SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2000
Commission File Number: 1-9916
Freeport-McMoRan Copper & Gold Inc.
Incorporated in Delaware 74-2480931
(IRS Employer Identification No.)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code: (504) 582-4000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
On March 31, 2000, there were issued and outstanding 62,300,723
shares of the registrant's Class A Common Stock, par value $0.10
per share, and 97,701,174 shares of its Class B Common Stock, par
value $0.10 per share.
FREEPORT-McMoRan COPPER & GOLD INC.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Income 4
Statements of Cash Flow 5
Notes to Financial Statements 6
Remarks 8
Report of Independent Public Accountants 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information 18
Signature 19
Exhibit Index E-1
2
FREEPORT-McMoRan COPPER & GOLD INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED BALANCE SHEETS (Unaudited)
March 31, December 31,
2000 1999
----------- ------------
(In Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 5,240 $ 6,698
Accounts receivable 148,684 172,762
Inventories 370,257 368,125
Prepaid expenses and other 14,999 16,869
----------- -----------
Total current assets 539,180 564,454
Property, plant and equipment, net 3,325,439 3,363,291
Investment in PT Smelting 74,028 66,070
Other assets 85,821 89,101
----------- -----------
Total assets $ 4,024,468 $ 4,082,916
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 382,318 $ 357,574
Current portion of long-term debt and
short-term borrowings 105,527 114,789
Accrued income taxes 4,127 42,704
----------- -----------
Total current liabilities 491,972 515,067
Long-term debt, less current portion:
FCX and PT Freeport Indonesia credit
facilities 730,000 648,000
Senior notes 570,000 570,000
Infrastructure asset financings 432,469 443,150
Atlantic Copper debt 194,379 230,212
Equipment loans 62,860 65,656
Rio Tinto loan - 30,123
Other notes payable 48,161 46,329
Accrued postretirement benefits and
other liabilities 98,578 114,677
Deferred income taxes 571,506 553,394
Minority interests 188,290 181,921
Redeemable preferred stock 487,507 487,507
Stockholders' equity 148,746 196,880
----------- -----------
Total liabilities and stockholders' equity $ 4,024,468 $ 4,082,916
=========== ===========
The accompanying notes are an integral part of these financial
statements.
3
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF INCOME (Unaudited)
Three Months Ended
March 31,
----------------------
2000 1999
--------- ---------
(In Thousands, Except
Per Share Amounts)
Revenues $ 467,592 $ 415,836
Cost of sales:
Production and delivery 260,072 189,887
Depreciation and amortization 63,359 70,741
--------- ---------
Total cost of sales 323,431 260,628
Exploration expenses 1,968 2,948
Equity in net (income) loss of
PT Smelting (2,241) 7,523
General and administrative expenses 20,749 15,657
--------- ---------
Total costs and expenses 343,907 286,756
--------- ---------
Operating income 123,685 129,080
Interest expense, net (49,935) (50,319)
Other expense, net (4,774) (2,141)
--------- ---------
Income before income taxes and
minority interests 68,976 76,620
Provision for income taxes (40,473) (40,076)
Minority interests in net income of
consolidated subsidiaries (9,772) (10,100)
--------- ---------
Net income 18,731 26,444
Preferred dividends (9,490) (8,734)
--------- ---------
Net income applicable to common stock $ 9,241 $ 17,710
========= =========
Net income per share of common stock:
Basic $.06 $.11
==== ====
Diluted $.06 $.11
==== ====
Average common shares outstanding:
Basic 161,323 164,017
======= =======
Diluted 162,544 164,017
======= =======
The accompanying notes are an integral part of these financial
statements.
4
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF CASH FLOW (Unaudited)
Three Months Ended
March 31,
----------------------
2000 1999
--------- ---------
(In Thousands)
Cash flow from operating activities:
Net income $ 18,731 $ 26,444
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 63,359 70,741
Deferred income taxes 20,374 19,735
Equity in net (income) loss of PT Smelting (2,241) 7,523
Minority interests' share of net income 9,772 10,100
Other 5,739 7,827
(Increases) decreases in working capital:
Accounts receivable 21,010 82,908
Inventories (3,296) (36,681)
Prepaid expenses and other 1,869 (1,248)
Accounts payable and accrued liabilities 51,103 (22,219)
Accrued income taxes (40,839) (9,760)
--------- ---------
Decrease in working capital 29,847 13,000
--------- ---------
Net cash provided by operating activities 145,581 155,370
--------- ---------
Cash flow from investing activities:
PT Freeport Indonesia capital expenditures (56,404) (33,091)
Atlantic Copper capital expenditures (1,464) (1,882)
Investment in PT Smelting (5,717) -
--------- ---------
Net cash used in investing activities (63,585) (34,973)
--------- ---------
Cash flow from financing activities:
Net repayments to Rio Tinto (42,029) (69,631)
Proceeds from other debt 151,934 59,118
Repayment of other debt (114,429) (85,445)
Purchase of FCX common shares (60,649) (7,765)
Cash dividends paid:
Preferred stock (9,508) (9,592)
Minority interests (3,946) (2,990)
Other (4,827) (4,612)
--------- ---------
Net cash used in financing activities (83,454) (120,917)
--------- ---------
Net decrease in cash and cash equivalents (1,458) (520)
Cash and cash equivalents at beginning of year 6,698 5,877
--------- ---------
Cash and cash equivalents at end of period $ 5,240 $ 5,357
========= =========
The accompanying notes are an integral part of these financial
statements.
5
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO FINANCIAL STATEMENTS
1. EARNINGS PER SHARE
Basic net income per share of common stock was calculated by
dividing net income applicable to common stock by the weighted-
average number of common shares outstanding during the period.
Diluted net income per share of common stock was calculated by
dividing net income applicable to common stock by the weighted-
average number of common shares outstanding during the period plus
the net effect of dilutive stock options, which represented 1.2
million shares in the first quarter of 2000. There were no
dilutive stock options during the first quarter of 1999.
Options excluded from the computation of diluted net income
per share of common stock, because their exercise prices were
greater than the average market price of the common stock during
the period, totaled options for 11.1 million shares (average
exercise price of $21.98 per share) in the first quarter of 2000
and options for 14.2 million shares (average exercise price of
$19.36 per share) in the first quarter of 1999. Convertible
preferred stock outstanding was not included in the computation of
diluted net income per share of common stock because including the
conversion of these shares would have increased diluted net income
per share of common stock. The preferred stock was convertible
into 11.7 million shares of common stock and accrued dividends
totaled $6.1 million in the first quarter of 2000 and $5.3 million
in the first quarter of 1999.
2. FINANCIAL CONTRACTS
At times, Freeport-McMoRan Copper & Gold Inc. (FCX) has entered
into financial contracts to manage certain risks resulting from
fluctuations in commodity prices (primarily copper and gold),
foreign currency exchange rates and interest rates by creating
offsetting exposures. Costs or premiums and gains or losses on the
contracts, including closed contracts, are recognized with the
hedged transaction. Also, gains or losses are recognized if the
hedged transaction is no longer expected to occur or if deferral
criteria are not met. FCX monitors its credit risk on an ongoing
basis and considers this risk to be minimal because its contracts
are with a diversified group of financially strong counterparties.
FCX currently has no copper and gold price protection contracts
relating to its mine production other than its gold-denominated
preferred stock.
At March 31, 2000, FCX had redeemable preferred stock indexed
to commodities, open foreign currency forward contracts, open
forward copper sales and purchase contracts related to its smelter
operations and interest rate swap contracts. Redeemable preferred
stock indexed to commodities is treated as a hedge of future
production and is carried at its original issue value. As
principal payments occur, differences between the carrying value
and the payment are recorded as an adjustment to revenues.
Atlantic Copper, S.A., a wholly owned subsidiary of FCX
(Atlantic Copper), hedges a portion of its anticipated Spanish
peseta cash outflows with foreign currency forward contracts. In
April 2000, PT Freeport Indonesia, FCX's majority-owned subsidiary,
also entered into contracts to hedge a portion of its anticipated
Australian dollar cash outflows with foreign currency forward
contracts. Changes in market value of foreign currency forward
contracts which protect anticipated transactions are recognized in
the period incurred. Atlantic Copper also enters into futures
contracts to hedge its price risk whenever its physical purchases
and sales pricing periods do not match, and whenever it extends the
pricing terms on its copper sales. Gains and losses on these
contracts are recognized with the hedged transaction. Atlantic
Copper has interest rate swap contracts to limit the effect of
increases in the interest rates on variable-rate debt. The costs
associated with these contracts are amortized to interest expense
over the terms of the agreements.
