SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1999
Commission File Number: 1-9916
Freeport-McMoRan Copper & Gold Inc.
Incorporated in Delaware 74-2480931
(IRS Employer Identification No.)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code: (504) 582-4000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
On September 30, 1999, there were issued and outstanding
64,746,423 shares of the registrant's Class A Common Stock, par
value $0.10 per share, and 98,738,002 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 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information 22
Signature 23
Exhibit Index E-1
2
FREEPORT-McMoRan COPPER & GOLD INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED BALANCE SHEETS (Unaudited)
September 30, December 31,
1999 1998
---------- ----------
(In Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 3,361 $ 5,877
Accounts receivable 214,419 228,502
Inventories 359,651 301,404
Prepaid expenses and other 10,722 10,111
---------- ----------
Total current assets 588,153 545,894
Property, plant and equipment, net 3,387,149 3,474,451
Investment in PT Smelting 67,815 80,822
Other assets 89,070 91,467
---------- ----------
Total assets $4,132,187 $4,192,634
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 369,408 $ 344,906
Current portion of long-term debt
and short-term borrowings 161,952 127,804
Accrued income taxes 54,977 45,777
---------- ----------
Total current liabilities 586,337 518,487
Long-term debt, less current portion:
FCX and PT-FI credit facilities 669,000 658,000
Senior notes 570,000 570,000
Infrastructure asset financings 453,944 486,616
Atlantic Copper debt 221,858 283,472
Rio Tinto loan 113,396 255,320
Other notes payable 66,987 75,581
Accrued postretirement benefits
and other liabilities 112,570 124,073
Deferred income taxes 520,409 471,178
Minority interests 170,736 146,484
Redeemable preferred stock 487,507 500,007
Stockholders' equity 159,443 103,416
---------- ----------
Total liabilities and stockholders' equity $4,132,187 $4,192,634
========== ==========
The accompanying notes are an integral part of these financial
statements.
3
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
(In Thousands, Except Per Share Amounts)
Revenues $473,658 $442,126 $1,359,829 $1,272,116
Cost of sales:
Production and delivery 225,238 204,175 658,536 600,256
Depreciation and amortization 74,063 75,145 217,188 197,398
-------- -------- ---------- ----------
Total cost of sales 299,301 279,320 875,724 797,654
Exploration expenses 2,484 2,778 7,590 10,344
Equity in PT Smelting 3,926 440 16,391 1,132
General and
administrative expenses 15,151 24,500 48,059 63,156
-------- -------- ---------- ----------
Total costs and expenses 320,862 307,038 947,764 872,286
-------- -------- ---------- ----------
Operating income 152,796 135,088 412,065 399,830
Interest expense, net (47,904) (51,271) (146,127) (153,113)
Other expense, net (2,793) (3,903) (6,138) (5,991)
Income before income taxes
and minority interests 102,099 79,914 259,800 240,726
Provision for income taxes (53,331) (38,579) (135,623) (114,461)
Minority interests in net
income of consolidated
subsidiaries (13,130) (8,702) (34,552) (23,267)
-------- -------- ---------- ----------
Net income 35,638 32,633 89,625 102,998
Preferred dividends (8,829) (8,791) (26,145) (26,762)
-------- -------- ---------- ----------
Net income applicable to
common stock $ 26,809 $ 23,842 $ 63,480 $ 76,236
======== ======== ========== ==========
Net income per share of common stock:
Basic $.16 $.14 $.39 $.43
==== ==== ==== ====
Diluted $.16 $.14 $.39 $.43
==== ==== ==== ====
Average common shares outstanding:
Basic 163,481 174,668 163,654 178,826
======= ======= ======= =======
Diluted 164,844 174,668 164,471 178,881
======= ======= ======= =======
Dividends paid per common share $- $.05 $- $.15
== ==== == ====
The accompanying notes are an integral part of these financial
statements.
4
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF CASH FLOW (Unaudited)
Nine Months Ended
September 30,
-------------------
1999 1998
-------- --------
(In Thousands)
Cash flow from operating activities:
Net income $ 89,625 $102,998
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 217,188 197,398
Deferred income taxes 49,231 33,747
Equity in PT Smelting 16,391 1,132
Minority interests' share of net income 34,552 23,267
Other 9,280 6,943
(Increase) decrease in working capital:
Accounts receivable 5,968 (43,821)
Inventories (39,246) 20,125
Prepaid expenses and other (610) 867
Accounts payable and accrued liabilities (3,884) (1,005)
Accrued income taxes 9,200 16,918
-------- --------
Increase in working capital (28,572) (6,916)
-------- --------
Net cash provided by operating activities 387,695 358,569
-------- --------
Cash flow from investing activities:
PT-FI capital expenditures (97,656) (255,002)
Atlantic Copper capital expenditures (4,886) (5,849)
Investment in PT Smelting (3,384) (2,660)
Other (852) 4,634
-------- --------
Net cash used in investing activities (106,778) (258,877)
-------- --------
Cash flow from financing activities:
Net repayment to Rio Tinto (161,050) (73,671)
Proceeds from other debt 264,611 499,506
Repayment of other debt (314,031) (211,716)
Partial redemption of preferred stock (11,946) -
Purchase of FCX common shares (7,921) (237,519)
Cash dividends paid:
Common stock - (27,118)
Preferred stock (28,587) (29,503)
Minority interests (11,189) (6,133)
Other (13,320) (12,606)
-------- --------
Net cash used in financing activities (283,433) (98,760)
-------- --------
Net increase (decrease) in cash
and cash equivalents (2,516) 932
Cash and cash equivalents
at beginning of year 5,877 8,959
-------- --------
Cash and cash equivalents
at end of period $ 3,361 $ 9,891
======== ========
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
Freeport-McMoRan Copper & Gold Inc.'s (FCX) 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. Dilutive stock options represented
1.4 million shares in the third quarter of 1999, 0.8 million
shares in the 1999 nine-month period and 0.1 million shares in
the 1998 nine-month period.
Options with exercise prices greater than the average market
price of the common stock during the period were excluded from
the computation of diluted net income per share of common stock.
This amounted to options for 9.9 million shares (average
exercise price of $22.65 per share) in the third quarter of 1999,
11.2 million shares (average exercise price of $21.75 per share)
in the 1999 nine-month period, 11.4 million shares (average
exercise price of $21.99 per share) in the third quarter of 1998
and 10.2 million shares (average exercise price of $22.85 per
share) in the 1998 nine-month period. Convertible preferred
stock outstanding was not included in the computation of diluted
net income per share of common stock because doing so 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 $5.6 million in the
third quarter of 1999, $5.2 million in the third quarter of 1998,
$16.1 million in the nine-month 1999 period and $15.7 million in
the nine-month 1998 period.
2. FINANCIAL CONTRACTS
At times, 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 or gold price protection contracts
relating to its mine production other than its gold-denominated
preferred stock.
At September 30, 1999, FCX had outstanding redeemable
preferred stock indexed to commodity prices, foreign currency
forward contracts, forward copper sales and purchase contracts
related to its smelter operations and interest rate swap
contracts. Redeemable preferred stock indexed to commodity
prices 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 revenurecorded as an adjustment to revenues.
Atlantic Copper, S.A., a wholly owned subsidiary of FCX
(Atlantic), hedges a portion of its anticipated Spanish peseta
cash outflows with foreign currency forward contracts. Changes in
market value of foreign currency forward contracts that hedge
anticipated transactions are recognized in the period incurred.
Atlantic enters into futures contracts to hedge its copper 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. P.T. Freeport Indonesia Company,
FCX's majority-owned subsidiary (PT-FI), and Atlantic use
interest rate swap contracts to limit the effect of increases in
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 has not determined when it will adopt SFAS 133;
however, adoption is not expected to have a material impact on
its financiaall position.
6
3. INTEREST COST
Interest expense excludes capitalized interest of $1.3 million in
the third quarter of 1999, $4.0 million in the third quarter of
1998, $2.6 million in the first nine months of 1999 and $18.9
million in the first nine months of 1998.
