Freeport-McMoRan Copper & Gold Inc.
Reports Second-Quarter and Six-Month 2003 Results
-Record Quarterly Gold Production
- Record-low Net Unit Cash Production Costs
- Strong Q uarterly Operating Cash Flow s Strengthened Financial Position
- Initiated Quarterly Dividend on Common Stock
HIGHLIGHTS
•
Second-quarter 2003 net income of $57.4 million, $0.37 per share , compared with second-quarter 2002 net income of $5.6 million, $0.04 per share.
Multiple operating records, including quarterly gold production of 858,400 ounces and record underground production of 50,200 metric tons of ore per day.
Initial quarterly dividend of $0.09 per share paid on May 1, 2003.
At copper prices of $0.75 per pound and gold prices of $350 per ounce, year-end net debt estimated to approximate $2.0 billion, net of $515 million of unrestricted cash.
NEW ORLEANS, LA, July 17, 2003 -- Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) reported second-quarter 2003 net income applicable to common stock of $57.4 million, $0.37 per share, compared with second-quarter 2002 net income of $5.6 million, $0.04 per share. Net income for second-quarter 2003 was reduced by intercompany profit deferrals of $17.4 million ($0.09 per share) which will be recognized in future periods, debt extinguishment costs of $4.8 million ($0.03 per share) and non-cash euro currency translation losses of $3.8 million ($0.02 per share) in the second quarter of 2003. For the six months ended June 30, 2003, FCX reported net income applicable to common stock of $106.6 million, $0.69 per share, including a gain for the cumulative effect of a change in accounting principle of $9.1 million, $0.05 per share, compared with net income of $1.4 million, $0.01 per share, including a charge for the cumulative effect of a change in accoun ting principle of $3.0 million, $0.02 per share, for the six months ended June 30, 2002.
| | | |
Summary Financial Table | Second Quarter | | Six Months |
| | 2003 | 2002 | | 2003 | 2002 |
| | (In thousands, except per share amounts) |
Revenues | $609,455 | $407,999 | | $1,134,051 | $800,679 |
Operating income | 241,226 | 122,410 | | 432,552 | 209,953 |
Net income applicable to common stock before cumulative effect adjustments(a) |
57,372 |
5,576 |
|
97,535 |
4,471 |
Net income applicable to common stock | 57,372 | 5,576 | | 106,617 | 1,422 |
Diluted net income per share: | | | | | |
Before cumulative effect adjustments | 0.37 | 0.04 | | 0.64 | .03 |
Applicable to common stock | 0.37 | 0.04 | | 0.69 | .01 |
| | | | | | |
Diluted average shares outstanding(b) | 190,990 | 147,370 | | 190,122 | 146,410 |
a)
Six-month 2003 cumulative effect adjustment reflects adoption of Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations,” effective January 1, 2003, and six-month 2002 cumulative effect adjustment reflects an accounting change for depreciation of mining and milling assets, effective January 1, 2002.
b)
Diluted net income per share for 2003 reflects assumed conversion of FCX’s 8 1/4% Convertible Senior Notes, resulting in the inclusion of 42.2 million common shares, and the exclusion of interest expense totaling $12.7 million in the second quarter of 2003 and $25.3 million in the first six months of 2003 (both net of tax). The convertible notes had no dilutive effect in the 2002 periods.
Mr. James R. Moffett, Chairman and CEO of FCX, said, “Our second quarter results highlight the capability of our asset base to generate very significant cash flows. Our operating team continues to establish new operating records with a focus on high-volume, low-cost operations. O ur high quality ore bodies produced an aggregate 475 million pounds of copper (401 million pounds net to our interest) and nearly 1.1 million ounces of gold (858,400 net to our interest) this quarter .. We will continue to maximize our cash flow generating capacity for the benefit of our shareholders.”
PT Freeport Indonesia (PT-FI) PRODUCTION AND SALES
| | Second Quarter | | Six Months |
| | 2003 | | 2002 | | 2003 | | 2002 |
Copper (000s of recoverable pounds): | | | | | | | |
Production | 401,200 | | 374,500 | | 790,000 | | 671,200 |
Sales | 395,200 | | 350,400 | | 787,200 | | 646,500 |
Average realized price per pound | $0.75 | | $0.75 | | $0.75 | | $0.74 |
Gold (recoverable ounces): | | | | | | | |
Production | 858,400 | | 444,200 | | 1,438,000 | | 780,000 |
Sales | 849,200 | | 393,700 | | 1,433,100 | | 730,300 |
Average realized price per ounce | $347.69 | | $308.76 | | $345.14 | | $300.17 |
PT-FI, FCX’s Indonesian mining unit, reported higher copper production and sales in the 2003 quarter, reflecting the continued mining of higher-grade ore which began late in the second quarter of 2002. Second-quarter 2003 copper ore grades averaged 1.24 percent, compared with 1.14 percent in the second quarter of 2002. Copper recovery rates also improved to 89.8 percent for the second quarter of 2003, compared with 87.1 percent for the second quarter of 2002.
Gold production and sales for the second quarter of 2003 also reflect significantly higher ore grades and higher mill recovery rates over the year-ago period. In the second quarter of 2003, ore milled averaged 1.95 grams of gold per metric ton (g/t), compared with 0.98 g/t in the second quarter of 2002. Gold recovery rates improved to 87.9 percent for the second quarter of 2003, compared with 86.3 percent for the second quarter of 2002.
Second-quarter 2003 copper and gold sales exceeded previous quarterly estimates primarily because of the timing of mining ore previously forecast to be mined in the second half of 2003. PT-FI expects its sales for 2003 to approximate 1.4 billion pounds of copper and 2.6 million ounces of gold , with sales for the third quarter of 2003 estimated to approximate 3 20 million pounds of copper and 6 40 ,000 ounces of gold.
PT-FI reached its targeted production rate at the Deep Ore Zone (DOZ) underground mine of 35,000 metric tons of ore per day during the first quarter of 2003. During the second quarter of 2003 new underground mining records were established, with combined average production totaling approximately 50,200 metric tons of ore per day from the Intermediate Ore Zone and DOZ mines, representing 23 percent of second-quarter 2003 mill throughput. DOZ production averaged 40,800 metric tons of ore per day during the second quarter of 2003, and studies are ongoing to evaluate additional low-cost expansion options for the DOZ underground operation.
At June 30, 2003, FCX’s concentrate sales included 144.0 million pounds of copper, priced at an average of $0.75 per pound, that remain subject to final pricing over the next several months. Each $0.01 change in the price realized from the June 30 price would result in an approximate $0.7 million, $0.004 per share, effect on FCX’s 2003 net income. Second-quarter 2003 adjustments to concentrate sales recognized in prior quarters de creased revenues by $0.6 million ($ 0.3 million to net income, $0.0 02 per share) compared with a decrease of $5.9 million ($3.0 million to net income, $0.02 per share) in the second quarter of 2002.
NET CASH PRODUCTION COSTS(1)
| | Second Quarter | | Six Months | |
| | 2003 | | 2002 | | 2003 | | 2002 | |
Per pound of copper: | | | | | | | | |
Site production and delivery | $0.40 | | $0.35 | | $0.40 | | $0.39 | |
Gold and silver credits | (0.76 | ) | (0.35 | ) | (0.65 | ) | (0.35 | ) |
Treatment charges and royalties | 0.20 | | 0.18 | | 0.20 | | 0.19 | |
Net cash production costs | $(0.16 | ) | $0.18 | | $(0.05 | ) | $0.23 | |
(1) For a reconciliation of net cash production costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements refer to the attached presentation, “Product Revenues and Production Costs.”