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
(SFAS 133) which establishes accounting and reporting standards
requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in
the balance sheet as either an asset or liability measured at its
fair value. In June 1999, the FASB delayed SFAS 133's effective
date by one year to fiscal years beginning after June 15, 2000 with
earlier application permitted. FCX expects to adopt SFAS 133
effective January 1, 2001. Adoption is expected to require FCX to
report other comprehensive income or loss items for changes in the
fair value of financial instruments that qualify as hedges. FCX
expects to be able to continue its current accounting for its
redeemable preferred stock indexed to commodities under the
provisions of SFAS 133 that allow such instruments issued before
January 1, 1998 to be excluded from those instruments required to
be adjusted for changes in their fair values.
6
3. INTEREST COST
Interest expense excludes capitalized interest of $1.3 million in
the first quarter of 2000 and $0.5 million in the first quarter of
1999.
4. BUSINESS SEGMENTS
FCX has two operating segments: "mining and exploration" and
"smelting and refining." The mining and exploration segment
includes the copper and gold mining operations of PT Freeport
Indonesia in Indonesia and FCX's Indonesian exploration activities.
The smelting and refining segment includes Atlantic Copper's
operations in Spain and PT Freeport Indonesia's equity investment
in PT Smelting in Gresik, Indonesia. The segment data presented
below were prepared on the same basis as the consolidated FCX
financial statements.
Mining Smelting and Eliminations FCX
Exploration Refining and Other Total
========== ======== ======== =========
(In Thousands)
First Quarter of 2000
Revenues $ 307,495a $224,887 $(64,790) $ 467,592
Production and delivery 143,740 211,350 (95,018) 260,072
Depreciation and amortization 55,062 7,180 1,117 63,359
Exploration expenses 1,570 - 398 1,968
Equity in PT Smelting income - (2,241)b - (2,241)
General and administrative
expenses 16,936 2,317 1,496 20,749
---------- -------- -------- ----------
Operating income $ 90,187 $ 6,281 $ 27,217 $ 123,685
========== ======== ======== ==========
Interest expense, net $ 33,690 $ 6,754 $ 9,491 $ 49,935
========== ======== ======== ==========
Provision for income taxes $ 23,122 $ 1,464 $ 15,887 $ 40,473
========== ======== ======== ==========
Capital expenditures $ 56,272 $ 7,181 $ 132 $ 63,585
========== ======== ======== ==========
Total assets $3,332,880c $680,661d $ 10,927 $4,024,468
First Quarter of 1999
Revenues $ 316,875a $182,201 $ (83,240) $ 415,836
Production and delivery 130,320 164,360 (104,793) 189,887
Depreciation and amortization 62,330 7,294 1,117 70,741
Exploration expenses 2,483 - 465 2,948
Equity in PT Smelting losses - 7,523b - 7,523
General and administrative
expenses 11,602 2,159 1,896 15,657
---------- -------- --------- ----------
Operating income $ 110,140 $ 865 $ 18,075 $ 129,080
========== ======== ========= ==========
Interest expense, net $ 36,910 $ 7,036 $ 6,373 $ 50,319
========== ======== ========= ==========
Provision (benefit) for
income taxes $ 27,578 $ (868) $ 13,366 $ 40,076
========== ======== ========= ==========
Capital expenditures $ 33,034 $ 1,882 $ 57 $ 34,973
========== ======== ========= ==========
Total assets $3,368,222c $707,285d $ 17,402 $4,092,909
========== ======== ========= ==========
a. Includes PT Freeport Indonesia sales to PT Smelting totaling
$70.5 million in 2000 and $24.2 million in 1999.
b. Includes effect of deferral of intercompany profits on 25
percent of PT Freeport Indonesia's sales to PT Smelting that
are still in PT Smelting's inventory at quarter end, totaling
$4.0 million in 2000 and $(2.3) million in 1999.
c. Includes PT Freeport Indonesia's trade receivables with PT
Smelting totaling $11.2 million at March 31, 2000 and $12.7
million at March 31, 1999.
d. Includes PT Freeport Indonesia's equity investment in PT
Smelting totaling $74.0 million at March 31, 2000 and $73.4
million at March 31, 1999.
5. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first three months
of 2000 and 1999 was 2.3 to 1 and 2.5 to 1, respectively. For this
calculation, earnings consist of income from continuing operations
before income taxes, minority interests and fixed charges. Fixed
charges include interest and that portion of rent deemed
representative of interest.
7
----------------------
Remarks
The information furnished herein should be read in conjunction with
FCX's financial statements contained in its 1999 Annual Report on
Form 10-K. The information furnished herein reflects all
adjustments which are, in the opinion of management, necessary for
a fair statement of the results for the periods. All such
adjustments are, in the opinion of management, of a normal
recurring nature.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Freeport-McMoRan Copper & Gold Inc.:
We have reviewed the accompanying condensed balance sheet of
Freeport-McMoRan Copper & Gold Inc. (a Delaware corporation) as of
March 31, 2000, and the related statements of income and cash flow
for the three-month periods ended March 31, 2000 and 1999. These
financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data and
making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally accepted
in the United States, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with accounting
principles generally accepted in the United States.
We have previously audited, in accordance with auditing
standards generally accepted in the United States, the balance
sheet of Freeport-McMoRan Copper & Gold Inc. as of December 31,
1999, and the related statements of income, stockholders' equity
and cash flow for the year then ended (not presented herein), and,
in our report dated January 18, 2000, we expressed an unqualified
opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed balance sheet
as of December 31, 1999, is fairly stated, in all material
respects, in relation to the balance sheet from which it has been
derived.
/S/ ARTHUR ANDERSEN LLP
New Orleans, Louisiana
April 18, 2000
8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OVERVIEW
We operate through our majority-owned subsidiaries, PT Freeport
Indonesia and PT Irja Eastern Minerals (Eastern Minerals), and
through Atlantic Copper, S.A. (Atlantic Copper), our wholly owned
subsidiary. PT Freeport Indonesia's operations involve mineral
exploration and development, mining and milling of ore containing
copper, gold and silver in Irian Jaya (Papua), Indonesia and the
worldwide marketing of concentrates containing those metals. PT
Freeport Indonesia also has a 25 percent interest in PT Smelting,
an Indonesian company that operates a copper smelter and refinery
in Gresik, Indonesia. Eastern Minerals conducts mineral
exploration activities in Irian Jaya (Papua). Atlantic Copper's
operations are located in Spain and involve the smelting and
refining of copper concentrates, and the marketing of refined
copper products and precious metals in slimes. In addition to
the PT Freeport Indonesia and Eastern Minerals exploration
activities, we conduct other mineral exploration activities in
Irian Jaya (Papua) pursuant to joint venture and other
arrangements. The results of operations reported and summarized
below are not necessarily indicative of future operating results.
Summary comparative results for the first-quarter periods
follow (in millions, except per share amounts):
First Quarter
-------------------
2000 1999
------- ------
Revenues $467.6 $415.8
Operating income 123.7 129.1
Net income applicable to common stock 9.2 17.7
Diluted net income per share of
common stock .06 .11
Our revenues include PT Freeport Indonesia's sale of copper
concentrates, which also contain significant amounts of gold, and
the sale by Atlantic Copper of copper anodes, cathodes, wire and
wire rod. Our revenues and net income vary significantly with
fluctuations in the market prices of copper and gold and other
factors. At various times, in response to market conditions, we
have entered into copper and gold price protection contracts for
some portion of our expected future mine production to mitigate
the risk of adverse price fluctuations (see "PT Freeport
Indonesia Outlook and Price Protection Program"). We currently
have no copper or gold price protection contracts relating to our
mine production other than our gold-denominated preferred stock.
Based on PT Freeport Indonesia's projected 2000 sales volumes, a
$0.01 per pound change in the average price realized on copper
sales would have an approximate $14 million impact on revenues
and an approximate $7 million impact on net income. A $5 per
ounce change in the average price realized on PT Freeport
Indonesia annual gold sales would have an approximate $9.5
million impact on revenues and an approximate $4.5 million impact
on net income.
Higher first-quarter 2000 consolidated revenues primarily
reflect higher realized copper prices and sales volumes by
Atlantic Copper, partially offset by lower copper and gold sales
volumes at PT Freeport Indonesia resulting from the expected
mining of lower grade ore. First-quarter 2000 revenues were
increased by $9.4 million ($4.6 million to net income or $0.03
per share) for adjustments to December 31, 1999 "open"
concentrate sales, while first-quarter 1999 revenues were reduced
by $1.2 million ($0.6 million to net income or less than $0.01
per share) from adjustments to December 31, 1998 open concentrate
sales. In late 1999, PT Freeport Indonesia began a program using
forward contracts to fix the prices of a portion of its open
concentrate sales when market conditions are favorable. During
the first quarter of 2000 PT Freeport Indonesia entered into
forward copper sales contracts to fix the price at $0.85 per
pound on approximately 50 percent of their December 31, 1999 open
concentrate sales. We recorded $6.9 million of additional
revenues in the first quarter of 2000 from these forward sales,
which is included in the $9.4 million mentioned above. We remain
unhedged with respect to our copper mine production.
