Freeport-McMoRan Copper & Gold Inc. Reports
Third-Quarter and Nine-Month 2003 Results
HIGHLIGHTS
•
Third-quarter 2003 net income of $55.9 million, $0.33 per share, after $37.6 million, $0.19 per share, of net charges for the cumulative effect of a change in accounting principle, the early extinguishment of debt and redemption of preferred stock, compared with third-quarter 2002 net income of $61.5 million, $0.39 per share.
Third quarter sales volumes of 345 million pounds of copper and 763,500 ounces of gold exceeded previous estimates by approximately 25 million pounds and 120,000 ounces, respectively.
Third quarter unit cash production costs, net of gold and silver credits, were a net credit of $0.16 per pound and a net credit of $0.08 per pound for the nine months ended September 30, 2003.
Annual sales volumes for 2003, after estimated effect of reduced fourth quarter production from recent slippage event in section of Grasberg pit, expected to approximate 1.33 billion pounds of copper and 2.45 million ounces of gold, approximately 70 million pounds and 150,000 ounces lower than prior 2003 estimates.
Third-quarter 2003 operating cash flows totaled $220.7 million and for the nine months ended September 30, 2003, totaled $504.8 million. Assuming copper prices of $0.80 per pound and gold prices of $375 per ounce in the fourth quarter, full year 2003 operating cash flows estimated to approximate $575 million.
Total debt of $2.3 billion at September 30, 2003, and approximately $1.7 billion net of cash and restricted investments, reflects year to date reductions of approximately $643 million, including change in cash and restricted investments.
Cash and cash equivalents of $528.6 million at September 30, 2003.
Board of Directors authorized an increase in common stock dividend from an annual rate of $0.36 per share to $0.80 per share. Board also authorized a new 20 million share open market purchase program.
NEW ORLEANS, LA, October 16, 2003 -- Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) reported third-quarter 2003 net income applicable to common stock (inclusive of items discussed below aggregating in a net reduction of $37.6 million, $0.19 per share), of $55.9 million, $0.33 per share, compared with third-quarter 2002 net income of $61.5 million, $0.39 per share. Net income for the third quarter of 2003 was reduced by $24.7 million ($0.13 per share) for the cumulative effect of a required change in the accounting for issuance costs of redeemable preferred stock now classified as debt and $25.1 million ($0.13 per share) in charges related to the early extinguishments of debt. Third quarter net income benefited from a $12.2 million gain ($0.06 per share) on the redemption of Gold-and Silver-Denominated Preferred Stock. For the nine months ended September 30, 2003, FCX reported net income applicable to common stock of $162.5 million, $1.03 per share, including net charges for the cumulative effect of changes in accounting principles of $15.6 million, $0.08 per share, compared with net income of $63.0 million, $0.43 per share, including a charge for the cumulative effect of a change in accounting principle of $3.0 million, $0.02 per share, for the nine months ended September 30, 2002.
Summary Financial Table | Third Quarter | Nine Months | |||
2003 | 2002 | 2003 | 2002 | ||
(In thousands, except per share amounts) | |||||
Revenues | $668,826 | $538,739 | $1,802,877 | $1,339,418 | |
Operating income | 301,795 | 206,076 | 734,347 | 416,029 | |
Net income applicable to common stock before cumulative effect adjustments(a) |
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Net income applicable to common stock(b) | 55,873 | 61,537 | 162,490 | 62,959 | |
Diluted net income per share:(c) | |||||
Before cumulative effect adjustments | 0.46 | 0.39 | 1.11 | 0.45 | |
Applicable to common stock | 0.33 | 0.39 | 1.03 | 0.43 | |
Diluted average shares outstanding(c) | 194,335 | 188,877 | 191,146 | 146,446 | |
a)
Includes losses on the early extinguishment and conversion of debt related to the conversion of FCX’s 8¼% Convertible Senior Notes and other debt extinguishments totaling $25.1 million ($0.13 per share) in the third quarter of 2003 and $29.9 million ($0.16 per share) in the first nine months of 2003. Third-quarter 2003 and nine-month 2003 also include gains totaling $12.2 million ($0.06 per share) on the redemption of Gold- and Silver-Denominated Preferred Stock.
b)
Third-quarter 2003 cumulative effect adjustment reflects a $24.7 million charge for adoption of SFAS No. 150,”Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Debt,” effective July 1, 2003, and nine-month 2003 also reflects a $9.1 million gain for adoption of SFAS No. 143, “Accounting for Asset Retirement Obligations,” effective January 1, 2003. Nine-month 2002 cumulative effect adjustment reflects a $3.0 million charge for an accounting change for depreciation of mining and milling assets, effective January 1, 2002.
c)
Diluted net income per share reflects assumed conversion of FCX’s 8¼% Convertible Senior Notes, resulting in the exclusion of interest expense, net of tax, totaling $8.4 million in the third quarter of 2003, $12.6 million in the third quarter of 2002 and $33.8 million in the first nine months of 2003, and the inclusion of 31.1 million common shares in the third quarter of 2003, 42.2 million common shares in the third quarter of 2002 and 38.5 million common shares in the first nine months of 2003.
Mr. James R. Moffett, Chairman and Chief Executive Officer of FCX, and Richard C. Adkerson, President and Chief Financial Officer said, “Our third quarter and nine month results demonstrate the cash flow generating capacity of our high volume, low cost operations. Our recent Board action to increase our common dividend and authorize an expanded share purchase program will allow us to return a portion of our available cash flow to shareholders while we continue to reduce our debt. These measures are consistent with our ability to generate significant cash flows in excess of our capital expenditures and debt service requirements. We will continue to take actions to maintain a strong financial position which will benefit both our shareholders and investors in our debt securities.”
PT Freeport Indonesia (PT-FI) PRODUCTION AND SALES
Third Quarter | Nine Months | ||||||
2003 | 2002 | 2003 | 2002 | ||||
Copper (000s of recoverable pounds): | |||||||
Production | 341,200 | 425,900 | 1,131,200 | 1,097,100 | |||
Sales | 344,900 | 446,000 | 1,132,100 | 1,092,500 | |||
Average realized price per pound | $0.81 | $0.67 | $0.77 | $0.70 | |||
Gold (recoverable ounces): | |||||||
Production | 761,000 | 851,500 | 2,199,000 | 1,631,500 | |||
Sales | 763,500 | 884,600 | 2,196,600 | 1,614,900 | |||
Average realized price per ounce(a) | $387.75 | (a) | $314.19 | $364.04 | (a) | $307.34 | |
a)
Amounts were $367.72 in the third quarter of 2003 and $353.92 in the first nine months of 2003 before hedging gains resulting from redemption of FCX’s Gold-Denominated Preferred Stock.
PT-FI, FCX’s Indonesian mining unit, reported lower mill throughput rates reflecting the mining of harder ore at the Grasberg open pit. Mill throughput averaged 211,400 metric tons of ore per day in the third quarter of 2003 compared with 219,800 metric tons of ore in the third quarter of 2002. Mill throughput rates vary based on the characteristics of the ore being processed as PT-FI manages its operations to optimize metal production.