4. BUSINESS SEGMENTS
FCX has two operating segments: "mining and exploration" and
"smelting and refining." The mining and exploration segment
includes PT-FI's copper and gold mining operations in Indonesia
and FCX's Indonesian exploration activities. The smelting and
refining segment includes Atlantic's operations in Spain and PT-
FI's equity investment in P.T. Smelting (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 and Eliminations FCX
Exploration Refining and Other Total
---------- --------- --------- ----------
(In Thousands)
Three months ended
September 30, 1999
Revenues $ 376,298 a $174,306 $ (76,946) b $ 473,658
Production and delivery 124,081 165,836 (64,679) b 225,238
Depreciation and
amortization 65,621 7,325 1,117 74,063
Exploration expenses 2,099 - 385 2,484
Equity in PT Smelting - 3,926 c - 3,926
General and
administrative expenses 11,537 2,206 1,408 15,151
---------- -------- --------- ----------
Operating income (loss) $ 172,960 $ (4,987) $ (15,177) $ 152,796
========== ======== ========= ==========
Three months ended
September 30, 1998
Revenues $ 341,442 $182,072 $ (81,388) b $ 442,126
Production and delivery 115,822 161,758 (73,405) b 204,175
Depreciation and
amortization 66,046 7,982 1,117 75,145
Exploration expenses 2,476 - 302 2,778
Equity in PT Smelting - 440 - 440
General and
administrative expenses 20,456 2,577 1,467 24,500
---------- -------- --------- ----------
Operating income $ 136,642 $ 9,315 $ (10,869) $ 135,088
========== ======== ========= ==========
Nine months ended
September 30, 1999
Revenues $1,040,653a $552,532 $(233,356)b $1,359,829
Production and delivery 386,605 514,855 (242,924) b 658,536
Depreciation and
amortization 191,901 21,936 3,351 217,188
Exploration expenses 6,848 - 742 7,590
Equity in PT Smelting - 16,391 c - 16,391
General and
administrative expenses 36,250 6,697 5,112 48,059
---------- -------- --------- ----------
Operating income (loss) $ 419,049 $ (7,347) $ 363 $ 412,065
========== ======== ========= ==========
Capital expenditures $ 97,361 $ 8,270 $ 295 $ 105,926
========== ======== ========= ==========
Total assets $3,441,702 d $696,444 $ (5,959) $4,132,187 d
========== ======== ========= ==========
Nine months ended
September 30, 1998
Revenues $ 943,713 $570,067 $(241,664) b $1,272,116
Production and delivery 335,955 506,008 (241,707) b 600,256
Depreciation and
amortization 169,674 24,456 3,268 197,398
Exploration expenses 9,235 - 1,109 10,344
Equity in PT Smelting - 1,132 - 1,132
General and
administrative expenses 50,342 7,377 5,437 63,156
---------- -------- --------- ----------
Operating income $ 378,507 $ 31,094 $ (9,771) $ 399,830
========== ======== ========= ==========
Capital expenditures $ 254,147 $ 8,509 $ 855 $ 263,511
========== ======== ========= ==========
Total assets $3,444,289 $715,182 $ 14,774 $4,174,245
========== ======== ========= ==========
a. Includes PT-FI sales to PT Smelting totaling $87.1 million
in the third quarter of 1999 and $175.6 million in the first
nine months of 1999.
b. Primarily represents elimination of intersegment sales from
PT-FI to Atlantic and the change in deferred profits on
intersegment sales remaining in Atlantic's inventories.
7
c. Includes deferrals of intercompany profits on 25 percent of
PT-FI's sales to PT Smelting, for which the final sale has
not occurred, totaling $4.3 million in the three months
ended September 30, 1999 and $8.6 million in the nine months
ended September 30, 1999.
d. Includes a $49.8 million trade receivable from PT Smelting
for concentrate purchases.
5. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first nine months
of 1999 and 1998 was 2.7 to 1 and 2.3 to 1, respectively. For
this calculation, earnings consist of income from continuing
operations before income taxes, minority interests and fixed
charges. Fixed charges include interest and that portion of rent
deemed representative of interest
----------------------
Remarks
The information furnished herein should be read in conjunction
with FCX's financial statements contained in its 1998 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.
8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Freeport-McMoRan Copper & Gold Inc.:
We have reviewed the accompanying condensed balance sheet of
Freeport-McMoRan Copper & Gold Inc. (a Delaware corporation) as
of September 30, 1999, the related statements of income for the
three and nine-month periods ended September 30, 1999 and 1998,
and the statements of cash flow for the nine-month periods ended
September 30, 1999 and 1998. 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 generally accepted auditing
standards, 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 generally
accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the balance sheet of Freeport-
McMoRan Copper & Gold Inc. as of December 31, 1998, 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 19, 1999, 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, 1998, is fairly stated, in all material
respects, in relation to the balance sheet from which it has been
derived.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
October 19, 1999
9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OVERVIEW
Freeport-McMoRan Copper & Gold Inc. (FCX) operates through its
majority-owned subsidiaries, P.T. Freeport Indonesia Company (PT-
FI) and P.T. Irja Eastern Minerals Corporation (Eastern Mining),
and through Atlantic Copper, S.A. (Atlantic), a wholly owned
subsidiary. PT-FI's operations involve mineral exploration and
development; mining and milling of ore containing copper, gold
and silver in Irian Jaya, Indonesia and the worldwide marketing
of concentrates containing those metals. PT-FI also owns a 25
percent interest in P.T. Smelting (PT Smelting), an Indonesian
company which operates a copper smelter and refinery in Gresik,
Indonesia. Eastern Mining conducts mineral exploration activities
in Irian Jaya. Atlantic's operations involve the smelting and
refining of copper concentrates in Spain and the marketing of
refined copper products and precious metals in slimes. In
addition to the PT-FI and Eastern Mining exploration activities,
FCX conducts other mineral exploration activities in Irian Jaya
pursuant to a joint venture with PT Nabire Bakti Mining (PT-NBM).
The results of operations reported and summarized below are not
necessarily indicative of future operating results.
Summary FCX comparative results for the third-quarter and
nine-month periods follow (in millions, except per share
amounts):
Third Quarter Nine Months
--------------- ------------------
1999 1998 1999 1998
------ ------ -------- --------
Revenues $473.7 $442.1 $1,359.8 $1,272.1
Operating income 152.8 135.1 412.1 399.8
Net income applicable
to common stock 26.8 23.8 63.5 76.2
Diluted net income per share
of common stock 0.16 0.14 0.39 0.43
FCX's revenues include PT-FI's sale of copper concentrates,
which also contain significant amounts of gold, and Atlantic's
sale of copper anodes, cathodes, wire rod and precious metals in
slimes. FCX's revenues and net income vary significantly with
fluctuations in the market prices of copper and gold and other
factors. At times, in response to market conditions, FCX has
entered into copper and gold price protection contracts for some
portion of its expected future mine production to mitigate the
risk of adverse price fluctuations. FCX currently has no copper
or gold price protection contracts relating to its mine
production other than its gold-denominated preferred stock. A
change of $0.01 in the average price per pound of copper would
have an approximate $14 million impact on revenues and an
approximate $7 million impact on net income, assuming
approximately 1.4 billion pounds of annual production. A change
of $10 in the average price per ounce of gold would have an
approximate $20 million impact on revenues and an approximate $10
million impact on net income, assuming approximately 2 million
ounces of annual production.
Higher 1999 revenues primarily reflect significantly higher
gold sales volumes because of increased production from the
"fourth concentrator mill expansion," which began its start-up in
the first quarter of 1998, and higher gold ore grades partially
offset by lower commodity price realizations. Third-quarter 1999
revenues benefited by $10.6 million ($5.2 million to net income
or $0.03 per share) from adjustments to June 30, 1999 "open"
concentrate sales, while third-quarter 1998 revenues benefited by
$5.2 million ($2.5 million to net income or $0.01 per share) from
adjustments to June 30, 1998 open concentrate sales. Nine-month
1999 revenues benefited by $6.3 million ($3.1 million to net
income or $0.02 per share) from adjustments to December 31, 1998
open concentrate sales, while nine-month 1998 revenues benefited
by $24.4 million ($11.9 million to net income or $0.07 per share)
from adjustments to December 31, 1997 open concentrate sales.