Cost of sales for 2000 were $62.8 million higher compared
with the 1999 quarter largely because of higher costs at Atlantic
Copper resulting from increased sales volumes and higher copper
concentrate costs, partly offset by the effects of favorable
currency exchange rates. Also contributing to the increase were
higher equipment maintenance and fuel costs at PT Freeport
Indonesia. PT Freeport Indonesia records its share of PT
Smelting's operating losses under the equity method and is also
eliminating profits on 25 percent of its copper concentrate sales
to PT Smelting until PT Smelting makes the final sale. General
and administrative expenses in the 2000 period were higher
primarily because of contribution commitments to support small
business development programs within Irian Jaya (Papua) over a two-year
9
period, partly offset by a reversal of costs for stock
appreciation rights. The higher provision for income taxes in
first-quarter 2000 compared with the 1999 period primarily
reflects an increase in interest costs at the parent company
level, for which there is very little tax benefit.
RESULTS OF OPERATIONS
We have two operating segments: "mining and exploration" and
"smelting and refining." The mining and exploration segment
includes PT Freeport Indonesia's copper and gold mining
operations in Indonesia and FCX's Indonesian exploration
activities. The smelting and refining segment includes Atlantic
Copper's operations in Spain and PT Freeport Indonesia's 25
percent equity investment in PT Smelting. Summary comparative
operating income by segment for the first-quarter periods
follows (in millions):
First Quarter
------------------
2000 1999
------ ------
Mining and exploration $ 90.2 $110.1
Smelting and refining 6.3 0.9
Intercompany eliminations and other 27.2 18.1
------ ------
FCX operating income a $123.7 $129.1
====== ======
a. Profits on PT Freeport Indonesia's sales to Atlantic Copper
and PT Smelting are deferred until the final sale to third
parties has occurred. Changes in the amount of these
deferred profits impacted operating income by $35.3 million
in 2000 and $19.5 million in 1999. Our consolidated
quarterly earnings fluctuate depending on the timing and
prices of these sales.
MINING AND EXPLORATION
A summary of increases (decreases) in PT Freeport Indonesia
revenues between the periods follows (in millions):
First
Quarter
-------
PT Freeport Indonesia revenues - prior year period $316.9
Increases (decreases):
Price realizations:
Copper 37.9
Gold 1.4
Sales volumes:
Copper (25.7)
Gold (44.2)
Adjustments, primarily for copper pricing
on prior year open sales 9.5
Treatment charges, royalties and other 11.7
------
PT Freeport Indonesia revenues - current year period $307.5
======
PT Freeport Indonesia's first-quarter 2000 revenues
benefited from a 19 percent increase in copper price
realizations. However, these increased realizations were more
than offset by a 12 percent decrease in copper sales volumes and
a 26 percent decrease in gold sales volumes. PT Freeport
Indonesias 2000 revenues included net upward adjustments on
prior year open concentrate sales of $5.4 million compared with
net downward adjustments of $0.8 million in 1999. Treatment
charges in total were lower primarily because treatment rates
were lower than in the prior year.
PT Freeport Indonesia Sales Outlook and Price Protection Program
PT Freeport Indonesia has commitments from various parties,
including Atlantic Copper and PT Smelting, to purchase virtually
all of its estimated 2000 production at market prices. PT
Freeport Indonesia is providing 100 percent of PT Smelting's
copper concentrate requirements at market prices; however, for
the first 15 years of operations the treatment and refining
charges will not fall below a specified minimum rate, currently
$0.23 per pound, which was the rate during all of 1999 and the
first quarter of 2000 and is expected to be the rate for the
remainder of 2000. Net of Rio Tinto's interest, PT Freeport
Indonesia's share of sales for the second quarter of 2000 is
projected to approximate 320 million pounds of copper and 410,000
ounces of gold. PT Freeport Indonesia's share of sales for 2000
is projected to approximate 1.4 billion pounds of copper and 1.9
million ounces of gold. Projected 2000 copper and gold sales
reflect the expectation of higher average mill throughput rates
than in 1999, offset by lower average ore grades
10
and the impact of the specified sharing arrangement with Rio
Tinto, which will result in a smaller proportion of production
attributed to PT Freeport Indonesia compared to 1999.
PT Freeport Indonesia's concentrate sales agreements, with
regard to copper, provide for provisional billings at the time of
shipment with final pricing settlement generally based on the
average London Metal Exchange (LME) price for a specified future
month. Copper revenues on provisionally priced open pounds are
adjusted monthly based on then-current prices. At March 31,
2000, we had consolidated copper sales totaling 174.9 million
pounds recorded at an average price of $0.75 per pound remaining
to be finally priced. Approximately 90 percent of these open
pounds are expected to be finally priced during the second
quarter of 2000 with the remaining pounds to be priced during the
third quarter of 2000. A one cent movement in the average price
used for these open pounds would have an approximate $0.9 million
impact on our 2000 net income.
At times PT Freeport Indonesia has entered into financial
contracts to manage certain risks resulting from fluctuations in
commodity prices. As of March 31, 2000, PT Freeport Indonesia
does not have any price protection programs in place for its
copper and gold sales other than its gold-denominated preferred
stock but, as conditions warrant, PT Freeport Indonesia may enter
into new contracts for its future sales. In early May 2000, PT
Freeport Indonesia entered into forward copper sales contracts to
fix the price at $0.81 per pound on approximately 60 percent of
its March 31, 2000 open pounds.
PT Freeport Indonesia Operating Results
First Quarter
-------------------
2000 1999
------- -------
PT Freeport Indonesia, Net of Rio Tinto's Interest
Copper
Production (000s of recoverable pounds) 308,500 354,300
Sales (000s of recoverable pounds) 305,900 346,300
Average realized price $.76 $.64
Gold
Production (recoverable ounces) 447,300 609,800
Sales (recoverable ounces) 444,200 599,400
Average realized price $288.10 $284.99
Gross profit per pound of copper (cents):
Average realized price 76.1 63.7
----- -----
Production costs:
Site production and delivery 47.4 37.6
Gold and silver credits (43.2) (50.2)
Treatment charges 18.1 19.3
Royalty on metals 1.3 1.5
----- -----
Cash production costs 23.6 8.2
Depreciation and amortization 18.0 18.0
----- -----
Total production costs 41.6 26.2
Adjustments, primarily for copper
pricing on prior year open sales 0.7 (2.3)
----- -----
Gross profit per pound of copper 35.2 35.2
===== =====
PT Freeport Indonesia, 100% Operating Statistics
Ore milled (metric tons per day, MTPD) 231,600 221,700
Copper grade (percent) .94 1.14
Gold grade (grams per metric ton) .99 1.31
Recovery rate (percent)
Copper 85.6 82.3
Gold 84.8 84.9
Copper (000s of recoverable pounds)
Production 360,700 396,700
Sales 358,100 391,000
Gold (recoverable ounces)
Production 557,000 731,400
Sales 551,000 722,900
11
PT Freeport Indonesia's mill throughput averaged a record
231,600 MTPD for the first quarter of 2000. However, as
expected, higher throughput was partly offset by lower ore
grades. Mill throughput rates will vary in the future based on
the characteristics of the ore being processed as PT Freeport
Indonesia manages its operations to optimize metal production.
Unit site production and delivery costs in the first quarter of
2000 averaged $0.47 per pound of copper, $0.09 per pound higher
than the $0.38 reported in the first quarter of 1999, primarily
because of processing lower ore grades and incurring higher
equipment maintenance and fuel costs. Gold credits of $0.43 per
pound in the 2000 quarter were lower when compared with the 1999
quarter level of $0.50 per pound because of lower gold ore
grades. Unit treatment charges were lower in the 2000 period
because of the current market conditions, which benefit
producers.
The copper royalty rate payable by PT Freeport Indonesia under
its Contact of Work varies from 1.5 percent, at a copper price of
$0.90 or less, to 3.5 percent, at a copper price of $1.10 or
more, of copper net revenue. The Contract of Work royalty rate
for gold and silver sales is 1.0 percent. Because a large part of
the mineral royalties under Government of Indonesia regulations
are due to the provinces from which the minerals are extracted,
in connection with our fourth concentrator mill expansion, PT
Freeport Indonesia agreed to pay the Government of Indonesia
voluntary additional royalties to provide further support to the
local governments and the people of Irian Jaya (Papua). The
additional royalties are paid on metal from production above
200,000 MTPD. The additional royalty for copper equals the
Contract of Work royalty rate and for gold and silver equals
twice the Contract of Work royalty rates. Therefore, our royalty
rate on copper net revenues from production above 200,000 MTPD is
double the Contract of Work royalty rate, and our royalty rates
on gold and silver sales from production above 200,000 MTPD are
triple the Contract of Work royalty rates. The additional
royalties became effective January 1, 1999. The combined
royalties totaled $3.9 million in the first quarter of 2000 and
$5.3 million in the first quarter of 1999.
