-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V7H5qQMfRjjWMPeiDgQ3H/jkf3tpyZhn67AtcR+yN5LlnmA7eRfKP08gxdAIUI0F tj6o3Is5f73/flDyies1ZQ== 0000831259-00-000006.txt : 20000321 0000831259-00-000006.hdr.sgml : 20000321 ACCESSION NUMBER: 0000831259-00-000006 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000320 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FREEPORT MCMORAN COPPER & GOLD INC CENTRAL INDEX KEY: 0000831259 STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000] IRS NUMBER: 742480931 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-09916 FILM NUMBER: 573337 BUSINESS ADDRESS: STREET 1: 1615 POYDRAS ST CITY: NEW ORLEANS STATE: LA ZIP: 70112 BUSINESS PHONE: 5045824000 FORMER COMPANY: FORMER CONFORMED NAME: FREEPORT MCMORAN COPPER COMPANY INC DATE OF NAME CHANGE: 19910114 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from .......... to .......... Commission file number 1-9916 Freeport-McMoRan Copper & Gold Inc. (Exact name of registrant as specified in its charter) Delaware 74-2480931 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1615 Poydras Street New Orleans, Louisiana 70112 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (504) 582-4000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ----------------------- Class A Common Stock par value $0.10 per share New York Stock Exchange Class B Common Stock par value $0.10 per share New York Stock Exchange Depositary Shares representing 0.05 shares of Step-Up Convertible Preferred Stock, par value $0.10 per share New York Stock Exchange Depositary Shares representing 0.05 shares of Gold-Denominated Preferred Stock, par value $0.10 per share New York Stock Exchange Depositary Shares, Series II, representing 0.05 shares of Gold-Denominated Preferred Stock, Series II, par value $0.10 per share New York Stock Exchange Depositary Shares representing 0.021875 shares of Silver-Denominated Preferred Stock, par value $0.10 per share New York Stock Exchange 9-3/4% Senior Notes due 2001 of P.T. ALatieF Freeport Finance Company B.V., guaranteed by the registrant New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X The aggregate market value of classes of common stock held by non-affiliates of the registrant on March 13, 2000 was approximately $1,689,000,000. On March 13, 2000, there were issued and outstanding 62,300,723 shares of Class A Common Stock and 97,701,174 shares of Class B Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of our Annual Report for the year ended December 31, 1999 are incorporated by reference into Parts II and IV of this report and portions of the Proxy Statement for our 2000 Annual Meeting to be held on May 4, 2000 are incorporated by reference into Part III of this report. TABLE OF CONTENTS Page Part I Items 1. and 2. Business and Properties 1 Item 3. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Executive Officers of the Registrant 13 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 15 Item 6. Selected Financial Data 15 Items 7. and 7A. Management's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk 15 Item 8. Financial Statements and Supplementary Data 15 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 15 Part III Item 10. Directors and Executive Officers of the Registrant 16 Item 11. Executive Compensation 16 Item 12. Security Ownership of Certain Beneficial Owners and Management 16 Item 13. Certain Relationships and Related Transactions 16 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 16 Signatures S-1 Index to Financial Statements F-1 Report of Independent Public Accountants F-1 Exhibit Index E-1 i PART I Items 1. and 2. Business and Properties. General We are one of the world's largest copper and gold companies in terms of reserves and production. We believe we are the lowest cost copper producer in the world, after taking into account customary credits for related gold and silver production. Our principal operating subsidiary is PT Freeport Indonesia Company, a limited liability company organized under the laws of the Republic of Indonesia and domesticated in Delaware. PT Freeport Indonesia explores for, develops, mines and processes ore containing copper, gold and silver. Our operations are located in the remote rugged highlands of the Sudirman Mountain Range in the province of Irian Jaya (recently proposed to be renamed Papua), Indonesia, which is located on the western half of the island of New Guinea. PT Freeport Indonesia markets its concentrates containing copper, gold and silver worldwide. We have an 85.86 percent ownership interest in this subsidiary and the Government of Indonesia has a 9.36 percent interest. P.T. Nusamba Mineral Industri (Nusamba), an Indonesian company, has most of the remaining ownership interest in PT Freeport Indonesia. See the discussion under "Cautionary Statements" about our guarantee of certain Nusamba debt. PT Freeport Indonesia's operations are conducted pursuant to an agreement, called a Contract of Work, with the Government of Indonesia. The Contract of Work allows us to conduct extensive exploration, mining and production activities in a 24,700-acre area that we call Block A. In 1988 we discovered our largest mine, Grasberg, in Block A. Grasberg contains the largest single gold reserve and one of the largest copper reserves of any mine in the world. The Contract of Work also allows us to explore for minerals in a 0.5 million-acre area that we call Block B. All of our current reserves are located in Block A. Another of our operating subsidiaries, P.T. Irja Eastern Minerals, which we refer to as Eastern Minerals, holds an additional Contract of Work in Irian Jaya (Papua) covering approximately 1.25 million acres and is conducting exploration activities under this Contract of Work. We have a 94.9 percent ownership interest in Eastern Minerals. In 1996, we established joint ventures with Rio Tinto plc, an international mining company with headquarters in England. One joint venture covers PT Freeport Indonesia's mining operations in Block A. This joint venture gives Rio Tinto, through 2021, a 40 percent interest in certain assets and in production above specified levels from operations in Block A and, after 2021, a 40 percent interest in all production in Block A. Under our joint venture arrangements, Rio Tinto also has a 40 percent interest in future development and exploration projects under PT Freeport Indonesia's Contract of Work and Eastern Minerals' Contract of Work. In addition, Rio Tinto has the option to participate in 40 percent of any of our other future exploration projects in Irian Jaya (Papua). Under another joint venture agreement through PT Nabire Bakti Mining, we conduct exploration activities in an area covering approximately 1.0 million acres in five parcels contiguous to PT Freeport Indonesia's Block B and one of Eastern Minerals' blocks. Rio Tinto has elected to participate in 40 percent of our interest and cost in the venture. We also smelt and refine copper concentrates in Spain and market the refined copper products, through our wholly owned subsidiary, Atlantic Copper, S.A. In addition, PT Freeport Indonesia has a 25 percent interest in P.T. Smelting, an Indonesian company that operates a copper smelter and refinery in Gresik, Indonesia. Republic of Indonesia The Republic of Indonesia consists of more than 17,000 islands stretching 3,000 miles along the equator from Malaysia to Australia and is the fourth most populous nation in the world with over 200 million people. Following many years of Dutch colonial rule, Indonesia gained independence in 1945 and now has a presidential republic system of government. 1 Maintaining a good working relationship with the Government of Indonesia is of particular importance to us because all of our mining operations are located in Indonesia. Our mining complex was Indonesia's first copper mining project and was the first major foreign investment in Indonesia following the economic development program instituted by the Government of Indonesia in 1967. We work closely with the central, provincial and local governments in development efforts in the area surrounding our operations. 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. In October 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 Abdurraham Wahid as president and Megawati Sukarnoputri as vice president. The selection of a new president in an election that was widely regarded as free and fair was an important milestone in restoring political and economic stability, but Indonesia continues to face political and economic uncertainties, including separatist movements and civil and religious strife in a number of provinces. Religious and ethnic differences among people in the outlying provinces has led to violence in some areas over the past two years, most notably in the province of East Timor following a pro-independence vote. Subsequent United Nations peacekeeping efforts have restored order in East Timor. Pro- independence movements in certain areas also have become more prominent, especially in the province of Aceh, and to a lessor extent in Irian Jaya (Papua). The area surrounding our mining development is sparsely populated by local tribespeople and former residents of more populous areas of Indonesia, some of whom have resettled in Irian Jaya (Papua) under the Government of Indonesia's transmigration program. A segment of the local population is opposing Indonesian rule over Irian Jaya (Papua), and 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 (Papua), is a current issue in Indonesian politics. In Irian Jaya (Papua), there have been sporadic attacks on civilians by separatists and sporadic but highly publicized conflicts between 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. Economic conditions in Indonesia improved during 1999, reflecting international financial assistance, positive reactions to political developments, movements to reform financial systems, a stronger Indonesian currency and lower interest and inflation rates. The economy is expected to generate positive economic growth in 2000 following a large decline in 1998. Contracts of Work PT Freeport Indonesia and Eastern Minerals conduct their current exploration operations and PT Freeport Indonesia conducts its mining operations in Indonesia by virtue of their Contracts of Work. Both Contracts of Work govern our rights and obligations relating to taxes, exchange controls, royalties, repatriation and other matters. Both Contracts of Work were concluded pursuant to the 1967 Foreign Capital Investment Law, which expresses Indonesia's foreign investment policy and provides basic guarantees of remittance rights and protection against nationalization, a framework for economic incentives and basic rules regarding other rights and obligations of foreign investors. Any disputes regarding the provisions of the Contracts of Work are subject to international arbitration. PT Freeport Indonesia's Contract of Work covers both Block A, which was first included in a 1967 Contract of Work that was replaced by a new Contract of Work in 1991, and Block B, to which we gained rights in 1991. The initial term of our Contract of Work expires in December 2021 but we can extend it for two 10- year periods under certain conditions. We originally had the rights to explore 6.5 million acres in Block B, but pursuant to the Contract of Work we have only retained the rights to 0.5 million acres in Block B, which we believe contain the most promising exploration opportunities following extensive geological assessment. 2 Eastern Minerals signed its Contract of Work in August 1994. The Contract of Work originally covered approximately 2.5 million acres. The Eastern Minerals Contract of Work provides for a four-to-seven year exploratory term and a 30-year term for mining operations, which we can extend for two 10-year periods under certain conditions. Like the PT Freeport Indonesia contract, the Eastern Minerals Contract of Work requires us to relinquish our right to 25 percent of the original 2.5 million- acre Contract of Work area at the end of each of three specified periods. As of December 31, 1999, we had relinquished approximately 1.25 million acres, and we must relinquish an approximate 0.6 million additional acres by August 2001. PT Freeport Indonesia pays a copper royalty under its Contact of Work that varies from 1.5 percent of copper net revenue at a copper price of $0.90 or lesss per pound to 3.5 percent at a copper price of $1.10 or more per pound. The Contract of Work royalty rate for gold and silver sales is 1.0 percent. Because a large part of the mineral royalties under Government of Indonesia regulations are due to the provinces from which the minerals are extracted, in connection with our "fourth concentrator mill expansion," PT Freeport Indonesia agreed to pay the Government of Indonesia voluntary additional royalties to provide further support to the local governments and the people of Irian Jaya (Papua). The additional royalties are paid on metal from production above 200,000 metric tons of ore per day. The additional royalty for copper equals the Contract of Work royalty rate and for gold and silver equals twice the Contract of Work royalty rates. Therefore, our royalty rate on copper net revenues from production above 200,000 metric tons of ore per day is double the Contract of Work royalty rate, and our royalty rates on gold and silver sales from production above 200,000 metric tons of ore per day are triple the Contract of Work royalty rates. The additional royalties became effective January 1, 1999. The combined royalties totaled $23.0 million in 1999, $16.2 million in 1998 and $31.4 million in 1997. Ore Reserves All of our proved and probable reserves lie within Block A. Our joint venture with Rio Tinto gives them a 40 percent interest in production above specified levels from operations in Block A and, after 2021, a 40 percent interest in all production from Block A. Net of Rio Tinto's share, PT Freeport Indonesia's share of proved and probable recoverable copper, gold and silver reserves was 38.7 billion pounds of copper, 49.5 million ounces of gold and 115.3 million ounces of silver as of December 31, 1999. We estimated recoverable reserves using a copper price of $0.90 per pound and a gold price of $325 per ounce. Using prices of $0.75 per pound of copper and $280 per ounce of gold would reduce estimated recoverable reserves by approximately 9 percent for copper, 7 percent for gold and 9 percent for silver. The Grasberg deposit contains the largest single gold reserve and is one of the largest copper reserves of any mine in the world. Aggregate Grasberg open pit and underground proved and probable ore reserves as of December 31, 1999 are shown below along with those of our other deposits.
Average Ore Grade per Ton Recoverable Reserves Metric tons --------------------- ----------------------------- of ore Copper Gold Silver Copper Gold Silver ----------- ------ ------- ------- --------- --------- --------- (%) (Ounce) (Ounce) (Billions (Millions (Millions of Lbs.) of Ozs.) of Ozs.) Grasberg 1,800,500,000 1.04 .033 .098 34.5 45.9 89.7 Kucing Liar 320,457,000 1.41 .045 .170 8.2 10.3 25.5 Deep Ore Zone 185,250,000 1.16 .027 .168 4.1 4.0 16.4 Big Gossan 37,349,000 2.69 .033 .528 1.8 0.9 9.9 DOM 30,892,000 1.67 .014 .310 0.9 0.3 4.7 Intermediate Ore Zone 20,727,000 1.05 .013 .245 0.4 0.2 2.6 ------------- ---- ---- ---- ---- ---- ----- Total 2,395,175,000 1.13 .034 .124 49.9 61.6 148.8
Independent Mining Consultants, Inc., experts in mining, geology and reserve determination, has verified our reserve information as of December 31, 1998 and 1999, which is included elsewhere in this report. See "Cautionary Statements." 3 Mining Operations Mines in Production. We currently have two mines in operation: the Grasberg and the Intermediate Ore Zone. We began open-pit mining of the Grasberg ore body in January 1990 and increased mine output to 75.8 million metric tons of ore in 1999, which provided 92 percent of our mill feed. The underground Grasberg reserves will be mined once open-pit mining is completed in approximately 2014. The Intermediate Ore Zone is an underground block cave operation that began production in the first half of 1994. Production is at the 3,475 meter elevation level and totaled 6.5 million metric tons of ore in 1999. Mines in Development. Four other significant ore bodies, referred to as the Deep Ore Zone, the DOM, Big Gossan and Kucing Liar are located in Block A. These ore bodies are at various stages of development, and are included in our proved and probable reserves. See "Cautionary Statements." The Deep Ore Zone ore body lies vertically below the Intermediate Ore Zone. We began production from the Deep Ore Zone ore body in 1989 but we suspended production in 1991 in favor of production from the Grasberg deposit. We anticipate restarting Deep Ore Zone production in mid-2000 as the overlying Intermediate Ore Zone reserve declines toward depletion. The Deep Ore Zone will ramp up to a full production rate of 25,000 metric tons of ore per day by 2004. The DOM ore body lies approximately 1,500 meters southeast of the depleted Ertsberg open-pit deposit. We completed pre- production development at the DOM including all maintenance, warehouse and service facilities just as Grasberg began open-pit production in 1990. We have deferred production at the DOM ore body until after completion of open-pit mining as a result of the increasing reserves and production capabilities of the Grasberg ore body. The Big Gossan ore body is located approximately 1,000 meters southwest of the original Ertsberg open-pit deposit. We began the initial underground development of the ore body in 1993 when we drove tunnels from the mill area into the ore zone at the 2,900 meter elevation level. We will use a variety of stoping methods to mmiinne the deposit, with production expected to commence within the next ten years as other underground mines are depleted. The Kucing Liar ore body lies on the southern flank of and underneath the southern portion of the Grasberg open pit at the 2,500-2,900 meter elevation level. Recent drilling to the west indicates that we may be reaching the end of the mineralization in that direction, but additional reserves are possible, especially toward the Grasberg deposit. We are reviewing development plans for Kucing Liar as we continue drilling to define the ore body. Exploration We continue drilling in Block A to better define the ore bodies continues at Kucing Liar (as discussed above), Grasberg Underground and the Deep Ore Zone. Drilling from the Amole drift is designed to delineate the Grasberg Underground deposit below our current block cave reserves. The extent of the copper and gold mineralization is decreasing in size at the lower elevations. Drilling in 1999 and 2000 is designed to fully define the ultimate geometry of the mineralized zone, which extends for over 1,500 meters vertically from the original ore intercepts at the 4,200 meter elevation. Drilling at the Deep Ore Zone continues to return positive results, indicating the potential for reserve increases. Other targets yet to be evaluated in Block A include the DOM Deep, fault systems parallel to the Kucing Liar/Idenberg #1 fault system and other intrusive centers and fault intersections. Exploration activities continue in Block B, which includes the Wabu Ridge gold prospect, as well as in the other Contract of Work areas of Eastern Minerals and PT Nabire Bakti Mining discussed below. Activities are primarily focused on prospects that potentially could lead to the discovery of significant copper and gold deposits. Presently, exploration including drilling is ongoing at several sites. As a result of our joint venture arrangements with Rio Tinto, they are paying for 40 percent of our exploration and drilling costs in Irian Jaya (Papua). In June 1998, we entered into an exploration joint venture agreement to conduct exploration activities in PT Nabire Bakti Mining's Contract of Work area covering approximately 1.0 million acres in several blocks contiguous to PT Freeport Indonesia's Block B and one of Eastern Minerals' blocks in Irian Jaya (Papua). Rio Tinto is sharing in 40 4 percent of our interest and costs in this exploration joint venture. To earn up to a 62 percent interest in the Contract of Work, we and Rio Tinto must spend a total of up to $21 million on exploration and other activities in the joint venture areas by June 2003 ($11.6 million of which had been incurred through December 31, 1999). Exploration including drilling is ongoing on a number of identified geological anomalies within this acreage including Komopa where we have encountered copper and gold mineralization which may or may not be commercially recoverable. Milling and Production The ore from our mines moves by a conveyor system to a series of ore passes through which it drops to our milling and concentrating complex located approximately 2,900 meters above sea level. At the mill, the ore is crushed and ground and mixed in tanks with water and small amounts of flotation reagents where it is continuously agitated with air. During this physical separation process, copper-, gold- and silver-bearing particles rise to the top of the tanks and are collected and thickened into a concentrate. The concentrate leaves the mill complex as a slurry, consisting of approximately 65 percent solids by weight, and is pumped through three parallel 115 kilometer pipelines to our coastal port site facility at Amamapare where it is filtered, dried and stored for shipping. Ships are loaded at dock facilities at the port until they draw their maximum water, then move to deeper water, where loading is completed from shuttling barges. In early 1998, PT Freeport Indonesia completed construction on the fourth concentrator mill expansion. Pursuant to the expansion joint venture agreement, in addition to funding its 40 percent share of all expansion costs including the fourth concentrator mill expansion, Rio Tinto provided a $450 million nonrecourse loan to PT Freeport Indonesia for PT Freeport Indonesia's share of the cost of the expansion. PT Freeport Indonesia began sharing incremental cash flow attributable to the expansion effective January 1, 1998 on the basis of 60 percent to PT Freeport Indonesia and 40 percent to Rio Tinto. PT Freeport Indonesia assigned its share of incremental cash flow to Rio Tinto until PT Freeport Indonesia repays the amount loaned to it, plus interest based on Rio Tinto's cost of borrowing. Through December 31, 1999, PT Freeport Indonesia's share of incremental cash flow totaled $471.8 million. PT Freeport Indonesia paid $440.9 million to Rio Tinto in 1998 and 1999, and paid $30.9 million in 2000 through February. Operating, nonexpansion capital and administrative costs are shared proportionately between incremental revenues from production from the expansion and total revenues from production from Block A, including production from PT Freeport Indonesia's previously existing operations. PT Freeport Indonesia will continue to receive 100 percent of the cash flow from specified annual amounts of copper, gold and silver production through 2021 and 60 percent of all remaining cash flow. Our production results for 1998 and 1999 follow:
Years Ended December 31, ------------------- Percentage 1999 1998 Change --------- -------- ---------- Mill throughput (metric tons of ore per day) 220,700 196,400 12% Copper production, net to PT Freeport Indonesia (000 pounds) 1,428,100 1,427,300 * Gold production, net to PT Freeport Indonesia (ounces) 2,379,100 2,227,700 7% Average net cash production costs per pound of copper $0.09 $0.11 (18)% * Less than 1 percent.
For more information regarding our operating and financial results, see our Annual Report incorporated herein by reference as part of "Item 6. Selected Financial Data" and "Items 7. and 7A. Management's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk." Infrastructure Improvements The location of our mining operations in a remote area requires that our operations be virtually self-sufficient. In addition to the mining facilities described above, in the course of the development of our project we have constructed ourselves or participated with others in the construction of an airport, a port, a 119 kilometer road, an aerial tramway, a hospital and related medical facilities, and two town sites with housing, schools and other facilities sufficient to support more than 17,000 persons. 5 In 1996, we completed a significant infrastructure program, which includes various residential, community and commercial facilities. We designed the program to provide the infrastructure needed for our operations, to enhance the living conditions of our employees, and to develop and promote the growth of local and other third party activities and enterprises in Irian Jaya (Papua). We have developed the facilities through joint ventures or direct ownership involving local Indonesian interests and other investors. In September 1998, PT Freeport Indonesia reacquired for $30 million an aggregate one-third interest in certain infrastructure asset joint ventures owned by P.T. ALatieF Nusakarya Corporation, an Indonesian investor. The joint ventures had purchased $270.0 million of infrastructure assets from PT Freeport Indonesia during the period from December 1993 to March 1997 and PT Freeport Indonesia had sold its one-third interest in the joint ventures in March 1997. We are consolidating the joint ventures for financial reporting purposes because the financing arrangements provide the joint venture partners with a guaranteed 15 percent minimum annual return on their investment. In December 1997, we sold the new power plant facilities associated with the fourth concentrator mill expansion for $366.4 million to the joint venture that owns the power plants that already provided electricity to us. The purchase price included $123.2 million for Rio Tinto's share of the new power plant facilities. Asset sales to the power joint venture totaled $581.4 million through 1997, including $458.2 million of assets we owned. We subsequently sold our 30 percent interest in the joint venture to the other partners and we purchase power under infrastructure asset financing arrangements pursuant to a power sales agreement. Marketing PT Freeport Indonesia sells its copper concentrates, which contain significant quantities of gold and silver, under United States dollar-denominated sales agreements, mostly to companies in Asia and Europe and to international trading companies. We sell substantially all of our budgeted production of copper concentrates under long-term contracts with the selling price based on world metals prices (generally the London Metal Exchange settlement prices for Grade A copper) less certain allowances. Under these contracts, initial billing occurs at the time of shipment and final settlement on the copper portion is generally based on average prices for a specified future period. Gold generally is sold at the London Bullion Market Association average price for the month of shipment. Revenues from concentrate sales are recorded net of royalties, treatment and refining costs and the impact of derivative financial instruments, if any, used to hedge against risks from copper and gold price fluctuations. Treatment and refining costs represent payments to smelters and refiners and are either fixed or in certain cases vary with the price of copper. We sell some copper concentrates in the spot market. See "Cautionary Statements." We have commitments, including commitments from Atlantic Copper and PT Smelting, for essentially all of our estimated 2000 production at market prices. We expect our share of sales for 2000 to approximate 1.4 billion pounds of copper and 1.9 million ounces of gold. Projected 2000 copper and gold sales reflect the expectation of higher average mill throughput rates than in 1999, offset by lower average ore grades and the impact of the specified sharing arrangement with Rio Tinto which will result in a smaller proportion of production being attributed to PT Freeport Indonesia. See "Cautionary Statements." PT Freeport Indonesia has a long-term contract through 2004 to provide Atlantic Copper with approximately 60 percent of its copper concentrate requirements at market prices. PT Freeport Indonesia is providing 100 percent of PT Smelting's copper concentrate requirements at market prices; however, for the first 15 years of operations the treatment and refining charges will not fall below a specified minimum rate, currently $0.23 per pound, which was the rate for 1999 and is expected to be the rate for 2000. After PT Smelting's operations reach design capacity, we anticipate that PT Freeport Indonesia will sell at least 50 percent of its annual concentrate production to Atlantic Copper and PT Smelting. Atlantic Copper, S.A. Atlantic Copper's smelter has a design capacity of 290,000 metric tons of metal per year. During 1999, Atlantic Copper treated 949,400 metric tons of concentrate and produced a record 293.5 metric tons of new copper 6 anodes. Atlantic Copper purchased approximately 63 percent of its 1999 concentrate requirements from PT Freeport Indonesia at market prices. In December 1999, we made a $40.0 million equity contribution to Atlantic Copper and we plan to make at least an additional $10.0 million equity contribution in 2000. The funds are intended to strengthen Atlantic Copper's financial structure during this period of extremely low treatment and refining charge rates, and to allow them to continue with their growth and development strategy. P.T. Smelting PT Smelting successfully concluded its "first-stage completion" testing during the third quarter of 1999 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 94 percent of design capacity during the fourth quarter of 1999, but production rates are expected to fluctuate in the first half of 2000 during which time PT Smelting plans to tie-in a third anode furnace. In 1999, its first full year of operations, PT Smelting treated 436,000 metric tons of concentrate and produced 126.7 metric tons of new copper anodes. PT Smelting is a joint venture among PT Freeport Indonesia, Mitsubishi Materials Corporation, Mitsubishi Corporation and Nippon Mining & Metals Co., Ltd., which own 25 percent, 60.5 percent, 9.5 percent and 5 percent, respectively, of the outstanding PT Smelting stock. PT Freeport Indonesia agreed to assign, if necessary, its earnings in PT Smelting to support a 13 percent cumulative annual return to the other owners for the first 20 years of operations. Competition We compete with other mining companies in the sale of our mineral concentrates and the recruitment and retention of qualified personnel. Some competing companies possess financial resources equal to or greater than ours. We believe, however, that we are the lowest cost copper producer in the world, taking into account customary credits for related gold and silver production, which we believe gives us a significant competitive advantage. Social Development We have a social and human rights policy to ensure that we operate in compliance with the laws in the areas of our operations, and in a manner that respects basic human rights and the culture of the people who are indigenous to the area. We continue to incur significant costs on social and cultural activities, primarily in Irian Jaya (Papua). These activities include comprehensive job training programs, basic education programs, several public health programs, including extensive malaria control, agricultural assistance programs, a business incubator program to encourage the local people to establish their own small scale businesses, cultural preservation programs and charitable donations. In 1996, PT Freeport Indonesia agreed to commit at least one percent of its revenues for the following 10 years to support village-based, "bottom-up" health, education, and economic and social development programs in the area of our mining operations through the Freeport Fund for Irian Jaya Development. This commitment replaced our community development programs in which we spent a similar amount of money each year. We contributed $14.4 million in 1999, $13.5 million in 1998 and $15.1 million in 1997 to the Freeport Fund for Irian Jaya Development. In 1996, the international consulting firm of LABAT- Anderson performed a comprehensive independent audit of our social programs in Irian Jaya (Papua). In 1997, the LABAT- Anderson team submitted its final report to the Government of Indonesia and us, which noted that we had gone beyond the usual role and responsibilities of a private company in providing assistance for the development of the local people. The report also made a number of recommendations designed to make our programs more effective, including restructuring our participation in the Government of Indonesia's development plan for the area to provide for more direct input by local people through their leaders. At the end of 1998, discussions with local and church leaders, government representatives and members of interested non-governmental organizations successfully culminated with the restructuring of the Freeport Fund for Irian Jaya Development. The new umbrella structure is called the Lembaga Pengembangan Masyarakat-Irian Jaya, or the People's Development Foundation-Irian Jaya. The foundation's board of directors is made up of the head of the local government, currently a Kamoro, a leader of the Amungme tribespeople, a leader of the Kamoro tribespeople, leaders of the three local churches and a representative of PT Freeport Indonesia. The board of directors makes grants from the Freeport Fund for Irian Jaya Development and oversees implementation of local developmental programs through an 7 implementation board, which is headed by an Amungme leader and is composed of representatives of all local indigenous groups. The foundation's board of directors has approved a 1999/2000 operational plan and has selected a number of yayasans, or foundations, to implement funded projects. The operational plan provides some type of assistance for all 71 villages in the area of our operations, with the greatest support going to the 29 villages defined by the Amungme and Kamoro as most affected. The team that accomplished the restructuring took care to socialize and communicate the results in all affected villages before implementing any new programs or projects. The foundation's first major project was the construction of a full-service hospital in Timika. The hospital was constructed using funds provided by the Freeport Fund for Irian Jaya Development and is owned by the foundation, representing the people. The 75-bed hospital opened in stages beginning in June 1999, and is considered the premier medical facility in eastern Indonesia and one of the finest in the country. Emergency cases are still referred to PT Freeport Indonesia's Tembagapura hospital. We believe that our social and economic development programs are responsive to the issues raised by the local villages and tribes and should help us to avoid disruptions of mining operations. Nevertheless, social and political instability in the area may adversely impact our mining operations. Environmental Matters We have an environmental policy that commits us not only to compliance with applicable federal, state and local environmental statutes and regulations, but also to continuous improvement of our environmental performance at every operational site. We believe that we conduct our Indonesian operations pursuant to all necessary permits and are in compliance in all material respects with applicable Indonesian environmental laws, rules and regulations. Mining operations on the scale of our operations in Irian Jaya (Papua) involve significant environmental challenges, primarily related to the disposition of tailings, which are the crushed and ground rock material resulting from the physical separation of commercially valuable minerals from the ore. We have an extensive, ongoing management system for the disposal of tailings resulting from our milling operations. In 1997, we completed an engineered levee system, as part of our Government of Indonesia-approved tailings management plan, to minimize the impact of the tailings on the environment through a controlled deposition area that ultimately we will reclaim. In 1995, we participated in a voluntary independent environmental audit of our Irian Jaya (Papua) operations under a program monitored by the Government of Indonesia. The environmental audit report was completed and released in 1996 and included 33 principal recommendations, all of which we have implemented. The audit team identified the disposal of tailings as the most critical environmental issue we face, requiring significant study, engineering and monitoring over the life of the mine. The audit concluded that our tailings management plan represented the most suitable option for tailings disposal considering the engineering and environmental challenges in Irian Jaya (Papua). The audit also confirmed that the tailings from our mining operations are non-toxic; that the mining operations do not pose any significant risk to Irian Jaya's (Papua) biodiversity; and that our operations are being conducted in compliance with applicable Indonesian environmental laws, rules and regulations in all material respects. We have committed to independent external environmental audits by qualified experts every three years, with the results to be made public. The second such audit was completed in 1999. The second audit reported that we continue to be in material compliance with Indonesian environmental laws and regulations and that we had fulfilled the recommendations in the 1996 audit report. The 1999 external audit report made some additional environmental management recommendations that will be implemented. The report concluded that our environmental management systems achieve the standard of practice for world- class mines. The auditors also found our environmental management systems to be exemplary and a showcase for the mining industry. We also are continuing our annual internal audits, through the life of our mining operations, so that our environmental management and monitoring programs will remain sound and our operations will remain in material compliance with local laws. In December 1997, the Minister of Environment gave us environmental approval to expand our milling rate up to a maximum of 300,000 metric tons of ore per day from our previously approved rate of 160,000 metric tons of ore per day. In 1999 we averaged 220,700 metric tons of ore per day. 8 We cannot currently project with precision the ultimate amount of reclamation and closure costs we will incur. Our best estimate at this time is that ultimate reclamation and closure costs may require as much as $100 million but are not expected to exceed $150 million. However, these estimates are subject to revision over time as we perform more complete studies and formulate more definitive plans. We will incur some reclamation costs throughout the life of the mine, while we will incur most closure costs and the remaining reclamation costs at the end of our mining activities, which is currently estimated to exceed 30 years. We had $14.1 million accrued on a unit-of-production basis at December 31, 1999 for mine closure and reclamation costs, included in other liabilities. In 1996, we began contributing to a cash fund ($1.7 million balance at December 31, 1999) designed to accumulate at least $100 million by the end of our Indonesian mining activities. We plan to use this fund, including accrued interest, to pay for mine closure and reclamation costs. An increasing emphasis on environmental issues and future changes in regulations could require us to incur additional costs that would be charged against future operations. Estimates involving environmental matters are by their nature imprecise and changes in government regulations, operations, technology and inflation could require us to revise them over time. We believe that Atlantic Copper's facilities and operations are in compliance in all material respects with all applicable Spanish environmental laws, rules and regulations. In 1997, Atlantic Copper successfully completed an environmental improvement project in conjunction with expansion activities at its copper smelter in Huelva. New technology substantially reduced atmospheric emissions from its operations even with an approximate doubling of production capacity. In addition, we decreased dust emissions as a result of installing new facilities for handling ore concentrates and adding additional filtering capacity. The Indonesian and Spanish governments may periodically revise their environmental laws and regulations or adopt new ones, and we cannot predict the effects on our operations of new or revised regulations. We have expended significant resources, both financial and managerial, to comply with environmental regulations and permitting and approval requirements, and we anticipate that we will continue to do so in the future. There can be no assurance that we will not incur additional significant costs and liabilities to comply with such current and future regulations or that such regulations will not have a material effect on our operations. See "Cautionary Statements." For additional information on our environmental and social efforts, see our annual report incorporated herein by reference as part of "Items 7. and 7A. Management's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk." Employees and Relationship with FM Services Company As of December 31, 1999, PT Freeport Indonesia had 6,357 employees (approximately 97 percent Indonesian). In addition, as of December 31, 1999, PT Freeport Indonesia had 1,851 contract workers, the vast majority of whom were Indonesian. Approximately 55 percent of our Indonesian employees are members of the All Indonesia Workers' Union, which operates under Government of Indonesia supervision. During 1999, PT Freeport Indonesia and the union agreed to a new labor agreement that became effective June 1, 1999 and expires September 30, 2001. PT Freeport Indonesia's relations with the workers' union have generally been positive. As of December 31, 1999, Atlantic Copper had 780 employees, of which approximately 33 percent are covered by union contracts which expired December 31, 1999. Atlantic Copper expects to negotiate new contracts during 2000. Atlantic Copper experienced no work stoppages in 1999 and relations with these unions have also generally been good. Since January 1, 1996, FM Services Company, a Delaware corporation 45 percent owned by us, has furnished executive, administrative, financial, accounting, legal, tax and similar services to us. We reimburse FM Services at its cost, including allocated overhead, for these services on a monthly basis. As of December 31, 1999, FCX had 32 employees and FM Services had 189 employees. FM Services employees also provide services to two other publicly traded companies. 9 Cautionary Statements This report 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 production volumes, sales volumes, ore grades, commodity prices, development and capital expenditures, environmental reclamation and closure costs, reserve estimates, political, economic and social conditions in our areas of operations, treatment charge rates, our financial position and liquidity, payment of dividends, strategic growth initiatives, the availability of financing, PT Smelting operating levels 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 cathodes, copper wire rod and copper wire. 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 significant 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. PT Freeport Indonesia's and Eastern Minerals' Contracts of Work were entered into under Indonesia's 1967 Foreign Capital Investment Law, which provides guarantees of remittance rights and protection against nationalization. These contracts also specifically provide that the Indonesian government will not nationalize or expropriate PT Freeport Indonesia's or Eastern Minerals' mining operations and that disputes with the Indonesian government 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. In October 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. The selection of a new president in an election that was widely regarded as free and fair was an important milestone in restoring political and economic stability. Recently, certain government officials and others in Indonesia have called into question the validity of contracts entered into by the Government of Indonesia prior to October 1999, including PT Freeport Indonesia's 10 Contract of Work signed in December 1991. The president of Indonesia and several cabinet members have publicly stated that the Government of Indonesia will honor previously existing contracts and that they have no intention of revoking or unilaterally amending such contracts, specifically including PT Freeport Indonesia's Contract of Work. Indonesian government officials have also raised questions regarding PT Freeport Indonesia's compliance with Indonesian environmental laws and regulations and the terms of the Contract of Work. In order to address these questions, the Government of Indonesia is forming a _fact-finding_ team to review PT Freeport Indonesia's compliance with all aspects of its Contract of Work. We support this initiative as a means for the Government of Indonesia to verify PT Freeport Indonesia's compliance with its Contract of Work, including its environmental requirements. We believe that we are in material compliance with all provisions of PT Freeport Indonesia's Contract of Work. Despite the progress towards increased stability, Indonesia continues to face political and economic uncertainties, including separatist movements and civil and religious strife in a number of provinces. In particular, social, economic and political instability in the province of Irian Jaya (Papua), where our primary operations are located, could have a material adverse impact on our mining operations if it results in damage to our property or interruption of our activities. For example, 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, although our concentrate shipments were not interrupted. A segment of the local population is opposing Indonesian rule over Irian Jaya (Papua), and 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 (Papua), is a current issue in Indonesian politics. In Irian Jaya (Papua), there have been sporadic attacks on civilians by separatists and sporadic but highly publicized conflicts between 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 or having to enforce the judgement of a foreign court or arbitration against a sovereign nation within its own territory. 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. 11 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 (Papua) 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 Government of Indonesia. 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. Some overburden in the presence of air, water and naturally occurring bacteria can cause acid rock drainage, or acidic water containing dissolved metals, which, if not properly managed, can have a negative impact on the environment. Our overburden management plan, which has been approved by the Government of Indonesia, is designed to minimize these impacts, although we cannot assure that it will do so. Our environmental management programs, which include independent external environmental audits, are designed to manage and minimize the impact 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 Securities and Exchange Commission filings, in 1997 we guaranteed a $254 million loan from a commercial bank to Nusamba. Nusamba borrowed the funds to purchase stock in PT Indocopper Investama Corporation (PT Indocopper Investama), a company whose only significant asset is 9.36 percent of PT Freeport Indonesia's stock, for $315 million. Nusamba owns approximately 51 percent of PT Indocopper Investama's stock and we own approximately 49 percent. The loan is secured by a pledge of the PT 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 PT Indocopper Investama stock. At December 31, 1999, we had loaned Nusamba $43.7 million, due March 2002, for this purpose. The PT Indocopper Investama stock is the only significant asset of Nusamba, and the estimated fair market value of the stock is currently significantly below the $297.7 million aggregate principal amount of the loans. Our estimate of the fair market value of PT 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 PT 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 United States 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. 12 Because we are primarily a holding company, our ability to pay our debts and to pay dividends on our preferred and common stock depends upon the ability of our subsidiaries to pay us dividends and to advance us funds. In addition, our ability to participate in any distribution of our subsidiaries' assets is generally subject to the prior claims of the subsidiaries' creditors. Because we conduct business primarily through our subsidiaries, our ability to pay our debts and to pay dividends on our preferred and common stock depends upon the earnings and cash flow of our subsidiaries and their ability to pay us dividends and to advance us funds. Contractual and legal restrictions applicable to our subsidiaries could also limit our ability to obtain cash from them. Our rights to participate in any distribution of our subsidiaries' assets upon their liquidation, reorganization or insolvency would generally be subject to the prior claims of the subsidiaries' creditors, including trade creditors and preferred stockholders, if any. Item 3. Legal Proceedings. Yosefa Alomang v. Freeport-McMoRan Inc. and Freeport-McMoRan Copper & Gold Inc., Civ. No. 96-9962 (Orleans Civ. Dist. Ct. La. filed June 19, 1996). The plaintiff alleges environmental, human rights and social/cultural violations in Indonesia 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. In July 1998, the Louisiana Supreme Court denied without comment our writ application in which we sought a review of the Fourth Circuit's earlier ruling. The plaintiff has amended its complaint. We have additional legal defenses to the action that we are pursuing. We will continue to defend this action vigorously. In addition to the foregoing proceedings, we are involved from time to time in various legal proceedings of a character normally incident to the ordinary course of our business. We believe that potential liability in such proceedings would not have a material adverse effect on our financial condition or results of operations. We maintain liability insurance to cover some, but not all, potential liabilities normally incident to the ordinary course of our business as well as other insurance coverage customary in our business, with coverage limits that we deem prudent. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. Executive Officers of the Registrant. Certain information as of March 1, 2000 about our executive officers, including their position or office with FCX, PT Freeport Indonesia and Atlantic Copper, is set forth in the following table and accompanying text: Name Age Position or Office - ---- --- ------------------- Richard C. Adkerson 53 President and Chief Operating Officer of FCX. Director and Executive Vice President of PT Freeport Indonesia. Chairman of Atlantic Copper. Michael J. Arnold 47 Senior Vice President of FCX. Director and Executive Vice President of PT Freeport Indonesia. Stephen M. Jones 41 Senior Vice President, Chief Financial Officer and Secretary of FCX. Director and Executive Vice President of PT Freeport Indonesia. Director of Atlantic Copper. W. Russell King 50 Senior Vice President of FCX. Adrianto Machribie 58 President Director of PT Freeport Indonesia. 13 John A. Macken 48 Senior Vice President of FCX. Executive Vice President of PT Freeport Indonesia. James R. Moffett 61 Director, Chairman of the Board and Chief Executive Officer of FCX. President Commissioner of PT Freeport Indonesia. Paul S. Murphy 56 Senior Vice President of FCX. Commissioner of PT Freeport Indonesia. Steven D. Van Nort 59 Senior Vice President of FCX. Director and Executive Vice President of PT Freeport Indonesia. Richard C. Adkerson has served as FCX's President and Chief Operating Officer since April 1997. Mr. Adkerson is also Executive Vice President and a director of PT Freeport Indonesia, Chairman of Atlantic Copper, and Co-Chairman of the Board, President and Chief Executive Officer of McMoRan Exploration Co. (McMoRan). From April 1994 to November 1998 he was Co-Chairman of the Board and Chief Executive Officer of McMoRan Oil & Gas Co. (McMoRan Oil & Gas), and from November 1997 to November 1998 he was Vice Chairman of the Board of Freeport-McMoRan Sulphur Inc. (Freeport Sulphur). Mr. Adkerson served as Executive Vice President of FCX from July 1995 to April 1997, as Senior Vice President from February 1994 to July 1995 and as Chief Financial Officer from July 1995 to November 1998. He also served as Chairman of the Board of Stratus Properties Inc., a real estate development company, from March 1992 to August 1998, as President from August 1995 to May 1996 and as Chief Executive Officer from August 1995 to May 1998. Mr. Adkerson served as Vice Chairman of the Board of Freeport-McMoRan Inc. until December 1997 and as Senior Vice President and Chief Financial Officer of Freeport- McMoRan Inc. from May 1992 to August 1995. Michael J. Arnold has served as Senior Vice President of FCX since November 1996. Mr. Arnold is also Executive Vice President and a director of PT Freeport Indonesia, and Senior Vice President of McMoRan. From July 1994 to November 1996, Mr. Arnold was Vice President and Controller - Operations of FCX. Mr. Arnold also served as a Senior Vice President of Freeport- McMoRan Inc. from November 1996 until December 1997. From October 1991 to November 1996, he was Vice President of Freeport- McMoRan Inc., serving as Controller - Operations from May 1993 to November 1996. Stephen M. Jones has served as Senior Vice President and Chief Financial Officer of FCX since November 1998 and as Secretary since February 2000. Mr. Jones has also served as Executive Vice President and a director of PT Freeport Indonesia since December 1994. W. Russell King has served as Senior Vice President of FCX since July 1994. Mr. King served as Senior Vice President of Freeport- McMoRan Inc. from November 1993 to December 1997. Adrianto Machribie has served as President Director of PT Freeport Indonesia since March 1996. From September 1992 to March 1996, Mr. Machribie was a director and Executive Vice President of PT Freeport Indonesia. John A. Macken has served as Senior Vice President of FCX since December 1997. He is also Executive Vice President of PT Freeport Indonesia. From April 1996 to December 1997, Mr. Macken was a Vice President of FCX. From April 1995 to March 1996, Mr. Macken served as a director of PT Freeport Indonesia and from April 1993 to April 1995, he served as a Vice President of PT Freeport Indonesia. James R. Moffett has served as Chairman of the Board and Chief Executive Officer of FCX since July 1995 and has served as Chairman of the Board of FCX since May 1992. He is also President Commissioner of PT Freeport Indonesia and Co-Chairman of the Board of McMoRan. From November 1994 to November 1998 he was Co-Chairman of the Board of McMoRan Oil & Gas and from November 1997 to November 1998 he was Co-Chairman of the Board of Freeport Sulphur. Mr. Moffett served as Chairman of the Board of Freeport-McMoRan Inc. from September 1982 to December 1997. 14 Paul S. Murphy has served as Senior Vice President of FCX since March 1998. Mr. Murphy has also served as a Commissioner of PT Freeport Indonesia since May 1998. Mr. Murphy served as a director and Executive Vice President of PT Freeport Indonesia from September 1992 to May 1998. Steven D. Van Nort has served as Senior Vice President of FCX since December 1997. Mr. Van Nort has served as director since May 1997 and Executive Vice President of PT Freeport Indonesia since June 1997. From March 1995 to December 1997, Mr. Van Nort was a Vice President of FCX and from June 1992 to June 1997, he served as a Senior Vice President of PT Freeport Indonesia. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The information set forth under the captions "FCX Class A Common Shares," "FCX Class B Common Shares" and "Common Share Dividends," on the inside back cover of our 1999 Annual Report is incorporated herein by reference. As of March 8, 2000, there were 7,110 and 11,590 holders of record of our Class A and Class B common stock, respectively. Item 6. Selected Financial Data. The information set forth under the caption "Selected Financial and Operating Data," on pages 18 and 19 of our Annual Report is incorporated herein by reference.