PT-FI’s third-quarter copper production and sales were higher than previous estimates but were lower than the 2002 period, reflecting the mining of lower-grade ore than was mined during the third quarter of 2002. Third-quarter 2003 copper ore grades averaged 1.08 percent, compared with 1.31 percent in the third quarter of 2002. Copper recovery rates were 90.0 percent for the third quarter of 2003, compared with 90.8 percent for the third quarter of 2002. Copper realized prices improved by 21 percent to $0.81 per pound in the third quarter of 2003 from $0.67 in the third quarter of 2002. Current LME copper prices approximate $0.88 per pound.
Gold production and sales for the third quarter of 2003 were also higher than previously estimated but were lower than the year-ago period primarily because of lower grades and recoveries. In the third quarter of 2003, ore milled averaged 1.79 grams of gold per metric ton (g/t), compared with 1.85 g/t in the third quarter of 2002. Gold recovery rates declined to 88.5 percent for the third quarter of 2003, compared with 90.1 percent for the third quarter of 2002. Gold realized prices, before hedging, improved by 17 percent to $367.72 per ounce in the third quarter of 2003 from $314.19 per ounce in the third quarter of 2002.
Third-quarter 2003 sales exceeded previous quarterly estimates primarily because of the timing of mining ore previously forecast to be mined in the fourth quarter of 2003. As a result of the slippage in the Grasberg open pit, PT-FI has revised its fourth-quarter 2003 estimates and expects its sales for 2003 to approximate 1.33 billion pounds of copper and 2.45 million ounces of gold, with sales for the fourth quarter of 2003 estimated to approximate 200 million pounds of copper and 250,000 ounces of gold. These estimates are subject to change depending on the timing of restoring access to higher grade sections of the Grasberg pit.
As previously reported, a slippage of material in a section of the Grasberg open pit occurred on October 9, 2003. Regrettably, two fatalities were confirmed, six workers are missing and are presumed to have perished and five were injured. The search effort continues as our highest priority, in conjunction with activities to ensure stability in the area of the slippage. Clean-up activities to restore access to the affected areas of the pit have commenced and are currently anticipated to be completed during the fourth quarter. The causes of the accident continue to be studied. PT-FI is currently conducting operations in the sections of the Grasberg pit unaffected by the slippage and in its underground operations, milling facilities, and concentrate shipping operations. The area affected by the slippage, comprising approximately five percent of the surface area of the massive Grasberg pit, i ncludes two active mining areas which were scheduled to be mined in the fourth quarter of 2003, resulting in a deferral to future periods. The event is not expected to affect long-term mine plans and production rates.
Production from PT-FI’s Deep Ore Zone (DOZ) underground mine averaged 42,600 metric tons of ore per day during the third quarter of 2003, representing 20 percent of third-quarter 2003 mill throughput. DOZ operations continue to perform above design capacity of 35,000 metric tons of ore per day and studies are ongoing to evaluate additional low-cost options to increase production from the DOZ underground operation. The Intermediate Ore Zone (IOZ) underground mine was depleted during the third quarter of 2003. During its approximate 10-year life, the IOZ operation produced almost 30 percent more copper and gold than the initial reserve estimate.
At September 30, 2003, FCX’s concentrate sales included 155.6 million pounds of copper, priced at an average of $0.81 per pound, that remain subject to final pricing over the next several months. Each $0.01 change in the price realized from the September 30 price would result in an approximate $0.8 million, $0.004 per share, effect on FCX’s 2003 net income. Third-quarter 2003 adjustments to concentrate sales recognized in prior quarters increased revenues by $8.3 million ($4.3 million to net income, $0.02 per share) compared with a decrease of $10.3 million ($5.3 million to net income, $0.03 per share) in the third quarter of 2002.
NET CASH PRODUCTION COSTS(1)
Third Quarter | Nine Months | |||||||
2003 | 2002 | 2003 | 2002 | |||||
Per pound of copper: | ||||||||
Site production and delivery | $0.48 | $0.33 | $0.42 | $0.37 | ||||
Gold and silver credits | (0.84 | ) | (0.63 | ) | (0.70 | ) | (0.47 | ) |
Treatment charges and royalties | 0.20 | 0.20 | 0.20 | 0.20 | ||||
Net cash production costs (credits) | $(0.16 | ) | $(0.10 | ) | $(0.08 | ) | $0.10 | |
(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 third quarter of 2003, compared with a net credit of $(0.10) per pound for the 2002 quarter. Unit production and delivery costs increased from the prior year period primarily because of lower sales volumes. Higher mine maintenance costs, stronger Indonesian and Australian currencies and higher energy costs also resulted in higher costs compared with last year’s third quarter. Gold credits improved primarily because of higher gold prices. Assuming gold prices of $375 per ounce for the fourth quarter of 2003 and gold sales of 2.45 million ounces for 2003, we expect our gold credits would essentially offset our cash production cost per pound of copper for the year.
SMELTER OPERATIONS
Atlantic Copper, FCX’s wholly owned Spanish smelting unit, treated 253,000 metric tons of concentrates and scrap in the third quarter of 2003, compared with 258,200 metric tons in the year-ago period. Unit cathode cash production costs totaled $0.15per pound in the third 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 $0.02 per pound to Atlantic Copper’s third-quarter 2003 unit costs compared with third-quarter 2002 unit costs. Atlantic Copper reported an operating loss of $5.0 million for the third quarter of 2003, compared with operating income of $1.5 million in the 2002 period. Treatment charges received by Atlantic Copper remained at historically low levels, averaging $0.16 per pound during the third quarter of 2003 and $0.18 per pound during the third quarter of 2002.
FCX recognized a non-cash charge totaling $1.5 million, $0.01 per share, in the third quarter of 2003 as a result of the effect on Atlantic Copper’s net euro-denominated liabilities from the euro strengthening from $1.14 per euro to $1.17 per euro, compared with a gain of $1.7 million, $0.01 per share, in the third 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 fourth quarter euro disbursements at an average rate of $1.03 per euro.
PT Smelting, PT-FI’s 25 percent-owned Indonesian smelting unit, treated 209,900 metric tons of concentrates in the third quarter of 2003, compared with 192,200 metric tons in the year-ago period. PT Smelting reported a quarterly production record of 125.2 million pounds of cathodes and sold 123.6 million pounds of cathodes. Cathode production totaled 91.5 million pounds and sales totaled 95.5 million pounds during the third quarter of 2002. PT Smelting’s copper cathode cash production costs per pound totaled $0.10per pound in the third quarter of 2003 and $0.12per pound in the year-ago period. PT-FI’s equity interest in PT Smelting’s earnings totaled $1.3 million, $0.01 per share, for the third quarter of 2003 compared to a net loss of $1.9 million, $0.01 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. Changes to these net deferrals resulted in additions to FCX’s net income totaling $10.0 million, $0.05 per share, in the third quarter of 2003, compared with a reduction of $20.9 million, $0.11 per share, in the third 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 and DEBT REDUCTIONS
Operating cash flows for the first nine months of 2003 totaled $504.8 million. Assuming fourth quarter copper and gold prices of $0.80 per pound and $375 per ounce, respectively, FCX estimates that its operating cash flows for 2003 would approximate $575 million. Capital expenditures totaled $96.3 million in the first nine months of 2003 and are estimated to total approximately $160 million for the year 2003.