We conduct the majority of our operations in Indonesia and
Spain where our functional currency is the U.S. dollar. All of
our revenues are denominated in U.S. dollars; however, some costs
and certain asset and liability accounts are denominated in
Indonesian rupiah, Australian dollars or Spanish pesetas.
Generally, our results are positively affected when the U.S.
dollar strengthens against these foreign currencies and adversely
affected when the U.S. dollar weakens against these foreign
currencies.
Since 1997, the Indonesian rupiah exchange rate has been
extremely volatile, severely weakening initially and partly
recovering later against the U.S. dollar. PT Freeport Indonesia
recorded losses totaling $0.3 million during the first quarter of
2000 and $0.6 million during the first quarter of 1999 related to
its rupiah-denominated net assets. Operationally PT Freeport
Indonesia has benefited from a weakened rupiah currency,
primarily through lower labor costs.
During 1998, PT Freeport Indonesia began a currency hedging
program to reduce its exposure to changes in the Indonesian
rupiah and Australian dollar by entering into foreign currency
forward contracts to hedge a portion of its anticipated payments
in these currencies. The last of these contracts expired in
September 1999. PT Freeport Indonesia recorded net gains to
production costs totaling $0.9 million in the first quarter of
1999 related to these contracts. In April 2000 PT Freeport
Indonesia entered into foreign currency forward contracts to
hedge a portion of the aggregate Australian dollar payments for
the remainder of 2000. These contracts hedge 117.0 million of
Australian dollar payments through December 2000, or
approximately 80 percent of aggregate projected Australian dollar
payments during the period covered, at an average exchange rate
of 1.67 Australian dollars to one U.S. dollar.
Assuming estimated aggregate 2000 rupiah payments of 800
billion and a March 31, 2000 exchange rate of 7,440 rupiah to one
U.S. dollar, a one-thousand-rupiah increase in the exchange rate
would result in an approximate $13 million decrease in annual
operating costs and a one-thousand-rupiah decrease in the
exchange rate would result in an approximate $17 million increase
in annual operating costs.
Rio Tinto Joint Venture
Pursuant to a joint venture, Rio Tinto, through 2021, has a 40
percent interest in certain assets and in production above
specified annual amounts of copper, gold, and silver in Block A
and, after 2021, a 40 percent interest in all production from
Block A. Rio Tinto provided a $450 million nonrecourse loan to
PT Freeport Indonesia for PT Freeport Indonesia's share of the
cost of the fourth concentrator mill expansion. PT Freeport
Indonesia and Rio Tinto are sharing incremental cash flow
attributable to the expansion on
12
the basis of 60 percent to PT Freeport Indonesia and 40 percent to
Rio Tinto. PT Freeport Indonesia has assigned its share of
incremental cash flow to Rio Tinto until Rio Tinto receives
an amount of funds equal to the funds loaned to PT Freeport
Indonesia plus interest based on Rio Tinto's cost of borrowing.
Through March 31, 2000, PT Freeport
Indonesia's share of incremental cash flow totaled $500.3
million, of which $483.2 million has been paid to Rio Tinto. The
balance on the Rio Tinto loan was $18.5 million at March 31,
2000, which PT Freeport Indonesia expects to repay in the second
quarter of 2000. The incremental revenue from production from
the expansion and total revenues from production from Block A,
including production from PT Freeport Indonesia's previously
existing reserves, share proportionately in operating,
nonexpansion capital and administrative costs. PT Freeport
Indonesia will continue to receive 100 percent of the cash flow
from specified annual amounts of copper, gold and silver through
2021 calculated by reference to its proved and probable reserves
as of December 31, 1994 and 60 percent of all remaining cash
flow.
Exploration Activities
FCX continues its exploration program in Irian Jaya (Papua), in
the Block A and Block B areas of PT Freeport Indonesia's Contract
of Work, the Eastern Minerals Contract of Work area and the PT
Nabire Bakti Mining (PT-NBM) Contract of Work area.
Drilling continues at Kucing Liar, Grasberg Underground and
the Deep Ore Zone to better define the ore bodies in Block A,
where our current mining operations are located. Drilling from
the Amole drift is designed to delineate the Grasberg Underground
deposit below our current block cave reserves. The extent of the
copper and gold mineralization is decreasing in size at the lower
elevations. Drilling in 2000 is designed to fully define the
ultimate geometry of the mineralized zone, which extends for over
1,500 meters vertically from the original ore intercepts at the
4,200 meter elevation. Drilling at the Deep Ore Zone continues
to return positive results, indicating the potential for reserve
increases. Other targets yet to be evaluated in Block A include
the DOM Deep, fault systems parallel to the Kucing Liar/Idenberg
#1 fault system and other intrusive centers and fault
intersections.
Exploration activities in Block B, which includes the Wabu
Ridge gold prospect, as well as in the Contract of Work area of
Eastern Minerals, are primarily focused on prospects that
potentially could lead to the discovery of significant copper and
gold deposits. Drilling operations in Block B have ceased pending
further resolution of certain regulatory and social issues.
Preparations also are under way for drilling
operations at the Logari copper-gold target in Block II of
Eastern Mineral's contract area. As a result of our joint venture
arrangements with Rio Tinto, they are paying for 40 percent of
our exploration and drilling costs in Irian Jaya (Papua).
In June 1998, we entered into an exploration joint venture
agreement to conduct exploration activities in PT-NBM's Contract
of Work area now covering approximately 0.5 million acres in
several blocks contiguous to PT Freeport Indonesia's Block B and
one of Eastern Minerals' blocks in Irian Jaya (Papua). Rio Tinto
is sharing in 40 percent of our interest and costs in this
exploration joint venture. To earn up to a 62 percent interest
in the Contract of Work, we and Rio Tinto must spend a total of
up to $21 million on exploration and other activities in the
joint venture areas by June 2003 ($12.7 million of which had been
incurred through March 31, 2000). Detailed follow-up exploration
efforts, including the drilling of the Obano and Komopa targets
within PT-NBM's contract area, are continuing.
SMELTING AND REFINING
Atlantic Copper Operating Results
First Quarter
-------------------
2000 1999
------- -------
Revenues (in millions) $224.9 $182.2
Operating income (in millions) $4.0 $8.4
Concentrate treated (metric tons) 244,700 238,600
Anode production (000s of pounds) 178,300 164,000
Cathode, wire rod and wire
sales (000s of pounds) 137,100 138,400
Gold sales in anodes and
slimes (ounces) 211,200 186,000
Atlantic Copper reported higher revenues in the 2000 period
because of higher copper prices and increased copper and gold
sales volumes. Operating income decreased by $4.4 million
compared with the 1999 quarter as a result of lower treatment and
refining rates, which were $0.18 per pound in the first
13
quarter of 2000 compared with $0.22 per pound in the first quarter of
1999, reflecting current market conditions. Cathode cash
production costs of $0.12 per pound in the 2000 quarter were
slightly lower than the $0.13 per pound reported in the 1999
quarter primarily because of higher production volumes and
favorable currency exchange rates. Lower treatment charges, which
negatively affect Atlantic Copper, benefit PT Freeport Indonesia
as discussed above.
A portion of Atlantic Copper's operating costs and certain
Atlantic Copper asset and liability accounts are denominated in
Spanish pesetas. Based on estimated 2000 peseta payments of 15
billion and a March 31, 2000 exchange rate of 174 pesetas to one
U.S. dollar, a ten-peseta increase or decrease in the exchange
rate could result in a corresponding approximate $5 million
change in annual operating costs, before any hedging effects.
Atlantic Copper had peseta-denominated net monetary liabilities
at March 31, 2000 totaling $59.9 million recorded at an exchange
rate of 174 pesetas to one U.S. dollar. Adjustments to these net
liabilities to reflect changes in the exchange rate are recorded
as currency transaction gains or losses in other income and
totaled gains of $2.4 million in the first quarter of 2000 and
$6.5 million in the first quarter of 1999.
Atlantic Copper has a currency hedging program using foreign
currency forward contracts to reduce its exposure to changes in
the U.S. dollar and Spanish peseta exchange rate. At March 31,
2000, Atlantic Copper had contracts to purchase 16.7 billion
Spanish pesetas at an average exchange rate of 153 pesetas to one
U.S. dollar through November 2001. These contracts currently
hedge approximately 80 percent of Atlantic Copper's projected
2000 net peseta cash outflows and approximately 50 percent of
Atlantic Copper's projected 2001 net peseta cash outflows. In
addition to the currency transaction gains noted above, Atlantic
Copper recorded losses to other income related to its forward
currency contracts totaling $6.0 million in the first quarter of
2000 and $6.5 million in the first quarter of 1999.
On January 1, 1999, a new common currency (the euro) was
introduced to member states of the European Union, including
Spain. A transition period will extend until January 1, 2002.
