SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2001March 31, 2002
Commission File Number: 1-9916
Freeport-McMoRan Copper & Gold Inc.
Incorporated in Delaware 74-2480931
(IRS Employer Identification No.)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code: (504) 582-4000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
On September 30, 2001,March 31, 2002, there were issued and outstanding 55,459,02655,567,714
shares of the registrant's Class A Common Stock, par value $0.10
per share, and 88,514,09988,738,999 shares of its Class B Common Stock, par
value $0.10 per share.
FREEPORT-McMoRan COPPER & GOLD INC.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Remarks 118
Report of Independent Public Accountants 118
Management's Discussion and Analysis of Financial
Condition and Results of Operations 129
Part II. Other Information 2420
Signature 2422
Exhibit Index E-1
2
FREEPORT-McMoRan COPPER & GOLD INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED BALANCE SHEETS (Unaudited)
September 30,
March 31, December 31,
2002 2001 2000
---------- ----------
(In Thousands)
ASSETS
Current Assets:assets:
Cash and cash equivalents $ 32,8749,371 $ 7,9687,587
Restricted investments 49,809 -49,809
Accounts receivable 118,573 149,085144,612 118,611
Inventories 375,883 400,607352,195 369,188
Prepaid expenses and other 3,928 11,4625,350 3,075
---------- ----------
Total current assets 581,067 569,122561,337 548,270
Property, plant, equipment
and equipment,development costs, net 3,206,402 3,248,7103,383,648 3,409,687
Restricted investments 90,750 -69,196 92,079
Deferred mining costs 52,298 47,590
Investment in PT Smelting 55,209 56,15457,001 57,194
Other assets 102,256 76,75554,402 57,109
---------- ----------
Total assets $4,035,684 $3,950,741$4,177,882 $4,211,929
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 334,330272,193 $ 313,208307,526
Current portion of long-term debt
and short-term borrowings 112,990 202,294138,772 205,420
Unearned customer receipts 65,660 28,68843,275 33,422
Rio Tinto share of joint venture cash flows 55,908 78,70624,394 33,646
Accrued interest payable 28,224 31,394
Accrued income taxes 31,071 11,0168,074 17,019
---------- ----------
Total current liabilities 599,959 633,912514,932 628,427
Long-term debt, less current portion:
FCX and PT Freeport Indonesia credit facilities 214,000 760,000564,000 475,371
Convertible senior notes 603,750 -603,750
Senior notes 450,000 450,000
Infrastructure asset financings 389,101 457,673345,270 355,970
Atlantic Copper debt 233,128 246,727186,834 198,089
Equipment and other loans 66,833 73,33147,072 50,000
Accrued postretirement benefits
and other liabilities 118,160 112,831119,210 119,404
Deferred income taxes 651,028 599,536668,067 671,015
Minority interests 138,186 103,79599,557 92,955
Redeemable preferred stock 462,504 475,005462,504
Stockholders' equity 109,035 37,931116,686 104,444
---------- ----------
Total liabilities and stockholders' equity $4,035,684 $3,950,741$4,177,882 $4,211,929
========== ==========
The accompanying notes are an integral part of these financial
statements.
3
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended
Nine Months Ended
September 30, September 30,
------------------- -----------------------March 31,
--------------------
2002 2001
2000 2001 2000
-------- -------- ---------- ----------
(In Thousands, Except
Per Share Amounts)
Revenues $441,238 $473,837 $1,426,584 $1,338,777$392,680 $447,087
Cost of sales:
Production and delivery 245,168 278,886 706,362 798,234234,917 195,614
Depreciation and amortization 71,000 77,825 217,448 195,51253,054 68,129
-------- -------- ---------- ----------
Total cost of sales 316,168 356,711 923,810 993,746287,971 263,743
Exploration expenses 1,989 2,915 6,460 6,724754 2,051
General and administrative expenses 16,412 14,409
-------- --------
Total costs and expenses 305,137 280,203
-------- --------
Operating income 87,543 166,884
Equity in PT Smelting (earnings) losses (1,875) 5,383 945 9,020
General and
administrative expenses 14,962 18,729 45,513 55,996
-------- -------- ---------- ----------
Total costs and expenses 331,244 383,738 976,728 1,065,486
-------- -------- ---------- ----------
Operating income 109,994 90,099 449,856 273,291(822) (1,304)
Interest expense, net (40,115) (53,539) (129,945) (153,287)(44,282) (48,437)
Other income, (expense),net (7,915) 5,598 (4,795) 5,01436 3,177
-------- -------- ---------- ----------
Income before income taxes and
minority interests 61,964 42,158 315,116 125,01842,475 120,320
Provision for income taxes(40,285) (34,752) (173,308) (93,477)taxes (28,814) (60,615)
Minority interests in net income of
consolidated subsidiaries (8,247) (7,252) (35,855) (21,832)(5,554) (12,601)
-------- --------
---------- ----------
Net income 13,432 154 105,953 9,709before cumulative effect of
accounting change 8,107 47,104
Cumulative effect of
accounting change, net (3,049) -
-------- --------
Net income 5,058 47,104
Preferred dividends (9,184) (9,346) (27,374) (28,273)(9,212) (9,065)
-------- -------- ---------- ----------
Net income (loss)
applicable to common stock $ 4,248(4,154) $ (9,192) $ 78,579 $ (18,564)38,039
======== ======== ========== ==========
Net income (loss) per share of common stock:
Basic $.03 $(.06) $.55 $(.12)
==== ===== ==== =====
Diluted $.03 $(.06) $.54 $(.12)
==== ===== ==== =====Basic:
Before accounting change $(.01) $.26
Cumulative effect of
accounting change (.02) -
-------- --------
Net income (loss) per
share of common stock $(.03) $.26
======== ========
Diluted:
Before accounting change $(.01) $.26
Cumulative effect of
accounting change (.02) -
-------- --------
Net income (loss) per
share of common stock $(.03) $.26
======== ========
Average common shares outstanding:
Basic 143,973 150,088 143,944 156,597
======= ======= ======= =======144,108 143,906
======== ========
Diluted 144,658 150,088 144,907 156,597
======= ======= ======= =======144,108 144,728
======== ========
The accompanying notes are an integral part of these financial
statements.
4
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF CASH FLOWS (Unaudited)
Nine
Three Months Ended
September 30,
-----------------------March 31,
---------------------
2002 2001
2000
-------- -----------------
(In Thousands)
Cash flow from operating activities:
Net income $105,953 $ 9,7095,058 $ 47,104
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 217,448 195,51253,054 68,129
Cumulative effect of accounting change 3,049 -
Deferred income taxes 51,171 18,70712,702 22,784
Equity in PT Smelting losses 945 9,020822 1,304
Minority interests' share of net income 35,855 21,832
Other, including change5,554 12,601
Change in deferred mining costs (19,284) 27,511
(Increases) decreases(4,708) (8,384)
Other 5,928 648
Increases in working capital:
Accounts receivable 30,347 5,090(24,494) (38,033)
Inventories 20,243 (30,571)15,589 2,015
Prepaid expenses and other 7,495 8,077(2,275) (402)
Accounts payable and
accrued liabilities 22,884 93,019(30,534) 15,865
Rio Tinto share of
joint venture cash flows (15,797) (11,147)(9,332) (29,767)
Accrued income taxes 17,857 (41,838)(9,666) 11,642
-------- --------
Decrease---------
Increase in working capital 83,029 22,630(60,712) (38,680)
-------- -----------------
Net cash provided by
operating activities 475,117 304,92120,747 105,506
-------- -----------------
Cash flow from investing activities:
Purchase of restricted investments (139,762) -
PT Freeport Indonesia
capital expenditures (109,400) (117,950)(31,001) (35,872)
Atlantic Copper capital expenditures (9,382) (8,377)
Investment in PT Smelting(833) (3,465)
Sale of restricted investments 23,678 -
(5,717)
Other 4,572 13(729) 4,592
-------- -----------------
Net cash used in investing activities (253,972) (132,031)(8,885) (34,745)
-------- -----------------
Cash flow from financing activities:
Net proceeds from sale of
convertible senior notes 582,619 -
Proceeds from other debt 77,523 399,601358,746 68,506
Repayments of debt (802,115) (331,674)(361,622) (121,511)
Cash dividends paid on preferred stock (9,081) (9,204)
Purchases of FCX common shares - (3,436)
(158,731)
Partial redemption of preferred (10,386) (11,893)Loans to Nusamba - (1,842)
Proceeds from stock Cash dividends paid:
Preferred stock (27,419) (28,464)
Minority interests (6,786) (31,757)
Other (6,239) (10,692)option exercises 2,371 145
Financing costs (492) -
-------- -----------------
Net cash used in financing activities (196,239) (173,610)(10,078) (67,342)
-------- -----------------
Net increase (decrease) in cash
and cash equivalents 24,906 (720)1,784 3,419
Cash and cash equivalents
at beginning of year 7,587 7,968
6,698
-------- -----------------
Cash and cash equivalents
at end of period $ 32,8749,371 $ 5,97811,387
======== =================
The accompanying notes are an integral part of these financial
statements.
5
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO FINANCIAL STATEMENTS
1. CONVERTIBLE SENIOR NOTES
In August 2001,EARNINGS PER SHARE
Freeport-McMoRan Copper & Gold Inc.'s (FCX) sold
$603.8 million of 8 1/4% Convertible Senior Notes due 2006 for net
proceeds of $582.6 million. Interest on the notes is payable semi-
annually on January 31 and July 31 of each year. FCX may redeem
some or all of the notes at any time after July 31, 2004 at
specified redemption prices. A portion of the net proceeds was used
to purchase $139.8 million of U.S. government securities, which
secure and will be used to pay for the first six scheduled interest
payments on the notes. The notes are otherwise unsecured. The
remaining net proceeds were used to repay outstanding amounts under
the FCX/PT Freeport Indonesia bank credit facilities.
The notes are convertible, at the option of the holder, at any
time on or prior to maturity into, at the option of the holder,
shares of class A or class B common stock of FCX at a conversion
price of $14.30 per share, which is equal to a conversion rate of
approximately 69.9301 shares of class A or class B common stock per
$1,000 principal amount of notes. The conversion rate is subject
to adjustments.
2. SUBSEQUENT EVENT - AMENDED BANK CREDIT FACILITIES
In October 2001, FCX and PT Freeport Indonesia amended their bank
credit facilities to extend the maturities to December 2005.
Aggregate commitments under the credit facilities total $734.0
million, including $253.4 million if FCX is required to perform in
March 2002 under its guarantee of a loan of PT Nusamba Mineral
Industri, leaving $480.6 million currently available. If FCX were
to be required to perform under this guarantee, it would acquire
rights and seek to recover the PT Indocopper Investama stock owned
by Nusamba as provided by the financing documents, which are governed
by Indonesian law.
Borrowings under the credit facilities as of October 16, 2001,
totaled $251.0 million for PT Freeport Indonesia and none for FCX.
Amounts borrowed are available on a revolving basis until December
2003, at which time all borrowed amounts will become term loans,
except for a $150.0 million revolver for working capital purposes.
The initial interest rate on all borrowings is LIBOR plus 4.0
percent with annual increases of 0.125 percent.
The credit facilities require that all available cash flow
after debt service and capital expenditures be used to reduce
outstanding amounts under the credit facilities, subject to limited
exceptions. Amounts available under the credit facilities may be used to
repay $250.0 million for FCX's 7.20% Senior Notes in November 2003
to the extent necessary. However, the credit facilities impose
limitations on the amount of preferred stock FCX may redeem. If by
August 2003 FCX has not extended the maturity of a specified amount
of FCX's Gold-Denominated Preferred Stock beyond 2005, FCX will not
thereafter be permitted to redeem or pay dividends on any of its
preferred stock. FCX intends to undertake a refinancing or restructuring
of its obligation to redeem the Gold-Denominated Preferred Stock before
the mandatory redemption date in August 2003. The credit facilities
prohibit common stock dividends and common stock purchases;
limit capital expenditures, investments, liens and
transactions with affiliates and require that certain financial
ratios be maintained. Security for obligations outstanding
under the credit facilities includes most of PT Freeport
Indonesia's assets, 50.1 percent of the outstanding stock of PT
Freeport Indonesia, 49 percent of the outstanding stock of PT
Indocopper Investama owned by FCX, and a pledge of PT Freeport
Indonesia's rights under its Contract of Work. PT Freeport
Indonesia also guarantees FCX's obligations under the credit
facilities.
3. EARNINGS PER SHARE
FCX's basic net income (loss) per
share of common stock was calculated by dividing net income (loss)
applicable to common stock by the weighted-average number of common
shares outstanding during the period. Diluted net income (loss) per share
of common stock was calculated by dividing net income (loss) applicable to
common stock by the weighted-average number of common shares
outstanding during the period plus the net effect of dilutive stock
options and unvested restricted stock. DilutiveStock options representing
1.4 million shares and unvested restricted stock options represented 0.4representing 0.3
million shares in the thirdfirst quarter of 2001 and 0.7 million shares in the
2001 nine-month period. Stock options representing less than 0.1
million shares in the third quarter of 2000 and 0.5 million shares
in the 2000 nine-month period2002, that otherwise would
have been considered dilutive were excluded fromincluded in the diluted net income
(loss)first-quarter 2002 earnings per share
calculation, were excluded because of the net lossesloss reported for those
periods.the
period. Dilutive stock options represented 0.5 million shares and
dilutive restricted stock totaled 0.3 million shares in the thirdfirst
quarter of 2001 and in the 2001 nine-month period.
62001.
Options excluded from the computation of diluted net income
(loss) per share of common stock because theirwith exercise prices were greater than the average market
price of the common stock during the respective periods totaledperiod were excluded from the
computation of diluted net income per share of common stock. This
amounted to options for 12.110.1 million shares (average exercise price
of $20.71$22.20 per share) in the thirdfirst quarter of 2001, 14.72002 and options for
11.4 million shares (average exercise price of $19.17$21.59 per share) in
the thirdfirst quarter of 2000, 11.1 million shares (average price of
$21.60 per share) in the 2001 nine-month period and 11.7 million
shares (average price of $21.51 per share) in the 2000 nine-month
period.2001.
FCX's convertible preferred stock and its recently issued
8 1/4% Convertible
Senior Notes issued in August 2001 were not included in the
computation of diluted net income (loss) per share of common stock because
doing soincluding the conversion of these instruments would have decreased
the diluted net loss per share reported in 2002 and increased the
diluted net income per share of
common stock or decreased diluted net loss per share of common
stock.reported in 2001. The preferred stock
was convertible into 11.7 million shares of common stock and
the related accrued dividends totaled $6.1 million in the third quarters of 2001 and 2000, and $18.4
million in the 2001 and 2000 nine-month periods.for each period presented.
The senior notes were convertible into an average of 25.242.2 million shares in the
third quarter of
2001common stock and an average of 8.5 million shares in the
first nine months of 2001. Interest expenseaccrued interest totaled $7.5$13.0 million for the
2001 periods.
4. DERIVATIVE CONTRACTS
At times 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.first quarter of 2002.
2. ACCOUNTING CHANGE - DEPRECIATION AND AMORTIZATION
Effective January 1, 2001,2002, FCX adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133, as
subsequently amended, establishes accounting and reporting
standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be
recordedchanged its methodology used in the
balance sheet as either an asset or liability
measured at its fair value. The accounting for changes in the fair
valuedetermination of a derivative instrument depends on the intended use of the
derivative and the resulting designation.
Upon adoption of SFAS 133 on January 1, 2001, FCX recorded
immaterial cumulative gain adjustments totaling $0.8 million to
other income ($0.8 million to net income) to adjust the recorded
values of PT Freeport Indonesia's and Atlantic Copper's (FCX's
subsidiaries) foreign currency forward contracts to fair value and
$0.8 million to revenues ($0.4 million to net income) to adjust the
embedded derivatives in PT Freeport Indonesia's provisionally
priced copper sales to fair value, as calculated under SFAS 133.