Cost of sales for the 1999 nine-month period was higher
compared with the 1998 period primarily because of higher copper
sales volumes and higher depreciation and amortization expense
associated with a higher unit depreciation rate at PT-FI.
Exploration costs in all joint venture areas with Rio Tinto plc
(Rio Tinto) are now being shared 60 percent by FCX and 40 percent
by Rio Tinto. Equity in PT Smelting reflects PT-FI's 25 percent
share in those operations and elimination of profits on 25
percent of PT-FI's copper concentrate sales to PT Smelting until
PT Smelting makes the final sale. General and administrative
expenses in the 1999 periods were lower primarily because of
ongoing corporate initiatives to reduce costs. Lower net interest
expense primarily reflects lower average debt levels partially
offset by less capitalized interest in 1999 following the
completion of the fourth concentrator mill expansion in 1998. An
increase in the effective rate for income taxes in 1999 compared
with 1998 primarily reflects an increase in Atlantic's net losses
and PT-FI's equity in PT Smelting losses for which there are no tax
10
benefits. Higher minority interest charges in 1999 primarily
reflect the consolidation of certain PT-FI infrastructure joint
ventures.
RESULTS OF OPERATIONS
FCX has two operating segments: "mining and exploration" and
"smelting and refining." The mining and exploration segment
includes PT-FI's copper and gold mining operations in Indonesia
and FCX's Indonesian exploration activities. The smelting and
refining segment includes Atlantic's operations in Spain and PT-
FI's 25 percent equity investment in PT Smelting. Summary
comparative operating income (loss) by segment for the third-
quarter and nine-month periods follows (in millions):
Third Quarter Nine Months
--------------- ---------------
1999 1998 1999 1998
------ ------ ------ ------
Mining and exploration $173.0 $136.6 $419.0 $378.5
Smelting and refining (5.0)a 9.3 (7.3)a 31.1
Intercompany eliminations
and other b (15.2) (10.8) 0.4 (9.8)
------ ------ ------ ------
FCX operating income $152.8 $135.1 $412.1 $399.8
====== ====== ====== ======
a. Includes deferrals of intercompany profits on 25 percent of
PT-FI's sales to PT Smelting, for which the final sale to
third parties has not occurred, totaling $4.3 million in the
third quarter and $8.6 million in the nine-month period.
b. Includes income (losses) from the change in deferred
intercompany profits on PT-FI sales to Atlantic, for which the
final sale to third parties has not occurred, totaling
$(12.1) million in the third quarter of 1999, $(8.0) million
in the third quarter of 1998, $10.2 million in the 1999 nine-
month period and $0.2 million in the 1998 nine-month period.
FCX's consolidated quarterly earnings fluctuate depending on
the timing of shipments to Atlantic and PT Smelting and prices
of these sales.
MINING AND EXPLORATION
A summary of increases (decreases) in PT-FI revenues between the
periods follows (in millions):
Third Nine
Quarter Months
------- --------
PT-FI revenues - 1998 periods $341.4 $ 943.7
Increases (decreases):
Sales volumes:
Copper (17.7) 51.6
Gold 35.4 121.6
Price realizations:
Copper (4.4) (52.5)
Gold (18.7) (36.1)
Adjustments, primarily for copper
pricing on prior period open sales 18.6 (19.2)
Treatment charges, royalties and other 21.7 31.6
------ --------
PT-FI revenues - 1999 periods $376.3 $1,040.7
====== ========
PT-FI's third-quarter 1999 revenues, compared with the 1998
third quarter, benefited from a 24 percent increase in gold sales
volumes, offset by declines in copper sales volumes (6 percent),
copper realizations (1 percent) and gold realizations (10
percent). Nine-month 1999 revenues benefited from increases in
copper and gold sales volumes of 7 percent and 30 percent,
respectively, which were partly offset by 7 percent declines in
realizations for both copper and gold. The copper portion of PT-
FI's sales is generally priced based on prices in a future
specified month (See "PT-FI Sales Outlook"). Copper prices rose
during the third quarter of 1999, resulting in a benefit from
repricing prior period open sales compared with the 1998 quarter,
when prices were relatively unchanged. For the nine-month
period, repricing of year-end 1998 open copper sales resulted in
a decrease in revenues compared with the 1998 period when higher
copper prices early in the year resulted in increases to
revenues. Although sales volumes were mostly higher in the 1999
periods, treatment charges in total were lower because treatment
rates for a significant portion of PT-FI's 1999 projected sales
were negotiated in the fourth quarter of 1998 when rates were
lower than when they were previously negotiated in the fourth
quarter of 1997. Additionally, royalties and a portion of
treatment charges vary with the price of copper.
11
PT-FI Sales Outlook
PT-FI has commitments from various parties, including Atlantic
and PT Smelting, to purchase virtually all of its estimated
fourth-quarter 1999 and annual 2000 production at market prices.
PT-FI 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. PT-FI's share of sales
for 1999, net of Rio Tinto's interest, is projected to
approximate 1.4 billion pounds of copper and 2.3 million ounces
of gold. PT-FI currently projects on a preliminary basis that its
share of sales for 2000 will total approximately 1.4 billion
pounds of copper and 1.9 million ounces of gold. Projected
remaining 1999 and 2000 copper and gold sales reflect the
expectation of producing lower average ore grades compared to
1998 and the first nine months of 1999. The lower projected ore
grades for the remainder of 1999 and 2000 reflect the capability
of the expanded mill facilities to process large volumes of ore,
including lower grade material.
PT-FI'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 September 30, 1999, FCX had
consolidated copper sales totaling 173.2 million pounds remaining
to be finally priced recorded at an average price of $0.74 per
pound. A one cent movement in the average price used for these open
pounds would have an approximate $0.8 million impact on FCX's
fourth-quarter 1999 net income. Approximately 80 percent of these
open pounds are expected to be finally priced during the fourth
quarter of 1999 with the remaining pounds to be priced during the
first quarter of 2000. During the fourth quarter of 1999, FCX entered
into forward copper sales contracts for certain of its September 30,
1999 open pounds expected to final price in the fourth quarter of
1999 at an average price of $0.80 per pound. As a result, FCX
expects to realize approximately $0.79 per pound on its September
30, 1999 open pounds finally pricing in the fourth quarter of 1999.
FCX remains unhedged with respect to its copper mine production.
Gold sales are priced according to individual contract
terms, generally the average London Bullion Market Association
price for the month of shipment. Gold prices rebounded sharply
in late September and early October after falling to 20-year lows
during the third quarter of 1999. Spot closing gold prices on
October 18, 1999 were approximately $312 per ounce. At times PT-
FI has entered into financial contracts to manage certain risks
resulting from fluctuations in commodity prices. As of September
30, 1999, PT-FI does not have any price protection programs in
place for its copper or gold sales, other than its gold-
denominated preferred stock, but may enter into new contracts for
its future sales as conditions warrant.
