is a change in control (as defined in the
plans).
A summary
of options outstanding as of December 31, 2008, including 72,533 SARs, and
changes during the year ended December 31, 2008, follow:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted-
|
|
Remaining
|
|
Aggregate
|
|
|
Number
of
|
|
Average
|
|
Contractual
|
|
Intrinsic
|
|
|
Options
|
|
Option
Price
|
|
Term
(years)
|
|
Value
|
|
Balance
at January 1
|
10,759,798
|
|
$
|
58.17
|
|
|
|
|
|
|
Granted
|
1,449,500
|
|
|
91.10
|
|
|
|
|
|
|
Exercised
|
(2,198,601
|
)
|
|
48.51
|
|
|
|
|
|
|
Expired/Forfeited
|
(157,750
|
)
|
|
70.43
|
|
|
|
|
|
|
Balance
at December 31
|
9,852,947
|
|
|
64.98
|
|
7.8
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
and exercisable at December 31
|
2,108,906
|
|
|
50.72
|
|
6.6
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
Summaries
of options outstanding, including SARs, and changes during the years ended
December 31, 2007 and 2006, follow:
|
|
2007
|
|
2006
|
|
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Number
of
|
|
Option
|
|
Number
of
|
|
Option
|
|
|
|
Options
|
|
Price
|
|
Options
|
|
Price
|
|
Balance
at January 1
|
|
5,801,716
|
|
$
|
39.70
|
|
7,355,612
|
|
$
|
31.43
|
|
Granted
|
|
6,641,500
|
|
|
69.89
|
|
1,126,250
|
|
|
62.88
|
|
Conversion
of Phelps Dodge options
|
|
806,595
|
|
|
28.38
|
|
–
|
|
|
–
|
|
Exercised
|
|
(2,276,391
|
)
|
|
34.45
|
|
(2,614,273
|
)
|
|
26.51
|
|
Expired/Forfeited
|
|
(213,622
|
)
|
|
59.29
|
|
(65,873
|
)
|
|
39.12
|
|
Balance
at December 31
|
|
10,759,798
|
|
|
58.17
|
|
5,801,716
|
|
|
39.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair
value of each option award is estimated on the date of grant using the
Black-Scholes-Merton option valuation model. Expected volatility is based on
implied volatilities from traded options on FCX’s stock and historical
volatility of FCX’s stock. FCX uses historical data to estimate future option
exercises, forfeitures and expected life of the options. When appropriate,
separate groups of employees that have similar historical exercise behavior are
considered separately for valuation purposes. The expected dividend rate is
calculated as the annual dividend (excludes supplemental dividends) at the date
of grant divided by the average stock price for the one-year period preceding
the grant date. The risk-free interest rate is based on Federal Reserve rates in
effect for bonds with maturity dates equal to the expected term of the option at
the grant date. The weighted-average assumptions used to value stock option
awards during the years ended December 31, 2008, 2007 and 2006, are noted in the
following table.
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Expected
volatility
|
|
49.3
|
%
|
|
37.3
|
%
|
|
37.7
|
%
|
Expected
life of options (in years)
|
|
4.6
|
|
|
4.25
|
|
|
4.0
|
|
Expected
dividend rate
|
|
2.0
|
%
|
|
2.2
|
%
|
|
2.9
|
%
|
Risk-free
interest rate
|
|
3.3
|
%
|
|
4.6
|
%
|
|
4.4
|
%
|
The
weighted-average grant-date fair value of options granted was $34.91 per option
during 2008, $21.33 per option during 2007 and $17.67 per option during 2006.
The total intrinsic value of options exercised was $128 million during 2008
and $96 million during each of 2007 and 2006. The total fair value of options
vested was $61 million during 2008, $29 million during 2007 and $30 million
during 2006. As of December 31, 2008, FCX had
$86 million of total unrecognized compensation cost related to unvested
stock options expected to be recognized over a weighted-average period of one
year.
The
following table includes amounts related to exercises of stock options and SARs
and vesting of restricted stock units and restricted stock awards during the
years ended December 31, 2008, 2007 and 2006:
|
|
2008
|
|
2007
|
|
2006
|
|
FCX
shares tendered to pay the exercise price
|
|
|
|
|
|
|
|
|
|
and/or
the minimum required taxesa
|
|
823,915
|
|
|
1,389,845
|
|
|
809,926
|
|
Cash
received from stock option exercises
|
$
|
56
|
|
$
|
54
|
|
$
|
37
|
|
Actual
tax benefit realized for tax deductions
|
|
180
|
|
|
138
|
|
|
31
|
|
Amounts
FCX paid for employee taxes
|
|
34
|
|
|
68
|
|
|
22
|
|
Amounts
FCX paid for exercised SARs
|
|
1
|
|
|
5
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Under
terms of the related plans, upon exercise of stock options and vesting of
restricted stock units and restricted stock awards, employees may tender
FCX shares to FCX to pay the exercise price and/or the minimum required
taxes.
|
Restricted Stock Units. Prior
to December 2008, FCX had a restricted stock program that allowed FCX senior
executives to elect to receive restricted stock units in lieu of all or part of
their annual cash incentive compensation. The annual cash incentive was a
function of FCX’s consolidated operating cash flows for the preceding year.
Awards of these restricted stock units to the FCX executive officers were
considered performance-based awards. To compensate for certain restrictions and
the risk of forfeiture, the restricted stock units were awarded at a 50 percent
premium to the market value on the date of grant. The awards vest ratably over
three years or upon retirement and were subject to achievement of certain
performance measures. For retirement-eligible executives, the fair value of the
restricted stock units was estimated based on projected operating cash flows for
the year and was charged to expense ratably over the year the cash flows were
generated. Effective December 2, 2008, the board of directors discontinued this
program.
FCX also
granted other restricted stock units that vest over a period of up to five
years. The plans and award agreements provide for accelerated vesting of all
restricted stock units if there is a change of control (as defined in the plans)
and provide that participants will receive the following year’s vesting after
retirement (except for the restricted stock units with five year vesting that do
not allow acceleration because of retirement). Dividends and interest on
restricted stock units accrue and are paid upon the award’s
vesting.
FCX
grants restricted stock units to its directors under the 2004 Plan. The
restricted stock units vest over four years. The fair value of the restricted
stock units is amortized over the four-year vesting period or the period until
the director becomes retirement-eligible, whichever is shorter. Upon a
director’s retirement, all of their unvested
restricted
stock units immediately vest. For retirement-eligible directors, the fair value
of restricted stock units is recognized on the date of grant.
A summary
of outstanding restricted stock units as of December 31, 2008, and activity
during the year ended December 31, 2008, is presented below:
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
Number
of
|
|
Remaining
|
|
Aggregate
|
|
|
Restricted
|
|
Contractual
|
|
Intrinsic
|
|
|
Stock
Units
|
|
Term
(years)
|
|
Value
|
|
Balance
at January 1
|
796,373
|
|
|
|
|
|
|
Granted
|
1,359,915
|
|
|
|
|
|
|
Vested
|
(376,460
|
)
|
|
|
|
|
|
Forfeited
|
(3,366
|
)
|
|
|
|
|
|
Balance
at December 31
|
1,776,462
|
|
1.9
|
|
$
|
43
|
|
|
|
|
|
|
|
|
|
The
grant-date fair value of restricted stock units granted to FCX senior executives
who elected to receive restricted stock units in lieu of all or part of their
cash incentive compensation during the year ended December 31, 2008, was $40
million. Because this was a performance-based award and the requisite service
period under SFAS No. 123R is considered to be the calendar year prior to the
grant date, the entire value of this award on the date of
grant was charged to expense during 2007. The total grant-date fair value
of all other restricted stock units granted during the year ended December 31,
2008, was $78 million.
The total
intrinsic value of restricted stock units vesting during the year ended December
31, 2008, was $33 million. As of December 31, 2008, FCX had $24 million of
total unrecognized compensation cost related to unvested restricted stock units
expected to be recognized over a weighted-average period of 1.3
years.
Restricted Stock Awards. As
discussed above, FCX has restricted stock awards that were issued in connection
with the Phelps Dodge acquisition. A summary of outstanding restricted stock
awards as of December 31, 2008, and activity during the year ended December 31,
2008, is presented below:
Balance
at January 1
|
|
49,241
|
|
Vested
|
|
(2,884
|
)
|
Forfeited
|
|
(1,036
|
)
|
Balance
at December 31
|
|
45,321
|
|
|
|
|
|
The total
grant-date fair value of restricted stock awards was $5 million at the
acquisition date. The total fair value of shares released or vested was less
than $1 million during 2008 and $2 million during 2007. As of December 31, 2008,
FCX had $4 million of total unrecognized compensation cost, including the cash
portion resulting from the conversion of restricted stock awards at the
acquisition date, related to unvested restricted stock awards expected to be
recognized over a weighted-average period of 2.1 years.
NOTE
14. INCOME TAXES
Geographic
sources of (loss) income from continuing operations before income taxes,
minority interests and equity in affiliated companies’ net earnings for the
years ended December 31, 2008, 2007 and 2006, consist of the
following:
|
|
2008
|
|
2007
|
|
2006
|
|
United
States
|
|
$
|
(13,850
|
)
|
$
|
977
|
|
$
|
25
|
|
Foreign
|
|
|
541
|
|
|
5,134
|
|
|
2,795
|
|
Total
|
|
$
|
(13,309
|
)
|
$
|
6,111
|
|
$
|
2,820
|
|
|
|
|
|
|
|
|
|
|
|
|
The
(benefit from) provision for income taxes from continuing operations for the
years ended December 31, 2008, 2007 and 2006, consists of the
following:
|
|
2008
|
|
2007
|
|
2006
|
|
Current
income taxes:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
536
|
|
$
|
458
|
|
$
|
–
|
|
State
|
|
|
14
|
|
|
72
|
|
|
–
|
|
Foreign
|
|
|
1,213
|
|
|
1,942
|
|
|
1,035
|
|
Total
current
|
|
|
1,763
|
|
|
2,472
|
|
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes (benefits):
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(3,635
|
)
|
|
(295
|
)
|
|
–
|
|
State
|
|
|
(686
|
)
|
|
(20
|
)
|
|
–
|
|
Foreign
|
|
|
(609
|
)
|
|
243
|
|
|
166
|
|
Total
deferred
|
|
|
(4,930
|
)
|
|
(72
|
)
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance on prior year deferred
|
|
|
|
|
|
|
|
|
|
|
tax
asset
|
|
|
323
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit
from) provision for income taxes
|
|
$
|
(2,844
|
)
|
$
|
2,400
|
|
$
|
1,201
|
|
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of the U.S. federal statutory tax rate to FCX’s effective income
tax rate for the years ended December 31, 2008, 2007 and 2006,
follows:
|
|
2008
|
|
|
2007
|
|
2006
|
|
|
Amount
|
|
Percent
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
U.S.
federal statutory tax rate
|
|
$
|
(4,658
|
)
|
35
|
%
|
|
$
|
2,139
|
|
35
|
%
|
|
$
|
987
|
|
35
|
%
|
Foreign
withholding tax
|
|
|
(55
|
)
|
1
|
|
|
|
371
|
|
6
|
|
|
|
168
|
|
6
|
|
Foreign
tax credit limitation
|
|
|
95
|
|
(1
|
)
|
|
|
125
|
|
2
|
|
|
|
–
|
|
–
|
|
Reversal
of APB Opinion No. 23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assertion
|
|
|
–
|
|
–
|
|
|
|
111
|
|
2
|
|
|
|
–
|
|
–
|
|
Percentage
depletion
|
|
|
(336
|
)
|
3
|
|
|
|
(284
|
)
|
(5
|
)
|
|
|
–
|
|
–
|
|
International
tax rate differential
|
|
|
59
|
|
(1
|
)
|
|
|
(184
|
)
|
(3
|
)
|
|
|
48
|
|
2
|
|
Valuation
allowance on minimum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
tax
credits
|
|
|
359
|
|
(3
|
)
|
|
|
–
|
|
–
|
|
|
|
–
|
|
–
|
|
Goodwill
impairment
|
|
|
2,095
|
|
(16
|
)
|
|
|
–
|
|
–
|
|
|
|
–
|
|
–
|
|
State
income taxes
|
|
|
(437
|
)
|
3
|
|
|
|
–
|
|
–
|
|
|
|
–
|
|
–
|
|
Other
items, net
|
|
|
34
|
|
–
|
|
|
|
122
|
|
2
|
|
|
|
(2
|
)
|
–
|
|
(Benefit
from) provision for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes
|
|
$
|
(2,844
|
)
|
21
|
%
|
|
$
|
2,400
|
|
39
|
%
|
|
$
|
1,201
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCX paid
federal, state, local and foreign income taxes totaling $2,656 million in 2008,
$2,660 million in 2007 and $1,288 million in 2006. FCX received refunds of
federal, state, local and foreign income taxes of $123 million in 2008 and
2007 and $1 million in 2006.
FCX’s
income tax receivable increased by $544 million primarily as a result of
Indonesian estimated tax overpayments in 2008 made in accordance with statutory
requirements.
The
components of deferred taxes follow:
|
|
December
31,
|
|
|
|
2008
|
|
2007
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Foreign
tax credits
|
|
$
|
1,260
|
|
$
|
1,004
|
|
Net
operating loss carryforwards
|
|
|
128
|
|
|
164
|
|
Minimum
tax credits
|
|
|
359
|
|
|
323
|
|
Accrued
expenses
|
|
|
767
|
|
|
812
|
|
Intercompany
profit elimination
|
|
|
25
|
|
|
65
|
|
Deferred
compensation
|
|
|
9
|
|
|
45
|
|
Postretirement
benefits
|
|
|
53
|
|
|
35
|
|
Employee
benefit plans
|
|
|
183
|
|
|
–
|
|
Provisionally
priced sales adjustments
|
|
|
112
|
|
|
–
|
|
Other
|
|
|
128
|
|
|
77
|
|
Deferred
tax assets
|
|
|
3,024
|
|
|
2,525
|
|
Valuation
allowances
|
|
|
(1,763
|
)
|
|
(1,165
|
)
|
Net
deferred tax assets
|
|
|
1,261
|
|
|
1,360
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
Property,
plant, equipment and development costs
|
|
|
(2,956
|
)
|
|
(7,441
|
)
|
Undistributed
earnings
|
|
|
(569
|
)
|
|
(603
|
)
|
Inventory
|
|
|
(38
|
)
|
|
(458
|
)
|
Employee
benefit plans
|
|
|
–
|
|
|
(75
|
)
|
Other
|
|
|
(34
|
)
|
|
(142
|
)
|
Total
deferred tax liabilities
|
|
|
(3,597
|
)
|
|
(8,719
|
)
|
|
|
|
|
|
|
|
|
Net
deferred tax liabilities
|
|
$
|
(2,336
|
)
|
$
|
(7,359
|
)
|
|
|
|
|
|
|
|
|
At
December 31, 2008, FCX had U.S. foreign tax credit carryforwards from continuing
operations of $1.3 billion that will expire between 2009 and 2018. In
addition, FCX had U.S. minimum tax credits carryforwards from
continuing operations of $359 million. These credits can be carried forward
indefinitely, but may be used only to the extent that regular tax exceeds the
alternative minimum tax in any given year.