As of September 30, 2003 FCX had $528.6 million in cash and cash equivalents. Total debt, which includes mandatorily redeemable preferred stock, totaled $2.29 billion at September 30, 2003, and approximately $1.73 billion net of cash and restricted investments. The net reduction of debt, including the change in cash and restricted investments, was $468 million in the third quarter and $643 million since the beginning of the year. Assuming fourth quarter copper and gold prices of $0.80 per pound and $375 per ounce, respectively, FCX estimates total debt, net of cash and restricted investments, will approximate $1.75 billion at year end 2003. Upon the adoption of SFAS No. 150 on July 1, 2003, FCX’s mandatorily redeemable preferred stock was reclassified as debt and FCX recorded a cumulative effect adjustment for the amortization of $24.7 million ($0.13 per share) of original issuance costs relat ed to the mandatorily redeemable preferred stock.
During the third quarter, FCX completed a number of transactions to improve its balance sheet:
In August 2003, FCX negotiated the early conversion of approximately 51% of its 8¼% convertible senior notes, which resulted in a $311.1 million reduction in debt. The holders converted their notes into 21.76 million shares of FCX common stock and received $23.0 million in cash from restricted cash held in escrow for payment of future interest on these notes. FCX recorded charges totaling $24.7 million ($24.2 million to net income or $0.12 per share) related to the conversion of its 8¼% convertible senior notes. At September 30, 2003, FCX had $292.6 million in 8¼% convertible senior notes remained outstanding. The notes are callable beginning in August 2004.
On August 1, 2003, FCX redeemed its 6.0 million shares of Gold-Denominated Preferred Stock for $210.5 million and partially redeemed its Silver-Denominated Preferred Stock for $10.8 million. The mandatory redemptions resulted in a $245.1 million decrease in debt and a hedging gain to revenues of $23.8 million ($12.2 million to net income or $0.06 per share) for the third quarter of 2003.
In July 2003, FCX purchased $76.0 million of its 7.2% Senior Notes for $77.2 million and recorded a $1.3 million, $0.9 million to net income ($0.005 per share) charge for early extinguishment of debt. Through September 30, 2003, FCX has purchased 7.20% Senior Notes and 7.50% Senior Notes with a total face amount of $310.0 million. In July 2003, FCX also purchased an 85.7 percent interest in PT-FI’s power project owned by a third party for $78 million, reducing consolidated debt by $54.0 million.
In October 2003, FCX and PT-FI entered into an amended revolving credit facility. The amended credit facility provides a commitment of $165.0 million, which may be increased to $350 million with additional lender commitments, and a maturity date of September 2006. FCX recorded charges totaling $5.6 million ($3.7 million to net income or $0.02 per share) in the third quarter of 2003 for deferred financing costs related to the prior credit facility.
NEW DIVIDEND POLICY AND SHARE PURCHASE AUTHORIZATION
FCX’s Board of Directors authorized an increase in the common stock dividends from an annual rate of $0.36 per share to $0.80 per share. The Board also approved a new open market share purchase program authorizing open market purchases totaling 20 million shares. The timing of future purchases is dependent upon many factors including the company’s operating results, cash flow and financial position, the market price of the common shares and general economic and market conditions.
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.
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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 anticipated sales volumes, projected unit production costs, projected capital expenditures, projected operating cash flows, projected debt and cash levels, the impact of copper and gold price changes, the impact of the recent slippage in the Grasberg open pit on operations, statements regarding timing of dividend payments and statements regarding open market purchases of FCX common stock. The declaration and payment of dividends is at the discretion of the Company's Board of Directors and will depend on the Company's financial results, cash requirements, future prospects, and other factors deemed relevant by the Board. Accuracy of the projections depend s 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 and cathode cash production costs per pound of copper. 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 third-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, November 14, 2003.
FREEPORT-McMoRan COPPER & GOLD INC.
SELECTED OPERATING DATA
(Page 1 of 2)
Third Quarter | Nine Months | |||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||
PT Freeport Indonesia, Net of Rio Tinto’s Interest | ||||||||||||
Copper | ||||||||||||
Production (000s of recoverable pounds) | 341,200 | 425,900 | 1,131,200 | 1,097,100 | ||||||||
Production (metric tons) | 154,800 | 193,200 | 513,100 | 497,600 | ||||||||
Sales (000s of recoverable pounds) | 344,900 | 446,000 | 1,132,100 | 1,092,500 | ||||||||
Sales (metric tons) | 156,400 | 202,300 | 513,500 | 495,600 | ||||||||
Average realized price per pound | $.81 | $.67 | $.77 | $.70 | ||||||||
Gold | ||||||||||||
Production (recoverable ounces) | 761,000 | 851,500 | 2,199,000 | 1,631,500 | ||||||||
Sales (recoverable ounces) | 763,500 | 884,600 | 2,196,600 | 1,614,900 | ||||||||
Average realized price per ounce | $387.75 | a | $314.19 | $364.04 | a | $307.34 | ||||||
Silver | ||||||||||||
Production (recoverable ounces) | 1,181,900 | 1,198,000 | 3,716,700 | 3,000,400 | ||||||||
Sales (recoverable ounces) | 1,182,300 | 1,264,200 | 3,726,900 | 2,992,000 | ||||||||
Average realized price per ounce | $5.25 | b | $5.17 | b | $5.10 | b | $4.78 | b | ||||
PT Freeport Indonesia Gross Profit per Pound of Copper (cents): | ||||||||||||
Average realized price | 80.6 | 67.0 | 77.4 | 69.7 | ||||||||
Production costs: | ||||||||||||
Site production and delivery | 47.5 | c | 33.1 | c | 42.3 | c | 36.4 | c | ||||
Gold and silver credits | (83.7 | ) | (63.4 | ) | (70.3 | ) | (46.7 | ) | ||||
Treatment charges | 17.9 | 18.1 | 17.7 | 18.3 | ||||||||
Royalty on metals | 2.6 | 2.0 | 2.3 | 1.5 | ||||||||
Cash production costs (credits)d | (15.7 | ) | (10.2 | ) | (8.0 | ) | 9.5 | |||||
Depreciation and amortization | 15.6 | 14.8 | 14.9 | 14.8 | ||||||||
Total production costs (credits) | (0.1 | ) | 4.6 | 6.9 | 24.3 | |||||||
Adjustments, primarily for copper pricing on prior period open sales | 9.9 | (2.7 | ) | 3.5 | 1.2 | |||||||
Gross profit per pound of copper | 90.6 | 59.7 | 74.0 | 46.6 | ||||||||
a.
Amounts were $367.72 in the third quarter of 2003 and $353.92 in the first nine months of 2003 before hedging gains resulting from redemption of FCX’s Gold-Denominated Preferred Stock.
b.
Amounts were $4.89 in the third quarter of 2003, $4.54 in the third quarter of 2002, $4.65 in the first nine months of 2003 and $4.50 in the first nine months of 2002 before hedging gains resulting from redemption of FCX’s Silver-Denominated Preferred Stock.
c.