PT-FI Operating Results
Third Quarter Nine Months
---------------- --------------------
1999 1998 1999 1998
------- ------- --------- ---------
PT-FI, net of Rio Tinto's interest
Copper
Production (000s of recoverable
pounds) 368,600 399,700 1,081,800 1,003,500
Sales (000s of recoverable pounds) 364,500 388,500 1,066,100 998,100
Average realized price $.73 $.74 $.71 $.76
Gold
Production (recoverable ounces) 625,500 527,500 1,826,100 1,408,200
Sales (recoverable ounces) 633,200 509,600 1,826,500 1,408,200
Average realized price $257.13 $286.74 $270.98 $290.74
Gross profit per pound of copper (cents):
Average realized price 72.9 74.1 70.9 75.8
----- ----- ----- -----
Production costs:
Site production and delivery 33.8 29.5 36.1 33.3
Gold and silver credits (46.5) (38.6) (47.6) (42.2)
Treatment charges 19.1 23.7 19.1 23.9
Royalty on metals 1.6 1.2 1.5 1.2
----- ----- ----- -----
Cash production costs 8.0 15.8 9.1 16.2
Depreciation and amortization 18.0 17.0 18.0 17.0
----- ----- ----- -----
Total production costs 26.0 32.8 27.1 33.2
----- ----- ----- -----
Revenue adjustments a 4.5 0.1 (0.5) 1.7
----- ----- ----- -----
Gross profit per pound of copper 51.4 41.4 43.3 44.3
===== ===== ===== =====
12
PT-FI, 100% Operating Statistics
Ore milled (metric tons per day,
MTPD) 221,800 207,400 220,100 191,700
Copper grade (percent) 1.11 1.33 1.14 1.24
Gold grade (grams per metric ton) 1.40 1.29 1.37 1.28
Recovery rate (percent)
Copper 86.1 88.7 84.4 87.3
Gold 83.7 86.4 83.7 84.3
Copper
Production (000s of recoverable
pounds) 417,100 480,800 1,226,200 1,206,900
Sales (000s of recoverable pounds) 412,500 467,600 1,211,100 1,195,500
Gold
Production (recoverable ounces) 779,600 662,300 2,250,300 1,767,600
Sales (recoverable ounces) 788,000 639,400 2,251,700 1,752,000
a. Reflects adjustments to PT-FI revenues for prior period
copper sales.
PT-FI's average mill throughput rate increased to 221,800
MTPD for the third quarter of 1999. Higher throughput and gold
ore grades in the 1999 periods resulted in higher gold production
compared with the 1998 periods. Lower copper grades and recovery
rates in the 1999 third quarter more than offset higher mill
throughput rates and resulted in lower copper production when
compared to the 1998 third quarter. Mill throughput rates vary
based on the characteristics of the ore being processed as PT-FI
manages its operations to optimize metal production. Unit site
production and delivery costs averaged $0.34 per pound of copper
in the third quarter of 1999 and $0.36 per pound in the 1999
nine-month period, higher than the $0.30 per pound reported in
the third quarter of 1998 and $0.33 per pound in the 1998 nine-
month period primarily because of lower grade ore and a
strengthening Indonesian rupiah (see discussion below). Higher
gold sales volumes partly offset by lower gold realizations
helped to improve gold credits in the 1999 periods compared with
the 1998 periods. Unit treatment charges were lower in the 1999
periods because treatment charge rates for a significant portion
of PT-FI's 1999 projected sales were negotiated in the fourth
quarter of 1998 when rates were lower than when they were
previously negotiated in the fourth quarter of 1997 and because
of contractual price participation, whereby a portion of the
charge varies with the price of copper.
The copper royalty rate payable by PT-FI under its Contact
of Work (COW) varies from 1.5 percent of copper net revenue at a
copper price of $0.90 or less per pound to 3.5 percent at a
copper price of $1.10 or more per pound. The COW royalty rate
for gold and silver sales is 1.0 percent. In connection with the
substantial expansion of its production capabilities, PT-FI
agreed to pay the Government of the Republic of Indonesia (GOI)
voluntary additional royalties on metal from production above
200,000 MTPD in amounts for copper equal to the COW royalty and
for gold and silver equal to twice the COW royalties. Therefore,
the total of royalties paid on copper net revenues from
production above 200,000 MTPD are double the amount of the COW
royalty; and the total of royalties paid on gold and silver sales
from production above 200,000 MTPD are triple the amount of the
COW royalties. The additional royalties became effective January
1, 1999. Because mineral royalties under GOI regulations are
remitted, in large part, to the provinces from which the minerals
are extracted, PT-FI offered the voluntary additional royalties
to provide additional support to the local governments and the
people of Irian Jaya. All together the royalties totaled $6.0
million in the third quarter of 1999, $3.7 million in the third
quarter of 1998, $16.2 million in the first nine months of 1999
and $11.1 million in the first nine months of 1998.
PT-FI's depreciation rate of 18.0 cents per pound for 1999
reflects an increase over the 1998 rate for a full year of
depreciation on the fourth concentrator mill expansion assets and
other capital additions.
FCX conducts the majority of its operations in Indonesia and
Spain where its functional currency is the U.S. dollar. All of
FCX's 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, FCX's 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-FI recorded gains
(losses) totaling $(1.1) million during the third quarter of
1999, $1.1 million during the third quarter of 1998, $(1.9)
13
million during the first nine months of 1999 and $(9.4) million
during the first nine months of 1998 related to its rupiah-
denominated net assets. Operationally PT-FI has benefited from a
weakened rupiah currency, primarily through lower labor costs.
During the first quarter of 1998, PT-FI 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-FI has not extended its currency
hedging program; however, it may do so in the future. PT-FI
recorded net gains (losses) to production costs totaling $(0.4)
million in the third quarter of 1999, $0.9 million in the third
quarter of 1998, $3.7 million in the first nine months of 1999
and $(4.9) million in the first nine months of 1998 related to
these contracts.
Assuming estimated annual aggregate rupiah payments of 800
billion and a September 30, 1999 exchange rate of 8,210 rupiah to
one U.S. dollar, a one-thousand-rupiah increase in the exchange
rate would result in an approximate $11 million decrease in
annual operating costs and a one-thousand-rupiah decrease in the
exchange rate would result in an approximate $14 million increase
in annual operating costs, before any hedging effects.
Rio Tinto Joint Venture
Pursuant to the Rio Tinto joint venture, Rio Tinto has a 40
percent interest in certain assets and production exceeding
specified annual amounts of copper, gold and silver through 2021
and 40 percent of all production thereafter. Rio Tinto provided
a $450 million nonrecourse loan to PT-FI for PT-FI's share of the
cost of the fourth concentrator mill expansion. PT-FI and Rio
Tinto began sharing incremental cash flow attributable to the
expansion effective January 1, 1998 on the basis of 60 percent to
PT-FI and 40 percent to Rio Tinto. PT-FI 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-FI plus interest
based on Rio Tinto's cost of borrowing. Through September 30,
1999, PT-FI's share of incremental cash flow totaled $389.8
million, of which $359.0 million has been paid to Rio Tinto and
$30.8 million will be paid in the fourth quarter of 1999. The
incremental production from the expansion and production from PT-
FI's previously existing operations share proportionately in
operating, nonexpansion capital and administrative costs. PT-FI
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's exploration program in Irian Jaya includes the Block A and
Block B areas of PT-FI's COW, the Eastern Mining COW area and the
PT-NBM COW area. FCX's exploration field activities in the Block
B, Eastern Mining and PT-NBM areas have resumed following a
voluntary suspension of activities for a three-month period from
May 15th through August 15th as a precaution during the
Indonesian national election period. See "Developments in
Indonesia" for further discussion.
In Block A, which contains PT-FI's mining and milling
operations, third-quarter exploration efforts concentrated on
potential expansion of reserves at Kucing Liar, Grasberg
Underground and DOZ. Delineation drilling is ongoing at Kucing
Liar, focusing on testing indicated extensions to the known
deposit. At Grasberg Underground, drilling is directed towards
defining the deeper extents of mineralization. Drilling at DOZ
continues to indicate excellent potential for significant
additions to the existing DOZ block cave reserve.
FCX's exploration activities in the Block B and Eastern
Mining areas continue and are focused on mapping and evaluating
prospects that potentially could lead to the discovery of
significant porphyry and/or skarn-type copper-gold deposits.