Only a few of Atlantic Copper's customers in Europe and none of
its suppliers are using the euro as the currency for commercial
transactions. Atlantic Copper has not yet decided when it will
adopt the euro as its currency for commercial transactions.
Atlantic Copper does not expect conversion to the euro currency
to have a material impact on revenues or expenses. A single
European currency is expected to improve Atlantic Copper's
competitiveness with other European copper smelters and refiners
by eliminating exchange rate differences. Atlantic Copper's
current management information systems are capable of
accommodating multiple currencies and would not require major
modifications to process transactions involving the euro.
Atlantic Copper's peseta hedging contracts are established at a
fixed exchange rate to the euro and would continue to achieve
their objectives.
PT Smelting Operating Results
PT Freeport Indonesia accounts for its 25 percent interest in PT
Smelting under the equity method. PT Smelting continues on
schedule to operate at a full design capacity of 200,000 metric
tons of copper per year in the second half of 2000. PT Smelting
shut down the smelter, as planned, at the end of March 2000 for
the tie-in of a new third anode furnace as well as for planned
maintenance. The smelter is expected to restart at the end of
April. Our first quarter revenues include $70.5 million in 2000
and $24.2 million in 1999 from PT Freeport Indonesia sales to PT
Smelting. PT Freeport Indonesia's share of PT Smelting's net
operating losses, which are recorded as Equity in Net (Income)
Loss of PT Smelting in the Statements of Income, totaled $1.7
million in the first quarter of 2000 and $5.2 million in the
first quarter of 1999. We also deferred recognizing profits on
25 percent of PT Freeport Indonesia sales to PT Smelting, for
which the final sale has not occurred. The effect of these
deferrals was to recognize $4.0 million of income in the first
quarter of 2000 and a $2.3 million reduction of income in the
first quarter of 1999. Changes in these deferred profits are
recorded as part of Equity in Net (Income) Loss of PT Smelting in
the Statements of Income.
OTHER FINANCIAL RESULTS
The FCX/Rio Tinto joint ventures incurred $2.8 million of
exploration costs in the 2000 first quarter, compared with $5.3
million in the 1999 quarter. We reported $1.7 million of
exploration expense in the first quarter of 2000 for our share of
these exploration costs. Substantially all costs in the joint
venture areas are now being shared 60 percent by us and 40
percent by Rio Tinto.
First-quarter 2000 general and administrative expenses of
$20.7 million were higher than the $15.7 million reported in the
1999 quarter primarily because of a $6.0 million charge for contribution
14
commitments to support small business development
programs within Irian Jaya (Papua) that will be paid over a two-
year period, partly offset by a $1.5 million reversal of costs
for stock appreciation rights because of a decrease in our stock
price during the quarter.
Our total interest cost (before capitalization) was $51.3
million for the 2000 quarter compared to $50.8 million in the
1999 quarter, as increased interest rates were only partially
offset by reductions in outstanding debt. We capitalized $1.3
million of interest costs in the first quarter of 2000 and $0.5
million of interest costs in the first quarter of 1999.
Our effective tax rate was 59 percent for the first quarter
of 2000 and 52 percent for the first quarter of 1999. PT
Freeport Indonesia's Contract of Work provides a 35 percent
income tax rate and a 10 percent withholding on dividends paid to
FCX by PT Freeport Indonesia and on interest for debt incurred
after the signing of the Contract of Work. No income taxes are
recorded at Atlantic Copper, which is subject to taxation in
Spain, because it has not generated significant taxable income in
recent years and has a substantial tax loss carryforward for
which no financial statement benefit has been provided.
Additionally, we only get a small U.S. tax benefit on our parent
company costs because our parent company has no U.S.-sourced
income.
CAPITAL RESOURCES AND LIQUIDITY
Our primary sources of cash are operating cash flows and
borrowings, while our primary uses of cash include capital
expenditures, repayments of debt, dividends and purchases of our
common stock. Net cash provided by operating activities was
$145.6 million for the first quarter of 2000, compared with
$155.4 million for the 1999 period. Net cash used in investing
activities totaled $63.6 million in the 2000 period, compared
with $35.0 million in the 1999 period, primarily for PT Freeport
Indonesia capital expenditures. Net cash used in financing
activities totaled $83.5 million in 2000 compared with $120.9
million in 1999.
Operating Activities
Lower net income and non-cash charges were only partly offset by
working capital changes in the first quarter of 2000, resulting
in a decrease in operating cash flow of $9.8 million, to $145.6
million, from the year-ago period. The net decrease in working
capital for the first quarter of 2000 primarily reflects an
increase in accounts payable and accrued liabilities, while the
net decrease in working capital for the first quarter of 1999
primarily reflects the collection of accounts receivable.
Investing Activities
Our first-quarter 2000 capital expenditures were higher compared
to the 1999 period primarily because of the payment for
previously purchased mine equipment. Our capital expenditures
for 2000 are expected to total approximately $200 million,
including $35 million for development of underground ore bodies,
primarily the Deep Ore Zone, which is expected to start
production later this year and ramp up to full production of
25,000 metric tons of ore per day by 2004. Funding is expected
to be provided by operating cash flow and PT Freeport Indonesia's
bank credit facilities ($249.0 million commitment available at
April 17, 2000).
Financing Activities
Net repayments to Rio Tinto totaled $42.0 million in the first
quarter of 2000 and $69.6 million in the first quarter of 1999
from PT Freeport Indonesia's share of incremental cash flow
attributable to the fourth concentrator mill expansion. Net
borrowings of other debt totaled $37.5 million in the first
quarter of 2000, compared with net repayments of $26.3 million in
the first quarter of 1999.
In August 1998, we announced a new open market share
purchase program for an additional 20 million shares of our Class
A and Class B common shares, bringing the total shares approved
for purchase under the open market share purchase programs to 60
million. During the first quarter of 2000, we acquired 3.5
million of our shares for $60.6 million (an average of $17.17 per
share). During the first quarter of 1999, we acquired 0.8
million of our shares for $7.8 million (an average of $9.20 per
share) under our open market share purchase programs. From
inception of these programs in July 1995 through April 17, 2000,
we have purchased a total of 54.5 million shares for $1.1 billion
(an average of $20.10 per share) and approximately 5.5 million
shares remain available under the programs. The timing of future
purchases is dependent upon many factors, including the price of
common shares, our business and financial position, and general
economic and market conditions.
15
In response to volatile copper and gold markets, in early
1998 we began an effort to reduce our costs and enhance our
production. Our overall strategy remains focused on optimizing
the performance of our expanded milling facilities so that we can
achieve higher sales levels at low costs. We realized
significantly lower operating costs, capital and exploration
expenditures and general and administrative expenses in 1998 and
1999. With these savings and the elimination of the regular
quarterly cash dividend, we believe we have the overall financial
flexibility to continue to invest in operations and maintain our
exploration program while still reducing our overall debt levels.
However, because of the economic and political issues affecting
Indonesia and the volatility of copper and gold prices, our
ability to obtain capital is limited at this time, and the cost
of new capital, if available, would be high.
DEVELOPMENTS IN INDONESIA
Indonesia continues to face economic and political uncertainties.
Since the election of a new parliament, president and vice
president in 1999, the Indonesian government has attempted to
address the important political and economic issues it faces.
Regarding economic matters, President Wahid and other
government representatives have made significant efforts to
encourage renewal of foreign investment in Indonesia. While
certain additional international financial assistance to
Indonesia from the International Monetary Fund recently was
suspended after the government failed to timely implement certain
promised economic reforms, subsequent government approval of such
measures has increased the likelihood of this assistance being
approved. Significant remaining issues being addressed by the
government include restructuring private foreign debt and
reforming the Indonesian banking system. The economy is expected
to generate positive economic growth in 2000.
With respect to political matters, the government is
developing and implementing new laws granting greater autonomy to
the provincial governments, while continuing to preserve the
central government's sovereignty. Although some in the Indonesian
media and others have called for re-negotiation of existing
contracts and agreements between the central government and
foreign-owned companies, including PT Freeport Indonesia's
Contract of Work, President Wahid and other senior government
officials have made numerous public statements that existing
contracts would be honored and will remain unaffected by any
changes in provincial autonomy.
Recently, certain non-governmental organizations have
criticized PT Freeport Indonesia's independent environmental
audit by Montgomery Watson, which was publicly released in
December 1999. In response to this criticism, the Indonesian
environmental minister has requested clarification of several of
the audit's findings, which we are providing. Additionally, the
Indonesian government has formed a "fact-finding" team to review
these criticisms. This team consists of members of the Department
of Mines and Energy, the Department of Finance, the environmental
ministry and representatives of provincial and local governments
in Irian Jaya (Papua). PT Freeport Indonesia welcomes this team
and is cooperating fully in this effort, as we believe it
represents an opportunity for responsible members of the
government to develop an objective, first-hand understanding of
our operations.