At
December 31, 2008, FCX had Spanish net operating loss carryforwards from
continuing operations of $282 million that expire between 2012 and 2022. In
addition, FCX has U.S. state net operating loss carryforwards from continuing
operations of $705 million that expire between 2009 and 2028.
On the
basis of available information at December 31, 2008, FCX has provided valuation
allowances for certain of its deferred tax assets where FCX believes it is
likely that the related tax benefits will not be realized. At December 31, 2008,
valuation allowances totaled $1.8 billion and covered all of FCX’s U.S. foreign
tax credit carryforwards, U.S. minimum tax credit carryforwards, foreign net
operating loss carryforwards and U.S. state net operating loss carryforwards,
and also a portion of its net U.S. deferred tax assets. At December 31, 2007,
valuation allowances totaled $1.2 billion and covered all of FCX’s U.S. foreign
tax credit carryforwards, a portion of its foreign net operating loss
carryforwards and a portion of its U.S. state net operating loss carryforwards.
The $598 million increase in the valuation allowance during 2008 was primarily a
result of additional valuation allowances recorded against U.S. foreign tax
credit carryforwards, U.S. minimum tax credit carryforwards and U.S. state net
operating loss carryforwards. The establishment of a valuation allowance against
all of the U.S. minimum tax credit carryforwards was primarily the result of the
decline in copper and molybdenum prices and the long-lived asset impairment
charges recorded in the fourth quarter of 2008.
Income
taxes are provided on the earnings of FCX’s material foreign subsidiaries under
the assumption that these earnings will be distributed. FCX has not provided for
other differences between the book and tax carrying amounts of these investments
as FCX considers its ownership position to be permanent in duration and
quantification of the related deferred tax liability is not
practicable.
A summary
of the activities associated with FCX’s FIN 48 reserve for unrecognized tax
benefits, interest and penalties follows:
|
|
Unrecognized
|
|
|
|
|
|
|
|
|
|
Tax
Benefits
|
|
Interest
|
|
Penalties
|
|
Balance
at January 1, 2007
|
|
$
|
41
|
|
$
|
11
|
|
$
|
–
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of Phelps Dodge
|
|
|
169
|
|
|
7
|
|
|
2
|
|
Prior
year tax positions
|
|
|
9
|
|
|
*
|
|
|
*
|
|
Current
year tax positions
|
|
|
38
|
|
|
*
|
|
|
*
|
|
Associated
with interest and penalties
|
|
|
–
|
|
|
6
|
|
|
–
|
|
Decreases:
|
|
|
|
|
|
|
|
|
|
|
Prior
year tax positions
|
|
|
(53
|
)
|
|
*
|
|
|
*
|
|
Lapse
of statue of limitations
|
|
|
(2
|
)
|
|
*
|
|
|
*
|
|
Associated
with interest and penalties
|
|
|
–
|
|
|
(5
|
)
|
|
(2
|
)
|
Balance
at December 31, 2007
|
|
|
202
|
|
|
19
|
|
|
–
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
Prior
year tax positions
|
|
|
14
|
|
|
*
|
|
|
*
|
|
Current
year tax positions
|
|
|
32
|
|
|
*
|
|
|
*
|
|
Associated
with interest and penalties
|
|
|
–
|
|
|
5
|
|
|
–
|
|
Decreases:
|
|
|
|
|
|
|
|
|
|
|
Prior
year tax positions
|
|
|
(3
|
)
|
|
*
|
|
|
*
|
|
Lapse
of statue of limitations
|
|
|
(7
|
)
|
|
*
|
|
|
*
|
|
Associated
with interest and penalties
|
|
|
–
|
|
|
(1
|
)
|
|
–
|
|
Balance
at December 31, 2008
|
|
$
|
238
|
|
$
|
23
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
The
reserve for unrecognized tax benefits of $238 million at December 31, 2008,
includes $143 million ($84 million net of income tax benefits) that, if
recognized, would reduce FCX’s provision for income taxes.
Changes
in the reserve for unrecognized tax benefits associated with current year tax
positions were primarily related to uncertainties associated with FCX’s cost
recovery methods. Changes in the reserve for unrecognized tax benefits
associated with prior year tax positions were primarily related to the
refinement of estimated information to actual.
It is
reasonably possible that FCX will experience a $25 million to $35 million
decrease in its reserve for unrecognized tax benefits within the next twelve
months. FCX would experience this decrease in relation to uncertainties
associated with its cost recovery methods if a settlement is reached with taxing
authorities.
FCX or
its subsidiaries file income tax returns in the U.S. federal jurisdiction and
various state and foreign jurisdictions. The tax years for FCX and its
significant subsidiaries that remain subject to examination are as
follows:
Jurisdiction
|
Years Under Examination
|
Additional Open Years
|
U.S.
Federal
|
2003-2005
|
2006-2008
|
Indonesia
|
2005-2006
|
2004,
2007-2008
|
Peru
|
2002-2005
|
2006-2008
|
Chile
|
2007
|
2005-2006,
2008
|
Arizona
|
–
|
2003-2008
|
New
Mexico
|
–
|
2003-2008
|
NOTE
15. CONTINGENCIES
Environmental. FCX
incurred aggregate environmental capital expenditures and other environmental
costs, including joint venture partners’ share, totaling $468 million in 2008,
$320 million in 2007 and $63 million in 2006.
FCX
subsidiaries that operate in the U.S. are subject to various federal, state and
local environmental laws and regulations that govern emissions of air
pollutants; discharges of water pollutants; and generation, handling, storage
and disposal of hazardous substances, hazardous wastes and other toxic
materials. FCX subsidiaries that operate in the U.S. also are subject to
potential liabilities arising under CERCLA or similar state laws that impose
responsibility on persons who arranged for the disposal of hazardous substances,
and on current and previous owners and operators of a facility for the cleanup
of hazardous substances released from the facility into the environment,
including damages to natural resources. With the passage of CERCLA in 1980,
companies like FMC became legally responsible for environmental remediation on
properties previously owned or operated by them, irrespective of when the damage
to the environment occurred or who caused it. That liability often is
shared on a joint and several basis with all other owners and operators, meaning
that each owner or operator of the property is fully responsible for the
clean-up, although in many cases some or all of the other historical owners or
operators no longer exist, do not have the financial ability to respond or
cannot be found. As a result, because of FCX’s acquisition of Phelps Dodge
in 2007, many of the subsidiary companies FCX now owns are responsible for a
wide variety of environmental remediation projects throughout the U.S. FCX
expects to spend substantial sums annually for many years to address those
remediation issues. Certain FCX subsidiaries have been advised by the U.S.
Environmental Protection Agency (EPA), the Department of the Interior, the
Department of Agriculture and several state agencies that, under CERCLA or
similar state laws and regulations, they may be liable for costs of responding
to environmental conditions at a number of sites that have been or are being
investigated to determine whether releases of hazardous substances have occurred
and, if so, to develop and implement remedial actions to address environmental
concerns. As of December 31, 2008, FCX had more than 100 active remediation
projects in the U.S. in approximately 25 states. FCX is also subject to claims
where the release of hazardous substances is alleged to have damaged natural
resources.
A summary
of changes in environmental obligations for the years ended December 31, 2008
and 2007, follows:
|
|
2008
|
|
2007
|
|
Balance
at beginning of year
|
|
$
|
1,268
|
|
$
|
–
|
|
Liabilities
assumed in the acquisition of Phelps Dodge
|
|
|
117
|
|
|
1,334
|
|
Accretion
expensea
|
|
|
95
|
|
|
–
|
|
Additions
|
|
|
36
|
|
|
6
|
|
Reductions
|
|
|
(1
|
)
|
|
(1
|
)
|
Spending
|
|
|
(114
|
)
|
|
(71
|
)
|
Balance
at end of year
|
|
|
1,401
|
|
|
1,268
|
|
Less
current portion
|
|
|
(120
|
)
|
|
(166
|
)
|
Long-term
portion
|
|
$
|
1,281
|
|
$
|
1,102
|
|
|
|
|
|
|
|
|
|
a.
|
Represents
accretion of the fair value of environmental obligations assumed in the
acquisition of Phelps Dodge, which were determined on a discounted cash
flow basis.
|
As a
result of the acquisition of Phelps Dodge, FCX was required to record Phelps
Dodge’s environmental obligations at fair value on the acquisition date in
accordance with SFAS No. 141, “Business Combinations.” At the
acquisition date, Phelps Dodge’s historical environmental obligations of $385
million, before purchase accounting adjustments to fair value, were based on
accounting guidance provided by SFAS No. 5, “Accounting for Contingencies,” and
SOP 96-1, which require that an estimated loss be recorded for a loss
contingency if, prior to the issuance of the financial statements, it is
probable that a liability had been incurred and the loss can be reasonably
estimated. Amounts recorded under this guidance are generally not considered
fair value. FCX has an environmental and legal group dedicated to the ongoing
review and monitoring of environmental remediation sites. At the acquisition
date, the largest environmental remediation sites were undergoing studies to
evaluate the extent of the environmental damage and the available remedies.
Advancement of these studies and consideration of alternative remedies and cost
sharing arrangements resulted in FCX’s calculation of the estimated fair values
being approximately $1.1 billion greater than the historical Phelps Dodge
estimates. FCX finalized the allocation of the purchase price associated with
the Phelps Dodge acquisition in the first quarter of 2008. As a result, the fair
value of the environmental obligations was estimated at approximately $1.45
billion. Significant adjustments to these reserves could occur in the future.
New environmental obligations will be recorded in accordance with SFAS No. 5 and
SOP 96-1, as described in Note 1 under "Environmental
Expenditures."
FCX
believes that there may be other potential claims for recovery from other third
parties, including the U.S. government and other PRPs. These potential
recoveries are not recognized unless realization is considered
probable.
At
December 31, 2008, the most significant environmental obligations are associated
with the Pinal Creek site, several historical smelter sites principally located
in Arizona, Kansas and Oklahoma, and uranium mining sites in the western U.S.
The recorded environmental reserves for these sites totaled $954 million at
December 31, 2008. A discussion of these sites follows.
Pinal Creek. FCX is a
party to litigation entitled Pinal Creek Group, et al. v.
Newmont Mining Corporation, et al., United States District Court,
District of Arizona, Case No. CIV 91-1764 PHX DAE (LOA), filed on May 1, 1991.
The Pinal Creek site located near Miami, Arizona, was listed under the Arizona
Department of Environmental Quality (ADEQ) Water Quality Assurance Revolving
Fund program in 1989 for contamination in the shallow alluvial aquifers within
the Pinal Creek drainage near Miami, Arizona. Since that time, environmental
remediation has been performed by the members of the Pinal Creek Group (PCG),
consisting of Phelps Dodge Miami, Inc. (Miami), a wholly owned subsidiary of
FMC, and two other companies. In 1998, the District Court approved a Consent
Decree between the PCG members and the state of Arizona resolving all matters
related to an enforcement action contemplated by the state of Arizona against
the PCG members with respect to groundwater. The Consent Decree committed the
PCG members to complete the remediation work outlined in the Consent Decree.
That work continues at this time pursuant to the Consent Decree and consistent
with state law and the National Contingency Plan prepared by EPA under
CERCLA.
Remediation
has been proceeding pursuant to an interim allocation of cost sharing among the
members of the PCG, with Miami’s interim allocation being approximately
two-thirds; however, there are significant disagreements among the members
of the PCG regarding the allocation of the cost of remediation. Discovery
disputes resulted in a sanctions order against Miami that included significant
evidentiary restrictions on Miami’s case. The trial on the allocation issue will
be scheduled after the final determination of Miami’s pending interlocutory
appeal of a trial court ruling on the liability standard that should apply to
one of the remaining defendants on Miami’s case. A final determination of the
allocation, if different from the interim allocation, would likely result in a
“true up” payment with respect to the remediation that has already been
completed from the party found to be responsible for a higher proportion than
the interim allocation and would establish the cost-sharing proportions for the
remainder of the clean up. The overall cost of the clean up is expected to be
significant.
Historical Smelter Sites. FMC
and its predecessors at various times owned or operated historical copper and
zinc smelters in several states, including Arizona, Kansas, Oklahoma and
Pennsylvania. For some of these smelter sites, certain FCX subsidiaries have
been advised by EPA or state agencies that they may be liable for costs of
investigating and, if appropriate, remediating environmental conditions
associated with the smelters. At other sites, certain FCX subsidiaries have
entered into state voluntary remediation programs to investigate and, if
appropriate, remediate site conditions associated with the smelters. The
historical smelter sites are in various stages of assessment, with the current
most significant individual site being the one located in Blackwell,
Oklahoma.
From 1916 to 1974, Blackwell Zinc Company, Inc. (BZC), currently a
subsidiary of FCX, owned and operated a zinc smelter in Blackwell, Oklahoma. In
1974, the smelter was demolished and the property deeded to the Blackwell
Industrial Authority. Pursuant to an administrative order with the State of
Oklahoma (the State), BZC undertook remedial actions in Blackwell in 1996 and
1997, including sampling residential and commercial properties, and removing
soils on properties that were found to have metal concentrations above
state-established cleanup standards. From 1997 to 2003, BZC investigated the
nature and extent of groundwater contamination potentially attributable to the
former smelter and evaluated options for remedying such contamination. In 2003,
the State adopted a cleanup plan requiring the installation of a groundwater
extraction and treatment system and the closure of domestic groundwater wells
within the groundwater plume area. BZC is prepared to install the groundwater
extraction and treatment system as soon as the necessary building permits are
issued by Blackwell.
In 2007,
FCX, on behalf of BZC, commenced a voluntary community outreach program inviting
property owners in and around Blackwell to have their properties sampled for the
presence of smelter-related contaminants, and agreed to remediate properties
whose soils are found to have metal concentrations above state-established
cleanup standards. As a result of these efforts, owners of about 3,800
properties requested sampling, representing over 90 percent of all eligible
properties. Based on sampling results from approximately two-thirds of the
properties, about 16 percent of sampled yards and 5 percent of alleyways require
some level of cleanup.
Residential
yard cleanups started in October 2008. All of these soil sampling and
remediation activities are being coordinated with, and supervised by, the
State.
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 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. FCX intends
to defend this matter vigorously.