Exploration is ongoing on several blocks contiguous to PT-
FI's Block B and Eastern Mining's Block I areas in Irian Jaya in
PT-NBM's COW area covering a total of approximately 1.0 million
acres. Rio Tinto has elected to participate in 40 percent of
FCX's interest and costs in this exploration joint venture. To
earn up to a 62 percent interest, FCX and Rio Tinto must spend at
least $21 million on exploration and other activities in the
joint venture areas ($9.1 million of which had been incurred
through September 30, 1999). Exploration drilling with several
rigs is ongoing on a number of identified geological anomalies on
this acreage.
14
SMELTING AND REFINING
Atlantic Operating Results
Third Quarter Nine Months
---------------- ----------------
1999 1998 1999 1998
------- ------- ------- -------
Revenues (in millions) $174.3 $182.1 $552.5 $570.1
Operating income (loss)
(in millions) $(1.1) $9.8 $9.0 $32.2
Concentrate treated (metric tons) 230,900 235,200 694,600 740,900
Anode production (000s of pounds) 154,300 157,000 472,000 490,000
Cathode and wire rod sales
(000s of pounds) 137,000 140,900 413,500 405,400
Gold sales in anodes and slimes
(ounces) 162,600 157,700 613,600 506,600
Atlantic reported slightly lower revenues in the 1999
periods primarily because of lower copper and gold prices.
Third-quarter 1999 operating income decreased by $10.9 million
compared with the 1998 quarter and nine-month 1999 operating
income decreased by $23.2 million compared with the 1998 nine-
month period, reflecting lower treatment and refining rates.
Atlantic's treatment and refining rates were significantly lower
in the third quarter of 1999 ($0.19 per pound) compared with the
third quarter of 1998 ($0.25 per pound) and for the 1999 nine-
month period ($0.20 per pound) compared with the 1998 nine-month
period ($0.26 per pound), reflecting market conditions. Excess
smelter capacity, as compared with copper concentrates
availability, has caused long-term treatment and refining rates
to decline since early 1998. Spot rates throughout 1999 have
fallen sharply and soft long-term treatment and refining rates
are expected to continue. Lower treatment charges, which
negatively affect Atlantic, benefit PT-FI and vice versa.
Cathode cash production costs of $0.13 per pound in the third
quarter of 1999 were the same as for the third quarter of 1998
while for the 1999 nine-month period the $0.14 per pound reported
was slightly higher than the $0.13 per pound reported in the 1998
period primarily because of lower net margins on gold slimes
sales. The higher gold sales volumes in the 1999 periods reflect
higher gold content in PT-FI concentrate treated by Atlantic.
A portion of Atlantic's operating costs and certain of its
asset and liability accounts are denominated in Spanish pesetas.
Based on estimated annual peseta payments of 15 billion and a
September 30, 1999 exchange rate of 156 pesetas to one U.S.
dollar, a ten-peseta increase in the exchange rate would result
in an approximate $6 million decrease in costs, before any
hedging effects. A ten-peseta decrease in the exchange rate would
result in an approximate $7 million increase in costs, before any
hedging effects. Atlantic had peseta-denominated net monetary
liabilities at September 30, 1999 totaling $82.3 million recorded
at an exchange rate of 156 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 $(2.7) million in the third
quarter of 1999, $(6.3) million in the third quarter of 1998,
$6.9 million in the first nine months of 1999 and $(5.0) million
in the first nine months of 1998.
Atlantic 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 September
30, 1999, Atlantic had contracts to purchase 10.5 billion Spanish
pesetas at an average exchange rate of 148.0 pesetas to one U.S.
dollar through October 2000. These contracts currently hedge
approximately 70 percent of Atlantic's projected net peseta cash
outflows during the period covered. In addition to the currency
transaction gains and losses noted above, Atlantic recorded gains
(losses) to other income related to its forward currency
contracts totaling $1.5 million in the third quarter of 1999,
$4.1 million in the third quarter of 1998, $(7.5) million in the
first nine months of 1999 and $3.8 million in the first nine
months of 1998.
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's customers and none of its suppliers are
using the Euro as the currency for commercial transactions.
Atlantic has not yet decided when it will adopt the Euro as its
currency for commercial transactions. Atlantic 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's competitiveness with other European copper
smelters and refiners by eliminating exchange rate differences.
Atlantic's current management information systems are designed to
accommodate multiple currencies and would not require major
modifications to process transactions involving the Euro.
Atlantic's peseta hedging contracts are set at a fixed exchange
rate to the Euro.
15
PT Smelting Operating Results
PT-FI accounts for its 25 percent interest in PT Smelting under
the equity method. PT Smelting successfully concluded its
"first-stage completion" testing during the third quarter and
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 operated at an average rate of approximately 80
percent of design capacity during the third quarter of 1999. PT
Smelting treated 143,000 metric tons of concentrate in the third
quarter of 1999 and 282,900 metric tons in the first nine months
of 1999.
PT-FI's third-quarter and nine-month 1999 revenues include
$87.1 million and $175.6 million, respectively, from sales to PT
Smelting. PT-FI's share of PT Smelting's net income (loss),
which is recorded as Equity in PT Smelting in the Statements of
Income, totaled $0.4 million in the third quarter of 1999, $(0.4)
million in the third quarter of 1998, $(7.8) million in the first
nine months of 1999 and $(1.1) million in the first nine months
of 1998. The deferral of intercompany profits on 25 percent of
PT-FI sales to PT Smelting, for which the final sale has not
occurred, is also recorded as Equity in PT Smelting in the
Statements of Income and totaled $(4.3) million in the third
quarter of 1999 and $(8.6) million in the first nine months of
1999.
OTHER FINANCIAL RESULTS
The FCX/Rio Tinto joint ventures incurred $3.8 million of
exploration costs in the 1999 third quarter, compared with $6.1
million in the 1998 quarter. Joint venture costs totaled $13.1
million for the 1999 nine-month period and $23.4 million for the
1998 nine-month period. Exploration expense in the Statements of
Income reflects FCX's share of these joint venture costs plus the
cost of other non-joint venture exploration activities.
Substantially all costs in the joint venture areas are now being
shared 60 percent by FCX and 40 percent by Rio Tinto.
Third-quarter and nine-month 1999 general and administrative
expenses of $15.2 million and $48.1 million, respectively, were
38 percent and 24 percent lower, respectively than the 1998
third-quarter and nine-months amounts, primarily because of
ongoing corporate initiatives to reduce costs. The nine-month
1999 amounts included a $1.2 million charge for a voluntary
severance/early retirement program, while third-quarter 1998
general and administrative expenses included net charges totaling
$6.1 million associated with the sale of corporate aircraft.
FCX's total interest cost (before capitalization) decreased
by $23.3 million from $172.0 million for the first nine months of
1998 to $148.7 million in the first nine months of 1999 primarily
because of lower average debt levels. FCX capitalized $2.6
million of interest costs in the first nine months of 1999 and
$18.9 million in the first nine months of 1998, primarily for the
fourth concentrator mill expansion project.
FCX's effective tax rate was 52 percent for the first nine
months of 1999 and 48 percent for the first nine months of 1998.
The increase in FCX's effective tax rate results primarily from
an increase in Atlantic's net losses and PT-FI's equity in PT
Smelting losses for which there are no tax benefits. PT-FI's COW
provides a 35 percent income tax rate and a 10 percent
withholding on dividends paid to FCX by PT-FI and on interest for
debt incurred after the signing of the COW. No income tax
expense or benefit is recorded at Atlantic, 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.
CAPITAL RESOURCES AND LIQUIDITY
FCX's primary sources of cash are operating cash flows and
borrowings, while its primary cash outflows include capital
expenditures, repayments of debt, dividends on preferred stock
and purchases of its common stock. Net cash provided by
operating activities was $387.7 million for the first nine months
of 1999, compared with $358.6 million for the 1998 period. Net
cash used in investing activities totaled $106.8 million in the
1999 period, compared with $258.9 million in the 1998 period,
primarily for PT-FI capital expenditures. Net cash used in
financing activities totaled $283.4 million in 1999, primarily to
repay debt, and $98.8 million in 1998.