PT Freeport Indonesia's and Eastern Minerals' operations,
all of which are in Indonesia, are conducted through the PT
Freeport Indonesia and Eastern Minerals Contracts of Work. Both
Contracts of Work have 30-year terms, provide for two 10-year
extensions under certain conditions, and govern PT Freeport
Indonesia's and Eastern Minerals' rights and obligations relating
to taxes, exchange controls, repatriation and other matters. Both
Contracts of Work were concluded pursuant to the 1967 Foreign
Capital Investment Law, which expresses Indonesia's foreign
investment policy and provides basic guarantees of remittance
rights and protection against nationalization, a framework for
economic incentives and basic rules regarding other rights and
obligations of foreign investors. Specifically, the Contracts of
Work provide that the Government of Indonesia will not
nationalize or expropriate PT Freeport Indonesia's or Eastern
Minerals' mining operations. Any disputes regarding the
provisions of the Contracts of Work are subject to international
arbitration.
We have had positive relations with the Government of
Indonesia since we commenced business activities in Indonesia in
1967, and we contribute significantly to the economies of Irian
Jaya (Papua) and Indonesia. We are one of the largest taxpayers
in Indonesia and are a significant employer in a remote and
undeveloped area of the country. We intend to continue to
maintain positive working relationships with the central,
provincial and local branches of the Government of Indonesia,
including newly elected public officials, regarding our
operations and development efforts.
16
ENVIRONMENTAL MATTERS
On May 4, 2000, an incident at the Grasberg overburden stockpile
involving the slippage of overburden caused a wave of water and
material to overtop the Wanagon basin spillway and enter the
nearby Wanagon valley. Four employees of a contractor of PT
Freeport Indonesia working in the area are unaccounted for and are
presumed to have perished. All other workers in the area were
located and are unharmed.
No injuries were reported at Banti, the nearest village
inhabited by local people, located approximately 12 kilometers
downstream of the Wanagon basin. An alarm system installed by PT
Freeport Indonesia worked properly and alerted the local
residents of Banti to avoid the vicinity of the river. Banti
leaders joined PT Freeport Indonesia officials in surveying the
area to assess damage and to search for the four missing men. A
group of Banti residents have been relocated to temporary living
facilities as a precautionary measure as the assessment of the
incident is undertaken.
Rainfall in the overburden stockpile area which averages 8
millimeters (mm) per day has recently been four to five times
normal levels. Daily rainfall amounts for the four days
preceding the incident were about 40 mm. PT Freeport Indonesia
environmental specialists have been taking water samples at
different locations in the Wanagon River to assess the environmental
impact. The material in the Wanagon basin includes the byproduct of
treating acid rock drainage from the overburden in the basin with lime
as approved by DOME in PT Freeport Indonesia's mine plan. The
overflow from the basin consisted of this material together with
crushed overburden, which is natural rock, and other natural
sediments.
PT Freeport Indonesia notified the appropriate officials of
the Department of Mines and Energy (DOME) and BAPEDAL,
Indonesia's Environmental Ministry, and is cooperating with a joint
team of DOME and BAPEDAL representatives who are studying the
incident. The DOME recently has informed PT Freeport Indonesia
that it must temporarily suspend stockpiling overburden in the
immediate area affected by the slippage. PT Freeport Indonesia
has not stockpiled overburden in this area since March 2000.
PT Freeport Indonesia will modify its near-term overburden handling
activities accordingly, and will continue to work with the DOME
officials to develop a plan to respond, minimize damage, and
prevent any recurrence. Ore production has not been affected
significantly by this incident.
CAUTIONARY STATEMENT
Our discussion and analysis contains forward-looking statements
in which we discuss factors we believe may affect our performance
in the future. Forward-looking statements are all statements
other than historical facts, such as those regarding anticipated
sales volumes, ore grades, commodity prices, capital
expenditures, debt repayments, political, economic and social
conditions in our areas of operations, treatment charge rates,
exploration efforts and results, introduction of the euro, the
availability of financing and PT Smelting operating levels. We
caution you that these statements are not guarantees of future
performance, and our actual results may differ materially from
those projected, anticipated or assumed in the forward-looking
statements. Important factors that can cause our actual results
to differ materially from those anticipated in the forward-
looking statements include unanticipated declines in the average
grades of ore mined, unanticipated milling and other processing
problems, labor relations, weather conditions, the speculative
nature of mineral exploration, fluctuations in interest rates and
other adverse financial market conditions, and other factors
described in more detail under the heading "Cautionary
Statements" in our Form 10-K for the year ended December 31,
1999.
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Yosefa Alomang v. Freeport-McMoRan Inc. and Freeport-McMoRan
Copper & Gold Inc., Civ. No. 96-9962 (Orleans Civ. Dist. Ct. La.
Filed June 19, 1996). The plaintiff alleged environmental, human
rights and social/cultural violations in Indonesia and seeks
unspecified monetary damages and other equitable relief. In
addition, the plaintiff alleged that she was a third-party
beneficiary under the 1967 and the 1991 Contracts of Work, and
claimed that she had not received fair compensation for her land
rights.
On March 21, 2000 the trial court dismissed the entire case with
prejudice, granting FCX's exception of no cause of action. On
March 24, 2000, the plaintiff filed a petition of appeal to the
Louisiana Fourth Circuit. FCX will continue to defend this
action vigorously.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Our Annual Meeting of Stockholders was held May 4, 2000
(the Annual Meeting). Proxies were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended.
(b) At the Annual Meeting Gerald J. Ford, J. Bennett
Johnston, Henry A. Kissinger, Rene L. Latiolais and Oscar Y. L.
Groeneveld were elected to serve until the 2003 Annual Meeting of
Stockholders. In addition to the directors elected at the Annual
Meeting, the terms of the following directors continued after the
Annual Meeting: Robert W. Bruce III, R. Leigh Clifford, Robert A.
Day, H. Devon Graham, Jr., Bobby Lee Lackey, Gabrielle K.
McDonald, George A. Mealey, James R. Moffett, B. M. Rankin, Jr.
and J. Taylor Wharton.
(c) At the Annual Meeting, holders of FCX's Class A Common
Stock and the FCX's Preferred Stock, voting as a class, elected
one director with the number of votes cast for or withheld from
the nominee as follows:
Name For Withheld
- ---- --- --------
Oscar Y. L. Groeneveld 58,460,064 194,913
At the Annual Meeting, holders of shares of FCX's Class B Common
Stock elected four directors with the number of votes cast for or
withheld from each nominee as follows:
Name For Withheld
- ---- --- --------
Gerald J. Ford 82,966,291 1,374,643
J. Bennett Johnston 82,455,822 1,885,112
Henry A. Kissinger 82,359,641 1,981,293
Rene L. Latiolais 82,887,583 1,453,351
With respect to the election of directors, there were no abstentions or
broker non-votes.
At the Annual Meeting, the stockholders also voted on and
approved a proposal to ratify the appointment of Arthur Andersen
LLP to act as the independent auditors to audit our and our
subsidiaries' financial statements for the year 2000. Holders of
141,166,466 shares voted for, holders of 231,952 shares voted
against and holders of 416,569 shares abstained from voting on,
such proposal. There were no broker non-votes with respect to
such proposal.
At the Annual Meeting, the stockholders voted on a
stockholder proposal to eliminate the classification of our board
of directors. The proposal failed to pass because it received
less than a majority of the votes cast for the proposal. Holders
of 61,513,873 shares (or 49.45% of the votes cast) voted for,
holders of 59,862,912 shares voted against and holders of
3,026,978 shares abstained from voting on, such proposal. There
were broker non-votes consisting of 17,411,224 shares with
respect to such proposal.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits to this report are listed in the
Exhibit Index beginning on Page E-1 hereof.
(b) During the quarter for which this report is filed,
the registrant did not file any Current Reports on
Form 8-K.
18
FREEPORT-McMoRan COPPER & GOLD INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
FREEPORT-McMoRan COPPER & GOLD INC.
By: \s\ C. Donald Whitmire, Jr.
------------------------------
C. Donald Whitmire, Jr.
Vice President and
Controller-Financial Reporting
(authorized signatory and
Principal Accounting Officer)
Date: May 12, 200
19
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2.1 Agreement, dated as of May 2, 1995 by and between Freeport-
McMoRan Inc. (FTX) and FCX and The RTZ Corporation PLC, RTZ
Indonesia Limited, and RTZ America, Inc. (the Rio Tinto
Agreement). Incorporated by reference to Exhibit 2.1 to the
Current Report on Form 8-K of FTX dated as of May 26, 1995.
2.2 Amendment dated May 31, 1995 to the Rio Tinto Agreement.
Incorporated by reference to Exhibit 2.1 to the Quarterly
Report on Form 10-Q of FTX for the quarter ended June 30,
1995.