In addition, FCX recorded a cumulative effect net loss adjustment
to other comprehensive income totaling $1.0 million for the fair
value of Atlantic Copper's interest rate swaps on January 1, 2001.
FCX has entered into derivative contracts in limited instances
to achieve specific objectives. Currently, the objectives
principally relate to managing risksdepreciation associated with foreign
currency, commodity price and interest rate risks with Atlantic
Copper's smelting operations, where certain derivative contracts
are required under financing agreements. In addition, in response
to volatility in the Indonesian rupiah and Australian dollar
currencies, FCX has sought to manage certain foreign currency risks with PT Freeport
Indonesia's (PT-FI) mining operations. In the past, FCX
entered into derivative contracts related to PT Freeport Indonesia's
exposure to copper and gold prices, but activities in this regard
since 1997 have been limited to establishing fixed prices for open
copper sales under PT Freeport Indonesia's concentrate sales contracts.
FCX does not enter into derivative contracts for speculative purposes.
A summary of FCX's outstanding derivative instruments at September
30, 2001 and a discussion of FCX's risk management strategies for
those designated as hedges follow.
Commodity Price Protection Contracts
From time to time, PT Freeport Indonesia has entered into forward
and option contracts to hedge the market risk associated with
fluctuations in the prices of commodities it sells. The primary
objective of these contracts has been to set a minimum price and
the secondary objective is to retain market upside, if available at
a reasonable cost. As of September 30, 2001, FCX had no price
protection contracts relating to its mine production. FCX has
outstanding gold- and silver-denominated redeemable preferred stock
with dividends and redemption amounts determined by commodity
prices. FCX elected to continue its historical accounting for its
redeemable preferred stock indexed to commodities under the
provisions of SFAS 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. Therefore, FCX's
redeemable preferred stock is recorded at its original issue value
less redemptions, and totaled $462.5 million at September 30, 2001.
Certain of PT Freeport Indonesia's concentrate sales contracts
allow for final pricing in future periods. Under SFAS 133, these
pricing terms cause a portion of the contracts to be considered
embedded derivatives which must be recorded at fair value.milling life-of-mine assets. Prior
to January 1, 2001, PT Freeport Indonesia adjusted2002, PT-FI depreciated mining and milling life-of-
mine assets on a composite basis. Total historical capitalized
costs and estimated future development costs relating to its
developed and undeveloped reserves were depreciated using the revenues
from these provisionally priced salesunit-
of-production method based on then-current spot
prices on or near each reporting date.total developed and undeveloped
proven and probable copper reserves. Estimated future development
costs, which are significant, are necessary to develop PT-FI's
undeveloped ore bodies and are expected to be incurred over the
next 20 to 25 years.
After considering the inherent uncertainties and subjectivity
relating to the long time frame over which these estimated costs
would be incurred, and after consultation with the accounting staff
of the Securities and Exchange Commission, management decided to
revise its depreciation methodology prospectively. Effective
January 1, 2001,
PT Freeport Indonesia began adjusting the revenues from these
provisionally priced sales to reflect fair value based on forward
prices2002, depreciation for the final pricing periods on or near each reporting
date. Changesmining and milling life-of-
mine assets excludes consideration of future development costs.
Instead, under the new methodology, PT-FI depreciates only the
historical capitalized costs of individual producing mines over the
related proven and probable copper reserves. Infrastructure and
other common costs will continue to be depreciated over total
proven and probable copper reserves. The cumulative effect of this
change through December 31, 2001, as reflected in FCX's first-
quarter 2002 results, reduced net income by $3.0 million, net of
taxes and minority interest sharing.
The effect of the change in depreciation methodology in first-
quarter 2002 was to reduce depreciation and amortization expense by
$3.8 million, thus increasing net income by $2.0 million, $0.01 per
share. On a pro forma basis, the change in depreciation
methodology would have reduced first-quarter 2001 depreciation and
amortization expense by $13.3 million and increased net income by
$6.7 million, $0.05 per share.
3. INTEREST COST
Interest expense excludes capitalized interest of $3.1 million in
the fair valuefirst quarter of these embedded derivatives are
recorded in current period revenues.
7
At September 30, 2001, Atlantic Copper had forward copper
contracts designed to hedge its copper price risk whenever its
physical purchases and sales pricing periods do not match. Although
these contracts provide a hedge against changes in copper prices,
they do not qualify for hedge accounting under SFAS 133 because
Atlantic Copper bases its hedging contracts on its net
sales/purchases position and contracts to hedge a net position do
not qualify for hedge accounting under SFAS 133. Atlantic Copper
held forward copper purchase contracts for 13.1 million pounds with
a fair value of $(0.1) million recorded in accounts payable at
September 30, 2001.
Foreign Currency Exchange Contracts
PT Freeport Indonesia and Atlantic Copper enter into foreign
currency forward contracts to hedge the market risks of their
forecasted costs denominated in a currency other than the U.S.
dollar, their functional currency. The primary objective of these
contracts is either to lock-in an exchange rate or to minimize the
impact of adverse exchange rate changes.
As of September 30, 2001, PT Freeport Indonesia had foreign
currency forward contracts to hedge 24.0 million of its aggregate
projected Australian dollar payments from October 2001 through
December 2001, or approximately 50 percent of its aggregate
projected remaining 2001 Australian dollar payments at an average
exchange rate of $0.58 to one Australian dollar. PT Freeport
Indonesia also had foreign currency forward contracts to hedge
599.4 billion of its aggregate projected Indonesian rupiah payments
from October 2001 through December 2002, or approximately 50
percent of its projected remaining 2001 and 2002 rupiah payments,
at an average exchange rate of 12,501 rupiahs to one U.S. dollar.
Atlantic Copper had foreign currency forward contracts to hedge
139.2 million of its projected euro payments from October 2001
through December 2003, or approximately 44 percent of its projected
remaining 2001 peseta/euro payments and approximately 63 percent of
its projected 2002 and 2003 euro payments, at an average exchange
rate of $1.01 per euro. The net fair value of PT Freeport
Indonesia's and Atlantic Copper's foreign currency contracts at
September 30, 2001 totaled $(8.9)$2.0 million of which $7.2 million
was recorded in accounts receivable, $(8.1) million was recorded in
accrued liabilities and $(8.0) million was recorded in other long-
term liabilities. PT Freeport Indonesia and Atlantic Copper have
designated their foreign currency forward contracts as cash flow
hedges. There was no hedge ineffectiveness for the outstanding
contracts at September 30, 2001.
Interest Rate Contracts
Atlantic Copper entered into interest rate swap contracts to manage
exposure to interest rate changes on a portion of its variable-rate
debt. The primary objective of these contracts is to lock-in an
interest rate considered to be favorable. As of September 30,
2001, Atlantic Copper had interest rate swap contracts at an
average interest rate of 6.1 percent on $62.8 million of financing,
reducing quarterly through December 2003. Atlantic Copper has
designated its interest rate swap contracts as cash flow hedges and
no ineffectiveness is expected from these hedges. The fair value
of these interest rate swap contracts totaled $(3.7) million,
$(2.6) million of which is recorded in accrued liabilities and
$(1.1) million is recorded in other long-term liabilities at
September 30, 2001.
FCX and its subsidiaries adopted SFAS 133 on January 1, 2001;
therefore, amounts reported for 2001 and 2000 are based on
different accounting methods. Prior to 2001, changes in the market valuefirst quarter of
foreign currency exchange contracts were included in current earnings.
Beginning in 2001, changes in the fair value of unrealized derivative
contracts, including foreign currency exchange contracts that
qualify as hedges, are not reported in current earnings, but are
included in other comprehensive income (see Note 5).2001.
6
4. COMPREHENSIVE INCOME
A recap of gains (loss) charged to earnings for derivative
contracts, embedded derivatives and redeemable preferred stock
redemptions follows (in millions):
Three Months Ended Nine Months
September 30, Ended September 30,
------------------ -------------------
2001 2000 2001 2000
----- ----- ----- -----
FCX:
Silver-Denominated preferred stock $ 2.1 $ 0.6 $ 2.1 $ 0.6
PT Freeport Indonesia:
Foreign currency exchange contracts 0.4 (7.6) (1.3) (5.8)
Forward copper contracts - (6.0) - 1.7
Concentrate sales contracts (16.1) (a) (39.0) (a)
Atlantic Copper:
Foreign currency exchange contracts (0.9) (19.1) (2.2) (26.9)
Forward copper contracts (0.6) (0.3) 3.7 (1.2)
Interest rate contracts (0.5) 0.4 (0.4) 0.5
(a) Embedded derivatives in PT Freeport Indonesia's concentrate
sales contracts did not require separate accounting before 2001.
8
5. COMPREHENSIVE INCOME
The 2000 periods did not include any items of other comprehensive
income. FCX's comprehensive income for the 2001 periods is summarizedshown below (in
thousands).
Three Months Nine Months
Ended Ended
September 30 September 30
------------ ------------months
ended March 31,
-----------------
2002 2001
------ -------
Net income applicable to common stock $ 4,248 $78,579$5,058 $47,104
Other comprehensive income (loss):
Cumulative effect of change
in accounting, for
derivatives, no tax effect - (982)
Change in unrealized
derivatives' fair value
(net of taxes of $3.4$(1.4)
million and $1.7$1.8 million,
respectively) 10,055 (11,083)(451) (14,824)
Reclass to earnings
(net of tax
benefittaxes of $0.2$0.6 million
and taxes of $0.5$(0.2) million, respectively) 1,148 3,245
-------1,291 331
------ -------
Total comprehensive income $15,451 $69,759
=======Comprehensive Income $5,898 $31,629
====== =======
6. INTEREST COST
Interest expense excludes capitalized interest of $2.5 million in
the third quarter of 2001, $2.0 million in the third quarter of
2000, $6.6 million in the first nine months of 2001 and $4.8
million in the first nine months of 2000.
7.5. BUSINESS SEGMENTS
FCX has two operating segments: "mining and exploration" and
"smelting and refining." The mining and exploration segment
includes the copper and gold mining operations of PT Freeport
Indonesia in Indonesia and FCX's Indonesian exploration activities.
The smelting and refining segment includes Atlantic Copper's
operations in Spain and PT Freeport Indonesia's equity investment
in PT Smelting in Gresik, Indonesia. The segment data presented
below were prepared on the same basis as the consolidated FCX
financial statements.
Mining Smelting
Mining
and and Eliminations FCX
Exploration Refining and Other Total
---------- -------- ----------------- ----------
(In Thousands)
Three months ended
September 30, 2001:First Quarter of 2002
Revenues $ 343,300a $200,007 $(102,069)b269,726a $199,527 $(76,573) $ 441,238392,680
Production and delivery 145,719 190,763 (91,314)130,629 189,479 (85,191)b 245,168234,917
Depreciation
and amortization 63,107 6,818 1,075 71,00043,522 6,752 2,780 53,054
Exploration expenses 1,936723 - 53 1,989
Equity in PT Smelting
earnings - (1,875)c - (1,875)31 754
General and
administrative expenses 11,217 2,092 1,653 14,96212,806 1,975 1,631 16,412
---------- -------- ----------------- ----------
Operating income $ 82,046 $ 1,321 $ 4,176 $ 87,543
========== ======== ======== ==========
Interest expense, net $ 19,113 $ 4,338 $ 20,831 $ 44,282
========== ======== ======== ==========
Provision for income taxes$ 20,740 $ - $ 8,074 $ 28,814
========== ======== ======== ==========
Capital expenditures $ 30,488 $ 833 $ 513 $ 31,834
========== ======== ======== ==========
Total assets $3,199,014c $624,911d $353,957 $4,177,882
========== ======== ======== ==========
First Quarter of 2001
Revenues $ 360,046a $159,126 $(72,085) $ 447,087
Production and delivery 115,102 150,985 (70,473)b 195,614
Depreciation
and amortization 60,019 6,789 1,321 68,129
Exploration expenses 1,975 - 76 2,051
General and
administrative expenses 10,775 2,019 1,615 14,409
---------- -------- -------- ----------
Operating income (loss) $ 121,321172,175 $ 2,209(667) $ (13,536)(4,624) $ 109,994166,884
========== ======== ================= ==========
Interest expense, net $ 20,13730,514 $ 6,1027,146 $ 13,87610,777 $ 40,11548,437
========== ======== ================= ==========
Provision for income taxes$ 37,27252,305 $ 1,034- $ 1,9798,310 $ 40,28560,615
========== ======== ================= ==========
Capital expenditures $ 35,38435,566 $ 2,0533,465 $ 677306 $ 38,11439,337
========== ======== ================= ==========
Total assets $3,228,401d $667,461e$3,284,193c $685,428d $ 139,822 $4,035,684(4,367) $3,965,254
========== ======== ========= ==========
9
Smelting
Mining and and Eliminations FCX
Exploration Refining and Other Total
---------- -------- --------- ----------
(In Thousands)
Three months ended
September 30, 2000:
Revenues $ 385,933a $181,312 $ (93,408)b $ 473,837
Production and delivery 176,002 186,851 (83,967)b 278,886
Depreciation and
amortization 69,881 6,795 1,149 77,825
Exploration expenses 2,388 - 527 2,915
Equity in PT Smelting losses - 5,383c - 5,383
General and
administrative expenses 14,751 2,346 1,632 18,729
---------- -------- --------- ----------
Operating income (loss) $ 122,911 $(20,063) $ (12,749) $ 90,099
========== ======== ========= ==========
Interest expense, net $ 35,061 $ 6,263 $ 12,215 $ 53,539
========== ======== ========= ==========
Provision (benefit)
for income taxeS $ 34,107 $ (649) $ 1,294 $ 34,752
========== ======== ========= ==========
Capital expenditures $ 30,281 $ 4,506 $ 293 $ 35,080
========== ======== ========= ==========
Total assets $3,284,279d $674,532 e $ 22,362 $3,981,173
========== ======== ========= ==========
Nine months ended
September 30, 2001:
Revenues $1,124,408a $553,532 $(251,356)b $1,426,584
Production and delivery 404,360 540,614 (238,612)b 706,362
Depreciation and
amortization 193,279 20,453 3,716 217,448
Exploration expenses 6,222 - 238 6,460
Equity in PT Smelting losses - 945c - 945
General and
administrative expenses 34,035 6,264 5,214 45,513
---------- -------- --------- ----------
Operating income (loss) $ 486,512 $(14,744) $ (21,912) $ 449,856
========== ======== ========= ==========
Interest expense, net $ 74,736 $ 20,321 $ 34,888 $ 129,945
========== ======== ========= ==========
Provision for income
taxes $ 151,801 $ 988 $ 20,519 $ 173,308
========== ======== ========= ==========
Capital expenditures $ 108,025 $ 9,382 $ 1,375 $ 118,782
========== ======== ========= ==========
Nine months ended
September 30, 2000:
Revenues $ 953,313a $607,994 $(222,530)b $1,338,777
Production and delivery 454,490 597,091 (253,347)b 798,234
Depreciation and
amortization 171,066 21,063 3,383 195,512
Exploration expenses 5,445 - 1,279 6,724
Equity in PT Smelting losses - 9,020c - 9,020
General and
administrative expenses 44,768 6,520 4,708 55,996
---------- -------- --------- ----------
Operating income (loss) $ 277,544 $(25,700) $ 21,447 $ 273,291
========== ======== ========= ==========
Interest expense, net $ 100,620 $ 19,111 $ 33,556 $ 153,287
========== ======== ========= ==========
Provision for income
taxes $ 68,863 $ 1,079 $ 23,535 $ 93,477
========== ======== ========= ==========
Capital expenditures $ 117,290 $ 14,094 $ 660 $ 132,044
========== ======== ========= ==========
a. Includes PT Freeport Indonesia sales to PT Smelting totaling
$88.2$99.2 million in the third quarter of 2001, $101.22002 and $90.6 million in the
third quarter of 2000, $290.7 million in the nine-month period
ended September 30, 2001 and $230.6 million in the nine-month
period ended September 30, 2000.2001.
b. Represents elimination of intersegment sales from PT Freeport
Indonesia to Atlantic Copper and the change in deferred profits on
intersegment sales remaining in Atlantic Copper's inventories.
c. Includes effect of changes in deferreddeferral of intercompany profits on 25
percent of PT Freeport Indonesia's sales to PT Smelting that remainare
still in PT Smelting's inventory at periodquarter end, totaling $2.8$0.6
million in the third quarter of 2001, $(1.8)2002 and $(1.2) million in the third
quarter of 2000, $2.7 million in the nine-month period ended
September 30, 2001 and $2.9 million in the nine-month period ended
September 30, 2000.
d.2001.
c. Includes PT Freeport Indonesia's trade receivables with PT
Smelting totaling $23.2$36.1 million at September 30, 2001March 31, 2002 and $24.7$15.8 million
at September 30, 2000.
e.March 31, 2001.
d. Includes PT Freeport Indonesia's equity investment in PT
Smelting totaling $55.2$57.0 million at September 30, 2001March 31, 2002 and $62.8$53.7 million
at September 30, 2000.March 31, 2001.