Years Ended December 31, ------------------------------------ 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Ratio of earnings to fixed charges 5.9x 4.5x 3.8x 2.5x 2.9x Ratio of earnings to fixed charges and preferred stock dividends 3.0x 2.6x 2.8x 1.9x 2.2x
For the ratio of earnings to fixed charges 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. For the ratio of earnings to fixed charges and preferred stock dividends calculation, we assumed that our preferred stock dividend requirements were equal to the pre-tax earnings that would be required to cover those dividend requirements. We computed those pre-tax earnings using actual tax rates for each year. Items 7. and 7A. Management's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk. The information set forth under the caption "Management's Discussion and Analysis" on pages 20 through 30, as well as the "Working Toward Sustainable Development" report on pages 6 through 17, of our 1999 Annual Report, are incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. Our financial statements and the notes thereto appearing on pages 31 through 51, the report thereon of Arthur Andersen LLP appearing on page 51, and the report of management on page 30 of our 1999 Annual Report are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. 15 PART III Items 10. Directors and Executive Officers of the Registrant. The information set forth under the caption "Information About Nominees and Directors" of our Proxy Statement submitted to our stockholders in connection with our 2000 Annual Meeting to be held on May 4, 2000 is incorporated herein by reference. Items 11. Executive Compensation. The information set forth under the captions "Director Compensation" and "Executive Officer Compensation" of our Proxy Statement submitted to our stockholders in connection with our 2000 Annual Meeting to be held on May 4, 2000 is incorporated herein by reference. Items 12. Security Ownership of Certain Beneficial Owners and Management. The information set forth under the captions "Stock Ownership of Directors and Executive Officers" and "Stock Ownership of Certain Beneficial Owners" of our Proxy Statement submitted to our stockholders in connection with our 2000 Annual Meeting to be held on May 4, 2000 is incorporated herein by reference. Items 13. Certain Relationships and Related Transactions. The information set forth under the caption "Certain Transactions" of our Proxy Statement submitted to our stockholders in connection with our 2000 Annual Meeting to be held on May 4, 2000 is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a)(1). Financial Statements. Reference is made to the Index to Financial Statements appearing on page F-1 hereof. (a)(2). Financial Statement Schedules. Reference is made to the Index to Financial Statements appearing on page F-1 hereof. (a)(3). Exhibits. Reference is made to the Exhibit Index beginning on page E-1 hereof. (b). Reports on Form 8-K. During the last quarter of the period covered by this report, we did not file any Current Reports on Form 8-K. 16 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 17, 2000. Freeport-McMoRan Copper & Gold Inc. By: /s/ James R. Moffett ---------------------------- James R. Moffett Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 17, 2000. Signatures Chairman of the Board, Chief Executive /s/James R. Moffet Officer and Director (Principal ------------------- Executive Officer) James R. Moffett * President and Chief Operating Officer ------------------- Richard C. Adkerson Senior Vice President, Chief Financial Officer and Secretary (Principal Financial * Officer) ---------------- Stephen M. Jones Vice President and Controller-Financial * Reporting (Principal Accounting Officer) ------------------ C. Donald Whitmire * Director ------------------- Robert W. Bruce III * Director ----------------- R. Leigh Clifford * Director ------------- Robert A. Day * Director -------------- Gerald J. Ford S-1 * Director -------------------- H. Devon Graham, Jr. * Director ---------------------- Oscar Y. L. Groeneveld * Director ------------------- J. Bennett Johnston * Director ------------------ Henry A. Kissinger * Director ---------------- Bobby Lee Lackey * Director ----------------- Rene L. Latiolais * Director --------------------- Gabrielle K. McDonald * Director ---------------- George A. Mealey * Director ----------------- B. M. Rankin, Jr. * Director ----------------- J. Taylor Wharton *By: /s/ James R. Moffett ---------------------- James R. Moffett Attorney-in-Fact S-2 FREEPORT-McMoRan COPPER & GOLD INC. INDEX TO FINANCIAL STATEMENTS Our financial statements and the notes appearing on pages 35 through 51, and the report of Arthur Andersen LLP appearing on page 51 of our 1999 Annual Report to stockholders are incorporated herein by reference. The financial statements in schedule I listed below should be read in conjunction with our financial statements in our 1999 Annual Report to stockholders. Page Report of Independent Public Accountants F-1 Schedule I-Condensed Financial Information of Registrant F-2 Schedule II-Valuation and Qualifying Accounts F-3 Schedules other than the ones listed above have been omitted since they are either not required, not applicable or the required information is included in the financial statements or notes thereto. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS We have audited, in accordance with generally accepted auditing standards, the financial statements as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999 included in Freeport-McMoRan Copper & Gold Inc.'s Annual Report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 18, 2000. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in the index above are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP New Orleans, Louisiana, January 18, 2000 F-1
FREEPORT-McMoRan COPPER & GOLD INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS December 31, -------------------------- 1999 1998 ---------- ---------- (In Thousands) Assets: Cash and cash equivalents $ 832 $ 802 Interest receivable 7,746 7,996 Due from affiliates 16,862 41,766 Notes receivable from PT Freeport Indonesia 779,991 832,492 Note receivable from Nusamba 43,702 25,438 Investment in PT Freeport Indonesia and PT Indocopper Investama 824,513 610,234 Investment in Atlantic Copper 97,518 51,418 Other assets 41,616 43,118 ---------- ---------- Total assets $1,812,780 $1,613,264 ========== ========== Liabilities and Stockholders' Equity: Accounts payable and accrued liabilities $ 23,173 $ 17,300 Long-term debt 1,060,411 967,251 Other liabilities and deferred credits - 2,457 Deferred income taxes 44,809 22,833 Redeemable preferred stock 487,507 500,007 Stockholders' equity 196,880 103,416 ---------- ---------- Total liabilities and stockholders' equity $1,812,780 $1,613,264 ========== ==========
STATEMENTS OF INCOME Years Ended December 31, ----------------------------- 1999 1998 1997 --------- -------- -------- (In Thousands) Income from investment in PT Freeport Indonesia and PT Indocopper Investama, net of PT Freeport Indonesia tax provision $237,630 $211,232 $218,752 Net income from investment in Atlantic Copper 4,066a 4,674 3,391 Intercompany charges and eliminations (27,505)a,b (7,700)b 53,117b Exploration expenses (7,079) (8,958) (11,198) General and administrative expenses (8,643) (7,082) (8,855) Depreciation and amortization (4,468) (4,384) (3,873) Interest expense, net (76,246) (66,141) (59,626) Interest income on PT Freeport Indonesia notes receivable: Promissory notes 28,461 29,273 47,219 8.235% debenture - 8,101 11,723 Step-up debenture - - 3,083 Gold and silver production payment loans 17,568 19,212 20,451 Other income (expense), net (379) 1,326 878 Provision for income taxes (26,938) (25,705 (29,954) -------- -------- -------- Net income 136,467 153,848 245,108 Preferred dividends (35,680) (35,531) (36,567) -------- -------- -------- $100,787 $118,317 $208,541 ======== ======== ========
a. Includes $23.0 million for the forgiveness of an intercompany receivable from Atlantic Copper. b. Includes amounts for deferral of intercompany profit totaling $(4.5) million in 1999, $(7.7) million in 1998 and $9.3 million in 1997. The 1997 amount includes $43.8 million for intercompany charges related to stock-based incentive compensation. The footnotes to the consolidated financial statements of FCX contained in FCX's 1999 Annual Report to stockholders incorporated by reference herein are an integral part of these statements. F-2
FREEPORT-McMoRan COPPER & GOLD INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOW Years Ended December 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (In Thousands) Cash flow from operating activities: Net income $136,467 $153,848 $245,108 Adjustments to reconcile net income to net cash provided by operating activities: Income from investment in PT Freeport Indonesia and PT Indocopper Investama (237,630) (211,232) (218,293) Deferred income taxes 21,976 16,613 1,400 Net income from investment in Atlantic Copper (4,066) (4,674) (3,391) Elimination of intercompany profit 4,457 7,700 (9,271) Dividends received from PT Freeport Indonesia and PT Indocopper Investama 18,361 48,832 205,092 Depreciation and amortization 4,468 4,384 3,873 Decrease (increase) in interest receivable and due from affiliates 25,936 50,933 (44,358) Increase (decrease) in accounts payable and accrued liabilities 2,320 (1,699) (1,898) Other 776 3,208 7,536 -------- -------- -------- Net cash provided by (used in) operating activities (26,935) 67,913 185,798 -------- -------- -------- Cash flow from investing activities: Investment in Atlantic Copper (40,000) - - Other (2,403) (9,583) (11,895) -------- -------- -------- Net cash used in investing activities (42,403) (9,583) (11,895) -------- -------- -------- Cash flow from financing activities: Cash dividends paid: Class A common stock - (14,157) (73,309) Class B common stock - (21,225) (105,032) Step-up convertible preferred stock (24,500) (24,500) (24,642) Mandatory redeemable preferred stock (13,520) (14,657) (15,901) Proceeds from debt 104,673 161,506 180,000 Repayment of debt (11,514) (19,504) (17,310) Partial redemption of preferred stock (11,946) - - Repayment from PT Freeport Indonesia 51,946 150,000 325,320 Loans to Nusamba (18,264) (17,824) (7,614) Purchase of FCX common shares (7,921) (259,213) (438,388) Other 414 545 4,232 -------- -------- -------- Net cash provided by (used in) financing activities 69,368 (59,029) (172,644) Net increase (decrease) in cash and cash equivalents 30 (699) 1,259 Cash and cash equivalents at beginning of year 802 1,501 242 -------- -------- -------- Cash and cash equivalents at end of year $ 832 $ 802 $ 1,501 ======== ======== ======== Interest paid $ 76,804 $ 68,950 $ 59,798 ======== ======== ======== Taxes paid $ 5,281 $ 8,629 $ 28,286 ======== ======== ========
The footnotes to the consolidated financial statements of FCX contained in FCX's 1999 Annual Report to stockholders incorporated by reference herein are an integral part of these statements. F-3
FREEPORT-McMoRan COPPER & GOLD INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Additions --------------------- Balance at Charged to Charged to Other Balance at Beginning Costs and Other Add End of of Period Expense Accounts (Deduct) Period ---------- --------- -------- --------- --------- (In Thousands) Reserves and allowances deducted from asset accounts: 1999 - ---- Materials and supplies reserves $24,633 $ 1,500 $ - $(7,382)a $ 18,751 Allowance for uncollectible value-added taxes 5,491 - - - 5,491 1998 - ---- Materials and supplies reserves 29,513 3,000 - (7,880)a 24,633 Allowance for uncollectible value-added taxes 3,825 833 833 - 5,491 1997 - ---- Materials and supplies reserves 19,340 12,000 - (1,827)a 29,513 Allowance for uncollectible value-added taxes 5,337 1,809 289 (3,610)b 3,825 Reclamation and mine shutdown reserves: 1999 - ---- PT Freeport Indonesia $ 9,229 $ 4,856 $ - $ - $14,085 1998 - ---- PT Freeport Indonesia 5,466 3,763 - - 9,229 1997 - ---- PT Freeport Indonesia 500 4,966 - - 5,466
a. Primarily represents write-offs of obsolete materials and supplies inventories. b. Represents write-offs of uncollectible amounts. F-4 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 off Designations of the Gold-Denominated Preferred Stock of FCX. Incorporated by reference to Exhibit 4.3 to the FCX 1995 Second Quarter Form 10-Q. 4.5 Deposit Agreement dated as of August 12, 1993 among FCX, ChaseMellon, as Depositary, and holders of depositary receipts (Gold-Denominated Depositary Receipts) evidencing certain Depositary Shares, each of which, in turn, represents 0.05 shares of Gold-Denominated Preferred Stock. Incorporated by reference to Exhibit 4.8 to the FCX 1993 Form 10-K. 4.6 Form of Gold-Denominated Depositary Receipt. Incorporated by reference to Exhibit 4.9 to the FCX 1993 Form 10-K. 4.7 Certificate of Designations of the Gold-Denominated Preferred Stock, Series II (the Gold-Denominated Preferred Stock II) of FCX. Incorporated by reference to Exhibit 4.4 to the FCX 1995 Second Quarter Form 10-Q. 4.8 Deposit Agreement dated as of January 15, 1994, among FCX, ChaseMellon, as Depositary, and holders of depositary receipts (Gold-Denominated II Depositary Receipts) evidencing certain Depositary Shares, each of which, in turn, represents 0.05 shares of Gold-Denominated Preferred Stock II. Incorporated by reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q of FCX for the quarter ended March 31, 1994 (the FCX 1994 First Quarter Form 10-Q). E-1 Freeport-McMoRan Copper & Gold Inc. EXHIBIT INDEX Exhibit Number Description - ------- ----------- 4.9 Form of Gold-Denominated II Depositary Receipt. Incorporated by reference to Exhibit 4.3 to the FCX 1994 First Quarter Form 10-Q. 4.10 Certificate of Designations of the Silver-Denominated Preferred Stock of FCX. Incorporated by reference to Exhibit 4.5 to the FCX 1995 Second Quarter Form 10-Q. 4.11 Deposit Agreement dated as of July 25, 1994 among FCX, ChaseMellon, as Depositary, and holders of depositary receipts (Silver-Denominated Depositary Receipts) evidencing certain Depositary Shares, each of which, in turn, initially represents 0.025 shares of Silver-Denominated Preferred Stock. Incorporated by reference to Exhibit 4.2 to the July 15, 1994 Form 8-A. 4.12 Form of Silver-Denominated Depositary Receipt. Incorporated by reference to Exhibit 4.1 to the July 15, 1994, Form 8-A. 4.13 $550 million Composite Restated Credit Agreement dated as of July 17, 1995 (the PT Freeport Indonesia Credit Agreement) among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PT Freeport Indonesia Trustee, Chemical Bank, as administrative agent and FCX collateral agent, and The Chase Manhattan Bank (National Association), as documentary agent. Incorporated by reference to Exhibit 4.16 to the Annual Report of FCX on Form 10-K for the year ended December 31, 1995 (the FCX 1995 Form 10-K). 4.14 Amendment dated as of July 15, 1996 to the PT Freeport Indonesia Credit Agreement among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PT Freeport Indonesia Trustee, Chemical Bank, as administrative agent and FCX collateral agent, and The Chase Manhattan Bank (National Association), as documentary agent. Incorporated by reference to Exhibit 4.2 to the Quarterly Report of FCX on Form 10-Q for the quarter ended September 30, 1996 (the FCX 1996 Third Quarter Form 10-Q). 4.15 Amendment dated as of October 9, 1996 to the PT Freeport Indonesia Credit Agreement among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PT Freeport Indonesia Trustee, The Chase Manhattan Bank (formerly Chemical Bank), as administrative agent, security agent and JAA security agent, and The Chase Manhattan Bank (as successor to The Chase Manhattan Bank (National Association)), as documentary agent. Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of FCX dated and filed November 13, 1996 (the FCX November 13, 1996 Form 8-K). 4.16 Amendment dated as of March 7, 1997 to the PT Freeport Indonesia Credit Agreement among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PT Freeport Indonesia Trustee, The Chase Manhattan Bank, as administrative agent, security agent and JAA security agent, and The Chase Manhattan Bank, as documentary agent. Incorporated by reference to Exhibit 4.16 to the Annual Report of FCX on Form 10-K for the year ended December 31, 1997 (the FCX 1997 Form 10-K). 4.17 Amendment dated as of July 24, 1997 to the PT Freeport Indonesia Credit Agreement among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PT Freeport Indonesia Trustee, The Chase Manhattan Bank, as administrative agent, security agent and JAA security agent, and The Chase Manhattan Bank, as documentary agent. Incorporated by reference to Exhibit 4.17 to the FCX 1997 Form 10-K. E-2 Freeport-McMoRan Copper & Gold Inc. EXHIBIT INDEX Exhibit Number Description - ------ ----------- 4.18 $200 million Credit Agreement dated as of June 30, 1995 (the CDF) among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PT Freeport Indonesia Trustee, Chemical Bank, as administrative agent and FCX collateral agent, The Chase Manhattan Bank (National Association), as documentary agent. Incorporated by reference to Exhibit 4.2 to the FCX 1995 Third Quarter Form 10-Q. 4.19 Amendment dated as of July 15, 1996 to the CDF among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PT Freeport Indonesia Trustee, Chemical Bank, as administrative agent and FCX collateral agent, and The Chase Manhattan Bank (National Association), as documentary agent. Incorporated by reference to Exhibit 4.1 to the FCX 1996 Third Quarter Form 10-Q. 4.20 Amendment dated as of October 9, 1996 to the CDF among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PTFreeport Indonesia Trustee, The Chase Manhattan Bank (formerly Chemical Bank), as administrative agent, security agent and JAA security agent, and The Chase Manhattan Bank (as successor to The Chase Manhattan Bank (National Association)), as documentary agent. Incorporated by reference to Exhibit 10.1 to the FCX November 13, 1996 Form 8-K. 4.21 Amendment dated as of March 7, 1997 to the CDF among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PT Freeport Indonesia Trustee, The Chase Manhattan Bank, as administrative agent, security agent and JAA security agent, and The Chase Manhattan Bank, as documentary agent. Incorporated by reference to Exhibit 4.21 to the FCX 1997 Form 10-K. 4.22 Amendment dated as of July 24, 1997 to the CDF among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PT Freeport Indonesia Trustee, The Chase Manhattan Bank, as administrative agent, security agent and JAA security agent, and The Chase Manhattan Bank, as documentary agent. Incorporated by reference to Exhibit 4.22 to the FCX 1997 Form 10-K. 4.23 Senior Indenture dated as of November 15, 1996 from FCX to The Chase Manhattan Bank, as Trustee. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of FCX dated November 13, 1996 and filed November 15, 1996. 4.24 First Supplemental Indenture dated as of November 18, 1996 from FCX to The Chase Manhattan Bank, as Trustee, providing for the issuance of the Senior Notes and supplementing the Senior Indenture dated November 15, 1996 from FCX to such Trustee, providing for the issuance of Debt Securities. Incorporated by reference to Exhibit 4.20 to the FCX 1996 Form 10-K. 10.1 Contract of Work dated December 30, 1991 between the Government of the Republic of Indonesia and PT Freeport Indonesia. Incorporated by reference to Exhibit 10.2 to the FCX 1995 Form 10-K. 10.2 Contract of Work dated August 15, 1994 between the Government of the Republic of Indonesia and PT Irja Eastern Minerals Corporation. Incorporated by reference to Exhibit 10.2 to the FCX 1995 Form 10-K. 10.3 Agreement dated as of October 11, 1996 to Amend and Restate Trust Agreement among PT Freeport Indonesia, FCX, the RTZ Corporation PLC, P.T. RTZ-CRA Indonesia, RTZ Indonesian 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. E-3 Freeport-McMoRan Copper & Gold Inc. EXHIBIT INDEX Exhibit Number Description - ------- ----------- 10.4 Credit Agreement dated October 11, 1996 between PT Freeport Indonesia and RTZ Indonesian Finance Limited. Incorporated by reference to Exhibit 10.4 to the FCX November 13, 1996 Form 8-K. 10.5 Participation Agreement dated as of October 11, 1996 between PT Freeport Indonesia and P.T. RTZ-CRA Indonesia with respect to a certain contract of work. Incorporated by reference to Exhibit 10.5 to the FCX November 13, 1996 Form 8-K. 10.6 Second Amended and Restated Joint Venture and Shareholders' Agreement dated as of December 11, 1996 among Mitsubishi Materials Corporation, Nippon Mining and Metals Company, Limited and PT Freeport Indonesia. Incorporated by reference to Exhibit 10.3 of the FCX 1996 Form 10-K. 10.7 Put and Guaranty Agreement dated as of March 21, 1997 between FCX and The Chase Manhattan Bank. Incorporated by reference to Exhibit 10.7 to the FCX 1997 Form 10-K. 10.8 Subordinated Loan Agreement dated as of March 21, 1997 between FCX and PT Nusamba Mineral Industri. Incorporated by reference to Exhibit 10.8 to the FCX 1997 Form 10-K. 10.9 Amended and Restated Power Sales Agreement dated as of December 18, 1997 between PT Freeport Indonesia and P.T. Puncakjaya Power. Incorporated by reference to Exhibit 10.9 to the FCX 1997 Form 10-K. 10.10Option, Mandatory Purchase and Right of First Refusal Agreement dated as of December 19, 1997 among PT Freeport Indonesia, P.T. Puncakjaya Power, Duke Irian Jaya, Inc., Westcoast Power, Inc. and P.T. Prasarana Nusantara Jaya. Incorporated by reference to Exhibit 10.10 to the FCX 1997 Form 10-K. Executive Compensation Plans and Arrangements (Exhibits 10.11 through 10.33) 10.11Annual Incentive Plan of FCX as amended effective February 2, 1999. Incorporated by reference to Exhibit 10.11 to the 1998 FCX Form 10-K. 10.121995 Long-Term Performance Incentive Plan of FCX. Incorporated by reference to Exhibit 10.9 to the FCX 1996 Form 10-K. 10.13FCX Performance Incentive Awards Program as amended effective February 2, 1999. Incorporated by reference to Exhibit 10.13 to the 1998 FCX Form 10-K. 10.14FCX President's Award Program. Incorporated by reference to Exhibit 10.8 to the FCX 1995 Form 10-K. 10.15FCX Adjusted Stock Award Plan, as amended. Incorporated by reference to Exhibit 10.15 to the 1997 FCX Form 10-K. 10.16FCX 1995 Stock Option Plan. Incorporated by reference to Exhibit 10.13 to the FCX 1996 Form 10-K. 10.17FCX 1995 Stock Option Plan for Non-Employee Directors, as amended. Incorporated by reference to Exhibit 10.17 to the FCX 1997 Form 10-K. 10.18FCX 1999 Stock Incentive Plan. Incorporated by reference to Exhibit 10.18 to the Quarterly Report on Form 10-Q of FCX for the quarter ended June 30, 1999. 10.19FCX 1999 Long-Term Performance Incentive Plan. 10.20Financial Counseling and Tax Return Preparation and Certification Program of FCX. Incorporated by reference to Exhibit 10.12 to the FCX 1995 Form 10-K. E-4 Freeport-McMoRan Copper & Gold Inc. EXHIBIT INDEX Exhibit Number Description - ------- ----------- 10.21FM 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. 10.22FM 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. 10.23Consulting 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. 10.24Letter 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. 10.25Letter 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. 10.26Agreement for Consulting Services between FTX and B. M. Rankin, Jr. effective as of January 1, 1991 (assigned to FMS as of January 1, 1996). Incorporated by reference to Exhibit 10.24 to the FCX 1997 Form 10-K. 10.27Supplemental 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. 10.28Supplemental 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. 10.29Letter Agreement effective as of January 7, 1997 between Senator J. Bennett Johnston, Jr. and FMS. Incorporated by reference to Exhibit 10.25 of the FCX 1996 Form 10-KK. 10.30Supplemental Letter Agreement dated November 30, 1999 between J. Bennett Johnston, Jr. and FMS. 10.31Letter Agreement dated January 25, 1999 between FMS and Rene L. Latiolais. Incorporated by reference to Exhibit 10.30 to the 1998 FCX Form 10-K. 10.32Supplemental Letter Agreement dated August 4, 1999 between FMS and Rene L. Latiolais. 10.33Letter Agreement dated November 1, 1999 between FMS and Gabrielle K. McDonald. 10.34Concentrate Purchase and Sales Agreement dated effective December 11, 1996 between PT Freeport Indonesia and P T Smelting. 12.1 FCX Computation of Ratio of Earnings to Fixed Charges. 13.1 Those portions of the 1999 Annual Report to stockholders of FCX that are incorporated herein by reference. 21.1 Subsidiaries of FCX. 23.1 Consent of Arthur Andersen LLP. 23.2 Consent of Independent Mining Consultants, Inc. E-5 Freeport-McMoRan Copper & Gold Inc. EXHIBIT INDEX Exhibit Number Description - ------- ----------- 24.1 Certified resolution of the Board of Directors of FCX authorizing this report to be signed on behalf of any officer or director pursuant to a Power of Attorney. 24.2 Powers of Attorney signed on behalf of certain officers and directors of FCX. 27.1 FCX Financial Data Schedule. E-6 EX-10 2 Exhibit 10.19 1999 LONG-TERM PERFORMANCE INCENTIVE PLAN OF FREEPORT-McMoRan COPPER & GOLD INC. ARTICLE I PURPOSE OF PLAN SECTION 1.1. The purpose of the 1999 Long-Term Performance Incentive Plan of Freeport-McMoRan Copper & Gold Inc. (the "Plan") is to provide incentives for senior executives and other service providers whose performance in fulfilling their responsibilities can have a major impact on the profitability and future growth of Freeport-McMoRan Copper & Gold Inc. (the "Company") and its subsidiaries. ARTICLE II ADMINISTRATION OF THE PLAN SECTION 2.1. Subject to the authority and powers of the Board of Directors in relation to the Plan as hereinafter provided, the Plan shall be administered by a Committee designated by the Board of Directors consisting of two or more members of the Board. The Committee shall have full authority to interpret the Plan and from time to time to adopt such rules and regulations for carrying out the Plan as it may deem best; provided, however, that the Committee may not exercise any authority otherwise granted to it hereunder if such action would have the effect of increasing the amount of any credit to or payment from the Performance Award Account of any Covered Officer. All determinations by the Committee shall be made by the affirmative vote of a majority of its members, but any determination reduced to writing and signed by a majority of the members shall be fully as effective as if it had been made by a majority vote at a meeting duly called and held. All decisions by the Committee pursuant to the provisions of the Plan and all orders or resolutions of the Board of Directors pursuant thereto shall be final, conclusive and binding on all persons, including but not limited to the Participants, the Company and its subsidiaries and their respective equity holders. ARTICLE III ELIGIBILITY FOR AND GRANT OF PERFORMANCE AWARDS SECTION 3.1. Subject to the provisions of the Plan, the Committee may from time to time select any of the following to be granted Performance Awards under the Plan, and determine the number of Performance Units covered by each such Performance Award: (a) any person providing services as an officer of the Company or a Subsidiary, whether or not employed by such entity, including any person who is also a director of the Company, (b) any employee of the Company or a Subsidiary, including any director who is also an employee of the Company or a Subsidiary, (c) any officer or employee of an entity with which the Company or a Subsidiary has contracted to receive executive, management or legal services who provides services to the Company or a Subsidiary through such arrangement, (d) any consultant or adviser to the Company, a Subsidiary or to an entity described in clause (c) hereof who provides services to the Company or a Subsidiary through such arrangement and (e) any person who has agreed in writing to become a person described in clauses (a), (b), (c) or (d) within not more than 30 days following the date of grant of such person's first Performance Award under the Plan. Performance Awards may be granted at different times to the same individual. SECTION 3.2. Upon the grant of a Performance Award to a Participant, the Company shall establish a Performance Award Account for such Participant and shall credit to such Performance Award Account the number of Performance Units covered by such Performance Award. SECTION 3.3. Subject to adjustment as provided in Section 5.2 the number of Performance Units outstanding at any time shall not exceed 4,000,000. Performance Units that shall have been forfeited or with respect to which payment has been made pursuant to Section 4.2 or deferred pursuant to Section 4.4 shall not thereafter be deemed to be credited or outstanding for any purpose of the Plan and may again be the subject of Performance Awards. SECTION 3.4. (a) Notwithstanding the provisions of Section 3.1, 3.2 and 3.3, all Performance Awards granted to Covered Officers must be granted no later than 90 days following the beginning of the calendar year. No Covered Officer may be granted more than 250,000 Performance Units in any calendar year. (b) All Performance Awards to Covered Officers under the Plan will be made and administered by two or more members of the Committee who are also "outside directors" within the meaning of Section 162(m). ARTICLE IV CREDITS TO AND PAYMENTS FROM PARTICIPANTS' PERFORMANCE AWARD ACCOUNTS SECTION 4.1. Subject to the provisions of the Plan, each Performance Unit in any Performance Award Account of each Participant at December 31 of any year shall be credited, as of such December 31 of each year in the Performance Period for such Performance Unit, with an amount equal to the Annual Earnings Per Share (or Net Loss Per Share) for such year; provided that, if in any year there shall be any outstanding Net Loss Carryforward applicable to such Performance Unit, such Net Loss Carryforward shall be applied to reduce any amount which would otherwise be credited to or in respect of such Performance Unit pursuant to this Section 4.1 in such year until such Net Loss Carryforward has been fully so applied. SECTION 4.2. (a) Subject to the provisions of the Plan, amounts credited to a Participant's Performance Award Account in respect of Performance Units shall be paid to such Participant as soon as practicable on or after the Award Valuation Date with respect to such Performance Units. (b) Payments pursuant to Section 4.2(a) shall be in cash. (c) Notwithstanding any other provision of the Plan to the contrary, no Covered Officer shall be entitled to any payment with respect to any Performance Units unless the members of the Committee referred to in Section 3.4(b) hereof shall have certified the amount of the Annual Earnings Per Share (or Net Loss Per Share) for each year or portion thereof in the Performance Period applicable to such Performance Units. SECTION 4.3. In addition to any amounts payable pursuant to Section 4.2, the Committee may in its sole discretion determine that there shall be payable to a former Participant, other than a Participant who is at the time of any payment a Covered Officer, a supplemental amount not exceeding the excess, if any, of (i) the amount determined in accordance with Section 4.1 which would have been payable to such former Participant if the Award Valuation Date with respect to any Performance Units granted to such Participant had been December 31 of the first, second or third calendar year next following the year in which such Participant's Termination of Employment occurred (the selection of such first, second or third calendar year to be in the sole discretion of the Committee subject only to the last sentence of this Section 4.3) over (ii) the amount determined in accordance with said Section 4.1 as of December 31 of the calendar year in which such Termination of Employment actually occurred. Any such supplemental amount so payable shall be paid in a lump sum as promptly as practicable on or after December 31 of the calendar year so selected by the Committee or in one or more installments ending not later than five years after such December 31, as the Committee may in its discretion direct. In no event shall any payment under this Section 4.3 be made with respect to any calendar year after the year in which such former Participant reaches his normal retirement date under the Company's retirement plan. SECTION 4.4. (a) Prior to January 1 of any calendar year in which it is anticipated that an Award Valuation Date with respect to any Performance Units may occur, a Participant may elect, in accordance with procedures established by the Committee, to defer, as and to the extent hereinafter provided, the payment of the amount, if any, which shall be paid pursuant to Section 4.2. (b) All payments deferred pursuant to Section 4.4(a) shall be paid in one or more periodic installments, not in excess of ten, at such time or times after the applicable Award Valuation Date, but not later than ten years after such Award Valuation Date, as shall be specified in such Participant's election pursuant to Section 4.4(a). (c) In the case of payments deferred as provided in Section 4.4(a), the unpaid amounts shall, commencing with the applicable Award Valuation Date, accrue interest at a rate equal to the prime commercial lending rate announced from time to time by The Chase Manhattan Bank, N.A. (compounded quarterly) or by another major national bank headquartered in New York, New York and designated by the Committee. If subsequent to such Participant's election pursuant to Section 4.4(a) such Participant's Termination of Employment occurs for any reason other than death, Disability, retirement under the Company's retirement plan, or retirement with the consent of the Company outside the Company's retirement plan, the Committee may, in its sole discretion, pay to such Participant in a lump sum the aggregate amount of any payments so deferred, notwithstanding such election. Subject to the terms of the Plan and applicable law, the Committee may delegate to one or more officers or assistant officers of the Company its authority set forth in the immediately preceding sentence, subject to such terms and limitations as the Committee shall determine. SECTION 4.5. Anything contained in the Plan to the contrary notwithstanding: (a) The Committee may, in its sole discretion, suspend, permanently or for a specified period of time or until further determination by the Committee, the making of any part or all of the credits which would otherwise have been made to the Performance Award Accounts of all the Participants or to such Accounts of one or more Participants as shall be designated by the Committee. (b) Each Performance Unit and all other amounts credited to a Participant's Performance Award Account in respect of such Performance Unit shall be forfeited in the event of the Discharge for Cause of such Participant prior to the end of the Performance Period applicable to such Performance Unit. (c) Each Performance Unit and all other amounts credited to a Participant's Performance Award Account in respect of such Performance Unit shall, unless and to the extent that the Committee shall in its absolute discretion otherwise determine by reason of special mitigating circumstances, be forfeited in the event that such Participant's Termination of Employment shall occur for any reason other than death, Disability, retirement under the Company's retirement plan, or retirement with the consent of the Company outside the Company's retirement plan, at any time (except within two years after the date on which a Change in Control shall have occurred) prior to the end of the Performance Period applicable to such Performance Unit. (d) If any suspension is in effect pursuant to Section 4.5(a) on a date when a credit would otherwise have been made pursuant to Section 4.1, the amount which would have been credited but for such suspension shall be forfeited and no credits shall thereafter be made in lieu thereof. If the Committee shall so determine in its sole discretion, the amounts theretofore credited to any Performance Award Account or Accounts, other than any Performance Award Account of a Covered Officer, shall accrue interest, during the suspension period, at a rate equal to the prime commercial lending rate announced from time to time by The Chase Manhattan Bank, N.A. (compounded quarterly) or at such other rate and in such manner as shall be determined from time to time by the Committee. ARTICLE V GENERAL INFORMATION SECTION 5.1. If Net Income, Annual Earnings Per Share or Net Loss Per Share for any year shall have been affected by special factors (including material acquisitions or dispositions of property, or other unusual items) which in the Committee's judgment should or should not be taken into account, in whole or in part, in the equitable administration of the Plan, the Committee may, for any purpose of the Plan, adjust Net Income, Annual Earnings Per Share or Net Loss Per Share, as the case may be, for such year (and subsequent years as appropriate), or any combination of them, and make credits, payments and reductions accordingly under the Plan; provided, however, the Committee shall not have the authority to make any such adjustments to payments with respect to the Performance Awards of, or credits to the Performance Award Accounts of, any Participant who is at such time a Covered Officer if the effect of any such action would be to increase the amount that would be credited to or paid from such Performance Award Accounts. SECTION 5.2. The Committee shall for purposes of Articles III and IV make appropriate adjustments in the number of Performance Units which may be granted pursuant to Performance Awards and in the number of Performance Units which shall have been credited to Participants' accounts, in order to reflect any merger or consolidation to which the Company is a party or any stock dividend, split-up, combination or reclassification of the outstanding shares of Company Common Stock or any other relevant change in the capitalization of the Company. SECTION 5.3. A Participant may designate in writing a beneficiary (including the trustee or trustees of a trust) who shall upon the death of such Participant be entitled to receive all amounts which would have been payable hereunder to such Participant. A Participant may rescind or change any such designation at any time. Except as provided in this Section 5.3, none of the amounts which may be payable under the Plan may be assigned or transferred otherwise than by will or by the laws of descent and distribution. SECTION 5.4. All payments made pursuant to the Plan shall be subject to withholding in respect of income and other taxes required by law to be withheld, in accordance with procedures to be established by the Committee. SECTION 5.5. The selection of an individual for participation in the Plan shall not give such Participant any right to be retained in the employ of the Company or any Subsidiary, and the right of the Company or any such Subsidiary to dismiss or discharge any such Participant, or to terminate any arrangement pursuant to which any such Participant provides services to the Company, is specifically reserved. The benefits provided for Participants under the Plan shall be in addition to, and shall in no way preclude, other forms of compensation to or in respect of such Participants. SECTION 5.6. The Board of Directors and the Committee shall be entitled to rely on the advice of counsel and other experts, including the independent public accountants for the Company. No member of the Board of Directors or of the Committee or any officers of the Company or any Subsidiary shall be liable for any act or failure to act under the Plan, except in circumstances involving bad faith on the part of such member or officer. SECTION 5.7. Nothing contained in the Plan shall prevent the Company or any Subsidiary or affiliate of the Company from adopting or continuing in effect other compensation arrangements, which arrangements may be either generally applicable or applicable only in specific cases. ARTICLE VI AMENDMENT OR TERMINATION OF THE PLAN SECTION 6.1. The Board of Directors may at any time terminate the Plan, in whole or in part, or from time to time, subject to the stockholder approval requirements of Section 162(m), amend the Plan, provided that, except as otherwise provided in the Plan, no such amendment or termination shall adversely affect the amounts credited to the Performance Award Account of a Participant with respect to Performance Awards previously made to such Participant. In the event of such termination, in whole or in part, of the Plan, the Committee may in its sole discretion direct the payment to Participants of any amounts specified in Article IV and not theretofore paid out, prior to the respective dates upon which payments would otherwise be made hereunder to such Participants, and in a lump sum or installments as the Committee shall prescribe with respect to each such Participant. Notwithstanding the foregoing, any such payment to a Covered Officer must be discounted to reflect the present value of such payment using the rate specified in Section 4.4(c). The Board may at any time and from time to time delegate to the Committee any or all of its authority under this Article VI. ARTICLE VII DEFINITIONS SECTION 7.1. For the purposes of the Plan, the following terms shall have the meanings indicated: (a) Annual Earnings Per Share: With respect to any year, the result obtained by dividing (i) Net Income for such year by (ii) the average number of issued and outstanding shares (excluding treasury shares and shares held by any subsidiaries) of Class A Common Stock, par value $.10 per share, of the Company and Class B Common Stock, par value $.10 per share, of the Company during such year as reviewed by the Company's independent auditors. (b) Award Valuation Date: December 31 of the year in which the third anniversary of the grant of such Performance Award to a Participant shall occur or, if earlier, December 31 of the year in which such Participant's Termination of Employment shall occur, if such Termination of Employment occurs (i) within two years after a Change in Control or (ii) as a result of death, Disability, retirement under the Company's retirement plan or retirement with the consent of the Company outside the Company's retirement plan. (c) Board of Directors: The Board of Directors of the Company. (d) Change in Control: A Change in Control shall be deemed to have occurred if either (i) any person, or any two or more persons acting as a group, and all affiliates of such person or persons, shall acquire beneficial ownership of more than 20% of all classes and series of the Company's stock outstanding, taken as a whole, that has voting rights with respect to the election of directors of the Company (not including any series of preferred stock of the Company that has the right to elect directors only upon the failure of the Company to pay dividends) pursuant to a tender offer, exchange offer or series of purchases or other acquisitions, or any combination of those transactions, or (ii) there shall be a change in the composition of the Board of Directors of the Company at any time within two years after any tender offer, exchange offer, merger, consolidation, sale of assets or contested election, or any combination of those transactions (a "Transaction"), so that (A) the persons who were directors of the Company immediately before the first such Transaction cease to constitute a majority of the Board of Directors of the corporation which shall thereafter be in control of the companies that were parties to or otherwise involved in such first Transaction, or (B) the number of persons who shall thereafter be directors of such corporation shall be fewer than two-thirds of the number of directors of the Company immediately prior to such first Transaction. A Change in Control shall be deemed to take place upon the first to occur of the events specified in the foregoing clauses (i) and (ii). (e) Committee: The Committee designated pursuant to Section 2.1. Until otherwise determined by the Board of Directors, the Corporate Personnel Committee designated by such Board shall be the Committee under the Plan. (f) Company Common Stock: Class B Common Stock, par value $0.10 per share, of the Company and such other Company or subsidiary securities as may be designated from time to time by the Committee. (g) Covered Officer: At any date, (i) any individual who, with respect to the previous taxable year of the Company, was a "covered employee" of the Company within the meaning of Section 162(m); provided, however, the term "Covered Officer" shall not include any such individual who is designated by the Committee, in its discretion, at the time of any grant or at any subsequent time as reasonably expected not to be such a "covered employee" with respect to the current taxable year of the Company and (ii) any individual who is designated by the Committee, in its discretion, at the time of any grant or at any subsequent time as reasonably expected to be such a "covered employee" with respect to the current taxable year of the Company or with respect to the taxable year of the Company in which payment from any Performance Award Account of such individual will be made. (h) Disability: In the case of any Participant, disability which after the expiration of more than 26 weeks after its commencement is determined to be total and permanent by a physician selected by the Company and acceptable to such Participant or his legal representatives. (i) Discharge for Cause: Involuntary Termination of Employment as a result of dishonesty or similar misconduct directly related to the performance of duties for the Company or a Subsidiary. (j) Net Income: With respect to any year, the sum of (i) the net income (or net loss) of the Company and its consolidated subsidiaries for such year as reviewed by the Company's independent auditors and released by the Company to the public; plus (or minus) (ii) the minority interests' share in the net income (or net loss) of the Company's consolidated subsidiaries for such year as reviewed by the Company's independent auditors and released by the Company to the public; plus (or minus) (iii) the effect of changes in accounting principles of the Company and its consolidated subsidiaries for such year plus (or minus) the minority interests' share in such changes in accounting principles, as reviewed by the Company's independent auditors and released by the Company to the public. (k) Net Loss Carryforward: With respect to any Performance Units, (i) an amount equal to the Net Loss Per Share for any year in the applicable Performance Period times the number of such Performance Units then outstanding, reduced by (ii) any portion thereof which has been applied in any prior year as provided in Section 4.1. (l) Net Loss Per Share: The amount obtained when the calculation of Annual Earnings Per Share results in a number that is less than zero. (m) Participant: An individual who has been selected by the Committee to receive a Performance Award and in respect of whose Performance Award Account any amounts remain payable. (n) Performance Award: The grant of Performance Units by the Committee to a Participant pursuant to Section 3.1 or 3.4. (o) Performance Award Account: An account established for a Participant pursuant to Section 3.2. (p) Performance Period: With respect to any Performance Unit, the period beginning on January 1 of the year in which such Performance Unit was granted and ending on the Award Valuation Date for such Performance Unit. (q) Performance Unit: A unit covered by Performance Awards granted or subject to grant pursuant to Article III. (r) Section 162(m): Section 162(m) of the Internal Revenue Code of 1986, as amended, and the rules promulgated thereunder by the Internal Revenue Service. (s) Subsidiary: (i) Any corporation or other entity in which the Company possesses directly or indirectly equity interests representing at least 50% of the total ordinary voting power or at least 50% of the total value of all classes of equity interests of such corporation or other entity and (ii) any other entity in which the Company has a direct or indirect economic interest that is designated as a Subsidiary by the Committee. (t) Termination of Employment: The cessation of the rendering of services, such that a person would no longer be eligible to receive a Performance Award under Section 3.1 hereof, or a termination of employment or termination of officer position with the Company or a Subsidiary where the person continues to provide services under Section 3.1 (c) or (d) hereof. As approved by the stockholders on May 6, 1999 EX-10 3 November 30, 1999 Mr. J. Bennett Johnston, Jr. 1317 Merrie Ridge Road McLean, VA 22101 Dear Mr. Johnston: The purpose of this letter is to confirm the automatic renewal of your Consulting Agreement dated January 7, 1997. Your contract will renew for an additional one year period beginning January 1, 2000, and ending December 31, 2000. All other terms and conditions of the Agreement between you and FM Services shall remain the same. Please confirm that the foregoing correctly sets forth your understanding with respect to this matter by signing both originals of this letter and returning one to me. Very truly yours, Michael J. Arnold President AGREED TO AND ACCEPTED BY: ________________________________________ J. Bennett Johnston, Jr. DATE: ______________________________________ EX-10 4 Exhibit 10.32 August 4, 1999 Mr. Rene L. Latiolais 2305 Barton Creek Boulevard Villa 42, Box 3 Austin, TX 78735 Supplemental Agreement to Consulting Agreement Of January 25, 1999 Dear Rene: This Supplemental Agreement refers to the Consulting Agreement (The "Agreement") dated January 25, 1999, between you and FM Services Company (The "Company") with respect to consulting services you are to provide the Company and its subsidiaries and corporate affiliates. By way of this Supplemental Agreement, the Company would like to increase the consulting fee that the Company will pay to you to $530,000 per year, payable monthly in arrears in $44,166.66 amounts, effective August 1, 1999. All other terms and conditions of the Consulting Agreement shall remain unchanged. Please confirm that the foregoing correctly sets forth your understanding with respect to this matter by signing both originals of this Supplemental Agreement and returning one to me. Very truly yours, /s/Richard C. Adkerson AGREED TO AND ACCEPTED By: /s/ Rene L. Latiolais ___________________________________ Rene L. Latiolais Date: 8-5-99 __________________________________ EX-10 5 November 1, 1999 The Honorable Gabrielle K. McDonald 425 East 58th Street #31D New York, NY 10022-2300 Dear Judge McDonald: This letter will confirm the terms of your agreement (the "Agreement") with the undersigned FM Services Company ("FM Services"), with respect to your role as Special Counsel to the Chairman for Human Rights and to your performance of consulting services for FM Services and its subsidiaries and affiliates (collectively with FM Services, the "Freeport Entities"). The other Freeport Entities include, but are not limited to Freeport McMoRan Copper & Gold Inc. and P. T. Freeport Indonesia. 1. Term. The initial term of this Agreement shall commence effective November 1, 1999, and shall end on December 31, 2002; provided, however, that the term of this Agreement shall be automatically extended for additional terms of one calendar year each unless and until FM Services or you provides a written notice of termination to the other party ninety (90) or more days prior to December 31st of any calendar year. All references in this Agreement to its "term" shall be deemed to include this Agreement's initial term and any renewal terms. Termination of this Agreement shall not affect any obligations or liabilities which accrue prior to the effective date of the termination. 2. Scope of Consulting Services. During the term of this Agreement, you will render consulting services to FM Services and the other Freeport Entities, upon request, with respect to human rights and related matters and other matters in which you have expertise. You will personally perform all of the consulting services required under this Agreement, and you will not delegate to others the performance of such consulting services without FM Services' prior written consent. The executive officers of any Freeport Entity seeking your advice will, insofar as reasonably practicable, consider your convenience in the timing of their requests, and your failure or inability, by reason of temporary illness or other cause beyond your control or because of your absence for reasonable periods, to respond to such requests during any such temporary period shall not be deemed to constitute a default on your part in the performance of your consulting services under this Agreement. The consulting services under this Agreement shall not exceed 20% of your time on an annual basis. 3. Consulting Fee. In consideration for your consulting services, FM Services shall pay to you Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) per annum during this agreement's term, payable in quarterly installments of Sixty-Two Thousand Five Hundred and No/100 Dollars ($62,500.00) and a pro-rata amount for periods less than a calendar quarter. The first such installment shall be paid as soon as practicable after the execution of this agreement, and all subsequent installments shall be due and payable on or about the first day of each calendar quarter thereafter during the term of this Agreement. In the event that the services you provide to the Freeport Entities exceed 20% of your time within a given calendar quarter, the Company will compensate you for this time on a pro-rata basis. FM Services shall also reimburse you for, or advance to you, all reasonable out-of-pocket travel and other expenses incurred by you at the request of a Freeport Entity in connection with your performance of consulting services hereunder. Such expenses shall be reimbursed or advanced promptly after your submission to FM Services of expense statements in such reasonable detail as FM Services may require. The consulting fee due and paid under this Agreement shall include the annual director fee payable to all directors of Freeport-McMoRan Copper & Gold Inc. In addition to the previously referenced fee, Freeport-McMoRan Copper & Gold Inc. will separately pay you for attendance fees for board and committee meetings and provide you with stock options, travel expenses associated with board activities, and all other benefits offered to directors of Freeport-McMoRan Copper & Gold Inc. on the same terms and conditions as are offered to the other directors. 4. Nature of the Consulting Relationship. You will perform the consulting services required under this Agreement as an independent contractor to, and not as an agent or employee of, FM Services or any other Freeport Entity. Except as and to the extent that FM Services or another Freeport Entity, as the case may be, may otherwise prescribe in writing, you shall not have any authority to negotiate or to conclude any contracts on behalf of, or otherwise bind, FM Services or any other Freeport Entity. 5. Assisting Competitors. During the term of this Agreement, you will not, without the prior written consent of FM Services (a) render any services, whether or not for compensation, to other individuals, firms, corporations or entities in connection with any matter that you reasonably believe may involve material interests adverse to any Freeport Entity or (b) engage in any business or activity that you reasonably believe to be materially detrimental to the business or interests of any Freeport Entity. 