Uranium Mining
Sites. During a period between 1940 and the early 1970s, certain FMC
predecessor entities were involved in uranium exploration and mining in the
western U.S. Similar exploration and mining activities by other companies have
caused environmental impacts that have warranted remediation, and EPA and local
authorities are currently evaluating the need for significant clean-up
activities in the region. To date, FMC has undertaken remediation at a limited
number of sites associated with these predecessor entities. FCX recognized the
existence of a potential liability for these activities and had environmental
reserves for six former uranium sites. An initiative to gather additional
information about sites in the region is ongoing, and information gathered under
this initiative was submitted to EPA Region 9 during the second and third
quarters of 2008 in response to an information request by EPA regarding uranium
mining activities on Navajo Nation properties. FCX utilized the results of FMC’s
remediation experience, in combination with historical and updated information
gathered to date, to initially estimate its fair value of uranium-related
liabilities assumed in the Phelps Dodge acquisition.
Asset Retirement Obligations
(AROs). FCX’s ARO cost estimates are reflected on a third-party cost
basis and comply with FCX’s legal obligation to retire tangible, long-lived
assets as defined by SFAS No. 143.
A summary
of changes in FCX’s AROs for the years ended December 31, 2008, 2007 and 2006,
follows:
|
|
2008
|
|
2007
|
|
2006
|
|
Balance
at beginning of year
|
|
$
|
728
|
|
$
|
30
|
|
$
|
27
|
|
Liabilities
assumed in the acquisition of Phelps Dodge
|
|
|
–
|
|
|
531
|
a
|
|
–
|
|
Liabilities
incurred
|
|
|
5
|
|
|
1
|
|
|
–
|
|
Revisions
to cash flow estimates
|
|
|
21
|
|
|
179
|
|
|
–
|
|
Accretion
expense
|
|
|
51
|
|
|
27
|
|
|
3
|
|
Spending
|
|
|
(91
|
)
|
|
(40
|
)
|
|
–
|
|
Foreign
currency translation adjustment
|
|
|
(2
|
)
|
|
–
|
|
|
–
|
|
Balance
at end of year
|
|
|
712
|
|
|
728
|
|
|
30
|
|
Less
current portion
|
|
|
(42
|
)
|
|
(97
|
)
|
|
–
|
|
Long-term
portion
|
|
$
|
670
|
|
$
|
631
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
The
fair value of AROs assumed in the acquisition of Phelps Dodge was
estimated based on projected cash flows, an estimated long-term annual
inflation rate of 2.4 percent, a discount rate based on FCX’s estimated
credit-adjusted, risk-free interest rate of 7.8 percent and a
market risk premium of 10 percent to reflect what a third-party might
require to assume these
AROs.
|
ARO costs
may increase or decrease significantly in the future as a result of changes in
regulations, engineering designs and technology, permit modifications or
updates, mine plans, cost of inflation or other factors and as actual
reclamation spending occurs. ARO activities and expenditures generally are made
over an extended period of time commencing near the end of the mine life;
however, certain reclamation activities could be accelerated if required, or if
they are determined to be economically beneficial.
The most
significant revisions to cash flow estimates in 2007 were related to changes at
Chino, Tyrone and PT Freeport Indonesia. During 2007, Chino and Tyrone each
submitted updated third-party closure cost estimates to the state of New Mexico
as part of the closure permit renewal process. As a result, FCX revised its cash
flow estimates and increased its ARO by $95 million for Chino and $45 million
for Tyrone. Additional adjustments may be required based upon the state’s review
of the updated closure plans and any permit conditions imposed by the
state of
New Mexico. Additionally, PT Freeport Indonesia updated its cost estimates
primarily for changes to its plans for the treatment of acidic water, resulting
in an increase of $33 million.
Legal
requirements in New Mexico, Arizona and Colorado require financial assurance to
be provided for the estimated costs of reclamation and closure, including
groundwater quality protection programs. FCX has satisfied financial assurance
requirements by using a variety of mechanisms, such as third-party performance
guarantees, financial capability demonstrations, trust funds, surety bonds,
letters of credit and collateral. The applicable regulatory requirements provide
financial strength tests to support performance guarantees and financial
capability demonstrations, which are designed to confirm a company’s or
guarantor’s financial capability to fund future estimated reclamation and
closure costs. The amount of financial assurance FCX is required to provide will
vary with changes in laws, regulations and reclamation and closure cost
estimates. As of December 31, 2008, FCX’s financial assurance obligations
associated with closure and reclamation costs totaled $708 million, of which
approximately $425 million was in the form of parent company guarantees and
financial capability demonstrations. At December 31, 2008, FCX had trust assets
totaling $114 million, which are legally restricted to fund a portion of
its AROs for Chino, Tyrone and Cobre as required by New Mexico regulatory
authorities. During 2008, FCX’s trust assets that were voluntarily designated
for funding global reclamation and remediation activities decreased by $430
million resulting primarily from reimbursement of previously incurred costs for
reclamation and environmental activities.
New Mexico Environmental and
Reclamation Programs. FCX’s New Mexico operations are subject to
regulation under the New Mexico Water Quality Act and the Water Quality Control
Commission (WQCC) regulations adopted under that Act. The New Mexico Environment
Department (NMED) has required each of these operations to submit closure plans
for NMED’s approval. The closure plans must include measures to assure meeting
groundwater quality standards following the closure of discharging facilities
and to abate any groundwater or surface water contamination.
FCX’s New
Mexico operations also are subject to regulation under the New Mexico Mining Act
(the Mining Act), which was enacted in 1993, and the Mining Act rules, which are
administered by the Mining Minerals Division (MMD). Under the Mining Act, mines
are required to submit and obtain approval of closeout plans describing the
reclamation to be performed following cessation of mining operations at all or a
portion of the mines. At December 31, 2008, FCX had accrued reclamation and
closure costs of $372 million for its New Mexico operations. As stated above,
additional accruals may be required based on the state’s review of FCX’s updated
closure plans and any resulting permit conditions, and the amount of those
accruals could be material.
Arizona Environmental and
Reclamation Programs. FCX’s Arizona properties are subject to regulatory
oversight and compliance in several areas. The Arizona Department of
Environmental Quality (ADEQ) has adopted regulations for its aquifer protection
permit (APP) program that replaced previous Arizona groundwater quality
protection permit regulations. APP regulations require permits for certain
facilities, activities and structures for mining, concentrating and smelting and
require compliance with aquifer water quality standards at an applicable point
of compliance well or location. The APP program also may require mitigation and
discharge reduction or elimination of some discharges.
An
application for an APP requires a description of a closure strategy to meet
applicable groundwater protection requirements following cessation of operations
and a cost estimate to implement the closure strategy. An APP may specify
closure requirements, which may include post-closure monitoring and maintenance
requirements. A more detailed closure plan must be submitted within 90
days after a permitted entity notifies ADEQ of its intent to cease operations. A
permit applicant must demonstrate its financial capability to meet the closure
costs required under the APP.
Portions
of the Arizona mining facilities that operated after January 1, 1986, also are
subject to the Arizona Mined Land Reclamation Act (AMLRA). AMLRA requires
reclamation to achieve stability and safety consistent with post-mining land use
objectives specified in a reclamation plan. Reclamation plans require approval
by the State Mine Inspector and must include a cost estimate to perform the
reclamation measures specified in the plan. During 2008, FCX updated its closure
approach at Sierrita and Tohono to address site-specific regulatory obligations
and will continue to evaluate options for future reclamation and closure
activities at its other operating and non-operating sites, which are likely to
result in additional adjustments to FCX’s ARO liabilities. At December 31, 2008,
FCX had accrued reclamation and closure costs of $164 million for its Arizona
operations.
PT Freeport Indonesia Reclamation
and Closure Programs. The ultimate amount of reclamation and closure
costs to be incurred at PT Freeport Indonesia’s operations will be determined
based on applicable laws and regulations and PT Freeport Indonesia’s assessment
of appropriate remedial activities in the circumstances, after consultation with
governmental authorities, affected local residents and other affected parties
and cannot currently be projected with precision. Estimates of the ultimate
reclamation and closure costs PT Freeport Indonesia will incur in the future
involve complex issues requiring integrated assessments over a period of many
years and are subject to revision over time as more complete studies are
performed. Some reclamation costs will be incurred during mining activities,
while most closure costs and the remaining reclamation costs will be incurred at
the end of mining activities, which are currently estimated to continue for more
than 32 years. At December 31, 2008, PT Freeport Indonesia had accrued
reclamation and closure costs of $83 million.
In 1996,
PT Freeport Indonesia began contributing to a cash fund ($11 million balance at
December 31, 2008) designed to accumulate at least $100 million (including
interest) by the end of its Indonesian mining activities. PT Freeport Indonesia
plans to use this fund, including accrued interest, to pay the above-mentioned
mine closure and reclamation costs. Any costs in excess of the $100 million fund
would be funded by operational cash flow or other sources.
In May
2008, the Indonesian Minister of the Department of Energy and Mineral Resources
issued a new regulation regarding mine reclamation and closure, which requires a
company to provide a mine closure guarantee in the form of a time deposit placed
in a state-owned bank in Indonesia. PT Freeport Indonesia does not believe that
a deposit is required under the terms of its Contract of Work, but is working
with the Department of Energy and Mineral Resources to review these requirements
and discuss other options for the mine closure guarantee.
Litigation. FCX is
subject to legal proceedings claims and liabilities that arise in the normal
course of business. FCX believes the amount of the ultimate liability with
respect to those matters will not have a material adverse effect, either
individually or in the aggregate, upon its business, financial condition,
liquidity, results of operations or cash flow.
Since
approximately 1990, FMC or its subsidiaries have been named as a defendant in
product liability or premises lawsuits claiming injury from exposure to asbestos
found in electrical wire products produced or marketed many years ago, or from
asbestos at certain FMC properties. FCX believes its liability, if any, in these
matters will not have a material adverse effect, either individually or in the
aggregate, upon its business, financial condition, liquidity, results of
operations or cash flow. There can be no assurance, however, that future
developments will not alter this conclusion.
Letters of Credit and Surety
Bonds. Standby letters of credit totaled $81 million at
December 31, 2008, primarily for reclamation and environmental obligations and
workers’ compensation insurance programs. In addition, FCX had surety bonds
totaling $89 million at December 31, 2008, associated with reclamation and
closure ($66 million – see discussion above), self-insurance bonds primarily for
workers’ compensation ($21 million) and miscellaneous bonds ($2
million).
Insurance. FCX
purchases a variety of insurance products to mitigate potential losses. The
various insurance products typically have specified deductible amounts, or
self-insured retentions, and policy limits. FCX generally is
self-insured for U.S. workers’ compensation, but purchases excess insurance
up to statutory limits. An actuarial analysis is performed twice a year for
various FCX casualty programs, including workers’ compensation, to estimate
required insurance reserves. Insurance reserves totaled $60 million at December
31, 2008, which consisted of a current portion of $10 million (included in
accounts payable and accrued liabilities) and a long-term portion of $50 million
(included in other liabilities).
Other. In December 2008, Cerro
Verde was notified by Peruvian taxing authorities of their intent to assess
mining royalties related to the minerals processed by the Cerro Verde
concentrator. The amount claimed to be due through December 2007 is
approximately $33 million. FCX believes that Cerro Verde’s royalty obligations
with respect to all minerals extracted are governed by its existing stability
agreement, regardless of the processing method applied after extraction, and
believes that Cerro Verde owes no royalties with respect to minerals
processed through its concentrator. FCX intends to work cooperatively with the
Peruvian authorities to resolve this matter.
NOTE
16. COMMITMENTS AND GUARANTEES
Operating
Leases. FCX leases various types of properties, including
offices and equipment. A summary of future minimum rentals under these
non-cancelable leases at December 31, 2008, follows:
2009
|
|
$
|
26
|
|
2010
|
|
|
22
|
|
2011
|
|
|
17
|
|
2012
|
|
|
8
|
|
2013
|
|
|
4
|
|
After
2013
|
|
|
5
|
|
Total
payments
|
|
$
|
82
|
|
|
|
|
|
|
Minimum
payments under operating leases have not been reduced by aggregate minimum
sublease rentals, which are minimal.
Total
aggregate rental expense under operating leases was $90 million in 2008, $54
million in 2007 and $10 million in 2006.
Contractual
Obligations. Based on applicable prices at December 31, 2008,
FCX has unconditional purchase obligations of $1.2 billion, primarily comprising
the procurement of copper concentrates and cathodes ($522 million),
transportation ($184 million) and oxygen ($163 million) that are essential to
its operations worldwide. Some of FCX’s unconditional purchase obligations are
settled based on the prevailing market rate for the service or commodity
purchased. In some cases, the amount of the actual obligation may change over
time because of market conditions. Obligations for copper concentrates and
cathodes provide for deliveries of specified volumes, at market-based prices,
primarily to Atlantic Copper and the North America copper mines. Transportation
obligations are primarily for South America contracted ocean freight rates and
for North America natural gas transportation. Oxygen obligations provide for
deliveries of specified volumes, at fixed prices, primarily to Atlantic
Copper.
FCX’s
future commitments total $694 million in 2009, $182 million in 2010, $124
million in 2011, $39 million in 2012, $24 million in 2013 and $151 million
thereafter. During 2008, 2007 and 2006, FCX fulfilled its minimum contractual
purchase obligations or negotiated settlements in those situations in which it
terminated an agreement containing an unconditional obligation.
Mining
Contracts. Indonesia. FCX is entitled to
mine in Indonesia under the “Contract of Work” between PT Freeport Indonesia and
the Government of Indonesia. The original Contract of Work was entered into in
1967 and was replaced with a new Contract of Work in 1991. The initial term of
the current Contract of Work expires in 2021, but can be extended by PT Freeport
Indonesia for two 10-year periods, subject to Indonesian government approval,
which cannot be withheld or delayed unreasonably. Given the importance of
contracts of work under the Indonesian legal system and PT Freeport Indonesia’s
approximately 40 years of working with the Indonesian government, which included
entering into the Contract of Work in 1991 well before the expiration of the
1967 Contract of Work, PT Freeport Indonesia fully expects that the government
will approve the extensions as long as it continues to comply with the terms of
the Contract of Work.
In July
2004, FCX received a request from the Indonesian Department of Energy and
Mineral Resources that it 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 the
operations, FCX agreed, at the time, to consider a potential sale of an interest
in PT Indocopper Investama at fair market value. Neither its Contract of Work
nor Indonesian law requires FCX to divest any portion of its ownership in PT
Freeport Indonesia or PT Indocopper Investama. In May 2008, FCX signed a
Memorandum of Understanding with the Papua provincial government (the Province)
whereby the parties agreed to work cooperatively to determine the feasibility of
an acquisition by the Province of the PT Indocopper Investama shares at fair
market value.