Net of deferred mining costs totaling $15.7 million or 4.6 cents per pound in the third quarter of 2003, $11.3 million or 2.5 cents per pound in the third quarter of 2002, $37.4 million or 3.3 cents per pound in the first nine months of 2003 and $23.7 million or 2.2 cents per pound in the first nine months of 2002.
d.
For a reconciliation of net cash production costs (credits) 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)
| Third Quarter | Nine Months | ||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||
| PT Freeport Indonesia, 100% Operating Statistics | |||||||||||
| Ore milled (metric tons per day) | 211,400 | 219,800 | 223,600 | 234,500 | |||||||
| Average ore grade | 1.08 | 1.31 | 1.16 | 1.11 | |||||||
| Copper (percent) | |||||||||||
| Gold (grams per metric ton) | 1.79 | 1.85 | 1.65 | 1.17 | |||||||
| Gold (ounce per metric ton) | .058 | .059 | .053 | .038 | |||||||
| Silver (grams per metric ton) | 3.90 | 4.01 | 3.98 | 3.45 | |||||||
| Silver (ounce per metric ton) | .125 | .129 | .128 | .111 | |||||||
| Recovery rates (percent) | |||||||||||
| Copper | 90.0 | 90.8 | 89.4 | 88.0 | |||||||
| Gold | 88.5 | 90.1 | 87.7 | 88.1 | |||||||
| Silver | 66.3 | 65.9 | 64.3 | 60.3 | |||||||
| Copper | |||||||||||
| Production (000s of recoverable pounds) | 402,800 | 510,300 | 1,338,000 | 1,325,000 | |||||||
| Production (metric tons) | 182,700 | 231,500 | 606,900 | 601,000 | |||||||
| Sales (000s of recoverable pounds) | 407,100 | 534,800 | 1,339,200 | 1,319,500 | |||||||
| Sales (metric tons) | 184,700 | 242,600 | 607,500 | 598,500 | |||||||
| Gold (recoverable ounces) | |||||||||||
| Production | 977,100 | 1,053,100 | 2,806,400 | 2,053,100 | |||||||
| Sales | 980,200 | 1,096,000 | 2,802,800 | 2,032,100 | |||||||
| Silver (recoverable ounces) | |||||||||||
| Production | 1,428,000 | 1,401,200 | 4,224,100 | 3,440,500 | |||||||
| Sales | 1,430,500 | 1,476,300 | 4,230,600 | 3,428,900 | |||||||
| Atlantic Copper | |||||||||||
| Concentrates and scrap treated (metric tons) | 253,000 | 258,200 | 739,700 | 759,000 | |||||||
| Anodes | |||||||||||
| Production (000s of pounds) | 173,400 | 164,500 | 496,800 | 486,700 | |||||||
| Production (metric tons) | 78,600 | 74,600 | 225,300 | 220,800 | |||||||
| Sales (000s of pounds) | 36,200 | 26,100 | 87,700 | 73,100 | |||||||
| Sales (metric tons) | 16,400 | 11,800 | 39,800 | 33,200 | |||||||
| Cathodes | |||||||||||
| Production (000s of pounds) | 135,300 | 135,600 | 408,100 | 412,100 | |||||||
| Production (metric tons) | 61,400 | 61,500 | 185,100 | 186,900 | |||||||
| Sales, including wire rod and wire (000s of pounds) | 127,100 | 137,100 | 406,000 | 413,300 | |||||||
| Sales, including wire rod and wire (metric tons) | 57,700 | 62,200 | 184,200 | 187,500 | |||||||
| Gold sales in anodes and slimes (ounces) | 260,000 | 154,000 | 707,600 | 565,400 | |||||||
Cathode cash production cost per pound before hedginga | $.15 | $.12 | $.16 | $.12 | |||||||
| PT Smelting, 25%-owned by PT Freeport Indonesia | |||||||||||
| Concentrate treated (metric tons) | 209,900 | 192,200 | 630,600 | 500,500 | |||||||
| Anodes | |||||||||||
| Production (000s of pounds) | 142,700 | 121,900 | 425,000 | 317,600 | |||||||
| Production (metric tons) | 64,700 | 55,300 | 192,800 | 144,100 | |||||||
| Sales (000s of pounds) | 8,600 | 10,200 | 53,800 | 15,100 | |||||||
| Sales (metric tons) | 3,900 | 4,600 | 24,400 | 6,800 | |||||||
| Cathodes | |||||||||||
| Production (000s of pounds) | 125,200 | 91,500 | 370,300 | 301,700 | |||||||
| Production (metric tons) | 56,800 | 41,500 | 168,000 | 136,800 | |||||||
| Sales (000s of pounds) | 123,600 | 95,500 | 368,600 | 299,200 | |||||||
| Sales (metric tons) | 56,100 | 43,300 | 167,200 | 135,700 | |||||||
| Cathode cash production cost per pounda | $.10 | $.12 | $.10 | $.16 | |||||||
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 September 30, | Nine Months Ended September 30, | |||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||
(In Thousands, Except Per Share Amounts) | ||||||||||||
Revenues | $ | 668,826 | a | $ | 538,739 | a | $ | 1,802,877 | a | $ | 1,339,418 | a |
Cost of sales: | ||||||||||||
Production and delivery | 284,946 | 238,231 | 809,824 | 679,272 | ||||||||
Depreciation and amortization |
| 63,979 |
| 77,077 |
| 200,050 |
| 192,436 | ||||
Total cost of sales | 348,925 | 315,308 | 1,009,874 | 871,708 | ||||||||
Exploration expenses | 1,685 | 908 | 5,016 | 2,462 | ||||||||
General and administrative expenses |
| 16,421 | b |
| 16,447 | b |
| 53,640 | b |
| 49,219 | b |
Total costs and expenses |
| 367,031 |
| 332,663 |
| 1,068,530 |
| 923,389 | ||||
Operating income | 301,795 | 206,076 | 734,347 | 416,029 | ||||||||
Equity in PT Smelting earnings (losses) | 1,294 | (1,864 | ) | 4,241 | (5,223 | ) | ||||||
Interest expense, net | (48,000 | ) | (41,388 | ) | (155,987 | ) | (129,162 | ) | ||||
Losses on extinguishment and conversion of debt | (25,988 | ) | - | (32,566 | ) | - | ||||||
Other income (expenses), net |
| (375 | )c | 807 | c |
| (4,323 | )c |
| (8,488 | )c | |
Income before income taxes and minority interests | 228,726 | 163,631 | 545,712 | 273,156 | ||||||||
Provision for income taxes | (123,921 | ) | (81,134 | ) | (299,043 | ) | (155,988 | ) | ||||
Minority interests in net income of consolidated subsidiaries |
| (18,132 | ) |
| (11,534 | ) |
| (43,302 | ) |
| (23,063 | ) |
Net income before cumulative effect of changes in accounting principle | 86,673 | 70,963 | 203,367 | 94,105 | ||||||||
Cumulative effect of changes in accounting principle, net | (24,675 | ) | - | (15,593 | ) | (3,049 | ) | |||||
Net income | 61,998 | 70,963 | 187,774 | 91,056 | ||||||||
Preferred dividends |
| (6,125 | ) |
| (9,426 | ) |
| (25,284 | ) | (28,097 | ) | |
Net income applicable to common stock | $ | 55,873 | $ | 61,537 | $ | 162,490 | $ | 62,959 | ||||
Net income per share of common stock: | ||||||||||||
Basic: | ||||||||||||
Before cumulative effect | $.51 | $.42 | $1.19 | $.46 | ||||||||
Cumulative effect | (.16 | ) | - | (.11 | ) | (.02 | ) | |||||
Net income per share of common stock | $.35 | $.42 | $1.08 | $.44 | ||||||||
Diluted: | ||||||||||||
Before cumulative effect | $.46 | d | $.39 | d | $1.11 | d | $.45 | |||||
Cumulative effect | (.13 | ) | - | (.08 | ) | (.02 | ) | |||||
Net income per share of common stock | $.33 | d | $.39 | d | $1.03 | d | $.43 | |||||
Average common shares outstanding: | ||||||||||||
Basic | 159,407 | 144,894 | 150,185 | 144,567 | ||||||||
Diluted | 194,335 | d | 188,877 | d | 191,146 | d | 146,446 | |||||
Dividends paid per common share | $0.09 | $ - | $0.18 | $ - | ||||||||
a.