6. Confidential Information. You shall hold in fiduciary capacity for the benefit of Freeport Entities all secret or confidential information, knowledge, or data (collectively, the "Confidential Information") relating to any Freeport Entity which you obtain during the term of this Agreement from a Freeport Entity or from a third party who obtained such Confidential Information from a Freeport Entity. Unless disclosure is required by law, you shall not, without the prior written consent of FM Services, at any time, whether or during or after the term of this Agreement, communicate or divulge any Confidential Information to anyone other than a Freeport Entity or those other persons or entities designated by FM Services. All records, files, drawings, documents, notes, and the like relating to the business or activities of any Freeport Entity which you shall prepare, use, or receive shall be and remain the sole property of FM Services, or such other Freeport Entity, as the case may be, and shall be returned upon FM Services' request. "Confidential Information" shall exclude information (a) known to you prior to your association with the Freeport Entities, (b) readily available in the public domain or (c) obtained from third parties who did not in turn, directly or indirectly, obtain such information from a Freeport Entity. 7. Miscellaneous. This Agreement is personal to you, and you shall not assign this Agreement without FM Services' prior written consent. This Agreement shall be governed by and construed in accordance with the laws of the State of Louisiana. This Agreement contains the entire understanding between the FM Services and yourself with respect to the subject matter hereof. This Agreement may not be amended, modified or extended other than by a written agreement executed by the parties hereto. Please confirm that the foregoing Agreement correctly sets forth the agreement between FM Services and yourself by signing and returning to FM Services one of the enclosed copies of this letter. Very truly yours, FM SERVICES COMPANY By:/s/Michael J. Arnold --------------------- I hereby confirm that the foregoing Agreement correctly sets forth the agreement between FM Services Company and myself. /s/Gabrielle K. McDonald - ----------------------------------- THE HONORABLE GABRIELLE K. MCDONALD Dated: November 5, 1999 EX-10 6 EXECUTION COPY ________________________________________________ CONCENTRATE PURCHASE AND SALES AGREEMENT BETWEEN P.T. FREEPORT INDONESIA COMPANY AND P.T. SMELTING CO. ________________________________________________ CONTRACT NO. 98-1 TABLE OF CONTENTS Page ARTICLE 1 3 Definitions and Interpretation 3 1.1 Definitions 3 1.2 Interpretation 3 ARTICLE 2 3 Product 3 2.1 Expected Analysis 3 2.2 Product Review 5 2.3 Non-Conforming Concentrates 6 (a) Excess Impurities 6 (1) First Ten Contract Years 6 (2) Subsequent Contract Years 7 (b) Adjustments to Smelting and Refining Charges Due to Copper, Gold and Silver Outside Specified Range 10 (c) Deviation of the Copper Content of the Concentrates 10 2.4 Shipping Code 12 2.5 Moisture 12 2.6 Title 12 2.7 Implied Warranty Disclaimer 12 ARTICLE 3 12 Quantity 12 3.1 Obligations to Purchase and Sell Contractual Tonnage and Initial Inventory Period Tonnage 12 3.2 Process for Determination of Contractual Tonnage Figure 13 A. The Rolling Five Year Concentrates Requirements Forecast and the One Year in Advance Forecasted Quantity Requirement 13 B. Annual Shipping Schedule Quantity 16 C. Contractual Tonnage Declarations 16 D. Contractual Tonnage Cap 17 3.3 Inventory Allowance 18 3.4 Buyer's Inability to Receive Concentrates 18 3.5 Seller's Inability to Deliver Concentrates 22 3.6 Additional Quantities 23 3.7 Contract Year to Contract Year Adjustments 23 (a) Advance Shipment 23 (b) Delayed Shipment 24 3.8 Seller's Qualified Right to Vary Quantity for Remainder of Year 24 3.9 Reduction of Contractual Tonnage due to Reduction of Seller's Ability to Produce 24 3.10 Adjustments Resulting From Quality-Related Reductions of the Contractual Tonnage Figure 25 3.11 Simplification of Determination of Contractual Tonnage Figure in the Event of Reduction of Contractual Tonnage 26 ARTICLE 4 26 Term and Termination 26 4.1 Term of Agreement; Conditions Precedent 26 4.2 Termination Prior to Mechanical Completion Due to Delay or Inactivity 27 ARTICLE 5 28 Delivery of Concentrates 28 5.1 Delivery CIF Port of Discharge 28 5.2 Discharging Berth 28 5.3 Rate of Discharge 28 5.4 Notice of Readiness 29 5.5 Lay Time 29 5.6 Demurrage and Dispatch 30 (a) Bulk Carriers 30 (b) Hopper Barges 30 (c) Payment 31 5.7 Vessel Characteristics 31 (a) Bulk Carriers 31 (b) Hopper Barges and SPV's 32 (c) Vessel Requirements of General Applicability 32 5.8 Overtime 32 5.9 Port Charges 33 5.10 Title and Risk of Loss 33 5.11 Alternate Port 33 5.12 Stevedore Damages 33 5.13 Jetty Damages 34 5.14 Use of Bulk Carrier's Discharging Gear 34 ARTICLE 6 34 Scheduling and Shipments 34 6.1 Initial Inventory Period 34 6.2 First Contract Year 34 6.3 Second Contract Year 35 6.4 Third Contract Year 36 6.5 Fourth and Subsequent Contract Years 37 6.6 General 38 6.7 Buyer's Shipping Instructions and Documentation, Vessel Information and Further Shipment Confirmation 38 ARTICLE 7 38 Insurance 38 7.1 Insured Value 39 7.2 Insurance Coverage 39 7.3 Claims 39 7.4 Insolvency Exclusion Clause 39 7.5 Seller's Assistance 39 7.6 War Risk Premiums 40 ARTICLE 8 40 Price 40 8.1 Payable Copper 40 8.2 Payable Gold 40 8.3 Payable Silver 40 8.4 Quotational Period 41 8.5 Determination of Price 41 8.6 Copper Price 41 8.7 Gold Price 41 8.8 Silver Price 41 8.9 Conversion to Dollars 41 8.10 Alternate Pricing 42 (a) Pricing Basis No Longer Published or No Longer Representative 42 (b) Interim Invoicing 42 (c) Referral to Referees 42 ARTICLE 9 43 Deductions for Smelting and Refining Charges and for Impurities 43 9.1 Smelting and Refining Charges for Part A Tonnage 43 (i) Initial Negotiation 43 (ii) Subsequent Negotiations 46 (iii) Agreements Required if Permanent Holiday Reduction Effected 48 9.2 Smelting and Refining Charges for Part B Tonnage 49 (i) Smelting Charge, Payable Copper Refining Charge and Price Participation Terms for Part B Tonnage 49 (a) Determination on Basis of Weighted Average of Eligible Reference Contracts 49 (b) Selection of Auditor 50 (c) Determination of Eligibility for Designated Reference Contracts 50 (d) Calculation of Weighted Average Figures for Each Party's Eligible Reference Contracts 53 (e) Calculation of Weighted Average Figures for the Ertsberg Concentrate Agreement and MMC Concentrate Agreement. 54 (f) The Auditor's Preliminary and Final Determinations 55 (g) Effect of Final Report and Retroactive Adjustment 56 (h) Interim Terms Governing the Period Prior to Final Report Issuance 56 (ii) Payable Gold and Payable Silver Refining Charges for Part B Tonnage 56 9.3 Minimum Smelting and Refining Charges; Possible Recoupment of Lost Revenues 57 9.4 Deductions for Impurities 58 9.5 Exclusive Remedy 59 9.6 General Provisions Applicable to Smelting and Refining Charges 59 9.7 Special Provisions Applicable to Concentrates with Copper, Gold and/or Silver Outside the Five-Year Expected Analysis 60 ARTICLE 10 61 Periodic Review of Commercial Terms 61 10.1 Provision Governing Part A Tonnage Smelting and Refining Charges and Minimum Smelting and Refining Charges 61 10.2 Periodic Review of Certain Commercial Terms 61 ARTICLE 11 62 Payments 62 11.1 Manner of Payment 62 11.2 Provisional Price 63 11.3 Provisional Payment 63 11.4 Final Payment 64 11.5 Final Price Determination in the Event of Loss 64 11.6 Interest 65 ARTICLE 12 65 Weighing, Sampling and Determination of Moisture 65 12.1 General Procedures 65 12.2 Determination of Dry Weight 66 12.3 Sample Lots 66 12.4 Number and Handling of Samples 66 12.5 Composite Samples 66 ARTICLE 13 66 Assay 66 13.1 Method for Determining Final Analysis. 66 13.2 Determination of Final Analysis if Shipment Diverted 67 13.3 Designation of Umpire 67 13.4 Determination of Final Analysis Using Umpire's Assay 67 13.5 Analysis of Composite Samples for Impurities 67 ARTICLE 14 68 Taxes 68 14.1 Value Added Tax 68 14.2 Payment of Value Added Tax 68 ARTICLE 15 68 Exemption from Liability and Obligation 68 ARTICLE 16 70 Relief from Economic Hardship 70 16.1 Consultation in the Event of Hardship 70 16.2 Limitations on Right to Request Consultation 70 ARTICLE 17 70 Notices 70 ARTICLE 18 71 Assignment 71 18.1 Binding Effect 71 18.2 Seller's Assignment to the Trustee 71 18.3 Buyer's Assignment to a Trustee 72 18.4 Other Assignments 72 ARTICLE 19 73 Referees 73 19.1 General 73 19.2 Selection of Referees 73 19.3 Proceedings 73 19.4 The Decision 74 ARTICLE 20 74 Arbitration 74 20.1 Amicable Settlement 74 20.2 Arbitration Rules 74 20.3 Arbitrators 75 20.4 Arbitration Award 75 20.5 Award to be Final and Conclusive 76 20.6 Performance of Obligations Pending Decision 76 20.7 Waiver of Right to Terminate Board of Arbitration 76 ARTICLE 21 76 Governing Law 76 ARTICLE 22 77 Force Majeure 77 22.1 Definition 77 22.2 Effect of Force Majeure 77 22.3 Parties to Use Reasonable Efforts 78 ARTICLE 23 79 Default 79 23.1 Events of Default 79 23.2 Notice of Default 79 23.3 Liability for Default 79 ARTICLE 24 79 Non-Waiver of Defaults 79 ARTICLE 25 80 Miscellaneous 80 25.1 Opinion of Buyer's Counsel 80 25.2 Opinion of Seller's Counsel 80 25.3 Entire Agreement 81 25.4 Counterparts 81 25.5 Headings 81 25.6 Publication of Articles 81 LIST OF APPENDICES Appendix "A" Definitions Appendix "B" Sample Calculation of MMC's Receipt of 13% Simple Return Appendix "C" Price Participation Weighted Average Calculation - Example Appendix "D" Price Participation - Weighted Average Base - Part B CONCENTRATE PURCHASE AND SALES AGREEMENT AGREEMENT, effective as of December 11, 1996 between P.T. FREEPORT INDONESIA COMPANY, an Indonesian limited liability company which is also domesticated in Delaware, U.S.A. ("Seller"), and P.T. SMELTING CO., an Indonesian limited liability company ("Buyer"). WHEREAS, Seller operates copper mines in Indonesia pursuant to the December 30, 1991 Contract of Work between Seller and the Government, and any subsequent modifications, supplements or amendments thereto (the "COW") which grants mining rights in a specified geographic area within the Province of Irian Jaya (the "Contract Area") to Seller until the year 2021 with two ten-year extension periods permitted under certain circumstances; WHEREAS, in furtherance of Seller's obligation under the COW to build, or cause to be built, a copper smelter and refinery in Indonesia under certain circumstances, Seller has, in concert with others and independently, studied the feasibility of the development, construction, ownership and operation of a 200,000 metric ton per annum copper smelter and refinery to be located at Gresik, East Java, Indonesia (the "Project"); WHEREAS, at a meeting between Freeport-McMoRan Copper & Gold Inc., a company organized and existing under the laws of Delaware, U.S.A. and the parent company of Seller ("FCX") and Mitsubishi Materials Corporation, a company organized and existing under the laws of Japan ("MMC") on September 19, 1994, FCX solicited MMC to construct, own and operate the Project with Seller and Fluor Daniel Wright Ltd., a company organized and existing under the laws of British Columbia, Canada ("FLUOR"), and thereafter FCX, Seller and MMC had several meetings to discuss the concept of a joint venture to proceed with the Project; WHEREAS, MMC, FCX and FLUOR, each having decided to participate in the Project subject to certain terms and conditions, executed an Agreement in Principle, dated as of January 6, 1995 (the "AIP"); WHEREAS, following execution of the AIP FCX assigned its interest thereunder to Seller and FLUOR assigned its interest thereunder to Fluor Daniel Engineers & Constructors, Ltd., a company organized and existing under the laws of the State of California ("FDEC"); WHEREAS, following execution of the AIP Seller, MMC and FDEC have executed a Project Planning Agreement, dated as of May 12, 1995 (the "Project Planning Agreement") which supersedes and replaces the AIP as to the subject matter of such Project Planning Agreement; WHEREAS, among other things, the Project Planning Agreement provides that the Project will be operated using only Concentrates as feed material and in this connection: (a) Seller is agreeable to selling a quantity of Concentrates equal to one hundred percent (100%) of the copper concentrates required by Buyer for the Project for so long as Seller's mining and milling activities shall be operating at an annual rate sufficient to produce such quantity of Concentrates, in respect of which Seller shall grant the first and exclusive priority to Buyer for the delivery of Concentrates produced by Seller; and (b) Subject to the required approval by the Government of Indonesia (which approval Seller shall seek to procure), Seller is agreeable to selling Concentrates to Buyer and Buyer is agreeable to buying Concentrates from Seller, on a basis which is fair, reasonable and reflective of then current market conditions, and which incorporates the terms and conditions specified in the Project Planning Agreement for this Agreement; WHEREAS, following execution of the Project Planning Agreement FDEC assigned its interest thereunder to Fluor Daniel Asia, Inc., a company organized and existing under the laws of the State of California ("FDA"); WHEREAS, in furtherance of the objectives set forth and agreed in the AIP and the Project Planning Agreement, MMC, Seller and FDA entered into a Joint Venture and Shareholders Agreement dated as of October 25, 1995 as amended by instrument dated May 24, 1996 (the "Shareholders Agreement"), which Shareholders Agreement provides, among other things, for the incorporation and management of P.T. Smelting Co. as an Indonesian limited liability company for the development, construction, ownership and operation of the Project, and which amendment provides, among other things, for the withdrawal of FDA from the Project; and WHEREAS, under the Project Planning Agreement and the Shareholders Agreement, the execution by Seller and Buyer of this Agreement is a condition precedent to the implementation and operation of the Project in accordance with those agreements; and Seller and Buyer desire to enter into this Agreement in order to satisfy that condition and proceed to implement the Project. NOW, THEREFORE, Seller agrees to sell and deliver, and Buyer agrees to purchase, pay for and accept delivery of, copper concentrates on the terms and conditions hereinafter set forth. ARTICLE 1 Definitions and Interpretation 1.1 Definitions. Unless the context otherwise requires, all capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in Appendix "A" hereto. 1.2 Interpretation. Unless the context otherwise requires, words importing the singular number shall include the plural and vice versa; the headings are for convenience only and shall not affect the construction hereof, and references herein to any enactment shall be deemed to include such enactment as reenacted, amended or extended. ARTICLE 2 Product 2.1 Expected Analysis. Seller expects that for the first five (5) Contract Years of the term of this Agreement the Concentrates will assay, as an average for each calendar month and Contract Year, on a dry basis, within the following ranges: Cu - 26% to 38% Au - 15 grams to 38 grams per DMT Ag - 35 grams to 90 grams per DMT Al - 0.5% to 1.7% As - 0.01% - 0.15% Bi - 0.002% - 0.02% Ca - 0.12855%-0.85% Co - less than 0.02% Cd - 0.002% - 0.01% Cl - 0.005% - 0.02% F - 0.005% - 0.035% Fe - 18% - 26% Hg - 0.1 - 0.6 g/t Mg - 0.1% - .3% Mo - 0.01% - 0.03% Ni - less than 0.005% Pb - 0.01% - 0.1% S - 26% - 36% Sb - 0.001% - 0.008% Se - .01% - 0.03% SiO2 - 3.0% - 10.0% Te - 0.001% - 0.02% Zn - 0.15% - 0.8% Seller expects that for the second five (5) Contract Years of the term of this Agreement the Concentrates will assay, as an average for each calendar month and Contract Year, on a dry basis, within the following ranges: Cu - 26% to 46% Au - 9 grams to 38 grams per DMT Ag - 35 grams to 200 grams per DMT Al - 0.3% to 1.7% As - 0.01% - 0.15% Bi - 0.002% - 0.05% Ca - 0.15%-4% Co - less than 0.020% Cd - 0.001% - 0.01% Cl - less than 0.02% F - 0.005% - 0.04% Fe - 13% - 27% Hg - not more than 1 ppm Mg - 0.1% - 1% Mo - 0.01% - 0.04% Ni - less than 0.008% Pb - 0.01% - 0.3% S - 25% - 36% Sb - 0.001% - 0.005% Se - .02% - 0.05% SiO2 - 2.0% - 12.0% Te - 0.001% - 0.02% Zn - 0.15% - 2.0% Seller expects that the Concentrates will be free from deleterious impurities that would prevent the Concentrates from being treated with processes normally and customarily employed by major copper smelters. As Seller acquires additional knowledge or information regarding the chemical and physical characteristics of (or expected for) the Concentrates, Seller shall make such knowledge available to Buyer as soon as possible. 2.2 Product Review. Seller shall inform Buyer by October 1 of each year (commencing with October 1 of the second calendar year preceding the estimated commencement of the first Contract Year) of the expected approximate analysis of copper (which expected approximate analysis of copper shall constitute the Annual Budgeted Copper Grade), gold, silver, alumina (Al x 1.8889), iron, sulphur, arsenic, bismuth, antimony, chlorine, lead, zinc, nickel plus cobalt, fluorine and mercury for the Concentrates to be delivered in the first succeeding Contract Year, plus a preliminary estimated analysis of such elements or compounds for the succeeding four (4) Contract Years (the "Preliminary Estimated Analysis"). Seller shall also inform Buyer at least 30 days prior to the date of the meeting which is held every five (5) years in accordance with the provisions of Article 10 to review certain commercial terms, of the chemical analysis of the Concentrates (including all of the same elements listed in the analysis recited in Section 2.1) which Seller expects the Concentrates will assay on a dry basis for the ensuing five (5) Contract Years of the term of this Agreement (each such analysis, as well as the analysis for the first five (5) Contract Years set forth in Section 2.01, is hereinafter referred to as a "Five-Year Expected Analysis"). Such estimates shall be based on the geological and engineering information and data available to Seller at the time of the production of such estimates, and shall be as accurate as is reasonably practicable. In the event Buyer desires additional information to clarify or better understand the annual estimate which has been produced (or any other estimate provided under Sections 2.1 or 2.2), upon request by Buyer, Seller will make available to Buyer's technical representatives in Seller's offices on a strictly confidential basis all data and information reasonably requested by Buyer and shall meet with Buyer's representatives to provide such explanations or clarifications as Buyer's representatives may desire (again, on a strictly confidential basis). Due to the proprietary or confidential nature of such data and information, Buyer may copy and retain such data or information only with Seller's prior approval, and Buyer shall not disclose it to third parties except as required by law or for purposes of evaluation by Buyer's consultants or by a representative of any lenders to Buyer in connection with the financing of the Project, who have a need to have access to such information and who shall agree in writing to maintain the confidentiality of such data and information. If during the period following Seller's production of its annual estimate for one year and prior to its production of its estimate for the following year Seller develops or obtains knowledge or information which significantly differs from Seller's current estimate for the current year, Seller shall furnish Buyer as soon as practicable with its revised estimate. 2.3 Non-Conforming Concentrates. (a) Excess Impurities. (1) First Ten Contract Years. In the event that the Concentrates delivered hereunder shall at any time during the first ten (10) Contract Years: (i) have levels of impurities in excess of the applicable range specified in Section 2.1 (i.e. either the specified range applicable to the first five (5) Contract Years or the specified range applicable to the second five (5) Contract Years) for which the deductions specified in Section 9.4 do not appropriately compensate Buyer, and (ii) such Concentrates cannot be economically or practically treated at the then existing Facilities because of the presence of deleterious elements in harmful quantities (it being understood that condition (ii) may result from impurities which have a material adverse effect on the quality of copper cathodes or by-products produced by the Facilities or from other physical and/or chemical characteristics of the Concentrates that materially adversely affect processing by the Facilities), then Buyer shall specify such objections with particularity to Seller and Buyer and Seller shall seek in good faith to negotiate an appropriate remedy for any significant Financial Disadvantage and technical disadvantage which Buyer may suffer, it being understood that Buyer has a duty to mitigate its damages. If Buyer and Seller cannot agree on a way to resolve Buyer's objections within 45 days after Buyer shall have specified its objections to Seller pursuant to this Section 2.3, Buyer or Seller may, at its option, exercisable by written notice to the other party, refer the matter to the referee(s) as provided in Article 19 for the following purposes: (a) if in dispute, a determination of whether the conditions specified in clause (i) and clause (ii) of this Section exist, and, if both of such conditions exist or are determined to exist, (b) a determination of the appropriate remedy to compensate Buyer for the Financial Disadvantage resulting from such conditions, which have not been and will not be compensated to Buyer pursuant to the other provisions of this Agreement (including the penalties to which Seller may be subject), and taking into account the mitigating measures which Buyer may implement at a reasonable cost and without undue interruption of its smelter operations (the costs of mitigating measures to be calculated as part of Buyer's Financial Disadvantage to the extent that such costs are necessary and appropriate). Such appropriate remedy may include (i) that Seller can substitute concentrates originating from other mines (whether Seller's or a third party's) for Concentrates produced by Seller, or (ii) the revision of the penalty schedule for impurities, or (iii) a revision to the smelting and refining charges then in effect, or (iv) any other appropriate remedy. Any adjustments or remedies which have been mutually agreed (or determined by referee(s)) shall be taken into account when the Commercial Terms for the following Contract Years are determined at the time of each five year review of Commercial Terms so that the price to be paid to Seller will not be reduced twice (first, in reaching a remedy for non-conforming Concentrates, and second, when the Commercial Terms for subsequent Contract Years are determined). (2) Subsequent Contract Years. Following the tenth Contract Year Seller will deliver to Buyer hereunder whatever quality of Concentrates Seller produces from its then existing mining and concentration facilities, subject to the condition that Seller will not ship to Buyer any worse quality Concentrates (with normal, reasonable variations permitted) than it ships to Seller's other significant customers (i.e. customers purchasing from Seller a quantity of 30,000 DMT's or more per year of copper concentrates) during the year in question. Upon the request of Buyer, which shall not be made more frequently than once per calendar year commencing with the year in which the eleventh Contract Year commences, Buyer and Seller shall select a mutually agreed upon independent accounting firm, whose costs shall be paid by Buyer, and Seller shall disclose to such independent accounting firm on Seller's premises on a confidential basis appropriate data and information to enable such firm to verify to Buyer whether or not Seller is in compliance with the above condition. If Seller is determined to not be in compliance with this obligation at any time, Seller shall take such measures as are necessary to correct such situation and reimburse Buyer for all of the relevant costs of the accounting firm which have been paid by Buyer. Notwithstanding anything to the contrary recited in the foregoing language of this Section 2.3(a)(2), if at any time during this period Buyer is of the good faith belief that the Concentrates delivered by Seller hereunder cannot be economically or practically treated at the then existing Facilities because of the presence of deleterious elements in harmful quantities Buyer shall so notify Seller. The above described condition may result from impurities which have a material adverse effect on the quality of copper cathodes or by-products produced by the Facilities or from other physical and/or chemical characteristics that materially adversely affect processing by the Facilities. In the event of such notification by Buyer, Buyer and Seller shall immediately consider and discuss possible solutions to such condition, and each of Buyer and Seller shall promptly take such actions as it determines to be appropriate to help alleviate the condition, and notify the other party of the actions, if any, which it is taking. If following the timely implementation of the measures which each party has decided to take to help alleviate such condition, Buyer remains of the good faith belief that the condition which Buyer has provided notice of to Seller is continuing to exist and that such condition constitutes the condition which is described above, namely that the Concentrates delivered by Seller hereunder cannot be economically or practically treated at the then existing Facilities because of the presence of deleterious elements in harmful quantities, then Buyer may either continue to purchase, pay for and accept delivery of the Contractual Tonnage of Concentrates but with no Financial Disadvantage payment by Seller, or exercise a right and option which Buyer may exercise at any time during the continuance of such condition to reduce the Contractual Tonnage hereunder up to a maximum Contractual Tonnage reduction equal to the quantity of copper concentrates which is reasonably necessary for Buyer to purchase from other sources in order for Buyer to be able to treat in an economical or practical manner Seller's Concentrates together with the copper concentrates which Buyer shall purchase from third parties. In order to exercise such right and option, Buyer shall provide written notice to Seller of its good faith determination that the above specified condition exists together with a statement of the quantity reduction of the Contractual Tonnage which Buyer has elected to put into effect. Such written notice shall also be accompanied by written evidence which reasonably demonstrates: (x) the basis for Buyer's determination that Seller's Concentrates cannot be economically or practically treated and (y) the basis for Buyer's determination that the amount of the reduction does not exceed the maximum allowable reduction as described above. Buyer shall consult with Seller with respect to the timing of any such reduction and use all reasonable efforts to implement such reduction in a manner which minimizes the disruption of Buyer's and Seller's operations. Any such reduction shall cease at such time as is mutually agreed or, absent mutual agreement, at such time as all of the following have occurred: (i) the condition which gave rise to the reduction no longer exists and Seller has notified Buyer of such fact, (ii) Seller or Buyer has provided notice to the other party hereto of the effective date for the resumption of delivery of the previously reduced quantities which date must be at least three years following the notice date, (iii) the period recited in such notice has expired, and (iv) at the expiration of such period, the condition which gave rise to the reduction no longer exists. Subject to the four (4) foregoing conditions (particularly the minimum three year advance notice), if both Buyer and Seller provide a notice in accordance with condition (ii) having different effective dates, an earlier effective resumption date shall take precedence over a later effective resumption date. Neither Seller nor Buyer shall have any obligation to retroactively make-up any such portion of the quantities of reduced Contractual Tonnage. Seller reserves the right to contest the basis for and/or the amount of the reduction of Contractual Tonnage pursuant to this subsection on the grounds that such reduction does not conform to the provisions of this subsection of this Agreement. If Seller objects to any such reduction on this basis, Seller shall promptly notify Buyer of Seller's objection(s) and the basis(es) for such objection(s), and Buyer and Seller shall then use their best efforts to resolve any such differences amicably. If such an amicable resolution is not agreed upon within thirty (30) days following notice by Seller of its objection, the dispute shall be conclusively settled by the referee(s) under Article 19 of this Agreement. Pending such settlement by the referee(s), Buyer may request, and Seller will not unreasonably deny suspension of shipments of Concentrates hereunder. (b) Adjustments to Smelting and Refining Charges Due to Copper, Gold and Silver Outside Specified Range. In addition to the foregoing language regarding the consequences of excess levels of impurities in the Concentrates, Section 9.7 of this Agreement sets forth certain adjustments to the smelting and refining charges which will be made in the event the content of copper, gold or silver in delivered Concentrates is outside the range of the then current Five-Year Expected Analysis. (c) Deviation of the Copper Content of the Concentrates. If the average analysis of copper contained in the total quantity of Concentrates delivered hereunder with respect to any calendar month is not within a 5.0% variance of 31.0% (i.e. 29.45% to 32.55%) at any time during the first five (5) Contract Years, is not within a 7.5% variance of 31.0% (i.e. 28.675% to 33.325%) at any time during the second five (5) Contract Years, or is not within a mutually agreed upon percentage variance of 31.0% at any time thereafter during the term of this Agreement (which percentage figure shall be mutually agreed upon by Buyer and Seller prior to the end of the tenth Contract Year to directly reflect the percentage copper grade variance from 31.0% within which the Facilities are capable of producing 200,000 metric tons per annum of copper cathodes or, failing mutual agreement, such percentage variation shall be decided by the referee(s) under Article 19), then Buyer shall have the right and option but not the obligation to change the Port of Discharge from Gresik to one or more of the Approved Japanese Ports for the quantity of Concentrates specified below which exceed the applicable above specified copper content variance (i.e. above the upper limit or below the lower limit), and any additional freight costs for delivery of such Concentrates to any such Approved Japanese Port shall be for Seller's account. For any such shipments which are shipped to an Approved Japanese Port in accordance with the provisions of this paragraph, such Approved Japanese Port to which such Concentrates are shipped shall be considered to be the Port of Discharge for all purposes hereunder and Seller shall invoice Buyer for the same amount and in the same manner as if such shipment had been made to Gresik, with the exception that Buyer will take all such actions as are necessary to assure that: (i) the purchaser or recipient of the Concentrates in Japan will not obtain any economic benefits of the Floor TC's and RC's provided for in Section 9.3 of this Agreement, and (ii) the Floor TC's and RC's will be accounted for in such a manner so as to preserve the economic benefits thereof exclusively to Buyer and Seller as provided for in Section 9.3 of this Agreement. Buyer shall assure that all switched sales or product exchanges of Concentrates to Approved Japanese Ports shall be in accordance with generally accepted international business practices and on competitive world market terms and conditions at the time of sale or contract, and Buyer shall provide to Seller either a summary of all significant commercial terms and conditions governing such sales or a copy of the concentrate sales agreement governing each such sale, to evidence its compliance with such obligation to Seller. In the event the Government of Indonesia requests additional information regarding any such switched sale, Buyer shall provide such information with a copy to Seller. Seller shall have the right, which right may not be exercised more frequently than once per calendar year, to retain a mutually acceptable independent accounting firm to be compensated solely by Seller, to audit Buyer's records of such switched sales or product exchanges to verify to Seller whether or not Buyer is in compliance with its undertakings hereunder with respect to such sales or exchanges. The maximum quantity of Concentrates which Buyer may switch from Gresik to an Approved Japanese Port shall not exceed the quantity of Concentrates which are necessary to enable Buyer through purchases of copper concentrates from third parties to bring the percentage copper content of the average feed stock of copper concentrates at the Facilities within the then applicable above specified percentage variance of 31.0%, except that the switched quantities may be rounded to the nearest shipping size configuration. Prior to implementing the switching of the delivery of any shipment(s) of Concentrates from Gresik to an Approved Japanese Port, Buyer and Seller shall consult with each other in good faith and mutually agree upon a shipping schedule for such switched shipment(s) which takes into account the operational requirements of both Seller and Buyer. The minimum cargo size for any cargo delivered to an Approved Japanese Port shall be approximately 10,000 DMT's and Seller reserves the right to combine switched shipments with Seller's other shipments to Japan. In the event that the conditions which permit Buyer to switch Concentrates from Gresik to an Approved Japanese Port exist or are threatened, Seller reserves the right to ship to Buyer hereunder Concentrates produced from Seller's mines and processing facilities which exceed the permissible percentage variance at the opposite end of the range from the analysis of the Concentrates which are creating or threatening to create such conditions, in order that Seller may reduce or eliminate the quantity of Concentrates which need to be switched under this Section 2.3(c). In the event the copper content of the Concentrates exceeds the variances specified above and Buyer is unable to switch such Concentrates to an Approved Japanese Port, Buyer shall take deliveries of such Concentrates at Gresik. 2.4 Shipping Code. The Concentrates will be suitable for ocean transportation in bulk in accordance with the International Maritime Organization (IMO) Code and the relevant regulation applicable to Concentrates in Indonesia (if any). 2.5 Moisture. The moisture content of the Concentrates at the Port of Loading shall be equal to or more than 6% and less than 9%. 2.6 Title. Seller warrants that it will convey to Buyer good and marketable title to the Concentrates sold hereunder. Seller warrants that the Concentrates will be free of all liens, security interests and other encumbrances at the time title passes to Buyer. 2.7 Implied Warranty Disclaimer. IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND OF MERCHANTABILITY ARE HEREBY DISCLAIMED. ARTICLE 3 Quantity 3.1 Obligations to Purchase and Sell Contractual Tonnage and Initial Inventory Period Tonnage. Except as otherwise specifically provided in this Agreement, Seller agrees to sell and deliver on a first and exclusive priority basis (which basis shall not imply any additional obligations of Seller other than as expressly set out in this Agreement), and Buyer agrees to purchase, pay for and accept delivery of, the Contractual Tonnage of Concentrates in each Contract Year. Except as otherwise provided in this Agreement, the Contractual Tonnage shall be produced from Seller's mines in the Contract Area from time to time. For purposes of determining the Contractual Tonnage for each Contract Year of the term of this Agreement, Seller and Buyer recognize that certain preliminary steps must be taken to facilitate such determination and, accordingly, each of Buyer and Seller shall fully cooperate to assure that such steps are properly taken and shall provide all notices, information and documents called for in this Agreement (including but not limited to the provision of the information necessary to give meaning to the relevant defined terms including Annual Budgeted Copper Grade, Rolling Five Year Concentrates Requirements Forecast, One Year in Advance Forecasted Quantity Requirement, Annual Shipping Schedule Quantity and Contractual Tonnage). Seller also agrees to sell and deliver, and Buyer agrees to purchase, pay for and accept delivery of, during the Initial Inventory Period, a certain quantity of Concentrates which Buyer shall specify to Seller in writing on or before January 1, 1997. Unless otherwise mutually agreed, such quantity shall not exceed 30,000 DMT's. 3.2 Process for Determination of Contractual Tonnage Figure. The steps which Buyer and Seller shall comply with in order to determine the number of tons of Concentrates which shall constitute the Contractual Tonnage for each Contract Year are as follows: A. The Rolling Five Year Concentrates Requirements Forecast and the One Year in Advance Forecasted Quantity Requirement. Utilizing the Annual Budgeted Copper Grade and the Preliminary Estimated Analysis for copper which are furnished by Seller to Buyer on or before October 1 of each year in accordance with the provisions of Section 2.2, Buyer shall prepare and furnish to Seller on or before November 1 of each year (commencing with November 1 of the second calendar year preceding the expected commencement of the first Contract Year) with a Rolling Five Year Concentrates Requirements Forecast reflecting Buyer's forecast of the Concentrates requirements of the Project for the production of copper anode for the five (5) ensuing 12 month periods starting from the estimated commencement of the first Contract Year (which shall be changed to five (5) Contract Years immediately following the occurrence of the Mechanical Completion date). Because the first twelve month period of the first such Forecast covers a period of time prior to the commencement of production, no figures are necessary for such 12 month period. Based on the information available to Buyer as of the date of execution of this Agreement, Buyer's preliminary first Rolling Five Year Concentrates Requirements Forecast is as follows: ROLLING FIVE YEAR CONCENTRATES REQUIREMENTS FORECAST MAJOR ASSUMPTIONS: Assumed Date of Commencement of First Contract Year: December 1, 1998 % Cu in conc/(1) 31.0% Production Rate % Cu in anode 99.4% 1st year 75.0% of nominal year (2) Smelter Cu recovery rate 98.5% 2nd year 90.0% of nominal year 3rd+ year 100.0% FORECAST: Projected Smelter Concen- 12 Month Furnace Copper Ope. Smelter trates Smelter Cu Periods Repair Grade Days On-Line Smelted(5) Output(3) - -------- ------------ --------- ------- ------- ---------- ---------- 1 Boiler inspection 31.0%(1) 350 69.0% 498,858 152,326 2 Boiler inspection 31.0%(4) 350 82.8% 598,629 182,791 3 Minor repair 31.0%(4) 345 92% 655,642 200,200 4 Boiler inspection 31.0%(4) 350 92% 665,144 203,102 5 Boiler inspection 31.0%(4) 350 92% 665,144 203,102 (1) Means estimated Annual Budgeted Copper Grade (2) 65% 1st half and 85% 2nd half (3) Means contained copper in anode, and shall not exceed 205,000 metric tons (4) Means projected copper grade (5) For clarification this figure is derived as follows: Smelter Cu output + Projected Cu Grade + Smelter Cu Recovery Rate Each Rolling Five Year Concentrates Requirements Forecast provided by Buyer shall contain all of the assumptions and forecasted items recited above, and each such item shall reflect Buyer's diligent, good faith estimate based on the information which is available to it at the time such Forecast is issued. The figure recited in each such Forecast (excluding the above preliminary Forecast) under the "Concentrates Smelted" column for the 2nd twelve month period (or Contract Year, whichever is applicable) shall represent Buyer's best estimate of the quantity of Concentrates which the Facilities will require during such 12 month period (or Contract Year, whichever is applicable), and shall constitute and be referred to herein as the "One Year in Advance Forecasted Quantity Requirement". B. Annual Shipping Schedule Quantity. On or before November 1 of the calendar year preceding the year in which each Contract Year begins Buyer shall furnish to Seller written notice of the Annual Shipping Schedule Quantity which shall be its best estimate of the total quantity of Concentrates which Buyer requires for the production of copper anodes during such Contract Year. However, such Annual Shipping Schedule Quantity may not exceed 105% nor be less than 90% of the DMT quantity of Concentrates which constituted the One Year in Advance Forecasted Quantity Requirement for such Contract Year. Notwithstanding the above recited limitations on the maximum percentage variances from the One Year in Advance Forecasted Quantity Requirement, if the Annual Budgeted Copper Grade provided by Seller on or before October 1 one month prior to the due date of Buyer's notice to Seller of the Annual Shipping Schedule Quantity varies by more than one percent (1%) contained copper from the projected copper grade which was utilized by Buyer in preparing the Rolling Five Year Concentrates Requirements Forecast containing the One Year in Advance Forecasted Quantity Requirement for such Contract Year (e.g. 31% versus 29.9%), then Buyer may in calculating such Annual Shipping Schedule Quantity exceed such maximum percentage variations in order to offset such change in the estimated copper grade. C. Contractual Tonnage Declarations. The Contractual Tonnage quantity for each Contract Year shall be that certain quantity of Concentrates declared by Buyer in accordance with the provisions of this Section 3.2 which must be a quantity which is between 90% and 100% of the Annual Shipping Schedule Quantity, except that: (i) with respect to the first six months of the first Contract Year Buyer shall be obligated to purchase a quantity of Concentrates which is between 85% and 110% of the total quantity designated by Buyer for delivery during the first six months of the first Contract Year in Buyer's preliminary monthly shipping schedule under Section 6.2, (ii) with respect to the second six months of the first Contract Year Buyer shall be obligated to purchase a quantity of Concentrates which is between 90% and 110% of the total quantity designated by Buyer for delivery during the second six months of the first Contract Year in Buyer's preliminary monthly shipping schedule under Section 6.2, and (iii) with respect to the second Contract Year the Contractual Tonnage quantity must be a quantity which is between 90% and 105% of the Annual Shipping Schedule Quantity. The Annual Shipping Schedule Quantity shall be subject to adjustment as provided in Section 3.3 to take into account the Inventory Allowance which Buyer may elect to utilize. With respect to the first Contract Year, such Contractual Tonnage shall be declared by Buyer not later than 30 days prior to the beginning of the 12th month of the first Contract Year. With respect to the second Contract Year such Contractual Tonnage shall be declared by Buyer no later than 30 days prior to the beginning of the 10th month of the second Contract Year. With respect to the third Contract Year such Contractual Tonnage shall be declared by Buyer no later than the mid-point day of the third Contract Year. With respect to the fourth Contract Year and each succeeding Contract Year such Contractual Tonnage shall be declared by Buyer no later than July 1 within and for the fourth Contract Year and within and for each succeeding Contract Year. Notwithstanding anything to the contrary recited in this Agreement, the Contractual Tonnage for each Contract Year shall be modified to the extent that the provisions of Section 3.9 (Reduction of Contractual Tonnage due to Reduction in Seller's Ability to Produce), Section 7.6 (War Risk Premiums) and Articles 15 (Exemption from Liability and Obligation) and 22 (Force Majeure) become applicable. D. Contractual Tonnage Cap. Notwithstanding anything to the contrary recited in this Agreement (except Section 3.7), in no event shall the Contractual Tonnage of Concentrates for any Contract Year exceed the quantity of Concentrates required for the Facilities to produce 205,000 metric tons of copper anodes during such Contract Year or such proportionately lesser amount in the case of the third Contract Year, unless otherwise mutually agreed, and no notice, declaration or forecast provided under this Article 3 (including the Rolling Five Year Concentrates Requirements Forecast, the One Year in Advance Forecasted Quantity Requirement, the Annual Shipping Schedule Quantity and the Contractual Tonnage declaration figures) shall reflect any quantities exceeding such tonnage cap, unless otherwise mutually agreed. 3.3 Inventory Allowance. In order to assist Buyer in controlling the levels of supplies of Concentrates in inventory beginning with the second Contract Year and continuing each Contract Year thereafter, an Inventory Allowance is established. Within 30 days following the beginning of the third Contract Year and within 30 days following the beginning of each Contract Year thereafter Buyer shall have the right to declare any quantity of Concentrates between -20,000 DMT's and +30,000 DMT's as the Inventory Allowance quantity; provided, however, such Inventory Allowance quantity figure shall be reduced for the third Contract Year by a fraction thereof the numerator of which is 365 minus the number of days in such third Contract Year and the denominator of which is 365. The effect of declaring an Inventory Allowance quantity is that the Annual Shipping Schedule Quantity for each year in which such declaration is made shall be automatically increased or reduced by the quantity of the positive or negative Inventory Allowance, respectively. Buyer shall submit to Seller at the time that it submits its Inventory Allowance declaration to Seller an adjusted annual shipping schedule. The changes to the shipping schedule resulting from such declaration shall be allowable notwithstanding any other shipping schedule limitations. 3.4 Buyer's Inability to Receive Concentrates. Buyer shall use its best efforts to consume or hold in inventory at the Facilities all quantities of Concentrates which Buyer is obligated to purchase from Seller hereunder. If, notwithstanding such efforts, Buyer determines that it will not be able to use or store at the Facilities the full quantity of Concentrates which it is obligated to purchase pursuant to this Agreement during a Contract Year, Buyer shall so notify Seller as early as possible and furnish Seller with Buyer's best estimate of the quantity of Concentrates which it will be unable to receive. In such event Buyer and Seller shall discuss alternative solutions which will minimize adverse impacts on both parties to the extent feasible. Without in any way eliminating the possibility of alternative solutions which may be mutually agreed upon by Buyer and Seller, Buyer and Seller agree to discuss and implement the following solutions as expeditiously as possible: (i) Seller shall temporarily store such Concentrates in its inventory in Irian Jaya until other measures can be arranged to the extent such storage is technically and economically feasible in the good faith opinion of Seller; (ii) Seller shall utilize all reasonable efforts to rearrange its existing shipping schedules with Buyer and with Seller's other customers (including MMC) pursuant to the then existing concentrate sales agreements with such customers, and to reach mutual agreement with Buyer on an alternative shipping schedule with respect to such tonnage; (iii) Buyer shall cause MMC to use its best efforts to purchase such Concentrates for processing only at its smelting facilities at Naoshima and/or Onahama through one or more concentrate sales agreement(s) entered into between MMC and Buyer, in accordance with terms mutually agreed upon between Seller and MMC at the time the sale is made, but which terms shall in any event generally conform to the terms and conditions then currently prevailing in the spot market for the sale of copper concentrates, with Seller making shipping arrangements and, to the extent that Floor TC's and RC's would be applicable if such Concentrates were delivered to the Facilities, such Floor TC's and RC's will remain payable to Buyer on such quantities of Concentrates sold to MMC by Buyer. Except as expressly provided in this subparagraph (iii) and in Section 2.3(c), Buyer shall not, without Seller's prior written consent, sell or export any Concentrates covered by this Agreement. Any quantities of Concentrates sold to MMC in accordance with the provisions of this subparagraph (iii) shall be credited toward satisfaction of Buyer's Contractual Tonnage purchase obligation; and (iv) Seller shall use its best efforts to sell such Concentrates to third parties on the most favorable terms and conditions for Buyer reasonably obtainable by Seller at the time such sale is entered into. In this situation Seller and Buyer shall consult with each other on a continuous basis regarding concentrate sales opportunities which are available, and Seller shall provide to Buyer such facts as may be reasonably requested by Buyer with respect to the terms and conditions of any contemplated sale which may result in Buyer making a reimbursement payment to Seller in accordance with the following language of this subparagraph (iv), including any offers, counteroffers and/or rejections Seller obtains with respect to such contemplated sales, and shall provide Buyer with a reasonable opportunity to make comments and suggestions on such proposed terms and conditions before concluding any such sale. Seller shall be fully reimbursed by Buyer within 15 days following receipt of Seller's invoice (including appropriate supporting documentation) for any additional costs of such sales on a netback to the discharge port basis (limited to differences in smelting and refining charges, differences in penalty deducts, differences in price participation and differences in payable metals percentages) compared with the sale of Concentrates hereunder had they been delivered to Buyer at the Facilities. Any profits from such sale, calculated on a netback to the discharge port basis, shall be for Seller's account. The Floor TC's and RC's applicable hereunder shall not be applicable to any such sales to third parties. Any quantities of Concentrates sold by Seller to third parties in accordance with the provisions of this subparagraph (iv) shall be credited toward satisfaction of Buyer's Contractual Tonnage purchase obligation. If such Concentrates have not been taken by Buyer at the Facilities or at an approved Japanese Port if authorized in accordance with Section 2.3(c), or sold by Buyer to MMC or by Seller to a third party following efforts to implement the above measures (i) through (iv) and Seller requires that such quantity be shipped, Seller will relocate such Concentrates to a mutually agreed upon alternative storage site and Buyer will fully reimburse Seller for all costs and expenses and hold harmless and indemnify Seller for all liabilities associated with such relocation and storage of such Concentrates (including but not limited to freight, insurance and warehousing costs). In addition, Buyer shall pay Seller interest on the fair market value of such Concentrates (which shall, for purposes of calculating interest under this paragraph, be determined on a per ton basis using the purchase price paid by Buyer hereunder for the shipment to Gresik which immediately preceded the shipment to alternative storage) beginning 90 days following the end of the Contract Year in which Buyer was obligated to purchase such Concentrates and ending on the date of re-shipment from storage in the case of the sale of such Concentrates to a third party or the date payment is due by Buyer in all other cases. The rate of interest shall be as set forth in the following paragraph of this Section 3.4. In the event of such alternative storage, Seller will continue to use its best efforts to sell such Concentrates to third parties on the most favorable terms and conditions reasonably obtainable consistent with subparagraph (iv) above. Except for interest on the quantities of Concentrates shipped to alternative storage which shall be governed by the immediately preceding paragraph of this Section 3.4, Buyer shall pay Seller interest on the amount due for any quantity of Concentrates constituting the Contractual Tonnage which is not shipped to Buyer or to a third party by December 31 of a Contract Year due to Buyer's inability to receive Concentrates. Such interest shall be paid by Buyer when payment is made to Seller for such quantity, either by Buyer or by a third party purchaser of such Concentrates. Such interest shall be calculated on a per ton basis for the total number of tons involved using the purchase price per ton paid by Buyer hereunder for the final shipment of Concentrates to the Gresik smelter during the immediately preceding Contract Year. Such interest shall accrue beginning 90 days from the end of the Contract Year in which Buyer was obligated to purchase such Concentrates and ending on the date payment is due. The rate of interest shall be the published prime commercial lending rate of The Chase Manhattan Bank (National Association) or its successor for loans in New York in effect from time to time (such rate to be adjusted simultaneously with each change in such prime commercial lending rate) and calculated on the basis of a 365-day year. Notwithstanding anything to the contrary recited in this Section 3.4, any quantity of Concentrates which Buyer is obligated to purchase during any Contract Year which is not shipped to Buyer at Gresik or contractually committed for shipment to a third party purchaser in accordance with the provisions of this Section 3.4 by the end of the third month following the end of such Contract Year shall be paid for by Buyer in accordance with the payment provisions of this Agreement and including the interest provided for in this Article 3, except that (i) the Quotational Period for Payable Copper, Payable Gold and Payable Silver shall be the fourth month following the end of such Contract Year, (ii) the provisional invoice for such quantity may be issued by Seller at any time after the end of such third month following the end of such Contract Year with provisional payment due on the fifth Business Day following receipt, and (iii) the final invoice for such quantity may be issued by Seller at any time after the end of the fourth month following the end of such Contract Year with final payment due on the second Business Day following receipt. Passage of title and risk of loss with respect to such quantity of Concentrates shall occur upon payment by Buyer of Seller's provisional invoice. To evidence that title has passed to Buyer Seller shall furnish to Buyer at the same time that it submits its provisional invoice a holding certificate in a form which is mutually agreed upon by the parties. Such holding certificate shall be in lieu of a bill of lading. 