PT-FI maintained its cost-leading position with average unit net cash production costs, including gold and silver credits, of a net credit of $(0.16) per pound of copper during the second quarter of 2003, compared with net costs of $0.18 per pound for the 2002 quarter. Unit production and delivery costs increased from the prior year period because of stronger Indonesian and Australian currencies and higher mine maintenance and energy cost , while gold credits improved because of improved ore grades for gold and higher gold prices. Assuming gold prices of $350 per ounce for the remainder of 2003 and gold sales of 2.6 million ounces for 2003, we would expect to establish a new record low for unit annual net cash production costs of a net credit of approximately $(0.04) per pound. Net unit cash costs would change approximately $0.0 2 per pound for each $25 per ounce change in the average price of gold for the remainder of the year.
SMELTER OPERATIONS
Atlantic Copper, FCX’s wholly owned Spanish smelting unit, treated 244,600 metric tons of concentrates and scrap in the second quarter of 2003, compared with 242,500 metric tons in the year-ago period. Unit cathode cash production costs totaled $0.16per pound in the second quarter of 2003 and $0.12 per pound for the year-ago period. Unit costs were adversely affected by a stronger euro/US$ exchange rate, which added $0.03 per pound to Atlantic Copper’s second-quarter 2003 unit costs compared with second-quarter 2002 unit costs. Atlantic Copper reported an operating loss of $4.1 million for the second quarter of 2003, compared with operating income of $2.6 million in the 2002 period. T reatment charges received by Atlantic Copper remained at historically low levels, averaging $0.15 per pound during the second quarter of 2003 and $0.17 per pound during the second quarter of 2002.
FCX recognized non-cash charges totaling $3.8 million, $0.02 per share, in the second quarter of 2003 as a result of the effect on Atlantic Copper’s net euro-denominated liabilities from the euro strengthening from $1.09 per euro to $1.14 per euro , compared with $9.3 million, $0.06 per share, in the second quarter of 2002. Atlantic Copper’s current euro hedges , the effects of which are recognized in income when realized, cover approximately 60 percent of its projected remaining 2003 euro disbursements at an average rate of $1.02 per euro.
PT Smelting, PT-FI’s 25 percent-owned Indonesian smelting unit, treated 208,400 metric tons of concentrates in the second quarter of 2003, compared with 130,600 metric tons in the year-ago period when PT Smelting conducted a scheduled maintenance turnaround .. PT Smelting reported quarterly records for cathodes produced (124.1 million pounds) and cathodes sold (128.2 million pounds). PT Smelting’s copper cathode cash production costs per pound totaled $0.10per pound in the second quarter of 2003 and $0.25per pound in the year-ago period. PT-FI’s equity interest in PT Smelting’s earnings totaled $2.3 million, $0.01 per share, for the second quarter of 2003 compared to a net loss of $2.5 million, $0.02 per share, in the 2002 quarter.
FCX defers recognition of profits on PT-FI’s sales to Atlantic Copper and on 25 percent of PT-FI’s sales to PT Smelting until the final sale to third parties occurs. These net deferrals will be recognized in future periods and resulted in reductions to FCX’s net income totaling $17.4 million, $0.09 per share, in the second quarter of 2003, compared with a reduction of $3.1 million, $0.02 per share, in the second quarter of 2002.
While currently low smelter treatment and refining charges adversely affect the operating results of FCX’s smelter operations, they benefit operating results of FCX’s mining operations. Approximately one-half of PT-FI’s concentrate production is sold to its affiliated smelters, Atlantic Copper and PT Smelting, and the remainder is sold to other customers. Considering taxes and minority ownership interest, an equivalent change in smelting and refining rates substantially offset in FCX’s consolidated operating results.
CASH FLOW, NET DEBT, SENIOR NOTE TENDER OFFERS and FINANCIAL POSITION
Operating cash flows for the first six months of 2003 totaled $ 279.1 million. At copper and gold prices of $0.7 5 per pound and $3 50 per ounce, respectively, FCX estimates that its operating cash flows for 2003 would exceed $ 600 million. Each $0.10 change in copper prices and each $25 change in gold prices for the remainder of the year would impact these estimates by approximately $30 million and $15 million, respectively. Capital expenditures totaled $6 2 .. 2 million in the first six months of 2003 and are estimated to total approximately $160 million for the year 2003.
Net debt, which includes mandatorily redeemable preferred stock, totaled $2.202 billion at June 30, 2003, a $194 million reduction from net debt outstanding at March 31, 2003. In April 2003, FCX completed tender offers for its 7.20% Senior Notes due 2026 and its 7.50% Senior Notes due 2006. Of the $450.0 million outstanding at March 31, 2003, notes with a face amount of $234.0 million were tendered for $239.0 million cash. FCX recorded a $6.6 million charge ($4.8 million to net income or $0.03 per share) to other expenses in the second quarter of 2003 associated with these early extinguishments of debt. In June 2003, FCX announced the mandatory redemption, on August 1, 2003, of its Gold-Denominated Preferred Stock. At a gold price of $350 per ounce, the redemption value is $210.0 million and FCX’s carrying value at June 30, 2003, is $232.6 million , which would result in an increase in net income during the third quarter of 2003 of $11.6 million, $0.06 per share, using diluted average shares outstanding for the second quarter of 2003 .. FCX is currently reviewing options for repaying other obligations prior to their maturity which could result in the recognition of losses and gains in future periods.
As of June 30, 2003, FCX had total unrestricted cash and cash equivalents of $740.4 million. After the estimated repayment of $375 million of debt, and assuming copper prices of $0.7 5 per pound and gold prices of $3 50 per ounce for the remainder of 2003 , FCX’s cash position at year-end 2003 is expected to approximate $515 million, bringing net debt to $2.0 billion , including $604 million of convertible notes with an exercise price of $14.30 per common share callable beginning July 31, 2004 ..
FINANCIAL POLICY
As previously announced, with the significant improvement in FCX’s financial flexibility and strong financial outlook, the Board of Directors authorized a new common stock annual dividend of $0.36 per share. The initial quarterly dividend of $0.09 per share was paid on May 1, 2003. The Board of Directors will continue to assess opportunities to return cash to shareholders.
FCX explores for, develops, mines and processes ore containing copper, gold and silver in Indonesia, and smelts and refines copper concentrates in Spain and Indonesia. Additional information on FCX is available on our Internet websitewww.fcx.com.
------------------------------------------------------------------------
Cautionary Statement and Regulation G Disclosure. This press release 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 statements regarding estimated anticipated sales volumes, projected unit production costs, projected capital expenditures, projected operating cash flows, projected net debt , mandatorily redeemable preferred stock and cash, and the impact of copper and gold price changes.Accuracy of the projections depends on assumptions about events that change over time and is thus susceptible to periodic change based on actual experience and new developments. FCX cautions readers that it assumes no obligation to update or publicly release any revisions to the projections in this press release and, except to the extent required by applicable law, does not intend to update or otherwise revise the projections more frequently than quarterly. Additionally, important factors that might cause future results to differ from these projections include industry risks, commodity prices, Indonesian political risks, weather - related risks, currency translation risks and other factors described in FCX's Annual Report on Form 10-K for the year ended December 31, 2002, filed with the Securities and Exchange Commission.
This press release also contains certain financial measures such as net cash production costs per pound of copper, cathode cash production costs per pound of copper and net debt. As required by Securities and Exchange Commission Regulation G, reconciliations of these measures to amounts reported in FCX’s consolidated financial statements are provided in the attachments to this press release.
A copy of this press release is available on our website at “www.fcx.com.” A conference call with securities analysts about second-quarter 2003 results is scheduled for today at 10:00 a.m. EDT. The conference call will be broadcast on the Internet along with slides. Interested parties may listen to the webcast live and view the slides by accessing “www.fcx.com.” A replay of the webcast will be available through Friday, August 15 , 2003.
FREEPORT-McMoRan COPPER & GOLD INC.