Operating Activities
Lower net income and an increase in working capital in the first
nine months of 1999 were offset by increases in noncash charges,
including higher depreciation and amortization, deferred income
taxes, equity in PT Smelting and minority interests, which
resulted in 1999 net cash provided by operating
16
activities increasing by $29.1 million over the year-ago period.
Working capital changes in the first nine months of 1999 primarily
include an increase in inventories, while during the first nine
months of 1998 there was an increase in accounts receivable and a
reduction in inventories. Working capital accounts can fluctuate
significantly depending on the timing and pricing of sales by PT-
FI and Atlantic.
Investing Activities
FCX's 1999 capital expenditures were lower compared to the 1998
period primarily because of the completion of PT-FI's fourth
concentrator mill expansion in 1998. PT-FI's capital
expenditures for the fourth quarter of 1999 are expected to
approximate $45 million, representing primarily mine and mill
sustaining capital and long-term enhancement projects. Funding
is expected to be provided by operating cash flow and PT-FI's
bank credit facilities ($351.0 million commitment available at
October 18, 1999).
Financing Activities
Net repayments to Rio Tinto totaled $161.1 million in the first
nine months of 1999 from PT-FI's share of incremental cash flow
attributable to the fourth concentrator mill expansion, compared
with $73.7 million in the first nine months of 1998 when the
fourth concentrator mill expansion first became operational. Net
repayments of other debt totaled $49.4 million in the first nine
months of 1999, compared with net proceeds of $287.8 million in
the first nine months of 1998. On August 1, 1999, FCX paid $11.9
million for the initial mandatory partial redemption of FCX's
Silver-Denominated Preferred Stock.
In August 1998, FCX announced a new open market share
purchase program for an additional 20 million shares of its 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 nine months of 1999, FCX acquired 0.8
million of its shares for $7.8 million (an average of $9.20 per
share), all in the first quarter of 1999, under its open market
share purchase programs. During the first nine months of 1998,
FCX acquired 18.8 million of its shares for $245.9 million (an
average of $13.11 per share), of which $8.4 million was paid in
October 1998. From inception of these programs through October
18, 1999, FCX has purchased a total of 51.0 million shares for
$1.04 billion (an average of $20.31 per share) and approximately
9.0 million shares remain available under the programs. The
timing of future purchases is dependent upon many factors,
including the price of common shares, the company's business and
financial position, and general economic and market conditions.
FCX remains focused on effectively managing its operations
in the current environment of volatile copper and gold prices.
Through its cost reduction and production enhancement efforts
commenced in early 1998, PT-FI has directed its efforts toward
optimizing performance of its expanded milling facilities to
achieve higher sales levels at low cost levels. In addition to
the favorable effects of foreign currency movements, PT-FI
realized significantly lower operating costs, capital and
exploration expenditures and general and administrative expenses
in 1998 and the first nine months of 1999. With these savings and
the elimination of the regular quarterly cash dividend announced
in December 1998, FCX believes it has the overall financial
flexibility to continue to invest in operations and maintain its
exploration program while still reducing its overall debt levels.
Because of the economic and political issues affecting Indonesia
and the uncertainty surrounding prices for copper and gold, the
availability of any capital which may be required for FCX and its
subsidiaries is limited and the cost of new capital, if
available, would be high.
DEVELOPMENTS IN INDONESIA
Indonesia's currency has strengthened during 1999; however,
Indonesia continues to face economic and political uncertainties.
Included in these uncertainties was the violence in the
Indonesian province of East Timor following a pro-independence
vote and the subsequent United Nations peacekeeping efforts. The
political uncertainties in Indonesia have had a continuing
negative impact on FCX's access to capital. In June 1999,
Indonesia conducted parliamentary elections at the national,
provincial and local levels, in a process that was widely viewed
by Indonesian and international observers as free and fair. On
October 20 and 21, 1999, in accordance with the Indonesian
constitution, the country's highest political body composed of
the newly elected national parliament along with additional
provincial and other representatives elected Abdurrahman Wahid as
the new president and Megawati Sukarnoputri as vice president. A
new cabinet was also announced in October 1999 (See "Cautionary
Statement").
PT-FI's and Eastern Mining's operations, all of which are in
Indonesia, are conducted through the PT-FI and Eastern Mining
COWs. Both COWs have 30-year terms, provide for two 10-year
extensions under certain conditions, and govern PT-FI's and
Eastern Mining's rights and obligations relating to taxes,
exchange controls, repatriation and other matters. Both COWs were
concluded pursuant to the 1967
17
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 COWs provide that the GOI will not
nationalize or expropriate PT-FI's or Eastern Mining's mining
operations. Any disputes regarding the provisions of the COWs
are subject to international arbitration.
IMPACT OF YEAR 2000 COMPLIANCE
The Year 2000 (Y2K) issue is the result of computerized systems
being written to store and process the year portion of dates
using two digits rather than four. Date-aware systems (i.e., any
system or component that performs calculations, comparisons,
sequencing or other operations involving dates) may fail or
produce erroneous results on or before January 1, 2000 because
the year 2000 will be interpreted as the year 1900.
FCX's State of Readiness
FCX has been pursuing a strategy to ensure all its significant
computer systems will be able to process dates from and after
January 1, 2000, including leap years, without critical systems
failure (Y2K Compliant or Y2K Compliance). Computerized systems
are integral to the operations of FCX, particularly for plant and
equipment process control at its mining, milling and smelting
production facilities. Certain general and administrative
services are provided to FCX and its subsidiaries by FM Services
Company (FMS), which is responsible for ensuring Y2K Compliance
for the systems it manages. FMS has separately prepared a plan
for its Y2K Compliance. Certain PT-FI infrastructure assets
within PT-FI's area of operations are operated by third parties.
Each respective third party is responsible for its own Y2K
Compliance, although PT-FI is coordinating their activities and
providing oversight. Progress of the Y2K Compliance plan is
being monitored by FCX executive management and reported to the
Audit Committee of the FCX Board of Directors. In addition, the
independent accounting firm functioning as FCX's internal
auditors is assisting management in monitoring the progress of
the Y2K Compliance plan.
As of September 30, 1999, FCX's Y2K Compliance project is
substantially complete. Testing and revision of contingency
plans will continue through the end of the year. Like other
companies, FCX cannot, however, make Y2K Compliance
certifications because the ability of any organization's systems
to operate reliably after midnight on December 31, 1999 is
dependent upon factors that may be outside the control of, or
unknown to, the organization.
Information Technology (IT) Systems - The bulk of FCX
computerized business systems processing is provided through
commercial third party software licensed by FCX. Remediation and
testing of critical FCX and FMS business systems is substantially
complete.
Non-IT Systems - FCX is heavily dependent upon computerized
systems in its mining, milling and smelting production
facilities. In addition, computerized systems are used
extensively for exploration, reserve and production modeling
functions. Y2K remediation and compliance testing work is
complete for critical FCX process control systems.
Third Party Risks - FCX computer systems are not widely
integrated with the systems of its suppliers or customers. The
primary potential Y2K risk attributable to third parties would be
from a temporary disruption in certain materials and services
provided by third parties. The mining operations of PT-FI, the
largest FCX subsidiary, are located in Irian Jaya, a province of
Indonesia. Because of its remote operating location, PT-FI has
identified contingency needs for critical operating supplies and
materials to help mitigate the impact of a disruption in its
supply and logistics chain. In addition, every FCX supplier has
been contacted regarding Y2K Compliance, and effective August
1998, Y2K Compliance requirements have been included in all FCX
purchasing contracts. Compliance statements have been received
for critical FCX suppliers, customers, transportation providers
and business partners, and FCX will continue to monitor Y2K
readiness plans for critical third parties.