10
8.7
6. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first ninethree months
of 2002 and 2001 and 2000 was 3.31.8 to 1 and 1.83.3 to 1, respectively. For this
calculation, earnings consist of income from continuing operations
before income taxes, minority interests and fixed charges. Fixed
charges include interest and that portion of rent deemed
representative of interest.
7. NEW ACCOUNTING STANDARD
In July 2001, the Financial Accounting Standards Board issued SFAS
143, "Accounting for Asset Retirement Obligations," which requires
recording the fair value of a liability for an asset retirement
obligation in the period incurred. The standard is effective for
fiscal years beginning after June 15, 2002, with earlier
application permitted. Upon adoption of the standard, we are
required to use a cumulative-effect approach, which requires the
cumulative effect of adoption to be reflected in earnings as a
separate line item - "Cumulative effect of accounting change" - for
all existing asset retirement obligation liabilities, asset
retirement costs and accumulated depreciation. We have begun work
on identifying and quantifying our asset retirement obligations in
accordance with the new standard, but currently do not expect to
adopt the new rules before January 1, 2003.
----------------------
Remarks
The information furnished herein should be read in conjunction with
FCX's financial statements contained in its 20002001 Annual Report on
Form 10-K. The information furnished herein reflects all
adjustments which are, in the opinion of management, necessary for
a fair statement of the results for the periods. All such
adjustments are, in the opinion of management, of a normal
recurring nature.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Freeport-McMoRan Copper & Gold Inc.:
We have reviewed the accompanying condensed balance sheet of
Freeport-McMoRan Copper & Gold Inc. (a Delaware corporation) as of
September 30, 2001,March 31, 2002, and the related statements of operations for the
three and nine-month periods ended September 30, 2001 and 2000, and
the statements of cash
flows for the nine-monththree-month periods ended September 30, 2001March 31, 2002 and 2000.2001.
These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data and
making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally accepted
in the United States, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with accounting
principles generally accepted in the United States.
We have previously audited, in accordance with auditing
standards generally accepted in the United States, the balance
sheet of Freeport-McMoRan Copper & Gold Inc. as of December 31,
2000,2001, and the related statements of income, cash flows and
stockholders' equity
and cash flows for the year then ended (not presented
herein), and, in our report dated January 18,February 8, 2002 (except with
respect to the payment of the Nusamba loan discussed in Note 2 of
the Notes to Financial Statements in the Annual Report on Form 10-K
for the year ended December 31, 2001, as to which the date is
February 27, 2002), we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in
the accompanying condensed balance sheet as of December 31, 2000,2001,
is fairly stated, in all material respects, in relation to the
balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
October 16, 2001April 18, 2002
118
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OVERVIEW
We operate through our majority-owned subsidiaries,subsidiary, PT Freeport
Indonesia, and through PT Irja Eastern Minerals (Eastern
Minerals), and
through Atlantic Copper, S.A. (Atlantic Copper), our wholly
owned subsidiary.subsidiaries. PT Freeport Indonesia also has a 25 percent
interest in PT Smelting, an Indonesian company that operates a
copper smelter and refinery in Gresik, Indonesia. In addition to
the PT Freeport Indonesia and Eastern Minerals exploration
activities, we conduct other mineral exploration activities in
Papua (formerly Irian Jaya
(Papua)Jaya), Indonesia, pursuant to joint venture
and other arrangements. The results of operations reported and
summarized below are not necessarily indicative of future
operating results.
Increased Ownership in PT Freeport Indonesia. In 1997, PT
Nusamba Mineral Industri (Nusamba), an Indonesian company and a
subsidiary of PT Nusantara Ampera Bakti, acquired from a third
party approximately 51 percent of the capital stock of PT
Indocopper Investama. PT Indocopper Investama is an Indonesian
company whose only significant assets are its 9.4 percent of PT
Freeport Indonesia's common stock and its 10.0 percent of Eastern
Minerals' stock. Nusamba paid $61.6 million in cash and financed
$253.4 million of the $315.0 million purchase price with a
variable-rate commercial loan from a syndicate of commercial
banks, including JP Morgan Chase Bank as agent, which was to
mature in March 2002. We guaranteed the Nusamba loan for the
purpose of continuing minority Indonesian ownership of PT
Freeport Indonesia. We also agreed to lend to Nusamba any
amounts to cover any shortfalls between the interest payments due
on the commercial loan and dividends received by Nusamba from PT
Indocopper Investama. We loaned $1.8 million to Nusamba to cover
interest shortfalls during the first quarter of 2001.
In discussions subsequent to December 31, 2001, Nusamba
informed us that it did not expect to be able to repay the bank
loan or our loan at maturity. On February 27, 2002, we repaid
the bank loan as provided for under the terms of our amended
credit facilities (see "Amended Bank Credit Facilities" in our
"Capital Resources and Liquidity" discussion) and acquired
Nusamba's ownership in PT Indocopper Investama. As a result of
our payment of the Nusamba bank loan, our balance sheet as of
December 31, 2001, includes the following:
* An additional liability of $253.4 million to reflect the
payment of the Nusamba bank loan,
* A reduction of "other assets" by $61.6 million to reflect the
nonpayment of our loan to Nusamba,
* An increase in deferred income taxes by $4.2 million to reflect
tax liabilities relating to our increased equity ownership in PT
Freeport Indonesia,
* A reduction in minority interests by $52.0 million to reflect our
increased equity ownership in PT Freeport Indonesia, and
* An increase in property, plant and equipment of $267.3 million to
reflect the cost of the acquisition in excess of the book value
of the equity ownership in PT Freeport Indonesia we acquired.
For 2002, our earnings will reflect an increased ownership
interest in PT Freeport Indonesia (90.6 percent compared with
85.9 percent for 2001), which resulted in approximately $1 million of
additional net income in the first quarter, net of approximately
$0.7 million of additional intercompany profit deferral for PT Freeport
Indonesia's concentrate sales to Atlantic Copper. Interest costs related
to the $253.4 million loan under our bank credit facilities totaled $4.2
million. Since June 2001, we had been recognizing an expense for the
interest costs we were required to fund under the Nusamba loan guarantee.
Additional depreciation and amortization expense for the increase
in property, plant and equipment reduced net income by $2.0 milion.
Summary comparative consolidated results for the third-
quarter and nine-monthfirst-quarter periods ended September 30
follow (in millions, except per share amounts):
ThirdFirst Quarter
Nine Months
------------------ ----------------------------------
2002 2001
2000 2001 2000
------ ------ -------- --------
Revenues $441.2 $473.8 $1,426.6 $1,338.8$392.7 $447.1
Operating income 110.0 90.1 449.9 273.387.5 166.9
Net income (loss) applicable to common
stock 4.2 (9.2) 78.6 (18.6)before cumulative effect
adjustment (1.1) 38.0
Net income (loss) applicable to common
stock (4.2) 38.0
Diluted net income (loss) per share ofshare:
Before cumulative effect adjustment (0.01) 0.26
Applicable to common stock .03 (.06) .54 (.12)(0.03) 0.26
9
Our consolidated revenues include PT Freeport Indonesia's
sale of copper concentrates, which also contain significant
amounts of gold, and the sale by Atlantic Copper of copper
anodes, cathodes, wire and wire rod, and gold in anodes and
slimes. Our revenues and net income vary significantly with
fluctuations in the market prices of copper and gold and other
factors. At various times, in response to market conditions, we
have entered into copper and gold price protection contracts for
some portion of our expected future mine production to mitigate
the risk of adverse price fluctuations. We currently have no
copper or gold price protection contracts relating to our mine
production. We have outstanding gold-gold-denominated and silver-denominated
preferred stock with dividends and redemption amounts determined
by commodity prices. Based on PT Freeport Indonesia's projected
share of 20012002 copper sales (1.4(1.5 billion pounds), a $0.01 per
pound change in the average price realized would have an
approximate $14$15 million impact on our revenues and an approximate
$7$8 million impact on our net income. A $5 per ounce change in
the average price realized on PT Freeport Indonesia's share of
projected 20012002 gold sales (2.6(2.3 million ounces) would have an
approximate $13$12 million impact on our revenues and an approximate
$6 million impact on our net income.
Our third-quarter 2001first-quarter 2002 consolidated revenues were lower than the 2000
period mostly because ofreflect lower
copper sales volumes and averaged
realized prices,gold revenues at PT Freeport Indonesia partly offset
by higher gold sales volumes. Our
nine-month 2001 consolidatedAtlantic Copper revenues, improved when compared with the 2000 periodfirst
quarter of 2001. Lower revenues from PT Freeport Indonesia
during the first quarter of 2002 resulted primarily from declines
in sales volumes caused by the mining of lower grade ore, while
Atlantic Copper's revenues improved compared with the first
quarter of 2001 mainly because of higher copper and gold sales
volumes, partly offset by lower average realized prices. A
portion of PT Freeport Indonesia's copper sales are provisionally
priced at the time of shipment and finally priced in subsequent
periods based on prices in effect in those periods. Third-sales. First-
quarter 20012002 revenues include reductionsnet additions of $13.2$5.8 million ($6.43.0
million to net income or $0.04 per share) and third-quarter 2000
revenues benefited by $5.1 million ($2.5 million to net loss or
$0.02 per share) fromprimarily for
adjustments to prior periodthe fair value of December 31, 2001 embedded
derivatives in concentrate sales mostly for copper pricing. Nine-month 2001 revenues
includecontracts, compared with net
reductions of $2.8$2.4 million ($1.41.2 million to net income or $0.01
per share) for adjustments to year 2000 concentrate sales,
while nine-month 2000 revenues benefited by $10.5 million ($5.1
million to net loss or $0.03 per share) for adjustments to year
1999 concentrate sales, mostly for copper pricing.
From time to time we enter into foreign currency contracts
to hedge our projected operating costs denominated in foreign
currencies. On January 1,first-quarter 2001 accounting standards for these
types of hedging contracts changed (see Note 4). Prior to
January 1, 2001, our foreign currency forward contracts did not
qualify for hedge accounting and all changes in the market values
of these contracts were included in earnings as they occurred.
As a result, our reported earnings prior to January 1, 2001
included the effects of changes in market value of all our
outstanding foreign currency forward contracts, which were
significant at times. The 2000 periods included losses charged
to cost of sales totaling $26.7 million for the third quarter and
$32.7 million for the nine-month period for changes in market
value of foreign currency forward contracts, most of which would
have been charged to other comprehensive income under the new
accounting rules we adopted on January 1, 2001. Excluding the
2000 charges relating to marking-to-market our foreign currency
contracts, consolidated costs of sales in the third quarter of
2001 were slightly lower than the 2000 quarter primarily because
of lower PT Freeport Indonesia copper sales.
12
Lowerrevenues.
Consolidated cost of sales for the nine-month 2001 period2002 were $24.2 million
higher compared with the 2000 period primarily reflects lower2001 quarter largely because of higher
sales volumes at Atlantic Copper, partly offset by lower depreciation and
amortization expense at PT Freeport Indonesia because of a major maintenance turnaround completedchange
in April 2001.
The improved results we recordedour depreciation methodology (Note 2). Our exploration
expenses declined to $0.8 million in the first quarter of 2002
from $2.1 million in the first quarter of 2001 reflecting efforts
to reduce costs during 2001 for our equity
interest in PT Smelting primarily reflect the recognitionperiods of deferred profits on PT Freeport Indonesia sales to PT Smelting
and improvements in PT Smelting's operating results during 2001.continued low commodity prices.
General and administrative expenses during the thirdfirst quarter of
20012002 were lower$2.0 million higher than during the third2001 period. The
first quarter of 2000 when we
recorded charges totaling $2.32002 included a $0.5 million charge for personnel severance
costs. During the first nine monthscosts of
2001 generalstock appreciation rights caused by an increase in FCX's common
stock price and administrative expenses were $10.5a $0.5 million lower than during the
2000 period. In the first nine months of 2000 we recorded net
charges of $7.6 millioncharge for costs related to contribution commitments,
personnel severance costs anda
proposal to convert our Class A common stock appreciation rights.to our Class B
common stock.
Our
lower effective tax rate for the first nine monthsquarter of 20012002 was 68
percent compared with an effective rate of 50 percent in the
first quarter of 2001. The higher effective rate for the first
quarter of 2002 primarily reflects the impact of higherlower income at
PT Freeport Indonesia. TheIndonesia and higher level of minority interests in net income
of consolidated subsidiaries in the 2001 periods is also the
result of improved earningsinterest costs at PT Freeport Indonesia.our parent
company (see "Other Financial Results").
RESULTS OF OPERATIONS
We have two operating segments: "mining and exploration" and
"smelting and refining." The mining and exploration segment
includes PT Freeport Indonesia's copper and gold mining
operations in Indonesia and FCX's Indonesian exploration
activities.activities, including those of Eastern Minerals. The smelting
and refining segment includes Atlantic Copper's operations in
Spain and PT Freeport Indonesia's 25 percent equity investment
in PT Smelting. Summary comparative operating income (loss) by segment
for the third-quarter and
nine-monthfirst-quarter periods follows (in millions):
ThirdFirst Quarter
Nine Months
------------------ --------------------------------
2002 2001
2000 2001 2000----- ------
------ ------ ------
Mining and exploration $121.3 $122.9 $486.5 $277.5$82.0 $172.2
Smelting and refining 2.2 (20.1) (14.7) (25.7)1.3 (0.7)
Intercompany eliminations and other (13.5) (12.7) (21.9) 21.5
------ ------ ------4.2 (4.6)
----- ------
FCX operating income a $110.0 $ 90.1 $449.9 $273.3
====== ====== ======$87.5 $166.9
===== ======
a. Profits on PT Freeport Indonesia's sales to Atlantic Copper
and on 25 percent of PT Freeport Indonesia's sales to PT
Smelting are deferred until the final sale to third parties
has occurred. Changes in the amount of these deferred
profits impacted operating income by $(7.0)$8.9 million in the third quarter of 2001,
$(10.7)2002
and $(0.1) million in the third quarter of 2000, $(6.4) million in
the nine-month 2001 period and $35.9 million in the nine-month
2000 period.2001. Our consolidated quarterly
earnings fluctuate depending on the timing and prices of
these sales. 10
MINING AND EXPLORATION
A summary of increases (decreases) in PT Freeport Indonesia
revenues between the periods follows (in millions):
Third NineFirst
Quarter
Months
------
--------
PT Freeport Indonesia revenues - 2000 periods $385.9 $ 953.3prior year period $360.0
Increases (decreases):
Sales volumes:
Copper (32.5) 102.4(28.6)
Gold 72.8 266.2(80.6)
Price realizations:
Copper (73.3) (140.7)(10.7)
Gold 0.6 (26.4)9.4
Adjustments, primarily for copper pricing
on prior period openyear sales (19.5) (3.8)14.8
Treatment charges, royalties and other 9.3 (26.6)5.4
------ --------
PT Freeport Indonesia revenues - 2001 periods $343.3 $1,124.4current year period $269.7
====== ========
PT Freeport Indonesia's 2001 revenues for both the third-
quarter and nine-month periods benefited from significant
increases in gold sales volumes compared to the 2000 periods.