SELECTED OPERATING DATA
(Page 1 of 2)
| | | Second Quarter | | | Six Months | |
| | | 2003 | | | 2002 | | | 2003 | | | 2002 | |
PT Freeport Indonesia, Net of Rio Tinto’s Interest |
Copper | | | | | | | | | | | | |
Production (000s of recoverable pounds) | 401,200 | | | 374,500 | | | 790,000 | | | 671,200 | |
Production (metric tons) | 181,900 | | | 169,900 | | | 358,300 | | | 304,500 | |
Sales (000s of recoverable pounds) | | 395,200 | | | 350,400 | | | 787,200 | | | 646,500 | |
Sales (metric tons) | | 179,300 | | | 158,900 | | | 357,100 | | | 293,200 | |
Average realized price per pound | | $.75 | | | $.75 | | | $.75 | | | $.74 | |
Gold | | | | | | | | | | | | |
Production (recoverable ounces) | | 858,400 | | | 444,200 | | | 1,438,000 | | | 780,000 | |
Sales (recoverable ounces) | | 849,200 | | | 393,700 | | | 1,433,100 | | | 730,300 | |
Average realized price per ounce | | $347.69 | | | $308.76 | | | $345.14 | | | $300.17 | |
Silver | | | | | | | | | | | | |
Production (recoverable ounces) | | 1,319,000 | | | 1,029,900 | | | 2,534,800 | | | 1,802,400 | |
Sales (recoverable ounces) | | 1,310,500 | | | 951,600 | | | 2,544,600 | | | 1,727,800 | |
Average realized price per ounce | | $4.49 | | | $4.55 | | | $4.49 | | | $4.48 | |
| | | | | | | | | | | | | |
PT Freeport Indonesia Gross Profit per Pound of Copper (cents): |
Average realized price | | 75.3 | | | 74.6 | | | 74.7 | | | 73.6 | |
Production costs: | | | | | | | | | | | | |
Site production and delivery | | 40.0 | a | | 34.9 | a | | 39.9 | a | | 38.8 | a |
Gold and silver credits | | (76.2 | ) | | (35.2 | ) | | (64.5 | ) | | (35.2 | ) |
Treatment charges | | 17.4 | | | 17.5 | | | 17.6 | | | 18.4 | |
Royalty on metals | | 2.5 | | | 1.2 | | | 2.1 | | | 1.1 | |
Cash production costsb | | (16.3 | ) | | 18.4 | | | (4.9 | ) | | 23.1 | |
Depreciation and amortization | | 14.6 | | | 14.9 | | | 14.6 | | | 14.8 | |
Total production costs | | (1.7 | ) | | 33.3 | | | 9.7 | | | 37.9 | |
Adjustments, primarily for copper pricing on prior period open sales | | 1.2 | | | 0.1 | | | 1.7 | | | 1.9 | |
Gross profit per pound of copper | | 78.2 | | | 41.4 | | | 66.7 | | | 37.6 | |
| | | | | | | | | | | | | |
a.
Net of deferred mining costs totaling $14.4 million or 3.6 cents per pound in the second quarter of 2003, $7.7 million or 2.2 cents per pound in the second quarter of 2002, $21.7 million or 2.8 cents per pound in the first six months of 2003 and $12.4 million or 1.9 cents per pound in the first six months of 2002.
b.
For a reconciliation of net cash production costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements refer to the attached presentation, “Product Revenues and Production Costs.”
FREEPORT-McMoRan COPPER & GOLD INC.
SELECTED OPERATING DATA
(Page 2 of 2)
| | | Second Quarter | | | Six Months | |
| | | 2003 | | | 2002 | | | 2003 | | | 2002 | |
PT Freeport Indonesia, 100% Operating Statistics |
Ore milled (metric tons per day) | | 221,300 | | | 239,600 | | | 229,700 | | | 241,900 | |
Average ore grade | | | | �� | | | | | | | | |
Copper (percent) | | 1.24 | | | 1.14 | | | 1.19 | | | 1.02 | |
Gold (grams per metric ton) | | 1.95 | | | .98 | | | 1.59 | | | .85 | |
Gold (ounce per metric ton) | | .063 | | | .032 | | | .051 | | | .027 | |
Silver (grams per metric ton) | | 4.18 | | | 3.63 | | | 4.02 | | | 3.19 | |
Silver (ounce per metric ton) | | .134 | | | .117 | | | .129 | | | .103 | |
Recovery rates (percent) | | | | | | | | | | | | |
Copper | | 89.8 | | | 87.1 | | | 89.1 | | | 86.4 | |
Gold
| | 87.9 | | | 86.3 | | | 87.2 | | | 86.0 | |
Silver | | 66.5 | | | 57.0 | | | 63.4 | | | 57.0 | |
Copper | | | | | | | | | | | | |
Production (000s of recoverable pounds) | 474,700 | | | 457,600 | | | 935,200 | | | 814,700 | |
Production (metric tons) | | 215,300 | | | 207,600 | | | 424,200 | | | 369,500 | |
Sales (000s of recoverable pounds) | | 467,600 | | | 428,300 | | | 932,100 | | | 784,700 | |
Sales (metric tons) | | 212,100 | | | 194,300 | | | 422,800 | | | 355,900 | |
Gold (recoverable ounces) | | | | | | | | | | | | |
Production | | 1,091,900 | | | 581,000 | | | 1,829,300 | | | 1,000,000 | |
Sales | | 1,080,100 | | | 516,200 | | | 1,822,600 | | | 936,100 | |
Silver (recoverable ounces) | | | | | | | | | | | | |
Production | | 1,494,600 | | | 1,178,100 | | | 2,796,100 | | | 2,039,300 | |
Sales | | 1,484,600 | | | 1,089,700 | | | 2,800,100 | | | 1,952,600 | |
Atlantic Copper | | | | | | | | | | | | |
Concentrates and scrap treated (metric tons) | | 244,600 | | | 242,500 | | | 486,700 | | | 500,800 | |
Anodes | | | | | | | | | | | | |
Production (000s of pounds) | | 163,800 | | | 152,100 | | | 323,400 | | | 322,200 | |
Production (metric tons) | | 74,300 | | | 69,000 | | | 146,700 | | | 146,100 | |
Sales (000s of pounds) | | 26,300 | | | 15,500 | | | 51,500 | | | 47,000 | |
Sales (metric tons) | | 12,000 | | | 7,000 | | | 23,400 | | | 21,400 | |
Cathodes | | | | | | | | | | | | |
Production (000s of pounds) | | 137,900 | | | 140,300 | | | 272,800 | | | 276,500 | |
Production (metric tons) | | 62,500 | | | 63,600 | | | 123,700 | | | 125,400 | |
Sales, including wire rod and wire (000s of pounds) | | 140,200 | | | 140,400 | | | 278,900 | | | 276,200 | |
Sales, including wire rod and wire (metric tons) | 63,600 | | | 63,700 | | | 126,500 | | | 125,300 | |
Gold sales in anodes and slimes (ounces) | | 205,600 | | | 159,800 | | | 447,600 | | | 411,400 | |
Cathode cash production cost per pound before hedginga | | $.16 | | | $.12 | | | $.16 | | | $.11 | |
PT Smelting, 25%-owned by PT Freeport Indonesia |
Concentrate treated (metric tons) | | 208,400 | | | 130,600 | | | 420,700 | | | 308,300 | |
Anodes | | | | | | | | | | | | |
Production (000s of pounds) | | 141,300 | | | 83,400 | | | 282,300 | | | 195,700 | |
Production (metric tons) | | 64,100 | | | 37,800 | | | 128,100 | | | 88,800 | |
Sales (000s of pounds) | | 22,600 | | | 2,300 | | | 45,200 | | | 4,900 | |
Sales (metric tons) | | 10,200 | | | 1,000 | | | 20,500 | | | 2,200 | |
Cathodes | | | | | | | | | | | | |
Production (000s of pounds) | | 124,100 | | | 92,400 | | | 245,100 | | | 210,200 | |
Production (metric tons) | | 56,300 | | | 41,900 | | | 111,200 | | | 95,300 | |
Sales (000s of pounds) | | 128,200 | | | 91,700 | | | 245,000 | | | 203,700 | |
Sales (metric tons) | | 58,100 | | | 41,600 | | | 111,100 | | | 92,400 | |
Cathode cash production cost per pounda | | $.10 | | | $.25 | | | $.10 | | | $.18 | |
a. For a reconciliation of cathode cash production costs per pound to production costs applicable to sales reported in FCX’s consolidated financial statements refer to the attached presentation, “Cathode Cash Production Costs.”