Includes adjustments to prior period concentrate sales totaling $8.3 million in the 2003 quarter, $(10.3) million in the 2002 quarter, $11.0 million in the 2003 nine-month period and $5.4 million in the 2002 nine-month period. Also includes hedging gains from redemption of gold and silver preferred stock totaling $23.8 million for the 2003 quarter and nine-month period, and $0.8 million for the 2002 quarter and nine-month period.
b.
Includes charges (credits) for costs associated with stock appreciation rights caused by an increase (decrease) in FCX’s stock price totaling $2.2 million in the 2003 quarter, $(0.5) million in the 2002 quarter, $4.0 million in the 2003 nine-month period and $0.1 million in the 2002 nine-month period. Also includes reductions from Rio Tinto’s reimbursements for certain administrative costs totaling $7.4 million in the 2003 quarter, $9.7 million in the 2003 nine-month period and $1.2 million in the 2002 nine-month period.
c.
Includes net benefits (charges) totaling $(1.5) million in the 2003 quarter, $1.7 million in the 2002 quarter, $(7.8) million in the 2003 nine-month period and $(7.1) million in the 2002 nine-month period associated with the impact of movements in the US$/euro exchange rate on Atlantic Copper’s non-operating euro-denominated liabilities. Third-quarter and nine-month 2003 periods include a $5.6 million charge related to restructuring FCX/PT-FI’s credit facility.
d.
Diluted net income per share reflects assumed conversion of FCX’s 8 ¼% Convertible Senior Notes, resulting in the exclusion of interest expense (net of tax) totaling $8.4 million in the 2003 quarter, $12.6 million in the 2002 quarter, $33.8 million in the 2003 nine-month period, and the inclusion of 31.1 million common shares for the 2003 quarter, 42.2 million common shares for the 2002 quarter, and 38.5 million common shares for the 2003 nine-month period.
FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED BALANCE SHEETS (Unaudited)
September 30, | December 31, | |||||||
2003 | 2002 | |||||||
(In Thousands) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 528,593 | $ | 7,836 | ||||
Restricted investments and cash | 34,585 | 49,809 | ||||||
Accounts receivable | 282,740 | 190,509 | ||||||
Inventories | 358,479 | 387,247 | ||||||
Prepaid expenses and other | 10,365 |
| 2,579 | |||||
Total current assets | 1,214,762 | 637,980 | ||||||
Property, plant, equipment and development costs, net | 3,242,730 | 3,320,561 | ||||||
Lease receivable and other assets | 156,656 | a | 52,661 | |||||
Deferred mining costs | 115,588 | 78,235 | ||||||
Investment in PT Smelting | 43,959 | 44,619 | ||||||
Restricted investments and cash | - | 58,137 | ||||||
Total assets | $ | 4,773,695 | $ | 4,192,193 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 280,142 | $ | 262,310 | ||||
Current portion of long-term debt and short-term borrowings | 140,552 | 77,112 | ||||||
Accrued income taxes | 106,577 | 81,319 | ||||||
Unearned customer receipts | 47,488 | 36,754 | ||||||
Rio Tinto share of joint venture cash flows | 44,443 | 51,297 | ||||||
Accrued interest payable | 23,557 | 29,081 | ||||||
Total current liabilities | 642,759 | 537,873 | ||||||
Long-term debt, less current portion: | ||||||||
Convertible senior notes | 867,604 | 603,750 | ||||||
Senior notes | 639,967 | 450,000 | ||||||
Infrastructure asset financings | 200,906 | 310,674 | ||||||
Redeemable preferred stock | 192,381 | b | - | b | ||||
Atlantic Copper debt | 161,293 | 233,642 | ||||||
Equipment and other loans | 90,456 | 84,212 | ||||||
FCX and PT Freeport Indonesia credit facilities | - | 279,000 | ||||||
Total long-term debt, less current portion | 2,152,607 | 1,961,278 | ||||||
Accrued postretirement benefits and other liabilities | 151,714 | 140,016 | ||||||
Deferred income taxes | 859,769 | 706,510 | ||||||
Minority interests | 180,366 | 129,687 | ||||||
Redeemable preferred stock | - | b | 450,003 | b | ||||
Stockholders' equity |
| 786,480 |
| 266,826 | ||||
Total liabilities and stockholders' equity | $ | 4,773,695 | $ | 4,192,193 | ||||
a.
Includes $76.2 million lease receivable due from Rio Tinto resulting from FCX’s acquisition of PT Puncakjaya Power in July 2003.
b.
In accordance with Statement of Financial Accounting Standards No. 150, FCX’s mandatorily redeemable preferred stock was classified as debt effective July 1, 2003. Restatement of prior periods is not allowed. On August 1, 2003, FCX redeemed preferred stock with a balance of $245.1 million for $221.3 million resulting in a hedging gain of $23.8 million recorded in revenues.