When compared to the 2000 periods,first quarter of 2001, PT Freeport
Indonesia's first-quarter 2002 copper sales volumes declineddecreased by
1011 percent in the 2001 third quarter but were 13 percent
higher in the 2001 nine-month period, whileand gold sales volumes improveddecreased by 6248 percent,
inreflecting the 2001 third quarter and by 79
percent inlower grade ore processed during the 2001 nine-month period. Copper prices have declined
13
throughout 2001 resulting in a $0.21 per pound or 24
percent decline in the third-quarter 2001 average realized price
and a $0.13 per pound or 16 percent decline in the nine-month
2001 average realized price2002 period
compared with the year-ago periods.higher grade material mined during 2001. Gold
realizations in the first quarter of 2002 were nearly $28 an
ounce higher than first-quarter 2001 realizations, however copper
realizations in the 2002 period were $0.04 per pound lower than
the prior year period. Treatment charges in total were higherlower in
the first nine monthsquarter of 20012002 primarily because of higher concentratethe lower sales
volumes and
royaltiesvolumes. Royalties were higher$3.1 million lower in the first quarter
of 2002 compared with the 2001 period, primarily because of significantly
higherlower
gold sales volumes.sales.
PT Freeport Indonesia estimateshas commitments from various parties,
including Atlantic Copper and PT Smelting, to purchase virtually
all of its share of fourth-quarter
2001 sales to approximate 330 million pounds of copper and
440,000 ounces of gold, reflecting expected lower ore grades.
Because of the immense size of the Grasberg ore body, there are
periods such as the upcoming quarter when the sequencing of
mining results inestimated 2002 production from ore that is economical, but
lower than average in grade.at market prices. Net of
Rio Tinto plc's joint
ventureTinto's interest, PT Freeport Indonesia's share of sales for
2001the second quarter of 2002 is projected to approximate 1.4400
million pounds of copper and 550,000 ounces of gold. PT Freeport
Indonesia's share of sales for 2002 is projected to approximate
1.5 billion pounds of copper and nearly 2.62.3 million ounces of gold, an increase from 2000gold.
Projected 2002 sales reflect the expectation of over
650,000 ounces reflectingmining higher
average goldgrade ore grades and
recoveries.compared to 2001.
PT Freeport Indonesia's concentrate sales agreements, with
regard to copper, provide for provisional billings at the time of
shipment with final pricing settlement generally based on the
average London Metal Exchange (LME) price for a specified future
month. Copper revenues on provisionally priced open pounds are
adjusted monthlyperiod. Under Statement of Financial Accounting Standards No.
133 (SFAS 133), PT Freeport Indonesia's sales based on then-current forward prices.a
provisional sales price contain an embedded derivative which must
be separated from the host contract. The host contract is the
sale of the concentrates at the current spot LME price. The
embedded derivative, which does not qualify for hedge accounting,
is marked-to-market through earnings each period. Adjustments to
PT Freeport Indonesia's provisional billings are recorded in
revenues and totaled $10.3 million for the first quarter of 2002
and $(13.0) million for the first quarter of 2001.
At September 30, 2001,March 31, 2002, we had consolidated provisional billings
on copper sales totaling 175.4113.5 million pounds recorded at an
average price of $0.64$0.74 per pound remaining to be finally priced.pound. Nearly all of these open
poundssales are
expected to be finally priced during the fourthsecond quarter of 2001.2002.
A one-cent movement in the average price used for these
open pounds wouldprovisional billings will have an approximate $0.9$0.6 million impact
on our 20012002 net income.
At times PT Freeport Indonesia has entered into derivative
contracts to manage certain risks resulting from fluctuations in
commodity prices. During 2001 and the first nine monthsfirst-quarter of 20012002, and
as of September 30, 2001,March 31, 2002, PT Freeport Indonesia had nodid not have any
price protection programs in place for its copper and gold sales
other than ourits gold-denominated preferred stock. At the beginning of each of
the first three quarters of 2000,As conditions
warrant, PT Freeport Indonesia enteredmay enter into forward copper salesnew contracts to fix the price onfor
its open
concentratefuture sales.
We recorded reductions in revenues totaling
$6.0 million in the third quarter of 2000 and net additional
revenues of $1.7 million in the first nine months of 2000 from
these forward sales contracts. 11
PT Freeport Indonesia Operating Results
ThirdFirst Quarter
Nine Months
-------------------
---------------------2002 2001 2000 2001 2000
------- -------
--------- ---------
PT Freeport Indonesia, Net of Rio Tinto's Interest
Copper
Production (000s of 341,000 362,500 1,077,200 958,300
recoverable pounds) 296,700 377,100
Production (metric tons) 134,600 171,000
Sales (000s of 350,600 388,300 1,073,800 950,400
recoverable pounds) 296,100 333,400
Sales (metric tons) 134,300 151,200
Average realized price $.65 $.86 $.70 $.83$.73 $.77
Gold
Production (recoverable 673,800 385,400 2,156,200 1,191,500
ounces) 335,800 730,900
Sales (recoverable 686,300 422,700 2,144,600 1,197,400
ounces) 336,600 644,700
Average realized price $277.08 $276.23 $268.70 $281.02$289.51 $261.54
Gross profit per pound of copper (cents):
Average realized price 65.4 86.3 69.9 83.073.2 76.8
------- ------- --------- ---------
Production costs:
Site production and delivery 40.743.4a 34.8 a 43.7 b 37.4 a 46.9b
Gold and silver credits (55.1) (31.3) (54.8) (36.7)(35.2) (51.7)
Treatment charges 19.4 18.0 18.8 18.1 18.3
Royalty on metals 1.7 1.31.1 1.9
1.3
------- ------- --------- ---------
Cash production costs 5.3 32.5 2.6 29.828.7 3.0
Depreciation and amortization 18.0 18.0 18.014.7 18.0
------- -------
--------- ---------
Total production costs 23.3 50.5 20.6 47.843.4 21.0
------- ------- --------- ---------
Adjustments, primarily for copper pricing
on prior periodyear open sales (2.9) 1.9 - 0.23.2 (0.6)
------- ------- --------- ---------
Gross profit per pound of copper 39.2 37.7 49.3 35.433.0 55.2
======= ======= ========= =========
14
Third Quarter Nine Months
------------------- ---------------------
2001 2000 2001 2000
------- ------- --------- ---------
PT Freeport Indonesia, 100% Operating Statistics
Ore milled (metric tons per day) 244,600 221,500 238,100 223,900244,200 229,600
Copper grade (percent) 0.96 1.09 1.04 0.99.90 1.13
Gold grade (grams per metric ton) 1.36 0.89 1.53 0.92.73 1.68
Recovery rate (percent)
Copper 85.3 88.8 87.1 87.185.5 89.1
Gold 89.9 82.1 89.0 83.785.5 87.8
Copper
Production (000s of recoverable pounds) 357,100 434,900
Production 389,900 415,400 1,237,200 1,112,600(metric tons) 162,000 197,300
Sales 401,000 445,700 1,233,600 1,103,900(000s of recoverable pounds) 356,400 384,900
Sales (metric tons) 161,700 174,600
Gold (recoverable ounces)
Production 887,700 470,900 2,816,200 1,470,800419,000 946,000
Sales 903,900 517,500 2,798,700 1,476,100419,900 833,000
a. Net of deferred mining costs totaling $8.1$4.7 million (2.3
cents per pound) in the third quarter of 2001 and $26.2 million
(2.4(1.6
cents per pound) in the first nine months of 2001. During
the fourth quarter of 2000, PT Freeport Indonesia changed its
estimated average ratio of waste rock to ore over the life of the
mine in its deferred mining calculation to 1.6 to 1 from 2.4 to
1. For additional information, see Note 1 to the consolidated
financial statements in our annual report for the year ended
December 31, 2000.
b. Net of deferred mining costs totaling $3.32002 and $8.4 million
(0.9
cents per pound) in the third quarter of 2000 and includes
recaptured mining costs totaling $9.9 million (1.0(2.5 cents per pound) in the first nine monthsquarter of 2000.2001.
PT Freeport Indonesia's 2001first-quarter 2002 production
benefited fromdeclined because of lower ore grades and recovery rates, partly
offset by higher mill throughput rates, ore grades and gold recovery rates when compared with the prior-year periods. Mill throughput
averaged a record 244,600 metric tons of ore per day during the
third quarter of 2001. Third-quarter 2001prior-
year period. First-quarter 2002 copper grades declined
12were 20 percent
compared tolower than the prior-year quarter and were 5 percent
higher for the nine-month period, while gold grades were 5357 percent higher in the third quarter of 2001 and 66 percent higher
in the first nine months of 2001 compared with the prior-year
periods.lower.
Recovery rates remained strongdeclined by 4 percent for goldcopper and achieved a
quarterly record of 89.93 percent in the third quarter of 2001
reflecting high-recovery ore processed during the last four
quarters and results of various enhanced recovery initiatives
achieved at the mill.for
gold. As previously reported, lower gold grades
in the Grasberg pit during the first three quartersaverage grade of 2000
reflected an expected mining of lower grade ore in accordance
with the mine plan during that period and the gold grades in the
first nine months of 2001 reflect a continuation of the improved
grades that began to be mined during the fourth quarter of 2000.
Ore grades to be
mined in the next several months,early part of 2002, particularly for gold, areis
expected to be lower than the higher grade material mined
sincethroughout most of 2001. We expect to return to higher grade ore
in the fourthsecond half of 2002. Because of the nature of the
Grasberg ore body, there are periods when the sequencing of
mining results in production that is economical, but lower than
average in grade.
At the Deep Ore Zone underground mine, production averaged
11,500 metric tons of ore per day in the first quarter of 2000.
In May 2000, PT Freeport Indonesia,2002
and 2,900 metric tons of ore per day in consultation with the Governmentfirst quarter of
Indonesia, voluntarily agreed2001. Full production of 25,000 metric tons of ore per day is
expected in the second half of 2002. We are currently studying
plans to temporarily limit
Grasberg open-pitincrease production becauserates to as much as 35,000 metric
tons of an incident at its
Wanagon overburden stockpile. In January 2001, PT Freeport
Indonesia resumed normal mining operations at Grasberg after
receiving governmental approval.ore per day.
12
Mill throughput rates will vary
based onaveraged 244,200 metric tons of ore per
day during the characteristicsfirst quarter of 2002, 6 percent higher than the
229,600 metric tons of ore being processed as we
manage our operations to optimize metal production.per day rate achieved in the first
quarter of 2001. Unit site production and delivery costs in the
thirdfirst quarter of 20012002 averaged $0.41$0.43 per pound of copper, $0.03$0.08
per pound lowerhigher than the $0.44$0.35 reported in the thirdfirst quarter of
2000,2001, primarily because of the previously reported changelower sales volumes that resulted
from mining lower grade ore. The lower grades of ore mined also
resulted in the estimated ratio
of waste rock to ore over the life of the mine and the effect of
weaker foreign currencies, partially offset by lower volumes.
Goldgold credits of $0.55$0.35 per pound in the 20012002
quarter, were higher
when compared with the 20002001 quarter level of $0.31$0.52 per pound
primarily because of higher gold ore grades and sales. Unit
site production and delivery costs and gold credits in the first
nine months of 2001, compared with the 2000 period, benefited for
the same reasons as third-quarter 2001 unit costs.pound.
Royalties were higher in the 2001 periods mostly because of higher gold
sales volumes and totaled $5.8 million in the third quarter of
2001, $4.9 million in the third quarter of 2000, $20.1$3.2 million in the first nine monthsquarter of 20012002 and
$12.0$6.3 million in the first nine
monthsquarter of 2000.2001, reflecting lower sales
volumes in the 2002 quarter.
Unit net cash production costs, averaged less
than $0.03 per pound in the first nine months of 2001including gold and silver
credits, for full-year 20012002 are expected to average less than $0.10 per
pound of copper.
15copper, assuming gold prices of $300 per ounce and gold
sales of 2.3 million ounces. In September 2001,the first half of 2002, unit
costs are expected to be higher than the average for 2002 and in
the second half of 2002 unit costs are expected to be lower than
the average, as both ore grade and production are expected to
increase during the year.
Effective January 1, 2002, we establishedchanged our methodology used in
the determination of depreciation associated with PT Freeport
Indonesia's mining and milling life-of-mine assets. Prior to
January 1, 2002, PT Freeport Indonesia depreciated mining and
milling life-of-mine assets on a trust for the benefit of
those tribal communities in villages closestcomposite basis. Total
historical capitalized costs and estimated future development
costs relating to PT Freeport Indonesia's operationsdeveloped and
undeveloped reserves were depreciated using the unit-of-
production method based on total developed and undeveloped proven
and probable copper reserves. Estimated future development
costs, which are significant, are necessary to develop PT
Freeport Indonesia's undeveloped ore bodies and are expected to
be incurred over the next 20 to 25 years.
After considering the inherent uncertainties and subjectivity
relating to the long time frame over which these estimated costs
would be incurred, and after consultation with the accounting
staff of the Securities and Exchange Commission, management
decided to revise its depreciation methodology prospectively.
Effective January 1, 2002, depreciation for voluntary special recognitionthe mining and
milling life-of-mine assets excludes consideration of their
traditional land rights infuture
development costs. Instead, under the Grasberg mining area, as part of
an agreement first outlined with these tribes in 1996. Under the
agreement,new methodology, PT
Freeport Indonesia depreciates only the historical capitalized
costs of individual producing mines over the related proven and
probable copper reserves. Infrastructure and other common costs
will fund $0.5continue to be depreciated over total proven and probable
copper reserves. The cumulative effect of this change through
December 31, 2001, as reflected in our first-quarter 2002
results, totaled $3.0 million ($0.02 per yearshare), net of taxes and
minority interest sharing. The effect of the new methodology was
to reduce depreciation and amortization expense by $3.8 million,
$2.0 million to net income or $0.01 per share in the trust, as long as certain conditions are met, and has
provided $2.5 million representing funding for mid-1996 through
mid-2001.first
quarter of 2002. Had PT Freeport Indonesia recorded a $2.2followed the new
methodology during 2001, our first-quarter 2001 depreciation and
amortization expense would have been reduced by $13.3 million,
charged$6.7 million to third-quarter 2001 production costs for its share of the
initial commitment.
PT Freeport Indonesia has a labor agreement covering its
hourly paid Indonesian employees, the key provisions of which are
renegotiated biannually. PT Freeport Indonesia's labor
agreement was scheduled to expire on September 30, 2001. In June
2001, PT Freeport Indonesia and its workers agreed to terms for a
new labor agreement that expires September 30, 2003. PT Freeport
Indonesia's relations with the workers' union have generally been
positive.net income or $0.05 per share.
We conduct the majority of our operations in Indonesia and
Spain. OurSpain where our functional currency is the U.S. dollar. All of
our revenues are denominated in U.S. dollars; however, certainsome costs
and certain asset and liability accounts are denominated in
Indonesian rupiah,rupiahs, Australian dollars or Spanish pesetas/euros. Generally, our
results are positively affected when the U.S. dollar strengthens
against these foreign currencies and adversely affected when the
U.S. dollar weakens against these foreign currencies.
Since 1997, the Indonesian rupiah/U.S. dollar exchange rate
has been volatile. One U.S. dollar was equivalent to 9,6559,660
rupiahs at September 30, 2001, 11,430 rupiahs at June 30, 2001March 31, 2002 and 9,21510,160 rupiahs at December 31,
2000.2001. PT Freeport Indonesia recorded gains (losses) to production costslosses totaling $(0.3)
million during the third quarter of 2001, $0.2 million during the
third quarter of 2000, $(1.0)$0.4
million during the first nine
monthsquarter of 20012002 and $(0.5)$0.5 million during
the first nine monthsquarter of 20002001 related to its rupiah-denominated net
assets. AOperationally, PT Freeport Indonesia has benefited from
a weakened rupiah currency, results in lower reported costs by PT Freeport
Indonesia, primarily through lower labor costs.