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF NET INCOME (Unaudited)
| | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | 2003 | | 2002 | | 2003 | | 2003 | |
| | (In Thousands, Except Per Share Amounts) | |
Revenues | $ | 609,455 | a | $ | 407,999 | a | $ | 1,134,051 | a | $ | 800,679 | a |
Cost of sales: | | | | | | | | | | | | |
Production and delivery | | 277,408 | | | 206,124 | | | 524,878 | | | 441,041 | |
Depreciation and amortization | | 68,283 | | | 62,305 | | | 136,071 | | | 115,359 | |
Total cost of sales | | 345,691 | | | 268,429 | | | 660,949 | | | 556,400 | |
Exploration expenses | | 1,827 | | | 800 | | | 3,331 | | | 1,554 | |
General and administrative expenses | | 20,711 | b | | 16,360 | b | | 37,219 | b | | 32,772 | b |
Total costs and expenses | | 368,229 | | | 285,589 | | | 701,499 | | | 590,726 | |
Operating income | | 241,226 | | | 122,410 | | | 432,552 | | | 209,953 | |
Equity in PT Smelting earnings (losses) | | 2,270 | | | (2,537 | ) | | 2,947 | | | (3,359 | ) |
Interest expense, net | | (55,478 | ) | | (43,492 | ) | | (107,987 | ) | | (87,774 | ) |
Other expenses, net | | (8,907 | )c | | (9,331 | )c | | (10,526 | )c | | (9,295 | )c |
Income before income taxes and minority interest | | 179,111 | | | 67,050 | | | 316,986 | | | 109,525 | |
Provision for income taxes | | (97,908 | ) | | (46,040 | ) | | (175,122 | ) | | (74,854 | ) |
Minority interest in net income of consolidated subsidiaries | | (14,259 | ) | | (5,975 | ) | | (25,170 | ) | | (11,529 | ) |
Net income before cumulative effect of changes in accounting principle | | 66,944 | | | 15,035 | | | 116,694 | | | 23,142 | |
Cumulative effect of changes in accounting principle, net | | - | | | - | | | 9,082 | | | (3,049 | ) |
Net income | | 66,944 | | | 15,035 | | | 125,776 | | | 20,093 | |
Preferred dividends | | (9,572 | ) | | (9,459 | ) | | (19,159 | ) | | (18,671 | ) |
Net income applicable to common stock | $ | 57,372 | | $ | 5,576 | | $ | 106,617 | | $ | 1,422 | |
| | | | | | | | | | | | | |
Net income per share of common stock: | | | | | | | | | | | | |
Basic: | | | | | | | | | | |
| |
Before cumulative effect | | $0.39 | | | $0.04 | | | $0.67 | | | $0.03 | |
Cumulative effect | | - | | | - | | | 0.06 | | | (0.02 | ) |
Net income per share of common stock | | $0.39 | | | $0.04 | | | $0.73 | | | $0.01 | |
Diluted: | | | | | | | | | | | | |
Before cumulative effect | | $0.37 | d | | $0.04 | | | $0.64 | d | | $0.03 | |
Cumulative effect | | - | | | - | | | 0.05 | d | | (0.02 | ) |
Net income per share of common stock | | $0.37 | d | | $0.04 | | | $0.69 | d | | $0.01 | |
| | | | | | | | | | | | | |
| Average common shares outstanding: | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | |
| Diluted | | | d | | | | | | d | | | |
a.
Includes adjustments to prior period concentrate sales totaling $(0.6) million in the 2003 quarter, $(5.9) million in the 2002 quarter, $11.0 million in the 2003 six-month period and $5.4 million in the 2002 six-month period.
b.
Includes charges for costs associated with stock appreciation rights caused by an increase in FCX’s stock price totaling $1.7 million in the 2003 quarter, $0.1 million in the 2002 quarter, $1.8 million in the 2003 six-month period and $0.6 million in the 2002 six-month period.
c.
Includes net charges totaling $3.8 million in the 2003 quarter, $9.3 million in the 2002 quarter, $6.3 million in the 2003 six-month period and $8.7 million in the 2002 six-month period associated with the impact of movements in the US$/euro exchange rate on Atlantic Copper’s non-operating euro-denominated liabilities. Second-quarter and six-month 2003 periods also include charges totaling $6.6 million for early extinguishments of debt.
d.
Diluted net income per share for 2003 reflects assumed conversion of FCX’s 8 ¼% Convertible Senior Notes, resulting in the exclusion of interest expense totaling $12.7 million in the 2003 quarter and $25.3 million in the 2003 six-month period (both net of tax), and the inclusion of 42.2 million common shares.
FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED BALANCE SHEETS (Unaudited)
| | | June 30, | | | December 31, | |
| | | 2003 | | | 2002 | |
| | | (In Thousands) | |
ASSETS | | | | | | | | |
Current Assets: | | | | | | | | |
Cash and cash equivalents | | $ | 740,360 | | | $ | 7,836 | |
Restricted investments and cash | | | 60,809 | | | | 49,809 | |
Accounts receivable | | | 242,961 | | | | 190,509 | |
Inventories | | | 380,610 | | | | 387,247 | |
Prepaid expenses and other | | | 9,370 | | | | 2,579 | |
Total current assets | | | 1,434,110 | | | | 637,980 | |
Property, plant, equipment and development costs, net | | | 3,256,150 | | | | 3,320,561 | |
Deferred mining costs | | | 99,887 | | | | 78,235 | |
Restricted investments and cash | | | 23,708 | | | | 58,137 | |
Investment in PT Smelting | | | 43,144 | | | | 44,619 | |
Other assets | | | 92,556 | | | | 52,661 | |
Total assets | | $ | 4,949,555 | | | $ | 4,192,193 | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable and accrued liabilities | | $ | 254,331 | | | $ | 262,310 | |
Current portion of long-term debt and short-term borrowings | | | 144,196 | | | | 77,112 | |
Unearned customer receipts | | | 35,574 | | | | 36,754 | |
Rio Tinto share of joint venture cash flows | | | 54,039 | | | | 51,297 | |
Accrued interest payable | | | 62,888 | | | | 29,081 | |
Accrued income taxes | | | 78,085 | | | | 81,319 | |
Total current liabilities | | | 629,113 | | | | 537,873 | |
Long-term debt, less current portion: | | | | | | | | |
Convertible senior notes | | | 1,178,750 | | | | 603,750 | |
Senior notes | | | 715,977 | | | | 450,000 | |
Infrastructure asset financings | | | 279,701 | | | | 310,674 | |
Atlantic Copper debt | | | 172,385 | | | | 233,642 | |
Equipment and other loans | | | 81,478 | | | | 84,212 | |
FCX and PT Freeport Indonesia credit facilities | | | - | | | | 279,000 | |
Total long-term debt, less current portion | | | 2,428,291 | | | | 1,961,278 | |
Accrued postretirement benefits and other liabilities | | | 150,785 | | | | 140,016 | |
Deferred income taxes | | | 751,328 | | | | 706,510 | |
Minority interest | | | 154,905 | | | | 129,687 | |
Redeemable preferred stock | | | 450,003 | a | | | 450,003 | |
Stockholders' equity | | | 385,130 | | | | 266,826 | |
Total liabilities and stockholders' equity | | $ | 4,949,555 | | | $ | 4,192,193 | |
| | | | | | | | | |
a. In accordance with Statement of Financial Accounting Standards No. 150, FCX’s mandatorily redeemable preferred stock will be classified as debt effective July 1, 2003.