The
copper royalty rate payable by PT Freeport Indonesia under its Contract of Work
varies from 1.5 percent of copper net revenue at a copper price of $0.90 or less
per pound to 3.5 percent at a copper price of $1.10 or more per pound. The
Contract of Work royalty rate for gold and silver sales is 1.0
percent.
A large
part of the mineral royalties under Government of Indonesia regulations is
designated to the provinces from which the minerals are extracted. In connection
with its fourth concentrator mill expansion completed in 1998, PT
Freeport Indonesia agreed to pay the Government of Indonesia additional
royalties (royalties not required by the Contract of Work) to provide further
support to the local governments and the people of the Indonesian province of
Papua. The additional royalties are paid on production exceeding specified
annual amounts of copper, gold and silver expected to be generated when PT
Freeport Indonesia’s milling facilities operate above 200,000 metric tons of ore
per day. The additional royalty for copper equals the Contract of Work royalty
rate, and for gold and silver equals twice the Contract of Work royalty rates.
Therefore, PT Freeport Indonesia’s royalty rate on copper net revenues from
production above the agreed levels is double the Contract of Work royalty rate,
and the royalty rates on gold and silver sales from production above the agreed
levels are triple the Contract of Work royalty rates.
The
combined royalties, including the additional royalties, which became effective
January 1, 1999, totaled $113 million in 2008, $133 million in 2007 and $126
million in 2006. PT Freeport Indonesia records these royalty payments as a
reduction to revenues.
Africa. In February 2008, the
Ministry of Mines, Government of the DRC, sent a letter seeking comment on
proposed material modifications to the mining contracts 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. FCX responded to this letter indicating that its
mining contracts were negotiated transparently and approved by the Government of
the DRC following extended negotiations, and FCX believes they are fair and
equitable, comply with Congolese law and are enforceable without modifications.
FCX is continuing to work cooperatively with the government to resolve these
matters while continuing with its project development activities.
Community Development
Programs. FCX has adopted policies that govern its working
relationships with the communities where it operates that are designed to guide
its practices and programs in a manner that respects basic human rights and the
culture of the local people impacted by FCX’s operations. FCX continues to make
significant expenditures on community development, education, training and
cultural programs.
In 1996,
PT Freeport Indonesia established the Freeport Partnership Fund for Community
Development (formerly the Freeport Fund for Irian Jaya Development) through
which PT Freeport Indonesia has made available funding and technical assistance
to support the economic health, education and social development of the area. PT
Freeport Indonesia has committed through 2011 to provide one percent of its
annual revenue for the development of the local people in its area of operations
through the Freeport Partnership Fund for Community Development. PT Freeport
Indonesia charged $34 million in 2008, $48 million in 2007 and $44 million in
2006 to production costs for this commitment.
FCX’s
Cerro Verde copper mine 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 contribute to the design and construction
of 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. FCX has funded
approximately 150 million Peruvian nuevo soles (approximately $49 million at
December 31, 2008) to a designated bank account (included in other assets) to be
used for financing Cerro Verde’s share of the construction costs of these
facilities.
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 when copper prices exceed certain levels that are adjusted annually. 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. The charge for these local mining fund contributions totaled $28
million in 2008 and $49 million in 2007.
Guarantees. FCX provides
certain financial guarantees (including indirect guarantees of the indebtedness
of others) and indemnities.
At its
Morenci mine in Arizona, FCX has a venture agreement dated February 7, 1986,
with Sumitomo, which includes a put and call option guarantee clause. FCX holds
an 85 percent undivided interest in the Morenci complex. Under certain
conditions defined in the venture agreement, Sumitomo has the right to sell its
15 percent share to FCX. Likewise, under certain conditions, FCX has the right
to purchase Sumitomo’s share of the venture. Based on calculations defined in
the venture agreement, at December 31, 2008, the maximum potential payment
FCX is
obligated to make to Sumitomo upon exercise of the put option (or FCX’s exercise
of its call option) totaled approximately $166 million. At December
31, 2008, FCX had not recorded any liability in its consolidated financial
statements in connection with this guarantee as FCX does not believe, based on
information available, that it is probable that any amounts will be paid under
this guarantee as the fair value of Sumitomo’s 15 percent share is well in
excess of the exercise price.
Prior to
its acquisition by FCX, FMC and its subsidiaries have, as part of merger,
acquisition, divestiture and other transactions, from time to time, indemnified
certain sellers, buyers or other parties related to the transaction from and
against certain liabilities associated with conditions in existence (or claims
associated with actions taken) prior to the closing date of the transaction. As
part of these transactions, FMC indemnified the counterparty from and against
certain excluded or retained liabilities existing at the time of sale that would
otherwise have been transferred to the party at closing. These indemnity
provisions generally now require FCX to indemnify the party against certain
liabilities that may arise in the future from the pre-closing activities of FMC
for assets sold or purchased. The indemnity classifications include
environmental, tax and certain operating liabilities, claims or litigation
existing at closing and various excluded liabilities or obligations. Most of
these indemnity obligations arise from transactions that closed many years ago,
and given the nature of these indemnity obligations, it is impossible to
estimate the maximum potential exposure. Except as described in the following
sentence, FCX does not consider any of such obligations as having a probable
likelihood of payment that is reasonably estimable, and accordingly, has not
recorded any obligations associated with these indemnities. With respect to
FCX’s environmental indemnity obligations, any expected costs from these
guarantees are accrued when potential environmental obligations are considered
by management to be probable and the costs can be reasonably
estimated.
NOTE
17. FINANCIAL INSTRUMENTS
FCX and
its subsidiaries do not purchase, hold or sell derivative financial instruments
unless there is an existing asset or obligation or if FCX anticipates a future
activity that is likely to occur and will result in exposure to market risks.
FCX does not enter into any derivative financial instruments for speculative
purposes. FCX and its subsidiaries have entered into derivative financial
instruments in limited instances to achieve specific objectives. These
objectives principally relate to managing risks associated with commodity price,
foreign currency and interest rate risks. The fair values of
FCX’s financial derivative instruments are based on derivative pricing
models or widely published market closing prices. As of December 31, 2008, no
FCX derivative instruments met all the criteria under SFAS No. 133, as amended,
to qualify as a hedge transaction. A recap of gains (losses) charged to (loss)
income from continuing operations before income taxes, minority interests and
equity in affiliated companies’ net earnings for derivative financial
instruments, including embedded derivatives, for the years ended December 31,
2008, 2007 and 2006, follows:
|
|
2008
|
|
2007
|
|
2006
|
|
Commodity
contracts:
|
|
|
|
|
|
|
|
|
|
|
Embedded
derivatives in provisional sales contractsa
|
|
$
|
(1,278
|
)
|
$
|
197
|
|
$
|
293
|
|
Embedded
derivatives in provisional purchase contractsb
|
|
|
34
|
|
|
(10
|
)
|
|
–
|
|
Copper
forward contractsb
|
|
|
(71
|
)
|
|
(44
|
)
|
|
47
|
|
Copper
futures and swap contractsa
|
|
|
(184
|
)
|
|
(38
|
)
|
|
–
|
|
FMC’s
zero-premium copper collarsa
|
|
|
–
|
|
|
(175
|
)
|
|
–
|
|
Gold-Denominated
Preferred Stock, Series IIa
|
|
|
–
|
|
|
–
|
|
|
(69
|
)
|
Silver-Denominated
Preferred Stocka
|
|
|
–
|
|
|
–
|
|
|
(13
|
)
|
Foreign
currency exchange contractsb
|
|
|
–
|
|
|
–
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Amounts
recorded in revenues.
|
b.
|
Amounts
recorded in cost of sales as production and delivery
costs.
|
Summarized
below are financial instruments whose carrying amounts are not equal to their
fair values and unsettled derivative financial instruments at December 31, 2008
and 2007:
|
2008
|
|
2007
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Commodity
contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded
derivatives in provisional sales/
|
|
|
|
|
|
|
|
|
|
|
|
|
purchases
contracts:a
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
position
|
$ |
87
|
|
$ |
87
|
|
$
|
34
|
|
$
|
34
|
|
Liability
position
|
|
(485
|
)
|
|
(485
|
)
|
|
(157
|
)
|
|
(157
|
)
|
Copper
forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability
positionb
|
|
(4
|
)
|
|
(4
|
)
|
|
(4
|
)
|
|
(4
|
)
|
Copper
futures and swap contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
positionc
|
|
2
|
|
|
2
|
|
|
–
|
|
|
–
|
|
Liability
positionb,
d
|
|
(89
|
)
|
|
(89
|
)
|
|
(9
|
)
|
|
(9
|
)
|
Long-term
debt (including amounts due within
|
|
|
|
|
|
|
|
|
|
|
|
|
one
year)
|
|
(7,351
|
)
|
|
(5,889
|
)
|
|
(7,211
|
)
|
|
(7,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Amounts
recorded either as a net accounts receivable or a net accounts payable
except for Atlantic Copper's copper purchases, which are recorded to
product inventories ($56 million for 2008 and $18 million for
2007).
|
b.
|
Amounts
recorded in accounts payable and accrued
liabilities.
|
c.
|
Amounts
recorded in accounts receivable.
|
d.
|
At
December 31, 2008, FCX had paid $92 million to brokers for margin
requirements, which is recorded in other current
assets.
|
Commodity
Contracts. From time to time, FCX has entered into forward,
futures, swaps and option contracts to hedge the market risk associated with
fluctuations in the prices of commodities it sells. Derivative financial
instruments used by FCX to manage its risks do not contain credit risk-related
contingent provisions. As of December 31, 2008 and 2007, FCX had no price
protection contracts relating to its mine production. A summary of FCX’s
derivative contracts and programs follows.
Embedded Derivatives. As
described in Note 1 under “Revenue Recognition,” a portion of FCX’s copper
concentrate and cathode sales contracts and gold sales contracts provides for
provisional pricing primarily based on LME or COMEX prices at the time of
shipment as specified in the contract. Similarly, FCX purchases copper and
molybdenum under contracts that provide for provisional pricing. FCX applies the
normal purchase and sale exception under SFAS No. 133, as amended, to the host
sales agreements since the contracts do not allow for net settlement and always
result in physical delivery. Under SFAS No. 133, as amended, sales and purchases
made on a provisional sales price contain an embedded derivative (i.e., the price settlement
mechanism that is settled after the time of delivery) that is required to be
bifurcated from the host contract. The host contract is the sale or purchase of
the metals contained in the concentrates or cathodes at the then-current LME or
COMEX price. Mark-to-market price fluctuations recorded through the settlement
date are reflected in revenues for sales contracts and in cost of sales as
production and delivery costs for purchase contracts. At December 31, 2008, FCX
had embedded derivatives on 508 million pounds of copper sales (net of minority
interests), with maturities through May 2009 and 113 million pounds of copper
purchases, with maturities through March 2009.
Copper Forward Contracts.
Atlantic Copper enters into forward copper contracts designed to hedge its
copper price risk whenever its physical purchases and sales pricing periods do
not match. These economic hedge transactions are intended to hedge against
changes in copper prices, with the mark-to-market hedging gains or losses
recorded to cost of sales. At December 31, 2008, Atlantic Copper held forward
copper purchase contracts for 55 million pounds at an average price of
$1.45 per pound, with maturities through February 2009.
Copper Futures and Swap
Contracts. Some of FCX’s U.S. copper rod customers request a fixed market
price instead of the COMEX average price in the month of shipment. FCX hedges
this price exposure in a manner that allows it to receive the COMEX average
price in the month of shipment while the customers pay the fixed price they
requested. FCX accomplishes this by entering into copper futures and swap
contracts and then liquidating the copper futures contracts and settling the
copper swap contracts during the month of shipment, which generally results in
FCX receiving the COMEX average price in the month of shipment. Gains and losses
for these economic
hedge transactions are recorded to revenues. At December 31, 2008, FCX held
copper futures and swap contracts for 93 million pounds at an average price of
$2.34 per pound, with maturities through December 2010.
FMC Copper Collars. As a
result of the acquisition of Phelps Dodge, FCX assumed Phelps Dodge’s 2007
copper price protection program ($423 million obligation at acquisition date),
which consisted of zero-premium copper collars (consisting of both put and call
options) for 486 million pounds of copper capped at $2.00 per pound and copper
put options for 730 million pounds with a floor price of $0.95 per pound. The
zero-premium copper collars consisted of the simultaneous purchase of a monthly
or annual put option and the sale of an annual call option. The put option
portion of this economic hedge effectively ensured a minimum price per pound
while the call option portion established a maximum price per pound. The primary
objective of these contracts was to set a minimum price, and the secondary
objective was to retain market upside. At December 31, 2007, the copper put
options expired without settlement, and FCX paid $598 million in January 2008 to
settle the copper call options. FCX does not currently intend to enter into
similar hedging programs in the future.
Gold- and Silver-Denominated
Preferred Stock. In 2006, FCX redeemed its gold-denominated and
silver-denominated preferred stock that had dividends and redemption amounts
determined by commodity prices.
Foreign Currency Exchange
Contracts. As a global company, FCX transacts business in many
countries and in many currencies. Foreign currency transactions of FCX’s
international subsidiaries increase its risks because exchange rates can change
between the time agreements are made and the time foreign currency transactions
are settled. FCX may hedge or protect its international subsidiaries’ foreign
currency transactions from time to time by entering into forward exchange
contracts to lock in or minimize the effects of fluctuations in exchange rates.
FCX had no outstanding foreign currency exchange contracts at
December 31, 2008.
Interest Rate Swap
Contracts. From time to time, FCX or its subsidiaries may
enter into interest rate swaps to manage its exposure to interest rate changes
on a portion of its debt. Floating-rate debt exposes FCX to increasing costs
from rising interest rates. FCX may enter into interest rate swap contracts to
lock in an interest rate considered to be favorable in order to protect
against its exposure to variability in future interest payments attributable to
increases in interest rates of the designated floating-rate debt. FCX had
no outstanding interest rate swap contracts at December 31, 2008.
Credit Risk. FCX is
exposed to credit loss when financial institutions with which FCX has entered
into derivative transactions (commodity, foreign exchange and interest rate
swaps) are unable to pay. To minimize the risk of such losses, FCX uses highly
rated financial institutions that meet certain requirements. FCX also
periodically reviews the creditworthiness of these institutions to ensure that
they are maintaining their ratings. FCX does not anticipate that any of the
financial institutions FCX deals with will default on their obligations. As of
December 31, 2008, FCX did not have any significant credit exposure associated
with derivative transactions.
Other Financial
Instruments. The methods and assumptions FCX used to estimate
the fair value of significant groups of financial instruments for which it can
reasonably determine a value are as follows:
Cash and Cash Equivalents.