At estimated annual aggregate rupiah payments of 800900 billion and
a September 30, 2001the March 31, 2002 exchange rate of 9,6559,660 rupiahs to one U.S.
dollar, a one-thousand-
rupiahone-thousand-rupiah increase in the exchange rate would
result in an approximate $8$9 million decrease in annual operating
costs and a one-thousand-rupiah decrease in the exchange rate
would result in an approximate $10$11 million increase in annual
operating costs, before any hedging effects.
In April 2000, PT Freeport Indonesia also purchases materials and supplies
denominated in Australian dollars. The exchange rate was $0.53
to one Australian dollar at March 31, 2002 and $0.51 to one
Australian dollar at December 31, 2001. At estimated annual
aggregate Australian dollar payments of 225 million and the March
31, 2002 exchange rate of $0.53 to one Australian dollar, a $0.01
increase or decrease in the exchange rate would result in an
approximate $2 million change in aggregate annual costs, before
any hedging effects.
13
At times, PT Freeport Indonesia has entered into foreign
currency forward contracts to hedge a portion of its aggregate
anticipated Indonesian rupiah and Australian dollar payments for the remainder of 2000
and for 2001.payments. As
of September 30, 2001, theseMarch 31, 2002, PT Freeport Indonesia had foreign currency
contracts to hedge 24.0 million359.8 billion of Australian dollarrupiah payments, from October 2001
through December 2001, or
approximately 50 percent of aggregate projected remaining 2001 Australian dollarrupiah payments
for the remainder of 2002 at an average exchange rate of $0.58 to one Australian dollar. The exchange
rate was $0.49 to one Australian dollar at September 30, 2001.
Each $0.01 change in the U.S. dollar/Australian dollar exchange
rate impacts the September 30, 2001 market value of these
contracts by approximately $0.2 million.
In July 2000, PT Freeport Indonesia entered into foreign
currency forward contracts to hedge a portion of its aggregate
projected April through July 2001 Indonesian rupiah payments. In
June 2001, PT Freeport Indonesia entered into additional foreign
currency forward contracts to hedge a portion of its aggregate
projected August 2001 through December 2002 rupiah payments. As
of September 30, 2001, the rupiah contracts hedge 599.4 billion
of rupiah payments from October 2001 through December 2002, or
approximately 50 percent of projected remaining 2001 rupiah
payments and 2002 rupiah payments at an average exchange rate of
12,50112,792
rupiahs to one U.S. dollar. Each 1,000-rupiah change in the
Indonesian rupiah/U.S. dollar exchange rate impacts the September 30, 2001 market
value of these contracts by approximately $5$3.5 million.
PT Freeport Indonesia had foreign currency contracts hedging the
Australian dollar during 2001, but currently has no contracts
hedging the Australian dollar. We recorded net gains (losses) to
production costs for PT Freeport Indonesia's foreign currency
contracts totaling $1.6 million in the first quarter of 2002 and
$(0.5) million in the first quarter of 2001. PT Freeport
Indonesia recorded net realized gains (losses)(charges) to production costs related to matured
Australian dollar and Indonesian rupiah contracts totaling $0.4
million in the third quarter of 2001 and $(1.3) million in the
first nine months of 2001, compared to losses of $7.6 million in
the third quarter of 2000 and $(5.8) million in the first nine
months of 2000 for all outstanding currency hedging contracts in
the 2000 periods.
Under new accounting standards that became effective January
1, 2001 gains or losses on qualifying hedging contracts are
recognized in earnings as the contracts are settled, with changes
in the fair value of outstanding contracts reflected in Other Comprehensive
Income, a component of stockholders' equity, until
realized (see Notes 4totaling $1.0
million during the first quarter of 2002 and 5). We recorded net gains of $4.2$(2.0) million
to Other Comprehensive Income induring the thirdfirst quarter of 2001 and $2.9 millionfor its currency hedging
contracts that remained open as of the end of those periods.
Exploration Activities
Block A exploration efforts in the first nine monthsquarter of 2001 for PT
Freeport Indonesia's outstanding currency hedging contracts at
September 30, 2001.
16
Exploration Activities
Our reserve extension2002 were
associated with delineation drilling program has been completed at the
Ertsberg Stockwork Zone (ESZ), adjacent toproject known as the Deep
Ore Zone (DOZ) mine. The results indicate an expansion ofNorthwest Extension. This program is intended to test a
400 meter extension immediately adjacent to the footprint
of the lower ESZ mining block and additional filling in of ore
between the DOZ mine reserve and the ESZ reserve. We are
currently evaluating the potential for exploiting the two
deposits as one, by an outward extension of the DOZ mine
infrastructure. Exploration drilling also continues at the
Grasberg Underground. This drilling at the perimeter of the
Grasberg intrusion is directed at closing the gap between the
Grasbergcurrent Deep Ore
Zone block cave mine reserve and the Kucing Liar mine
reserve. The exploration drilling program at GBT-A (also
previously referred to as Guru Ridge) has been completed. With
current copper and gold metals prices, we will not pursue current
developmenttarget
an 80 million metric ton resource with 4,800 meters of this surface deposit, but will continue to study
and evaluate the prospect and mining opportunities for other
smaller near-surface ore bodies, including the Dom ore body.drilling,
in eleven holes that fill in gaps between existing exploration
drill holes.
Field exploration activities outside of our current mining
operations area have been temporarily suspended pending the
resolution ofare in suspension due to safety and security
issues and regulatory issues involvinguncertainty relating to a possible conflict between
our mining and exploration rights underin certain forest areas covered
by our ContractContracts of Work and an Indonesian law enacted in 1999
prohibiting open-pit mining in protected forest areas. The
current suspensions were granted for one-year periods ending
February 26, 2003 for Block B, March 31, 2003 for PT Nabire Bakti
Mining and November 15, 2002 for Eastern Minerals. We expect to
continue to seek suspension renewals for additional one-year
periods by written request to the requirementsGovernment of certain recently enacted
Indonesian forestry laws.Indonesia for
each of the suspended areas if required.
SMELTING AND REFINING
Impact of Smelter Treatment and Refining Charges
Our investmentinvestments in smelters servesserve an important role in our
concentrate marketing strategy. Approximately one-half of PT
Freeport Indonesia's concentrate production is sold to its
affiliated smelters, Atlantic Copper and PT Smelting, and the
remainder is sold to other customers.
ThroughTreatment charges for smelting and refining copper
concentrates represent a cost to PT Freeport Indonesia and income
to Atlantic Copper and PT Smelting. However, because we have
integrated our upstream (mining and milling) and downstream
integration,(smelting and refining) operations, we are able to achieve
operating hedges forwhich substantially offset the effect of changes
in treatment charges for smelting and refining PT Freeport
Indonesia's copper concentrates. WhileFor example, while low smelter treatmentsmelting
and refining charges adversely affect the operating results of
our
smelter operations, theyAtlantic Copper and PT Smelting, low charges benefit the
operating results of our
mining operations of PT Freeport Indonesia.Indonesia's mining operations.
As a result, changes in smelting and refining charges do not
have a significant impact on our consolidated operating results.
Taking into account taxes and minority ownership interests, an
equivalent change in ratesthe charges PT Freeport Indonesia pays and
the charges Atlantic Copper and PT Smelting receive would
essentially offset in our consolidated operating results.
Atlantic Copper Operating Results
ThirdFirst Quarter
Nine Months
------------------
------------------2002 2001 2000 2001 2000
------- -------
------- -------
Cash margin (in millions) $10.0 $13.7 $14.7 $38.3$10.5 $8.3
Operating income(loss)(inincome (loss) (in millions) $0.3 $(14.7) $(13.8) $(16.7)$1.3 $(0.7)
Concentrate treated (metric tons) 240,100 245,200 640,900 728,400
Anode258,300 205,500
Anodes production (000s of pounds) 169,600 164,300 447,900 510,400
Cathode,170,100 144,000
Cathodes, wire rod and wire sales
(000s of pounds) 138,000 143,200 402,700 427,400135,800 135,600
Gold sales in anodes and slimes (ounces) 274,900 119,000 564,100 503,400251,600 108,200
Atlantic Copper's cash margin, which is revenues less
production costs, was $3.7$2.2 million lowerhigher in the 20012002 quarter
compared with the 20002001 quarter primarily because of lower sales volumes and
higher unit
costs for refined copper cathodes. Cash margins were
$23.6 million lower in the first nine months of 2001 compared
with the first nine months of 2000 primarily because of a
scheduled 27-day major maintenance turnaround in April 2001. The
major maintenance turnaround was completed on schedule at a total
cost of approximately $15 million (approximately $9 million of
direct costs and $6 million related to lower sales volumes).costs. Atlantic Copper's cathode cash production costs per pound
of copper, before currency hedging, averaged $0.12 in the third
quarter of 2001 and $0.10 in the thirdfirst
14
quarter of 2000.2002 compared with $0.15 in the first quarter of 2001.
The higher unit costs in the 2001 quarterperiod primarily reflect lower
throughput and higher maintenance costs prior to the start of a
stronger peseta currency. For the first nine months of 2001
cathode cash production costs were $0.15 per pound of copper,
compared with $0.11scheduled 27-day major maintenance turnaround in the first nine months of 2000. The
increase in unit costs in the nine-month period primarily
reflects the effects of lower production volumes and the costs
resulting from the turnaround.late March 2001.
The next scheduled major maintenance turnaround is not anticipated for another three
years.expected to
occur in 2004. Atlantic Copper's average treatment rates
(including price
participation) averaged $0.17remained about the same for both quarters ($0.18 per pound in the reported 2001 and
2000 periods,pound),
which is at historically low levels.
Atlantic Copper recorded operating incomeThe majority of $0.3 million in
the third quarter of 2001, compared with losses of $14.7 million
in the 2000 period. Atlantic Copper's operating results include
a $0.9 million lossrevenues are denominated
in the third quarter of 2001U.S. dollars; however, some costs and a $2.2
million losscertain asset and
liability accounts are denominated in the first nine months of 2001 on currency hedging
contracts maturing during the periods compared to a $19.1 million
charge in the third quarter of 2000 and a $26.9 million charge in
the first nine months of 2000 for all outstanding currency
hedging contracts in the
17
2000 periods. Under new accounting
standards discussed previously and in Note 4, Atlantic Copper
recorded gains to Other Comprehensive Income totaling $8.4
million in the third quarter of 2001 and charges totaling $8.0
million in the first nine months of 2001 for its outstanding
currency hedging contracts at September 30, 2001.
Atlantic Copper had peseta/euro-denominated net monetary
liabilities at September 30, 2001 totaling $68.2 million recorded
at an exchange rate of 182.2 pesetas to one U.S. dollar or $0.91
per euro. The December 31, 2000 exchange rate was 178.8 pesetas
to one U.S. dollar or $0.93 per euro and the June 30, 2001
exchange rate was 196.2 pesetas to one U.S. dollar or $0.85 per
euro. Adjustments toeuros. Atlantic Copper's
peseta/euro-denominated
net liabilities to reflect changes in the exchange rate are
recorded in other income (expense) and totaled gains (losses) of
$(4.4) million in the third quarter of 2001, $5.9 million in the
third quarter of 2000, $(0.1) million in the first nine months of
2001 and $8.0 million in the first nine months of 2000.
At estimated annual peseta/euro payments of 15 billion
pesetas/total approximately 90 million
euros and at a September 30, 2001March 31, 2002 exchange rate of 182.2 pesetas to one U.S. dollar or $0.91$0.87 per euro, a
10-
peseta/$0.06$0.05 increase or decrease in the exchange rate would result in
an approximate $4.5 million change in annual costs, before any
hedging effects.
As part of refinancing its debt in June 2000, Atlantic
Copper was required to significantly expand its program to hedge
anticipated peseta/euro-denominated operating costs. At September 30, 2001,March 31, 2002,
Atlantic Copper had contracts to purchase 23.2 billion pesetas/139.2110.3 million euros from October 2001
through December 2003 at
an average exchange rate of 164.6
pesetas per one U.S. dollar or $1.01 per euro.euro through December 2003.
These contracts currently hedge approximately 44 percent of Atlantic Copper's
projected remaining 2001 peseta/euro disbursements and approximately 63 percent of
Atlantic Copper's projected remaining 2002 and 2003 euro
disbursements. Each $0.01 change in the US$/euro exchange rate
impacts the September 30, 2001 market value of these contracts by approximately $1.4$1
million. Atlantic Copper's first-quarter 2002 operating results
reflect a $1.3 million loss on currency hedging contracts that
matured during the quarter compared to a $0.3 million charge in
the first quarter of 2001. Atlantic Copper recorded charges to
Other Comprehensive Income, a component of stockholders' equity,
totaling $1.1 million during the first quarter of 2002 and $11.1
million during the first quarter of 2001 for its currency hedging
contracts that remained open as of the end of those periods.
The charges reflect a 1 percent decline in the euro exchange rate
during the first quarter of 2002 and a 5 percent decline during
the first quarter of 2001.
Atlantic Copper had euro-denominated net monetary
liabilities at March 31, 2002 totaling $67.6 million recorded at
an exchange rate of $0.87 per euro. The December 31, 2001
exchange rate was $0.88 per euro. Adjustments to Atlantic
Copper's euro-denominated net liabilities to reflect changes in
the exchange rate are recorded in other income and totaled gains
of $0.6 million in the first quarter of 2002 and $3.1 million in
the first quarter of 2001.
PT Smelting Operating Results
ThirdFirst Quarter
Nine Months
--------------- ----------------------------
2002 2001
2000 2001 2000
----- ------ ------ ------
(In-----
(in millions)
PT Freeport Indonesia share of
net losses $ 0.9 $ 3.6 $ 3.6 $ 11.9
PT Freeport Indonesia profits
deferred (recognized) (2.8) 1.8 (2.7) (2.9)
----- ------ ------ ------
Equity in PT Smelting
(earnings) losses $(1.9) $ 5.4 $ 0.9 $ 9.0
===== ====== ====== ======
PT Freeport Indonesia sales to PT Smelting $88.2 $101.2 $290.7 $230.6
===== ====== ====== ======$99.2 $90.6
Equity in PT Smelting losses 0.8 1.3
PT Freeport Indonesia profits deferred (recognized) (0.6) 1.2
PT Freeport Indonesia accounts for its 25 percent interest
in PT Smelting under the equity method and has providedprovides PT Smelting
with nearly all of its concentrate requirements. PT Smelting
operated at 111 percent ofslightly above its full design capacity of 200,000
metric tons of copper per year during the third quarterfirst quarters of 20012002
and at 108 percent of its full design capacity during the first
nine months of 2001. Concentrate treated during the thirdfirst quarter of 20012002
totaled 178,800177,700 metric tons, 410 percent higher the 161,700 metric
tons treated in the first quarter of 2001. First-quarter 2002
anodes production was slightly below the year-ago
quarter. Third-quarter 2001 cathodeamounts. Cathodes
production increased by 145 percent when compared to the year-ago
period, resulting in a 202 percent increase in PT Smelting's
cathodecathodes sales in the 20012002 quarter over the 20002001 quarter. PT Smelting shut down the
smelter, as planned, at the end of March 2000 for the tie-in of a
new third anode furnace as well as for planned maintenance. The
smelter restarted at the end of April 2000. Anode production was
38 percent higher and cathode production was 49 percent higher in
the first nine months of 2001 compared with the first nine months
of 2000. PT
Smelting's cathode cash production costs per pound of copper totaledwere
$0.12 in the 20012002 quarter and first nine months
of 2001, compared with $0.09 in the 2000 quarter and $0.13 in the
first nine months of 2000. Unit costs were higherto $0.11 in the 2001 quarter compared with the prior-year period because of higher
maintenance costs.quarter.
Our revenues include PT Freeport Indonesia's sales to PT
Smelting, but we defer recognizing profits on 25 percent of PT
Freeport Indonesia sales to PT Smelting that are still in PT
Smelting's inventory at the end of the period. The effect of
changes in these deferred profits waswere the deferral (recognition)recognition of profits totaling $(2.8)$0.6
million in the third quarter of 2001,
$1.8 million in the third quarter of 2000, $(2.7) millionprofits in the first nine monthsquarter of 20012002 and $(2.9)the deferral
of $1.2 million of profits in the first nine
monthsquarter of 2000.