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF CASH FLOWS (Unaudited)
| | | Six Months Ended June 30, | |
| | | 2003 | | | 2002 | |
| | | (In Thousands) | |
Cash flow from operating activities: | | | | | | | | |
Net income | | $ | 125,776 | | | $ | 20,093 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | | | 136,071 | | | | 115,359 | |
Cumulative effect of changes in accounting principle | | | (9,082 | ) | | | 3,049 | |
Deferred income taxes | | | 37,451 | | | | 25,368 | |
Equity in PT Smelting losses (earnings) | | | (2,947 | ) | | | 3,359 | |
Minority interest's share of net income | | | 25,170 | | | | 11,529 | |
Change in deferred mining costs | | | (21,652 | ) | | | (12,420 | ) |
Currency translation loss | | | 6,277 | | | | 8,726 | |
Amortization of deferred financing costs | | | 9,571 | | | | 6,005 | |
Elimination (recognition) of profit on PT Freeport Indonesia sales to PT Smelting | | | 4,422 | | | | (1,091 | ) |
Provision for inventory obsolescence | | | 3,000 | | | | 3,000 | |
Other | | | 9,745 | | | | 4,214 | |
(Increases) decreases in working capital: | | | | | | | | |
Accounts receivable | | | (47,524 | ) | | | (21,076 | ) |
Inventories | | | (11,309 | ) | | | (18,278 | ) |
Prepaid expenses and other | | | (4,844 | ) | | | (2,894 | ) |
Accounts payable and accrued liabilities | | | 19,448 | | | | (13,145 | ) |
Rio Tinto share of joint venture cash flows | | | 2,718 | | | | 31,087 | |
Accrued income taxes | | | (3,234 | ) | | | (10,050 | ) |
Increase in working capital | | | (44,745 | ) | | | (34,356 | ) |
Net cash provided by operating activities | | | 279,057 | | | | 152,835 | |
| | | | | | | | | |
Cash flow from investing activities: | | | | | | | | |
PT Freeport Indonesia capital expenditures | | | (58,565 | ) | | | (80,215 | ) |
Atlantic Copper capital expenditures | | | (3,623 | ) | | | (1,254 | ) |
Sale of restricted investments to fund interest costs | | | 23,645 | | | | 23,678 | |
Sale of assets and other | | | 1,890 | | | | (156 | ) |
Net cash used in investing activities | | | (36,653 | ) | | | (57,947 | ) |
| | | | | | | | | |
Cash flow from financing activities: | | | | | | | | |
Net proceeds from sales of senior notes | | | 1,046,437 | | | | - | |
Proceeds from other debt | | | 47,400 | | | | 314,631 | |
Repayments of debt | | | (588,732 | ) | | | (396,981 | ) |
Cash dividends paid: | | | | | | | | |
Common stock | | | (13,090 | ) | | | - | |
Preferred stock | | | (19,066 | ) | | | (18,350 | ) |
Proceeds from exercised stock options | | | 20,475 | | | | 7,549 | |
Financing costs | | | (3,304 | ) | | | (661 | ) |
Net cash provided by (used in) financing activities | | | 490,120 | | | | (93,812 | ) |
Net increase in cash and cash equivalents | | | 732,524 | | | | 1,076 | |
Cash and cash equivalents at beginning of year | | | 7,836 | | | | 7,587 | |
Cash and cash equivalents at end of period | | $ | 740,360 | | | $ | 8,663 | |
FREEPORT-McMoRan COPPER & GOLD INC.
PRODUCT REVENUES AND PRODUCTION COSTS
NET CASH PRODUCTION COSTS
Net cash production costs per pound of copper is a measure intended to provide investors with information about the cash generating capacity of our mining operations in Indonesia. This measure is presented by other copper and gold mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.
We calculate gross profit per pound of copper under a “by-product” method, while the copper, gold and silver contained within our concentrates are treated as co-products in our financial statements. We use the by-product method in our presentation of gross profit per pound of copper because (1) we believe the market views us as a copper company, (2) we produce and sell one product, concentrates, which contains all three metals and (3) there is no objective basis for specifically assigning our costs to revenues from the copper, gold and silver we produce in concentrates. In the co-product method presentation below, we have allocated costs to the different products based on their relative revenue values. Presentations under both methods are presented below along with a reconciliation to amounts reported in FCX’s consolidated financial statements.
Three Months Ended June 30, 2003 | | | | |
| By-Product | | Co-Product Method | |
(In Thousands) | Method | | Copper | | Gold | | Silver | | Total | |
Revenues | $ | 302,556 | | $ | 302,556 | | $ | 295,076 | | $ | 5,883 | | $ | 603,515 | |
| | | | | | | | | | | | | | | |
Site production and delivery | | 157,908 | | | 79,163 | | | 77,206 | | | 1,539 | | | 157,908 | |
Gold and silver credits | | (300,959 | ) | | - | | | - | | | - | | | - | |
Treatment charges | | 68,613 | | | 34,397 | | | 33,547 | | | 669 | | | 68,613 | |
Royalty on metals | | 9,814 | | | 4,920 | | | 4,798 | | | 96 | | | 9,814 | |
Net cash production costs | | (64,624 | ) | | 118,480 | | | 115,551 | | | 2,304 | | | 236,335 | |
Depreciation and amortization | | 57,700 | | | 28,927 | | | 28,211 | | | 562 | | | 57,700 | |
Total production costs | | (6,924 | ) | | 147,407 | | | 143,762 | | | 2,866 | | | 294,035 | |
Adjustments, primarily for copper pricing on prior period sales | | (475 | ) | | (475 | ) | | - | | | - | | | (475 | ) |
Gross profit | $ | 309,005 | | $ | 154,674 | | $ | 151,314 | | $ | 3,017 | | $ | 309,005 | |
| | | | | | | | | | | | | | | | |
Pounds of copper sold (000) | | 395,200 | | | 395,200 | | | | | | | | | | |
Ounces of gold sold | | | | | | | | 849,200 | | | | | | | |
Ounces of silver sold | | | | | | | | | | | 1,310,500 | | | | |
| | | | | | | | | | | | | | | |
Gross profit per pound of copper (cents)/ per ounce of gold and silver ($): | | | | | | | | |
Revenues | | 75.3 | | | 75.3 | | | 347.69 | | | 4.49 | | | | |
| | | | | | | | | | | | | | | |
Site production and delivery | | 40.0 | | | 20.0 | | | 90.92 | | | 1.17 | | | | |
Gold and silver credits | | (76.2 | ) | | - | | | - | | | - | | | | |
Treatment charges | | 17.4 | | | 8.7 | | | 39.50 | | | 0.51 | | | | |
Royalty on metals | | 2.5 | | | 1.2 | | | 5.65 | | | 0.07 | | | | |
Net cash production costs | | (16.3 | ) | | 29.9 | | | 136.07 | | | 1.75 | | | | |
Depreciation and amortization | | 14.6 | | | 7.3 | | | 33.22 | | | 0.43 | | | | |
Total production costs | | (1.7 | ) | | 37.2 | | | 169.29 | | | 2.18 | | | | |
Adjustments, primarily for copper pricing on prior period sales | | 1.2 | | | 1.0 | | | (0.22 | ) | | (0.01 | ) | | | |
Gross profit per pound/ounce | | 78.2 | | | 39.1 | | | 178.18 | | | 2.30 | | | | |
| | | | | | | | | | | | | | | |
Reconciliation to Amounts Reported | | | | | | | | | | | | | | | |
(In Thousands)
| Revenues | | Production and Delivery | | Depreciation and Amortization | | | | | | | |
Totals presented above | $ | 603,515 | | $ | 157,908 | | $ | 57,700 | | | | | | | |
Less: Treatment charges per above | | (68,613 | ) | | N/A | | | N/A | | | | | | | |
Royalty per above | | (9,814 | ) | | N/A | | | N/A | | | | | | | |
Other | | N/A | | | 5,820 | | | N/A | | | | | | | |
Adjustments, primarily for copper pricing on prior period sales per above | | (475 | ) | | N/A | | | N/A | | | | | | | |
Mining and exploration segment | | 524,613 | | | 163,728 | | | 57,700 | | | | | | | |
Smelting and refining segment | | 210,681 | | | 204,944 | | | 7,046 | | | | | | | |
Eliminations and other | | (125,839 | ) | | (91,264 | ) | | 3,537 | | | | | | | |
As reported in FCX consolidated financial statements | $ | 609,455 | | $ | 277,408 | | $ | 68,283 | | | | | | | |
FREEPORT-McMoRan COPPER & GOLD INC.