3.5 Seller's Inability to Deliver Concentrates. In the event Seller is unable to deliver Concentrates in a timely manner in accordance with Buyer's shipping schedule, Seller shall so notify Buyer as early as possible and furnish Buyer with Seller's best estimate of the quantity of which it will be unable to deliver in a timely manner. In such event Buyer and Seller shall discuss alternative solutions which will minimize adverse impacts on both parties to the extent feasible. Without in any way eliminating the possibility of alternative solutions which may be mutually agreed upon by Buyer and Seller, if Seller is unable to deliver the Contractual Tonnage in a timely manner for any Contract Year and a mutually agreeable solution is not timely found to alleviate such failure by Seller, Buyer shall have the right to purchase from third parties on the most favorable terms and conditions for Buyer reasonably obtainable at the time such sale is entered into a quantity of Concentrates as close as practicable to the quantity which Seller is unable to deliver in a timely manner in accordance with Buyer's shipping schedule established under Article 6. In this situation Seller and Buyer shall consult with each other on a continuous basis regarding concentrate purchase opportunities which are available, and Buyer shall provide to Seller such facts as may be reasonably requested by Seller with respect to the terms and conditions of any contemplated purchase and the offers, counteroffers and/or rejections Buyer obtains, and shall provide Seller with a reasonable opportunity to make comments and suggestions on the proposed terms and conditions before concluding such purchase. Buyer shall be fully reimbursed by Seller within 15 days following receipt of Buyer's invoice (including appropriate supporting documentation) for any additional costs of such purchases on a netback to the Port of Discharge basis (limited to differences in smelting and refining charges, differences in penalty deducts, differences in price participation and differences in payable metals percentages) compared with the purchase of Concentrates hereunder had they been delivered at the Facilities. Any profits from such purchase, calculated on a netback to the discharge port basis, shall be for Buyer's account. Subject to Section 3.9 or unless Seller has failed to act in good faith in the discharge of its obligation to comply with Buyer's shipping schedule established under Article 6, Buyer's rights as described above in this Section 3.5 shall be Buyer's exclusive remedy (but without limiting Buyer's rights under Section 22.2(c)) for any failure by Seller to deliver the Contractual Tonnage. Any quantities of copper concentrates purchased by Buyer from third parties in accordance with the provisions of this Section 3.5 shall be credited toward satisfaction of Seller's Contractual Tonnage sales obligation. 3.6 Additional Quantities. Upon mutual agreement of Buyer and Seller, Seller may sell and deliver, and Buyer may purchase, pay for and accept delivery of quantities of Concentrates in excess of the Contractual Tonnage during any Contract Year(s) on terms and conditions to be established at the time of such agreement. 3.7 Contract Year to Contract Year Adjustments. Notwithstanding Section 3.2.D, Seller shall have the right to ship quantities of Concentrates in excess of or less than the Contractual Tonnage in order to avoid shipments of less than a full cargo or because of vessel availability at the end of each Contract Year. (a) Advance Shipment. Each Contract Year Seller may request, and Buyer shall not unreasonably deny Seller's request, to ship up to 25,000 DMT's in excess of the Contractual Tonnage during the final month of such Contract Year, in which event the price for such tonnage in excess of the Contractual Tonnage shall be determined based on the commercial terms in effect for the subsequent Contract Year as if shipped out from the Port of Loading on the first working day of the subsequent Contract Year and assuming a Date of Arrival six days thereafter for payment and Quotational Period purposes. Such excess tonnage shall be regarded as part of the Contractual Tonnage for the subsequent Contract Year (if there is no succeeding Contract Year, all payment and other terms and conditions applicable to shipments in such Contract Year shall be applicable to such excess tonnage); provided, however, if the weight of the final shipment of Concentrates in any Contract Year causes the total delivery weight of Concentrates in such Contract Year to be in excess of the Contractual Tonnage for such Contract Year by less than 10% of the weight of such final shipment, such excess tonnage shall be regarded as Contractual Tonnage for such Contract Year and all payment and other terms and conditions applicable to shipments in such Contract Year shall be applicable to such excess tonnage. (b) Delayed Shipment. If the Contractual Tonnage for a Contract Year is not delivered by the end of such Contract Year, Seller may request, and Buyer shall not unreasonably deny such request (provided that any such denial shall be deemed to be reasonable if Buyer has made arrangements to purchase substitute concentrates from a third party or third parties in accordance with Section 3.5), to ship such delayed tonnage to Buyer in the first shipment of the succeeding Contract Year or as soon thereafter as is practicable. Such delayed tonnage shall be regarded as part of the Contractual Tonnage of the preceding Contract Year and all terms and conditions of the preceding Contract Year shall apply to such tonnage. In no event shall such delayed tonnage in respect of any Contract Year be more than 25,000 DMT's. 3.8 Seller's Qualified Right to Vary Quantity for Remainder of Year. If due to unexpected operational or production problems or conditions which arise during the course of any Contract Year and which do not constitute an event of Force Majeure, Seller determines that it requires relief from Buyer as to the delivery of up to 10% of the remaining undelivered balance of the Contractual Tonnage for such Contract Year, Seller may reduce the Contractual Tonnage for such Contract Year by up to 10% of the then undelivered balance subject to obtaining the prior written approval of Buyer. 3.9 Reduction of Contractual Tonnage due to Reduction of Seller's Ability to Produce. If at any time during the term of this Agreement, Seller shall be unable after having used all reasonable efforts, to produce from its mines and processing facilities in the Contract Area, the full Contractual Tonnage of Concentrates provided for in this Agreement as the result of the depletion of ore reserves, either Seller or Buyer may, after providing notice to the other party, reduce the annual Contractual Tonnage of Concentrates to be purchased and sold under this Agreement to 100% of the annual quantity of Concentrates which Seller is capable of producing from such mines and processing facilities, in respect of which Seller grants the first and exclusive priority to Buyer for the production and delivery of such Concentrates produced by Seller. The party providing the above notice shall use its best efforts to provide such notice at least twenty-four (24) months in advance of the effective date of the reduction, but in no event may such notice be given less than twelve (12) months in advance of such effective reduction date. In the event that the Contractual Tonnage quantity is reduced pursuant to this Section 3.9 and Seller's capability to produce a larger quantity hereunder is thereafter restored, Seller shall notify Buyer in writing of such occurrence, and Buyer and Seller shall discuss in good faith and shall use all reasonable efforts to mutually agree on an increase of the then existing Contractual Tonnage of Concentrates to be sold hereunder. No retroactive make-up of the quantities of reduced Contractual Tonnage is implied or intended. 3.10 Adjustments Resulting From Quality-Related Reductions of the Contractual Tonnage Figure. In the event of any reduction by Buyer of the Contractual Tonnage in accordance with the provisions of Section 2.3, unless otherwise mutually agreed pursuant to Section 3.11, Buyer and Seller will continue to provide the notices and implement the procedures provided for in this Article 3 to determine the Rolling Five Year Concentrates Requirements Forecast, the One Year in Advance Forecasted Quantity Requirement, the Annual Shipping Schedule Quantity, the Contractual Tonnage and any other relevant terms. Such figures shall be provided during each Contract Year when such reductions are in effect in a form which reflects the quantity information without any reduction and also with the reduction. The difference between the two quantities shall constitute Buyer's best, good faith estimate of the quantity of Concentrates which Buyer will attempt in good faith to purchase from third parties for such Contract Year as a result of the reduction instituted by Buyer pursuant to Section 2.3. A reduction (or subsequent increase) in the Contractual Tonnage pursuant to Section 2.3 shall automatically result in a corresponding proportionate reduction (or increase) of the Contractual Tonnage cap provided for in Section 3.2 D. 3.11 Simplification of Determination of Contractual Tonnage Figure in the Event of Reduction of Contractual Tonnage. Buyer and Seller acknowledge that the determination of the Contractual Tonnage figure for each Contract Year under this Agreement is complex due to the nature of the agreement which was originally contemplated between Buyer and Seller, namely a full requirements- type of concentrate purchase and sales agreement with respect to the Project. In the event of a reduction in the Contractual Tonnage in accordance with the provisions of Section 2.3 or Section 3.9, upon the written request of either party, Buyer and Seller will use their best efforts to agree upon a simplified procedure to determine the Contractual Tonnage figure which is fair and reasonable to both parties for each Contract Year following the institution of such reduction. In the event of a reduction of the Part A Tonnage under Section 9.1, the provisions of Section 9.1(iii) shall govern. ARTICLE 4 Term and Termination 4.1 Term of Agreement; Conditions Precedent. Except as otherwise provided herein, this Agreement shall be valid and effective as of the Effective Date and shall continue in full force and effect so long thereafter as Seller's mining and milling facilities are producing at an annual rate sufficient to produce one hundred percent (100%) of the copper concentrates required for the Project in respect of which Seller has granted the first and exclusive priority to Buyer for the delivery of such Concentrates produced by Seller; provided, however, that at such time as Seller's mining and milling facilities are no longer producing one hundred percent (100%) of the copper concentrates required for the Project, this Agreement shall nevertheless remain in full force and effect for the duration of Seller's Contract of Work (including any extensions or renewals thereof) as to such lesser quantities of Concentrates which Seller does produce and which Buyer requires for the operation of the Project in respect of which Seller has granted the first and exclusive priority to Buyer for the delivery of such lesser quantities of Concentrates produced by Seller. Seller agrees to provide Buyer with as much advance notice of the date of termination or reduced quantity as is reasonably practicable (without diminishing the applicable notice requirements expressly provided in this Agreement). Notwithstanding the passage of the Effective Date, Buyer's duty to purchase and Seller's obligation to sell the Concentrates as set forth herein shall not accrue and become binding until each of the following conditions precedent are fulfilled: (a) The occurrence of Mechanical Completion of the Facilities; (b) Signature by all parties to all Major Contracts; and (c) Receipt by each of Buyer and Seller of all Government licenses and authorizations necessary to perform its respective material obligations hereunder. Notwithstanding the foregoing, lack of satisfaction of all of the foregoing conditions shall not relieve either Buyer or Seller of any of their respective obligations set forth in this Agreement which are to be performed prior to the date when such conditions are satisfied. 4.2 Termination Prior to Mechanical Completion Due to Delay or Inactivity. Either party may terminate this Agreement on 90 days prior written notice, if construction of the Facilities is not commenced prior to December 31, 1996, or thereafter if the Facilities are no longer under active construction for any period of 90 consecutive days unless extended by mutual agreement of Buyer and Seller; it being understood that such extensions will be provided to the extent reasonably necessary to permit Buyer's lenders to exercise any cure rights they may have under the Major Contracts, provided that, without Seller's approval, such extensions shall not delay termination for more than six (6) months. In the event this Agreement is terminated pursuant to this Section 4.2, neither party shall have any liability or obligation whatsoever to the other party arising out of such termination, except that if Buyer terminates this Agreement pursuant to this Section 4.2 after Buyer has committed to purchase certain quantities of Concentrates hereunder, then Seller shall be authorized to sell such Concentrates in accordance with the same terms and conditions as set forth in subparagraph (iv) of Section 3.4. ARTICLE 5 Delivery of Concentrates 5.1 Delivery CIF Port of Discharge. Seller shall deliver each shipment of Concentrates CIF Port of Discharge in lots of approximately 5,000 - 25,000 WMT's as determined by Seller, unless otherwise mutually agreed, by vessels which are either bulk carriers or hopper barges carried aboard special purpose vessels (SPV's) (collectively "vessels"). 5.2 Discharging Berth. Buyer's dedicated discharging berth shall be capable of discharging vessels with a maximum LOA of 193 meters, a maximum beam of 30 meters, a maximum draft of 9.7 meters and a maximum air draft of 15 meters. Seller shall ship Concentrates to Buyer in vessels which are within the characteristics of Buyer's dedicated berth as described above. Buyer shall designate one (1) safe discharging berth which is suitable for vessels to discharge always afloat and Buyer shall be responsible for all arrangements (including, without limitation, the nomination of stevedores) and expenses (including without limitation, stevedoring expenses) for discharging each cargo shipped hereunder. Vessels which either discharge or load their cargo at their berth shall be discharged in turn with Buyer having the sole discretion to determine which of such vessels shall be given preference, provided that Buyer will cooperate with Seller in its efforts to comply with Buyer's shipping schedule. 5.3 Rate of Discharge. (a) Buyer shall discharge each cargo from bulk carriers at an average rate of 3,500 WMT's per weather working day of 24 consecutive hours, excluding Sundays, legal holidays, and customary local and smelter holidays unless: (i) the bulk carrier is worked on such days in which event actual time used shall count as lay time used, or (ii) the bulk carrier is already on demurrage. (b) Buyer shall discharge the total cargo contained in four (4) hopper barges in a period not to exceed six (6) days from the time the SPV tenders Notice of Readiness. Seller shall be responsible to shift the hopper barges from the fleeting area to Buyer's berth. Time lost in moving hopper barges from fleeting area to berth and from berth to fleeting area shall not count as lay time used. The above recited rate of discharge for hopper barges may be reviewed upon the request of either party after one (1) year from the first shipment and, if such a review is conducted and the actual discharging rate differs substantially from 350 WMT's per hour, Buyer and Seller shall discuss and agree on an appropriate increase or decrease in the discharging rate. 5.4 Notice of Readiness. Notice of Readiness to discharge ("Notice of Readiness") shall be tendered to Buyer or Buyer's nominated agent at the Port of Discharge at any time during Normal Office Hours, whether in berth or not, provided the vessel is in free pratique and is in all respects ready to discharge. In the case of hopper barges aboard the SPV's, Notice of Readiness shall be tendered at any time during Normal Office Hours, provided the hopper barges have been unloaded from the SPV's and are in the fleeting area. 5.5 Lay Time. Lay time for vessels at Port of Discharge or alternate port shall commence: (i) at 1:00 p.m. the same working day if Notice of Readiness is tendered during Normal Office Hours before 12:00 noon, unless discharge of cargo is sooner commenced, in which event the time actually used shall count as lay time used; and (ii) at 8:00 a.m. the next working day, if Notice of Readiness is tendered during Normal Office Hours at or after 12:00 noon, unless discharge of cargo is sooner commenced, in which event the time actually used shall count as lay time used. The bill of lading weight in wet metric tons shall be used when calculating time allowable for discharge of vessels. Time lost in waiting for a berth or at the request of the relevant port authority, moving on or off a berth or from one berth to another shall count as lay time used. However, if such request is due to any reason whatsoever attributable to the vessel, time lost in moving on or off a berth or from one berth to another shall not count as lay time used. Any time lost in discharging due to repairing a vessel's equipment or by the fault of the vessel, its owner, master or their agents shall not count as lay time used. Each bulk carrier shall have all necessary onboard lights for night discharging and the bulk carrier's crews shall open and close hatches and remove and replace beams at the bulk carrier's risk and expense, and the time used for such purpose shall not count as lay time used at the Port of Discharge; provided, however, if the custom of the port does not permit the bulk carrier's crew to open and close hatches and remove and replace any beams, then such activities shall be performed by shore labor for Buyer's account, and time used for such purpose shall not count as lay time used. Buyer shall open and close hatches on each hopper barge at Buyer's risk and expense and the time used for such purpose shall count as lay time used at the Port of Discharge. To alleviate any additional costs which Buyer may incur in opening and closing hatches and performing any other services related to the handling of hopper barges including tugs needed to move the barges (after the first movement) to and from the fleeting area, Seller shall pay Buyer a "Hopper Barge Service Fee" of $0.25 per WMT. The amount of this Service Fee may be reviewed at the request of either party after one (1) year from the first shipment. If the documented actual cost of opening and closing hatches and performing any other services specifically related to the normal handling of hopper barges including tugs needed to move the barges to and from the fleeting area varies substantially from $0.25 per WMT, Buyer and Seller shall discuss and agree on an appropriate increase or decrease in the Hopper Barge Service Fee. 5.6 Demurrage and Dispatch. (a) Bulk Carriers. With respect to any cargo which is not discharged from a bulk carrier within the allowed lay time, demurrage shall be payable by Buyer to Seller as per the applicable charter party or other ocean shipping arrangement, subject to a maximum of $7,500, calculated per running day of 24 hours (fractions pro rata). Seller shall pay Buyer dispatch money for lay time saved at the Port of Discharge as per the applicable charter party or other ocean shipping arrangement, subject to a maximum of $3,750, calculated per running day of 24 hours (fractions pro rata). (b) Hopper Barges. With respect to any cargo which is not discharged from the hopper barges within the allowed lay time, demurrage shall be payable by Buyer to Seller calculated per running day of 24 hours (fractions pro rata) at $0.50 per WMT based on the total bill of lading weight for each four barge shipment for the seventh and eighth day after tender of the Notice of Readiness. If the delay extends beyond the eighth day, then beginning on the ninth day demurrage shall be payable by Buyer to Seller calculated per running day of 24 hours (fractions pro rata) at $1.00 per WMT based on the total bill of lading weight for each four barge shipment. In the event that Buyer discharges the four barge cargo in less than six days after the Notice of Readiness, Seller shall pay Buyer dispatch money for lay time saved at the Port of Discharge calculated per running day of 24 hours (fractions pro rata) at $0.25 per WMT based on the total bill of lading weight for each four barge shipment. The amount of demurrage and dispatch on hopper barges as recited above may be reviewed at the request of either party after one (1) year from the first shipment. (c) Payment. Any payments in respect of demurrage or dispatch to be made by Buyer or Seller, as the case may be, pursuant to this Section shall be made promptly after the presentation of demurrage or dispatch calculations and supporting shipping documents, such as time sheets and statements of fact. 5.7 Vessel Characteristics. (a) Bulk Carriers. Bulk carriers will be single deck ore carriers (no tween deckers), having no shaft tunnels or center bulkheads in the holds, and with holds sufficiently wide to be opened for normal grab discharge to avoid abnormal trimming and Seller shall use all reasonable efforts to assure that Concentrates are not loaded in spaces which are not accessible for normal grab discharge; provided that, if Seller uses its best efforts to charter a bulk carrier having the characteristics described above but is unable to do so, Seller shall reimburse Buyer for any addi- tional discharging expense, demurrage incurred, or loss of dispatch resulting from such bulk carrier having different characteristics. In no event shall Seller enter into a long term charter party for a bulk carrier not having the characteristics described above. Buyer and Seller shall have the right to appoint a mutually acceptable qualified independent marine surveyor to survey any bulk carrier at the Port of Discharge in order to determine the extent to which such bulk carrier may be unsuitable for normal grab discharging and the amount, if any, of additional discharging expenses resulting from unsuitability, and such determination shall be final and binding on the parties hereto. If an independent marine surveyor is requested to survey any bulk carrier, (i) Seller shall pay the expenses of the independent marine surveyor if the independent marine surveyor determines that the bulk carrier is unsuitable for normal grab discharging and that additional discharging expenses will be incurred, and (ii) Buyer shall pay the expenses of the independent marine surveyor if the independent marine surveyor determines that the bulk carrier is suitable for normal grab discharging. (b) Hopper Barges and SPV's. Hopper barges will be single deck (without tween decks) and with holds sufficiently wide to be open for normal grab discharge to avoid abnormal trimming. Four hopper barges will be carried aboard the special purpose vessel and the total so carried will be considered a single shipment. Each hopper barge will carry between approximately 1,300 DMT's and 1,500 DMT's of Concentrates for a total shipment of between approximately 5,200 DMT's and 6,000 DMT's each voyage. (c) Vessel Requirements of General Applicability. Such bulk carriers, SPV's and hopper barges shall (i) carry all necessary certificates which are required to trade within Indonesian waters, and (ii) comply with all Government regulations, and, unless otherwise agreed, be classed +100A1 at Lloyds or equivalent, and shall be no more than 20 years of age (subject to Seller's compliance with the provisions of Section 7.1 setting forth Seller's responsibility for the payment of any overage premium for cargo insurance), and be insurable in the New York, London, or other internationally recognized insurance market. Such vessels shall have specifications which conform to the berth conditions set forth in Section 5.2 of this Agreement, unless otherwise mutually agreed. Such specifications shall be automatically updated during the term of this Agreement if Buyer's dedicated berth at the Port of Discharge is improved so as to be able to accept larger vessels. Seller shall not charter or load Concentrates into vessels from any shipping company as to which, because of its financial condition, there exists reasonable grounds for insecurity about the ability of such shipping company to carry out the normal execution of its shipping obligations. 5.8 Overtime. Any overtime payable for discharging outside normal working hours shall be paid by the party ordering such overtime, except that officer's and crew's overtime shall always be for Seller's account. 5.9 Port Charges. Seller shall hold Buyer free and harmless from all port charges, harbor dues, pilotage, crew's expense, light dues, the first movement of hopper barges to and from the fleeting area, and all other charges and dues customarily paid by a vessel at any Port of Discharge or alternate port as provided in Section 5.11. Port charges associated with second and any subsequent movement of hopper barges to and from Buyer's dedicated berth shall be for Buyer's account. 5.10 Title and Risk of Loss. Title and all risks of loss shall pass to Buyer as cargo progressively crosses the rail of the vessel at the Port of Loading. Except as provided in Section 7.4 (Insolvency Exclusion Clause) and except for sales made to MMC or to third parties as provided in Section 3.4 (Buyer's Inability to Receive Concentrates), Buyer agrees that throughout the term of this Agreement Buyer shall be absolutely and unconditionally committed to purchase, pay for and accept delivery of, all Concentrates as to which title and risk of loss have passed to Buyer. This provision is not intended to affect Buyer's Contractual Tonnage purchase obligation. 5.11 Alternate Port. If the discharge of a cargo of Concentrates at the Port of Discharge is affected by a strike or walk-out or by damage, whether from natural or other causes, to such Port of Discharge and the same has not been settled or repaired within 48 hours, Buyer shall notify Seller within 12 hours after the expiration of such 48 hour period, as to whether Buyer desires that (i) such vessel wait until such strike or walk-out is at an end or such damage is repaired, or (ii) such vessel proceed to an alternate safe port where it can safely unload the Concentrates. Promptly upon receipt of such notice from Buyer, Seller shall direct the vessel to comply with Buyer's notice provided that the Master of the vessel judges such port to be safe. If the vessel proceeds to wait at the Port of Discharge and discharging is delayed beyond the expiration of lay time, demurrage shall be payable by Buyer to Seller at one-half the rate specified in Section 5.6. If the vessel proceeds to an alternate safe port, there shall be no additional freight charge payable by Buyer unless the distance between the original Port of Discharge and the alternate port exceeds 100 nautical miles, in which event the additional freight in respect of the distance in excess of 100 nautical miles shall be payable by Buyer. 5.12 Stevedore Damages. Damages caused by stevedores nominated and/or appointed by Buyer shall be settled directly between the stevedores and the vessel owners; provided, however, Buyer shall remain financially responsible for such damages in the event the stevedores and the vessel owners fail to reach an agreement or the stevedores fail for any other reason to pay the vessel owner for such damages. 5.13 Jetty Damages. Damages to the jetty caused by vessels chartered by Seller shall be settled directly between Buyer and the vessel owner; provided, however, Seller shall remain financially responsible for such damage in the event Buyer and the vessel owner fail to reach an agreement or the vessel owner fails for any other reason to pay Buyer for such damages. 5.14 Use of Bulk Carrier's Discharging Gear. Seller shall have the right in its discretion to furnish bulk carriers (i) having discharging gear on board or (ii) having no discharging gear on board; provided, however, that such bulk carrier's discharging gear shall not hinder discharging operations by Buyer's shore cranes. Notwithstanding the above, should the bulk carrier's on board discharging gear hinder discharging operations, then Section 5.7(a) shall apply. In the event that Buyer desires to utilize the bulk carrier's discharging gear for discharging any cargo, Seller shall use its best efforts to obtain the ship owner's consent for such use. Buyer shall hold Seller harmless from all charges for or in connection with each cargo or portion thereof of Concentrates so discharged. ARTICLE 6 Scheduling and Shipments 6.1 Initial Inventory Period. On or before November 1 of the calendar year preceding the year in which Mechanical Completion is expected to occur, Buyer and Seller shall mutually agree upon the schedule of shipments of the quantities of Concentrates specified in Section 3.1 which are to be shipped during the Initial Inventory Period. Revisions to the schedule of shipments for the Initial Inventory Period shall be as mutually agreed upon by the parties. 6.2 First Contract Year. Buyer shall provide to Seller on or before November 1 of the calendar year preceding the year in which the first Contract Year is expected to begin, a preliminary monthly shipping schedule for the first Contract Year based on Buyer's then current projections for such period. The sum of the quantities reflected for all 12 months in such preliminary monthly shipping schedule for the first Contract Year shall not exceed the Annual Shipping Schedule Quantity for such Contract Year. With respect to the first six months of the first Contract Year, at least 60 days prior to the beginning of each month Buyer shall advise Seller in writing of its anticipated quantity requirements for such month. For the first six month period of the first Contract Year Buyer may change its monthly quantity requirements without any limit in the percentage change from one month to the next; provided, however, at least 30 days prior to the beginning of each month during the first six months of the first Contract Year Buyer shall furnish to Seller its final written declaration of its quantity requirements for such month. The month identified in such final written declaration for the shipment of particular cargoes shall be considered to be the Month of Scheduled Shipment with respect to such cargoes. In addition, the quantity recited in each such final declaration shall constitute the quantity of Concentrates which Buyer is obligated to purchase and which Seller is obligated to deliver during such monthly period. With respect to the second six months of the first Contract Year, at least 90 days prior to the beginning of each month Buyer shall advise Seller in writing of its anticipated requirements for such month. In providing such notice of anticipated requirements, Buyer shall limit the quantity variation for each such month so that it does not exceed plus 25% or minus 50% of the quantity which is set out with respect to the same month in the shipping schedule which Buyer furnishes to Seller on or before November 1 pursuant to the first paragraph of this Section 6.2. At least 60 days prior to the beginning of each month during the second six months of the first Contract Year Buyer shall furnish to Seller its final written declaration of its quantity requirements for such month so long as such declaration is within the variances specified above. The month identified in such final written declaration for the shipment of particular cargoes shall be considered to be the Month of Scheduled Shipment with respect to such cargoes. In addition, the quantity recited in each such final declaration shall constitute the quantity of Concentrates which Buyer is obligated to purchase and which Seller is obligated to deliver during such monthly period. 6.3 Second Contract Year. Buyer shall provide to Seller on or before November 1 of the calendar year preceding the year in which the second Contract Year begins, a preliminary monthly shipping schedule for the second Contract Year based on Buyer's then current projections for such period. The sum of the quantities reflected for all 12 months in such preliminary monthly shipping schedule for the second Contract Year shall not exceed the Annual Shipping Schedule Quantity for such Contract Year. At least 30 days prior to the beginning of each consecutive three month period of the second Contract Year, Buyer shall furnish to Seller in writing the final declaration of its quantity requirements for each of such three calendar months. In providing such final declaration, Buyer shall limit the quantity variation for each such month so that it does not exceed plus 25% or minus 50% of the quantity which is set out with respect to the same month in the shipping schedule which Buyer furnishes to Seller on or before November 1 pursuant to the first paragraph of this Section 6.3, and Buyer shall limit the quantity variation for each three month period so that it does not exceed plus 10% or minus 25% of the quantity which is set out with respect to the same three- month period in the shipping schedule which Buyer furnishes to Seller on or before November 1 pursuant to the first paragraph of this Section 6.3. The month identified in such final written declaration for the shipment of particular cargoes shall be considered to be the Month of Scheduled Shipment with respect to such cargoes. In addition, the quantity recited in each such final declaration shall constitute the quantity of Concentrates which Buyer is obligated to purchase and which Seller is obligated to deliver during such three month period. 6.4 Third Contract Year. Buyer shall, if requested by Seller, provide to Seller on or before November 1 of the calendar year preceding the year in which the third Contract Year begins, a preliminary monthly shipping schedule for the third Contract Year based on Buyer's then current projections for such period. The sum of the quantities reflected for all months in such preliminary monthly shipping schedule for the third Contract Year shall not exceed the Annual Shipping Schedule Quantity for such Contract Year; provided, however, Buyer will issue an adjusted monthly shipping schedule in such Contract Year if it elects to exercise its rights to an Inventory Allowance in accordance with the provisions of Section 3.3. At least 30 days prior to the beginning of each consecutive three-month period (except in the case of the final period which may be less than three months) of the third Contract Year, Buyer shall furnish to Seller in writing the final declaration of its quantity requirements for each of such three calendar months (which in the case of the final period shall be reduced to whatever lesser period remains in the third Contract Year). In providing such final declaration, Buyer shall limit the quantity variation for each such month so that it does not exceed plus 25% or minus 25% of the quantity which is set out with respect to the same month in the shipping schedule which Buyer furnishes to Seller on or before November 1 pursuant to the first paragraph of this Section 6.4, and Buyer shall limit the quantity variation for each three-month period so that it does not exceed plus 10% or minus 25% of the quantity which is set out with respect to the same three-month or lesser period in such shipping schedule which Buyer furnishes to Seller on or before November 1 pursuant to the first paragraph of this Section 6.4. The month identified in such final written declaration for the shipment of particular cargoes shall be considered to be the Month of Scheduled Shipment with respect to such cargoes. In addition, the quantity recited in each such final declaration shall constitute the quantity of Concentrates which Buyer is obligated to purchase and which Seller is obligated to deliver during such three-month (or lesser) period. 6.5 Fourth and Subsequent Contract Years. Buyer shall, if requested by Seller, provide to Seller on or before November 1 of the calendar year preceding the commencement of the fourth and each subsequent Contract Year a preliminary monthly shipping schedule for the fourth (or subsequent) Contract Year based on Buyer's then current projections for such year. The sum of the quantities reflected for all months in such preliminary monthly shipping schedule for such Contract Year shall not exceed the Annual Shipping Schedule Quantity for such Contract Year; provided, however Buyer may issue an adjusted monthly shipping schedule in any such Contract Year in which it elects to exercise its rights to an Inventory Allowance in accordance with the provisions of Section 3.3. At least 30 days prior to the beginning of each calendar quarter of such Contract Year, Buyer shall furnish to Seller in writing the final declaration of its quantity requirements for each calendar month in such calendar quarter. In providing such final declaration, Buyer shall limit the quantity variation for each such month so that it does not exceed plus 25% or minus 25% of the quantity which is set out with respect to the same month in the shipping schedule which Buyer furnishes to Seller on or before November 1 pursuant to the first paragraph of this Section 6.5, and Buyer shall limit the quantity variation for each three-month period so that it does not exceed plus 10% or minus 25% of the quantity which is set out with respect to the same three- month period in such shipping schedule which Buyer furnishes to Seller on or before November 1 pursuant to the first paragraph of this Section 6.5. The month identified in such final written declaration for the shipment of particular cargoes shall be considered to be the Month of Scheduled Shipment with respect to such cargoes. In addition, the quantity recited in each such final declaration shall constitute the quantity of Concentrates which Buyer is obligated to purchase and which Seller is obligated to deliver during such three-month period. 6.6 General. Seller shall deliver each shipment of Concentrates reflected in the latest shipping schedule provided by Buyer in accordance with the provisions of this Article 6 during the month identified in such schedule, provided that Buyer uses all reasonable efforts to reflect in its shipping schedules the spreading of shipments as evenly as practicable throughout each Contract Year of the term of this Agreement taking into account Buyer's operational requirements. Any failure by Seller to comply with such schedule shall be governed by the provisions of Section 3.5. Any modifications of shipping schedules not provided for herein shall be in accordance with the mutual agreement of Buyer and Seller. 6.7 Buyer's Shipping Instructions and Documentation, Vessel Information and Further Shipment Confirmation. Each party hereto shall provide to the other party hereto all shipping instructions and information, documentation, vessel information, arrival and departure information, tonnage figures, stowage plans and other information and papers reasonably requested by such other party to assure the orderly delivery of all Concentrates which are to be sold and delivered under this Agreement. ARTICLE 7 Insurance Seller shall effect cargo insurance with an internationally reputed insurance company(ies) on the following conditions: 7.1 Insured Value. The insured value shall be 110% (one hundred ten percent) of the value of the Concentrates as per the invoice for the provisional payment, subject to adjustment to the final value, as determined in accordance with this Agreement. In the event that Seller's insurance company shall at any time charge an overage premium on vessels which are over 15 years of age, Seller shall bear and pay the full amount of such overage premium without any obligation on the part of Buyer to reimburse Seller for any portion of such premium. 7.2 Insurance Coverage. The insurance shall designate Buyer or the collateral trustee or agent acting for the Project lenders who is designated by Buyer, as the loss payee(s). Such coverage shall be valid from the time when the Concentrates pass the ship's rail of the carrying vessel at the Port of Loading until final destination at the receiving smelter's warehouse and shall be effective under the terms of the Institute Cargo Clause (A) or its equivalent, average irrespective of percentage, including the risk of all fire or heating even when caused by inherent vice or spontaneous combustion, and Institute War Clause and Institute Strike, Riots and Civil Commotion Clauses or their equivalents. 7.3 Claims. Claims for total or partial loss and/or damage shall be payable based on the value as per the invoice for the provisional payment subject to later adjustment to the final value. Such claims shall also include expenditure directly associated with the loss (including but not limited to surveyor's fees and salvage and removal costs), if any, arising from such loss and/or damages. Any claim shall be payable in Dollars. 7.4 Insolvency Exclusion Clause. The price of any cargo shipped hereunder shall be reduced to the extent of any loss reasonably suffered by Buyer in any situation where all or any portion of a cargo insurance claim submitted by Buyer is denied for the reason that a shipment has been seized and the cargo sold or damaged due to the insolvency of the ship owner or carrier and Seller either knew or should have known that such insolvency might prevent the normal prosecution of the voyage. 7.5 Seller's Assistance. If any Concentrates are lost or damaged, Seller shall, upon the request of Buyer, assist in the recovery of the insurance from the insurers. 7.6 War Risk Premiums. Seller shall bear the full cost of the premiums for war risk insurance up to one percent (1%) of the estimated value of the Concentrates in any shipment. In the event such premiums exceed one percent (1%), Buyer and Seller will each pay one-half (1/2) of the excess cost over one percent (1%), with Seller including the charge for Buyer's one-half (1/2) of such excess premiums on its invoice to Buyer for the affected shipment(s). Notwithstanding the foregoing, Buyer and Seller may discuss and mutually agree on other alternatives such as not carrying war risk on any particular shipment(s) if they mutually agree in writing that the cost of such insurance is excessive. ARTICLE 8 Price 8.1 Payable Copper. Payable Copper shall mean 96.55% of the full copper content (as ascertained by assay in accordance with Article 13) of each DMT of Concentrates, subject to a minimum deduction of 1.05 units for the first five Contract Years. The definition of this term shall be reviewed prior to the end of the fifth Contract Year hereunder, and every five years thereafter in accordance with the provisions of Article 10. 8.2 Payable Gold. Payable Gold shall mean 97.0% of the full gold content (as ascertained by assay in accordance with Article 13) of each DMT of Concentrates. The definition of this term shall be reviewed prior to the end of the fifth Contract Year hereunder, and every five years thereafter in accordance with the provisions of Article 10. 8.3 Payable Silver. Payable Silver shall mean (i) 90% of the full silver content (as ascertained by assay in accordance with the provisions of Article 13) of each DMT of Concentrates if the full silver content is greater than or equal to 30 grams per DMT of Concentrates, subject to a minimum deduction of 15 grams; and (ii) zero percentage (i.e. no payment) if such full silver content of each DMT of Concentrates is less than 30 grams. The definition of this term shall be reviewed prior to the end of the fifth Contract Year hereunder, and every five years thereafter in accordance with the provisions of Article 10. 8.4 Quotational Period. Quotational Period shall mean, with respect to Payable Copper in any portion of any shipment, the third calendar month following the month in which the Date of Arrival occurs, and with respect to Payable Gold and Payable Silver in any portion of any shipment, the Month of Scheduled Shipment. 8.5 Determination of Price. The price of each shipment of Concentrates sold hereunder shall be an amount equal to the sum of the following payments less the sum of the deductions set forth in Article 9. 8.6 Copper Price. Buyer shall pay for the Payable Copper in Concentrates sold hereunder at a price equal to the daily official London Metal Exchange Grade A Settlement price (the "LME Copper - Grade A Settlement Price") quoted in Dollars, as published in "Platt's Metals Week" and averaged over the applicable Quotational Period. 8.7 Gold Price. Buyer shall pay for the Payable Gold in Concentrates sold hereunder at a price equal to the daily average of the London free bullion market "Initial" and "Final" quotations for gold (the "London Gold Price") quoted in Dollars, as published in "Platt's Metals Week" and averaged over the applicable Quotational Period. 8.8 Silver Price. Buyer shall pay for the Payable Silver in Concentrates sold hereunder at a price equal to the daily London bullion brokers spot price for silver quoted in Dollars, as published in "Platt's Metals Week" and averaged over the applicable Quotational Period. 8.9 Conversion to Dollars. The prices of copper, gold and silver, if quoted in any currency other than Dollars by "Platt's Metals Week" (or any other publication substituted for "Platt's Metals Week" by mutual agreement of Seller and Buyer), shall be converted daily during any applicable Quotational Period into Dollars by using the noon buying rate for the applicable currency for cable transfers as certified by the Federal Reserve Bank of New York for customs purposes. The average price for any such Quotational Period shall be calculated by totaling the Dollar equivalence of the daily prices during such period and dividing such total by the number of pricing days in such period. 8.10 Alternate Pricing. (a) Pricing Basis No Longer Published or No Longer Representative. In the event that (i) "Platt's Metals Week" ceases to be published, or ceases to publish any quotation specified in this Article 8 for determining the prices for copper, gold or silver, or publishes and does not later correct an erroneous quotation for copper, gold or silver, of a value then being obtained for copper, gold or silver (as applicable), or (ii) it is the reasonable belief of Buyer or Seller that the quotations are no longer representative of the fair market values then being obtained by non-integrated mines for copper, gold and silver contained in copper concentrates, then, upon written notice by Seller or Buyer to the other, the parties shall promptly confer and agree on a new pricing basis for the Payable Copper, Payable Gold or Payable Silver in the Concentrates to be sold hereunder. (b) Interim Invoicing. If Seller or Buyer shall give notice as provided in Section 8.10(a), Seller shall have the right by written notice to Buyer to invoice provisionally at the "Interim Price" (as hereinafter determined) and Buyer shall thereafter pay, on the basis of the Interim Price until (i) Seller and Buyer shall reach agreement with respect to a new pricing basis for the metal concerned or (ii) a referee's decision shall have been made as hereinafter provided, whichever shall first occur. The Interim Price shall be the applicable price(s) applied to the last previous shipment sold hereunder prior to such written notice. (c) Referral to Referees. In the event that within 60 days after the date of any notice pursuant to this Section 8.10, Seller and Buyer shall not reach agreement regarding an appropriate basis for the fair market value of the copper, gold and/or silver content of the Concentrates to be sold hereunder, either Seller or Buyer shall have the right to refer the matter to the referee(s) as provided in Article 19 for the sole purpose of determining such basis or reference method. ARTICLE 9 Deductions for Smelting and Refining Charges and for Impurities 9.1 Smelting and Refining Charges for Part A Tonnage. Subject to the provisions of Section 9.3 (Floor TC's and RC's) of this Agreement, the smelting and refining charge(s) applicable to Part A Tonnage in each cargo of Concentrates delivered hereunder shall be determined as follows: (i) Initial Negotiation. During the period January 1, 1998 through March 31, 1998 (or earlier with the approval of both parties) Seller and Buyer shall conduct negotiations in good faith for the purpose of reaching agreement by no later than March 31, 1998 on the following matters: (a) A percentage of the Payable Copper price determined pursuant to Article 8, the applicable price range for such percentage and the associated (price participation) formula for smelting and refining charges for the Payable Copper price which is outside of such designated price range (or alternatively two or more different percentages of such Payable Copper price with a corresponding range of prices which are applicable to each such percentage) for each cargo of Concentrate sold hereunder during the period commencing with the first delivery of Concentrates hereunder and continuing through December 31, 2003, which shall constitute a combined smelting and refining charge for Part A Tonnage for such period; and (b) Whether or not gold and silver refining charges will be applicable to Part A tonnage, and the amount (if any) of such charges applicable for the same period specified in (a) above, all based on the generally prevailing market for price sharing type contracts. Notwithstanding the above, each of Buyer and Seller shall have the right and option at any time within the 18 month period preceding the deadline date for reaching a negotiated agreement on such Part A Tonnage charges, to obtain from a third party and submit a copy thereof to the other party hereto a written competitive offer(s) satisfying the following criteria: (1) in the case of Buyer, a bona fide offer to sell and deliver copper concentrates to the Gresik smelter or, in the case of Seller, a bona fide offer to purchase from Seller copper concentrates produced from Seller's mines and processing facilities in Indonesia, (2) having a term or duration of five (5) years or more, (3) having commercial smelting and refining terms based on a price sharing formula and not having other commercial terms and conditions which have the effect of distorting the level of such smelting and refining charges (such as inadequate price adjustments and penalties to appropriately reflect variances in concentrate quality, or exceptionally high or low percentages of payable metals), and (4) the party tendering such offer may not be an Affiliate of the party hereto which is receiving the offer or have any financial linkages to the party hereto receiving such offer which could affect the commercial terms offered. The sum of the tonnage represented by the competitive offers shall be a quantity which is greater than or equal to 100,000 DMT's per year (i.e. the average annual quantity during the first five years covered by such offer) with no single offer representing less than 50,000 DMT's per year (based on the same calculation of the average annual quantity). Unless the parties otherwise agree, if more than one offer is submitted by a party hereto and the terms offered in such offers are not identical to each other, the submitting party must assure that they are structured in a manner whereby a combined weighted average of the smelting and refining charge terms can be readily calculated from the face of such offers. The party hereto which is the recipient of a competitive offer(s) submitted to it by the other party hereto in accordance with the preceding paragraph shall have a period of three (3) months following its receipt of such offer(s) to decide whether to accept the smelting and refining charges reflected in such offer(s) as a whole (which shall be the combined weighted average thereof if more than one competitive offer has been submitted) or to reject such charges as a whole. The failure of the party receiving such offer(s) to agree to the charges contained in such offer(s) as a whole within such three (3) month period of time shall constitute a rejection of such charges. During the period when such offer(s) is (are) under consideration, Buyer and Seller may by mutual agreement have discussions to determine whether a compromise is feasible on such smelting and refining charges for the Part A Tonnage (i.e. whether a solution other than the acceptance of the offered charges is feasible), but neither party shall be obligated to compromise. In the event that the party to whom such third party offer(s) was submitted submits its own third party offer(s) to the other party hereto meeting all of the above described criteria and quantity requirements within the above described three (3) month evaluation period and the smelting and refining charges contained in such subsequent offer(s) is (are) more favorable to the party submitting such subsequent offer(s), then Buyer and Seller shall immediately conduct good faith negotiations to resolve the differences between such offers in an effort to reach agreement upon the smelting and refining charges which will be applicable from the initial delivery of Concentrates hereunder through December 31, 2003. If agreement is not reached as a result of such negotiations by the end of a period of 3 months following the first submittal of a third party offer in accordance with this Section 9.1(i) or by the end of such other period as is mutually agreed upon, Buyer and Seller may by mutual agreement (but shall not be obligated to) submit such third party offers or sets of offers to a referee(s) for final determination in accordance with the provisions of Article 19, and in such event the referee(s) shall take into account the two (2) offers or sets of offers which have been submitted and decide the Part A Tonnage smelting and refining charges which shall be applicable from the initial delivery of Concentrates hereunder through December 31, 2003. If there is no mutual agreement following such negotiation regarding the two (2) third party offers or sets of offers and if the parties do not decide to have a referee(s) determine such charges, then the same consequences shall apply as are set forth in the penultimate (next to last) paragraph of this Section 9.1(i). If the recipient of a third party offer(s) submitted to it by the other party hereto agrees to accept such Part A Tonnage smelting and refining charges as a whole, if mutual agreement is reached on such smelting and refining charges, or if the referee resolves the two (2) offers or sets of offers, then such smelting and refining charges shall be applicable to all of the Part A Tonnage commencing with the first delivery of Concentrates hereunder and continuing through December 31, 2003. If the recipient of such offer(s) rejects such smelting and refining charges (either expressly or impliedly), or if Buyer and Seller shall otherwise fail to agree upon the above specified smelting and refining charges for Part A Tonnage prior to March 31, 1998, then notwithstanding anything contained in this Agreement to the contrary, provided that offers (i.e. by Buyer or Seller) or third party offers (i.e. the third party offers which are specifically described above) have been submitted in good faith by both parties, Seller shall be relieved from the obligation to sell and deliver to Buyer and likewise Buyer shall be relieved from the obligation to purchase, pay for and accept delivery from Seller of fifty percent (50%) of the Part A Tonnage, in the case of the failure of the parties to agree or, in the case of the rejection of a third party offer(s), a quantity of Concentrates selected by the party rejecting the smelting and refining charges contained in the third party offer(s) which shall be equal to either (a) fifty percent (50%) of the Part A Tonnage, or (b) the annual quantity represented by the competitive third party offer(s). Either of such quantity reductions shall be hereinafter referred to as the "Permanent Holiday Tonnage"; and in either situation the reduction shall commence on January 1, 1999 and continue for the remainder of the term of this Agreement. If the rejecting party fails to notify the party which submitted the offer(s) within thirty (30) days of its rejection, with respect to its selection of the (a) or (b) quantity, then (a) shall apply. In the event of such a reduction, the smelting and refining charges which are applicable to the Part B Tonnage shall apply to one hundred percent (100%) of the Part A Tonnage during the period from the first shipment hereunder through December 31, 1998, and to the portion of the Part A Tonnage which does not constitute the Permanent Holiday Tonnage from January 1, 1999 through December 31, 2003. If the smelting and refining charges for Part A Tonnage for the period from the date of the initial shipment hereunder through December 31, 2003 are not resolved prior to the time of the initial shipment hereunder, then any shipments of Concentrates which are delivered prior to such final resolution shall utilize the Part B Tonnage smelting and refining charges, and as soon as a resolution is reached a retroactive adjustment payment shall be made with respect to all shipments on which a payment is made between the date of the first shipment hereunder and the date of the final resolution for the amount of the difference between the pricing based on the Part B Tonnage smelting and refining charges and the pricing based on the finally resolved Part A Tonnage smelting and refining charges. (ii) Subsequent Negotiations. In the event Buyer and Seller determine or reach agreement on the smelting and refining charges for the Part A Tonnage in accordance with Section 9.1(i) as a result of negotiations, as a result of the acceptance of the smelting and refining charges contained in a third party offer(s) or with the referee resolving the differences between two (2) third party offers or sets of offers, then on or before March 31, 2003 and on or before March 31 of each fifth year thereafter, Buyer and Seller shall comply with the procedures set forth in Section 9.1 (i) including but not limited to the obligations associated with the right of each party to submit a third party offer(s) in order to determine the smelting and refining charges which will be applicable to the Part A Tonnage for the five (5) Contract Years commencing on January 1, 2004 with respect to the first such settlement under this Section 9.1(ii), and with the same timing to apply to each subsequent five (5) Contract Years, mutatis mutandis. If as a result of the compliance by Buyer and Seller with the procedures provided for in the immediately preceding paragraph of this Section 9.1(ii): (i) Buyer and Seller mutually agree on the smelting and refining charges which shall be applicable for the ensuing five (5) Contract Years, (ii) Buyer or Seller agrees to the smelting and refining charges for such period contained in a third party offer(s) submitted to it by the other party hereto, or (iii) the referee resolves the differences between two (2) offers or sets of offers, all in the manner provided in Section 9.1(i), then upon the occurrence of any of such events the smelting and refining charges as so determined shall be applicable to all Part A Tonnage for the ensuing five (5) Contract Years. In the event the Part A Tonnage has not previously been reduced due to the failure of the parties to agree on smelting and refining charges, and in any subsequent five (5) year negotiation agreement is not reached utilizing the Section 9.1(i) procedures, then notwithstanding anything to the contrary recited above in this Section 9.1(ii) Buyer and Seller shall determine the amount of the Permanent Holiday Tonnage reduction in accordance with the procedures set forth in Section 9.1(i), and a Part A Tonnage reduction equal to such Permanent Holiday Tonnage shall be effective from the commencement of the applicable ensuing five (5) Contract Years through the end of the term of this Agreement, and in such event the smelting and refining charges which are applicable to the Part B Tonnage for each of the ensuing five (5) Contract Years shall apply during each of the ensuing five (5) Contract Years to the portion of the Part A Tonnage which does not constitute the Permanent Holiday Tonnage. In the event a Permanent Holiday Tonnage reduction of Part A Tonnage has occurred, either under Section 9.1(i) or Section 9.1(ii), then notwithstanding anything to the contrary recited in this Section 9.1(ii), Buyer and Seller shall meet at such times as may be mutually agreed and conduct negotiations in good faith and conclude such negotiations by March 31 of each fifth year thereafter (i.e. 2003, 2008 and so on, as applicable) with respect to: (a) a percentage of the Payable Copper price determined pursuant to Article 8, the applicable price range for such percentage and the associated (price participation) formula for smelting and refining charges for the Payable Copper price which is outside of such designated price range (or alternatively two or more percentages of such Payable Copper price with a corresponding range of prices which are applicable to each such percentage) which shall constitute a combined smelting and refining charge during the ensuing five (5) Contract Years for the portion of the Part A Tonnage which does not constitute the Permanent Holiday Tonnage, and (b) whether or not gold and silver refining charges will be applicable during such five (5) Contract Years period to such Part A Tonnage and, if they are determined to be applicable based on the generally prevailing market, the amount of such charges. If agreement is reached in accordance with the foregoing provisions of this paragraph, the agreed upon charges shall be applicable to the above specified Part A Tonnage for the ensuing five (5) Contract Years. If despite such good faith negotiations mutual agreement on such charges is not reached between Buyer and Seller by March 31 of such year, then the smelting and refining charges which are applicable to the Part B Tonnage during each of the ensuing five (5) Contract Years shall apply to such Part A Tonnage for each of such ensuing five (5) Contract Years. (iii) Agreements Required if Permanent Holiday Reduction Effected. If a reduction in Part A Tonnage is effected as a result of the application of this Section 9.1, then notwithstanding anything to the contrary recited in Section 6.6 or any other provision of this Agreement, from and after the effective date of such reduction any changes to the shipping schedule provided by Buyer by November 1 of each year shall be by mutual agreement. In the event of such reduction, Buyer and Seller shall also promptly discuss and agree upon an appropriate amendment to this Agreement reflecting the change which has occurred in the nature of this Agreement. Such amendment shall consist of the following items: (1) the adoption of a simplified procedure to determine the Contractual Tonnage figure, which is fair and reasonable to both parties, (2) proper revisions to the alumina penalty due to the possibility of blending of the Concentrates with copper concentrates supplied by third parties, and (3) the establishment of audit procedures to verify that Buyer's third party purchases are and continue to be in accordance with generally accepted international business practices and on competitive world market terms and conditions at the time of sale or contract. 