The financial statement amount is a reasonable estimate of the fair value
because of the short maturity of these instruments.
Trust Assets. The financial
statement amount represents the fair value of trust assets, which is based on
quoted market prices.
Long-Term Debt. The fair
value of substantially all of FCX’s long-term debt is estimated based on quoted
market prices.
NOTE
18. ACQUISITION OF PHELPS DODGE
On March
19, 2007, FCX 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 DRC.
In the
acquisition, each share of Phelps Dodge common stock was exchanged for 0.67 of a
share of FCX common stock and $88.00 in cash. As a result, FCX issued 136.9
million shares and paid $18.0 billion in cash to Phelps Dodge shareholders. The
acquisition was accounted for under the purchase method as required by SFAS No.
141 with FCX as the accounting acquirer.
The
estimated fair value of assets acquired and liabilities assumed and the results
of Phelps Dodge’s (now known as FMC) operations are included in FCX’s
consolidated financial statements beginning March 20, 2007.
The
following table summarizes the $25.8 billion purchase price, which was funded
through a combination of common shares issued, borrowings under an $11.5 billion
senior credit facility, proceeds from the offering of $6.0 billion of senior
notes (see Note 11 for further discussion) and available cash
resources:
Phelps
Dodge common stock outstanding and issuable at
|
|
|
|
March
19, 2007 (in millions)
|
|
204.3
|
|
Exchange
offer ratio per share of FCX common stock for each
|
|
|
|
Phelps
Dodge common share
|
|
0.67
|
|
Shares
of FCX common stock issued (in millions)
|
|
136.9
|
|
|
|
|
|
Cash
consideration of $88.00 for each Phelps Dodge common share
|
$
|
17,979
|
a
|
Fair
value of FCX common stock issued
|
|
7,781
|
b
|
Transaction
and change of control costs and related employee benefits
|
|
137
|
|
Release
of FCX deferred tax asset valuation allowances
|
|
(92
|
)c
|
Total
purchase price
|
$
|
25,805
|
|
|
|
|
|
a.
|
Cash
consideration includes cash paid in lieu of any fractional shares of FCX
stock.
|
b.
|
Measurement
of the common stock component of the purchase price was based on a
weighted-average closing price of FCX’s common stock of $56.85 for the two
days prior to through two days after the public announcement of the merger
on November 19, 2006.
|
c.
|
FCX
determined that, as a result of the acquisition of Phelps Dodge, it would
be able to realize certain U.S. tax credits for which it had previously
not recognized any benefit. Recognition of these tax credits resulted in a
$92 million reduction to the purchase
price.
|
In
accordance with the purchase method of accounting, the purchase price paid was
determined at the date of the public announcement of the transaction and 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 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 estimated fair
value of the net assets acquired was recorded as goodwill. At the date of
acquisition of Phelps Dodge, copper price projections used to value the assets
acquired ranged from near-term prices of $2.98 per pound for copper declining
over an eight-year period to $1.20 per pound and $26.20 per pound for molybdenum
declining over a five-year period to $8.00 per pound, reflecting price
expectations at that time.
A summary
of the final purchase price allocation as of March 19, 2007, follows (in
billions):
|
Phelps
|
|
|
|
|
|
|
Dodge
|
|
|
|
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 goodwillb
|
|
–
|
|
|
6.2
|
|
|
6.2
|
c
|
Total
assets
|
|
14.2
|
|
|
25.4
|
|
|
39.6
|
|
Deferred
income taxes (current and long-term)d
|
|
(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 of VBPP (see Note
1).
|
b.
|
None
of the $6.2 billion of goodwill was deductible for tax
purposes.
|
c.
|
Includes
$160 million of goodwill associated with PDIC, which was sold in the
fourth quarter of 2007 (see Note
4).
|
d.
|
Deferred
income taxes were recognized based on the difference between the tax basis
and the estimated fair values assigned to net
assets.
|
Unaudited Pro Forma Financial
Information. The following unaudited pro forma financial
information assumes that FCX acquired Phelps Dodge effective January 1, 2007.
The most significant adjustments relate to the purchase accounting impacts of
increases in the carrying values of acquired metal inventories (including mill
and leach stockpiles) and property, plant and equipment using March 19, 2007,
metal prices and assumptions:
|
Historical
|
|
|
|
|
|
|
|
|
Phelps
|
|
Pro
Forma
|
|
Pro
Forma
|
|
|
FCX
|
|
Dodgea
|
|
Adjustments
|
|
Consolidated
|
|
Year Ended December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
16,939
|
|
$
|
2,294
|
|
$
|
–
|
|
$
|
19,233
|
b
|
Operating
income
|
|
6,555
|
|
|
793
|
|
|
(178
|
)
|
|
7,170
|
b,c
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
information.
|
b.
|
Includes
charges to revenues for mark-to-market accounting adjustments on copper
price protection programs totaling $195 million. Also includes credits for
amortization of acquired intangible liabilities totaling $120
million.
|
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
$1.7 billion.
|
The above
unaudited pro forma consolidated financial information has been prepared for
illustrative purposes only and is not intended to be indicative of the results
that would actually have occurred, or the results expected in future periods,
had the events reflected herein occurred on the dates indicated.
NOTE
19. BUSINESS SEGMENTS
FCX has
organized its operations into five primary divisions – North America copper
mines, South America copper mines, Indonesia mining, Africa mining and
Molybdenum operations. Notwithstanding this 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 certain SFAS No. 131 thresholds are reportable
segments.
During
2008, FCX revised the presentation of its operating divisions to better reflect
management’s view of the consolidated FCX operations. Additionally, in 2008,
Sierrita and Africa mining became reportable segments. FCX has revised its
segment disclosures for the years ended December 31, 2007 and 2006, to conform
with the current year presentation.
Further
discussion of the reportable segments included in FCX’s operating divisions, as
well as FCX’s other reportable segments – Rod & Refining and Atlantic Copper
Smelting & Refining – follows. See Note 3 for information on FCX’s ownership
interests.
North America Copper
Mines. Until the fourth quarter of 2008, FCX had seven
operating copper mines in North America – Morenci, Sierrita, Bagdad, Safford and
Miami in Arizona and Chino and Tyrone in New Mexico. As a result of the revised
operating plans, mining and milling activities have been suspended at Chino, and
the project to restart the Miami mine has been deferred. The North America
copper mines include open-pit mining, sulfide ore concentrating, leaching and
SX/EW operations. A majority of the copper produced at the North America copper
mines is cast into copper rod by FCX’s Rod & Refining operations. The North
America copper mines division includes Morenci and Sierrita 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 a small
amount of molybdenum concentrates as a by-product.
Sierrita. The Sierrita
open-pit mine, located in Pima County, Arizona, primarily produces copper
cathodes, copper concentrates and copper sulfate. In addition to copper, the
Sierrita mine produces molybdenum concentrate as a by-product.
Other Mines. Other mines
include FCX’s other operating southwestern U.S. copper mines – Bagdad, Safford
and Tyrone. In addition to copper, the Bagdad mine produces molybdenum
concentrate as a by-product. Other mines also include FCX’s southwestern U.S.
copper mines that are currently on care-and-maintenance status, including Miami
and Chino.
South America Copper
Mines. 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 and SX/EW operations. The South America copper mines division includes
Cerro Verde 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 concentrate as a by-product. In the first quarter of 2009, FCX
announced plans to temporarily curtail the molybdenum circuit at Cerro
Verde.
Other Mines. Other mines
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 as by-products.
Indonesia. Indonesia
mining includes PT Freeport Indonesia’s Grasberg minerals district. PT Freeport
Indonesia produces copper concentrates, which contain significant quantities of
gold and silver.
Africa. Africa
mining includes the Tenke Fungurume copper and cobalt mining concessions in the
Katanga province of the DRC. Construction activities are well advanced and
initial production is targeted during the second half of 2009. The initial
project at Tenke Fungurume is based on mining and processing ore reserves
approximating 119 million metric tons with average ore grades of 2.6 percent
copper and 0.35 percent cobalt.
Molybdenum. The
Molybdenum segment is an integrated producer of molybdenum, with mining, sulfide
ore concentrating, 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, and includes the wholly owned
Henderson molybdenum mine in Colorado and related conversion facilities. The
Henderson underground mine produces high-purity, chemical-grade molybdenum
concentrates, which are typically further processed into value-added molybdenum
chemical products. This segment also includes a sales company that purchases and
sells molybdenum from the Henderson mine as well as from FCX’s North and South
America copper
mines that produce molybdenum as a by-product. 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.
The
Molybdenum segment also includes FCX’s wholly owned Climax molybdenum mine in
Colorado, which has been on care-and-maintenance status since 1995.
Rod & Refining. The Rod
& Refining segment consists of copper conversion facilities located in North
America, and until the fourth quarter of 2008, included a refinery, four rod
mills and a specialty copper products facility. As a result of the revised
operating plans in the fourth quarter of 2008, one of FCX’s rod mills was
permanently closed. These operations process copper produced at the North
America mines and purchased copper into copper cathode, rod and custom copper
shapes. At times these operations refine copper and produce 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.
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. PT Freeport Indonesia and the South America copper
mines generally sell a portion of their concentrate and cathode (South America)
production to Atlantic Copper.
Intersegment sales.
Intersegment sales between FCX’s operations are based on similar arms-length
transactions with third parties at the time of the sale. Intersegment sales 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.
Allocations. 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 U.S. federal and state income taxes are recorded
and managed at the corporate level with the exception of foreign income taxes,
which are recorded and managed at the applicable mine or operation. In addition,
most exploration and research activities are managed at the corporate level, and
those costs are not allocated to the operating division or segments.
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.
FCX
revenues attributable to the products it produces for the years ended December
31, 2008, 2007 and 2006, follow:
|
2008
|
|
2007
|
|
2006
|
|
Refined
copper products
|
$
|
9,575
|
|
$
|
8,918
|
|
$
|
1,865
|
|
Copper
in concentratesa
|
|
3,954
|
|
|
4,541
|
|
|
2,721
|
|
Molybdenum
|
|
2,408
|
|
|
1,703
|
|
|
–
|
|
Gold
|
|
1,286
|
|
|
1,664
|
|
|
1,155
|
|
Otherb
|
|
573
|
|
|
113
|
|
|
50
|
|
Total
|
$
|
17,796
|
|
$
|
16,939
|
|
$
|
5,791
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Amounts
are net of treatment and refining charges totaling $398 million for 2008,
$502 million for 2007 and $388 million for
2006.
|
b.
|
Amounts
are net of royalty charges totaling $113 million in 2008, $133 million in
2007 and $126 million in 2006. Also includes $273 million in 2008, $(36)
million in 2007 and $139 million in 2006 for adjustments to prior year
sales and pre-acquisition sales in 2007 subject to final
pricing.
|
Information
concerning financial data by geographic area for the years ended December 31,
2008, 2007 and 2006, is presented in the following tables.
Geographic
Area
|
2008
|
|
2007
|
|
2006
|
|
Revenuesa:
|
|
|
|
|
|
|
|
|
|
United
States
|
$
|
7,609
|
|
$
|
6,480
|
|
$
|
76
|
|
Japan
|
|
2,662
|
|
|
2,479
|
|
|
1,242
|
|
Spain
|
|
1,872
|
|
|
1,773
|
|
|
1,380
|
|
Indonesia
|
|
1,420
|
|
|
2,105
|
|
|
1,202
|
|
Chile
|
|
669
|
|
|
627
|
|
|
–
|
|
United
Kingdom
|
|
404
|
|
|
661
|
|
|
126
|
|
Others
|
|
3,160
|
|
|
2,814
|
|
|
1,765
|
|
Total
|
$
|
17,796
|
|
$
|
16,939
|
|
$
|
5,791
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Long-lived
assetsb:
|
|
|
|
|
|
|
|
|
|
United
States
|
$
|
6,529
|
|
$
|
16,954
|
|
$
|
41
|
|
Indonesia
|
|
3,361
|
|
|
3,126
|
|
|
2,933
|
|
Peru
|
|
3,278
|
|
|
3,242
|
|
|
–
|
|
Democratic
Republic of Congo
|
|
2,696
|
|
|
1,506
|
|
|
–
|
|
Chile
|
|
1,551
|
|
|
2,882
|
|
|
–
|
|
Spain
|
|
283
|
|
|
274
|
|
|
265
|
|
Others
|
|
59
|
|
|
84
|
|
|
–
|
|
Total
|
$
|
17,757
|
|
$
|
28,068
|
|
$
|
3,239
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Revenues
are attributed to countries based on the location of the
customer.
|
b.
|
Long-lived
assets exclude deferred tax assets, goodwill and intangible
assets.
|
Major
Customers
No single
customer accounted for 10 percent or more of FCX’s consolidated revenues in
2008. Sales to PT Smelting totaled $1.8 billion (11 percent of FCX’s
consolidated revenues) in 2007 and $1.2 billion (21 percent of FCX’s
consolidated revenues) in 2006. See Note 3 for further discussion of FCX’s
investment in PT Smelting.
Business
Segments
Business
segments for the years ended December 31, 2008, 2007 and 2006, are presented in
the following tables.