PRODUCT REVENUES AND PRODUCTION COSTS
(continued)
Three Months Ended June 30, 2002 | | | | |
| | By-Product | | Co-Product Method | |
(In Thousands) | Method | | Copper | | Gold | | Silver | | Total | |
Revenues | $ | 259,624 | | $ | 259,624 | | $ | 118,956 | | $ | 4,363 | | $ | 382,943 | |
| | | | | | | | | | | | | | | | |
Site production and delivery | | 122,198 | | | 82,847 | | | 37,959 | | | 1,392 | | | 122,198 | |
Gold and silver credits | | (123,319 | ) | | - | | | - | | | - | | | - | |
Treatment charges | | 61,458 | | | 41,667 | | | 19,091 | | | 700 | | | 61,458 | |
Royalty on metals | | 4,115 | | | 2,790 | | | 1,278 | | | 47 | | | 4,115 | |
Net cash production costs | | 64,452 | | | 127,304 | | | 58,328 | | | 2,139 | | | 187,771 | |
Depreciation and amortization | | 52,157 | | | 35,360 | | | 16,202 | | | 595 | | | 52,157 | |
Total production costs | | 116,609 | | | 162,664 | | | 74,530 | | | 2,734 | | | 239,928 | |
Adjustments, primarily for copper pricing on prior period sales | | 2,041 | | | 2,041 | | | - | | | - | | | 2,041 | |
Gross profit | $ | 145,056 | | $ | 99,001 | | $ | 44,426 | | $ | 1,629 | | $ | 145,056 | |
| | | | | | | | | | | | | | | | |
Pounds of copper sold (000) | | 350,400 | | | 350,400 | | | | | | | | | | |
Ounces of gold sold | | | | | | | | 393,700 | | | | | | | |
Ounces of silver sold | | | | | | | | | | | 951,600 | | | | |
| | | | | | | | | | | | | | | | |
Gross profit per pound of copper (cents)/ per ounce of gold and silver ($): | | | | | | | | | |
Revenues | | 74.6 | | | 74.6 | | | 308.76 | | | 4.55 | | | | |
| | | | | | | | | | | | | | | | |
Site production and delivery | | 34.9 | | | 23.6 | | | 96.42 | | | 1.46 | | | | |
Gold and silver credits | | (35.2 | ) | | - | | | - | | | - | | | | |
Treatment charges | | 17.5 | | | 11.9 | | | 48.49 | | | 0.74 | | | | |
Royalty on metals | | 1.2 | | | 0.8 | | | 3.25 | | | 0.05 | | | | |
Net cash production costs | | 18.4 | | | 36.3 | | | 148.16 | | | 2.25 | | | | |
Depreciation and amortization | | 14.9 | | | 10.1 | | | 41.15 | | | 0.62 | | | | |
Total production costs | | 33.3 | | | 46.4 | | | 189.31 | | | 2.87 | | | | |
Adjustments, primarily for copper pricing on prior period sales | | 0.1 | | | 0.1 | | | (6.61 | ) | | 0.03 | | | | |
Gross profit per pound/ounce | | 41.4 | | | 28.3 | | | 112.84 | | | 1.71 | | | | |
Reconciliation to Amounts Reported | | | | | | | | | | | | | | | |
(In Thousands)
| Revenues | | Production and Delivery | | Depreciation and Amortization | | | | | | | |
Totals presented above | $ | 382,943 | | $ | 122,198 | | $ | 52,157 | | | | | | | |
Less: Treatment charges per above | | (61,458 | ) | | N/A | | | N/A | | | | | | | |
Royalty per above | | (4,115 | ) | | N/A | | | N/A | | | | | | | |
Other | | N/A | | | 439 | | | N/A | | | | | | | |
Adjustments, primarily for copper pricing on prior period sales per above | | 2,041 | | | N/A | | | N/A | | | | | | | |
Mining and exploration segment | | 319,411 | | | 122,637 | | | 52,157 | | | | | | | |
Smelting and refining segment | | 176,070 | | | 164,431 | | | 6,892 | | | | | | | |
Eliminations and other | | (87,482 | ) | | (80,944 | ) | | 3,256 | | | | | | | |
As reported in FCX consolidated financial statements | $ | 407,999 | | $ | 206,124 | | $ | 62,305 | | | | | | | |
FREEPORT-McMoRan COPPER & GOLD INC.
PRODUCT REVENUES AND PRODUCTION COSTS
(continued)
Six Months Ended June 30, 2003 | | | | |
| | By-Product | | Co-Product Method | |
(In Thousands) | Method | | Copper | | Gold | | Silver | | Total | |
Revenues | $ | 589,088 | | $ | 589,088 | | $ | 496,223 | | $ | 11,484 | | $ | 1,096,795 | |
| | | | | | | | | | | | | | | | |
Site production and delivery | | 314,666 | | | 169,007 | | | 142,364 | | | 3,295 | | | 314,666 | |
Gold and silver credits | | (507,707 | ) | | - | | | - | | | - | | | - | |
Treatment charges | | 138,172 | | | 74,212 | | | 62,513 | | | 1,447 | | | 138,172 | |
Royalty on metals | | 16,654 | | | 8,945 | | | 7,535 | | | 174 | | | 16,654 | |
Net cash production costs | | (38,215 | ) | | 252,164 | | | 212,412 | | | 4,916 | | | 469,492 | |
Depreciation and amortization | | 114,932 | | | 61,730 | | | 51,999 | | | 1,203 | | | 114,932 | |
Total production costs | | 76,717 | | | 313,894 | | | 264,411 | | | 6,119 | | | 584,424 | |
Adjustments, primarily for copper pricing on prior period sales | | 12,755 | | | 12,755 | | | - | | | - | | | 12,755 | |
Gross profit | $ | 525,126 | | $ | 287,949 | | $ | 231,812 | | $ | 5,365 | | $ | 525,126 | |
| | | | | | | | | | | | | | | | |
Pounds of copper sold (000) | | 787,200 | | | 787,200 | | | | | | | | | | |
Ounces of gold sold | | | | | | | | 1,433,100 | | | | | | | |
Ounces of silver sold | | | | | | | | | | | 2,544,600 | | | | |
| | | | | | | | | | | | | | | | |
Gross profit per pound of copper (cents)/ per ounce of gold and silver ($): | | | | | | | | | |
Revenues | | 74.7 | | | 74.7 | | | 345.14 | | | 4.49 | | | | |
| | | | | | | | | | | | | | | | |
Site production and delivery | | 39.9 | | | 21.5 | | | 99.34 | | | 1.29 | | | | |
Gold and silver credits | | (64.5 | ) | | - | | | - | | | - | | | | |
Treatment charges | | 17.6 | | | 9.4 | | | 43.62 | | | 0.57 | | | | |
Royalty on metals | | 2.1 | | | 1.1 | | | 5.26 | | | 0.07 | | | | |
Net cash production costs | | (4.9 | ) | | 32.0 | | | 148.22 | | | 1.93 | | | | |
Depreciation and amortization | | 14.6 | | | 7.8 | | | 36.28 | | | 0.47 | | | | |
Total production costs | | 9.7 | | | 39.8 | | | 184.50 | | | 2.40 | | | | |
Adjustments, primarily for copper pricing on prior period sales | | 1.7 | | | 1.7 | | | 1.12 | | | 0.02 | | | | |
Gross profit per pound/ounce | | 66.7 | | | 36.6 | | | 161.76 | | | 2.11 | | | | |
Reconciliation to Amounts Reported | | | | | | | | | | | | | | | |
(In Thousands)
| Revenues | | Production and Delivery | | Depreciation and Amortization | | | | | | | |
Totals presented above | $ | 1,096,795 | | $ | 314,666 | | $ | 114,932 | | | | | | | |
Less: Treatment charges per above | | (138,172 | ) | | N/A | | | N/A | | | | | | | |
Royalty per above | | (16,654 | ) | | N/A | | | N/A | | | | | | | |
Other | | N/A | | | 9,400 | | | N/A | | | | | | | |
Adjustments, primarily for copper pricing on prior period sales per above | | 12,755 | | | N/A | | |
N/A | | | | | | | |
Mining and exploration segment | | 954,724 | | | 324,066 | | | 114,932 | | | | | | | |
Smelting and refining segment | | 429,076 | | | 413,427 | | | 14,091 | | | | | | | |
Eliminations and other | | (249,749 | ) | | (212,615 | ) | | 7,048 | | | | | | | |
As reported in FCX consolidated financial statements | $ | 1,134,051 | | $ | 524,878 | | $ | 136,071 | | | | | | | |
FREEPORT-McMoRan COPPER & GOLD INC.