182001.
OTHER FINANCIAL RESULTS
The FCX/Rio Tinto joint ventures incurred $1.2 million of
exploration costs of
$3.7in the 2002 quarter, compared with $3.5 million
in the 2001 thirdfirst quarter. Lower exploration costs reflect the
continued suspensions of our contracts of work outside of Block A
and our efforts to reduce costs during periods of continued low
commodity prices. We reported $0.8 million of exploration
expense in the first quarter $4.2of 2002 and $2.1 million in the
2000
thirdfirst quarter $10.8 million in theof 2001 nine-month period and
$9.7 million in the 2000 nine-month period. All costs in the
joint venture areas are now being shared 60 percent by us and 40
percent by Rio Tinto.
Third-quarter 2001for our share of these exploration costs.
15
First-quarter 2002 general and administrative expenses of
$15.0$16.4 million were $3.7$2.0 million lowerhigher than the $18.7$14.4 million
reported in the 2000 quarter primarily because of2001 quarter. The 2002 period included a $2.3$0.5
million charge in the 2000 period for personnel severance costs. Nine-
month 2001 general and administrative expenses were $10.5 million
lower compared to the 2000 period primarily because of a $6.0
million charge in 2000costs for contribution commitments to support
small business development programs within Irian Jaya (Papua)
that were paid over a two-year period and $3.1 million of charges
for personnel severance costs. Partially offsetting these
charges was a $1.5 million reversal of previously recorded
charges relating to stock appreciation rights because of
a
decreasean increase in our stock price during the first quarter of 2002
and a $0.5 million charge for costs related to a proposal to
convert our Class A common stock price.to Class B common stock.
Our total interest costscost (before capitalization) were $42.6was $47.4
million in the 20012002 quarter, $55.5slightly lower than the $50.4
million incurred in the 2000 quarter,
$136.5 million in the first nine months of 2001 and $158.1
million in the first nine months of 2000. The decrease in
interest costs reflects lower debt levels and interest rates.quarter. We capitalized $2.5$3.1 million
of interest costs in the thirdfirst quarter of 2001,2002 and $2.0 million
in the third quarter of 2000, $6.6 millioninterest costs in the first nine monthsquarter of 2001 and $4.8 million in the first
nine months of 2000.2001.
Our effective tax rate was 5568 percent for the first nine
monthsquarter
of 20012002 and 7550 percent for the first nine monthsquarter of 2000.2001. PT
Freeport Indonesia's Contract of Work provides a 35 percent
corporate income tax rate and a withholding tax rate of 10
percent (based on the tax treaty between Indonesia and the United
States) on dividends and interest paid to us by PT Freeport
Indonesia. No income taxes are recorded at Atlantic Copper,
which is subject to taxation in Spain, because it has not
generated significant taxable income in recent years and has
substantial tax loss carryforwards for which no financial
statement benefit has been provided. Additionally, we only
receive a small U.S. tax benefit on costs incurred by our parent
company because it has no U.S.-sourced income. As a result, our
effective tax rate varies with the level of earnings at PT
Freeport Indonesia, Atlantic Copper and the parent company. The
lowerhigher effective tax rate for the first nine monthsquarter of 20012002 primarily
reflects the impact of higherlower income at PT Freeport Indonesia.
NEW ACOUNTING STANDARD AND ENVIRONMENTAL MATTERS
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 143, "Accounting
for Asset Retirement Obligations," which requires recording the
fair value of a liability for an asset retirement obligation in
the period incurred. The standard is effective for fiscal years
beginning after June 15, 2002, with earlier application
permitted. Upon adoption of the standard, we are required to use
a cumulative-effect approach through earnings to recognize
transition amounts for any existing asset retirement obligation
liabilities, asset retirementIndonesia and
higher interest costs and accumulated depreciation.
We have begun work on identifying and quantifyingat our asset
retirement obligations in accordance with the new standard, but
currently do not expect to adopt the new rules before January 1,
2003.
The cost of complying with environmental laws is a fundamental
cost of our business. We incurred environmental capital
expenditures and other environmental costs totaling $106.1
million in 2000, $73.3 million in 1999 and $111.5 million in
1998, including levee maintenance and mine reclamation. In 2001,
we expect to incur approximately $47 million of environmental
capital expenditures, including $18.0 million of capital
expenditures in connection with our construction of a treatment
facility at the mill level to remove and recover copper from acid
rock drainage resulting from mining and overburden storage
operations, and $46 million of other environmental costs. These
environmental capital expenditures are part of our overall 2001
capital expenditure budget.parent company.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities was $475.1$20.7 million for
the first nine monthsquarter of 2001,2002, compared with $304.9$105.5 million for the
20002001 period. Net cash used in investing activities totaled $254.0$8.9
million in the 20012002 period, compared with $132.0$34.7 million in the
20002001 period. Net cash used in financing activities totaled $196.2$10.1
million in 20012002 compared with $173.6$67.3 million in 2000.2001.
Operating Activities
HigherLower net income in 2002 and working capital changes in the first nine
months of 2001 resulted
in a $170.2 million increasedecrease in operating cash flow to $475.1$20.7 million compared with $304.9from
$105.5 million
reported in the year-ago period. The $83.0$60.7 million net
decreaseincrease in working capital for the first nine monthsquarter of 2001
192002
primarily reflects decreasesan increase in accounts receivable and inventories.a
decrease in accounts payable and accrued liabilities. The $38.7
million net $22.6 million decreaseincrease in working capital for the first nine
monthsquarter
of 20002001 primarily reflects an increase in accounts payable
and accrued liabilities, partly offset by an increase in
inventoriesreceivable
because of the timing of shipments and the paymenttiming of income taxes.payments
to Rio Tinto for their share of joint venture cash flows.
Investing Activities
As part of our refinancing transactions discussed below, we sold
$603.8 million of 8 1/4% Convertible Senior Notes due January 2006.
The terms of these notes required that we use $139.8 million of
the proceeds to purchase a portfolio of U.S. government
securities, which secure and will be used to pay for the first
six scheduled interest payments on the notes. The notes are
otherwise unsecured.
Our nine-month 2001first-quarter 2002 capital expenditures were slightly lower
compared to the 2000 period primarily because we paid for
previously purchased mine equipment in the first half of 2000.2001 period. Our capital expenditures for 20012002
are expected to total approximately $170$200 million, including
$40approximately $30 million for continuedhaul truck purchases currently
under consideration and $36 million for final development of the
Deep Ore Zone underground ore body, which started production in
2000 and is expected to reach full production of 25,000 metric
tons of ore per day in mid-2002.the second half of 2002. Capital
expenditure funding is expected to be provided by operating cash
flows.
Financing Activities
In August 2001,flow. During the first quarter of 2002 we sold $603.8$23.7 million of
our restricted investments and used the proceeds to pay the
initial semiannual payment of interest on our 8 1/4% Convertible
Senior Notes due 2006 (Convertible Notes) for net proceeds of $582.6
million. A portion of the net proceeds were used to purchase
U.S. government securities for $139.8 million as security for the
first six semi-annual interest payments on the Convertible Notes
(see InvestingNotes.
Financing Activities above) and the remaining net
proceeds were used to repay outstanding amounts under our bank
credit facilities.
During the first nine monthsquarter of 20002002 we had net borrowingsrepayments of $67.9debt
totaling $2.9 million, and paid $158.7compared with net repayments totaling
$53.0 million for
purchases of our common stock. Our annual mandatory partial
redemptions of our Silver-Denominated Preferred Stock totaled
$10.4 million in August 2001 and $11.9 million in August 2000.
Five annual redemption payments remain and will vary with the
price of silver. Cash dividends to minority interests owners
declined from $31.8 million induring the first nine monthsquarter of 2000 to
$6.8 million in2001. Lower cash flows
from operating activities during the first nine months of 2001 because of lower PT
Freeport Indonesia dividends.
As discussed in our Form 10-K for the year ended December
31, 2000, we guarantee a $253.4 million loan to PT Nusamba
Mineral Industri (Nusamba), which matures in March 2002. Based
on current market conditions, we may be required to perform under
the guarantee. See "Amended Bank Credit Facilities" below. We
also agreed to lend Nusamba any amounts necessary to cover
shortfalls between the interest payments on the loan and
dividends received by Nusamba on the PT Indocopper Investama
stock. At September 30, 2001, we had loaned $65.3 million to
Nusamba for this purpose. The amount of any future shortfalls
will depend primarily on the level of PT Freeport Indonesia's
dividends to PT Indocopper Investama. The total of the
guaranteed loan and the amounts we have subsequently loaned to
Nusamba have exceeded the original purchase price ($315 million)
of Nusamba's acquisition of its interest in PT Indocopper
Investama. Any amounts in excess of the $315 million original
purchase price we loan to Nusamba are charged to other expense,
including $3.6 million in the third quarter of 2001 and $3.7
million2002
resulted in the first nine months of 2001.less cash available to reduce outstanding debt.
In June 2000, our Board of Directors authorized a 20-million-
share increase in our open market share purchase program,
bringing the total shares approved for purchase under this
program to 80 million. During the first nine monthsquarter of 2001, we
purchased 0.2 million of our shares (all during the first
quarter) for $1.6 million, $8.35 per
share. During the first nine
months of 2000, we acquired 15.0 million of our shares for $167.5
million (an average of $11.13 per share). Our cash flows
statement reflects only $158.7 million paid for stock purchases
in the first nine months of 2000 because we paid $8.8 million in
October 2000. From inception of these programs in July 1995 through
October 16, 2001,April 18, 2002, we have purchased a total of 70.7 million shares
for $1.24 billion (an average of $17.53 per share) and
approximately 9.3 million shares remain available under the
program. The timingWe have not purchased any of future purchases is dependent upon many
factors, includingour shares since the pricefirst
quarter of common shares,2001 and our business and
financial position, and general economic and market conditions.
Our amended bank credit facilities also include prohibitions onprohibit
common stock repurchases.purchases. See "Other Covenants" under the heading
"Amended Bank Credit Facilities" discussion.below.
Amended Bank Credit Facilities
In October 2001, we amended our bank credit facilities to extend
the maturities and to provide a mechanism for financing any
obligations we may have under our guarantee ofto repay the commercial
bank loan to PT Nusamba Mineral Industri.that we guaranteed. As discussed earlier,
we repaid the
16
Nusamba loan on February 27, 2002. We believe that
the amended bank credit facilities together with our cash flows
from operations will enable us to fund our ongoing capital
expenditures and meet our debt maturities and other commitments
over the next several years. 20
* Commitments and Availability. Aggregate commitments under
theour amended credit facilities total $734.0 million. Borrowings
on April 18, 2002, totaled $214.0 million including $253.4
million if FCX is required to perform in March 2002 under its
guarantee of a loan of Nusamba, leaving $480.6 million currently
available. Of the $480.6 million currently available, borrowings
on October 22, 2001 were $266.0 million.
Nusamba indirectly owns 4.7 percent offor PT Freeport
Indonesia through its approximate 51 percent ownership of PT Indocopper
Investama. To secure its commercial bank loan, Nusamba pledged
its ownership in PT Indocopper Investama. If Nusamba does not
pay the loan when due and we are required to perform under the
guarantee, we would fund the $253.4$367.0 million obligation throughfor FCX, including a $149.0 million
term loan under the amended credit facilities and would acquire
rights and seek to recover the PT Indocopper Investama stock as
provided by the Nusamba financing documents, which are governed
by Indonesian law.
* Maturities and Term Loan Conversion. Amounts that we borrow
under the credit facilities will mature on December 31, 2005. On
December 31, 2003 all revolving loans will become term loans,
except for a $150.0 million revolver for working capital
purposes.loan.
We are able to use the amounts available under the amended
credit facilities to paysatisfy interest and principal
requirements on our other debt when due. We are currently
required to use all availableoperating cash flowflows remaining after
scheduled payments of other debt, service andpermitted capital
expenditures and payment of operating and other costs to
reduce amounts outstandingour borrowings under the amended credit facilities.
Thus, no portion of our operating cash flows is currently
available for general corporate purposes. At such time that
our aggregate borrowings and unused commitments under the
amended facilities are less than $200 million and our ratio
of consolidated debt to EBITDA (Earnings Before Interest,
Taxes, Depreciation and Amortization) is less than or equal
to 3.0:1.0, 25 percent of our operating cash flows will be
available for general corporate purposes and 75 percent will
reduce our borrowings under the amended credit facilities.
Our amended facilities do not restrict our planned
exploration activities. The amended credit facilities,
subjecthowever, impose annual limitations on PT Freeport
Indonesia's capital expenditures, which limit the amount of
funds that we can use for development activities. These
annual limitations are approximately $171 million in 2002,
$188 million in 2003, $128 million in 2004 and $136 million
in 2005. If our capital expenditures in any year are less
than 80 percent of the annual limitation for the year, then
the unused amount may be carried forward to limited exceptions.the next two
succeeding years. We have approximately $34 million of
unused amounts from 2001 that we may use in 2002 and 2003.
* Mandatory Repayments and Reductions in Commitments. If we
raise proceeds from future offerings, 25 percent of the proceeds
from debt issuances and 50 percent of the proceeds from equity
issuances will be available to us for general corporate purposes,
so long as commitments are reduced withprovided that the balance of such financing proceeds.proceeds are used to
repay borrowings and to reduce commitments under our amended
credit facilities. All other proceeds from financings and all
available cash of FCX and PT Freeport Indonesia will be used to
pay outstanding borrowings under the amended credit facilities
and the commitments under the facilities will be reduced by those
amounts, except as necessary to maintain our availability to
repay $250.0 million for the 7.20% senior notes (see "Revised
Debt and Redeemable Preferred Stock Maturities") and to preserve
the $150.0 million revolving facility that will continue to be
available through December 31, 2005.
* Maturities and Term Loan Conversion. Amounts that we borrow
under our amended credit facilities will mature on December 31,
2005. On December 31, 2003, all revolving loans will convert to
term loans, except for a $150.0 million revolving loan for
working capital purposes. Scheduled principal payments on the
term loans will not be required until maturity. Instead, we will
repay the principal amount of the term loans through semiannual
payments of any excess operating cash flows remaining after
scheduled payments of other debts, permitted capital expenditures
and payment of operating and other costs. Any remaining balance
on the term loans will be due on December 31, 2005. Any
outstanding balance on the remaining $150.0 million revolving
loan will be due on the earlier of December 31, 2005, or one year
following repayment in full of the term loans.
* Interest Rates. Interest rates on all loans under the
amended credit facilities including any amounts used to fund our
obligations under the Nusamba guarantee, are LIBOR plus 4.0 percent with annual
increases of 0.125 percent subject to
potential reductionson each anniversary of the closing of
the amended facilities with provisions for lower rates if our
credit ratings improve. As of March 31, 2002, the interest rate
on the amended facilities was 5.9 percent based on a LIBOR rate
of 1.9 percent. In May 2002, Standard & Poor's announced an
upgrade of our corporate credit rating to B from CCC+ and our
senior unsecured debt rating to B- from CCC. Under the terms of
our credit facilities, our borrowing rates will improve if Moody's
or Standard & Poor's increases our senior unsecured credit rating
above B3 or B-, respectively.
* Gold-Denominated Preferred Stock Due in 2003. Prior toUnder the
mandatory redemption date in August 2003, we intend to refinance
or restructure our obligation to redeem our Gold-Denominated
Preferred Stock. Under theamended credit facilities, we have limitations on the amount of
preferred stock we may redeem and,redeem. In addition, if by August 2003 we
have not refinanced or extended the maturity of 80 percent of the
Gold-Denominated Preferred 17
Stock beyond 2005, we will not
thereafter be permitted to redeem or pay dividends on any of our
preferred stock. Therefore, prior to the August 2003 mandatory
redemption date of the depositary shares representing our Gold-
Denominated Preferred Stock, we intend to refinance or restructure
our redemption obligation as to at least 80 percent
of the outstanding 6.0 million depositary shares.