2.3 Distribution Agreement dated as of July 5, 1995 between FTX
and FCX. Incorporated by reference to Exhibit 2.1 to the
Quarterly Report on Form 10-Q of FTX for the quarter ended
September 30, 1995 (the FTX 1995 Third Quarter Form 10-Q).
3.1 Composite copy of the Certificate of Incorporation of FCX.
Incorporated by reference to Exhibit 3.1 to the Quarterly
Report on Form 10-Q of FCX for the quarter ended June 30,
1995 (the FCX 1995 Second Quarter Form 10-Q).
3.2 Amended By-Laws of FCX dated as of March 12, 1999.
Incorporated by reference to Exhibit 3.2 to the Annual
Report on Form 10-K of FCX for the fiscal year ended
December 31, 1998 (the 1998 FCX Form 10-K).
4.1 Certificate of Designations of the Step-Up Convertible
Preferred Stock of FCX. Incorporated by reference to
Exhibit 4.2 to the FCX 1995 Second Quarter Form 10-Q.
4.2 Deposit Agreement dated as of July 1, 1993 among FCX,
ChaseMellon Shareholder Services, L.L.C. (ChaseMellon), as
Depositary, and holders of depositary receipts (Step-Up
Depositary Receipts) evidencing certain Depositary Shares,
each of which, in turn, represents 0.05 shares of Step-Up
Convertible Preferred Stock. Incorporated by reference to
Exhibit 4.5 to the Annual Report on Form 10-K of FCX for the
fiscal year ended December 31, 1993 (the FCX 1993 Form 10-
K).
4.3 Form of Step-Up Depositary Receipt. Incorporated by
reference to Exhibit 4.6 to the FCX 1993 Form 10-K.
4.4 Certificate of Designations of the Gold-Denominated
Preferred Stock of FCX. Incorporated by reference to
Exhibit 4.3 to the FCX 1995 Second Quarter Form 10-Q.
4.5 Deposit Agreement dated as of August 12, 1993 among FCX,
ChaseMellon, as Depositary, and holders of depositary
receipts (Gold-Denominated Depositary Receipts) evidencing
certain Depositary Shares, each of which, in turn,
represents 0.05 shares of Gold-Denominated Preferred Stock.
Incorporated by reference to Exhibit 4.8 to the FCX 1993
Form 10-K.
4.6 Form of Gold-Denominated Depositary Receipt. Incorporated
by reference to Exhibit 4.9 to the FCX 1993 Form 10-K.
4.7 Certificate of Designations of the Gold-Denominated
Preferred Stock, Series II (the Gold-Denominated Preferred
Stock II) of FCX. Incorporated by reference to Exhibit 4.4
to the FCX 1995 Second Quarter Form 10-Q.
4.8 Deposit Agreement dated as of January 15, 1994, among FCX,
ChaseMellon, as Depositary, and holders of depositary
receipts (Gold-Denominated II Depositary Receipts)
evidencing certain Depositary Shares, each of which, in
turn, represents 0.05 shares of Gold-Denominated Preferred
Stock II. Incorporated by reference to Exhibit 4.2 to the
Quarterly Report on Form 10-Q of FCX for the quarter ended
March 31, 1994 (the FCX 1994 First Quarter Form 10-Q).
E-1
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
4.9 Form of Gold-Denominated II Depositary Receipt.
Incorporated by reference to Exhibit 4.3 to the FCX 1994
First Quarter Form 10-Q.
4.10 Certificate of Designations of the Silver-Denominated
Preferred Stock of FCX. Incorporated by reference to
Exhibit 4.5 to the FCX 1995 Second Quarter Form 10-Q.
4.11 Deposit Agreement dated as of July 25, 1994 among FCX,
ChaseMellon, as Depositary, and holders of depositary
receipts (Silver-Denominated Depositary Receipts) evidencing
certain Depositary Shares, each of which, in turn, initially
represents 0.025 shares of Silver-Denominated Preferred
Stock. Incorporated by reference to Exhibit 4.2 to the July
15, 1994 Form 8-A.
4.12 Form of Silver-Denominated Depositary Receipt. Incorporated
by reference to Exhibit 4.1 to the July 15, 1994, Form 8-A.
4.13 $550 million Composite Restated Credit Agreement dated as of
July 17, 1995 (the PT Freeport Indonesia Credit Agreement)
among PT Freeport Indonesia, FCX, the several financial
institutions that are parties thereto, First Trust of New
York, National Association, as PT Freeport Indonesia
Trustee, Chemical Bank, as administrative agent and FCX
collateral agent, and The Chase Manhattan Bank (National
Association), as documentary agent. Incorporated by
reference to Exhibit 4.16 to the Annual Report of FCX on
Form 10-K for the year ended December 31, 1995 (the FCX 1995
Form 10-K).
4.14 Amendment dated as of July 15, 1996 to the PT Freeport
Indonesia Credit Agreement among PT Freeport Indonesia, FCX,
the several financial institutions that are parties thereto,
First Trust of New York, National Association, as PT
Freeport Indonesia Trustee, Chemical Bank, as administrative
agent and FCX collateral agent, and The Chase Manhattan Bank
(National Association), as documentary agent. Incorporated
by reference to Exhibit 4.2 to the Quarterly Report of FCX
on Form 10-Q for the quarter ended September 30, 1996 (the
FCX 1996 Third Quarter Form 10-Q).
4.15 Amendment dated as of October 9, 1996 to the PT Freeport
Indonesia Credit Agreement among PT Freeport Indonesia, FCX,
the several financial institutions that are parties thereto,
First Trust of New York, National Association, as PT
Freeport Indonesia Trustee, The Chase Manhattan Bank
(formerly Chemical Bank), as administrative agent, security
agent and JAA security agent, and The Chase Manhattan Bank
(as successor to The Chase Manhattan Bank (National
Association)), as documentary agent. Incorporated by
reference to Exhibit 10.2 to the Current Report on Form 8-K
of FCX dated and filed November 13, 1996 (the FCX November
13, 1996 Form 8-K).
4.16 Amendment dated as of March 7, 1997 to the PT Freeport
Indonesia Credit Agreement among PT Freeport Indonesia, FCX,
the several financial institutions that are parties thereto,
First Trust of New York, National Association, as PT
Freeport Indonesia Trustee, The Chase Manhattan Bank, as
administrative agent, security agent and JAA security agent,
and The Chase Manhattan Bank, as documentary agent.
Incorporated by reference to Exhibit 4.16 to the Annual
Report of FCX on Form 10-K for the year ended December 31,
1997 (the FCX 1997 Form 10-K).
4.17 Amendment dated as of July 24, 1997 to the PT Freeport
Indonesia Credit Agreement among PT Freeport Indonesia, FCX,
the several financial institutions that are parties thereto,
First Trust of New York, National Association, as PT
Freeport Indonesia Trustee, The Chase Manhattan Bank, as
administrative agent, security agent and JAA security agent,
and The Chase Manhattan Bank, as documentary agent.
Incorporated by reference to Exhibit 4.17 to the FCX 1997
Form 10-K.
E-2
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
4.18 $200 million Credit Agreement dated as of June 30, 1995 (the
CDF) among PT Freeport Indonesia, FCX, the several financial
institutions that are parties thereto, First Trust of New
York, National Association, as PT Freeport Indonesia
Trustee, Chemical Bank, as administrative agent and FCX
collateral agent, The Chase Manhattan Bank (National
Association), as documentary agent. Incorporated by
reference to Exhibit 4.2 to the FCX 1995 Third Quarter Form
10-Q.
4.19 Amendment dated as of July 15, 1996 to the CDF among PT
Freeport Indonesia, FCX, the several financial institutions
that are parties thereto, First Trust of New York, National
Association, as PT Freeport Indonesia Trustee, Chemical
Bank, as administrative agent and FCX collateral agent, and
The Chase Manhattan Bank (National Association), as
documentary agent. Incorporated by reference to Exhibit 4.1
to the FCX 1996 Third Quarter Form 10-Q.
4.20 Amendment dated as of October 9, 1996 to the CDF among PT
Freeport Indonesia, FCX, the several financial institutions
that are parties thereto, First Trust of New York, National
Association, as PT Freeport Indonesia Trustee, The Chase
Manhattan Bank (formerly Chemical Bank), as administrative
agent, security agent and JAA security agent, and The Chase
Manhattan Bank (as successor to The Chase Manhattan Bank
(National Association)), as documentary agent. Incorporated
by reference to Exhibit 10.1 to the FCX November 13, 1996
Form 8-K.
4.21 Amendment dated as of March 7, 1997 to the CDF among PT
Freeport Indonesia, FCX, the several financial institutions
that are parties thereto, First Trust of New York, National
Association, as PT Freeport Indonesia Trustee, The Chase
Manhattan Bank, as administrative agent, security agent and
JAA security agent, and The Chase Manhattan Bank, as
documentary agent. Incorporated by reference to Exhibit
4.21 to the FCX 1997 Form 10-K.