PRODUCT REVENUES AND PRODUCTION COSTS
(continued)
Six Months Ended June 30, 2002 | | | | |
| | By-Product | | Co-Product Method | |
(In Thousands) | Method | | Copper | | Gold | | Silver | | Total | |
Revenues | $ | 478,394 | | $ | 478,394 | | $ | 219,726 | | $ | 7,783 | | $ | 705,903 | |
| | | | | | | | | | | | | | | | |
Site production and delivery | | 250,589 | | | 169,825 | | | 78,001 | | | 2,763 | | | 250,589 | |
Gold and silver credits | | (227,509 | ) | | - | | | - | | | - | | | - | |
Treatment charges | | 119,027 | | | 80,666 | | | 37,049 | | | 1,312 | | | 119,027 | |
Royalty on metals | | 7,332 | | | 4,969 | | | 2,282 | | | 81 | | | 7,332 | |
Net cash production costs | | 149,439 | | | 255,460 | | | 117,332 | | | 4,156 | | | 376,948 | |
Depreciation and amortization | | 95,679 | | | 64,842 | | | 29,782 | | | 1,055 | | | 95,679 | |
Total production costs | | 245,118 | | | 320,302 | | | 147,114 | | | 5,211 | | | 472,627 | |
Adjustments, primarily for copper pricing on prior period sales | | 9,593 | | | 9,593 | | | - | | | - | | | 9,593 | |
Gross profit | $ | 242,869 | | $ | 167,685 | | $ | 72,612 | | $ | 2,572 | | $ | 242,869 | |
| | | | | | | | | | | | | | | | |
Pounds of copper sold (000) | | 646,500 | | | 646,500 | | | | | | | | | | |
Ounces of gold sold | | | | | | | | 730,300 | | | | | | | |
Ounces of silver sold | | | | | | | | | | | 1,727,800 | | | | |
| | | | | | | | | | | | | | | | |
Gross profit per pound of copper (cents)/ per ounce of gold and silver ($): | | | | | | | | | |
Revenues | | 73.6 | | | 73.6 | | | 300.17 | | | 4.48 | | | | |
| | | | | | | | | | | | | | | | |
Site production and delivery | | 38.8 | | | 26.3 | | | 106.81 | | | 1.60 | | | | |
Gold and silver credits | | (35.2 | ) | | - | | | - | | | - | | | | |
Treatment charges | | 18.4 | | | 12.5 | | | 50.73 | | | 0.76 | | | | |
Royalty on metals | | 1.1 | | | 0.8 | | | 3.13 | | | 0.05 | | | | |
Net cash production costs | | 23.1 | | | 39.6 | | | 160.67 | | | 2.41 | | | | |
Depreciation and amortization | | 14.8 | | | 10.0 | | | 40.78 | | | 0.61 | | | | |
Total production costs | | 37.9 | | | 49.6 | | | 201.45 | | | 3.02 | | | | |
Adjustments, primarily for copper pricing on prior period sales | | 1.9 | | | 1.9 | | | 0.71 | | | 0.03 | | | | |
Gross profit per pound/ounce | | 37.6 | | | 25.9 | | | 99.43 | | | 1.49 | | | | |
Reconciliation to Amounts Reported | | | | | | | | | | | | | | | |
(In Thousands)
| Revenues | | Production and Delivery | | Depreciation and Amortization | | | | | | | |
Totals presented above | $ | 705,903 | | $ | 250,589 | | $ | 95,679 | | | | | | | |
Less: Treatment charges per above | | (119,027 | ) | | N/A | | | N/A | | | | | | | |
Royalty per above | | (7,332 | ) | | N/A | | | N/A | | | | | | | |
Other | | N/A | | | 2,679 | | | N/A | | | | | | | |
Adjustments, primarily for copper pricing on prior period sales per above | | 9,593 | | | N/A | | |
N/A | | | | | | | |
Mining and exploration segment | | 589,137 | | | 253,268 | | | 95,679 | | | | | | | |
Smelting and refining segment | | 375,597 | | | 353,910 | | | 13,644 | | | | | | | |
Eliminations and other | | (164,055 | ) | | (166,137 | ) | | 6,036 | | | | | | | |
As reported in FCX consolidated financial statements | $ | 800,679 | | $ | 441,041 | | $ | 115,359 | | | | | | | |
FREEPORT-McMoRan COPPER & GOLD INC.
CATHODE CASH PRODUCTION COSTS
ATLANTIC COPPER CATHODE CASH PRODUCTION COST PER POUND OF COPPER
Cathode cash production cost per pound of copper is a measure intended to provide investors with information about the costs associated with our smelting operations in Spain. Other smelting companies present this measure, although our measure may not be comparable to similarly titled measures reported by other companies.
Below is a reconciliation of our smelting and refining segment production costs reported in FCX’s consolidated financial statements to the production costs used to calculate our cathode cash production cost per pound of copper (in thousands, except per pound amounts):
| | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | 2003 | | 2002 | | 2003 | | 2002 | |
Smelting and refining segment production costs reported in FCX’s consolidated financial statements | $ | 204,944 | | $ | 164,431 | | $ | 413,427 | | $ | 353,910 | |
Less: | | | | | | | | | | | | |
Raw material purchase costs | | (88,901 | ) | | (79,670 | ) | | (170,597 | ) | | (160,945 | ) |
Production costs of wire rod and wire | | (16,658 | ) | | (11,457 | ) | | (35,831 | ) | | (25,515 | ) |
Production costs of anodes sold | | (2,852 | ) | | (1,114 | ) | | (5,505 | ) | | (3,850 | ) |
Currency hedging | | 2,502 | | | (651 | ) | | 4,117 | | | (1,963 | ) |
Other | | (578 | ) | | (811 | ) | | (663 | ) | | (1,514 | ) |
Credits: | | | | | | | | | | | | |
Gold and silver revenues | | (71,116 | ) | | (49,741 | ) | | (152,189 | ) | | (121,527 | ) |
Acid and other by-product revenues | | (4,760 | ) | | (4,230 | ) | | (9,345 | ) | | (8,022 | ) |
Production costs used in calculating cathode cash production cost per pound | $ | 22,581 | | $ | 16,757 | | $ | 43,414 | | $ | 30,574 | |
| | | | | | | | | | | | | |
Pounds of cathode produced | | 137,900 | | | 140,300 | | | 272,800 | | | 276,500 | |
| | | | | | | | | | | | | |
Cathode cash production cost per pound before hedging | | $0.16 | | | $0.12 | | | $0.16 | | | $0.11 | |
PT SMELTING CATHODE CASH PRODUCTION COST PER POUND OF COPPER
Cathode cash production cost per pound of copper is a measure intended to provide investors with information about the costs associated with our 25 percent-owned smelting operations in Indonesia. Other smelting companies present this measure, although our measure may not be comparable to similarly titled measures reported by other companies.