9.2 Smelting and Refining Charges for Part B Tonnage. (i) Smelting Charge, Payable Copper Refining Charge and Price Participation Terms for Part B Tonnage. Subject to the provisions of Section 9.3 (Floor TC's and RC's) and Article 10 (review of commercial terms) of this Agreement, the smelting charge, the Payable Copper refining charge and the price participation terms applicable to Part B Tonnage in each cargo of Concentrates delivered hereunder shall be determined as follows: (a) Determination on Basis of Weighted Average of Eligible Reference Contracts. The smelting charge, the Payable Copper refining charge and the price participation terms applicable to Part B Tonnage for each calendar year shall be determined by calculating the weighted average of each of such terms as contained in each of three (3) separate groups of Reference Contracts, the first group being those eligible designated Reference Contracts submitted by Seller, the second group being those eligible designated Reference Contracts submitted by Buyer, and the third group being the Ertsberg Concentrate Agreement and the MMC Concentrate Agreement (in each case as referred to in item (viii) of the definition of "Contracts Criteria" in Appendix "A" hereto) and then calculating the combined weighted average of such three (3) groups of Reference Contracts for each such term (with equal weight being given to each of the three groups), all in accordance with the procedures described in this Section 9.2(i), and the weighted average figures for the above identified terms which are determined every calendar year thereafter shall be applicable to 50% of the Part B Tonnage for the Contract Year in which the determinations are made and also to 50% of the Part B Tonnage for the following Contract Year. Notwithstanding the above: (1) as to shipments made during the portion of a calendar year which is prior to completion of the annual determination in accordance with the process set forth in (b) through (f) of this Section, such terms shall be as provided for in subsection (h) of this Section 9.2; (2) the weighted average figures for the above identified terms which are determined preceding the commencement of the first Contract Year shall be applicable to 100% of the Part B Tonnage for the calendar year which includes the Initial Inventory Period and the beginning of the First Contract Year; (3) the weighted average figures for the above identified terms which are determined following the commencement of the first Contract Year shall be applicable to 100% of the Part B Tonnage for the calendar year which includes both the end of the First Contract Year and the beginning of Second Contract Year; and (4) the weighted average figures for the above identified terms which are determined following the commencement of the second Contract Year and which shall be applicable to 100% of the Part B Tonnage for the calendar year which includes both the end of the Second Contract Year and all of the third Contract Year, shall also be applicable to 50% of the Part B Tonnage for the fourth Contract Year. (b) Selection of Auditor. As early as practicable during the first three months of each calendar year (including but not limited to any calendar year comprising a Contract Year) Buyer and Seller shall select by mutual agreement and retain an internationally recognized auditor to perform the responsibilities of the auditor as specified in this Section 9.2(i). Such auditor's fees and expenses shall be borne equally by the parties. At the time the auditor is retained such auditor shall be provided with a copy of this Agreement on a strictly confidential basis for use in its work hereunder. Prior to such selection of the auditor, and as soon as practicable following the date of execution of this Agreement, Seller shall develop guidelines and hypothetical examples for use by the auditor in order for such auditor to efficiently and properly perform its duties and responsibilities hereunder, and Seller shall review with Buyer such guidelines and hypothetical examples, and obtain Buyer's concurrence which shall not be unreasonably delayed or withheld, prior to submitting them to the auditor. (c) Determination of Eligibility for Designated Reference Contracts. Within three (3) Business Days following the commencement of the third month of each calendar year except as contemplated in item (ix) of the definition of Contracts Criteria in Appendix "A" hereto, commencing with calendar year 1998 (or such later calendar year in which the first delivery of Concentrates to the Facilities is expected to occur), each of Seller and Buyer shall designate as many concentrate sales and/or purchase agreements to which it is a party (or, in the case of Buyer, to which MMC is a party) as exist up to a maximum of three (3) such agreements which such party believes are eligible Reference Contracts, meaning Reference Contracts which satisfy all of the Contracts Criteria. If Buyer or Seller, in its good faith judgment, believes that it has three (3) or less eligible Reference Contracts satisfying all of the Contracts Criteria, such party shall designate all such Reference Contracts that it does have. Each party's designations shall be in writing and delivered by express courier service or facsimile to the auditor. Each such designation shall clearly identify the Reference Contract being designated. Such identification shall include, at a minimum, the name of the agreement, the name of the buyer(s) and the seller(s), the effective date and duration of the agreement and the contractual tonnage for the annual period which is covered by the "Current Settlement" (excluding any tonnage which will be shipped during periods beyond the first annual period following such settlement). The phrase "Current Settlement" shall mean a settlement of the commercial terms identified above which is concluded during the period from October 1 of the immediately preceding year to March 1 of the current year except as contemplated in item (ix) of the definition of Contracts Criteria in Appendix "A" hereto, which applies to tonnage being utilized by the designating party in its weighted average calculations and which tonnage is obligated to be shipped under such agreement during the annual period covered by such settlement. Each designation shall be accompanied by a written certification signed by an authorized representative of the designating party that such designated Reference Contract satisfies all of the Contracts Criteria including a brief explanation as to why each Contracts Criteria has been satisfied. A copy of each such Reference Contract shall be provided to the auditor on a strictly confidential basis together with the designation, certification and explanations for such Reference Contract. Each party shall simultaneously provide to the other party a copy of the designation, certification and explanations for each Reference Contract which it designates but not a copy of the Reference Contract being designated. The party receiving the designation and accompanying materials shall have seven (7) Business Days following its receipt of such designation and accompanying materials to provide to the auditor by express courier service or facsimile any comments or objections it may have regarding the eligibility of such designated Reference Contract (with a copy to the designating party). Based on the auditor's determination as to whether or not each designated Reference Contract satisfies all of the Contracts Criteria, such auditor shall notify both parties of the acceptance as eligible or rejection as ineligible of each designated Reference Contract. In order to expedite the completion of the auditor's work, the auditor may, if it so desires, provide a notice of acceptance or rejection as soon as it determines that a Reference Contract is eligible or ineligible without waiting for the completion of its evaluations of other Reference Contracts. If a party which has one or more of its designated Reference Contracts rejected has one or more other Reference Contracts which it has not previously designated and which it believes to satisfy all of the Contracts Criteria, then such affected party shall within three (3) Business Days following its receipt from the auditor of a rejection notice designate either a single substitute Reference Contract or two (2) such substitute Reference Contracts (designating one as its first preference and the other one as its second preference), in the same manner as the original designation. If a party whose Reference Contract(s) was (were) rejected has two (2) or more other concentrate purchase or sale agreements which it believes qualify as Reference Contracts, it shall be obligated to designate two (2) substitute Reference Contracts (with its first and second preferences indicated to the auditor). The auditor shall evaluate the second preference substitute Reference Contract only if required for the party who submitted such second substitute Reference Contract to have the full number of eligible Reference Contracts. If notwithstanding the submittal of such substitute Reference Contract(s) the auditor does not rule as eligible the full number of Reference Contracts for a party, then the remaining Reference Contracts which were submitted by such party and which are determined to be eligible shall be used exclusively in such party's weighted average determinations. Notwithstanding anything to the contrary recited in this Section 9.2(i), each calendar year each party shall have the option of making one but not more than one discretionary change in its designations of eligible designated Reference Contracts. A designated Reference Contract which is eligible for one or more years but which subsequently expires or is terminated, under which a Current Settlement is not made, or which no longer satisfies all of the Contracts Criteria, shall be deleted as one of such party's eligible designated Reference Contracts, but such deletion and any substitution therefor shall not be considered to be a discretionary change for purposes of this paragraph. (d) Calculation of Weighted Average Figures for Each Party's Eligible Reference Contracts. Upon completion of the review of all designated Reference Contracts by the auditor, if Buyer or Seller has received a ruling from the auditor that at least one of its designated Reference Contracts is eligible, then such party shall promptly calculate the weighted average figure for each of the above identified terms taking into account the Current Settlement which is applicable to all eligible tonnage (i.e. the tonnage which is being sold by Seller or purchased by Buyer or MMC) to be delivered under all of its eligible designated Reference Contracts during the annual period covered by such Current Settlement. Such calculations, the results thereof and a brief explanatory report of how each figure was determined shall be furnished to the auditor (with a copy sent to the other party) within five (5) Business Days following the completion of the auditor's rulings on all designated Reference Contracts. If either Seller or Buyer is unable to designate any Reference Contracts satisfying all of the Contracts Criteria, or the auditor does not rule as eligible any of such designated Reference Contracts, then such party's concentrate sales agreements shall not be taken into account in making the combined weighted average determinations under this Section 9.2. The weighted average figure for the smelting charge shall be calculated separately from the weighted average figure for the Payable Copper refining charge. In the event that the smelting charge and the Payable Copper refining charge is expressed on a combined smelting and refining charge basis in any eligible designated Reference Contract, the smelting charge shall be calculated separately from the Payable Copper refining charge for such Reference Contract in a manner which allows direct comparison of the smelting and Payable Copper refining figures on a similar number basis. In other words, the number of Dollars used for a smelting charge shall equal the number of tenths of a cent used for the refining charge. For example, in an eligible designated Reference Contract which recites a combined smelting and refining charge of $0.20 per pound of Payable Copper for copper concentrates with a 44% copper grade and with a Payable Copper figure of 96.5%, such combined smelting and Payable Copper refining charge shall be converted to a $97.00 smelting charge and a $0.097 Payable Copper refining charge, and such latter figures utilized in the weighted average calculations for the smelting charge and the Payable Copper refining charge for such Reference Contract. With respect to calculation of the weighted average figures for price participation, for each eligible designated Reference Contract the price participation shall be determined for each price of copper and averaged together on a weighted average basis. An illustration of the proper method for each party to use in calculating its weighted average figure for price participation is set out on Appendices (C) and (D). (e) Calculation of Weighted Average Figures for the Ertsberg Concentrate Agreement and MMC Concentrate Agreement. At the same time that Seller calculates and furnishes to the auditor the weighted average figures for its own eligible designated Reference Contracts, Seller shall separately calculate and furnish to the auditor (with a copy to Buyer) a weighted average figure for each of the above identified terms together with a brief explanatory report, taking into account all quantities covered by Seller's Current Settlement under (1) the Ertsberg Concentrate Agreement, plus (2) the MMC Concentrate Agreement. For purposes of these Section 9.2(i) calculations, both of these contracts (including their successors as described in the definitions of such Agreements) shall be deemed to be eligible designated Reference Contracts. The provisions of subsection (d) governing how such calculations will be made shall also apply to the calculation of the weighted average figures for this group of eligible designated Reference Contracts. If only one of the two (2) above identified agreements is in effect for the calendar year under consideration, or if a Current Settlement has been made under only one of such agreements, then only the figures reflected in such agreement which has been currently settled shall be utilized. If neither of such two agreements is in effect for such calendar year or if no Current Settlement has been effected under such agreement(s) for such calendar year, then such concentrate sales agreements shall not be taken into account in making the weighted average determinations under this Section 9.2(i). Each party, within five (5) Business Days following receipt of the weighted average figures, supporting calculations and explanatory reports produced by the other party, shall furnish to the auditor for its consideration any questions, comments or objections it may have regarding such figures, calculations and reports produced by the other party. (f) The Auditor's Preliminary and Final Determinations. The auditor, promptly after receiving the above described weighted average figures and supporting calculations and explanations, and any comments or objections made by the non- submitting party, shall evaluate such information and then make any adjustments it deems appropriate to each party's calculations. Such adjustments may be made by the auditor if the auditor finds simple mathematical errors, errors resulting from a misinterpretation of this Section 9.2(i), errors resulting from a misinterpretation of any eligible designated Reference Contract, errors due to the failure to take into account factors which unreasonably distort a figure being utilized by a party in its calculations or for other reasons deemed appropriate by the auditor. The auditor shall then issue to both parties a preliminary report reciting its determination as to each weighted average figure (including an explanation of any adjustments which it has made) for each of the three above described groups of Reference Contracts. The auditor shall simultaneously calculate and include in its preliminary report a weighted average figure for each of the above described terms, giving equal weight to each of the three separate groups of Reference Contracts without consideration of the tonnage included in any of the three constituent weighted average figures [e.g., (Group 1 Weighted Average Smelting Charge Figure x 1/3) + (Group 2 Weighted Average Smelting Charge Figure x 1/3) + (Group 3 Weighted Average Smelting Charge Figure x 1/3) = Weighted Average Smelting Charge Figure]; provided, however, if one or more of the three groups of Reference Contracts is not to be taken into account in making the weighted average determinations hereunder, then the weighted average shall be determined by the auditor by giving equal weight to each of the remaining category(ies) of Reference Contracts. Each party shall have five (5) Business Days following receipt of the auditor's preliminary report of the weighted average figures for each of the above recited terms to submit to the auditor any comments or objections which it may have to such figures and report. The auditor shall promptly consider such comments or objections and submit its final combined weighted average figures and final report to the parties. (g) Effect of Final Report and Retroactive Adjustment. The combined weighted average figures reflected in the auditor's final report shall constitute the smelting charge, the Payable Copper refining charge and the price participation terms applicable to Part B Tonnage in each cargo of Concentrates delivered hereunder during the then current calendar year. Such terms shall be reflected in all invoices for shipments following issuance of the final report and shall be made retroactive to the first day of the calendar year. An adjustment statement with accompanying invoice or payment, as appropriate, shall be issued by Seller as soon as practicable following Seller's receipt of the final report, to reflect any differences between the amount of the payments previously made by Buyer based on the interim terms which are applicable between the first day of the calendar year and the date of the adjustment, and the amounts which are applicable to such periods based on the final report of the auditor. (h) Interim Terms Governing the Period Prior to Final Report Issuance. The smelting charge, the Payable Copper refining charge and the price participation terms applicable to the Part B Tonnage for any period of any calendar year prior to the issuance of the auditor's final report for such year with respect to any portion of the Part B Tonnage as to which the above identified terms have not yet been determined, shall be: (i) with respect to the initial annual determination for 1998 (or such later calendar year in which the first delivery of Concentrates to the smelter is expected to occur), the weighted average of (a) the smelting and Payable Copper refining charge and price participation terms reflected in the most recent Part B settlement under the Ertsberg Concentrate Agreement, and (b) the smelting and Payable Copper refining charge and price participation terms reflected in the most recent settlement under the MMC Concentrate Agreement, utilizing the quantity which has been settled in the most Current Settlement for MMC's account under each such agreement, and (ii) with respect to the annual determinations for all subsequent calendar years, the smelting and Payable Copper refining charge and price participation terms applicable hereunder for the immediately preceding calendar year. (ii) Payable Gold and Payable Silver Refining Charges for Part B Tonnage. The Payable Gold refining charge for all Part B Tonnage shall be $6.00 per ounce of Payable Gold, and the Payable Silver refining charge for all Part B Tonnage shall be $0.35 per ounce of Payable Silver. 9.3 Minimum Smelting and Refining Charges; Possible Recoupment of Lost Revenues. Notwithstanding anything to the contrary recited in this Agreement, if at any time during the period commencing with the first shipment hereunder during the Initial Inventory Period and ending with the ninth anniversary of the Commencement of Commercial Operations, the smelting and refining charges for all payable metals (copper, gold and silver) and any applicable price participation (on a combined basis) for the average of the Part A Tonnage and the Part B Tonnage are below $0.21 per pound of Payable Copper, then the smelting and refining charges for all such payable metals including any applicable price participation (on a combined basis) for the average of the Part A Tonnage and the Part B Tonnage shall be $0.21 per pound of Payable Copper (the "Floor TC's and RC's"). The applicability and amount of the Floor TC's and RC's shall be determined on a shipment-by- shipment basis and reflected on Seller's final invoice for each shipment of Concentrates hereunder, whenever the Floor TC's and RC's are applicable. At least 180 days prior to the ninth anniversary of the Commencement of Commercial Operations, Seller and Buyer shall meet for the purpose of negotiating and agreeing upon a new "Floor TC's and RC's" figure which shall be at a level which is sufficient to cover all projected costs of debt service, if any, associated with the Project Loans or any refinancing thereof, and cash operating costs. Such new Floor TC's and RC's figure shall remain in effect from the ninth anniversary to the fifteenth anniversary of the Commencement of Commercial Operations, and so long thereafter as mutually agreed upon at the time such negotiation takes place, it being understood that neither party shall propose to extend the applicability of such Floor TC's and RC's beyond such fifteenth anniversary any longer than is necessary to fully repay the Project Loans or any refinancing thereof. If for any reason agreement on such figure is not reached by 90 days prior to the ninth anniversary date, such figure shall be determined by arbitration (and giving effect to the requisite level thereof contemplated by this paragraph) in accordance with the provisions of Article 20 of this Agreement. Such Floor TC's and RC's figure shall be subject to the required approval of the Government, which approval Seller shall seek to procure on a timely basis in good faith. If at any time (i) MMC has received an average annual simple return of 13% on its total capital contribution (which includes subordinated loans) and Seller has been reimbursed for all return amounts which it previously assigned to MMC, sample calculations of which occurrences are set forth on Appendix "B" hereto, and (ii) the smelting and refining charges for all payable metals (on a combined basis) for the Part A Tonnage and the Part B Tonnage shall be more than $0.10 per pound of Payable Copper above the Floor TC's and RC's, then to the extent necessary to reimburse Seller for any loss of revenues in prior periods due to the application of the Floor TC's and RC's in accordance with the foregoing paragraphs of this Section 9.3, the smelting and refining charges for all payable metals (on a combined basis) for Part A Tonnage and Part B Tonnage shall be $0.10 per pound of Payable Copper above the Floor TC's and RC's. The reference in (i) above to MMC and Seller shall in each case be inclusive of any successor to each such entity. The calculation of such return on equity positions shall be the responsibility of Buyer. Such calculation shall be made not less frequently than once per year following the Commencement of Commercial Operations, and not less frequently than once per calendar quarter when Buyer determines in good faith that such return will be realized in less than one year; and a copy shall be furnished to Seller. Seller shall have the right to conduct an annual audit of Buyer's calculations, including the information supporting the figures reflected in such calculation, and Buyer shall make such information and calculation available to Seller. The parties shall promptly resolve any disagreements regarding such calculation. 9.4 Deductions for Impurities. The following amounts, if applicable pursuant to Section 12.5, shall be deducted from the Seller's final invoices for each cargo of Concentrates sold hereunder. The amounts stated below are deductions per DMT of Concentrates in such cargo. As: If the arsenic assay exceeds 0.2 unit, $2.50 for each 0.1 unit of such excess (fractions pro rata). Bi: If the bismuth assay exceeds 0.05 unit, $0.30 for each 0.01 unit of excess (fractions pro rata). Sb: If the antimony assay exceeds 0.1 unit, $0.50 for each 0.01 unit of such excess (fractions pro rata). Cl: If the chlorine assay (other than for possible seawater contamination) exceeds 0.05 unit, $0.50 for each 0.01 unit of such excess (fractions pro rata). Pb: If the lead assay exceeds 1 unit, $1.50 for each one unit of such excess (fractions pro rata). Zn: If the zinc assay exceeds 3 units, $1.50 for each one unit of such excess (fractions pro rata). Ni plus Co: If the nickel plus cobalt assay exceeds 0.5 unit, $0.30 for each 0.1 unit of such excess (fractions pro rata). F: If the fluorine assay exceeds 330 ppm, $0.10 for each 10 ppm of such excess (fractions pro rata). Hg: If the mercury assay exceeds 10 ppm, $0.20 for each 1 ppm of such excess (fractions pro rata). Alumina: If the alumina assay (A1 x 1.8889) over three consecutive calendar months averages (on a weighted average basis) in excess of 3%, $3.00 for each 1% of such excess (fractions pro rata). This penalty may be reviewed at the end of the fifth Contract Year upon the request of either party upon furnishing a written request to do so to the other party. 9.5 Exclusive Remedy. The deductions per DMT of Concentrates set forth in Section 9.4 shall be the Seller's sole obligation and the Buyer's exclusive remedy for the quality of or the impurities in the Concentrates, except as otherwise expressly provided in Sections 2.3, 2.5 and 9.7. 9.6 General Provisions Applicable to Smelting and Refining Charges. For purposes of computing the smelting and refining charges applicable to each cargo sold under this Agreement, each of the different smelting and refining charges shall be applied proportionately to the total quantity of such cargo. For example, during all periods of time when agreement is in effect with respect to the smelting and refining charges applicable to all of the Part A Tonnage, for each cargo of Concentrates sold, 50% of the smelting and refining charges shall be computed in accordance with the provisions of this Article 9 governing Part A Tonnage, 50% of the smelting and refining charges shall be computed as provided in accordance with the provisions of this Article 9 governing Part B Tonnage; and the weighted average of the two calculations shall be the smelting and refining charges applicable to that cargo (subject to adjustment in accordance with Section 9.3, if applicable). All commercial terms and conditions applicable to Concentrates sold hereunder during the first calendar year portion of the first Contract Year shall also be applicable to the sale of Concentrates to Buyer during the Initial Inventory Period except as specifically provided in Section 9.1. 9.7 Special Provisions Applicable to Concentrates with Copper, Gold and/or Silver Outside the Five-Year Expected Analysis. If the average analysis of copper, gold and/or silver contained in the total quantity of Concentrates delivered hereunder with respect to any consecutive three (3) calendar months is outside the ranges of the Five-Year Expected Analysis provided by Seller to Buyer in accordance with the provisions of Section 2.2 for the then current five (5) Contract Year period, then upon the written request of either Seller or Buyer, Buyer and Seller shall promptly meet for the purpose of mutually agreeing on adjustments to the smelting and refining charges (including consideration of price participation terms) and to the definition of the payable metal(s) which is (are) outside such five (5) year range to a level which is equivalent to the world market smelting and refining charges and payable metals definitions for copper concentrates of the same quality. If the parties cannot agree on such adjustments within 30 days from the date of the first meeting held for such purpose, then the parties shall mutually refer the matter to the referee(s) under Article 19. Pending resolution of such adjustments, the current smelting and refining charges and payable metals definitions applicable to Concentrates having copper, gold and silver within the then current five (5) year specifications shall be utilized in calculating payments for shipments hereunder, with an appropriate retroactive adjustment made as soon as the adjustments are determined (with interest at the 60 day LIBOR rate plus 0.5% per annum). The provisions of this Section shall not be applicable to those quantities of Concentrates delivered by Seller and which are within the Five-Year Expected Analysis ranges provided by Seller to Buyer in accordance with the provisions of Section 2.2 for the then current five (5) Contract Year period. Any adjustment to smelting and refining charges (including price participation terms) under this Section 9.7 shall in no event increase or diminish the effect or applicability of Section 9.3 of this Agreement. ARTICLE 10 Periodic Review of Commercial Terms 10.1 Provision Governing Part A Tonnage Smelting and Refining Charges and Minimum Smelting and Refining Charges. Provisions governing the smelting and refining charges applicable to Part A Tonnage are set forth in Section 9.1, and the provisions of this Article 10 shall have no application to the Part A Tonnage smelting and refining charges. The provisions of this Article 10 shall also have no application to Section 9.3. 10.2 Periodic Review of Certain Commercial Terms. Between January 1, 2003 and March 31, 2003 and between January 1 and March 31 of each fifth year thereafter during the term of this Agreement, Buyer and Seller shall meet at a neutral location which alternates between a location selected by Seller and a location selected by Buyer, in order to review with each other the Commercial Terms of this Agreement and to agree on such terms on a basis which is fair, reasonable and reflective of then current market conditions. For purposes of this Section 10.2 the term "Commercial Terms" shall mean: (1) the definitions of the terms "Payable Copper", "Payable Gold" and "Payable Silver" contained in Sections 8.1, 8.2 and 8.3, (2) the definitions of the term Quotational Period contained in Section 8.4, (3) the payment terms of Article 11, (4) the penalties contained in Section 9.4, (5) the discharging rates contained in Section 5.3, (6) the amount of dispatch and demurrage contained in Section 5.6, and (7) the definition of Contracts Criteria contained in Appendix "A" and the number of Reference Contracts recited in Section 9.2(i)(c) to be included in each of Buyer's and Seller's group of Reference Contracts used in determining the smelting charge, the Payable Copper refining charge and the price participation terms applicable to Part B Tonnage. All agreements reached as a result of such periodic review shall be reflected in a written amendment hereto signed by both Buyer and Seller reciting the settlement of the Commercial Terms which will be applicable for the ensuing period of five (5) Contract Years. If agreement on any Commercial Term(s) is (are) not reached by the end of the month of March of any such fifth year, unless such deadline date is extended by mutual written agreement, and a party hereto is of the good faith opinion that a Commercial Term(s) is (are) either no longer fair, reasonable and reflective of the current market (as to item numbers 1-6 above), or is no longer functional or within the original intent of this Agreement (as to item number 7 above), then such party may refer such Commercial Term(s) to the referee(s) on or before April 15 of such year by notice in accordance with the procedure set forth in Article 19. The party referring such Commercial Term(s) to the referee(s) shall bear and pay all of the costs and expenses associated with such referee(s) determination, unless the referee(s) shall determine that the merits of the arguments submitted by the non-referring party lack significant merit in which case the referee(s) may require a different sharing of such costs and expenses. Pending a determination of any such Commercial Term(s) referred to the referee(s), the Commercial Term(s) which were in effect for the immediately preceding Contract Year shall be applicable, and promptly following such determination a retroactive adjustment to the beginning of such five (5) Contract Year period shall be made with interest on the amount of the adjustment equal to the published prime commercial lending rate of The Chase Manhattan Bank (National Association) or its successor for loans in New York applicable for each day thereof on the date of determination, for the period from April 1 to the date the retroactive adjustment is made. If agreement between Buyer and Seller is not reached during the course of any such periodic review as to any Commercial Term(s) and such Commercial Term(s) is (are) not referred to the referee(s) in accordance with the above described procedure, then such Commercial Term(s) as to which mutual agreement is not reached or decided by the referee(s) shall remain in effect as it existed during the immediately preceding Contract Year and shall continue in effect for the ensuing five (5) Contract Year period and until changed in accordance with the periodic review procedures of this Section 10.2 during a subsequent review. ARTICLE 11 Payments 11.1 Manner of Payment. (a) All payments by Buyer for Concentrates sold hereunder shall be net cash, in Dollars, and shall be paid in good and collected funds by wire transfer to "The Chase Manhattan Bank N.A., New York, New York, ABA No. 021000021, for credit to P.T. Freeport Indonesia Company Sales Proceeds Account No. 920-1- 073278", unless and until Seller shall otherwise direct. Buyer shall notify Seller by telex or facsimile at the time it makes a payment as provided above. (b) All payments by Seller in connection with the sale of Concentrates hereunder shall be net cash, in Dollars, and shall be paid in good and collected funds by wire transfer to an account specified by Buyer and acceptable to Seller (which acceptance shall not be unreasonably withheld), unless and until Buyer shall otherwise direct. Seller shall notify Buyer by telex or facsimile at the time it makes a payment as provided above. (c) Bank charges, if any, in respect of payments hereunder shall be for the account of the party transferring funds. 11.2 Provisional Price. For purposes of provisional invoicing as provided in Section 11.3, the provisional price of each cargo of Concentrates shall be determined by Seller by reference to loaded weights, estimated assays, and except as provided otherwise in Section 8.10 of this Agreement the respective prices for (i) Payable Copper determined pursuant to Section 8.6 of this Agreement as if the applicable Quotational Period for Payable Copper were the two full calendar weeks prior to the date of shipment, less applicable smelting and refining charges, and (ii) Payable Gold and Payable Silver determined pursuant to Sections 8.7 and 8.8 of this Agreement, less applicable refining charges, as if the applicable Quotational Period for Payable Gold and Payable Silver were the two full calendar weeks prior to the date of shipment. 11.3 Provisional Payment. Seller shall present the following documents to Buyer: (i) Seller's provisional invoice, (ii) Seller's weight, moisture and assay certificates based on loaded weights and Seller's provisional assay certificate, (iii) a full set of clean on-board ocean bills of lading or charter party bills of lading reflecting that freight is payable by Seller, and (iv) original insurance policy or certificate upon each shipment. Buyer shall make a provisional payment equal to 90% of the provisional price as determined pursuant to Section 11.2 for the Payable Copper, Payable Gold and Payable Silver in each shipment of Concentrates sold hereunder, such provisional payment to be made on the fifth Business Day after the Date of Arrival. The provisional invoice shall reflect Seller's preliminary calculation of any applicable penalties based on the best information available to Seller at the time such invoice is prepared. Seller shall prepare the documents described above in such number of sets, and otherwise in accordance with such directions, as Buyer shall reasonably specify in light of Buyer's own financing and other requirements. 11.4 Final Payment. Seller shall transmit to Buyer its final invoice for each cargo of Concentrates by telex or facsimile within two Business Days after dry weights and assays shall have been agreed and the final price applicable to such cargo shall have been determined. The final price shall include such adjustments to the penalties recited in Seller's provisional invoice as are appropriate to take into account the results of the final assays. Final payment for each cargo of Concentrates sold hereunder shall be made by Buyer on the second Business Day after receipt of Seller's final invoice, or if the final price as shown on Seller's final invoice is less than the amount of the provisional payment made by Buyer pursuant to Section 11.3, the amount of the difference shall be paid by Seller on the second Business Day after Seller has transmitted its final invoice to Buyer or, at the option of Buyer, Buyer may deduct such amount from sums thereafter becoming due and payable to Seller. 11.5 Final Price Determination in the Event of Loss. In case of (i) total loss or damage of the Concentrates at any time prior to weighing, sampling and moisture determination at the Receiving Works, or (ii) a total or partial loss or damage of the Concentrates in any cargo delivered at an alternate port at any time, the final invoice shall be based upon full dry weights and assays as determined at time of loading. In case of partial loss of the Concentrates in any cargo delivered at the Receiving Works prior to weighing, sampling and moisture determination at the Receiving Works, the final invoice shall be based upon (i) the dry weight as determined at the time of loading and (ii) the weighted average of the final assays for copper, gold and silver, (as ascertained by assay in accordance with Article 13 of this Agreement) as determined from the portion of such cargo safely delivered to Buyer. In case of damage to a portion of the Concentrates in any cargo delivered to the Receiving Works, the final invoice shall be based upon the dry weight determined at the Receiving Works and the weighted average of the final assays for copper, gold and silver, (as ascertained by assay in accordance with Article 13 of this Agreement) as determined from the portion of such cargo safely delivered to Buyer without damage. In case of a total loss prior to delivery at the Receiving Works, the Date of Arrival will be deemed to have occurred 10 days after completion of loading at the Port of Loading for purposes of determining Quotational Periods and payment dates. In case of total loss prior to delivery at any Port of Discharge other than Gresik, the Date of Arrival will be deemed to have occurred 20 days after completion of loading at the Port of Loading for purposes of determining Quotational Periods and payment dates. 11.6 Interest. In the event that any payment of moneys to be made by either party to the other pursuant to this Agreement shall not be made on or before the date such payment is due and payable in accordance with the provisions of this Agreement, the party which shall be liable for such payment shall also pay interest on such late payment calculated from the date such payment was due and payable through the date such payment is made at the published prime commercial lending rate of The Chase Manhattan Bank (National Association) or its successor for loans in New York in effect from time to time (such rate to be adjusted simultaneously with each change in such prime commercial lending rate), plus 2%, and calculated on the basis of a 365-day year. Notwithstanding the above, the provisions of Section 3.4 shall govern the calculation of interest and the interest rate applicable to payments for certain Concentrates which Buyer is unable to take delivery of in a timely manner hereunder. ARTICLE 12 Weighing, Sampling and Determination of Moisture 12.1 General Procedures. Weighing, sampling and determination of moisture for each cargo shall be carried out in accordance with accepted industry standards and with reliable modern equipment (i) by Seller at Seller's expense at Seller's Port of Loading and (ii) by Buyer at Buyer's expense at the Receiving Works. The methodology of the sampling and moisture determination shall be as mutually agreed by Seller and Buyer. Unless otherwise mutually agreed, Seller shall be entitled to have not more than two of its own representatives present, or at its own expense to be represented by an independent weigher and sampler, at the Receiving Works, and Buyer shall be entitled to have not more than two of its own representatives present, or to be represented at its own expense by an independent weigher and sampler, at Seller's Port of Loading. 12.2 Determination of Dry Weight. Subject to Section 11.5, the dry weight as determined at the Receiving Works shall govern for the purpose of final settlement of the price for each cargo. If any shipment is diverted to an alternate port pursuant to Section 5.11, Seller's dry weight at the Port of Loading shall govern unless Buyer obtains Seller's prior written consent to utilize the dry weight at the alternate port, which consent Seller shall not unreasonably withhold. 12.3 Sample Lots. Each lot shall form a separate and complete delivery for all purposes of this Agreement. Subject to the express provisions of this Agreement, the size of each lot shall be approximately 500 wet metric tons or such other quantity as may be mutually agreed. 12.4 Number and Handling of Samples. The sample taken from each lot of Concentrates as specified in this Article 12 shall be divided into six equal parts, two for Seller, two for Buyer, one for the umpire and one for reserve. Seller shall cause its agent promptly after completion of sampling to send via prepaid airfreight the umpire samples to the umpire appointed pursuant to Section 13.3. The reserve samples shall be retained by Seller's agent where taken. 12.5 Composite Samples. For the purpose of conducting analyses of elements set forth in Section 9.4, four sets of composite samples shall be taken from each cargo -- one for Seller, one for Buyer, one for the umpire and one for reserve. The umpire and reserve samples shall be distributed and/or retained as provided in Section 12.4. ARTICLE 13 Assay 13.1 Method for Determining Final Analysis. From the samples taken in accordance with Article 12 at the Receiving Works, assays for copper, gold and silver, respectively, shall be made independently by the respective assayers of Seller and Buyer, and the results of such assays shall be exchanged simultaneously on a lot by lot basis within 40 days from time of sampling. The mean of such results shall be final and binding upon the parties hereto, if such results show that the differences between Seller's and Buyer's assays are within the following limits: Copper 0.3% Gold 0.5 gram per DMT Silver 15.0 grams per DMT 13.2 Determination of Final Analysis if Shipment Diverted. If any shipment is diverted to an alternate port pursuant to Section 5.11 other than any Port of Discharge, Seller's analysis at the Port of Loading shall govern unless Buyer obtains Seller's prior written consent to utilize the analysis at the alternate port, which consent Seller shall not unreasonably withhold. 13.3 Designation of Umpire. If such results show that the difference between Seller's and Buyer's assays for the copper, gold or silver exceeds the applicable limit specified in Section 13.1, either Seller or Buyer shall have the right, exercisable by notice to the other, to refer the matter to an umpire mutually acceptable to the parties, which acceptance shall not be unreasonably refused. If neither Seller nor Buyer shall so refer the matter to the umpire within 10 days after the date of exchange of such results, the mean of such results shall be final and binding upon the parties hereto. 13.4 Determination of Final Analysis Using Umpire's Assay. If either Seller or Buyer shall so refer the matter to the umpire, the umpire's assay shall be made on the basis of the umpire's samples. The umpire shall be instructed to advise both Seller and Buyer of the results of the umpire's assay by facsimile and mail. The mean of the results of the umpire's assay and the results of the assay of the party whose results are nearer to that of the umpire's results shall be final and binding on the parties hereto. If the results of the umpire's assay shall be the mean of the results of the assays of the respective parties, the results of the umpire's assay shall govern. The cost of the umpire shall be paid by the losing party, except that, if the results of the umpire's assay is the mean of the results of the respective parties, the cost shall be shared equally by Seller and Buyer. 13.5 Analysis of Composite Samples for Impurities. Buyer shall have the right, exercisable by notice in writing given not later than 55 days after the completion of sampling in accordance with Article 12, to exchange assays with Seller for any one or more of the impurities referred to in Section 9.4. From the composite samples held by Seller and Buyer, each party, at its own expense, shall assay each of the designated impurities. The assay results shall be exchanged within 10 days after the Buyer's notice to Seller. If such results show that the mean of Seller's and Buyer's assays exceeds the limits enumerated for such penalty elements in Section 9.4, either Seller or Buyer shall have the right, exercisable by notice to the other, to have any difference or differences resolved by an umpire assay in accordance with Section 13.4. If neither Seller nor Buyer shall so notify the other in writing within 10 days after such assay exchange, the mean of the results of Seller's and Buyer's assays shall be final and binding upon the parties hereto. ARTICLE 14 Taxes 14.1 Value Added Tax. If Indonesian Value Added Tax, Sales Tax or any other similar tax (but excluding tax imposed on net income), hereinafter collectively, "VAT", is payable in connection with this Agreement or the concentrate sales made hereunder, Seller shall, in the manner required by applicable Indonesian tax law and practice, calculate the amount of VAT payable and submit a proper Faktur Pajak ("VAT Invoice") to Buyer along with Seller's invoice prepared in accordance with Article 11 of this Agreement. Any such VAT Invoice must comply with then applicable Indonesian tax law and practice. Should Buyer be appointed a collector of VAT, then Seller will supply to Buyer the required copies of the VAT Invoice and the tax payment forms (Surat Setoran Pajak, or "SSP"). 