Business
Segments
|
North
America Copper Mines
|
|
South
America Copper Mines
|
|
Indonesia
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlantic
|
|
Corporate,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
Other
&
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
Cerro
|
|
Other
|
|
|
|
|
|
|
|
Molyb-
|
|
Rod
&
|
|
Smelting
|
|
Elimi-
|
|
FCX
|
|
Year
Ended December 31, 2008
|
Morenci
|
|
Sierrita
|
|
Mines
|
|
Total
|
|
Verde
|
|
Mines
|
|
Total
|
|
Grasberg
|
|
Tenke
|
|
denum
|
|
Refining
|
|
&
Refining
|
|
nations
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customersb
|
$
|
370
|
|
$
|
90
|
|
$
|
256
|
|
$
|
716
|
|
$
|
1,602
|
|
$
|
2,166
|
|
$
|
3,768
|
|
$
|
2,934
|
a
|
$
|
–
|
|
$
|
2,488
|
|
$
|
5,524
|
|
$
|
2,333
|
|
$
|
33
|
|
$
|
17,796
|
|
Intersegment
|
|
1,630
|
|
1,103
|
|
1,816
|
|
4,549
|
|
261
|
|
137
|
|
398
|
|
478
|
|
–
|
|
–
|
|
33
|
|
8
|
|
(5,466
|
)
|
–
|
|
Production
and deliveryb
|
|
1,313
|
|
487
|
|
1,247
|
|
3,047
|
|
698
|
|
1,146
|
|
1,844
|
|
1,792
|
|
6
|
|
1,528
|
|
5,527
|
|
2,276
|
|
(5,604
|
)
|
10,416
|
|
Depreciation,
depletion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
amortizationb
|
|
330
|
|
88
|
|
352
|
|
770
|
|
178
|
|
333
|
|
511
|
|
222
|
|
6
|
|
192
|
|
8
|
|
35
|
|
38
|
|
1,782
|
|
LCM
inventory adjustments
|
|
302
|
|
–
|
|
359
|
|
661
|
|
–
|
|
10
|
|
10
|
|
–
|
|
10
|
|
101
|
|
–
|
|
–
|
|
–
|
|
782
|
|
Selling,
general and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative
expenses
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
91
|
|
–
|
|
18
|
|
–
|
|
20
|
|
140
|
|
269
|
|
Exploration
and research expenses
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
2
|
|
–
|
|
–
|
|
290
|
|
292
|
|
Goodwill
impairment
|
|
1,851
|
|
991
|
|
1,308
|
|
4,150
|
|
763
|
|
366
|
|
1,129
|
|
–
|
|
2
|
|
703
|
|
–
|
|
–
|
|
3
|
|
5,987
|
|
Long-lived
asset impairments and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
chargesc
|
|
2,702
|
|
1,908
|
|
3,549
|
|
8,159
|
|
1
|
|
1,365
|
|
1,366
|
|
–
|
|
2
|
|
1,417
|
|
20
|
|
–
|
|
14
|
|
10,978
|
|
Operating
(loss) incomeb
|
|
(4,498
|
)
|
(2,281
|
)
|
(4,743
|
)
|
(11,522
|
)
|
223
|
|
(917
|
)
|
(694
|
)
|
1,307
|
|
(26
|
)
|
(1,473
|
)
|
2
|
|
10
|
|
(314
|
)
|
(12,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
2
|
|
1
|
|
10
|
|
13
|
|
2
|
|
2
|
|
4
|
|
(1
|
)
|
69
|
|
–
|
|
4
|
|
13
|
|
482
|
|
584
|
|
(Benefit
from) provision for income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
taxes
|
|
–
|
|
–
|
|
–
|
|
–
|
|
313
|
|
(267
|
)
|
46
|
|
612
|
|
(66
|
)
|
–
|
|
–
|
|
–
|
|
(3,436
|
)
|
(2,844
|
)
|
Total
assets at December 31, 2008
|
|
2,148
|
|
495
|
|
3,555
|
|
6,198
|
|
3,994
|
|
2,406
|
|
6,400
|
|
4,420
|
|
2,685
|
|
1,795
|
|
266
|
|
852
|
|
737
|
|
23,353
|
|
Capital
expenditures
|
|
276
|
|
51
|
|
282
|
|
609
|
|
129
|
|
194
|
|
323
|
|
444
|
|
1,058
|
|
180
|
|
9
|
|
34
|
|
51
|
|
2,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
Includes PT Freeport Indonesia’s sales to PT Smelting totaling $1.4
billion.
|
b.
The following table summarizes the impact of purchase accounting fair
value adjustments on operating (loss) income primarily associated with the
impacts of the increases in the carrying values of acquired metals
inventories (including mill and leach stockpiles) and property, plant and
equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
5
|
|
$
|
1
|
|
$
|
6
|
|
|
N/A
|
|
$
|
–
|
|
$
|
(2
|
)
|
$
|
–
|
|
N/A
|
|
$
|
–
|
|
$
|
4
|
|
Production
and delivery
|
|
37
|
|
11
|
|
(24
|
)
|
24
|
|
9
|
|
37
|
|
46
|
|
N/A
|
|
–
|
|
32
|
|
–
|
|
N/A
|
|
23
|
|
125
|
|
Depreciation,
depletion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
amortization
|
|
209
|
|
62
|
|
199
|
|
470
|
|
87
|
|
203
|
|
290
|
|
N/A
|
|
–
|
|
139
|
|
–
|
|
N/A
|
|
(11
|
)
|
888
|
|
Impact
on operating (loss) income
|
$
|
(246
|
)
|
$
|
(73
|
)
|
$
|
(175
|
)
|
$
|
(494
|
)
|
$
|
(91
|
)
|
$
|
(239
|
)
|
$
|
(330
|
)
|
N/A
|
|
$
|
–
|
|
$
|
(173
|
)
|
$
|
–
|
|
N/A
|
|
$
|
(12
|
)
|
$
|
(1,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
c.
The following table summarizes long-lived asset impairments and other
charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
asset impairments
|
$
|
2,683
|
|
$
|
1,900
|
|
$
|
3,511
|
|
$
|
8,094
|
|
$
|
–
|
|
$
|
1,359
|
|
$
|
1,359
|
|
$
|
–
|
|
$
|
–
|
|
$
|
1,408
|
|
$
|
6
|
|
$
|
–
|
|
$
|
–
|
|
$
|
10,867
|
|
Restructuring
charges
|
|
3
|
|
2
|
|
18
|
|
23
|
|
1
|
|
6
|
|
7
|
|
–
|
|
2
|
|
4
|
|
4
|
|
–
|
|
10
|
|
50
|
|
Special
retirement benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
curtailments
|
|
16
|
|
6
|
|
20
|
|
42
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
5
|
|
10
|
|
–
|
|
4
|
|
61
|
|
Long-lived
asset impairments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
other charges
|
$
|
2,702
|
|
$
|
1,908
|
|
$
|
3,549
|
|
$
|
8,159
|
|
$
|
1
|
|
$
|
1,365
|
|
$
|
1,366
|
|
$
|
–
|
|
$
|
2
|
|
$
|
1,417
|
|
$
|
20
|
|
$
|
–
|
|
$
|
14
|
|
$
|
10,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Segments (continued)
|
North
America Copper Mines
|
|
South
America Copper Mines
|
|
Indonesia
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlantic
|
|
Corporate,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
Other
&
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
Cerro
|
|
Other
|
|
|
|
|
|
|
|
Molyb-
|
|
Rod
&
|
|
Smelting
|
|
Elimi-
|
|
FCX
|
|
Year
Ended December 31, 2007
|
Morenci
|
|
Sierrita
|
|
Mines
|
|
Total
|
|
Verde
|
|
Mines
|
|
Total
|
|
Grasberg
|
|
Tenke
|
|
denum
|
|
Refining
|
|
&
Refining
|
|
nations
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customersb
|
$
|
286
|
|
$
|
53
|
|
$
|
203
|
|
$
|
542
|
|
$
|
1,243
|
|
$
|
2,228
|
|
$
|
3,471
|
|
$
|
3,640
|
a
|
$
|
–
|
|
$
|
1,746
|
|
$
|
5,108
|
|
$
|
2,388
|
|
$
|
44
|
|
$
|
16,939
|
|
Intersegment
|
|
1,516
|
|
780
|
|
1,255
|
|
3,551
|
|
390
|
|
18
|
|
408
|
|
1,168
|
|
–
|
|
–
|
|
32
|
|
–
|
|
(5,159
|
)
|
–
|
|
Production
and deliveryb
|
|
1,014
|
|
352
|
|
800
|
|
2,166
|
|
479
|
|
798
|
|
1,277
|
|
1,388
|
|
10
|
|
1,287
|
|
5,119
|
|
2,329
|
|
(5,049
|
)
|
8,527
|
|
Depreciation,
depletion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
amortizationb
|
|
240
|
|
54
|
|
205
|
|
499
|
|
129
|
|
249
|
|
378
|
|
199
|
|
2
|
|
94
|
|
7
|
|
36
|
|
31
|
|
1,246
|
|
Selling,
general and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative
expenses
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
188
|
|
–
|
|
10
|
|
–
|
|
20
|
|
248
|
|
466
|
|
Exploration
and research expenses
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
2
|
|
–
|
|
–
|
|
143
|
|
145
|
|
Operating
income (loss)b
|
|
548
|
|
427
|
|
453
|
|
1,428
|
|
1,025
|
|
1,199
|
|
2,224
|
|
3,033
|
|
(12
|
)
|
353
|
|
14
|
|
3
|
|
(488
|
)
|
6,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
–
|
|
–
|
|
–
|
|
–
|
|
9
|
|
(2
|
)
|
7
|
|
12
|
|
(41
|
)
|
–
|
|
4
|
|
26
|
|
505
|
|
513
|
|
Provision
for income taxes
|
|
–
|
|
–
|
|
–
|
|
–
|
|
484
|
|
369
|
|
853
|
|
1,326
|
|
4
|
|
–
|
|
–
|
|
–
|
|
217
|
|
2,400
|
|
Total
assets at December 31, 2007
|
|
5,043
|
|
2,419
|
|
7,209
|
|
14,671
|
|
4,236
|
|
4,183
|
|
8,419
|
|
3,737
|
|
1,477
|
|
3,522
|
|
438
|
|
915
|
|
7,482
|
c
|
40,661
|
|
Capital
expenditures
|
|
269
|
|
28
|
|
559
|
|
856
|
|
58
|
|
65
|
|
123
|
|
368
|
|
266
|
|
45
|
|
8
|
|
42
|
|
47
|
|
1,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a. Includes
PT Freeport Indonesia’s sales to PT Smelting totaling $1.8
billion.
|
b.The
following table summarizes the impact of purchase accounting fair value
adjustments on operating income (loss) primarily associated with the
impacts of the increases in the carrying values of acquired metals
inventories (including mill and leach stockpiles) and property, plant and
equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
8
|
|
$
|
1
|
|
$
|
9
|
|
N/A
|
|
$
|
–
|
|
$
|
111
|
|
$
|
–
|
|
N/A
|
|
$
|
–
|
|
$
|
120
|
|
Production
and delivery
|
|
218
|
|
50
|
|
76
|
|
344
|
|
73
|
|
96
|
|
169
|
|
N/A
|
|
–
|
|
164
|
|
–
|
|
N/A
|
|
104
|
|
781
|
|
Depreciation,
depletion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
amortization
|
|
167
|
|
37
|
|
130
|
|
334
|
|
64
|
|
145
|
|
209
|
|
N/A
|
|
–
|
|
52
|
|
–
|
|
N/A
|
|
–
|
|
595
|
|
Impact
on operating income (loss)
|
$
|
(385
|
)
|
$
|
(87
|
)
|
$
|
(206
|
)
|
$
|
(678
|
)
|
$
|
(129
|
)
|
$
|
(240
|
)
|
$
|
(369
|
)
|
N/A
|
|
$
|
–
|
|
$
|
(105
|
)
|
$
|
–
|
|
N/A
|
|
$
|
(104
|
)
|
$
|
(1,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
c.
Includes preliminary goodwill of $6.1 billion, which had not been
allocated to reporting units.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America Copper Mines
|
|
South
America Copper Mines
|
|
Indonesia
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlantic
|
|
Corporate,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
Other
&
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
Cerro
|
|
Other
|
|
|
|
|
|
|
|
Molyb-
|
|
Rod
&
|
|
Smelting
|
|
Elimi-
|
|
FCX
|
|
Year
Ended December 31, 2006
|
Morenci
|
|
Sierrita
|
|
Mines
|
|
Total
|
|
Verde
|
|
Mines
|
|
Total
|
|
Grasberg
|
|
Tenke
|
|
denum
|
|
Refining
|
|
&
Refining
|
|
nations
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
3,543
|
a
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
2,242
|
|
$
|
6
|
|
$
|
5,791
|
|
Intersegment
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
852
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(852
|
)
|
–
|
|
Production
and delivery
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
1,279
|
|
–
|
|
–
|
|
–
|
|
2,119
|
|
(873
|
)
|
2,525
|
|
Depreciation,
depletion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
amortization\
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
184
|
|
–
|
|
–
|
|
–
|
|
33
|
|
11
|
|
228
|
|
Selling,
general and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative
expenses
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
211
|
|
–
|
|
–
|
|
–
|
|
16
|
|
(70
|
)
|
157
|
|
Exploration
and research expenses
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
12
|
|
12
|
|
Operating
income
|
|
–
|
|
–
|
|
–
|
|
–
|
|
|
|
–
|
|
–
|
|
2,721
|
|
–
|
|
–
|
|
–
|
|
74
|
|
74
|
|
2,869
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
20
|
|
–
|
|
–
|
|
–
|
|
25
|
|
31
|
|
76
|
|
Provision
for income taxes
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
950
|
|
–
|
|
–
|
|
–
|
|
–
|
|
251
|
|
1,201
|
|
Total
assets at December 31, 2006
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
4,112
|
|
–
|
|
–
|
|
–
|
|
915
|
|
363
|
|
5,390
|
|
Capital
expenditures
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
234
|
|
–
|
|
–
|
|
–
|
|
17
|
|
–
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
Includes PT Freeport Indonesia’s sales to PT Smelting totaling $1.2
billion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE
20. SUPPLEMENTARY MINERAL RESERVE INFORMATION
(UNAUDITED)
Recoverable
proven and probable reserves have been calculated as of December 31, 2008, in
accordance with Industry Guide 7 as required by the Securities and Exchange Act
of 1934. FCX’s proven and probable reserves may not be comparable to similar
information regarding mineral reserves disclosed in accordance with the guidance
in other countries. Proven and probable reserves were determined by the use of
mapping, drilling, sampling, assaying and evaluation methods generally applied
in the mining industry, as more fully discussed below. The term “reserve,” as
used in the reserve data presented here, means that part of a mineral deposit
that can be economically and legally extracted or produced at the time of the
reserve determination. The term “proven reserves” means reserves for which (i)
quantity is computed from dimensions revealed in outcrops, trenches, workings or
drill holes; (ii) grade and/or quality are computed from the results of detailed
sampling; and (iii) the sites for inspection, sampling and measurements are
spaced so closely and the geologic character is sufficiently defined that size,
shape, depth and mineral content of reserves are well established. The term
“probable reserves” means reserves for which quantity and grade are computed
from information similar to that used for proven reserves but the sites for
sampling are farther apart or are otherwise less adequately spaced. The degree
of assurance, although lower than that for proven reserves, is high enough to
assume continuity between points of observation.