* Other Covenants. The covenants under the amended credit
facilities include (a) a minimum consolidated debt service
coverage ratio of 1.25:1.0 through December 2002, and thereafter
1.5:1.0 and (b) a maximum ratio of consolidated debt to EBITDA (Earnings Before
Interest, Taxes, Depreciation and Amortization)
equal to 4.25:1.0 through September 30, 2002, and thereafter
3.5:1.0. The covenants also include prohibitions on common stock
dividends and common stock repurchases, prohibitions on changes
in control of FCX or PT Freeport Indonesia, limitations on
capital expenditures to specified budgets, limitations on
investments, limitations on liens and limitations on transactions
with affiliates, andaffiliates. In addition, the covenants include a
requirement tothat we implement minimum hedging protection for
copper prices under certain circumstances. These covenants will
require us to hedge at least 33 percent of our exposure to
declines in copper prices for a period of up to one year if put
options providing for the sale of copper at a floor price of at
least $0.90 per pound become available at a cost of $0.02 or less
per pound of copper. These put options would protect operating
cash flow from the impact of declines in copper prices below the
floor price while continuing to provide full participation at
higher prices. The price of copper would have to increase
substantially from current levels for put options to be available
at this price.
* Security and Guarantees. Our obligations under the amended
credit facilities are secured by a first security lien on mostover 80
percent of PT Freeport Indonesia's total assets (the remaining
assets secure other obligations) and by our pledge of (1) 50.1
percent of the outstanding capital stock of PT Freeport Indonesia
(2)
the approximate 49 percentand all of the outstanding capital stock of PT Indocopper
Investama owned by us and (3) the approximate 51
percent of the outstanding capital stock of PT Indocopper
Investama securing the original Nusamba loan, if acquired by us. PT Freeport Indonesia's obligations also
continue to be secured by its pledge of its rights under the
Contract of Work. In addition, PT Freeport Indonesia guarantees
FCX's obligations under the credit facilities.
21
* Revised Debt and Redeemable Preferred Stock Maturities.
Below is a summary of our debt and redeemable preferred stock
maturities including the Nusamba loan maturity, based on loan balances as of September 30, 2001,March 31, 2002, and gold
and silver prices (which determine the preferred stock redemption
amounts) as of September 28, 2001March 31, 2002 (in millions):
2001
2002 2003 2004 2005 2006 Thereafter
-----
------ ------ ----- ------ -------- ------
BankAmended bank credit
facilities a $ - $ - $ - $ - $214.0$564.0 $ - $ -
Infrastructure
financings and
equipment loans 16.4 112.5 56.9 62.3 45.6 47.7 187.166.4 57.7 63.1 46.4 48.5 190.8
7.20% Senior Notes
due 2026 b -a - 250.0 - - - -
7.50% Senior Notes
due 2006 c -b - - - - 200.0 -
Convertible Senior Notes - - - - - 603.8 -
Atlantic Copper
facilities and other 3.0 75.6 20.152.9 20.4 10.1 24.1 24.1 116.5
-----24.0 113.5
------ ------ ----- ------ -------- ------
Total debt maturities 19.4 188.1 327.0 72.4 283.7 875.6 303.6
Nusamba loan guarantee d - - - - 253.4 - -119.3 328.1 73.2 634.5 876.3 304.3
Redeemable preferred
stock ec 11.1 192.9 11.1 11.1 141.4 - 10.9 185.4 10.9 10.9 136.0 -
-----
------ ------ ----- ------ -------- ------
Total maturities $19.4 $199.0 $512.4 $83.3 $548.0 $1,011.6 $303.6
=====$130.4 $521.0 $84.3 $645.6 $1,017.7 $304.3
====== ====== ===== ====== ======== ======
a. Reflects December 2005 maturity based on credit facilities
closed on October 19, 2001.
b. Although due in 2026, the holders of the 7.20% senior notes
may, and are expected to, elect early repayment in November 2003.
c.b. Due November 15, 2006.
d. If we are required to perform under this guarantee in March
2002, we intend to fund the $253.4 million obligation under our
credit facilities.
e.c. Represents $10.9$11.1 million each year for our Silver-
Denominated Preferred Stock, $174.5$181.8 million in August 2003 for
our Gold-Denominated Preferred Stock, and $125.1$130.3 million in
February 2006 for our Gold-Denominated Preferred Stock, Series
II. As discussed above, we intend to refinance or restructure
our redemption obligation as to at least 80 percent of the
outstanding Gold-Denominated Preferred Stock.
DEVELOPMENTS IN INDONESIA
Indonesia's economic recovery remains vulnerable to ongoing
political and social tensions. In July 2001, Indonesia's highest
political institution, the People's Consultative Assembly,
elected then ViceIndonesia, President Megawati Sukarnoputri ascontinued to make
progress toward improving the nation's economy during the first
part of 2002. The Indonesian government on April 9th signed a
new letter of intent with the International Monetary Fund, which
resulted in a new agreement with the Paris Club of
18
creditor nations for the rescheduling of Indonesia's sovereign debt
maturities. The Paris Club agreement represented an important
achievement for President Megawati and the Indonesian economy,
even though the nation's debt remains large. Recent signs of
progress also include a decline in inflation, rising exports, a
stronger currency, two-year highs on the Jakarta Stock Exchange
and announcements of major new foreign investments in the
telecommunications, banking, power and petrochemical industries.
President Megawati visited China, India, South Korea and North
Korea in late March and early April, signing a number of
agreements to boost economic ties.
The economic progress made by the new President.administration has
resulted in a stronger currency. After beginning the year at a
rate approximating 10,400 rupiahs to 1 US dollar, the rupiah
steadily increased averaging approximately 10,100 rupiahs to 1 US
dollar. The international community, including the United
States,rupiah has expressed support for the newly elected President.continued to improve in April and
currently approximates 9,400 rupiahs to 1 US dollar.
In late September 2001, President Sukarnoputri visited the United
States for nine days and met with U.S. President George W. Bush
and other U.S. Government officials. President Sukarnoputri
announced Indonesia's strong support for the U.S. war against
terrorism and won U.S. support for Indonesia's territorial
integrity and for renewed ties with Indonesia's military. The
U.S. also announced a new assistance package for Indonesia,
including funds for judicial reform, police training, refugee
aid, trade and finance initiatives as well as the granting of
duty-free status to additional Indonesian exports. Her comments
in public and in private with U.S. business and financial groups
provided strong reassurance that the Indonesian government would
honor all of its contracts and commitments and take steps to
restore order and certainty.
Since the September 11 attacks on the World Trade Center in
New York, the Sukarnoputri government has been criticized by
certain political and religious sects for its support of the
U.S. Indonesia is the world's most populous Muslim
country and there have been anti-American protests in Jakarta,
the capital city of Indonesia. Most observers agree that the
demonstrations do not reflect a change for Indonesia's
overwhelmingly moderate Muslims, but rather are being
orchestrated by a small group of radical Muslims.
In Irian Jaya (Papua),Papua, where Christianity is the predominant religion of
the local population, there have been sporadic attacks
by separatists and sporadic conflicts between
separatists and the Indonesian military. President
Sukarnoputri's government advanced implementation of special
autonomy rules, which provide greater revenues and control to the
province, and passed a law to change Irian Jaya's name to Papua.
Our mining operations have continued to operate normally.
NoAlthough incidents of violence continue to be reported in Papua,
no incidents of separatist violence have occurred in PT Freeport
Indonesia's area of operations, where the local community leaders
continue to support peaceful solutions to the complex issue of
regional autonomy.
22Six ambassadors of European Union nations visited Papua in
March and confirmed their support for Papua and Indonesia, and
the continuation of Papua being an integral part of Indonesia.
A month earlier, the same support was pledged by
Australian Prime Minister John Howard after meeting with
President Megawati in Jakarta. The new US Ambassador to
Indonesia, Ralph L. "Skip" Boyce and his team also recently
concluded a highly productive and positive visit to PT Freeport
Indonesia's operations area. Mr. Boyce made strong public
comments regarding the territorial integrity of Papua in
Indonesia and supporting greater autonomy and financial
assistance to the region.
CAUTIONARY STATEMENT
Our discussion and analysis contains forward-looking statements
in which we discuss factors we believe may affect our performance
in the future. Forward-looking statements are all statements
other than historical facts, such as those regarding anticipated
sales volumes, ore grades, production costs,commodity prices, capital
expenditures, cash flows,debt maturities and other commitments, and
political, economic and social conditions in our areas of
operations, treatment charge rates and
exploration efforts and results.operations. We caution you that these statements are not
guarantees of future performance, and our actual results may
differ materially from those projected, anticipated 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 unanticipated declines in
the average grades of ore mined, unanticipated milling and other
processing problems, labor relations, weather conditions, the
speculative nature of mineral exploration, fluctuations in
interest rates and other adverse financial market conditions, and
other factors described in more detail under the heading "Cautionary
Statements""Risk
Factors" in our Form 10-K for the year ended December 31, 2000.2001.
2319
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Yosefa Alomang v. Freeport-McMoRan Inc. and Freeport-McMoRan
Copper & Gold Inc., Civ. No. 96-9962 (Orleans Civ. Dist. Ct. La.
Filed June 19, 1996). The plaintiff allegedalleges environmental, human
rights and social/cultural violations in Indonesia and seeks
unspecified monetary damages and other equitable relief. In addition, the plaintiff alleged that she was a third-party
beneficiary under the 1967 and the 1991 Contracts of Work, and
claimed that she had not received fair compensation for her land
rights.
On March 21,
2000, the trial courtCivil District Court for the Parish of Orleans, State
of Louisiana, granted our exception of no cause of action and
dismissed the entire case with prejudice, granting FCX's exception of no cause of action.
On March 24, 2000, theprejudice. The plaintiff filed a petition of appealappealed
to the Louisiana Fourth Circuit.Circuit Court of Appeal and, in February
2002, the Louisiana Fourth Circuit Court of Appeal affirmed the
lower court's dismissal of the case with prejudice. The plaintiff
has appealed to the Louisiana Supreme Court. FCX will continue
to defend this action vigorously.
Oral arguments were held in August 2001.
In addition to the foregoing proceedings, FCX may bewe are involved
from time to time involved in various legal proceedings of a character
normally incident to the ordinary course of itsour business. Management believesWe
believe that potential liability in anysuch proceedings would not
have a material adverse effect on theour financial condition or
results of operations of FCX. FCX maintainsoperations. We maintain liability insurance to cover
some, but not all, potential liabilities normally incident to the
ordinary course of itsour business as well as other insurance
coverage customary in itsour business, with coverage limits that we
deem prudent.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Our Annual Meeting of Stockholders was held May 2, 2002
(the Annual Meeting). Proxies were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
management deems prudent.amended.
(b) At the Annual Meeting Robert W. Bruce III, Robert A.
Day, H. Devon Graham, Jr., Steven J. Green, Bobby L. Lackey and
Gabrielle K. McDonald were elected to serve until the 2005 Annual
Meeting of Stockholders. In addition to the directors elected at
the Annual Meeting, the terms of the following directors
continued after the Annual Meeting: Robert J. Allison, Jr., R.
Leigh Clifford, Gerald J. Ford, Oscar Y. L. Groeneveld, J.
Bennett Johnston, James R. Moffett, B. M. Rankin, Jr., J.
Stapleton Roy and J. Taylor Wharton.
(c) At the Annual Meeting, holders of FCX's Class A Common
Stock and FCX's Preferred Stock, voting as a class, elected
one director with the number of votes cast for or withheld from
the nominee as follows:
Name For Withheld
- ---- --- --------
Steven J. Green 43,388,706 10,899,013
At the Annual Meeting, holders of shares of FCX's Class B Common
Stock elected five directors with the number of votes cast for or
withheld from each nominee as follows:
Name For Withheld
- ---- --- --------
Robert W. Bruce III 48,299,757 29,991,089
Robert A. Day 50,296,172 27,994,674
H. Devon Graham, Jr. 47,876,699 30,414,147
Bobby L. Lackey 48,071,804 30,219,042
Gabrielle K. McDonald 48,070,249 30,220,597
With respect to the election of directors, there were no abstentions or
broker non-votes.
At the Annual Meeting, holders of Class A and Class B Common
Stock, voting as separate classes, voted on and approved a
proposal to reclassify our two classes of common stock into a
single class by amending our certificate of incorporation to
convert each outstanding share of Class A Common Stock into one
share of Class B Common Stock.
* Class A: Holders of 45,266,584 Class A shares (81.46% of
the outstanding Class A shares) voted for, holders of 52,983
Class A shares (0.10% of the outstanding Class A shares) voted
against and holders of 22,587 Class A shares (0.04% of the
outstanding Class A shares) abstained from voting on, the
proposal. There were broker non-votes consisting of 7,882,783
Class A shares with respect to this proposal.
20
* Class B: Holders of 65,798,812 Class B shares (74.26% of
the outstanding Class B shares) voted for, holders of 472,440
Class B shares (0.53% of the outstanding Class B shares) voted
against and holders of 567,169 Class B shares (0.64% of the
outstanding Class B shares) abstained from voting on, the
proposal. There were broker non-votes consisting of 11,452,425
Class B shares with respect to this proposal.
At the Annual Meeting, holders of Class A and Class B Common
Stock voted on and approved a stockholder proposal requesting
that the board of directors take steps to eliminate the
classification of our board. Holders of 87,987,402 shares
(78.43% of the votes cast) voted for, holders of 23,238,665
shares (20.72% of the votes cast) voted against and holders of
954,496 shares (0.85% of the votes cast) abstained from voting
on, the proposal. There were broker non-votes consisting of
19,335,220 shares with respect to this proposal.
At the Annual Meeting, holders of the Class A and Class B Common
Stock voted on and failed to pass a stockholder proposal
requesting that the board of directors take steps to permit
stockholders to elect advisors to the Company's compensation
committee. The proposal failed to pass because it received less
than a majority of the votes cast for the proposal. Holders of
7,353,835 shares (6.56% of the votes cast) voted for, holders of
103,875,588 shares (92.60% of the votes cast) voted against and
holders of 951,136 shares (0.85% of the votes cast) abstained
from voting on, the proposal. There were broker non-votes
consisting of 19,335,224 shares with respect to this proposal.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits to this report are listed
in the Exhibit Index beginning on Page E-1 hereof.
(b) During the quarter for which this report
is filed, the registrant filed threeno Current Reports
on Form 8-K
dated July 30, 2001, August 2, 2001 and September 24,
2001 reporting information under Item 5.8-K.
21
FREEPORT-McMoRan COPPER & GOLD INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
FREEPORT-McMoRan COPPER & GOLD INC.
By: /s/ C. Donald Whitmire, Jr.
---------------------------
C. Donald Whitmire, Jr.
Vice President and
Controller-Financial Reporting
(authorized signatory and
Principal Accounting Officer)
Date: November 1, 2001May 7, 2002
2422
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
-------- ------ -----------
2.1 Agreement, dated as of May 2, 1995 by and between Freeport-
McMoRan Inc. (FTX) and FCX and theThe RTZ Corporation PLC, RTZ
Indonesia Limited, and RTZ America, Inc. (the Rio Tinto
Agreement). Incorporated by reference to Exhibit 2.1 to the
Current ReportRegistration Statement on Form 8-KS-3 of FTX dated as of May 26, 1995.FCX filed November 5, 2001
(the FCX November 5, 2001 Form S-3).
2.2 Amendment dated May 31, 1995 to the Rio Tinto Agreement.
Incorporated by reference to Exhibit 2.12.2 to the Quarterly
Report onFCX November 5,
2001 Form 10-Q of FTX for the quarter ended June
30, 1995.S-3.
2.3 Distribution Agreement dated as of July 5, 1995 between FTX
and FCX. Incorporated by reference to Exhibit 2.12.3 to the Quarterly
Report onFCX
November 5, 2001 Form 10-Q of FTX for the quarter ended September 30,
1995 (the FTX 1995 Third Quarter Form 10-Q).S-3.