14.2 Payment of Value Added Tax. Buyer shall discharge the VAT obligations reflected in the VAT Invoice in a manner consistent with then applicable Indonesian tax laws and practice and shall provide Seller with appropriate evidence of Buyer's discharge of such obligations as required by such law and practice. ARTICLE 15 Exemption from Liability and Obligation In no event shall Buyer or Seller be liable, whether arising under contract, tort (including negligence), strict liability or otherwise, for loss of anticipated profits or consequential loss or damage of any nature arising at any time from any cause whatsoever, incurred or claimed to have been incurred by the other party hereto. This Article 15 shall apply notwithstanding any other provision of this Agreement. The liability and obligation of Seller to deliver Concentrates to Buyer under this Agreement shall be released and discharged if Seller closes permanently all of its mining and milling operations at its presently known deposits and at any new ore body(ies) in the Contract Area for any reason; provided that Seller has given Buyer at least 18 months prior written notice before such closure, and the effect of such permanent closure shall be the automatic termination of this Agreement for all purposes except for liabilities which accrued prior to the effective termination date. Buyer agrees to keep any such notice received from Seller confidential until such time as the information concerning Seller's permanent closure of all its mining and milling operations at its known deposits and at any new ore body(ies) in the Contract Area becomes public knowledge; provided, however, Buyer shall have the right to disclose the information to its lenders, collateral trustee or collateral agent, shareholders, significant customers, or if required by law or regulation (including, without limitation the regulations of any securities exchange on which Buyer's securities are traded). In the event of such disclosure, Buyer shall use its best efforts to obtain confidential treatment of the information. If Buyer decides to withdraw from the copper smelting business for any reason, the liability and obligation of Buyer to take delivery of Concentrates under this Agreement shall be released and discharged; provided that Buyer has given Seller at least 18 months prior written notice before such withdrawal, and the effect of such permanent closure shall be the automatic termination of this Agreement for all purposes except for liabilities which accrued prior to the effective termination date. Seller agrees to keep any such notice of withdrawal received from Buyer confidential until such time as the information concerning Buyer's withdrawal from the copper smelting business becomes public knowledge; provided, however, Seller shall have the right to disclose the information to its lenders, Trustees, shareholders, significant customers, or if required by law or regulation (including, without limitation, the regulations of any securities exchange on which Seller's securities are traded). In the event of such disclosure, Seller shall use its best efforts to obtain confidential treatment of the information. ARTICLE 16 Relief from Economic Hardship 16.1 Consultation in the Event of Hardship. The provisions of this Agreement are intended by Buyer and Seller to operate fairly over the term of this Agreement. Buyer and Seller recognize that it is impracticable to make provision for every contingency which may arise during the term of this Agreement. In the future, should circumstances arise which were unforeseeable at the time this Agreement was made and which actually have caused severe economic hardship to either Buyer or Seller from the continued operation of this Agreement, then Buyer and Seller agree to promptly consult together and review the provisions of this Agreement and, in the spirit of good faith and fair dealing, consider possible modifications thereof which might lessen such severe economic hardship. Such economic difficulties shall not be cause for the termination of this Agreement or relieve any party from its obligations under this Agreement. No modification of this Agreement shall be made except by mutual agreement of the parties hereto in writing. 16.2 Limitations on Right to Request Consultation. It is not intended that this Article 16 be invoked to deprive a party of savings or advantages arising from the efficiency of the party which contributes to the profitability of its operations. ARTICLE 17 Notices All notices, requests, directions and other communications required or permitted by any provision of this Agreement shall be in writing and in the English language and shall be sufficiently given or transmitted if delivered by hand, sent by telegraph, telex or telecopy, by registered mail or by internationally recognized express courier service, and addressed (1) in the case of Buyer, Plaza 89, 6th Floor, S-602, J1. H.R. Rasuna Said Kav. X-7, No. 6, Jakarta 12940, Indonesia, FAX: 21-522-9615, and (ii) in the case of Seller, 1615 Poydras Street, New Orleans, LA 70112, U.S.A., Telex: 62759930 with answerback - FREESULPH NO, FAX: (504) 582-1835, or at such other address as may be designated in writing respectively by Buyer or Seller, as the case may be, as the proper address to which such communications should be mailed or delivered to it, and shall become effective on the date of receipt by the party to which it shall be addressed. If given other than by hand, by registered mail or by internationally recognized express courier service, such communication shall be promptly confirmed by letter. ARTICLE 18 Assignment 18.1 Binding Effect. This Agreement shall inure to the benefit of and be binding upon the successors of the parties hereto and, subject to the further provisions of this Article 18, the respective permitted assigns of such parties. 18.2 Seller's Assignment to the Trustee. Pursuant to the terms of the Trust Agreement, upon execution hereof, this Agreement and all rights and interests of Seller and PT-RTZ hereunder shall automatically be assigned to the Trustee acting under such Trust Agreement, for the benefit, amongst others, of Seller and PT-RTZ and certain lenders to Seller or PT-RTZ. Said Trustee may further assign the rights and interests previously referred to in this Section 18.2 to an additional trustee or receiver as contemplated by the Trust Agreement. In the event the Trust Agreement is terminated, Seller and PT-RTZ may further assign such rights and interests to any person who has or is entitled to an interest in the COW or who has the right to participate in the production of Concentrates to be sold and delivered under this Agreement or to the Trustee in trust for any such person. By executing this Agreement Buyer hereby acknowledges and consents to any and all such assignments and agrees that (i) all payments made pursuant to this Agreement by Buyer shall be made to said Trustee (or to an additional trustee, or a receiver, if so directed by the Trustee) without any deduction, counterclaim or setoff other than adjustments contemplated by and deductions specified in this Agreement other than incremental taxes or liabilities associated with each payment to the Trustee and (ii) in the event an Allocation Notice or an Enforcement Notice (as defined in the Trust Agreement) shall have been given to the Trustee or, in the event the Trust Agreement is terminated and a further assignment by Seller or PT-RTZ as mentioned above is entered into, Buyer shall accept performance by or on behalf of said Trustee, such assignee, an additional trustee, a receiver or a successor operator appointed to conduct operations contemplated by the COW, provided that such performance shall in all other respects be in accordance with the provisions of this Agreement. Buyer shall execute and deliver such other documents, and do such acts and things, as may be necessary or appropriate to acknowledge or accomplish any assignment or assignments contemplated by, and to effectuate the intent and purpose of, this Section 18.2. 18.3 Buyer's Assignment to a Trustee. Buyer shall have the right to assign to a collateral trustee or collateral agent under a trust agreement(s) or other similar agreement, all rights and interests which Buyer now has or which shall hereafter arise under this Agreement, as amended or modified from time to time, including Buyer's right to receive proceeds payable to it in accordance with this Agreement, for the sole purpose of providing security to one or more lenders, and, in the event of any such assignment, Seller agrees that (i) any payments to be made in accordance with the terms of this Agreement by Seller shall, if and to the extent so directed by Buyer, be made to the assignee or assignees, or one or more duly appointed representatives thereof, without any deduction, counterclaim or setoff other than adjustments contemplated and deductions specified in this Agreement and (ii) in case of a default under a security instrument, Seller shall accept performance by such assignee or assignees or one or more such representatives, provided that such performance shall in all other respects be in accordance with the provisions of this Agreement. Seller shall execute and deliver such other documents, and do such acts and things, as may be necessary or appropriate to accomplish any assignment or assignments contemplated by, and to effectuate the intent and purpose of, this Section 18.3. 18.4 Other Assignments. Except as provided in Sections 18.2 and 18.3, this Agreement shall not be assignable by Buyer or Seller without the express written consent of the other party, which consent shall not be unreasonably withheld, and only in accordance with a written instrument, in form and substance satisfactory to the non-assigning party, by which the assignee or assignees shall assume all the obligations hereunder of the assigning party. The assumption of such obligations by the assignee shall not relieve the assigning party of such obligations except to the extent that such assignee or assignees shall in fact perform such obligations. ARTICLE 19 Referees 19.1 General. In the event that any matter shall be referred to referees pursuant to Sections 2.3, 8.10(c), 9.1(i)(b), 9.7 or Article 10, the referee mutually selected by the parties or, failing such mutual selection, a majority of the three referees appointed in accordance with this Article 19, shall make the necessary determination. Each of Buyer and Seller shall use all reasonable efforts to assure that the referee(s) shall be persons qualified by reason of their experience and knowledge with respect to both the worldwide marketing of copper concentrates and the copper smelting business. 19.2 Selection of Referees. The party referring the decision to the referees shall give notice in writing to the other party. The parties shall then promptly confer with each other and use all reasonable efforts to mutually agree upon the appointment of a single referee to decide the matter involved. If agreement is reached on such referee, both parties shall engage such referee. If, notwithstanding such efforts, the parties are unable to mutually agree upon a single referee within 15 days following the date of receipt of the notice initiating such dispute resolution process by the party to whom such notice was addressed, then the party who sent the initiating notice shall appoint one referee. The other party shall then appoint the second referee. In the event of an unreasonable delay by either party in appointing a referee in accordance with the above procedures, the Singapore International Arbitration Centre, upon the application of the other party hereto, shall appoint such referee within 30 days after such application is made. A third referee shall be appointed by mutual agreement between the parties. If the parties cannot agree on the third referee within 45 days after the notice was given, the third referee will be appointed by application to the Singapore International Arbitration Centre who shall appoint the third referee within 30 days after such application is made. 19.3 Proceedings. The referee(s) shall conduct its (their) proceedings in accordance with rules it (they) shall establish for itself (themselves) and it (they) shall use its (their) best efforts to come to a decision within a period of 90 days from the date on which the last referee was appointed. The parties shall cooperate in good faith in providing the referee(s) with any relevant information or necessary assistance it (they) may request. 19.4 The Decision. The referees shall be deemed to be acting as experts and not as arbitrators, and their decision shall be binding on the parties to the maximum extent of the law and be deemed to be incorporated into this Agreement. Each such award shall be retroactive to the date of the notice referred to in Section 2.3, 8.10(a), 9.1(i)(b), or 9.7, or Article 10 as applicable. Except where the referees decide to assess all costs against the losing party and except as specifically provided to the contrary elsewhere in this Agreement, each party shall be responsible for and pay its own costs and expenses in such negotiations and proceedings, including but not limited to the fees and expenses of its attorneys, accountants, engineers and other experts, plus one-half of all costs and expenses of the proceeding itself including but not limited to the costs of rental or other payment for the meeting room(s) or other place(s) where the proceeding occurs, and each party shall bear the cost of the referee nominated by it or on its behalf and the parties shall each bear an equal share of the cost of the third referee. ARTICLE 20 Arbitration 20.1 Amicable Settlement. Any dispute arising out of or in connection with this Agreement or its performance, including the validity, scope, meaning, construction, interpretation, application, breach or termination hereof shall to the extent possible be settled amicably by negotiation and discussion between the parties. Either party wishing to invoke the right to conduct such settlement negotiations shall give written notice to the other party of the substance of the dispute and propose a schedule of conferences to resolve the matter. 20.2 Arbitration Rules. Any such dispute not settled by amicable agreement within 60 days of receipt of the written notice described in Section 20.1 (or such other period as may be agreed by both parties in writing in any specific case) shall be finally settled by arbitration in Singapore as an international arbitration under the auspices of the Singapore International Arbitration Centre and applying the UNCITRAL Arbitration Rules, excluding only those matters which are to be settled by referees or where another settlement procedure is specifically provided for in this Agreement. In the event of a conflict between the UNCITRAL Arbitration Rules and the terms of this Agreement, the terms of this Agreement shall govern. Documents may be submitted in either English or Japanese without the need for translation. 20.3 Arbitrators. Any arbitration hereunder shall be conducted in both the English and Japanese languages before a panel of three arbitrators. Each arbitrator shall preferably be fluent in both English and Japanese, but if fluent in only one of such languages, such arbitrator shall retain an experienced interpreter paid for by the appointing party (or in the case of the third arbitrator the interpreter, if needed, shall be retained by such arbitrator and paid for by the parties equally), and shall be appointed in accordance with the following provisions: (a) each of the Buyer and Seller shall appoint one arbitrator and the two arbitrators so appointed shall select the third arbitrator (who shall not be a resident or national of the U.S. or Japan). The third arbitrator shall act as the presiding arbitrator; (b) if within a period of 30 days from the date of the notice of arbitration, a party has failed to appoint an arbitrator, or, the two appointed arbitrators have failed to select the third arbitrator within 30 days after both arbitrators have been appointed, the Chairman of the Singapore International Arbitration Centre shall appoint such arbitrator or arbitrators as have not been appointed. 20.4 Arbitration Award. The award rendered in any arbitration commenced hereunder shall apportion the costs of the arbitration. With respect to the period of time from the effective date of this Agreement up to and including the date on which the Project Loans have been fully repaid, consistent with the provisions of Article 631 R.V. (Reglement op de Rechtsvordering), the parties expressly agree that the arbitrators shall be bound by the strict rules of law in making their decisions, and shall not render decisions ex aequo et bono. With respect to the period of time following the date on which the Project Loans have been fully repaid, consistent with the provisions of Article 631 R.V., the arbitrators shall not be bound by strict rules of law where they consider the application thereof to particular matters to be inconsistent with the spirit of this Agreement and the underlying intent of the parties, and as to such matters their conclusions shall reflect their judgment of the correct interpretation of all relevant terms hereof and the correct and just enforcement of this Agreement in accordance with such terms. 20.5 Award to be Final and Conclusive. The award rendered in any arbitration commenced hereunder shall be final and conclusive, and judgment thereon may be entered in any court having jurisdiction for its enforcement. The parties expressly agree to waive Article 641 of the Indonesian Code of Civil Procedure and Articles 15 and 108 of Law No. 1 of 1950 (Supreme Court Rules), and accordingly there shall be no appeal to any court from the decision of the panel of arbitrators. No party shall be entitled to commence or maintain any action in a court of law upon any matter in dispute until such matter shall have been submitted and decided as herein provided and then only for the enforcement of the board of arbitration's award. 20.6 Performance of Obligations Pending Decision. Pending submission to the board of arbitration and thereafter until the board of arbitration gives its award, the parties hereto agree that they will continue to perform all their respective obligations under this Agreement without prejudice to the final judgment in accordance with the said award. 20.7 Waiver of Right to Terminate Board of Arbitration. The parties hereto expressly agree to waive the applicability of Article 650.2 of the Indonesian Commercial Code, so that the appointment of the board of arbitration shall not terminate as of the sixth month from the date of its appointment. The mandate of the board of arbitration reconstituted in accordance with the terms hereof shall remain in effect until a final arbitral award has been issued by the board of arbitration. 20.8 The parties hereto agree that any matter which is expressly subject to final settlement or negotiation pursuant to Section 2.3, 8.10(c), 9.1(i)(b), 9.7 or Article 10, shall not be referred to arbitration pursuant to this Article 20. ARTICLE 21 Governing Law The provisions of this Agreement shall be governed in all respects by and construed in accordance with the laws of the State of New York, U.S.A. ARTICLE 22 Force Majeure 22.1 Definition. The term "Force Majeure" shall mean any event beyond the control of the party affected thereby, including without limitation, acts of God or the public enemy, war, warlike operations, strikes, labor slowdowns or other work stoppages, labor shortages, combination of workmen, suspension of labor, lockout or other labor disturbance, fire, flood, explosion, earthquake, storm, tidal wave or similar disturbance, drought, breakdown of machinery or facilities, inability to obtain raw materials, operating materials, plant equipment or materials required for maintenance or repairs, sabotage, riot, confiscation, embargo, action of any government including the passage of new legislation, court orders and future orders (lawful or otherwise) of any regulatory body having jurisdiction, accident, lack of truck or railroad transportation or seaboard freight facilities, or delays in route, or without limiting the generality of the foregoing, any other disabling causes beyond the reasonable control of Seller or Buyer. 22.2 Effect of Force Majeure. Either party to this Agreement shall be excused from making or accepting deliveries of Concentrates to the extent described in this Article 22 when its inability to perform is due to Force Majeure. The party claiming force majeure shall give prompt notice thereof to the other party, specifying the nature of the Force Majeure in reasonable detail as well as its estimated duration, upon its occurrence. Notice shall also be given immediately upon the termination of the Force Majeure. The notice given on the occurrence of an event of Force Majeure shall be referred to as a declaration of Force Majeure. If the party receiving the declaration of Force Majeure disputes that an event of Force Majeure has occurred, the matter will be resolved as provided in Article 20, it being understood, however, that such dispute shall not defeat the effectiveness of such notice pending the resolution of such dispute. In the event of such dispute, the parties will expedite the completion of arbitration to the maximum extent feasible. (a) As soon as possible following a declaration of Force Majeure the parties shall discuss all relevant details of the Force Majeure, including but not limited to all facts which would assist in evaluating the projected duration of such Force Majeure. At the end of such meeting or as soon thereafter as practicable the party which declared such Force Majeure shall notify the non- declaring party of its updated best estimate of the projected duration of the Force Majeure. (b) If the estimated duration of the event of Force Majeure is no more than 15 consecutive days, the quantity of Concentrates which cannot be delivered or accepted as a result of such event of Force Majeure shall be delivered as soon as practicable following the termination of such event of Force Majeure. (c) If the estimated duration of the event of Force Majeure is more than 15 consecutive days, either party may, by notice in writing to the other party, cancel in whole or in part the sale and purchase of the quantity of Concentrates which cannot be delivered or accepted, as a result of, and during the period of continuance of the event of Force Majeure in which event the Contractual Tonnage for such Contract Year shall be automatically reduced by the quantity of Concentrates which are affected or reasonably foreseen to be affected by the declaring party. If such cancellation is made in respect of an event of Force Majeure declared by Seller, Buyer shall be free to purchase from third party suppliers of copper concentrates the quantities of Concentrates which it reasonably requires during the estimated duration of the Force Majeure event. If any event of Force Majeure results in a suspension of Seller's Concentrate production for more than 15 consecutive days, Seller shall use its best efforts to deliver to Buyer, and Buyer shall use its best efforts to accept delivery of, that portion (provided that such portion shall be at least 5,000 DMT) of the Concentrates allocated to this Agreement which had been produced prior to the interruption of production by the event of Force Majeure and Buyer shall accept and pay for all such Concentrates so delivered. 22.3 Parties to Use Reasonable Efforts. Both parties agree to use all reasonable efforts from time to time and at all times to prevent the occurrence of any event of Force Majeure, and to cause the termination of any event of Force Majeure that has occurred. Notwithstanding the foregoing, the settlement of labor disputes shall be entirely in the discretion of the party affected thereby and there shall be no obligation on the affected party to test or refrain from testing the validity of any order, regulation or law relating to such labor disputes. ARTICLE 23 Default 23.1 Events of Default. A party shall be deemed to be in default of this Agreement if any of the following occur: A. The party shall have become voluntarily or involuntarily the subject of any receivership, bankruptcy or insolvency proceedings; or B. the party has committed a material breach of any provision of this Agreement and such breach is not cured within ninety (90) days after notice thereof is given to the defaulting party, or within such longer period of time as may be reasonable under the circumstances where the cure of the breach cannot be completed within 90 days notwithstanding the continuous best efforts of the defaulting party. 23.2 Notice of Default. If either party claims the other party is in default with respect to the provisions of this Agreement, the party so claiming shall give notice to the party alleged to be in default, designating such claimed default and providing all particulars of which it is aware. Within thirty (30) days after its receipt of such notice, the party alleged to be in default may either (a) cure such default, or (b) in good faith give the other party notice that the party alleged to be in default denies that such default has occurred. In the event a default is denied by a party, said party shall not be deemed to be in default hereof unless and until said party is found by a final, non- appealable arbitral decision to be in default. 23.3 Liability for Default. In the event that a party's default is confirmed by arbitration as provided in Article 20, the arbitrators shall be entitled to grant to the non-defaulting party such relief as they determine to be appropriate, subject to the limitation of Article 15 that neither party shall be entitled to loss of anticipated profits or consequential damages. ARTICLE 24 Non-Waiver of Defaults The failure of either party hereto to require in any one or more instances strict performance of any of the provisions of this Agreement, or a waiver by either party at any time of its rights with respect to a default under this Agreement by the other party hereto, or an election not to take advantage of any of its rights thereunder shall not be deemed a waiver of any such rights (except to the extent, and only to the extent, specifically waived in writing). No delay in asserting or enforcing any right hereunder shall be deemed a waiver of or limitation on such right; provided, however, that this Article shall not operate as a waiver of any applicable statute of limitations. ARTICLE 25 Miscellaneous 25.1 Opinion of Buyer's Counsel. Buyer shall deliver to Seller and/or to the Trustee under the Trust Agreement, for the benefit of each of them, if requested to do so in writing at any time prior to the Effective Date, an opinion of Buyer's counsel as to the following: (a) that the Buyer has been duly created and is validly existing under the laws where Buyer was incorporated; (b) that Buyer has full corporate power and authority to own its properties and conduct the business in which it is engaged and to make and perform this Agreement; and (c) that this Agreement has been duly authorized, executed and delivered by Buyer and constitutes the legal, valid and binding obligation of Buyer, enforceable in accordance with its terms. 25.2 Opinion of Seller's Counsel. Seller shall deliver to Buyer and/or to a collateral lender or collateral agent of Buyer's Project lenders, for the benefit of each of them, if requested to do so in writing at any time prior to the Effective Date, an opinion of Seller's counsel as to the following: (a) that the Seller has been duly created and is validly existing under the laws where Seller was incorporated; (b) that Seller has full corporate power and authority to own its properties and conduct the business in which it is engaged and to make and perform this Agreement; and (c) that this Agreement has been duly authorized, executed and delivered by Seller and constitutes the legal, valid and binding obligation of Seller, enforceable in accordance with its terms. 25.3 Entire Agreement. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof. Neither this Agreement nor any provision hereof can be waived, changed, discharged or terminated except by an instrument in writing signed by the party against which the enforcement of any waiver, change, discharge or termination is sought. 25.4 Counterparts. This Agreement may be executed in any number of counterparts and shall become binding when executed by Seller and by Buyer. Each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same agreement. 25.5 Headings. The headings of the respective Articles, Sections and Subsections of this Agreement are inserted for convenience of reference only and shall not be deemed to be a part of this Agreement or considered in construing this Agreement. 25.6 Publication of Articles. Seller hereby releases the Direksi (executive officers) and the Komisaris (commissioners) of Buyer from any personal liability that such Direksi or Komisaris may have hereunder solely as a consequence of Buyer having executed this Agreement prior to the publication of its Articles of Association in the Official Gazette of the Republic of Indonesia. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. WITNESS: P.T. FREEPORT INDONESIA COMPANY _______________________ By ___________________________ Louis T. Zawislak Senior Vice President WITNESS: P.T. SMELTING CO. ________________________ By _____________________________ APPENDIX "A" DEFINITIONS Attached to and made a part of that certain Concentrate Purchase and Sales Agreement between P.T. Freeport Indonesia Company and P.T. Smelting Co., dated as of December 11, 1996. NOTE: ALL REFERENCES IN THIS APPENDIX "A" TO SECTION NOS. ARE TO THE SECTION NOS. OF THE ABOVE REFERENCED AGREEMENT. 1. "Affiliate" shall mean any entity which directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with a party to this Agreement; where control is determined by possession, directly or indirectly, through one or more intermediaries, of the ability to direct the management and policies of an entity and control shall be presumed to exist whenever one person or entity holds, directly or indirectly, through one or more intermediaries, twenty-five percent (25%) or more of the outstanding voting shares or interests in another entity. 2. "AIP" shall have the meaning set forth in the fourth WHEREAS clause of this Agreement. 3. "Agreement" shall mean the Concentrate Purchase and Sales Agreement between Buyer and Seller to which this Appendix "A" is attached. 4. "Annual Budgeted Copper Grade" shall mean with respect to each Contract Year the percentage of copper contained in Concentrates to be delivered hereunder as estimated by Seller pursuant to Section 2.2 as part of the annual product review, and as furnished to Buyer under the provisions of this Agreement. 5. "Annual Shipping Schedule Quantity" shall have the meaning set forth in Section 3.2 B. 6. "Approved Japanese Port" shall mean Naoshima and Onahama and, if and when Nippon Mining and Metals Co., Ltd. is a shareholder of Buyer, Saganoseki. 7. "Business Day" shall mean any day other than Saturday, Sunday or a day that is a bank or public holiday in the State of New York, United States of America or in Jakarta or Gresik, Indonesia (one of such Indonesian locations to be specified by Buyer as soon as possible following the date of this Agreement), as applicable. 8. "CIF" shall have the meaning set forth for such term in the publication Incoterms (latest edition). 9. "Commencement of Commercial Operations" shall mean the earlier of (i) the Production Date and (ii) the first anniversary of the date of Mechanical Completion. 10. "Commercial Terms" shall have the meaning specified in Section 10.2. 11. "Concentrates" shall mean sulphide flotation copper concentrates produced at and originating from the Contract Area. 12. "Contract Area" shall have the meaning set forth in the first WHEREAS clause to this Agreement. 13. "Contracts Criteria" shall mean and include the following characteristics of a Reference Contract: (i) The party designating the Reference Contract must be a signatory party to such Contract. For purposes of this criteria as it applies to the Reference Contracts designated by Buyer, MMC must be a signatory party; (ii) The Reference Contract must have a term of at least two (2) years; (iii) The Reference Contract must be for the sale of 30,000 DMT's or more for the account of the designating party's account for the year under consideration. However, a 30,000 DMT per year concentrate sales agreement which quantity consists of two (2) 15,000 DMT per year bricks is acceptable provided the terms used in the designating party's calculations of its weighted average figures are in the first year of the brick (terms in later years of a brick shall not be used because it is deemed that they do not represent the current market). Buyer and Seller will designate larger annual tonnage concentrate sales agreements in preference to smaller annual tonnage concentrate sales agreements unless special circumstances exist which cause the designating party to believe in good faith that the larger annual tonnage agreements are less representative of the then current world market terms and conditions; (iv) The quantity which a party may use from any particular Reference Contract for purposes of making its weighted average calculation shall be limited to the quantity which such party is purchasing or selling under such Contract (i.e. a party cannot use quantities intended for another party); (v) The Reference Contract must be between the owner of a smelter and the owner of a mine; (vi) The Reference Contract must be between parties who are not Affiliates; (vii) A Reference Contract must not be between a party to this Agreement and a third party (or such third party's Affiliate) with whom the designating party has given or received special financial or other consideration (such as a loan or other contractual arrangement) which may affect the commercial terms of such Reference Contract. Notwithstanding the foregoing, if a party designates such a Contract and the other party raises this criteria as an issue, then if the submitting party presents arguments to the auditor which satisfy such auditor that the terms were negotiated on a strictly arms length basis and were not affected by such special financial or other consideration, such Contract will be deemed to satisfy this criteria; (viii) Neither the Ertsberg Concentrate Agreement nor the MMC Concentrate Agreement shall be designated by either party as these agreements are utilized in accordance with the provisions of Section 9.2(i); (ix) All commercial terms of the Reference Contracts which are used in the weighted average calculations must have been settled during the period from October 1 of the immediately preceding year to March 1 of the current year and be applicable to the immediately succeeding annual period following such settlement. If a party is unable to settle a Reference Contract by March 1 which was scheduled for settlement on or before March 1 according to the terms of such Contract, but gives notice to the auditor that it believes in good faith that such settlement will be concluded prior to March 31, and such party then concludes such settlement during the month of March and provides all of such terms as settled to the auditor by March 31, then such Contract will be deemed to satisfy this criteria; (x) The Reference Contract must be for copper concentrates which are generally considered within the market as "clean concentrates" and which have a current average annual copper grade of 26% to 46%. "Clean concentrates" shall mean copper concentrates not containing impurities or other characteristics which cause the smelting and refining charges for such concentrates to be inflated relative to the generally applicable market level of such charges; and (xi) A Reference Contract shall not be designated by a party to replace a Reference Contract which has previously been ruled eligible by the auditor, unless it: (a) is the replacement for an eligible Reference Contract as a result of a party's exercise of its discretionary right to replace one eligible Reference Contract per calendar year, or (b) is a replacement for a previously eligible Reference Contract which has terminated or does not satisfy all of the Contracts Criteria for the current annual period. 14. "Contractual Tonnage" with respect to each Contract Year shall mean the quantity of Concentrates measured in DMTs which Buyer is obligated to purchase, pay for and accept delivery of and which Seller is obligated to sell and deliver during such Contract Year, which quantity is determined in accordance with the provisions of Section 3.2, it being understood that the term "Contractual Tonnage" as set out in Section 3.2 may be modified in accordance with the express written provisions of other sections of this Agreement. 15. "Contract Year" shall mean, with respect to the first Contract Year, the period of time commencing three (3) months following the date of Mechanical Completion and ending twelve (12) months following such date; with respect to the second Contract Year, the period of time commencing at the end of the first Contract Year and ending twelve (12) months following such date; with respect to the third Contract Year, the period of time commencing at the end of the second Contract Year and ending at midnight on December 31 (at the Port of Loading) of the calendar year in which such third Contract Year began; and with respect to the fourth Contract Year and each succeeding Contract Year during the term of this Agreement, each calendar year thereafter at the Port of Loading. 16. "COW" shall have the meaning set forth in the first WHEREAS clause of this Agreement. 17. "Current Settlement" shall have the meaning set forth in subsection (c) of Section 9.2(i) of this Agreement. 18. "Date of Arrival" shall mean, with respect to shipments to a Port of Discharge or alternate port within Indonesia, the date on which the carrying vessel tenders Notice of Readiness at such port, and with respect to shipments to a Port of Discharge or alternate port outside Indonesia, the date on which the vessel carrying such quantity first reports officially to customs, quarantine or such other location at which vessels customarily report for discharging cargos at such port. 19. "Effective Date" shall mean the date first written above (subject to approval of this Agreement by the Government). 20. "Ertsberg Concentrate Agreement" shall mean that certain Concentrate Sales Agreement between Seller and certain Japanese corporations, dated December 31, 1990, as amended, and any concentrate sales agreement between Seller and any one or more of such Japanese corporations (but which must in any event include MMC) entered into upon or following expiration of such December 31, 1990 Agreement, as amended. 21. "Facilities" shall mean the copper smelter, refinery, jetty and other facilities of the Project. 22. "Financial Disadvantage" shall mean the net impact to the affected party resulting from the failure of the other party to comply with the terms of this Agreement and consisting of (i) documented actual lower revenues from sales, plus (ii) any costs and expenses incurred which are in excess of those costs which would otherwise have been incurred (including increased general and administrative expenses and the increased costs of purchasing concentrates), and minus (iii) any costs and expenses avoided thereby or reduced as a result of each party's duty to mitigate losses; but Financial Disadvantage shall not include any losses or costs arising out of third party liabilities. 23. "Five-Year Expected Analysis" shall have the meaning set forth in Section 2.2. 24. "Floor TC's and RC's" shall have the meaning set forth in Section 9.3 of this Agreement. 25. "FLUOR", "FDEC" and "FDA" shall have the meanings set forth in the WHEREAS clauses of this Agreement. 26. "Government" shall mean the Government of the Republic of Indonesia and its Ministries, agencies and political subdivisions. 27. "Initial Inventory Period" shall mean the three month period following Mechanical Completion. 28. "Inventory Allowance" shall have the meaning set forth in Section 3.3 of this Agreement. 29. "Major Contracts" shall mean those contracts as described in subparagraphs (a) through (g) (inclusive) of Section 4.3 of the Project Planning Agreement. 30. "Mechanical Completion" of the Facility means when, except for minor items of work that would not affect the performance or operation of the Facility such as painting, landscaping and so forth, (a) all materials and equipment for the Facility have been installed by the Contractor or Subcontractors in accordance with the plans and the Scope Book, and checked and tested for alignment, lubrication, rotation and hydrostatic or pneumatic pressure integrity; (b) the Facility has been flushed and cleaned out as necessary; (c) all systems are ready to commence start-up, testing and operations; and (d) a Punchlist of the uncompleted items shall be established and mutually agreed upon by Owners, Independent Engineer and Contractor, provided that Owner and Independent Engineer may waive, in writing, completion of Punchlist items. It is understood that Mechanical Completion can be accomplished in incremental steps, the sum total of which, after Notice in accordance with Section 8.2 of the Construction Contract described below, shall constitute Mechanical Completion of the Facility. All capitalized words in this definition shall have the meaning ascribed to them in the Construction Contract between P.T. Chiyoda International Indonesia and Buyer, effective as of May 31, 1996. 31. "MMC" shall have the meaning set forth in the third WHEREAS clause of this Agreement. 32. "MMC Concentrate Agreement" shall mean that certain Concentrate Sales Agreement between Seller and MMC, dated as of January 1, 1995, as amended, and any concentrate sales agreement between Seller and MMC entered into upon or following expiration of such January 1, 1995 Agreement, as amended. 33. "Month of Arrival" with reference to each cargo of Concentrates shall mean the calendar month the Date of Arrival falls in. 34. "Month of Scheduled Shipment" with reference to each cargo of Concentrates shall mean the calendar month set forth in the shipping schedule provided by Buyer to Seller pursuant to Article 6, as it is finally revised or amended in accordance with the provisions of such Article. 35. "Normal Office Hours" shall mean (i) on Monday through Friday, from _____:00 to _____:00, and (ii) on Saturday, from _____:00 to _____:00; provided, however, Normal Office Hours shall not include (unless such days are worked) national holidays, customary local and smelter holidays, and Saturdays customarily not worked by the office personnel at the Receiving Works. The times to be inserted in the blank spaces above shall be mutually agreed upon by Buyer and Seller as soon as possible following the date of this Agreement. 36. "Notice of Readiness" shall have the meaning set forth in Section 5.4. 37. "One Year in Advance Forecasted Quantity Requirement" shall have the meaning set forth in Section 3.2 A. 38. "Part A Tonnage" shall mean fifty percent (50%) of the Concentrates delivered in each cargo during each Contract Year of the term of this Agreement. The smelting and refining charge deduction for Part A Tonnage shall be determined as provided for in Section 9.1. 39. "Part B Tonnage" shall mean fifty percent (50%) of the Concentrates delivered in each cargo during each Contract Year of the term of this Agreement. The smelting and refining charge deduction for Part B Tonnage shall be determined as provided for in Section 9.2. 40. "Payable Copper" shall have the meaning set forth in Section 8.1 of this Agreement. 41. "Payable Gold" shall have the meaning set forth in Section 8.2 of this Agreement. 42. "Payable Silver" shall have the meaning set forth in Section 8.3 of this Agreement. 43. "Permanent Holiday Tonnage" shall have the meaning set forth in Section 9.1(i). 44. "Port of Discharge" shall mean Buyer's dedicated berth at Gresik, Java, Indonesia or such other port(s) as may be mutually agreed upon. The term "Port of Discharge" shall also mean an Approved Japanese Port with respect to shipments of Concentrates to such Approved Japanese Port in accordance with the provisions of Section 2.3(c). 45. "Port of Loading" shall mean Amamapare, Irian Jaya, Indonesia or such other port at which Concentrates are loaded for shipment to the Port of Discharge. 46. "Preliminary Estimated Analysis" shall have the meaning specified in Section 2.2. 47. "Production Date" shall mean the date when the first 1,200 metric tons of anodes of a quality acceptable by Buyer for refining by Buyer's refinery have been produced over a period of four consecutive days by Buyer's smelter. 48. "Project" shall have the meaning set forth in the second WHEREAS clause of this Agreement. 49. "Project Loans" shall mean the total committed amount of the term and working capital loans to be provided pursuant to the initial financing documents to be entered into by Buyer and certain lenders for the financing of the Project (other than loans to Buyer from its shareholders). 50. "Project Planning Agreement" shall have the meaning set out in the sixth WHEREAS clause of this Agreement including any subsequent modifications, supplements or amendments thereto. 51. "Quotational Period" shall have the meaning set forth in Section 8.4 of this Agreement. 52. "Receiving Works" shall mean the Port of Discharge or the Facilities, whichever is applicable. 53. "Reference Contract" shall mean a concentrate purchase or sales agreement which is or may be designated by Buyer or Seller in accordance with and for the purposes set out in Section 9.2. 54. "Rolling Five Year Concentrates Requirements Forecast" shall have the meaning set forth in Section 3.2 A. 55. "Shareholders Agreement" shall have the meaning specified in the ninth WHEREAS clause of this Agreement. 56. "Trust Agreement" shall mean the Restated Trust Agreement dated as of October 11, 1996, among Seller, P.T. RTZ- CRA Indonesia ("PT-RTZ"), The Chase Manhattan Bank (National Association), as Depository, and First Trust of New York, National Association, as Trustee, as such Restated Trust Agreement may be amended, modified and/or restated from time to time, or any successor agreement pursuant to which Seller and/or PT-RTZ, as participants holding certain undivided interests in the COW and in the agreements pursuant to which Concentrates are sold, shall assign or has assigned any rights and interests which Seller and PT-RTZ now have or may hereafter have under this Agreement (as this Agreement may be amended and modified from time to time) including but not limited to the right to receive sales proceeds, for the purposes, inter alia, of facilitating the administration of the respective interests of Seller and PT-RTZ and of providing security to one or more lenders to Seller or PT- RTZ from time to time. 57. "Trustee" shall have the meaning specified in the definition of Trust Agreement. 58. "Weights, Measures and Currencies" shall mean: A metric ton = 2,204.62 pounds (avoirdupois) A ton = a metric ton A DMT = a dry metric ton A WMT = a wet metric ton A unit = a hundredth part An ounce = a troy ounce of 31.1035 grams A pound = 453.593 grams (avoirdupois) Dollars = currency of the United States of America (represented by the sign "$") EX-12 7 EXHIBIT 12 FREEPORT-McMoRan COPPER & GOLD INC. Computation of Ratio of Earnings to Fixed Charges:
Years Ended December 31, ------------------------------------------------- 1995 1996 1997 1998 1999 --------- --------- --------- --------- --------- (In Thousands) Income from continuing operations $ 253,618 $ 226,249 $ 245,108 $ 153,848 $ 136,467 Add: Provision for income taxes 234,044 247,168 231,315 170,566 195,653 Minority interests' share of net income 57,100 48,529 40,343 37,012 48,714 Interest expense 50,080 117,291 151,720 205,588 194,069 Rental expense factor(a) 1,002 457 240 323 188 --------- --------- --------- --------- --------- Earnings available for fixed charges $ 595,844 $ 639,694 $ 668,726 $ 567,337 $ 575,091 ========= ========= ========= ========= ========= Interest expense $ 50,080 $ 117,291 $ 151,720 $ 205,588 $ 194,069 Capitalized interest 49,758 22,979 23,021 19,612 3,768 Rental expense factor(a) 1,002 457 240 323 188 --------- --------- --------- --------- --------- Fixed charges $ 100,840 $ 140,727 $ 174,981 $ 225,523 $ 198,025 ========= ========= ========= ========= ========= Ratio of earnings to fixed charges(b) 5.9x 4.5x 3.8x 2.5x 2.9x ==== ==== ==== ==== ====
Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends:
Years Ended December 31, ------------------------------------------------- 1995 1996 1997 1998 1999 --------- --------- --------- --------- --------- (In Thousands) Income from continuing operations $ 253,618 $ 226,249 $ 245,108 $ 153,848 $ 136,467 Add: Provision for income taxes 234,044 247,168 231,315 170,566 195,653 Minority interests' share of net income 57,100 48,529 40,343 37,012 48,714 Interest expense 50,080 117,291 151,720 205,588 194,069 Rental expense factor(a) 1,002 457 240 323 188 --------- --------- --------- --------- --------- Earnings available for fixed charges $ 595,844 $ 639,694 $ 668,726 $ 567,337 $ 575,091 ========= ========= ========= ========= ========= Interest expense $ 50,080 $ 117,291 $ 151,720 $ 205,588 $ 194,069 Capitalized interest 49,758 22,979 23,021 19,612 3,768 Rental expense factor(a) 1,002 457 240 323 188 Preferred dividends 101,125 101,083 65,896 65,847 68,697 --------- --------- --------- --------- --------- Fixed charges $ 201,965 $ 241,810 $ 240,877 $ 291,370 $ 266,722 ========= ========= ========= ========= ========= Ratio of earnings to fixed charges(b) 3.0x 2.6x 2.8x 1.9x 2.2x ==== ==== ==== ==== ====
a. Portion of rent deemed representative of an interest factor. b. For purposes of 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. EX-13 8 Exhibit 13.1 WORKING TOWARD SUSTAINABLE DEVELOPMENT 1999 ECONOMIC, SOCIAL & ENVIRONMENTAL REPORT Introduction International television provided its viewers worldwide with an unforgettable spectacle New Year's Eve, December 31, 1999. As the new millennium arrived - first in the Pacific and then marching westward around the globe, time zone by time zone - live cameras recorded the event in a prolonged panorama. In nation after nation, through a beautiful mosaic of cultures, the event was commemorated in remarkably similar fashion. It was a uniformly joyous and peaceful celebration. As we watched one another through the magical eye of television, however, we could not help noticing that our once seemingly boundless planet and its wonderful variety of peoples have truly become a global community. No place seems so remote anymore; no resource seems so limitless. As we stand at the threshold of the new millennium, it appears more important than ever to meet the challenge of global sustainability: learning how to meet the development needs of the world's growing population without depriving future generations of the means to meet their own needs. For Freeport-McMoRan Copper & Gold Inc. (FCX) and the rest of the mining industry, this is indeed a challenge. Consider just the past century: Virtually all the major advances of the last one hundred years, including those that have seemed to shrink our planet - flight, space exploration, telecommunications - have depended on mining products. The importance of mining will continue in the 21st century because metals and minerals are essential to economic development. The direct benefits of that development are clear. It is equally clear that responsible mining has environmental and social impacts that must be managed carefully. The indirect benefits of mining, including facilitating educational, health care and community development advances in the areas of mining operations, are a part of these considerations. The dramatic improvements from past practices must be continued as the role of responsible mining in the transition to sustainable patterns of development is defined. Throughout our history of developing world-class ore deposits at the Grasberg complex in the province of Irian Jaya (Papua), Indonesia, we and our Indonesian mining affiliate, PT Freeport Indonesia, have been known for finding technological solutions to seemingly insurmountable obstacles in this once-remote part of the world. Moreover, FCX and PT Freeport Indonesia have been recognized, through operating innovations and efficiencies, as the low-cost leader in the industry. It is our goal - by taking a strong position at the forefront of the international mining industry - to also be a leader in working toward sustainability. We regard this as a key responsibility. To accomplish this, we have joined the Global Mining Initiative. This 18-month project, which is being conducted independently by the International Institute for Environment and Development under the auspices of the World Business Council for Sustainable Development, will assess the many issues related to mining and sustainable development. These include the economic contribution of mining, the use of the industry's products, the environmental impacts of extraction, and impacts on communities, indigenous peoples and human rights. In part, the project will seek ways to better explain mining's importance to sustainable patterns of economic development; but it will also identify further changes needed within the mining industry to enable it to take its place in a sustainable economy. The project involves broad participation by people and groups with whom the industry must engage and is designed to build a new foundation for these relationships based on mutual trust and understanding. We view this project as another way for our company to fulfill its duties, responsibilities and commitments, which are clearly stated in the Environmental Policy and the Social and Human Rights Policy, both of which have been approved by the FCX Board of Directors. Perhaps the most important aspect of these policies is the commitment we have made to continuous improvement of our performance in these two areas. We have also promised to constantly assess and report on our progress in meeting our commitments, and we .have done so with the Dames & Moore environmental audit in 1996, the LABAT-Anderson social audit in 1996 and 1997, and the Montgomery Watson environmental audit in 1999. Independent, highly qualified experts performed all of these audits. We have publicized their findings and have implemented or are in the process of implementing the audit recommendations. In recent years, we have provided significant additional information in our Annual Report to shareholders with sections concerning environmental and social issues. This is the second expanded report, "Working Toward Sustainable Development." Besides providing information on economic, social and environmental issues and events from 1999, this report creates benchmarks and provides significant new data that will be useful in tracking our progress as we work toward sustainable development throughout our operations. Our Social and Human Rights Policy and Environmental Policy are available to interested parties on our internet web site (www.fcx.com). The web site also has the results of the independent environmental and social audits and up-to-date information on our environmental and social programs, as well as the latest financial results. PT FREEPORT INDONESIA I. ECONOMIC IMPACTS PT Freeport Indonesia impacts the economies of the province of Irian Jaya (Papua) and Indonesia through the payment of taxes, dividends and royalties; voluntary economic development programs, such as the Freeport Fund for Irian Jaya Development; infrastructure development; employment; and the purchase and use of local and national goods (Figure 1). Fig. 1 Financial benefits of PT Freeport Indonesia's operations to the people and Government of Indonesia Graph showing the following data:
1992 1993 1994 1995 1996 1997 1998 1999 (Dollars in millions) Wages, Salaries & Benefits 20 26 38 90 82 98 45 48 Goods & Services Purchased 80 204 508 422 261 200 150 139 Domestic Reinvestments 368 486 707 447 498 641 367 215 Charitable Contributions 8 15 20 22 23 33 27 35 Dividends, Royalties & Taxes 107 94 117 297 273 237 150 144