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, | ||||||||
2003 | 2002 | |||||||
(In Thousands) | ||||||||
Cash flow from operating activities: | ||||||||
Net income | $ | 187,774 | $ | 91,056 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 200,050 | 192,436 | ||||||
Cumulative effect of changes in accounting principle | 15,593 | 3,049 | ||||||
Losses on extinguishment and conversion of debt | 32,566 | - | ||||||
Deferred income taxes | 87,251 | 34,617 | ||||||
Equity in PT Smelting (earnings) losses | (4,241 | ) | 5,223 | |||||
Minority interests' share of net income | 43,302 | 23,063 | ||||||
Change in deferred mining costs | (37,353 | ) | (23,698 | ) | ||||
Currency translation loss | 7,800 | 7,071 | ||||||
Amortization of deferred financing costs | 13,361 | 9,002 | ||||||
Elimination of profit on PT Freeport Indonesia sales to PT Smelting | 5,595 | 6,277 | ||||||
Provision for inventory obsolescence | 4,500 | 4,500 | ||||||
Other | (4,897 | ) | (2,032 | ) | ||||
(Increases) decreases in working capital: | ||||||||
Accounts receivable | (76,448 | ) | (43,229 | ) | ||||
Inventories | 7,228 | (26,990 | ) | |||||
Prepaid expenses and other | (5,555 | ) | (1,658 | ) | ||||
Accounts payable and accrued liabilities | 11,905 | (35,696 | ) | |||||
Rio Tinto share of joint venture cash flows | (6,008 | ) | 31,680 | |||||
Accrued income taxes |
| 22,366 |
| 29,589 | ||||
Increase in working capital |
| (46,512 | ) |
| (46,304 | ) | ||
Net cash provided by operating activities |
| 504,789 |
| 304,260 | ||||
Cash flow from investing activities: | ||||||||
PT Freeport Indonesia capital expenditures | (90,145 | ) | (143,698 | ) | ||||
Atlantic Copper capital expenditures | (6,108 | ) | (1,962 | ) | ||||
Investment in PT Puncakjaya Power, net of cash acquired | (68,068 | ) | - | |||||
Sale of restricted investments | 71,848 | 47,938 | ||||||
Sale of assets and other |
| 1,165 |
| (167 | ) | |||
Net cash used in investing activities |
| (91,308 | ) |
| (97,889 | ) | ||
Cash flow from financing activities: | ||||||||
Net proceeds from sales of senior notes | 1,046,437 | - | ||||||
Proceeds from other debt | 36,592 | 342,607 | ||||||
Repayments of debt | (739,499 | ) | (485,286 | ) | ||||
Redemptions of preferred stock | (221,289 | ) | (11,671 | ) | ||||
Cash dividends paid: | ||||||||
Common stock | (26,289 | ) | - | |||||
Preferred stock | (27,555 | ) | (27,896 | ) | ||||
Minority interest | (1,623 | ) | - | |||||
Proceeds from exercised stock options | 43,839 | 7,549 | ||||||
Financing costs and other |
| (3,337 | ) |
| (1,234 | ) | ||
Net cash provided by (used in) financing activities |
| 107,276 |
| (175,931 | ) | |||
Net increase in cash and cash equivalents | 520,757 | 30,440 | ||||||
Cash and cash equivalents at beginning of year | 7,836 |
| 7,587 | |||||
Cash and cash equivalents at end of period | $ | 528,593 | $ | 38,027 | ||||
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 measures 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) the majority of our revenues are copper revenues, (2) we produce and sell one product, concentrates, which contains all three metals and (3) it is not possible to specifically assign our costs to revenues from the copper, gold and silver we produce in concentrates. In the co-product method presentation below, costs are allocated 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 September 30, 2003 | |||||||||||||||
By-Product | Co-Product Method | ||||||||||||||
(In Thousands) | Method | Copper | Gold | Silver | Total | ||||||||||
Revenues | $ | 277,744 | $ | 277,744 | $ | 282,723 | $ | 5,891 | $ | 566,358 | |||||
Site production and delivery | 164,087 | 80,469 | 81,911 | 1,707 | 164,087 | ||||||||||
Gold and silver credits | (288,614 | ) | - | - | - | - | |||||||||
Treatment charges | 61,656 | 30,236 | 30,779 | 641 | 61,656 | ||||||||||
Royalty on metals | 8,844 | 4,337 | 4,415 | 92 | 8,844 | ||||||||||
Net cash production costs | (54,027 | ) | 115,042 | 117,105 | 2,440 | 234,587 | |||||||||
Depreciation and amortization | 53,747 | 26,358 | 26,830 | 559 | 53,747 | ||||||||||
Total production costs | (280 | ) | 141,400 | 143,935 | 2,999 | 288,334 | |||||||||
Adjustments, primarily for copper pricing on prior period sales and gold/silver hedging | 34,498 | 10,666 | 22,110 | 1,722 | 34,498 | ||||||||||
Gross profit | $ | 312,522 | $ | 147,010 | $ | 160,898 | $ | 4,614 | $ | 312,522 | |||||
Pounds of copper sold (000) | 344,900 | 344,900 | |||||||||||||
Ounces of gold sold | 763,500 | ||||||||||||||
Ounces of silver sold | 1,182,300 | ||||||||||||||
Gross profit per pound of copper (cents)/ per ounce of gold and silver ($): | |||||||||||||||
Revenues | 80.6 | 80.6 | 387.75 | 5.25 | |||||||||||
Site production and delivery | 47.5 | 23.3 | 107.28 | 1.44 | |||||||||||
Gold and silver credits | (83.7 | ) | - | - | - | ||||||||||
Treatment charges | 17.9 | 8.8 | 40.31 | 0.54 | |||||||||||
Royalty on metals | 2.6 | 1.3 | 5.78 | 0.08 | |||||||||||
Net cash production costs | (15.7 | ) | 33.4 | 153.37 | 2.06 | ||||||||||
Depreciation and amortization | 15.6 | 7.6 | 35.14 | 0.47 | |||||||||||
Total production costs | (0.1 | ) | 41.0 | 188.51 | 2.53 | ||||||||||
Adjustments, primarily for copper pricing on prior period sales and gold/silver hedging | 9.9 | 3.0 | 11.50 | 1.18 | |||||||||||
Gross profit per pound/ounce | 90.6 | 42.6 | 210.74 | 3.90 | |||||||||||
Reconciliation to Amounts Reported | |||||||||||||||
(In Thousands) | Revenues | Production and Delivery | Depreciation and Amortization | ||||||||||||
Totals presented above | $ | 566,358 | $ | 164,087 | $ | 53,747 | |||||||||
Less: Treatment charges per above | (61,656 | ) | N/A | N/A | |||||||||||
Royalty per above | (8,844 | ) | N/A | N/A | |||||||||||
Other | N/A | 487 | N/A | ||||||||||||
Adjustments, primarily for copper pricing on prior period sales and hedging per above | 34,498 | N/A | N/A | ||||||||||||
Mining and exploration segment | 530,356 | 164,574 | 53,747 | ||||||||||||
Smelting and refining segment | 239,727 | 234,795 | 7,067 | ||||||||||||
Eliminations and other | (101,257 | ) | (114,423 | ) | 3,165 | ||||||||||
As reported in FCX consolidated financial statements | $ | 668,826 | $ | 284,946 | $ | 63,979 | |||||||||
FREEPORT-McMoRan COPPER & GOLD INC.