3.1 Composite copy of theAmended and restated Certificate of Incorporation of FCX.
Incorporated by reference to Exhibit 3.1 to the Quarterly
Report on Form 10-Q of FCX for the quarter ended June 30, 1995
(the FCX 1995 Second Quarter Form 10-Q).
3.2 Amended By-Laws of FCX dated as of March 12, 1999.
Incorporated by reference to Exhibit 3.2 to the Annual Report on
Form 10-K of FCX for the fiscal year ended December 31, 1998 (the
1998 FCX Form 10-K).
4.1 Certificate of Designations of the Step-Up Convertible
Preferred Stock of FCX. Incorporated by reference to Exhibit
4.2 to the FCX 1995 Second Quarter Form 10-Q.
4.2 Deposit Agreement dated as of July 1, 1993 among FCX,
ChaseMellon Shareholder Services, L.L.C. (ChaseMellon), as
Depositary, and holders of depositary receipts (Step-Up
Depositary Receipts) evidencing certain Depositary Shares, each
of which, in turn, represents 0.05 shares of Step-Up Convertible
Preferred Stock. Incorporated by reference to Exhibit 4.5 to the
Annual Report on Form 10-K of FCX for the fiscal year ended
December 31, 1993 (the FCX 1993 Form 10-K).
4.34.2 Form of Step-Up Depositary Receipt. Incorporated by
reference to Exhibit 4.6 to the FCX 1993 Form 10-K.
4.4 Certificate of Designations of the Gold-Denominated Preferred
Stock of FCX. Incorporated by reference to Exhibit 4.3 to the
FCX 1995 Second Quarter Form 10-Q.
4.5 Deposit Agreement dated as of August 12, 1993 among FCX,
ChaseMellon, as Depositary, and holders of depositary receipts
(Gold-Denominated Depositary Receipts) evidencing certain
Depositary Shares, each of which, in turn, represents 0.05 shares
of Gold-Denominated Preferred Stock. Incorporated by reference
to Exhibit 4.8 to the FCX 1993 Form 10-K.
4.64.4 Form of Gold-Denominated Depositary Receipt. Incorporated
by reference to Exhibit 4.9 to the FCX 1993 Form 10-K.
4.7 Certificate of Designations of the Gold-Denominated Preferred
Stock, Series II (the Gold-Denominated Preferred Stock II) of
FCX. Incorporated by reference to Exhibit 4.4 to the FCX 1995
Second Quarter Form 10-Q.
4.84.5 Deposit Agreement dated as of January 15, 1994, among FCX,
ChaseMellon, as Depositary, and holders of depositary receipts
(Gold-Denominated II Depositary Receipts) evidencing certain
Depositary Shares, each of which, in turn, represents 0.05 shares
of Gold-Denominated Preferred Stock II. Incorporated by
reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q of
FCX for the quarter ended March 31, 1994 (the FCX 1994 First
Quarter Form 10-Q).
E-1
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
4.94.6 Form of Gold-Denominated II Depositary Receipt.
Incorporated by reference to Exhibit 4.3 to the FCX 1994 First
Quarter Form 10-Q.
4.10 Certificate of Designations of the Silver-Denominated Preferred
Stock of FCX. Incorporated by reference to Exhibit 4.5 to the
FCX 1995 Second Quarter Form 10-Q.
4.114.7 Deposit Agreement dated as of July 25, 1994 among FCX,
ChaseMellon, as Depositary, and holders of depositary receipts
(Silver-Denominated Depositary Receipts) evidencing certain
Depositary Shares, each of which, in turn, initially represents
0.025 shares of Silver-Denominated Preferred Stock. Incorporated
by reference to Exhibit 4.2 to the Form 8-A of FCX dated July 15,
1994 (the FCX July 1994 Form 8-A.
4.128-A).
4.8 Form of Silver-Denominated Depositary Receipt. Incorporated
by reference to Exhibit 4.1 to the FCX July 15, 1994 Form 8-A.
4.134.9 Amended and Restated Credit Agreement dated as of October
19, 2001 among FCX, PT Freeport Indonesia, the several financial
institutions that are parties thereto, U.S. Bank Trust National
Association, as PT Freeport Indonesia Trustee, J.P. Morgan
Securities Inc., as arranger, and The Chase Manhattan Bank as
administrative agent, security agent, JAA security agent and
documentary agent. 4.14Incorporated by reference to Exhibit 4.13 to
the Quarterly Report on Form 10-Q of FCX for the quarter ended
September 30, 2001.
4.10 Indenture dated as of August 7, 2001 from FCX and FCX
Investment Ltd. to The Bank Of New York, as trustee.
Incorporated by reference to Exhibit 4.1 to the FCX November 5,
2001 Form S-3.
4.11 Registration Rights Agreement dated as of August 7, 2001 by
and between FCX and FCX Investment Ltd., as issuers, and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as initial purchaser.
Incorporated by reference to Exhibit 4.2 to the FCX November 5,
2001 Form S-3.
4.12 Collateral Pledge and Security Agreement dated as of August
7, 2001 by and among FCX Investment Ltd., as pledgor, The Bank of
New York, as trustee, and The Bank of New York, as collateral
agent. Incorporated by reference to Exhibit 4.3 to the FCX
November 5, 2001 Form S-3.
4.13 Senior Indenture dated as of November 15, 1996 from FCX to
The Chase Manhattan Bank, as Trustee. Incorporated by reference
to Exhibit 4.14.4 to the Current Report onFCX November 5, 2001 Form 8-K of FCX dated
November 13, 1996 and filed November 15, 1996.
4.15S-3.
4.14 First Supplemental Indenture dated as of November 18, 1996
from FCX to The Chase Manhattan Bank, as Trustee, providing for
the issuance of the Senior Notes and supplementing the Senior
Indenture dated November 15, 1996 from FCX to such Trustee,
providing for the issuance of Debt Securities. Incorporated by
reference to Exhibit 4.204.5 to the FCX 1996November 5, 2001 Form 10-K.
4.16 Certificate of Designations of Series A Participating
Cumulative Preferred stock of FCX. Incorporated by reference
to Exhibit 4.25 to the Quarterly Report on Form 10-Q of FCX for
the quarter ended March 31, 2000 (the FCX 2000 First Quarter
Form 10-Q).
4.17S-3.
4.15 Rights Agreement dated as of May 3, 2000 between FCX and
ChasemellonChaseMellon Shareholder Services, L.L.C., as Rights Agent.
Incorporated by reference to Exhibit 4.26 to the FCX 2000 First
Quarter Form 10-Q.
4.16 Amendment No. 1 to Rights Agreement dated as of February 26,
2002 between FCX and Mellon Investor Services.
10.1 Contract of Work dated December 30, 1991 between the
Government of the Republic of Indonesia and PT Freeport
Indonesia. Incorporated by reference to Exhibit 10.2010.1 to the FCX
1991November 5, 2001 Form 10-K.S-3.
10.2 Contract of Work dated August 15, 1994 between the
Government of the Republic of Indonesia and PT Irja Eastern
Minerals Corporation. Incorporated by reference to Exhibit 10.2
to the FCX 1995November 5, 2001 Form 10-K.S-3.
10.3 Agreement dated as of October 11, 1996 to Amend and Restate
Trust Agreement among PT Freeport Indonesia, FCX, the RTZ
Corporation PLC, P.T. RTZ-CRA Indonesia, RTZ Indonesian Finance
Limited and First Trust of New York, National Association, and
The Chase Manhattan Bank, as Administrative Agent, JAA Security
Agent and Security Agent. Incorporated by reference to Exhibit
10.3 to the Current Report on Form 8-K of FCX dated November 13,
1996 Form 8-K.and filed November 15, 1996.
10.4 Concentrate Purchase and Sales Agreement dated effective
December 11, 1996 between PT Freeport Indonesia and PT Smelting.
Incorporated by reference to Exhibit 10.3410.3 to the Annual Report of FCX onNovember 5,
2001 Form 10-K for the year ended December
31, 1999 (the FCX 1999 Form 10-K).
E-2
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
------- -----------S-3.
10.5 Participation Agreement dated as of October 11, 1996 between
PT Freeport Indonesia and P.T. RTZ-CRA Indonesia with respect to
a certain contract of work. Incorporated by reference to Exhibit
10.510.4 to the FCX November 13, 19965, 2001 Form 8-K.S-3.
10.6 Second Amended and Restated Joint Venture and Shareholders'
Agreement dated as of December 11, 1996 among Mitsubishi
Materials Corporation, Nippon Mining and Metals Company, Limited
and PT Freeport Indonesia. Incorporated by reference to Exhibit
10.3 of10.5 to the FCX 1996November 5, 2001 Form 10-K.S-3.
10.7 Put and Guaranty Agreement dated as of March 21, 1997
between FCX and The Chase Manhattan Bank. Incorporated by
reference to Exhibit 10.7 to the Annual Report of FCX on Form 10-
K for the year ended December 31, 1997 (the FCX 1997 Form 10-K.10-K).
10.8 Subordinated Loan Agreement dated as of March 21, 1997
between FCX and PT Nusamba Mineral Industri. Incorporated by
reference to Exhibit 10.8 to the FCX 1997 Form 10-K.
10.9 Amended and Restated Power Sales Agreement dated as of
December 18, 1997 between PT Freeport Indonesia and P.T.
Puncakjaya Power. Incorporated by reference to Exhibit 10.9 to
the FCX 1997 Form 10-K.
10.10 Option, Mandatory Purchase and Right of First Refusal
Agreement dated as of December 19, 1997 among PT Freeport
Indonesia, P.T. Puncakjaya Power, Duke Irian Jaya, Inc.,
Westcoast Power, Inc. and P.T. Prasarana Nusantara Jaya.
Incorporated by reference to Exhibit 10.10 to the FCX 1997 Form
10-K.
Executive Compensation Plans and Arrangements (Exhibits
10.11 through 10.38)10.33)
10.11 Annual Incentive Plan of FCX as amended effective
February 2, 1999. Incorporated by reference to Exhibit 10.11 to
the 1998 FCX Form 10-K.
10.12 1995 Long-Term Performance Incentive Plan of FCX.
Incorporated by reference to Exhibit 10.910.6 to the FCX 1996November 5,
2001 Form 10-K.S-3.
10.13 FCX Performance Incentive Awards Program as amended
effective February 2, 1999. Incorporated by reference to Exhibit
10.13 to the 1998 FCX Form 10-K.
10.14 FCX President's Award Program. Incorporated by
reference to Exhibit 10.810.7 to the FCX 1995November 5, 2001 Form 10-K.S-3.
10.15 FCX Adjusted Stock Award Plan, as amended.
Incorporated by reference to Exhibit 10.15 to the 1997 FCX Form
10-K.
10.16 FCX 1995 Stock Option Plan. Incorporated by reference
to Exhibit 10.1310.8 to the FCX 1996November 5, 2001 Form 10-K.S-3.
10.17 FCX 1995 Stock Option Plan for Non-Employee Directors,
as amended. Incorporated by reference to Exhibit 10.17 to the
FCX 1997 Form 10-K.
10.18 FCX 1999 Stock Incentive Plan. Incorporated by
reference to Exhibit 10.18 to the Quarterly Report on Form 10-Q
of FCX for the quarter ended June 30, 1999.
E-3
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
10.19 FCX 1999 Long-Term Performance Incentive Plan.
Incorporated by reference to Exhibit 10.19 to the Annual Report
of FCX on Form 10-K for the year ended December 31, 1999 (the FCX
1999 Form 10-
K)10-K).
10.20 FCX Stock Appreciation Rights Plan dated May 2, 2000.
Incorporated by reference to Exhibit 10.20 to the Quarterly
Report on Form 10-Q of FCX for the quarter ended June 30, 2001.2001
(the FCX 2001 Second Quarter Form 10-Q).
10.21 Financial Counseling and Tax Return Preparation and
Certification Program of FCX. Incorporated by reference to
Exhibit 10.1210.21 to the FCX 19952001 Form 10-K.
10.22 FM Services Company Performance Incentive Awards
Program as amended effective February 2, 1999. Incorporated by
reference to Exhibit 10.19 to the 1998 FCX Form 10-K.
10.23 FM Services Company Financial Counseling and Tax Return
Preparation and Certification Program. Incorporated by reference
to Exhibit 10.1410.23 to the FCX 19952001 Form 10-K.
10.24 Consulting Agreement dated as of December 22, 1988
between FTX and Kissinger Associates, Inc. (Kissinger
Associates). Incorporated by reference to Exhibit 10.21 to the
FCX 1997 Form 10-K.
10.25 Letter Agreement dated May 1, 1989 between FTX and Kent
Associates, Inc. (Kent Associates, predecessor in interest to
Kissinger Associates). Incorporated by reference to Exhibit 10.22
to the FCX 1997 Form 10-K.
10.26 Letter Agreement dated January 27, 1997 among Kissinger
Associates, Kent Associates, FTX, FCX and FMS. Incorporated by
reference to Exhibit 10.2010.26 to the FCX 19962001 Form 10-K.
10.27 Agreement for Consulting Services between FTX and B. M.
Rankin, Jr. effective as of January 1, 1991 (assigned to FMS as
of January 1, 1996). Incorporated by reference to Exhibit 10.24
to the FCX 1997 Form 10-K.
10.28 Supplemental Agreement between FMS and B. M. Rankin,
Jr. dated December 15, 1997. Incorporated by reference to
Exhibit 10.25 to the FCX 1997 Form 10-K.
10.29 Supplemental Agreement between FMS and B.M.B. M. Rankin,
Jr. dated December 7, 1998. Incorporated by reference to Exhibit
10.26 to the 1998 FCX Form 10-K.
10.30 Supplemental Agreement between FMS and B. M. Rankin,
Jr. dated February 5, 2001. Incorporated by reference to Exhibit
10.29 to the Annual Report on Form 10-K of FCX for the fiscal
year ended December 31, 2000.2000 (the FCX 2000 Form 10-K).
10.31 Letter Agreement effective as of January 7, 1997
between Senator J. Bennett Johnston, Jr. and FMS. Incorporated
by reference to Exhibit 10.25 of10.31 to the FCX 19962001 Form 10-K.
10.32 Supplemental Letter Agreement dated April 13, 2000
between J. Bennett Johnston, Jr. and FMS. Incorporated by
reference to Exhibit 10.30 to the FCX 2000 First Quarter Form 10-Q.
10.33 Letter Agreement dated November 1, 1999 between FMS and
Gabrielle K. McDonald. Incorporated by reference to Exhibit
10.33 of the FCX 1999 Form 10-K.
10.34 Supplemental Letter Agreement dated May 17, 2000
between FMS and Gabrielle K. McDonald. Incorporated by reference
to Exhibit 10.35 to the Quarterly Report on Form 10-Q of FCX for
the FCX 2000 Second Quarter Form 10-Q.
E-4
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
------- -----------quarter ended June 30, 2000.
10.35 Executive Employment Agreement dated April 30, 2001
between FCX and James R. Moffett. Incorporated by reference to
Exhibit 10.35 to the Quarterly Report on Form 10-Q of FCX for the
quarter ended June 30, 2001 (the FCX 2001 Second Quarter Form 10-Q).10-Q.
10.36 Executive Employment Agreement dated April 30, 2001
between FCX and Richard C. Adkerson. Incorporated by reference to
Exhibit 10.36 ofto the FCX 2001 Second Quarter Form 10-Q.
10.37 Change of Control Agreement dated April 30, 2001
between FCX and James R. Moffett. Incorporated by reference to
Exhibit 10.37 ofto the FCX 2001 Second Quarter Form 10-Q.
10.38 Change of Control Agreement dated April 30, 2001
between FCX and Richard C. Adkerson. Incorporated by reference to
Exhibit 10.38 ofto the FCX 2001 Second Quarter Form 10-Q.
15.1 Letter dated October 16, 2001April 18, 2002 from Arthur Andersen LLP
regarding unaudited interim financial statements.
E-518.1 Letter from Arthur Andersen LLP regarding change in
accounting.