PT Freeport Indonesia has frequently been the largest corporate taxpayer in the Republic of Indonesia. In addition, it pays the government royalties on production and dividends related to the government's direct ownership. Since 1991, these direct payments to Indonesia have totaled $1.42 billion. Taxes and royalties are paid to the central government in Jakarta and then used or distributed according to government policy and priorities. Indonesia's central and regional governments are currently modifying the distribution of such revenues so that a greater portion will benefit the regional government. PT Freeport Indonesia supports this change. Since we began development activities thirty years ago, PT Freeport Indonesia has made significant investments in infrastructure both for the use of the company and for the public in southern Irian Jaya (Papua). This includes medical facilities, roads, an airport and heliports, schools, housing, community buildings and places of worship. PT Freeport Indonesia is also one of the largest private employers in Indonesia and by far the largest in Irian Jaya (Papua). At the end of 1999, PT Freeport Indonesia directly employed 6,357 people, including 1,244 Papuans, and another 1,851 contract workers who were employed by companies which provide services locally and exclusively to PT Freeport Indonesia. In addition, approximately 5,000 persons worked for privatized companies providing services within PT Freeport Indonesia's operations area. Finally, PT Freeport Indonesia uses as many locally and nationally produced goods as possible. 7 Besides the $1.42 billion paid in direct benefits to the Government of Indonesia under PT Freeport Indonesia's new Contract of Work from 1992 through 1999, PT Freeport Indonesia has provided another $6.32 billion in indirect benefits in the form of wages and benefits paid to workers, purchases of goods and services, charitable contributions and reinvestments in operations. In all, approximately 80 percent of PT Freeport Indonesia's total revenues since 1992 have remained in and benefited Indonesia and its people. II. SOCIAL CHANGE AND DEVELOPMENT Background From the beginning of its operations in Irian Jaya (Papua), PT Freeport Indonesia has supported programs to benefit the Amungme and Kamoro people who were the area's traditional inhabitants. When it began operations in 1972, with a local population numbering only in the hundreds and a relatively small mine, PT Freeport Indonesia's initial programs were simple and limited. Houses for local leaders and community infrastructure were built, and free medical care was provided to the local people. With the discovery of the world-class Grasberg deposit in 1988 and the years of rapid operational expansion that followed, both the needs of the local communities and PT Freeport Indonesia's efforts to respond to them with an array of social and economic programs spiraled in complexity. PT Freeport Indonesia's resident workforce expanded, particularly during construction, and its attraction as a source of economic opportunity increased, drawing thousands of migrants from other indigenous Papuan tribes over the mountains and into the area of PT Freeport Indonesia's operations. The Indonesian government, pursuing its policy of transmigration, also moved thousands of people into the area from other parts of Indonesia. The result was a difficult and at times volatile mixture of Papuan indigenous peoples, which have their own history of interethnic tensions, with Indonesians from other islands who have completely different ethnic and cultural backgrounds. These diverse groups were all brought together in a population that rapidly grew to its present size of nearly 100,000 individuals, and continues to grow today. Social and Cultural Commitment We are committed to building and maintaining positive relationships with the indigenous peoples living in the areas where we operate and to the continuous improvement of those relationships. Part of our commitment is to provide opportunities for social and economic development for the local people, including special efforts to train and hire people indigenous to each operational area. Another part is to learn more about the local people, their histories and their changing circumstances in order to achieve a greater under- standing necessary for building constructive relationships. But perhaps the most important aspect is our commitment to treat the local people with respect and to consult them on important operational issues that impact their communities. PT Freeport Indonesia has also sought to be sensitive to the need of the unique peoples .of Irian Jaya (Papua) to preserve their cultures at the same time they are merging with modern development. For this reason, PT Freeport Indonesia has long supported the annual Asmat Art and Cultural Festival and sponsored the new annual Kamoro Art and Cultural Festival, which was highly successful its first two years. PT Freeport Indonesia formed a relationship with anthropologists and demographers from the Australian National University and Cenderawasih University in Jayapura to prepare baseline studies documenting the history and contemporary social, economic and cultural situation of the Amungme and Kamoro peoples in PT Freeport Indonesia's operations area. This work has resulted in improvements in communications and understanding between PT Freeport Indonesia and the local people and strengthened the company's community affairs programs by leading to additional financial, development and training resources. PT Freeport Indonesia has also funded research by Cenderawasih University on Amungme and Kamoro traditional law as well as a Kamoro language program, which has produced the first Kamoro conversation book, similar to work previously done on the Amungme language. Human Rights Background Because of the activities of a separatist group in Irian Jaya (Papua), the Government of Indonesia has stationed armed forces there. There have been a number of clashes between the Indonesian military and the separatists, and there have been allegations of human 8 rights violations in connection with some of these incidents. Certain of these allegations have been investigated, and the individuals in the military who were determined to be involved have been punished. We support and uphold the human rights of all people and have publicly and strongly condemned all human rights violations in Irian Jaya (Papua). We have applauded the government's arrest, trial, conviction and incarceration of those responsible for human rights violations in Irian Jaya (Papua) and also encourage and fully support any legitimate investigation of remaining allegations of human rights violations. There have been numerous investigations of human rights violations in Irian Jaya (Papua), and none found that any PT Freeport Indonesia employee participated in any violation. Human Rights Commitment and Initiative We have taken a clear position promoting basic human rights and have communicated that position to our employees through our Social and Human Rights Policy adopted by the Board of Directors in February 1999. In November 1999, we engaged Judge Gabrielle Kirk McDonald as Special Counsel on Human Rights to the Chairman of FCX. A former U.S. District Court Judge and noted civil rights attorney and professor of jurisprudence, Judge McDonald has served for the past six years as a Judge of the International Criminal Tribunal for the Former Yugoslavia and was elected President of the Tribunal in 1997. She stepped down from this distinguished position upon the expiration of her term November 16, 1999. Judge McDonald will continue to serve as a member of the FCX Board of Directors. Our Human Rights Policy requires education of all employees on human rights. This training began in 1999 with the PT Freeport Indonesia Community Affairs and Security Department employees and continues. In addition, the policy requires all employees to report to designated human rights compliance officers any suspected human rights violations whether done by company employees or by others. All security personnel and all staff employees are required to annually certify to the company that they have neither been part of nor do they know of any human rights violations. The first test of the policy came in December, 1999 when a number of incidents in the company's area of operations were reported as possibly being violations of human rights in the wake of an incident in Timika involving a separatist flag-raising and the government's response to it. Once investigated, it was determined that those being accused of human rights violations were not company employees. The matter was referred promptly to the appropriate Government of Indonesia officials, including the Indonesian Human Rights Commission and the State Minister for Human Rights. Equally important to these initiatives is the company's commitment through its social programs to proactively work to secure fundamental human rights for all citizens in its area of operations. The company also seeks, through improved communication and increased understanding, to reduce underlying frictions that are the root cause of situations that lead to human rights violations. Land Rights We acknowledge the special relationship between indigenous peoples and their traditional lands and, like mining companies worldwide, provide fair compensation for the use of those lands. Under Indonesian law, natural resources are owned by the state for the benefit of all the Indonesian people. Mining companies are allowed to operate and mine these resources as contractors to the government, operating under a government-approved Contract of Work. Indonesian law also provides for giving "recognition" in the form of community benefits to indigenous people for the temporary use of land. The 1974 "January Agreement" between PT Freeport Indonesia and the Amungme people was an agreement to provide "recognition" for the temporary use of land traditionally used by the Amungme, and is considered by PT Freeport Indonesia and the Government of Indonesia to be a legally binding release of land under Indonesian law. As part of the 1974 Agreement, PT Freeport Indonesia made significant improvements in the infrastructure of the local Amungme communities. In 1974, the impact of mining operations on the Kamoro people in the lowlands was minimal, and no recognition was negotiated. By 1997, mine expansion and the construction of the Ajkwa Deposition Area (please see the Environmental Management section for details) had impacted the lowlands area and some 9 stands of sago palm as well as certain access to traditional fishing areas. With the assistance of the Sejati Foundation, land recognition was negotiated with the Kamoro people living in several villages near the Ajkwa Deposition Area. The recognition plan includes the involvement of the Kamoro themselves in the building of substantial infrastructure for the use of the communities, as well as reclamation and economic development. PT Freeport Indonesia is currently negotiating with Amungme and Kamoro leaders voluntary additional recognition as a reflection of the expanded scope and continuing success of the mining operations. These discussions are part of an ongoing process to resolve issues between the company and the local people. Representation on PT Freeport Indonesia Board of Commissioners In order to give the Papuan people a greater voice in the governance of the company, PT Freeport Indonesia's shareholders in 1999 asked three additional local area leaders to join the PT Freeport Indonesia Board, and they have accepted. The new Board members include Tom Beanal, a local Amungme leader and a founder of LEMASA, the Amungme people's organization; Issac Hindom, who is from Biak and served as Governor of Irian Jaya (Papua) from 1984 through 1989; and Titus O. Potereyauw, a local Kamoro leader who serves as the Bupati of Mimika (the top executive of the regional government where PT Freeport Indonesia's principal operations are located). The present Governor of Irian Jaya (Papua), Freddy Numberi, already serves as a Board member of PT Freeport Indonesia. Freeport Fund for Irian Jaya Development (FFIJD) In April, 1996, PT Freeport Indonesia agreed to commit at least one percent of its revenues for the next ten years to support village-based health, education, economic and social development programs in its area of operations. This commitment replaced community development programs undertaken by the company that spent a similar amount of money each year. In 1999, PT Freeport Indonesia contributed $14.4 million to the FFIJD and has contributed a total of $54.8 million to the fund since the commitment was made in 1996. In addition, PT Freeport Indonesia's joint venture partner, Rio Tinto plc, has contributed another $6.5 million to date to the fund. The Lembaga Pengembangan Masyarakat-Irian Jaya (LPM), or the People's Development Foundation-Irian Jaya, oversees disbursement of FFIJD funds. The LPM Board of Directors is made up of the head of the local government, currently a Kamoro, a leader of the Amungme people, a leader of the Kamoro people, leaders of the three local churches, and a representative of PT Freeport Indonesia. The LPM Board of Directors makes grants from the FFIJD and oversees local development programs, through the Implementation Board, which is headed by an Amungme leader and is composed of representatives of all local indigenous groups. The LPM Board of Directors had its first full year of operations in 1999, approving a 1999/2000 operational plan and selecting a number of yayasans, or foundations, to implement funded projects. The operational plan provides assistance for all 71 villages in the Mimika district, with the greatest support going to the 29 villages defined by the Amungme and Kamoro as most critically impacted by PT Freeport Indonesia's operations. Satellite LPM offices now operate in Mapurujaya, serving 16 coastal Kamoro villages; Tembagapura, serving seven highland Amungme villages; and Timika, serving Kwamki Lama, Kwamki Baru and nearby areas. A flagship project for the LPM has been the Rumah Sakit Mitra Masyarakat, or Mimika Hospital, a new 75-bed facility built and furnished near Timika during 1999 at a cost of $3.5 million. The Mimika Hospital now provides a full range of medical diagnostic and treatment services to the lowlands portion of PT Freeport Indonesia's project area for the first time. Medical facilities for outpatient and inpatient services include a polyclinic, X-ray facility, operating unit, obstetrics-gynecology wards, intensive care wards and standard wards. In the past, many of these services were only provided at the hospital in Tembagapura in the highlands. The Mimika Hospital also offers special training and education programs to increase health consciousness among the local people. The hospital is owned by the LPM, and operated by Yayasan Caritas Timika, a Catholic medical foundation. The next major project envisioned by the LPM is a "school of excellence" for local children, from elementary school through high school. Medical Care, Public Health and Malaria Control Medical care is provided free of charge to all Papuans residing in the area and at a reasonable charge for others. These services are provided in LPM and PT Freeport Indonesia hospitals and clinics, preventive medicine and medical education programs. A primary focus for educational programs is on women and children, and the programs are carried out through the village health office and elementary schools. Malaria and tuberculosis are two of the primary public health threats in Irian Jaya (Papua). For the past decade, PT Freeport Indonesia has undertaken a major public health program that serves the entire community in and around PT Freeport Indonesia's operations area. The core of the Public Health and Malaria Control Program is health care education and early detection of disease through village-by-village canvassing, testing and treatment. Between 1997 and 1998, there was a 70 percent decrease in the number of malaria cases in the area. In 1999, however, the number of reported cases increased by 16 percent. We believe this increase was caused in part by the 10 return to more normal rainfall levels after two drier than normal years, causing an increase in mosquito-breeding habitat. Also, there was a significant influx of new residents, many of whom came from areas that do not have malaria and have not developed a normal resistance to the malaria parasite. In spite of the recent increase in reported cases, the Mimika region remains by far the safest coastal region in Irian Jaya (Papua) for the incidence of malaria. In addition to intensive testing and treatment of those who may have contracted malaria, various activities are used to control the mosquitoes in the area as well as to monitor their presence. A team of 125 workers maintains more than 300 kilometers of drainage ditches to minimize mosquito breeding. Other workers undertake night-time mosquito collection. On average more than 3,000 man-hours per month of such collections are undertaken in 12 major areas and 90 individual locations. Through these studies, the prevalence and movement of disease-carrying mosquitoes are tracked in order to identify potential problems. Tuberculosis is an increasing problem throughout Irian Jaya (Papua). Because PT Freeport Indonesia's Public Health and Malaria Control Department offers one of the few tuberculosis programs in Irian Jaya (Papua), many people who suffer from tuberculosis come to the Mimika area for treatment. Since the movement of people over long distances to receive treatment for tuberculosis is dangerous and inefficient, the department is beginning a pilot treatment program in the Paniai highlands region, where most of the tuberculosis cases originate. The long- term cure rate for tuberculosis through the program is 75 percent. Although most people who suffer from tuberculosis are adults, an increase of cases among children has been noted. The Public Health and Malaria Control Department maintains five community clinics. In 1999, these clinics made almost 70,000 patient contacts and administered over 3,000 vaccinations for Hepatitis B. A more detailed report on the Public Health and Malaria Control Program may be found on the FCX web site (www.fcx.com). Education, Training and Employment In 1996, PT Freeport Indonesia embarked on an aggressive program to increase the number of Papuan employees throughout the workforce and especially among management. The goal was to double the total number of Papuan employees by 2001 and the total number of Papuan staff (managerial and professional) employees by 2006. Both goals have already been surpassed (Figure 2). At December 31, 1999, PT Freeport Indonesia had 1,244 Papuan employees, compared to 600 in 1996; and 102 Papuan staff employees, compared to 48 in 1996. However, in both categories the trend has slowed. This is partly because PT Freeport Indonesia's expansion projects have been completed and the total number of employees has decreased. Thus, the percentage of Papuan employees has continued to increase even as the total number has increased more slowly. Another factor is that PT Freeport Indonesia has already employed a large portion of the available educated and trained Papuans in the area. PT Freeport Indonesia is currently working to establish a Mine Training Institute to accelerate training for many Indonesians, especially Papuans, in mining industry skills. Fig. 2 PT Freeport Indonesia has consistantly exceeded its targets for Papuan employees and Papuan staff since 1996. Graph showing the following information:
Papuan Employees Papuan Staff Target Actual Target Actual 3/96 592 592 48 48 9/96 655 666 50 53 3/97 717 702 53 66 9/97 780 863 55 87 3/98 843 1,106 58 92 9/98 905 1,033 60 111 3/99 968 1,057 63 95 9/99 1,031 1,112 66 96
11 Viable educational opportunities for Papuan children are perhaps most important for the local people in the long term. PT Freeport Indonesia has supported the Government of Indonesia in this effort by opening the company's schools to Amungme children living in the Banti area, a highland community near the mine, and by educational aid and scholarship programs for Papuan students from the elementary school level through college. Over 4,000 students received aid in 1999, ranging from uniforms and supplies for students in government schools to full scholarships for college and university students, including students in Australia and the United States. Several college and university students from Irian Jaya (Papua) completed their studies in the United States this year. Business Incubator Program In response to continued interest from local residents wishing to start their own business enterprises, either in the form of cooperatives or as individual entrepreneurs, PT Freeport Indonesia has restructured its business incubator program to help these new ventures get started and succeed. With training and start-up loans from this program, Papuans have been able to begin small business ventures that provide services to PT Freeport Indonesia and its contractors while opening new employment opportunities for Papuans. These business start-up programs are limited to Papuan entrepreneurs and their business partners. Community Liaison Program To improve communication and understanding with the local people, PT Freeport Indonesia has created the Community Liaison Program, which puts PT Freeport Indonesia employees who are specially trained in community relations into local villages to work with the people of the village as liaison officers. Their task, in addition to seeking ways to improve life in the local villages, is to make certain the company knows of community problems and to serve as a first point of contact for local people if they have a concern about what the company is doing. Forming Partnerships for Progress PT Freeport Indonesia's community relations staff members have formed partnerships with private groups and non-governmental organizations with social development expertise to expand the reach and effectiveness of the company's social programs. Two such partnerships particularly successful in 1999 were with the Village Heartbeat Foundation and Yayasan Sejati. The Village Heartbeat Foundation undertakes programs in the Paniai and Puncak Jaya areas, focusing on village leadership and small village developmental programs (See inset next page). Their efforts are supported by the Winrock Foundation, which advises on small agricultural programs. PT Freeport Indonesia is supporting this work in order to spread the benefits of the company's operations to a wider area of Irian Jaya (Papua). Inside PT Freeport Indonesia's operations area, non-governmental agencies increasingly support developmental programs for the benefit of the local people. One such group whose work has been particularly beneficial is Yayasan Sejati, which has been active in the lowlands area of Mimika on land issues and the implementation of wide-ranging land compensation programs (See inset page 9). III. ENVIRONMENTAL MANAGEMENT Environmental Commitments We are fully committed to minimizing the impact of our operations on the surrounding environment and to reclaiming and/or revegetating land that is disturbed. As part of our comprehensive Environmental Policy, we are a signatory to the International Council on Metals and the Environment Environmental Charter. Through this policy, we commit to giving our highest priority to sound environmental management and practices, to providing adequate resources to fulfill that responsibility and to continuous improvement of our environmental performance at every operational site. We also commit strongly to supporting scientific research to find the best applicable environmental technologies; to comprehensive monitoring to ensure that our practices are working; and to both internal and external environmental audits to measure performance. 12 Management and Monitoring PT Freeport Indonesia made a series of specific commitments as part of its most recent production expansion environmental impact assessment, the AMDAL (Indonesian acronym for the environmental impact assessment process). The AMDAL, approved by the Government of Indonesia in December 1997, included comprehensive and expanded Environmental Management and Monitoring Plans. Such plans are now in place for all major aspects of PT Freeport Indonesia's operations and infrastructure. Auditing Our Environmental Policy requires the performance of annual internal environmental audits. The 1999 internal audit concluded that PT Freeport Indonesia's Irian Jaya (Papua) operations are in material compliance with Government of Indonesia laws and regulations. In addition, PT Freeport Indonesia made a commitment to independent external environmental audits by qualified experts every three years, with the results to be made public. The first such audit was in 1996, when PT Freeport Indonesia was the first company in Indonesia to undergo an independent external environmental audit of its operations under a new voluntary audit program encouraged by the Government of Indonesia. The international environmental consulting firm of Dames & Moore conducted the first audit, the results were made public and the audit's 33 primary recommendations have been implemented. The second external triennial environmental audit of PT Freeport Indonesia was completed in 1999 and its results have also been made public. The audit was conducted by the internationally recognized environmental consulting and auditing firm of Montgomery Watson. The auditors found "the Environmental Management System (EMS) developed and implemented by PT Freeport Indonesia to be exemplary and a showcase for the mining industry." The auditors concluded that PT Freeport Indonesia "...incorporates environmental management systems supported by environmental programs and resources that achieve the standard of practice for world-scale mines." The Montgomery Watson audit team was accompanied by three representatives of the Government of Indonesia's Department of Mines and Energy and two representatives of the World Wildlife Fund, who participated in the audit site visit as formal observers. Approximately 70 interested stakeholders, academicians and non-governmental organizations, including many environmental groups, were invited to comment on the scope of work and the selection process of the independent audit firm for the audit. Additional Montgomery Watson audit results were as follows: > "The PT Freeport Indonesia mining operation is in material compliance with current Indonesian government environmental laws and regulations and has fulfilled the recommendations specified in the previous 1996 External Environmental Audit, as well as commitments made in governmental approved monitoring and management plans." > "PT Freeport Indonesia tailings management practices represent the best alternative when considering important geotechnical, topographic, climatologic, seismic and water quality criteria. Moreover, PT Freeport Indonesia has completed comprehensive technical evaluations of alternative tailings disposal options and has selected the most appropriate management system for the site conditions. The ongoing Ecological Risk Assessment will allow additional evaluation of the impacts of tailings disposal on the estuarine and marine ecosystem." > "The techniques and methods used at the Grasberg Mine for characterization and management of overburden stockpiles, as well as managing Acid Rock Drainage, are consistent with international practice." > "PT Freeport Indonesia has implemented environmental programs for solid and hazardous waste management, water and wastewater control, and air quality that meet international standards for the mining and industrial sectors." > "PT Freeport Indonesia has a comprehensive environmental monitoring program including a state-of-the-science environmental analytical laboratory." 13 Montgomery Watson estimated that PT Freeport Indonesia's environmental management and monitoring commitments will total $1.6 billion in current dollars over the life of the mine, which "...shows a strong long-term commitment on PT Freeport Indonesia's part." While Montgomery Watson found that PT Freeport Indonesia has fulfilled its environmental commitments and requirements, the auditors commented that PT Freeport Indonesia "...must remain diligent and proactive in implementing their environmental plan." Montgomery Watson also provided specific recommendations, including, among others, that PT Freeport Indonesia conduct a comprehensive groundwater study and additional groundwater monitoring, increase biological monitoring in estuaries downstream of the tailings deposition area to better estimate the impact on mollusks, modify the closure plan for the project area to include the tailings deposition area and port site, and continue development of effective and innovative technology for the treatment of acid rock drainage. The Executive Summary as well as the complete 126-page audit report are available in printed form upon request. In addition, the Executive Summary is available in both Bahasa Indonesia and English on our internet web site (www.fcx.com). ISO 14001 Environmental Management Systems ISO 14001 is a voluntary international standard that provides a systematic approach to continual improvement by companies in their Environmental Management Systems (EMS). PT Freeport Indonesia completed development in 1999 of a newly restructured comprehensive EMS, including protocols and program descriptions, for ISO 14001 certification of its Irian Jaya (Papua) operations in the year 2000. Training of personnel in the newly organized EMS is well under way. Tailings Management Plan Tailings are the finely ground natural rock left over from the processing of copper ore by physical grinding and flotation methods. The Ajkwa Deposition Area, essentially a portion of the flood plain of the Ajkwa River encompassing some 13,000 hectares, is operating as designed as an engineered, managed system for the deposition and control of tailings. Tailings reclamation studies show that the Ajkwa Deposition Area can be readily revegetated with native and agricultural plant species once mining is completed. As discussed earlier, the Montgomery Watson environmental audit concluded that PT Freeport Indonesia's "...tailings management practices represent the best alternative" under PT Freeport Indonesia's circumstances. The audit further concluded that "PT Freeport Indonesia has completed comprehensive technical evaluations of alternative tailings disposal options and has selected the most appropriate management system for the site conditions." Tailings from PT Freeport Indonesia's operations have an alkaline pH (measure of acidity) when released from the mill and data show that the pH in the Ajkwa River system is alkaline, meaning the tailings are not producing an acidic condition (Figure 3). A pH value of 7.0 is neutral, with a higher pH being alkaline and a lower pH being acid. The annual average pH in the Ajkwa River for 1994 to 1999 ranged from 7.5 to 8.1. Fig. 3 Tests on tailings show a non-acid forming potential. Graph showing the following data:
1995 1996 1997 1998 1999 (Average Annual Value) Potential kilograms of acid per metric ton of tailings (30) (35) (24) (36) (22)
Fig. 4 Comprehensive sampling of water in the Ajkwa River shows that copper concentrations are minimal. Graph showing the following data:
Dissolved Copper in parts-per-million (ppm) 1995 1996 1997 1998 1999 (Annual Average Concentration) U.S. EPA Drinking Water Standard for Copper 1.300 1.300 1.300 1.300 1.300 WHO Drinking Water Criteria for Copper 1.000 1.000 1.000 1.000 1.000 Ajkwa River and Ajkwa Deposition Area .043 .050 .018 .015 .011
Comprehensive water quality sampling of the tailings management system shows that the water in the Ajkwa River and Ajkwa Deposition Area meets drinking water standards for metals set by the U.S. Environmental Protection Agency (EPA) and World Health Organization (WHO) (Figure 4). In addition, when the data are compared to U.S. EPA Water Quality Criteria (1997), and other scientific information on copper impacts on aquatic organisms, the values for dissolved copper in the Ajkwa River system are within an acceptable range. 14 Extensive biological sampling shows that comparable numbers of species and aquatic organisms were collected in the Ajkwa and Minajerwi estuaries downstream of the tailings Ajkwa Deposition Area as were found in baseline or reference estuaries, the Kamora and Otokwa rivers, without tailings based on per unit catch for trawl-net sampling (Figure 5). Fig. 5 Tailings estuaries (Ajkwa and Minajerwi rivers) have comparable numbers of aquatic species and organisms as reference estuaries without tailings (Kamora and Otokwa rivers) based on per unit catch by trawl-net sampling. Two graphs showing the following data:
Number of Number of species organisms (1996 to 1999 Quarterly Average) Rivers with tailings Ajkwa 22 945 Minajerwi 26 1,269 Rivers without tailings Kamora 29 1,055 Otokwa 24 636
Ecological Risk Assessment PT Freeport Indonesia is conducting an ecological risk assessment of its tailings management plan. This ongoing study, which includes all stakeholders, is estimating impacts and risks of the tailings management plan on human health and the environment, both in and around the Ajkwa Deposition Area as well as in estuaries and the Arafura Sea. The study is examining potential copper uptake by aquatic organisms and potential human health and dietary implications, if any, and its results will guide future tailings management decisions. The independent environmental consultants with Montgomery Watson examined this important ongoing research and concluded in their 1999 audit that the scope of the ecological risk assessment and the resources committed to it are adequate to achieve the goals. Overburden Management Plan Overburden is the rock with no economic value which has to be moved aside in order to reach the ore in the mining process. Most metals occur in nature as minerals called sulphides. When ore is mined and overburden or tailings containing sulphides are left exposed to the elements, the action of water, oxygen and natural bacteria can create sulphuric acid. This acidic water will dissolve metals contained in overburden rock and, if not collected or treated, the contaminated water can be harmful to many aquatic organisms and plants. This condition is called acid rock drainage. PT Freeport Indonesia continuously monitors and manages acid ro The independent auditors with Montgomery Watson concluded in their 1999 analysis that PT Freeport Indonesia's overburden management programs are "...consistent with international practice." A molecular recognition technology pilot-test unit has been operated and studied to determine its effectiveness in capturing and recovering copper from acidic drainage. With rapidly advancing technology in this field, PT Freeport Indonesia will continue to investigate this process and other technologies as a part of its acid rock drainage management program. The Montgomery Watson auditors recommended PT Freeport Indonesia continue this work. 15 Long Term Environmental Monitoring Plan The Long Term Environmental Monitoring Plan evaluates the potential impact of operations on water quality, biology, hydrology, sediments and air quality. This comprehensive program ensures that PT Freeport Indonesia has all of the necessary scientific information available for all environmental aspects of its operations in order to minimize, mitigate and properly manage environmental effects. Figure 6 shows the number of samples and analyses conducted in 1998 and 1999 as part of this program. Fig. 6 Comprehensive Long Term Environmental Montioring Plan program encompases a large number of samples and analyses every year. Two graphs showing the following data:
Number Number of samples of analyses 1998 1999 1998 1999 Type of Sample Aquatic Biology 474 408 1,896 1,224 Aquatic Tissue 611 850 3,932 4,250 Mine Water 120 258 1,743 6,709 Surface Water 1,095 766 8,676 22,984 Tailings 2,349 2,451 11,745 12,258
Waste Management and Recycling Plan At PT Freeport Indonesia, the concepts of waste reduction, reuse and recycling have been implemented as a practical means to manage all wastes in an environmentally acceptable manner. Those materials that can be reused or recycled are separated from the waste stream at the point of origin. Steel is stockpiled for reuse by construction and operations as well as recycling when possible. Copper, aluminum and other recyclable metals are stockpiled pending permission from the government for resale or trade. Indicative of PT Freeport Indonesia's recycle/reuse programs, Figure 7 shows the amount of waste oil reused annually as fuel compared to the amount purchased. Fig. 7 Waste oil reused as fuel versus new oil consumption Graph showing the following data:
Waste Oil New Oil Reused as Fuel Consumption (Millions of liters per year) 1995 3.99 7.36 1996 4.84 7.26 1997 5.91 8.51 1998 8.81 7.94 1999 7.39 7.91
Combustible waste materials are segregated from the waste stream and sent to several air curtain incinerators to reduce the amount of wastes placed in the onsite landfills. Biodegradable wastes are collected and transported to an engineered landfill, which is lined, and also provides for the collection and treatment of water leaching from the waste. PT Freeport Indonesia also utilizes a state-of-the-art medical waste incinerator. Reclamation and Revegetation Revegetation and reclamation programs for the Ajkwa Deposition Area have been in place for several years. Demonstration projects show that numerous species of native plants, agricultural crops and fruit trees grow well on the tailings deposited in the deposition area (Figure 8). PT Freeport Indonesia has also developed other successful revegetation and reclamation projects involving the development of lakes, wetlands, forests and agriculture in areas disturbed by PT Freeport Indonesia's operations. A large hydro-mulcher machine is a centerpiece of this aggressive revegetation program to quickly reclaim land disturbed by construction. Fig. 8 Reclamation tests (1995-1999) show success for many species on tailings; overburden testing to date reflects challenges of high-altitude reclamation Graph showing the following:
Species Species Tested Successful (Number of plant species) Tailings 112 104 Overburden 56 28
16 Training and Technology Transfer An important element of PT Freeport Indonesia's sustainable development program is the training of employees and local people in environmental management issues, programs and procedures at the company's operations. Included in this training is technology transfer for modern pollution control equipment, environmental sampling and monitoring methodologies. Figure 9 shows the number of personnel involved and manhours spent in environmental training in 1997, 1998 and 1999. Fig. 9 Environmental training of PT-FI and contractor personnel Graph showing the following:
1997 1998 1999 Personnel Trained 1,918 2,951 7,008 Man-hours of Training 5,171 7,506 9,785
ATLANTIC COPPER, S.A. Environmental Programs Update During 1999, Atlantic Copper achieved ISO 14001 certification for its two remaining uncertified facilities, the copper cable/wire plants. In addition, environmental management systems at all of Atlantic Copper's facilities have been validated as being in compliance with the European Union Regulation on Environmental Eco-Management and Eco-Auditing. Atlantic Copper is the first Spanish company in the metallurgy sector, and the first copper smelter in the European Union, to have its facilities certified in accordance with both ISO 14001 and the European Union Regulation on Environmental Eco-Management and Eco-Auditing. Huelva Weak Acid Disposal A recent Spanish court ruling has challenged Atlantic Copper's past practices for the reuse of weak acid from its smelter in a copper recovcopper recovery/ore leach process. Atlantic disputes the ruling and continues to appeal it. In its ruling, the court found that there has been no damage to the environment or human health. Atlantic Copper is currently preparing to construct a weak acid neutralization facility that will produce commercial grade gypsum, salable as a building material. 17
FREEPORT-McMoRan COPPER & GOLD INC. SELECTED FINANCIAL AND OPERATING DATA 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- (Financial Data in Thousands, Except Per Share Amounts) FCX FINANCIAL DATA Years Ended December 31: Revenues $1,887,328 $1,757,132 $2,000,904 $1,905,036 $1,834,335 Operating income 583,170a 574,281b 664,215c 638,261d 596,432e Net income applicable to common stock 100,787a 118,317b 208,541c 174,680d 199,465e Basic net income per common share .62a .67b 1.06c .90d .98e Diluted net income per common share .61a .67b 1.06c .89d .98e Dividends paid per common share - .20 .90 .90 .675 Basic average shares outstanding 163,613 175,353 196,392 194,910 203,536 Diluted average shares outstanding 164,567 175,354 197,653 196,682 204,406 At December 31: Property, plant and equipment, net 3,363,291 3,474,451 3,521,715 3,088,644 2,845,625 Total assets 4,082,916 4,192,634 4,152,209 3,865,534 3,581,746 Long-term debt, including current portion and short-term borrowings 2,148,259 2,456,793 2,388,982 1,562,916 1,167,232 Redeemable preferred stock 487,507 500,007 500,007 500,007 500,007 Stockholders' equity 196,880 103,416 278,892 675,379 881,674 PT FREEPORT INDONESIA OPERATING DATA, Net of Rio Tinto's Interest Copper Production (000s of recoverable pounds) 1,428,100 1,427,300 1,166,500 1,118,800 978,000 Sales (000s of recoverable pounds) 1,441,000 1,419,500 1,188,600 1,097,000 985,100 Average realized price $.75 $.73 $.94f $1.02f $1.22f Gold Production (recoverable ounces) 2,379,100 2,227,700 1,798,300 1,695,200 1,310,400 Sales (recoverable ounces) 2,423,900 2,190,300 1,888,100 1,698,900 1,353,400 Average realized price $276.53 $290.57 $ 346.14g $390.96g $383.73g Silver Production (recoverable ounces) 3,444,500 3,421,200 2,568,700 2,360,600 2,303,000 Sales (recoverable ounces) 3,479,600 3,412,300 2,724,300 2,532,000 2,349,400 Average realized price $5.21 $5.29 $4.68 $4.95 $4.99 ATLANTIC COPPER OPERATING DATA Concentrate treated (metric tons) 949,400 973,900 929,700 804,500 434,400h Anodes (000s of pounds) Production 647,100 642,400 639,800 547,900 296,000 Sales 84,300 96,900 133,500 77,300 44,600 Cathodes (000s of pounds) Production 556,600 544,800 505,600 462,900 258,200 Sales (including wire rod and wire) 558,500 544,300 505,300 461,100 280,200 Gold sales in anodes and slimes (ounces) 792,700 678,700 532,900 421,300 118,200 Cathode cash production cost per pound $.13 $.13 $.12 $.15 $.18
18
FREEPORT-McMoRan COPPER & GOLD INC. SELECTED FINANCIAL AND OPERATING DATA, Continued 1999 1998 1997 1996 1995 --------- ---------- ---------- ---------- ---------- PT SMELTING OPERATING DATAi Concentrate treated (metric tons) 436,000 - Anodes (000s of pounds) Production 279,400 - Sales 50,300 - Cathodes (000s of pounds) Production 200,100 - Sales 193,800 - PT FREEPORT INDONESIA, 100% OPERATING DATA Ore milled (metric tons per day) 220,700 196,400 128,600 127,400 111,900 Average ore grade Copper (percent) 1.12 1.30 1.37 1.35 1.32 Gold (grams per metric ton) 1.37 1.49 1.51 1.52 1.39 Gold (ounce per metric ton) .044 .048 .049 .049 .045 Silver (grams per metric ton) 2.78 3.17 3.11 3.10 3.17 Silver (ounce per metric ton) .089 .102 .100 .100 .102 Recovery rates (percent) Copper 84.6 86.9 85.4 83.8 85.0 Gold 83.7 85.3 81.4 77.1 74.3 Silver 63.4 71.8 65.6 64.6 63.2 Copper (000s of recoverable pounds) Production 1,630,700 1,721,300 1,166,500 1,118,800 978,000 Sales 1,647,800 1,706,700 1,188,601 1,097,000 985,100 Gold (recoverable ounces) Production 2,993,100 2,839,700 1,798,300 1,695,200 1,310,400 Sales 3,047,100 2,774,700 1,888,100 1,698,900 1,353,400 Silver (recoverable ounces) Production 3,781,300 4,040,600 2,568,700 2,360,600 2,303,000 Sales 3,829,400 4,008,000 2,724,300 2,532,000 2,349,400
NOTES a. Includes charges totaling $8.8 million ($5.7 million to net income or $0.03 per share) consisting of $3.6 million for an early retirement program, $1.4 million for costs of stock appreciation rights caused by the increase in FCX's common stock price and $3.8 million for certain nonrecurring costs. b. Includes net charges totaling $9.1 million ($4.4 million to net income or $0.03 per share) associated with the sale of corporate aircraft. c. Includes a $25.3 million gain ($12.3 million to net income or $0.06 per share) for the reversal of stock appreciation rights and related costs caused by the decline in FCX's common stock price. d. Includes charges totaling $17.4 million ($8.0 million to net income or $0.04 per share) consisting of $12.7 million for costs of stock appreciation rights caused by the increase in FCX's common stock price, $3.0 million for costs related to a civil disturbance and $1.7 million for an early retirement program. e. Includes charges totaling $49.6 million ($26.9 million to net income or $0.13 per share) consisting of $29.8 million for costs of stock appreciation rights caused by the increase in FCX's common stock price, $12.5 million for a materials and supplies inventory reserve adjustment in connection with the completion of an expansion program and $7.3 million for an early retirement program. f. Amounts were $0.90 in 1997, $0.97 in 1996 and $1.28 in 1995 before hedging adjustments. g. Amounts were $326.08 in 1997, $382.62 in 1996 and $380.85 in 1995 before hedging adjustments. h. Reflects shutdowns caused by a strike at an adjacent plant, expansion equipment tie-ins and normal maintena turnarounds. i. PT Smelting began operations in the fourth quarter of 1998. Amounts were insignificant for 1998. 19 FREEPORT-McMoRan COPPER & GOLD INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OVERVIEW Our "Working Toward Sustainable Development" report on pages 6 through 17 is part of Management's Discussion and Analysis and is incorporated herein by reference. The results of operations we are reporting do not necessarily represent what our future results may be and should be read together with our financial statements and the related notes. We operate through our majority-owned subsidiaries, PT Freeport Indonesia Company and PT Irja Eastern Minerals and through Atlantic Copper, S.A., our wholly owned subsidiary. PT Freeport Indonesia's operations involve mineral exploration and development, mining and milling of ore containing copper, gold and silver in Irian Jaya (recently proposed to be renamed "Papua"), Indonesia, and the worldwide marketing of concentrates containing those metals. PT Freeport Indonesia also has a 25 percent interest in PT Smelting, an Indonesian company which operates a copper smelter and refinery in Gresik, Indonesia. Eastern Minerals conducts mineral exploration activities in Irian Jaya (Papua). Atlantic Copper's operations are located in Spain and involve the smelting and refining of copper concentrates, and the marketing of refined copper products and precious metals in slimes. PT Freeport Indonesia operates under an agreement, called a Contract of Work, with the Government of Indonesia. The Contract of Work allows us to conduct extensive exploration, mining and production activities in a 24,700-acre area called Block A. The Contract of Work also allows us to explore for minerals in a 0.5 million-acre area called Block B. We relinquished exploration rights on 1.1 million acres in Block B in December 1999. All of our proved and probable mineral reserves and current mining operations are located in Block A. Eastern Minerals holds an additional Contract of Work covering a 1.25 million-acre area and is conducting exploration activities in this area. We have relinquished 1.25 million acres under this Contract of Work and must relinquish an additional 0.6 million acres by August 2001. In addition to the PT Freeport Indonesia and Eastern Minerals exploration activities, we conduct other mineral exploration activities in Irian Jaya (Papua) pursuant to a joint venture through PT Nabire Bakti Mining. Joint Ventures with Rio Tinto In 1996, we established joint ventures with Rio Tinto plc. One joint venture covers PT Freeport Indonesia's mining operations in Block A and gives Rio Tinto, through 2021, a 40 percent interest in certain assets and in production above specified levels from operations in Block A and, after 2021, a 40 percent interest in all production from Block A. In addition to funding its 40 percent share of all expansion capital, including the "fourth concentrator mill expansion," Rio Tinto provided a $450 million nonrecourse loan to PT Freeport Indonesia for PT Freeport Indonesia's share of the cost of the expansion. PT Freeport Indonesia began sharing incremental cash flow attributable to the expansion effective January 1, 1998 on the basis of 60 percent to PT Freeport Indonesia and 40 percent to Rio Tinto. PT Freeport Indonesia assigned its share of incremental cash flow to Rio Tinto until PT Freeport Indonesia repays the loan, plus interest based on Rio Tinto's cost of borrowing. Through December 31, 1999, PT Freeport Indonesia's share of incremental cash flow totaled $471.8 million, of which PT Freeport Indonesia paid $440.9 million to Rio Tinto through 1999 and will pay $30.9 million in 2000. The balance on the Rio Tinto loan was $60.6 million at December 31, 1999, which PT Freeport Indonesia expects to repay in the first half of 2000. Operating, nonexpansion capital and administrative costs are shared proportionately between the incremental revenues from production from the expansion and total revenues from production from Block A, including production from PT Freeport Indonesia's previously existing reserves. PT Freeport Indonesia will continue to receive 100 percent of the cash flow from specified annual amounts of copper, gold and silver through 2021 calculated by reference to its proved and probable reserves as of December 31, 1994 and 60 percent of all remaining cash flow. Under our joint venture arrangements, Rio Tinto has a 40 percent interest in future development and exploration projects under PT Freeport Indonesia's Contract of Work and Eastern Minerals' Contract of Work. Rio Tinto also has the option to participate in 40 percent of any of our other future exploration projects in Irian Jaya (Papua). Rio Tinto has elected to participate in 40 percent of our interest and cost in the PT Nabire Bakti exploration joint venture covering approximately 1 million acres contiguous to Block B and one of Eastern Mineral's blocks. CONSOLIDATED RESULTS OF OPERATIONS Our consolidated revenues reflect higher copper and gold sales volumes in 1998 and 1999 as a result of increased production from our fourth concentrator mill expansion, which we completed in early 1998. Revenues in 1999 benefited from higher sales volumes and copper realizations, partly offset by lower gold realizations when compared with 1998 revenues. Lower copper and gold realizations in 1998 more than offset the higher sales volumes when comparing 1998 revenues to 1997 revenues. Our production and delivery costs increased in 1999 when compared with 1998 primarily because of higher production rates and a strengthening of the Indonesian rupiah. Production and delivery costs decreased in 1998 when compared with 1997 because of a number of factors, including lower labor costs reflecting the devaluation of the Indonesian rupiah, lower diesel fuel and power costs and cost reduction efforts. Depreciation and amortization increased because of completion of the fourth concentrator mill expansion and increased production as certain assets are depreciated on the unit-of-production method. 20 Our joint ventures with Rio Tinto incurred exploration costs of $17.7 million in 1999, $29.4 million in 1998 and $44.6 million in 1997. The reduction in exploration costs reflects a change in focus in 1999 primarily to those areas with near-term exploitation opportunities. Substantially all exploration costs in the joint venture areas with Rio Tinto are now shared 60 percent by us and 40 percent by Rio Tinto. Our exploration expenses in 1997 and 1998 primarily related to costs incurred in the Eastern Minerals and PT Freeport Indonesia Block B areas. All of our Block A exploration costs in 1997 and 1998 and certain of the Block B exploration costs in 1997 were reimbursed by Rio Tinto's $100 million exploration funding received in 1996. The FCX/Rio Tinto joint ventures' 2000 exploration budgets total approximately $14 million. We have also budgeted approximately $3 million for exploration activities outside of the joint ventures. We account for our interest in PT Smelting using the equity method. The charges reported in 1999 include our share of PT Smelting's operating losses ($10.1 million) plus the deferral of profits on 25 percent of PT Freeport Indonesia's sales to PT Smelting that are still in PT Smelting's inventory at December 31, 1999 ($8.0 million). The 1998 charges include $1.6 million for operating losses and $3.3 million for deferred intercompany profits. The charges in 1997 are for our share of PT Smelting's pre-operating costs. We reduced 1999 general and administrative expenses by $17.2 million compared with 1998 and by $26.0 million compared with 1997. These reductions are primarily because of initiatives to reduce costs and the effect of sharing these costs with Rio Tinto pursuant to joint venture agreements. The 1999 amount includes charges totaling $5.5 million for costs of stock appreciation rights caused by the increase in FCX's stock price and for certain nonrecurring costs. The 1998 amount includes net charges totaling $11.1 million associated with the sale of corporate aircraft. As a percentage of revenues, general and administrative expenses were less than 4 percent in 1999 and approximately 5 percent in 1998 and 1997. We were able to reduce our interest cost (before capitalization) from $225.2 million in 1998 to $197.9 million in 1999 primarily because we used cash flows from operations to reduce total debt by $305.7 million from December 31, 1998 to December 31, 1999. Our total interest cost rose to $225.2 million in 1998, compared to $174.7 million in 1997, because of an overall increase in debt levels associated with the fourth concentrator mill expansion and our share repurchase program. Capitalized interest totaled $3.8 million in 1999, $19.6 million in 1998 and $23.0 million in 1997. Capitalized interest in 1997 and 1998 related primarily to the expansion. FCX's effective tax rate was 51 percent in 1999, 47 percent in 1998 and 45 percent in 1997 (Note 8). PT Freeport Indonesia's Contract of Work provides a 35 percent corporate income tax rate for PT Freeport Indonesia and a 10 percent withholding on dividends paid to FCX by PT Freeport Indonesia and on interest paid by PT Freeport Indonesia on debt incurred after the signing of the Contract of Work in 1991. No income taxes are recorded at Atlantic Copper, which is subject to taxation in Spain, because it has not generated significant taxable income in recent years and has substantial tax loss carryforwards for which no financial statement benefit has been provided. Additionally, we only get a small U.S. tax benefit on our parent company costs because our parent company has no U.S. sourced income. PT Freeport Indonesia's Indonesian income tax returns have been audited through 1994, and the 1997 return is currently under examination. The increase in minority interest charges in 1999 primarily reflects the consolidation of certain PT Freeport Indonesia infrastructure joint ventures. We have two operating segments: "mining and exploration" and "smelting and refining." Our mining and exploration segment includes PT Freeport Indonesia's copper and gold mining operations in Indonesia and our Indonesian exploration activities. Our smelting and refining segment includes Atlantic Copper's operations in Spain and PT Freeport Indonesia's 25 percent equity investment in PT Smelting. Summary operating income (loss) data by segment follows (in millions):
Years Ended December 31, --------------------------- 1999 1998 1997 ------ ------ ------ Mining and exploration $609.6 $566.7 $630.8 Smelting and refining (1.7) 35.4 30.6 Intercompany eliminations and other (24.7) (27.8) 2.8 ------ ------ ------ Operating incomea $583.2 $574.3 $664.2 ====== ====== ====== a.PT Freeport Indonesia's sales to Atlantic Copper and PT Smelting impacted operating income by $(17.2) million in 1999, $(19.1) million in 1998 and $19.0 million in 1997. Our consolidated earnings fluctuate depending on the timing and prices of these sales. 21 MINING AND EXPLORATION OPERATIONS A summary of changes in PT Freeport Indonesia revenues follows (in millions):
1999 1998 -------- -------- Revenues - prior year $1,351.1 $1,505.3 Increases (decreases): Sales volumes: Copper 15.7 218.0 Gold 67.9 104.6 Price realizations: Copper 27.4 (306.5) Gold (34.0) (121.7) Adjustments, primarily for copper pricing on prior year open sales (20.8) (33.7) Treatment charges, royalties and other 57.5 (14.9) -------- -------- Revenues - current year $1,464.8 $1,351.1 ======== ========
Gross Profit Per Pound of Copper (cents)
Years Ended December 31, ---------------------- 1999 1998 1997 ---- ---- ---- Average realized price 74.7 72.8 94.4a ---- ---- ---- Production costs: Site production and delivery 36.5 32.2 50.6 Gold and silver credits (47.8) (46.0) (55.9) Treatment charges 18.9 23.5 24.7 Royalty on metals 1.6 1.3 2.6 ---- ---- ---- Cash production costs 9.2 11.0 22.0 Depreciation and amortization 18.0 17.0 15.0 ---- ---- ---- Total production costs 27.2 28.0 37.0 ---- ---- ---- Adjustments, primarily for copper pricing on prior year open sales (0.5) 1.2 3.6b ---- ---- ---- Gross profit per pound of copper 47.0 46.0 61.0 ==== ==== ==== a. Amount was $0.90 before hedging adjustments. b. Includes amortization of the cost of a price protection program.