The Costs to Address FCX's Y2K Issues. Expenditures for the
necessary Y2K-related modifications are being largely funded by
routine software and hardware maintenance fees paid by FCX or
FMS. Based on current information, FCX believes that the
estimated incremental cost of Y2K Compliance not covered by
routine software and hardware maintenance fees will not exceed $2
million, most of which has been incurred. If the software
modifications and conversions referred to above are not made, or
are delayed, the Y2K issue could have a material impact on FCX
operations. Additionally, cost estimates are based on
management's best estimates, which are derived using numerous
assumptions of future events including
18
the continued availability
of certain resources, third party modification plans and other
factors. There also can be no assurance that the systems of
other companies will be converted on a timely basis or that their
failure to convert will not have a material adverse effect on
FCX.
The Risks of FCX's Y2K Issues
Based on its Y2K risk assessment work, FCX believes the most
likely Y2K-related failures would probably be temporary
disruption in certain materials and services provided by third
parties, which would not be expected to have a material adverse
effect on FCX's financial condition or results of operations. FCX
believes that these third-party risks will be mitigated through
its contingency plans for critical purchased commodities and
close monitoring of compliance for other third parties that are
important to its operations.
FCX's Contingency Plans
Although FCX believes the likelihood of any or all of the above
risks occurring is low, specific contingency plans to address
certain risk areas have been developed. These areas include
critical operations, key customers and suppliers, and air and
marine transportation providers. Integrated recovery plans for
critical operations will address Y2K-related failure scenarios
for FCX production facilities. Third-party risks are being
addressed through commercial contingency plans; examples of risk
mitigation strategies include increased safety stock levels,
alternative sources of critical supplies, and changes to inbound
and outbound shipping schedules. While there can be no assurance
that FCX will not be materially adversely affected by Y2K
problems, it is committed to ensuring that it is fully Y2K ready
and believes its plans adequately address the above-mentioned
risks.
CAUTIONARY STATEMENT
Management's discussion and analysis of financial condition and
results of operations 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 statements of historical facts, such as statements regarding
anticipated sales volumes, ore grades, commodity prices, capital
expenditures, political, economic and social conditions in our
areas of operations, treatment charge rates, the availability of
financing, introduction of the Euro, PT Smelting operating
levels, Y2K Compliance and exploration efforts and results. 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 the following:
Our net income can vary significantly with fluctuations in the
market prices of copper and gold.
Our revenues are derived primarily from the sale of copper
concentrates, which also contain significant amounts of gold, and
from the sale of copper anodes, cathodes, wire rod and precious
metals in slimes. Most of our copper concentrates are sold under
long-term contracts, but the selling price is based on world
metal prices at or near the time of shipment and delivery. World
metal prices for copper and gold historically have fluctuated
widely and are affected by numerous factors beyond our control.
The volume and grade of the reserves we recover and our rates of
production may be more or less than anticipated.
Our reserve amounts are determined in accordance with
established mining industry practices and standards, but are
estimates only. Our mines may not conform to standard geological
expectations. Because ore bodies do not contain uniform grades
of minerals, our metal recovery rates will vary from time to
time, which will result in variations in the volumes of minerals
that we can sell from period to period. Some of our reserves may
become unprofitable to develop if there are unfavorable long-term
market price fluctuations in copper and gold, or if there are
increases in our operating and capital costs. In addition, our
exploration programs may not result in the discovery of
additional mineral deposits that we can mine profitably.
Because our primary operating assets are located in the Republic
of Indonesia, our business can be adversely affected by
Indonesian political, economic and social events.
Maintaining a good working relationship with the Indonesian
government is important to us because all of our mining
operations are located in Indonesia and are conducted pursuant to
Contracts of Work with the Indonesian government. Our Contracts
of Work were entered into under Indonesia's 1967
19
Foreign Capital
Investment Law, which provides guarantees of remittance rights
and protection against nationalization. Our Contracts of Work
also specifically provide that the Indonesian government will not
nationalize or expropriate our mining operations. The Contracts
of Work provide that disputes must be submitted to international
arbitration.
In May 1998, President Suharto, Indonesia's political
leader for more than 30 years, resigned in the wake of an
economic crisis in Indonesia and other parts of Southeast Asia
and in the face of growing social unrest. Vice President B.J.
Habibie succeeded Suharto. In June 1999 Indonesia held a new
parliamentary election on a generally peaceful basis as the first
step in the process of electing a new president. The election
was widely acknowledged by international monitoring groups and
the principal Indonesian political factions as generally free and
fair, although delays in tabulating the vote led to periodic
protests, some of which ended in violence. No political party
secured a majority of the popular vote. In October 1999 a
majority of the parliament elected Abdurraham Wahid as President
and Megawati Sukarnoputri as Vice President. Indonesia continues
to face economic and political uncertainties.
In addition, social, economic and political instability in
the province of Irian Jaya, where our primary operations are
located, could have a material adverse impact on our mining
operations if, for example, it results in damage to our property
or interruption of our activities. We voluntarily suspended our
exploration field activities for three months, from May 15
through August 15, 1999, as a precaution during the Indonesian
national election period. In August 1998, we suspended
operations for three days at our Grasberg mine in response to a
wildcat work stoppage (not authorized by the workers' union) by a
group of workers, a majority of whom were employees of our
contractors. The workers, who voluntarily returned to work,
cited employment issues as the reasons for their work stoppage.
The actions of the workers were peaceful, there was no personal
injury or property damage, and our concentrate shipments were not
interrupted. In March 1996, local tribespeople engaged in acts
of vandalism that caused approximately $3 million of damages to
our property and caused us to close the Grasberg mine and mill
for three days as a precautionary measure. Our concentrate
shipments were not interrupted.
A segment of the local population is opposing Indonesian
rule over Irian Jaya. Several separatist groups have sought
political independence for the province. The degree of political
and economic autonomy that might be provided to individual
provinces, including Irian Jaya, is a current issue in Indonesian
politics. There have been sporadic attacks on civilians by the
separatists and sporadic but highly publicized conflicts between
the separatists and the Indonesian military. We have a board
approved policy statement on social and human rights, and have
comprehensive and extensive social, cultural and community
development programs, to which we have committed significant
financial and managerial resources. These policies and programs
are designed to address the impact of our operations on the local
villages and tribes and to provide assistance for the development
of the local people. While we believe these efforts should serve
to avoid damage to and disruptions of our mining operations, our
operations could be damaged or disrupted by social, economic and
political forces beyond our control.
In addition to the specific risks described above, we are
also subject to the usual risks associated with conducting
business in a foreign country. These risks include the risk of
war, revolution, civil unrest, expropriation, forced modification
of existing contracts, changes in the country's laws or policies,
including laws or policies relating to taxation, royalties,
imports, exports and currency, and the risk of having to submit
to the jurisdiction of a foreign court.
In addition to the usual risks encountered in the mining
industry, we face additional risks because our operations are
located in difficult terrain in a very remote area of the world.
Our mining operations are located in steeply mountainous
terrain in a very remote area in Indonesia. These conditions
have required us to overcome special engineering difficulties and
to develop extensive infrastructure facilities. In addition, the
area receives considerable rainfall, which has led to periodic
floods and mud slides. The mine site is also in an active
seismic area, and has experienced earth tremors from time to
time. In addition to these special risks, we are also subject to
the usual risks associated with the mining industry, such as the
risk of encountering unexpected geological conditions which may
result in cave-ins and flooding of mine areas. We have insurance
involving amounts and types of coverage we believe are
appropriate for our activities, but our insurance may not be
sufficient to cover an unexpected natural or operating disaster.
20
Our mining operations create difficult and costly environmental
challenges, and future changes in environmental laws, or
unanticipated environmental impacts from our operations, could
require us to incur increased costs.
Mining operations on the scale of our operations in Irian
Jaya involve significant environmental challenges. Our primary
challenge is to dispose of the large amount of crushed and ground
rock material, called tailings, that results from the process by
which we physically separate the copper, gold and silver from the
ore that we mine. Under our tailings management plan, the river
system near our mine transports the tailings to the lowlands
where deposits of the tailings and natural sediments are
controlled through a levee system for future revegetation and
reclamation. This plan has been approved by the Indonesian
government. Another of our major environmental challenges is
managing overburden, which is the rock that must be moved aside
in order to reach the ore in the mining process. Overburden can
cause acid rock drainage, or acidic water containing dissolved
metals, which, if not collected or treated, can be harmful to
many aquatic organisms and plants. Our overburden management
plan, which has been approved by the Indonesian government, is
designed to control this impact.