4.22 Amendment dated as of July 24, 1997 to the CDF among PT
Freeport Indonesia, FCX, the several financial institutions
that are parties thereto, First Trust of New York, National
Association, as PT Freeport Indonesia Trustee, The Chase
Manhattan Bank, as administrative agent, security agent and
JAA security agent, and The Chase Manhattan Bank, as
documentary agent. Incorporated by reference to Exhibit
4.22 to the FCX 1997 Form 10-K.
4.23 Senior Indenture dated as of November 15, 1996 from FCX to
The Chase Manhattan Bank, as Trustee. Incorporated by
reference to Exhibit 4.1 to the Current Report on Form 8-K
of FCX dated November 13, 1996 and filed November 15, 1996.
4.24 First Supplemental Indenture dated as of November 18, 1996
from FCX to The Chase Manhattan Bank, as Trustee, providing
for the issuance of the Senior Notes and supplementing the
Senior Indenture dated November 15, 1996 from FCX to such
Trustee, providing for the issuance of Debt Securities.
Incorporated by reference to Exhibit 4.20 to the FCX 1996
Form 10-K.
4.25 Certificate of Designations of Series A Participating
Cumulative Preferred stock of FCX.
4.26 Rights Agreement dated as of May 3, 2000 between FCX and
Chasemellon Shareholder Services, L.L.C., as Rights Agent.
10.1 Contract of Work dated December 30, 1991 between the
Government of the Republic of Indonesia and PT Freeport
Indonesia. Incorporated by reference to Exhibit 10.2 to the
FCX 1995 Form 10-K.
10.2 Contract of Work dated August 15, 1994 between the
Government of the Republic of Indonesia and PT Irja Eastern
Minerals Corporation. Incorporated by reference to Exhibit
10.2 to the FCX 1995 Form 10-K.
10.3 Agreement dated as of October 11, 1996 to Amend and Restate
Trust Agreement among PT Freeport Indonesia, FCX, the RTZ
Corporation PLC, P.T. RTZ-CRA Indonesia, RTZ Indonesian
E-3
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
Finance Limited and First Trust of New York, National
Association, and The Chase Manhattan Bank, as Administrative
Agent, JAA Security Agent and Security Agent. Incorporated
by reference to Exhibit 10.3 to the FCX November 13, 1996
Form 8-K.
10.4 Credit Agreement dated October 11, 1996 between PT Freeport
Indonesia and RTZ Indonesian Finance Limited. Incorporated
by reference to Exhibit 10.4 to the FCX November 13, 1996
Form 8-K.
10.5 Participation Agreement dated as of October 11, 1996 between
PT Freeport Indonesia and P.T. RTZ-CRA Indonesia with
respect to a certain contract of work. Incorporated by
reference to Exhibit 10.5 to the FCX November 13, 1996 Form
8-K.
10.6 Second Amended and Restated Joint Venture and Shareholders'
Agreement dated as of December 11, 1996 among Mitsubishi
Materials Corporation, Nippon Mining and Metals Company,
Limited and PT Freeport Indonesia. Incorporated by
reference to Exhibit 10.3 of the FCX 1996 Form 10-K.
10.7 Put and Guaranty Agreement dated as of March 21, 1997
between FCX and The Chase Manhattan Bank. Incorporated by
reference to Exhibit 10.7 to the FCX 1997 Form 10-K.
10.8 Subordinated Loan Agreement dated as of March 21, 1997
between FCX and PT Nusamba Mineral Industri. Incorporated
by reference to Exhibit 10.8 to the FCX 1997 Form 10-K.
10.9 Amended and Restated Power Sales Agreement dated as of
December 18, 1997 between PT Freeport Indonesia and P.T.
Puncakjaya Power. Incorporated by reference to Exhibit 10.9
to the FCX 1997 Form 10-K.
10.10 Option, Mandatory Purchase and Right of First Refusal
Agreement dated as of December 19, 1997 among PT Freeport
Indonesia, P.T. Puncakjaya Power, Duke Irian Jaya, Inc.,
Westcoast Power, Inc. and P.T. Prasarana Nusantara Jaya.
Incorporated by reference to Exhibit 10.10 to the FCX 1997
Form 10-K.
Executive Compensation Plans and Arrangements (Exhibits
10.11 through 10.33)
10.11 Annual Incentive Plan of FCX as amended effective
February 2, 1999. Incorporated by reference to Exhibit
10.11 to the 1998 FCX Form 10-K.
10.12 1995 Long-Term Performance Incentive Plan of FCX.
Incorporated by reference to Exhibit 10.9 to the FCX 1996
Form 10-K.
10.13 FCX Performance Incentive Awards Program as amended
effective February 2, 1999. Incorporated by reference to
Exhibit 10.13 to the 1998 FCX Form 10-K.
10.14 FCX President's Award Program. Incorporated by
reference to Exhibit 10.8 to the FCX 1995 Form 10-K.
10.15 FCX Adjusted Stock Award Plan, as amended.
Incorporated by reference to Exhibit 10.15 to the 1997 FCX
Form 10-K.
10.16 FCX 1995 Stock Option Plan. Incorporated by reference
to Exhibit 10.13 to the FCX 1996 Form 10-K.
10.17 FCX 1995 Stock Option Plan for Non-Employee Directors,
as amended. Incorporated by reference to Exhibit 10.17 to
the FCX 1997 Form 10-K.
E-4
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.18 FCX 1999 Stock Incentive Plan. Incorporated by reference to
Exhibit 10.18 to the Quarterly Report on Form 10-Q of FCX
for the quarter ended June 30, 1999.
10.19 FCX 1999 Long-Term Performance Incentive Plan. Incorporated
by reference to Exhibit 10.19 to the Annual Report of FCX on
Form 10-K for the year ended December 31, 1999 (the FCX 1999
Form 10-K).
10.20 Financial Counseling and Tax Return Preparation and
Certification Program of FCX. Incorporated by reference to
Exhibit 10.12 to the FCX 1995 Form 10-K.
10.21 FM Services Company Performance Incentive Awards
Program as amended effective February 2, 1999. Incorporated
by reference to Exhibit 10.19 to the 1998 FCX Form 10-K.
10.22 FM Services Company Financial Counseling and Tax Return
Preparation and Certification Program. Incorporated by
reference to Exhibit 10.14 to the FCX 1995 Form 10-K.
10.23 Consulting Agreement dated as of December 22, 1988
between FTX and Kissinger Associates, Inc. (Kissinger
Associates). Incorporated by reference to Exhibit 10.21 to
the FCX 1997 Form 10-K.
10.24 Letter Agreement dated May 1, 1989 between FTX and Kent
Associates, Inc. (Kent Associates, predecessor in interest
to Kissinger Associates). Incorporated by reference to
Exhibit 10.22 to the FCX 1997 Form 10-K.
10.25 Letter Agreement dated January 27, 1997 among Kissinger
Associates, Kent Associates, FTX, FCX and FMS. Incorporated
by reference to Exhibit 10.20 to the FCX 1996 Form 10-K.
10.26 Agreement for Consulting Services between FTX and B. M.
Rankin, Jr. effective as of January 1, 1991 (assigned to FMS
as of January 1, 1996). Incorporated by reference to Exhibit
10.24 to the FCX 1997 Form 10-K.
10.27 Supplemental Agreement between FMS and B. M. Rankin Jr.
dated December 15, 1997. Incorporated by reference to
Exhibit 10.25 to the FCX 1997 Form 10-K.
10.28 Supplemental Agreement between FMS and B.M. Rankin Jr.
dated December 7, 1998. Incorporated by reference to Exhibit
10.26 to the 1998 FCX Form 10-K.
10.29 Letter Agreement effective as of January 7, 1997
between Senator J. Bennett Johnston, Jr. and FMS.
Incorporated by reference to Exhibit 10.25 of the FCX 1996
Form 10-K.
10.30 Supplemental Letter Agreement dated April 13, 2000
between J. Bennett Johnston, Jr. and FMS.
10.31 Letter Agreement dated January 25, 1999 between FMS and
Rene L. Latiolais. Incorporated by reference to Exhibit
10.30 to the 1998 FCX Form 10-K.
10.32 Supplemental Letter Agreement dated August 4, 1999
between FMS and Rene L. Latiolais. Incorporated by reference
to Exhibit 10.32 of the FCX 1999 Form 10-K.
10.33 Letter Agreement dated November 1, 1999 between FMS and
Gabrielle K. McDonald. Incorporated by reference to Exhibit
10.33 of the FCX 1999 Form 10-K.
10.34 Concentrate Purchase and Sales Agreement dated effective
December 11, 1996 between PT Freeport Indonesia and P T
Smelting. Incorporated by reference to Exhibit 10.34 of the
FCX 1999 Form 10-K.
E-5
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
15.1 Letter dated April 18, 2000 from Arthur Andersen LLP
regarding unaudited interim financial statements.
27.1 FCX Financial Data Schedule.
E-6