PRODUCT REVENUES AND PRODUCTION COSTS
(continued)
Three Months Ended September 30, 2002 | |||||||||||||||
By-Product | Co-Product Method | ||||||||||||||
(In Thousands) | Method | Copper | Gold | Silver | Total | ||||||||||
Revenues | $ | 296,878 | $ | 296,878 | $ | 277,121 | $ | 5,718 | $ | 579,717 | |||||
Site production and delivery | 147,594 | 75,584 | 70,554 | 1,456 | 147,594 | ||||||||||
Gold and silver credits | (282,839 | ) | - | - | - | - | |||||||||
Treatment charges | 80,698 | 41,326 | 38,576 | 796 | 80,698 | ||||||||||
Royalty on metals | 9,019 | 4,619 | 4,311 | 89 | 9,019 | ||||||||||
Net cash production costs | (45,528 | ) | 121,529 | 113,441 | 2,341 | 237,311 | |||||||||
Depreciation and amortization | 66,010 | 33,804 | 31,555 | 651 | 66,010 | ||||||||||
Total production costs | 20,482 | 155,333 | 144,996 | 2,992 | 303,321 | ||||||||||
Adjustments, primarily for copper pricing on prior period sales and silver hedging | (10,072 | ) | (10,902 | ) | - | 830 | (10,072 | ) | |||||||
Gross profit | $ | 266,324 | $ | 130,643 | $ | 132,125 | $ | 3,556 | $ | 266,324 | |||||
Pounds of copper sold (000) | 446,000 | 446,000 | |||||||||||||
Ounces of gold sold | 884,600 | ||||||||||||||
Ounces of silver sold | 1,264,200 | ||||||||||||||
Gross profit per pound of copper (cents)/ per ounce of gold and silver ($): | |||||||||||||||
Revenues | 67.0 | 67.0 | 314.19 | 5.17 | |||||||||||
Site production and delivery | 33.1 | 16.9 | 79.76 | 1.15 | |||||||||||
Gold and silver credits | (63.4 | ) | - | - | - | ||||||||||
Treatment charges | 18.1 | 9.3 | 43.61 | 0.63 | |||||||||||
Royalty on metals | 2.0 | 1.0 | 4.87 | 0.07 | |||||||||||
Net cash production costs | (10.2 | ) | 27.2 | 128.24 | 1.85 | ||||||||||
Depreciation and amortization | 14.8 | 7.6 | 35.67 | 0.52 | |||||||||||
Total production costs | 4.6 | 34.8 | 163.91 | 2.37 | |||||||||||
Adjustments, primarily for copper pricing on prior period sales and silver hedging | (2.7 | ) | (2.9 | ) | (0.92 | ) | 0.01 | ||||||||
Gross profit per pound/ounce | 59.7 | 29.3 | 149.36 | 2.81 | |||||||||||
Reconciliation to Amounts Reported | |||||||||||||||
(In Thousands) | Revenues | Production and Delivery | Depreciation and Amortization | ||||||||||||
Totals presented above | $ | 579,717 | $ | 147,594 | $ | 66,010 | |||||||||
Less: Treatment charges per above | (80,698 | ) | N/A | N/A | |||||||||||
Royalty per above | (9,019 | ) | N/A | N/A | |||||||||||
Other | N/A | 1,072 | N/A | ||||||||||||
Adjustments, primarily for copper pricing on prior period sales and hedging per above | (10,072 | ) | N/A | N/A | |||||||||||
Mining and exploration segment | 479,928 | 148,666 | 66,010 | ||||||||||||
Smelting and refining segment | 181,400 | 170,780 | 6,978 | ||||||||||||
Eliminations and other | (122,589 | ) | (81,215 | ) | 4,089 | ||||||||||
As reported in FCX consolidated financial statements | $ | 538,739 | $ | 238,231 | $ | 77,077 | |||||||||
FREEPORT-McMoRan COPPER & GOLD INC.
PRODUCT REVENUES AND PRODUCTION COSTS
(continued)
Nine Months Ended September 30, 2003 | |||||||||||||||
By-Product | Co-Product Method | ||||||||||||||
(In Thousands) | Method | Copper | Gold | Silver | Total | ||||||||||
Revenues | $ | 877,499 | $ | 877,499 | $ | 778,946 | $ | 17,375 | $ | 1,673,820 | |||||
Site production and delivery | 478,753 | 250,986 | 222,797 | 4,970 | 478,753 | ||||||||||
Gold and silver credits | (796,321 | ) | - | - | - | - | |||||||||
Treatment charges | 199,828 | 104,760 | 92,994 | 2,074 | 199,828 | ||||||||||
Royalty on metals | 25,498 | 13,367 | 11,866 | 265 | 25,498 | ||||||||||
Net cash production costs | (92,242 | ) | 369,113 | 327,657 | 7,309 | 704,079 | |||||||||
Depreciation and amortization | 168,679 | 88,430 | 78,498 | 1,751 | 168,679 | ||||||||||
Total production costs | 76,437 | 457,543 | 406,155 | 9,060 | 872,758 | ||||||||||
Adjustments, primarily for copper pricing on prior period sales and gold/silver hedging | 36,586 | 12,754 | 22,110 | 1,722 | 36,586 | ||||||||||
Gross profit | $ | 837,648 | $ | 432,710 | $ | 394,901 | $ | 10,037 | $ | 837,648 | |||||
Pounds of copper sold (000) | 1,132,100 | 1,132,100 | |||||||||||||
Ounces of gold sold | 2,196,600 | ||||||||||||||
Ounces of silver sold | 3,726,900 | ||||||||||||||
Gross profit per pound of copper (cents)/ per ounce of gold and silver ($): | |||||||||||||||
Revenues | 77.4 | 77.4 | 364.04 | 5.10 | |||||||||||
Site production and delivery | 42.3 | 22.2 | 101.43 | 1.33 | |||||||||||
Gold and silver credits | (70.3 | ) | - | - | - | ||||||||||
Treatment charges | 17.7 | 9.3 | 42.34 | 0.56 | |||||||||||
Royalty on metals | 2.3 | 1.2 | 5.40 | 0.07 | |||||||||||
Net cash production costs | (8.0 | ) | 32.7 | 149.17 | 1.96 | ||||||||||
Depreciation and amortization | 14.9 | 7.8 | 35.74 | 0.47 | |||||||||||
Total production costs | 6.9 | 40.5 | 184.91 | 2.43 | |||||||||||
Adjustments, primarily for copper pricing on prior period sales and gold/silver hedging | 3.5 | 1.3 | 0.65 | 0.02 | |||||||||||
Gross profit per pound/ounce | 74.0 | 38.2 | 179.78 | 2.69 | |||||||||||
Reconciliation to Amounts Reported | |||||||||||||||
(In Thousands) | Revenues | Production and Delivery | Depreciation and Amortization | ||||||||||||
Totals presented above | $ | 1,673,820 | $ | 478,753 | $ | 168,679 | |||||||||
Less: Treatment charges per above | (199,828 | ) | N/A | N/A | |||||||||||
Royalty per above | (25,498 | ) | N/A | N/A | |||||||||||
Other | N/A | 9,887 | N/A | ||||||||||||
Adjustments, primarily for copper pricing on prior period sales and hedging per above | 36,586 | N/A | N/A | ||||||||||||
Mining and exploration segment | 1,485,080 | 488,640 | 168,679 | ||||||||||||
Smelting and refining segment | 668,803 | 648,222 | 21,158 | ||||||||||||
Eliminations and other | (351,006 | ) | (327,038 | ) | 10,213 | ||||||||||
As reported in FCX consolidated financial statements | $ | 1,802,877 | $ | 809,824 | $ | 200,050 | |||||||||
FREEPORT-McMoRan COPPER & GOLD INC.