Below is a reconciliation of the production costs used to calculate PT Smelting’s cathode cash production cost per pound of copper to our equity in PT Smelting earnings (losses) reported in FCX’s consolidated financial statements (in thousands, except per pound amounts):
| | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | 2003 | | 2002 | | 2003 | | 2002 | |
Production costs – PT Smelting (100%) | $ | 14,161 | | $ | 21,301 | | $ | 27,428 | | $ | 34,928 | |
Add: Gold and silver refining charges | | 1,372 | | | 646 | | | 2,863 | | | 1,888 | |
Less: Acid and other by-product revenues | | (1,873 | ) | | (1,088 | ) | | (3,888 | ) | | (2,493 | ) |
Production cost of anodes sold | | (1,173 | ) | | 2,518 | | | (2,424 | ) | | 3,088 | |
Production cost used in calculating cathode cash production cost | $ | 12,487 | | $ | 23,377 | | $ | 23,979 | | $ | 37,411 | |
| | | | | | | | | | | | | |
Cathode production | | 124,100 | | | 92,400 | | | 245,100 | | | 210,200 | |
| | | | | | | | | | | | | |
Cathode cash production cost per pound | $ | 0.10 | | $ | 0.25 | | $ | 0.10 | | $ | 0.18 | |
| | | | | | | | | | | | | |
Reconciliation to Amounts Reported | | | | | | | | | | | | |
Production costs per above | $ | (14,161 | ) | $ | (21,301 | ) | $ | (27,428 | ) | $ | (34,928 | ) |
Other costs | | (180,984 | ) | | (93,309 | ) | | (367,279 | ) | | (228,512 | ) |
Revenue and other income | | 204,463 | | | 104,704 | | | 406,977 | | | 250,490 | |
PT Smelting net income (loss) | | 9,318 | | | (9,906 | ) | | 12,270 | | | (12,950 | ) |
| | | | | | | | | | | | | |
PT Freeport Indonesia’s 25% equity interest | | 2,330 | | | (2,477 | ) | | 3,068 | | | (3,238 | ) |
Amortization of excess investment cost | | (60 | ) | | (60 | ) | | (121 | ) | | (121 | ) |
Equity in PT Smelting earnings (losses) per FCX consolidated financial statements | $ | 2,270 | | $ | (2,537 | ) | $ | 2,947 | | $ | (3,359 | ) |
FREEPORT-McMoRan COPPER & GOLD INC.
NET DEBT and PROVISION FOR INCOME TAXES
NET DEBT
Net debt is a measure intended to provide investors with information about FCX’s leverage position after considering available cash and investment balances that are available for or committed to reducing outstanding debt. Below is a reconciliation of total debt as reported in FCX’s consolidated financial statements to Net Debt (in millions):
| | |
June 30, 2003 | |
March 31, 2003 | | December 31, 2002 | | June 30, 2002 | | March 31, 2002 | | December 31, 2001 | |
Total debt as reported in FCX’s consolidated financial statements | | $2,572 | |
$2,788 | | $2,038 | | $2,256 | | $2,336 | | $2,339 | |
Plus redeemable preferred stock(1) | | 450 | | 450 | | 450 | | 463 | | 463 | | 463 | |
Less restricted investments and cash | | (85 | ) | (84 | ) | (108 | ) | (120 | ) | (119 | ) | (142 | ) |
Less cash and cash equivalents | | (740 | ) | (763 | ) | (7 | ) | (9 | ) | (10 | ) | (8 | ) |
Plus reclamation fund(2) | | 5 | | 5 | | 4 | | 4 | | 4 | | 3 | |
Net Debt | | $2,202 | | $2,396 | | $2,377 | | $2,594 | | $2,674 | | $2,655 | |
(1)
Although not classified as debt, because of the mandatory redemption feature of these instruments we consider them to be like debt for purposes of this presentation. In accordance with Statement of Financial Accounting Standards No. 150, effective July 1, 2003, FCX’s mandatorily redeemable preferred stock will be classified as debt.
(2)
Amounts not available for debt repayment because we have committed these funds to paying for future reclamation and closure costs at our Indonesian mining operations.
PROVISION FOR INCOME TAXES
PT Freeport Indonesia’s Contract of Work provides for a 35 percent corporate income tax rate, and the tax treaty between Indonesia and the United States provides for a withholding tax of 10 percent on dividends and interest that PT Freeport Indonesia pays to the FCX parent company. FCX also incurs a U.S. alternative minimum tax at a rate of 2 percent based primarily on consolidated income, net of smelting and refining results. FCX currently record no income taxes 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 carry forwards for which FCX has provided no financial statement benefit.
FCX receives minimal tax benefit from costs incurred by the parent company, primarily because it generates no taxable income from U.S. sources. FCX also currently receives no tax benefit from losses in its smelting and refining segment because those losses cannot be used to offset PT Freeport Indonesia’s profits in Indonesia. Thus, the percentage of provision for income taxes to consolidated income before income taxes and minority interest will decrease as PT Freeport Indonesia’s income increases and vice versa absent changes in Atlantic Copper and parent company costs. Parent company costs consist primarily of interest, depreciation and amortization, and general and administrative expenses. Summaries of the significant components of the calculation of the consolidated provision for income taxes are shown below (in thousands).
| | Three months ended | | Six months ended | |
| | | | | | | | | |
Mining and exploration segment operating income | $278,991 | | $126,818 | | $473,636 | | $208,862 | |
Mining and exploration segment interest expense, net | (14,520 | ) | (18,797 | ) | (29,872 | ) | (37,910 | ) |
Intercompany operating profit recognized (deferred) | (33,877 | ) | (6,059 | ) | (35,885 | ) | 2,893 | |
Taxable income | 230,594 | | 101,962 | | 407,879 | | 173,845 | |
Indonesian corporate income tax rate (35%) plus U.S. alternative minimum tax rate (2%) |
37% | |
37% | |
37% | |
37% | |
Corporate income taxes | 85,320 | | 37,726 | | 150,915 | | 64,323 | |
| | | | | | | | | |
PT Freeport Indonesia net income | 145,274 | | 64,236 | | 256,964 | | 109,522 | |
Withholding tax on FCX’s equity share | 9.064% | | 9.064% | | 9.064% | | 9.064% | |
Withholding taxes | 13,168 | | 5,822 | | 23,291 | | 9,927 | |
| | | | | | | | | |
Other | (580 | ) | 2,492 | | 916 | | 604 | a |
| | | | | | | | | |
FCX consolidated provision for income taxes | $97,908 | | $46,040 | | $175,122 | | $74,854 | |
| | | | | | | | | |
FCX consolidated effective tax rate | 55% | | 69% | | 55% | | 68% | |
| | | | | | | | | |
a. Includes a $2.4 million tax refund. | | | | | | | | |