FCX’s
reserve estimates are based on the latest available geological and geotechnical
studies. FCX conducts ongoing studies of its ore bodies to optimize economic
values and to manage risk. FCX revises its mine plans and estimates of proven
and probable mineral reserves as required in accordance with the latest
available studies. At December 31, 2008, FCX’s estimated consolidated
recoverable reserves include 102.0 billion pounds of copper, 40.0 million
ounces of gold, 2.48 billion pounds of molybdenum, 266.6 million ounces of
silver and 0.7 billion pounds of cobalt. At December 31, 2008, recoverable
reserves include estimated recoverable copper totaling 2.8 billion pounds
in leach stockpiles and 1.1 billion pounds in mill stockpiles, including FCX’s
joint venture partner’s interest in the Morenci mine.
|
Recoverable
Proven and Probable Reservesa
|
|
|
at
December 31, 2008
|
|
|
Copper
|
|
Gold
|
|
Molybdenum
|
|
|
(billion
pounds)
|
|
(million
ounces)
|
|
(billion
pounds)
|
|
North
America
|
28.3
|
|
0.2
|
|
2.08
|
|
South
America
|
32.2
|
|
1.3
|
|
0.40
|
|
Indonesia
|
35.6
|
|
38.5
|
|
–
|
|
Africa
|
5.9
|
|
–
|
|
–
|
|
Consolidated
basisb
|
102.0
|
|
40.0
|
|
2.48
|
|
|
|
|
|
|
|
|
Net
equity interestc
|
82.4
|
|
36.2
|
|
2.30
|
|
|
|
|
|
|
|
|
a.
|
Proven
and probable recoverable reserves are
estimated metal quantities from which FCX expects to be paid after
application of estimated metallurgical recovery rates and smelter recovery
rates, where applicable. Recoverable reserves are that part of a mineral
deposit that FCX estimates can be economically and legally extracted or
produced at the time of the reserve
determination.
|
b.
|
Consolidated
basis reserves represent estimated metal quantities after reduction for
joint venture partner interests at the Morenci mine in North America and
the Grasberg minerals district in
Indonesia.
|
c.
|
Net
equity interest reserves represent estimated consolidated basis metal
quantities further reduced for minority interest
ownership.
|
Estimated
recoverable reserves were determined using long-term average prices of $1.60 per
pound for copper, $550 per ounce for gold, $8.00 per pound for molybdenum,
$12.00 per ounce for silver and $10.00 per pound for cobalt. The London spot
metal prices for the past three years averaged $3.15 per pound for copper and
$724 per ounce for gold, and molybdenum prices for the past three years averaged
approximately $28 per pound.
|
|
100%
Basis
|
|
|
|
|
|
Average
Ore Grade
|
|
Recoverable
Proven and
|
|
|
|
|
|
Per
Metric Ton
|
|
Probable
Reserves
|
|
|
|
Ore
|
|
|
|
|
|
|
|
Copper
|
|
Gold
|
|
Moly
|
|
|
|
(million
|
|
Copper
|
|
Gold
|
|
Moly
|
|
(billion
|
|
(million
|
|
(million
|
|
Year-End
|
|
metric
tons)
|
|
(%)
|
|
(grams)
|
|
(%)
|
|
pounds)
|
|
ounces)
|
|
pounds)
|
|
2004
|
|
2,769
|
|
1.09
|
|
0.97
|
|
N/A
|
|
56.2
|
|
61.0
|
|
N/A
|
|
2005
|
|
2,822
|
|
1.07
|
|
0.92
|
|
N/A
|
|
56.6
|
|
58.0
|
|
N/A
|
|
2006
|
|
2,813
|
|
1.04
|
|
0.90
|
|
N/A
|
|
54.8
|
|
54.3
|
|
N/A
|
|
2007
|
|
12,224
|
|
0.51
|
|
0.20
|
|
0.01
|
|
110.4
|
|
54.1
|
|
2,042
|
|
2008
|
|
14,067
|
|
0.48
|
|
0.17
|
|
0.01
|
|
118.8
|
|
53.4
|
|
2,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Area at December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
and producing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morenci
|
|
2,813
|
|
0.28
|
|
–
|
|
0.002
|
|
10.1
|
|
–
|
|
27
|
|
Sierrita
|
|
1,473
|
|
0.26
|
|
–
|
a
|
0.029
|
|
7.1
|
|
0.1
|
|
769
|
|
Bagdad
|
|
1,051
|
|
0.30
|
|
–
|
a
|
0.015
|
|
5.3
|
|
0.1
|
|
252
|
|
Safford
|
|
450
|
|
0.38
|
|
–
|
|
–
|
|
2.6
|
|
–
|
|
–
|
|
Tyrone
|
|
334
|
|
0.29
|
|
–
|
|
–
|
|
1.4
|
|
–
|
|
–
|
|
Henderson
|
|
149
|
|
–
|
|
–
|
|
0.176
|
|
–
|
|
–
|
|
502
|
|
Chinob
|
|
143
|
|
0.52
|
|
0.01
|
|
0.005
|
|
2.3
|
|
–
|
a
|
6
|
|
Miamib
|
|
91
|
|
0.43
|
|
–
|
|
–
|
|
0.6
|
|
–
|
|
–
|
|
Undeveloped:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Climax
|
|
165
|
|
–
|
|
–
|
|
0.165
|
|
–
|
|
–
|
|
532
|
|
Cobre
|
|
73
|
|
0.39
|
|
–
|
|
–
|
|
0.4
|
|
–
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
and producing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
3,023
|
|
0.37
|
|
–
|
|
0.012
|
|
21.6
|
|
–
|
|
397
|
|
El
Abra
|
|
1,120
|
|
0.45
|
|
–
|
|
–
|
|
5.5
|
|
–
|
|
–
|
|
Candelaria
|
|
391
|
|
0.55
|
|
0.11
|
|
–
|
|
4.9
|
|
1.3
|
|
–
|
|
Ojos
del Salado
|
|
8
|
|
1.12
|
|
0.27
|
|
–
|
|
0.2
|
|
–
|
a
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
and producing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grasberg
open pit
|
|
384
|
|
0.97
|
|
1.17
|
|
–
|
|
7.1
|
|
12.0
|
|
–
|
|
Deep
Ore Zonec
|
|
282
|
|
0.62
|
|
0.67
|
|
–
|
|
3.3
|
|
4.6
|
|
–
|
|
Undeveloped:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grasberg
block cave
|
|
1,007
|
|
1.02
|
|
0.81
|
|
–
|
|
19.4
|
|
17.7
|
|
–
|
|
Kucing
Liar
|
|
441
|
|
1.24
|
|
1.09
|
|
–
|
|
10.3
|
|
7.1
|
|
–
|
|
Deep
Mill Level Zoned
|
|
494
|
|
0.89
|
|
0.75
|
|
–
|
|
8.3
|
|
9.1
|
|
–
|
|
Big
Gossan
|
|
56
|
|
2.23
|
|
1.18
|
|
–
|
|
2.5
|
|
1.4
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenke
Fungurumee
|
|
119
|
|
2.64
|
|
–
|
|
–
|
|
5.9
|
|
–
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
100% basis
|
|
14,067
|
|
|
|
|
|
|
|
118.8
|
|
53.4
|
|
2,485
|
|
Consolidated
basis
|
|
|
|
|
|
|
|
|
|
102.0
|
|
40.0
|
|
2,482
|
|
FCX’s
equity share
|
|
|
|
|
|
|
|
|
|
82.4
|
|
36.2
|
|
2,297
|
|
a.
|
Amounts
not shown because of rounding.
|
b.
|
Mining
operations suspended as of December 31,
2008.
|
c.
|
In
2007, FCX combined the Deep Ore Zone and Ertsberg Stockwork Zone reserves,
which FCX now refers to as the Deep Ore
Zone.
|
d.
|
In
2007, FCX combined the Mill Level Zone and Deep Mill Level Zone reserves,
which FCX now refers to as the Deep Mill Level
Zone.
|
e.
|
Recoverable
proven and probable reserves also include 0.7 billion pounds of
recoverable cobalt on a 100 percent basis (0.4 billion pounds on an equity
share basis) with an average ore grade of 0.35
percent.
|
NOTE
21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Year
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
5,672
|
|
$
|
5,441
|
|
$
|
4,616
|
|
$
|
2,067
|
|
$
|
17,796
|
|
Operating
income (loss)a
|
|
2,396
|
|
|
2,053
|
|
|
1,133
|
|
|
(18,292
|
)
|
|
(12,710
|
)
|
Net
income (loss) applicable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stocka
|
|
1,122
|
|
|
947
|
|
|
523
|
|
|
(13,933
|
)
|
|
(11,341
|
)
|
Basic
net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
common stock
|
|
2.93
|
|
|
2.47
|
|
|
1.37
|
|
|
(36.78
|
)
|
|
(29.72
|
)
|
Diluted
net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
common stocka
|
|
2.64
|
|
|
2.25
|
|
|
1.31
|
|
|
(36.78
|
)
|
|
(29.72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenuesb
|
$
|
2,246
|
|
$
|
5,443
|
|
$
|
5,066
|
|
$
|
4,184
|
|
$
|
16,939
|
|
Operating
incomeb,
c
|
|
1,172
|
|
|
2,354
|
|
|
1,877
|
|
|
1,152
|
|
|
6,555
|
|
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
applicable
to common stockb, c,
d
|
|
472
|
|
|
1,076
|
|
|
763
|
|
|
423
|
|
|
2,734
|
|
Income
(loss) from discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operationsc
|
|
4
|
|
|
28
|
|
|
12
|
|
|
(9
|
)
|
|
35
|
|
Net
income applicable to common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockb, c,
d
|
|
476
|
|
|
1,104
|
|
|
775
|
|
|
414
|
|
|
2,769
|
|
Basic
net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
2.18
|
|
$
|
2.83
|
|
$
|
2.00
|
|
$
|
1.10
|
|
$
|
8.02
|
|
Discontinued
operations
|
|
0.02
|
|
|
0.07
|
|
|
0.03
|
|
|
(0.02
|
)
|
|
0.10
|
|
Basic
net income per share of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
$
|
2.20
|
|
$
|
2.90
|
|
$
|
2.03
|
|
$
|
1.08
|
|
$
|
8.12
|
|
Diluted
net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operationsb, c,
d
|
$
|
2.00
|
|
$
|
2.56
|
|
$
|
1.85
|
|
$
|
1.07
|
|
$
|
7.41
|
|
Discontinued
operationsc
|
|
0.02
|
|
|
0.06
|
|
|
0.02
|
|
|
(0.02
|
)
|
|
0.09
|
|
Diluted
net income per share of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stockb, c,
d
|
$
|
2.02
|
|
$
|
2.62
|
|
$
|
1.87
|
|
$
|
1.05
|
|
$
|
7.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
references to income or losses per share are on a diluted basis, unless
otherwise noted.
a.
|
Includes
LCM inventory adjustments totaling $1 million ($1 million to net income or
less than $0.01 per share) in the first quarter, $4 million ($2 million to
net income or $0.01 per share) in the second quarter, $17 million ($10
million to net income or $0.02 per share) in the third quarter, $760
million ($466 million to net loss or $1.23 per share) in the fourth
quarter and $782 million ($479 million to net loss or $1.26 per share) for
the year. Fourth quarter also includes asset impairments totaling $10.9
billion ($6.6 billion to net loss or $17.34 per share), goodwill
impairments totaling $6.0 billion ($6.0 billion to net loss or $15.69 per
share), restructuring charges totaling $50 million ($30 million to net
loss or $0.08 per share) and special retirement benefits and curtailments
totaling $61 million ($37 million to net loss or $0.10 per share).
Includes the purchase accounting impact of the increases in the carrying
values of acquired metals inventories (including mill and leach
stockpiles) and property, plant and equipment; the impact associated
with the amortization of intangible assets and liabilities resulting from
the acquisition of Phelps Dodge; and also includes amounts for
non-operating income and expense primarily related to the accretion of the
fair values of assumed environmental obligations (determined on a
discounted cash flow basis). These impacts total $278 million to operating
income and $15 million to non-operating income and expense ($183
million to net income or $0.41 per share) in the first quarter, $236
million to operating income and $22 million to non-operating income and
expense ($161 million to net income or $0.36 per share) in the second
quarter, $247 million to operating income and $30 million to non-operating
income and expense ($174 million to net income or $0.39 per share) in the
third quarter, $248 million to operating loss and $26 million to
non-operating income and expense ($161 million to net loss or $0.43
per share) in the fourth quarter and $1.0 billion to operating loss and
$93 million to non-operating income and expense ($679 million to net loss
or $1.78 per share) for the year.
|
b.
|
Includes
charges (credits) to revenues for mark-to-market accounting adjustments
for the 2007 copper price protection program totaling $38 million ($23
million to net income or $0.10 per share) in the first quarter,
$130 million ($80 million to net income or $0.18 per share) in
the second quarter, $44 million ($26 million to net income or $0.06
per share) in the third quarter, $(37) million ($(23) million to
net income or $0.06 per share) in the fourth quarter and $175
million ($106 million to net income or $0.27 per share) for the
year.
|
c.
|
Includes
the purchase accounting impact of the increases in the carrying values of
acquired metals inventories (including mill and leach stockpiles) and
property, plant and equipment; and also includes the impact associated
with the amortization of intangible assets and liabilities resulting from
the acquisition of Phelps Dodge totaling $124 million ($79
million to net income or $0.32 per share) in the first quarter, $455
million ($284 million or $0.64 per share) in the second quarter, $445
million ($279 million to net income or $0.62 per share) in the third
quarter, $232 million ($143 million to net income or $0.35 per share) in
the fourth quarter and $1.3 billion to operating income ($785 million to
net income or $1.98 per share) for the year associated with continuing
operations. Also includes purchase accounting impact totaling $8 million
($0.02 per share) in the third quarter associated with discontinued
operations.
|
d.
|
Includes
net losses on early extinguishment of debt totaling $88 million ($75
million to net income or $0.31 per share) in the first quarter, $47
million ($35 million to net income or $0.08 per share) in the second
quarter, $36 million ($31 million to net income or $0.07 per share)
in the third quarter and $173 million ($132 million to net income or
$0.33 per share) for the year. Also includes gains primarily from the
sales of marketable securities totaling $38 million ($23 million to net
income or $0.05 per share) in the second quarter, $47 million ($29 million
to net income or $0.06 per share) in the third quarter and $85 million
($52 million to net income or $0.13 per share) for the
year.
|
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
Not
applicable.
(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-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end
of the period covered by this annual report on Form 10-K. Based on their
evaluation, they have concluded that our disclosure controls and procedures are
effective as of the end of the period covered by this report.
(b) Changes in internal
controls. There has been no change in our internal control
over financial reporting that occurred during the fourth quarter that has
materially affected, or is reasonably likely to materially affect our internal
control over financial reporting.
(c) Management’s
annual report on internal control over financial reporting and the report
thereon of Ernst & Young LLP are included herein under Item 8. “Financial
Statements and Supplemental Data.”
Not
applicable.
Item 10. Directors, Executive Officers and Corporate
Governance.
The
information set forth under the captions “Information About Director Nominees”
and “Section 16(a) Beneficial Ownership Reporting Compliance” of our definitive
proxy statement to be filed with the Securities and Exchange Commission (SEC),
relating to our 2009 annual meeting of stockholders, is incorporated herein by
reference. The information required by Item 10 regarding our executive officers
appears in a separately captioned heading after Item 4 in Part I of this
report.