Our environmental management program, which includes
independent external environmental audits, is designed to control
the impact that these processes have on the environment. We have
expended significant financial and managerial resources to comply
with Indonesian environmental regulations and permitting and
approval requirements, and anticipate that we will continue to do
so in the future. If there are changes in Indonesian
environmental laws, or unanticipated environmental impacts from
our operations, we could be required to incur significant
additional costs.
We have guaranteed an obligation of an Indonesian entity, and
have lent funds to the entity, and the value of the entity's
assets may not be sufficient to cover the debts.
As discussed in our prior Securities and Exchange Commission
filings, in 1997 we guaranteed a $254 million loan from a
commercial bank to P.T. Nusamba Mineral Industri ("Nusamba"), an
Indonesian company. Nusamba borrowed the funds to purchase stock
in P.T. Indocopper Investama Corporation ("Indocopper
Investama"), a company whose only significant asset is 9.4
percent of PT-FI's stock, for $315 million. Nusamba owns
approximately 51 percent of Indocopper Investama's stock and we
own approximately 49 percent. The loan is secured by a pledge of
the Indocopper Investama stock owned by Nusamba and is due in
March 2002. We also agreed to lend Nusamba any amounts necessary
to cover shortfalls between the interest payments on the loan and
the dividends received by Nusamba on the Indocopper Investama
stock. At September 30, 1999, we had loaned Nusamba $38.9
million, due March 2002, for this purpose.
The Indocopper Investama stock is the only significant asset
of Nusamba, and the estimated fair market value of the stock is
currently significantly below the $292.9 million aggregate
principal amount of the loans. Our estimate of the fair market
value of Indocopper Investama's stock is based on the current
market value of our common stock. If Nusamba does not pay the
loans when due, and we are obligated to pay the loan to the
commercial bank, we will seek to recover the Indocopper Investama
stock as provided by the financing documents, which are governed
by Indonesian law.
Movements in foreign currency exchange rates could have a
negative effect on our operating results.
All of our revenues are denominated in U.S. dollars.
However, some of our costs and some of our asset and liability
accounts are denominated in Indonesian rupiah, Australian dollars
or Spanish pesetas. Generally, our results are adversely
affected when the U.S. dollar weakens against these foreign
currencies and positively affected when the U.S. dollar
strengthens against these foreign currencies. Since 1997, the
Indonesian rupiah exchange rate has been volatile. From time to
time we have in the past and may in the future implement currency
hedges intended to reduce our exposure to changes in foreign
currency exchange rates. Our hedging strategies may, however,
not be successful, and any of our unhedged foreign exchange
payment requirements will continue to be subject to market
fluctuations.
21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Tom Beanal v. Freeport-McMoRan Inc. and Freeport-McMoRan Copper &
Gold Inc., Civ. No. 96-1474 (E.D. La. filed Apr. 29, 1996). In
March 1998, the U. S. District Court for the Eastern District of
Louisiana dismissed with prejudice the plaintiff's third amended
complaint. The court held that the plaintiff failed to plead
facts underlying his claims against FCX. The plaintiff has
appealed the court's decision. The plaintiff alleges
environmental, human rights and social/cultural violations in
Indonesia and seeks $6 billion in monetary damages and other
equitable relief. FCX will continue to defend this action
vigorously.
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 alleges substantially
similar violations as those alleged in the Beanal suit and seeks
unspecified monetary damages and other equitable relief. In
February 1997, the Civil District Court of the Parish of Orleans,
State of Louisiana dismissed this purported class action for lack
of subject matter jurisdiction because the alleged conduct and
damages occurred in Indonesia. In March 1998, the Louisiana
Fourth Circuit Court of Appeal reversed the trial court's
dismissal and found that subject matter jurisdiction existed over
some claims. After remand, the trial court ordered plaintiff to
amend her complaint which she did for the third time. FCX has
filed exceptions to the latest amended petition, which are
pending at this time. FCX will continue to defend this action
vigorously.
In addition to the foregoing proceedings, FCX from time to time
may be involved in various legal proceedings of a character
normally incident to the ordinary course of its business.
Management believes that potential liability in any proceedings
would not have a material adverse effect on the financial
condition or results of operations of FCX. FCX maintains
liability insurance to cover some, but not all, potential
liabilities normally incident to the ordinary course of its
business as well as other insurance coverage customary in its
business, with coverage limits as management deems prudent.
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.
22
FREEPORT-McMoRan COPPER & GOLD INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
FREEPORT-McMoRan COPPER & GOLD INC.
By: \s\ C. Donald Whitmire, Jr.
---------------------------------
C. Donald Whitmire, Jr.
Vice President and
Controller-Financial Reporting
(authorized signatory and
Principal Accounting Officer)
Date: November 9, 1999
23
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
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-FI Credit Agreement) among PT-FI, FCX,
the several financial institutions that are parties thereto,
First Trust of New York, National Association, as PT-FI
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-FI Credit
Agreement among PT-FI, FCX, the several financial
institutions that are parties thereto, First Trust of New
York, National Association, as PT-FI 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-FI Credit
Agreement among PT-FI, FCX, the several financial
institutions that are parties thereto, First Trust of New
York, National Association, as PT-FI 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-FI Credit
Agreement among PT-FI, FCX, the several financial
institutions that are parties thereto, First Trust of New
York, National Association, as PT-FI 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-FI Credit
Agreement among PT-FI, FCX, the several financial
institutions that are parties thereto, First Trust of New
York, National Association, as PT-FI 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.
4.18 $200 million Credit Agreement dated as of June 30, 1995 (the
CDF) among PT-FI, FCX, the several financial institutions
that are parties thereto, First Trust of New York, National
Association, as PT-FI 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-FI,
FCX, the several financial institutions that are parties
thereto, First Trust of New York, National Association, as
PT-FI Trustee, Chemical Bank, as administrative agent and
FCX collateral agent, and The Chase
E-2
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-
FI, FCX, the several financial institutions that are parties
thereto, First Trust of New York, National Association, as
PT-FI 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-FI,
FCX, the several financial institutions that are parties
thereto, First Trust of New York, National Association, as
PT-FI 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-FI,
FCX, the several financial institutions that are parties
thereto, First Trust of New York, National Association, as
PT-FI 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.
10.1 Contract of Work dated December 30, 1991 between the
Government of the Republic of Indonesia and PT-FI.
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 P.T. 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-FI, FCX, the RTZ Corporation PLC,
P.T. RTZ-CRA Indonesia, RTZ Indonesian Finance Limited and
First Trust of New York, National Association, and The Chase
Manhattan Bank, as Administrative Agent, JAA Security Agent
and Security Agent. Incorporated by reference to Exhibit
10.3 to the FCX November 13, 1996 Form 8-K.
10.4 Credit Agreement dated October 11, 1996 between PT-FI 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-FI 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-FI. 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.
E-3
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-FI 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-FI, 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 10.30)
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.
10.18 FCX 1999 Stock Incentive Plan.
10.19 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.
10.20 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.
10.21 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.
10.22 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.
10.23 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.
10.24 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.
10.25 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.
E-4
10.26 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.
10.27 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.
10.28 Letter Agreement effective as of January 4, 1997
between Senator J. Bennett Johnston, Jr. and FCX.
Incorporated by reference to Exhibit 10.25 of the FCX 1996
Form 10-K.
10.29 Letter Agreement dated December 22, 1997 between FMS
and Rene L. Latiolais. Incorporated by reference to Exhibit
10.28 to the FCX 1997 Form 10-K.
10.30 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.
15.1 Letter dated October 19, 1999 from Arthur Andersen LLP
regarding unaudited interim financial statements.
27.1 FCX Financial Data Schedule.
E-5