PRODUCT REVENUES AND PRODUCTION COSTS
(continued)
Nine Months Ended September 30, 2002 | |||||||||||||||
By-Product | Co-Product Method | ||||||||||||||
(In Thousands) | Method | Copper | Gold | Silver | Total | ||||||||||
Revenues | $ | 764,371 | $ | 764,371 | $ | 496,847 | $ | 13,502 | $ | 1,274,720 | |||||
Site production and delivery | 398,184 | 238,766 | 155,200 | 4,218 | 398,184 | ||||||||||
Gold and silver credits | (510,349 | ) | - | - | - | - | |||||||||
Treatment charges | 199,725 | 119,763 | 77,847 | 2,115 | 199,725 | ||||||||||
Royalty on metals | 16,351 | 9,805 | 6,373 | 173 | 16,351 | ||||||||||
Net cash production costs | 103,911 | 368,334 | 239,420 | 6,506 | 614,260 | ||||||||||
Depreciation and amortization | 161,689 | 96,955 | 63,021 | 1,713 | 161,689 | ||||||||||
Total production costs | 265,600 | 465,289 | 302,441 | 8,219 | 775,949 | ||||||||||
Adjustments, primarily for copper pricing on prior period sales and silver hedging | 10,421 | 9,591 | - | 830 | 10,421 | ||||||||||
Gross profit | $ | 509,192 | $ | 308,673 | $ | 194,406 | $ | 6,113 | $ | 509,192 | |||||
Pounds of copper sold (000) | 1,092,500 | 1,092,500 | |||||||||||||
Ounces of gold sold | 1,614,900 | ||||||||||||||
Ounces of silver sold | 2,992,000 | ||||||||||||||
Gross profit per pound of copper (cents)/ per ounce of gold and silver ($): | |||||||||||||||
Revenues | 69.7 | 69.7 | 307.34 | 4.78 | |||||||||||
Site production and delivery | 36.4 | 21.9 | 96.11 | 1.41 | |||||||||||
Gold and silver credits | (46.7 | ) | - | - | - | ||||||||||
Treatment charges | 18.3 | 11.0 | 48.21 | 0.71 | |||||||||||
Royalty on metals | 1.5 | 0.9 | 3.95 | 0.06 | |||||||||||
Net cash production costs | 9.5 | 33.8 | 148.27 | 2.18 | |||||||||||
Depreciation and amortization | 14.8 | 8.9 | 39.02 | 0.57 | |||||||||||
Total production costs | 24.3 | 42.7 | 187.29 | 2.75 | |||||||||||
Adjustments, primarily for copper pricing on prior period sales and silver hedging | 1.2 | 1.3 | 0.33 | 0.01 | |||||||||||
Gross profit per pound/ounce | 46.6 | 28.3 | 120.38 | 2.04 | |||||||||||
Reconciliation to Amounts Reported | |||||||||||||||
(In Thousands) | Revenues | Production and Delivery | Depreciation and Amortization | ||||||||||||
Totals presented above | $ | 1,274,720 | $ | 398,184 | $ | 161,689 | |||||||||
Less: Treatment charges per above | (199,725 | ) | N/A | N/A | |||||||||||
Royalty per above | (16,351 | ) | N/A | N/A | |||||||||||
Other | N/A | 3,750 | N/A | ||||||||||||
Adjustments, primarily for copper pricing on prior period sales and hedging per above | 10,421 | N/A | N/A | ||||||||||||
Mining and exploration segment | 1,069,065 | 401,934 | 161,689 | ||||||||||||
Smelting and refining segment | 556,997 | 524,690 | 20,622 | ||||||||||||
Eliminations and other | (286,644 | ) | (247,352 | ) | 10,125 | ||||||||||
As reported in FCX consolidated financial statements | $ | 1,339,418 | $ | 679,272 | $ | 192,436 | |||||||||
FREEPORT-McMoRan COPPER & GOLD INC.
CATHODE CASH PRODUCTION COSTS
ATLANTIC COPPER CATHODE CASH PRODUCTION COST PER POUND OF COPPER
Atlantic 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 September 30, | Nine Months Ended September 30, | |||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||
Smelting and refining segment production costs reported in FCX’s consolidated financial statements | $ | 234,795 | $ | 170,780 | $ | 648,222 | $ | 524,690 | ||||
Less: | ||||||||||||
Raw material purchase costs | (102,588 | ) | (83,507 | ) | (273,186 | ) | (244,452 | ) | ||||
Production costs of wire rod and wire | (12,241 | ) | (11,854 | ) | (48,072 | ) | (37,369 | ) | ||||
Production costs of anodes sold | (3,929 | ) | (2,660 | ) | (9,478 | ) | (6,481 | ) | ||||
Currency hedging | 2,272 | 285 | 6,388 | (1,678 | ) | |||||||
Other | 309 | (1,710 | ) | (341 | ) | (3,224 | ) | |||||
Credits: | ||||||||||||
Gold and silver revenues | (92,612 | ) | (50,121 | ) | (244,872 | ) | (171,648 | ) | ||||
Acid and other by-product revenues | (5,224 | ) | (4,431 | ) | (14,570 | ) | (12,453 | ) | ||||
Production costs used in calculating cathode cash production cost per pound | $ | 20,782 | $ | 16,782 | $ | 64,091 | $ | 47,385 | ||||
Pounds of cathode produced | 135,300 | 135,600 | 408,100 | 412,100 | ||||||||
Cathode cash production cost per pound before hedging | $0.15 | $0.12 | $0.16 | $0.12 | ||||||||
PT SMELTING CATHODE CASH PRODUCTION COST PER POUND OF COPPER
PT Smelting 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):
FREEPORT-McMoRan COPPER & GOLD INC.
PROVISION FOR INCOME TAXES
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 records 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, except percentages).
Three months ended September 30, | Nine months ended September 30, | |||||||
2003 | 2002 | 2003 | 2002 | |||||
Mining and exploration segment operating income | $257,804 | $ 252,710 | $731,440 | $ 461,572 | ||||
Mining and exploration segment interest expense, net | (9,127 | ) | (16,590 | ) | (38,999 | ) | (54,500 | ) |
Intercompany operating profit recognized (deferred) | 19,393 | (40,745 | ) | (16,492 | ) | (37,852 | ) | |
Taxable income | 268,070 | 195,375 | 675,949 | 369,220 | ||||
Indonesian corporate income tax rate (35%) plus U.S. alternative minimum tax rate (2%) |
37 |
|
37 |
|
|
|
|
|
Corporate income taxes | 99,186 | 72,289 | 250,101 | 136,611 | ||||
PT Freeport Indonesia net income | 168,884 | 123,086 | 425,848 | 232,609 | ||||
Withholding tax on FCX’s equity share | 9.064 | % | 9.064 | % | 9.064 | % | 9.064 | % |
Withholding taxes | 15,308 | 11,157 | 38,599 | 21,084 | ||||
Changes in allowances and other | 9,427 | (2,312 | ) | 10,343 | (1,707 | )a | ||
FCX consolidated provision for income taxes | $ 123,921 | $ 81,134 | $ 299,043 | $ | $ 155,988 | |||
FCX consolidated effective tax rate | 54 | % | 50 | % | 55 | % | 57 | % |
a. Includes a $2.4 million tax refund. | ||||||||