The
information set forth under the captions “Director Compensation” and “Executive
Officer Compensation” of our definitive proxy statement to be filed with the
SEC, relating to our 2009 annual meeting of stockholders, is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.
The
information set forth under the captions “Stock Ownership of Directors and
Executive Officers” and “Stock Ownership of Certain Beneficial Owners” of our
definitive proxy statement to be filed with the SEC, relating to our 2009 annual
meeting of stockholders, is incorporated herein by reference.
Item 13. Certain Relationships and Related
Transactions, and Director Independence.
The
information set forth under the caption “Certain Transactions” of our definitive
proxy statement to be filed with the SEC, relating to our 2009 annual meeting of
stockholders, is incorporated herein by reference.
Item 14. Principal Accounting Fees and
Services.
The
information set forth under the caption “Independent Auditors” of our definitive
proxy statement to be filed with the SEC, relating to our 2009 annual meeting of
stockholders, is incorporated herein by reference.
Item 15. Exhibits, Financial Statement
Schedules.
(a)(1). Financial
Statements.
Not
applicable
(a)(2). Financial Statement
Schedules.
Reference
is made to the Index to Financial Statements appearing on page F-1
hereof.
(a)(3). Exhibits.
Reference
is made to the Exhibit Index beginning on page E-1 hereof.
Pursuant
to the requirements of Section 13 of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on February 26, 2009.
Freeport-McMoRan Copper & Gold
Inc.
By: /s/
Richard C.
Adkerson
Richard
C. Adkerson
President, Chief Executive
Officer
and
Director
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant in the capacities
indicated on February 26, 2009.
*
|
Chairman
of the Board
|
James
R. Moffett
|
|
|
|
*
|
Vice
Chairman of the Board
|
B.
M. Rankin, Jr.
|
|
|
|
/s/
Richard C. Adkerson
|
President,
Chief Executive Officer and Director
|
Richard
C. Adkerson
|
(Principal
Executive Officer)
|
|
|
/s/
Kathleen L. Quirk
|
Executive
Vice President, Chief Financial Officer and Treasurer
|
Kathleen
L. Quirk
|
(Principal
Financial Officer)
|
|
|
*
|
Vice
President and Controller - Financial Reporting
|
C.
Donald Whitmire, Jr.
|
(Principal
Accounting Officer)
|
|
|
*
|
Director
|
Robert
J. Allison, Jr.
|
|
|
|
*
|
Director
|
Robert
A. Day
|
|
|
|
*
|
Director
|
Gerald
J. Ford
|
|
|
|
*
|
Director
|
H.
Devon Graham, Jr.
|
|
|
|
*
|
Director
|
J.
Bennett Johnston
|
|
|
|
*
|
Director
|
Charles
C. Krulak
|
|
|
|
*
|
Director
|
Bobby
Lee Lackey
|
|
|
|
*
|
Director
|
Jon
C. Madonna
|
|
|
|
*
|
Director
|
Dustan
E. McCoy
|
|
|
|
*
|
Director
|
Gabrielle
K. McDonald
|
|
|
|
*
|
Director
|
J.
Stapleton Roy
|
|
|
|
*
|
Director
|
Stephen
H. Siegele
|
|
|
|
*
|
Director
|
J.
Taylor Wharton
|
|
|
|
|
|
|
|
By:
/s/ Richard C.
Adkerson
|
|
Richard
C. Adkerson
|
|
Attorney-in-Fact
|
|
FREEPORT-McMoRan COPPER & GOLD INC.
INDEX TO
FINANCIAL STATEMENTS
Our
financial statements and the notes thereto, and the report of Ernst & Young
LLP included in our 2008 annual report are incorporated herein by
reference.
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
Schedule
II-Valuation and Qualifying Accounts
|
F-2
|
Schedules
other than the one listed above have been omitted since they are either not
required, not applicable or the required information is included in the
financial statements or notes thereto.
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE
BOARD OF DIRECTORS AND STOCKHOLDERS OF
FREEPORT-McMoRan
COPPER & GOLD INC.
We have
audited the consolidated financial statements of Freeport-McMoRan Copper &
Gold Inc. (the Company) as of December 31, 2008 and 2007 and for each of the
three years in the period ended December 31, 2008, and have issued our report
thereon dated February 18, 2009. Our audits also included the schedule listed in
the index above for this Form 10-K. The schedule listed in the index above is
the responsibility of the Company’s management. Our responsibility is to express
an opinion based on our audits.
In our
opinion, the schedule referred to above, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Ernst
& Young LLP
Phoenix,
Arizona
February
18, 2009
FREEPORT-McMoRan
COPPER & GOLD INC.
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
Col.
A
|
|
Col.
B
|
|
Col.
C
|
|
Col.
D
|
|
Col.
E
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance
at
|
|
Charged
to
|
|
Charged
to
|
|
Other
|
|
Balance
at
|
|
|
|
Beginning
of
|
|
Costs
and
|
|
Other
|
|
Add
|
|
End
of
|
|
|
|
Period
|
|
Expense
|
|
Accounts
|
|
(Deduct)
|
|
Period
|
|
Reserves
and allowances deducted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials
and supplies allowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
16
|
|
|
11
|
|
|
-
|
|
|
(5
|
)a
|
|
22
|
|
2007
|
|
|
16
|
|
|
7
|
|
|
-
|
|
|
(7
|
)a
|
|
16
|
|
2006
|
|
|
17
|
|
|
6
|
|
|
-
|
|
|
(7
|
)a
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred
tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
1,165
|
|
|
582
|
|
|
16
|
|
|
-
|
|
|
1,763
|
|
2007
|
|
|
925
|
|
|
332
|
|
|
-
|
|
|
(92
|
)b
|
|
1,165
|
|
2006
|
|
|
802
|
|
|
123
|
|
|
-
|
|
|
-
|
|
|
925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
for non-income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
34
|
|
|
7
|
|
|
(3
|
)
|
|
(6
|
)c
|
|
32
|
|
2007
|
|
|
22
|
|
|
4
|
|
|
11
|
|
|
(3
|
)c
|
|
34
|
|
2006
|
|
|
19
|
|
|
7
|
|
|
-
|
|
|
(4
|
)c
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Primarily
represents write-offs of obsolete materials and supplies
inventories.
|
b.
|
Represents
a release of valuation allowances as a result of the acquisition of Phelps
Dodge.
|
c.
|
Represents
amounts paid or adjustments to reserves based on revised
estimates.
|
|
FREEPORT-McMoRan COPPER & GOLD
INC.
|
EXHIBIT
INDEX
|
|
|
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
|
Composite
Certificate of Incorporation of FCX.
|
|
8-A/A
|
001-11307-01
|
01/26/2009
|
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
|
First
Amendment dated as of January 22, 2009, in respect of the Amended and
Restated Credit Agreement dated as of July 10, 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
|
01/26/2009
|
4.10
|
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
|
|
FREEPORT-McMoRan
COPPER & GOLD INC.
|
EXHIBIT
INDEX
|
|
|
Filed
|
|
|
|
|
Exhibit
|
|
with
this
|
Incorporated
by Reference
|
|
|
|
|
|
|
4.11
|
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
|
4.12
|
First
Amendment dated as of January 22, 2009, in respect of the Amended and
Restated Credit Agreement dated as of March 19, 2007, as amended as of
July 3, 2007, which amends and restates 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
|
01/26/2009
|
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 (a subsidiary of Rio Tinto PLC) 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 (now Rio Tinto 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
|
|
FREEPORT-McMoRan
COPPER & GOLD INC.
|
EXHIBIT
INDEX
|
|
|
Filed
|
|
|
|
|
Exhibit
|
|
with
this
|
Incorporated
by Reference
|
|
|
|
|
|
|
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
|
Distribution
Agreement, dated as of January 26, 2009, by and between FCX and J.P.
Morgan Securities Inc.
|
|
8-K
|
001-11307-01
|
01/26/2009
|
10.12*
|
FCX
Director Compensation.
|
|
10-Q
|
001-11307-01
|
8/11/2008
|
10.13*
|
Consulting
Agreement dated December 22, 1988, with Kissinger Associates, Inc.
(Kissinger Associates).
|
|
10-K405
|
001-09916
|
03/31/1998
|
10.14*
|
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
|
10.15*
|
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
|
10.16*
|
Supplemental
Agreement with Kissinger Associates and Kent Associates, effective as of
January 1, 2009.
|
|
10-Q
|
001-11307-01
|
11/10/2008
|
10.17*
|
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
|
10.18*
|
Supplemental
Agreement dated December 15, 1997, between FMS and B. M. Rankin,
Jr.
|
|
10-K405
|
001-09916
|
03/31/1998
|
|
Supplemental
Letter Agreement between FMS and B. M. Rankin, Jr., effective as of
January 1, 2009.
|
X
|
|
|
|
10.20*
|
Letter
Agreement effective as of January 7, 1997, between Senator J. Bennett
Johnston, Jr. and FMS.
|
|
10-K405
|
001-09916
|
03/08/2002
|
10.21*
|
Supplemental
Agreement between FMS and J. Bennett Johnston, Jr., effective as of May 1,
2008.
|
|
10-Q
|
001-11307-01
|
8/11/2008
|
10.22*
|
Supplemental
Agreement between FMS and J. Bennett Johnston, Jr., effective as of
January 1, 2009.
|
|
10-Q
|
001-11307-01
|
11/10/2008
|
10.23*
|
Letter
Agreement dated November 1, 1999, between FMS and Gabrielle K.
McDonald.
|
|
10-K405
|
001-09916
|
03/20/2000
|
|
FREEPORT-McMoRan
COPPER & GOLD INC.
|
EXHIBIT
INDEX
|
|
|
Filed
|
|
|
|
|
Exhibit
|
|
with
this
|
Incorporated
by Reference
|
|
|
|
|
|
|
10.24*
|
Supplemental
Letter Agreement between FMS and Gabrielle K. McDonald, effective as of
May 1, 2008.
|
|
10-Q
|
001-11307-01
|
8/11/2008
|
10.25*
|
Supplemental
Letter Agreement between FMS and Gabrielle K. McDonald, effective as of
January 1, 2009.
|
|
10-Q
|
001-11307-01
|
11/10/2008
|
10.26*
|
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
|
|
Supplemental
Letter Agreement between FMS and Dr. J. Taylor Wharton, effective as of
January 1, 2009.
|
X
|
|
|
|
|
Amended
and Restated Executive Employment Agreement dated effective as of December
2, 2008, between FCX and James R. Moffett.
|
X
|
|
|
|
|
Amended
and Restated Change of Control Agreement dated effective as of December 2,
2008, between FCX and James R. Moffett.
|
X
|
|
|
|
|
Amended
and Restated Change of Control Agreement dated effective as of December 2,
2008, between FCX and Michael J. Arnold.
|
X
|
|
|
|
|
Amended
and Restated Executive Employment Agreement dated effective as of December
2, 2008, between FCX and Richard C. Adkerson.
|
X
|
|
|
|
|
Amended
and Restated Executive Employment dated effective as of December 2, 2008,
between FCX and Kathleen L. Quirk.
|
X
|
|
|
|
|
FCX
Executive Services Program, as amended and restated December 2,
2008.
|
X
|
|
|
|
10.34*
|
FCX
Supplemental Executive Retirement Plan, as amended and
restated.
|
|
8-K
|
001-11307-01
|
02/05/2007
|
10.35*
|
FCX
President’s Award Program.
|
|
S-3
|
333-72760
|
11/05/2001
|
10.36*
|
FCX
Supplemental Executive Capital Accumulation Plan.
|
|
10-Q
|
001-11307-01
|
05/12/2008
|
10.37*
|
FCX
Supplemental Executive Capital Accumulation Plan Amendment
One.
|
|
10-Q
|
001-11307-01
|
05/12/2008
|
|
FCX
Supplemental Executive Capital Accumulation Plan Amendment
Two.
|
X
|
|
|
|
|
FCX
2005 Supplemental Executive Capital Accumulation Plan.
|
X
|
|
|
|
10.40*
|
FCX
1995 Stock Option Plan for Non-Employee Directors, as amended and
restated.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
10.41*
|
FCX
Amended and Restated 1999 Stock Incentive Plan, as amended and
restated.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
|
FCX
Amended and Restated 1999 Long-Term Performance Incentive
Plan.
|
X
|
|
|
|
10.43*
|
FCX
2003 Stock Incentive Plan, as amended and restated.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
10.44*
|
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
|
10.45*
|
FCX
2004 Director Compensation Plan, as amended and restated.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
|
FCX
2005 Annual Incentive Plan, as amended and restated.
|
X
|
|
|
|
10.47*
|
FCX
Amended and Restated 2006 Stock Incentive Plan.
|
|
8-K
|
001-11307-01
|
07/13/2007
|
10.48*
|
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
|
|
FREEPORT-McMoRan
COPPER & GOLD INC.
|
EXHIBIT
INDEX
|
|
|
Filed
|
|
|
|
|
Exhibit
|
|
with
this
|
Incorporated
by Reference
|
|
|
|
|
|
|
10.49*
|
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
|
10.50*
|
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
|
10.51*
|
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
|
10.52*
|
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
|
|
FCX
Computation of Ratio of Earnings to Fixed Charges.
|
X
|
|
|
|
14.1
|
FCX
Principles of Business Conduct.
|
|
10-K
|
001-11307-01
|
02/29/2008
|
|
Subsidiaries
of FCX.
|
X
|
|
|
|
|
Consent
of Ernst & Young LLP.
|
X
|
|
|
|
|
Certified
resolution of the Board of Directors of FCX authorizing this report to be
signed on behalf of any officer or director pursuant to a Power of
Attorney.
|
X
|
|
|
|
|
Powers
of Attorney pursuant to which this report has been signed on behalf of
certain officers and directors of FCX.
|
X
|
|
|
|
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a)/15d –
14(a).
|
X
|
|
|
|
|
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
|
|
|
|
99.1
|
Amended
and Restated Mining Convention dated as of September 28, 2005, among the
Democratic Republic of Congo, La Générale des Carrières et des Mines,
Lundin Holdings Ltd. (now TF Holdings Limited) and Tenke Fungurume Mining
S.A.R.L..
|
|
8-K
|
001-11307-01
|
09/02/2008
|
99.2
|
Amended
and Restated Shareholders Agreement dated as of September 28, 2005, by and
between La Générale des Carrières et des Mines and Lundin Holdings Ltd.
(now TF Holdings Limited) and its subsidiaries.
|
|
8-K
|
001-11307-01
|
09/02/2008
|
Note: Certain
instruments with respect to long-term debt of FCX have not been filed as
exhibits to this Annual Report on Form 10-K 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.