PT Freeport Indonesia Operating Results - 1999 Compared with 1998 PT Freeport Indonesia's 1999 revenues benefited from record annual sales volumes with a 2 percent increase in copper sales volumes and an 11 percent increase in gold sales volumes plus slightly higher copper realizations, partly offset by a 5 percent decline in gold realizations. (See "Selected Financial and Operating Data.") A portion of PT Freeport Indonesia's copper sales are provisionally priced at the time of shipment and finally priced in subsequent periods based on prices in effect in those periods. (See "PT Freeport Indonesia Sales Outlook.") As a result of repricing prior year open sales, 1999 revenues were $20.8 million lower compared with 1998 revenues. Treatment charges in total were lower in 1999 because of a significant loosening of the concentrate market throughout 1998. A portion of treatment charges varies with the price of copper and royalties vary with volumes and prices of copper and gold. Our average mill throughput rate increased to a record 220,700 metric tons of ore per day for 1999, compared with 196,400 metric tons of ore per day for 1998. Higher throughput, partially offset by lower ore grades and recovery rates, resulted in record production to PT Freeport Indonesia, net of Rio Tinto's interest, in 1999. Mill throughput rates vary based on the characteristics of the ore being processed as we manage our operations to optimize metal production. Site production and delivery costs averaged 36.5 cents per pound of copper in 1999. The 1999 average costs were higher than the 32.2 cents per pound reported in 1998 primarily because we mined lower grade ore and because of a stronger Indonesian rupiah. (See "Disclosures about Market Risks.") Site production and delivery costs for 2000 are expected to be slightly higher than in 1999 in the aggregate and on a per pound basis, primarily because of projected mining of lower grade ore and certain higher costs including the 22 effect of a stronger rupiah. An 11 percent increase in gold sales volumes partly offset by lower gold realizations helped to improve gold credits to 47.8 cents per pound in 1999, compared with 46.0 cents per pound in 1998. The significant loosening of the concentrate market resulted in an average treatment charge rate of 18.9 cents per pound in 1999, compared with 23.5 cents per pound in 1998. We expect treatment charge rates per pound to decline slightly in 2000, based on the results of our fourth-quarter 1999 negotiations and the projected copper price. The copper royalty rate that PT Freeport Indonesia pays under its Contract of Work 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 Contract of Work royalty rate for gold and silver sales is 1.0 percent. Because a large part of the mineral royalties under Government of Indonesia regulations are due to the provinces from which the minerals are extracted, in connection with our fourth concentrator mill expansion, PT Freeport Indonesia agreed to pay the Government of Indonesia voluntary additional royalties to provide further support to the local governments and the people of Irian Jaya (Papua). The additional royalties are paid on metal from production above 200,000 metric tons of ore per day. The additional royalty for copper equals the Contract of Work royalty rate and for gold and silver equals twice the Contract of Work royalty rates. Therefore, our royalty rate on copper net revenues from production above 200,000 metric tons of ore per day is double the Contract of Work royalty rate, and our royalty rates on gold and silver sales from production above 200,000 metric tons of ore per day are triple the Contract of Work royalty rates. The additional royalties became effective January 1, 1999. The combined royalties totaled $23.0 million in 1999, $16.2 million in 1998 and $31.4 million in 1997. PT Freeport Indonesia's depreciation rate of 18.0 cents per pound for 1999 represents an increase over the 1998 rate and reflects a full year of depreciation on the assets from the fourth concentrator mill expansion and other capital additions. The rate for the year 2000 is expected to remain at 18.0 cents per pound. PT Freeport Indonesia Operating Results - 1998 Compared with 1997 PT Freeport Indonesia's 1998 revenues declined compared with 1997 revenues as higher sales volumes were more than offset by significant declines in price realizations. Copper sales volumes rose 19 percent and gold sales volumes rose 16 percent primarily as a result of increased production from the fourth concentrator mill expansion and improved mill recoveries. Average copper realizations declined 22 percent from $0.94 per pound in 1997 to $0.73 per pound in 1998. PT Freeport Indonesia's 1997 revenues include net additions totaling $42.6 million recognized under PT Freeport Indonesia's copper price protection program. Average 1998 gold realizations declined 16 percent or nearly $56 per ounce compared to 1997. PT Freeport Indonesia's 1997 revenues include additions totaling $37.6 million recognized on gold forward sales contracts. Adjustments to prior year open sales resulted in a $33.7 million decrease in 1998 revenues compared with 1997. Treatment charges were higher in the 1998 period because of higher sales volumes, partially offset by price participation in PT Freeport Indonesia's smelter contracts, which provide for reduced treatment charges during periods of lower copper prices. Royalty costs were reduced because of lower metal prices. As a result of completing the fourth concentrator mill expansion in early 1998, PT Freeport Indonesia's mill throughput averaged 196,400 metric tons of ore per day during 1998. Average copper and gold ore grades for 1998 were slightly lower than for 1997, but recovery rates improved compared with 1997. Site production and delivery costs averaged 32.2 cents per pound of copper for 1998, 36 percent below the 50.6 cents per pound reported in 1997, primarily because of lower labor costs reflecting the devaluation of the Indonesian rupiah, lower diesel fuel and power costs, economies of scale from the fourth concentrator mill expansion and cost reduction efforts. Gold credits were lower in 1998 when compared with 1997, primarily because of the lower gold realizations. Treatment charges per pound of copper were lower in 1998 primarily because of contractual price participation. PT Freeport Indonesia's depreciation rate of 17.0 cents per pound for 1998 reflects an increase over the 1997 rate for a half-year of depreciation on the fourth concentrator mill expansion assets and other capital additions. PT Freeport Indonesia Sales Outlook PT Freeport Indonesia's copper concentrates are sold primarily under long-term sales agreements that are denominated in U.S. dollars, mostly to companies in Asia and Europe and to international trading companies. PT Freeport Indonesia has commitments from various parties, including Atlantic Copper and PT Smelting, to purchase virtually all of its estimated 2000 production at market prices. Net of Rio Tinto's interest, PT Freeport Indonesia's share of sales for 2000 is expected to approximate 1.4 billion pounds of copper and 1.9 million ounces of gold. Projected 2000 copper and gold sales reflect the expectation of higher average mill throughput rates than in 1999, offset by lower average ore grades and the impact of the specified sharing arrangement with Rio Tinto, which will result in a smaller proportion of production to PT Freeport Indonesia. PT Freeport Indonesia will continue to concentrate its efforts on optimizing metal production from its operations during 2000. 23 PT Freeport Indonesia has a long-term contract to provide approximately 60 percent of Atlantic Copper's copper concentrate requirements at market prices. PT Freeport Indonesia is providing 100 percent of PT Smelting's copper concentrate requirements at market prices; however, for the first 15 years of operations PT Freeport Indonesia has guaranteed that the treatment and refining charges will not fall below a specified minimum rate, currently $0.23 per pound, which was the rate for 1999 and is expected to be the rate for 2000. After PT Smelting's operations reach design capacity, we anticipate that PT Freeport Indonesia will sell at least 50 percent of its annual concentrate production to Atlantic Copper and PT Smelting. Exploration We are continuing our exploration program in Irian Jaya (Papua), in the Block A and Block B areas of PT Freeport Indonesia's Contract of Work, the Eastern Minerals Contract of Work area and in the PT Nabire Bakti Mining Contract of Work area. We had voluntarily suspended our activities in most areas for a three-month period from May 15th through August 15th as a precaution during the Indonesian national election period, but have since resumed most field operations. (See "Developments in Indonesia.") In Block A our exploration efforts are concentrated on potential expansion of reserves at Kucing Liar, Grasberg Underground and the Deep Ore Zone. Delineation drilling is ongoing at Kucing Liar, focusing on testing indicated extensions of the known deposit. At Grasberg Underground, drilling is directed at defining the deeper levels of mineralization. Drilling at the Deep Ore Zone continues to indicate excellent potential for significant additions to the existing Deep Ore Zone block cave reserve. Results of our exploration activities in 1999 were positive and increased our confidence in our large resource base. While sufficient data were not available to categorize new reserves as proved and probable during 1999, we expect to be in a position to evaluate the addition of reserves during 2000. Our exploration activities in the Block B and Eastern Minerals areas continue and are focused on mapping and evaluating prospects that potentially could lead to the discovery of significant copper and gold deposits. Exploration is ongoing in PT Nabirie Bakti Mining's Contract of Work area which is contiguous to PT Freeport Indonesia's Block B and Eastern Minerals' Block I areas. 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 by June 2003 ($11.6 million of which had been incurred through December 31, 1999). Exploration, including drilling is ongoing on a number of identified geological anomalies within this acreage including Komopa where widespread copper and gold mineralization has been encountered. SMELTING AND REFINING OPERATIONS Atlantic Copper Operating Results
1999 1998 1997 ------- ------- ------- Revenues (in millions) $764.5 $754.0 $874.5 Operating income (in millions) $16.5 $40.3 $32.2 Concentrate treated (metric tons) 949,400 973,900 929,700 Anode production (000s of pounds) 647,100 642,400 639,800 Cathode, wire rod and wire sales (000s of pounds) 558,500 544,300 505,300 Gold sales in anodes and slimes (ounces) 792,700 678,700 532,900
Atlantic Copper Operating Results - 1999 Compared with 1998 Atlantic Copper reported slightly higher revenues in 1999 primarily because of increased gold sales. Operating income decreased from $40.3 million in 1998 to $16.5 million in 1999, because of significantly lower treatment and refining rates for 1999 ($0.20 per pound) compared with those of 1998 ($0.25 per pound). Excess smelter capacity, combined with limited copper concentrate availability, caused long-term treatment and refining rates to decline since early 1998. Spot rates were sharply lower throughout 1999, and soft long-term rates are expected to continue for 2000. Lower treatment charges, which negatively affect Atlantic Copper, benefit PT Freeport Indonesia and vice versa. Atlantic Copper's cathode cash production costs of $0.13 per pound for 1999 benefited from a weaker Spanish peseta. Cash production costs were also $0.13 per pound for 1998. The higher gold sales volumes in 1999 reflect the higher gold content in PT Freeport Indonesia concentrate treated by Atlantic Copper. 24 Atlantic Copper Operating Results - 1998 Compared with 1997 Atlantic Copper reported lower revenues and cost of sales in 1998 ($703.3 million compared with $831.2 million in 1997) primarily because of lower copper and gold prices. Higher operating income in 1998 compared with 1997 reflects a 5 percent increase in concentrate treated and an 8 percent increase in cathode, wire rod and wire sales volumes, partially offset by lower treatment and refining rates and higher unit costs compared with 1997. Treatment and refining rates were $0.25 per pound for 1998 compared with $0.26 per pound for 1997. Cathode cash production costs of $0.13 per pound in 1998 were only slightly higher than the $0.12 per pound reported in 1997. PT Smelting Operating Results - 1999 Compared with 1998 PT Freeport Indonesia accounts for its 25 percent interest in PT Smelting under the equity method (Note 9). PT Smelting successfully concluded its "first-stage completion" testing during the third quarter of 1999 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 94 percent of design capacity during the fourth quarter of 1999, but production rates are expected to fluctuate in the first half of 2000 during which time PT Smelting plans to tie-in a third anode furnace. PT Smelting treated 436,000 metric tons of concentrate in 1999, its first full year of operations. Our revenues include sales to PT Smelting totaling $252.6 million in 1999 and $25.6 million in 1998. PT Freeport Indonesia's share of PT Smelting's net losses totaled $10.1 million in 1999 and $1.6 million in 1998. We also deferred recognizing profits on 25 percent of PT Freeport Indonesia sales to PT Smelting, for which the final sale has not occurred, totaling $8.0 million in 1999 and $3.3 million in 1998. The deferral of profits is also recorded as part of Loss in PT Smelting in the Statements of Income. PT Smelting Operating Results - 1998 Compared with 1997 PT Smelting completed construction of its copper smelter/refinery complex during the third quarter of 1998 on schedule and on budget. The smelter furnace was ignited on October 12, 1998 with first production of copper cathode in December 1998. CAPITAL RESOURCES AND LIQUIDITY Our primary sources of cash are operating cash flows and borrowings, while our primary uses of cash are repayments of debt, capital expenditures, dividends and purchases of our common stock. In 1999, we generated enough operating cash to fund our capital expenditures and reduce total debt by $305.7 million. We believe that our expected operating cash flows and available borrowings will provide the necessary liquidity to fund our anticipated 2000 operating and capital needs and to reduce debt further. Operating Activities Our consolidated operating cash flow increased 19 percent or $90.0 million in 1999 compared with 1998, primarily because of working capital changes. Operating cash flow declined 7 percent or $34.7 million in 1998 compared with 1997, mostly because of lower net income and an increase in working capital. We recognized $46.5 million of unearned revenues in 1997 from the 1996 sale of copper put option contracts and from gold forward contracts. Working capital, excluding cash, increased $11.3 million in 1999 primarily because of an increase in inventories partly offset by a reduction in accounts receivable, and increased $65.4 million in 1998 primarily because of increases in accounts receivable. Higher materials and supplies inventory at December 31, 1999 supports our expanded operations in Indonesia, and the reduction in accounts receivable in 1999 reflects collections from our record fourth-quarter 1998 sales. Working capital decreased $52.2 million in 1997 primarily because decreases in accounts receivable and inventories exceeded increases from accrued income taxes. Investing Activities In early 1998, PT Freeport Indonesia completed construction of the fourth concentrator mill expansion, which was funded almost entirely with nonrecourse borrowings from Rio Tinto. Our capital expenditures for 2000 are expected to approximate $190 million, including approximately $30 million for development of the Deep Ore Zone underground mine, which is expected to start production in 2000 and ramp up to full production of 25,000 metric tons of ore per day by 2004. We expect to generate enough operating cash flow to pay for our capital expenditures in 2000. Additionally, we have bank credit facilities available ($352.0 million commitment available at December 31, 1999). We funded most of our share of costs to construct PT Smelting's smelter/refinery in 1996 and 1997. Financing Activities Net repayments of debt totaled $318.2 million in 1999, including a final $12.5 million payment for an interest in the PT ALatieF Nusakarya joint ventures discussed below. Net proceeds from debt totaled $165.0 million in 1998 and $745.4 million in 1997. Included in these amounts were net repayments to Rio Tinto totaling $241.1 million in 1999 and $144.8 million in 1998 from PT Freeport Indonesia's share of incremental cash flow attributable to the fourth concentrator mill expansion. We expect to repay the remaining $60.6 million balance on the Rio Tinto loan in the first half of 2000. Nonrecourse borrowings from Rio Tinto for the expansion totaled $371.0 million in 1997. 25 In 1998, we announced a new open market share purchase program for an additional 20 million shares, bringing the total shares approved for purchase under our open market share purchase programs to 60 million. During 1999, we purchased 0.8 million of our shares for $7.8 million (an average of $9.20 per share), and from January 1 through February 18, 2000 we purchased 3.5 million of our shares for $60.6 million (an average of $17.17 per share) under our open market share purchase programs. From inception of these programs through February 18, 2000, we have purchased a total of 54.5 million shares for $1.1 billion (an average of $20.10 per share), with 5.5 million shares remaining available under the programs. The timing of any future purchases is dependent upon many factors, including the price of our common stock, our business and financial position, and general economic and market conditions. During 1998, we purchased 20.0 million shares for $259.4 million (an average of $12.97 per share). During 1997, we purchased 18.3 million shares for $439.8 million (an average of $24.07 per share). In 1998, PT Freeport Indonesia reacquired for $30 million an aggregate one-third interest in certain infrastructure asset joint ventures owned by PT ALatieF Nusakarya Corporation, an Indonesian investor. The joint ventures had purchased $270.0 million of infrastructure assets from PT Freeport Indonesia during the period from December 1993 to March 1997, and PT Freeport Indonesia had sold its one-third interest in the joint ventures to PT ALatieF in March 1997. We are consolidating the joint ventures because the agreements provide the joint venture partners with a guaranteed annual return on their investment (Note 5). In December 1998, we eliminated our quarterly cash dividends on common stock after having reduced them in December 1997 to $0.05 per share or $0.20 per share annually, from the 1997 annual dividend of $0.90 per share. In 1997, we guaranteed a $254.0 million loan from a commercial bank to PT Nusamba Mineral Industri, an Indonesian company. Nusamba used the funds to purchase from a third party for $315 million approximately 51 percent of the capital stock of PT Indocopper Investama Corporation, a company whose only significant asset is 9.4 percent of PT Freeport Indonesia's stock. We own the remaining 49 percent of PT Indocopper Investama. The loan is secured by a pledge of the PT Indocopper Investama stock owned by Nusamba and is due March 2002. The purchase price was negotiated based primarily on FCX's market value at the time of the transaction. We also agreed to lend to Nusamba any amounts necessary to cover shortfalls between the interest payments on the loan and the dividends received by Nusamba on the PT Indocopper Investama stock. At December 31, 1999, we had loaned $43.7 million to Nusamba for this purpose. The amount of any future shortfalls will depend primarily on the level of PT Freeport Indonesia's dividends to PT Indocopper Investama. Once the total of the guaranteed loan and the amounts we have subsequently loaned to Nusamba reach the original purchase price ($315 million), we expect to begin expensing any additional amounts we loan to Nusamba. In 1997, PT Freeport Indonesia sold the new power plant facilities associated with the fourth concentrator mill expansion for $366.4 million to the joint venture that owns the power plants that previously provided electricity to PT Freeport Indonesia. The purchase price included $123.2 million for Rio Tinto's share of the new power plant facilities. Asset sales to the power joint venture totaled $581.4 million through 1997, including $458.2 million of assets PT Freeport Indonesia owned. PT Freeport Indonesia subsequently sold its 30 percent interest in the joint venture to the other partners and continues to purchase power under infrastructure asset financing arrangements pursuant to a power sales agreement (Note 5). In response to volatile copper and gold markets, in early 1998 we began an effort to reduce our costs and enhance our production. Our overall strategy remains focused on optimizing the performance of our expanded milling facilities so that we can achieve higher sales levels at low costs. We realized significantly lower operating costs, capital and exploration expenditures and general and administrative expenses in 1998 and 1999. With these savings and the elimination of the regular quarterly cash dividend, we believe we have the overall financial flexibility to continue to invest in operations and maintain our exploration program while still reducing our overall debt levels. However, because of the economic and political issues affecting Indonesia and the volatility of copper and gold prices, our ability to obtain capital is limited at this time, and the cost of new capital, if available, would be high. 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. To date, all of our systems have continued to operate without any disruption related to Y2K. We will continue to closely monitor areas of particular risk including our business partners' ability to continue to meet their commitments throughout the year. The incremental cost associated with our Y2K efforts totaled less than $3 million through 1999. We do not expect to incur any additional costs. Environmental Matters We believe that our Indonesian operations are being conducted pursuant to applicable permits and are in compliance in all material respects with applicable Indonesian environmental laws, rules and regulations. An independent environmental audit completed in 1999 by Montgomery Watson, an internationally recognized environmental consulting and auditing firm, verified our compliance. (See the 26 "Working Toward Sustainable Development" report beginning on page 6.) We cannot currently project with precision the ultimate amount of reclamation and closure costs we will incur. Our best estimate at this time is that ultimate reclamation and closure costs may require as much as $100 million but are not expected to exceed $150 million. However, these estimates are subject to revision over time as we perform more complete studies and formulate more definitive plans. Some reclamation costs will be incurred throughout the life of the mine, while most closure costs and the remaining reclamation costs will be incurred at the end of the mine's life, which is currently estimated to exceed 30 years. We had $14.1 million accrued on a unit-of-production basis at December 31, 1999 for mine closure and reclamation costs, included in other liabilities. In 1996, we began contributing to a cash fund ($1.7 million balance at December 31, 1999) designed to accumulate at least $100 million by the end of our Indonesian mining activities. We plan to use this fund, including accrued interest, to pay for mine closure and reclamation. An increasing emphasis on environmental issues and future changes in regulations could require us to incur additional costs that would be charged against future operations. Estimates involving environmental matters are by their nature imprecise and can be expected to be revised over time because of changes in government regulations, operations, technology and inflation. (See our "Working Toward Sustainable Development" report beginning on page 6 for information about our environmental programs.) DISCLOSURES ABOUT MARKET RISKS Commodity Price Risk Our revenues include PT Freeport Indonesia's sale of copper concentrates, which also contain significant amounts of gold, and Atlantic Copper's sale of copper anodes, cathodes, wire rod, wire and precious metals in slimes. Our revenues and net income vary significantly with fluctuations in the market prices of copper and gold and other factors. A change of $0.01 in the average price per pound of copper would have an approximate $14 million impact on our revenues and an approximate $7 million impact on our net income, assuming approximately 1.4 billion pounds of annual sales. A change of $10 in the average price per ounce of gold would have an approximate $20 million impact on our revenues and an approximate $10 million impact on our net income, assuming approximately 2 million ounces of annual sales. At times, in response to market conditions, we have entered into copper and gold price protection contracts for some portion of our expected future mine production to mitigate the risk of adverse price fluctuations. In 1997, we recognized net additional revenues of $35.6 million from copper put option contracts that provided a floor price of $0.90 per pound for the first half of 1997, and $37.6 million from selling gold forward on a six-month basis through August 1997. We currently have no copper or gold price protection contracts relating to our future mine production other than our gold-denominated preferred stock discussed below. PT Freeport Indonesia's concentrate sales agreements, with regard to copper, provide for provisional billings at the time of shipment with final pricing settlement generally based on the average London Metal Exchange price for a specified future period. Copper revenues on provisionally priced open pounds are adjusted monthly based on then-current prices. At December 31, 1999, we had consolidated copper sales totaling 161.3 million pounds recorded at an average price of $0.83 per pound remaining to be finally priced. Approximately 90 percent of these open pounds are expected to be finally priced during the first quarter of 2000 with the remaining pounds to be priced during the second quarter of 2000. A one-cent movement in the average price used for these open pounds will have an approximate $0.8 million impact on our 2000 net income. In 1999, we began a program using forward contracts to fix the prices of a portion of our open pounds when market conditions are favorable. In January 2000, we entered into forward copper sales contracts to fix the price at $0.85 per pound on approximately 50 percent of our December 31, 1999 open pounds. In the fourth quarter of 1999, we entered into forward sales contracts to fix prices at $0.80 per pound on approximately 60 percent of our open pounds at September 30, 1999, which we had recorded at $0.74 per pound. In June 1997 we had entered into forward sales contracts to fix prices on 56.5 million open pounds of copper sales at an average of $1.22 per pound. We recorded $0.8 million of additional revenues in 1999 and $7.0 million of additional revenues in 1997 from these forward sales. 27 We have outstanding redeemable preferred stock indexed to gold and silver prices. We account for this stock as a hedge of future production and carry it on our balance sheets at its original issue value less redemptions. As redemption payments occur, differences between the carrying value and the redemption payment, which is based on commodity prices at the time of redemption, are recorded as an adjustment to revenues (see Notes 1, 6 and 11). Future redemption payments in ounces and equivalent value in dollars, as well as dollar-equivalent dividend payments based on December 31, 1999 gold and silver prices, follow (dollars in millions):
Gold Silver ------------------------------ -------------------------------- Redemption Redemption Dividend Redemption Redemption Dividend Ounces Amount Amount Ounces Amount Amount -------- ------- -------- ---------- ---------- -------- 2000 - $ - $ 10.2 2,380,000 $12.7 $3.5 2001 - - 10.2 2,380,000 12.7 3.0 2002 - - 10.2 2,380,000 12.7 2.5 2003 600,000 174.5 8.7 2,380,000 12.7 2.0 2004 - - 4.1 2,380,000 12.7 1.4 Thereafter 430,000 125.1 5.1 4,760,000 25.4 1.3 At December 31, 1999: Fair value based on quoted market prices $185.8 $59.8 ====== ===== Carrying value $400.0 $87.5 ====== =====
Atlantic Copper's purchases of copper concentrate are priced at approximately the same time as its sales of the refined copper, thereby protecting Atlantic Copper from most copper price risk. Atlantic Copper enters into futures contracts to hedge its price risk whenever its physical purchases and sales pricing periods do not match. At December 31, 1999, Atlantic Copper had contracts, with a fair value of $(1.1) million, to sell 19.6 million pounds at an average price of $0.79 per pound through February 2000. Atlantic Copper has also extended copper pricing terms that allow certain of its customers to purchase specified quantities of copper at a future date and a fixed price through December 2000. Atlantic Copper has entered into copper futures contracts to eliminate any price risk associated with these extended pricing terms. At December 31, 1999, Atlantic Copper had contracts, with a fair value of $0.3 million, to purchase 3.7 million pounds of copper at an average price of $0.76 per pound through December 2000. Foreign Currency Exchange Risk The majority of our operations are in Indonesia and Spain, where our functional currency is the U.S. dollar. All of our revenues are denominated in U.S. dollars; however, some costs and certain asset and liability accounts are denominated in Indonesian rupiah, Australian dollars or Spanish pesetas. Generally, our results are positively affected when the U.S. dollar strengthens against these foreign currencies and adversely affected when the U.S. dollar weakens against these foreign currencies. Since 1997, the Indonesian rupiah exchange rate has been extremely volatile, severely weakening initially and partly recovering later against the U.S. dollar. We recorded gains (losses) to production costs totaling $(1.4) million in 1999, $0.9 million in 1998 and $(6.3) million in 1997 related to our rupiah-denominated net monetary assets. At December 31, 1999, these net assets totaled $18.1 million at an exchange rate of 6,970 rupiah to one U.S. dollar. Operationally we have benefited from a weakened Indonesian rupiah, primarily through lower labor costs. Assuming estimated annual aggregate rupiah payments of 800 billion and a December 31, 1999 exchange rate of 6,970 rupiah to one U.S. dollar, a one- thousand-rupiah increase in the exchange rate would result in an approximate $14 million decrease in annual operating costs. A one-thousand-rupiah decrease in the exchange rate would result in an approximate $19 million increase in annual operating costs. During the first quarter of 1998, we began a currency hedging program to reduce our exposure to changes in the Indonesian rupiah and Australian dollar by entering into foreign currency forward contracts to hedge a portion of our anticipated payments in these currencies. The last of these contracts expired in September 1999. We recorded net gains to production costs totaling $3.7 million in 1999 and $4.3 million in 1998 related to these contracts. A portion of Atlantic Copper's operating costs and certain of its asset and liability accounts are denominated in Spanish pesetas. Atlantic Copper had peseta-denominated net monetary liabilities at December 31, 1999 totaling $73.9 million recorded at an exchange rate of 165.6 pesetas to one U.S. dollar. Adjustments to these net liabilities to reflect changes in the exchange rate are recorded as currency transaction gains (losses) in other income and totaled $10.9 million in 1999, $(3.8) million in 1998 and $16.8 million in 1997. 28 Assuming estimated annual peseta payments of 15 billion and a December 31, 1999 exchange rate of 165.6 pesetas to one U.S. dollar, a ten-peseta increase in the exchange rate would result in an approximate $5 million decrease in costs, before any hedging effects. A ten-peseta decrease in the exchange rate would result in an approximate $6 million increase in costs, before any hedging effects. We have a currency hedging program using foreign currency forward contracts to reduce our exposure to changes in the U.S. dollar and Spanish peseta exchange rate. At December 31, 1999, we had contracts to purchase 19.7 billion Spanish pesetas at an average exchange rate of 151.9 pesetas to one U.S. dollar through November 2001, with a fair value of $(8.1) million. These contracts currently hedge approximately 80 percent of our projected 2000 net peseta cash outflows and approximately 50 percent of our projected 2001 net peseta cash outflows. We recorded gains (losses) to other income related to our forward peseta currency contracts, totaling $(14.9) million in 1999, $3.7 million in 1998 and $(6.5) million in 1997. 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 our customers in Europe and none of our suppliers are using the euro as their currency for commercial transactions. Atlantic Copper has not yet decided when it will adopt the euro as its currency for commercial transactions. We do not expect conversion to the euro to have a material impact on revenues or expenses. A single European currency is expected to improve our competitiveness with other European copper smelters and refiners by eliminating exchange rate differences. Our current management information systems are designed to accommodate multiple currencies and would not require major modifications to process transactions involving the euro. Our peseta hedging contracts will be set at a fixed exchange rate to the euro and would continue to achieve their objectives. Interest Rate Risk We have interest rate swap contracts to fix interest rates on a portion of our variable-rate debt. The costs associated with these contracts are amortized to interest expense over the terms of the agreements. The table below presents scheduled maturities of principal (or notional amount) for outstanding debt and interest rate swaps at December 31, 1999 and fair value at December 31, 1999 (dollars in millions):
2000 2001 2002 2003 2004 Thereafter Fair Value - -------------------------------------------------------------------------------- Long-term debt (Note 5): Fixed rate $ 7.0 $148.0 $ - $250.0 $ - $200.0 $ 531.4 Average interest rate 8.1% 9.4% - 7.2% - 7.5% 7.9% Variable rate $107.8 $ 73.2 $812.6 $ 58.3 $ 61.3 $430.1 $1,543.3 Average interest rate 8.5% 9.9% 8.4% 10.5% 10.6% 10.3% 9.1% Interest rate swaps (Note 11): Amount $499.9 $274.4 $ - $ - $ - $ - $ 1.4 Average interest rate 6.0% 6.1% - - - - -
DEVELOPMENTS IN INDONESIA Indonesia continues to face economic and political uncertainties. Economic conditions in Indonesia improved during 1999, reflecting international financial assistance, positive reactions to political developments, movements to reform financial systems, a stronger Indonesian rupiah and lower interest and inflation rates. The economy is expected to generate positive economic growth in 2000 following a large decline in 1998. However, religious and ethnic differences among people in the outlying provinces led to violence in some areas, most notably in the province of East Timor following a pro- independence vote. Subsequent United Nations peacekeeping efforts have restored order in East Timor. Pro-independence movements in certain areas also have become more prominent, especially in the province of Aceh, and to a lesser extent in Irian Jaya (Papua). The Government of Indonesia is responding by considering steps to provide more political and economic autonomy to the provincial governments. 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. In October 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. The political uncertainties in Indonesia continue to have a negative impact on our access to capital. (See "Cautionary Statement".) 29 PT Freeport Indonesia's and Eastern Minerals' operations, all of which are in Indonesia, are conducted through the PT Freeport Indonesia and Eastern Minerals Contracts of Work. Both Contracts of Work have 30-year terms, provide for two 10-year extensions under certain conditions, and govern PT Freeport Indonesia's and Eastern Minerals' rights and obligations relating to taxes, exchange controls, repatriation and other matters. Both Contracts of Work were concluded pursuant to the 1967 Foreign Capital Investment Law, which expresses Indonesia's foreign investment policy and provides basic guarantees of remittance rights and protection against nationalization, a framework for economic incentives and basic rules regarding other rights and obligations of foreign investors. Specifically, the Contracts of Work provide that the Government of Indonesia will not nationalize or expropriate PT Freeport Indonesia's or Eastern Minerals' mining operations. Any disputes regarding the provisions of the Contracts of Work are subject to international arbitration. We have had positive relations with the Government of Indonesia since we commenced business activities in Indonesia in 1967, and we contribute significantly to the economies of Irian Jaya (Papua) and Indonesia. We are one of the largest taxpayers in Indonesia and are a significant employer in a remote and undeveloped area of the country. We intend to continue to maintain positive working relationships with the central, provincial and local branches of the Government of Indonesia, including newly elected publliiccooffffiiccials, regarding our operations and development efforts. CAUTIONARY STATEMENT Our discussion and analysis contains forward-looking statements in which we discuss factors we believe may affect our performance in the future. Forward-looking statements are all statements other than historical facts, such as those regarding anticipated sales volumes, ore grades, commodity prices, capital expenditures, future environmental costs, debt repayments, political, economic and social conditions in our areas of operations, treatment charge rates, depreciation rates, exploration efforts and results, introduction of the euro, the availability of financing and PT Smelting operating levels. We caution you that these statements are not guarantees of future performance, and our actual results may differ materially from those projected, anticipated or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward- looking statements include unanticipated declines in the average grades of ore mined, unanticipated milling and other processing problems, labor relations, weather conditions, the speculative nature of mineral exploration, fluctuations in interest rates and other adverse financial market conditions, and other factors described in more detail under the heading "Cautionary Statements" in our Form 10-K for the year ended December 31, 1999. REPORT OF MANAGEMENT Freeport-McMoRan Copper & Gold Inc. (the Company) is responsible for the preparation of the financial statements and all other information contained in this Annual Report. The financial statements have been prepared in conformity with generally accepted accounting principles and include amounts that are based on management's informed judgments and estimates. The Company maintains a system of internal accounting controls designed to provide reasonable assurance at reasonable costs that assets are safeguarded against loss or unauthorized use, that transactions are executed in accordance with management's authorization and that transactions are recorded and summarized properly. The system is tested and evaluated on a regular basis by the Company's internal auditors, PricewaterhouseCoopers LLP. In accordance with generally accepted auditing standards, the Company's independent public accountants, Arthur Andersen LLP, have developed an overall understanding of our accounting and financial controls and have conducted other tests as they consider necessary to support their opinion on the financial statements. The Board of Directors, through its Audit Committee composed solely of non-employee directors, is responsible for overseeing the integrity and reliability of the Company's accounting and financial reporting practices and the effectiveness of its system of internal controls. Arthur Andersen LLP and PricewaterhouseCoopers LLP meet regularly with, and have access to, this committee, with and without management present, to discuss the results of their audit work. /s/ James Moffett /s/ Richard C. Adkerson /s/ Stephen M. Jones James R. Moffett Richard C. Adkerson Stephen M. Jones Chairman of Board and President and Senior Vice President Chief Executive Officer Chief Operating Officer Chief Financial Officer and Secretary 30
FREEPORT-McMoRan COPPER & GOLD INC. STATEMENTS OF INCOME Years Ended December 31, ------------------------------------ 1999 1998 1997 ---------- ---------- ---------- (In Thousands, Except Per Share Amounts) Revenues $1,887,328 $1,757,132 $2,000,904 Cost of sales: Production and delivery 911,559 799,683 1,007,080 Depreciation and amortization 293,213 277,407 213,855 --------- ---------- ---------- Total cost of sales 1,204,772 1,077,090 1,220,935 Exploration expenses 10,626 13,033 17,629 Loss in PT Smelting 18,136 4,948 1,524 General and administrative expenses 70,624 87,780 96,601 ---------- ---------- ---------- Total costs and expenses 1,304,158 1,182,851 1,336,689 ---------- ---------- ---------- Operating income 583,170 574,281 664,215 Interest expense, net (194,069) (205,588) (151,720) Other income (expense), net (8,267) (7,267) 4,271 ---------- ---------- ---------- Income before income taxes and minority interests 380,834 361,426 516,766 Provision for income taxes (195,653) (170,566) (231,315) Minority interests in net income of consolidated subsidiaries (48,714) (37,012) (40,343) ---------- ---------- ---------- Net income 136,467 153,848 245,108 Preferred dividends (35,680) (35,531) (36,567) ---------- ---------- ---------- Net income applicable to common stock $ 100,787 $ 118,317 $ 208,541 ========== ========== ========== Net income per share of common stock: Basic $.62 $.67 $1.06 ==== ==== ===== Diluted $.61 $.67 $1.06 ==== ==== ===== Average common shares outstanding: Basic 163,613 175,353 196,392 ======= ======= ======= Diluted 164,567 175,354 197,653 ======= ======= ======= Dividends paid per common share $ - $.20 $.90 ===== ==== ====
The accompanying Notes to Financial Statements are an integral part of these financial statements. 31
FREEPORT-McMoRan COPPER & GOLD INC. STATEMENTS OF CASH FLOW Years Ended December 31, ------------------------------- 1999 1998 1997 -------- -------- -------- (In Thousands) Cash flow from operating activities: Net income $136,467 $153,848 $245,108 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 293,213 277,407 213,855 Deferred income taxes 60,104 62,165 61,717 Minority interests' share of net income 48,714 37,012 40,343 Deferred stock appreciation rights costs, mining costs and other 23,422 8,808 (54,655) Loss in PT Smelting 18,136 4,948 1,524 Recognition of unearned income - - (46,493) (Increases) decreases in working capital: Accounts receivable 42,062 (103,976) 80,611 Inventories (52,854) 6,323 51,957 Prepaid expenses and other (6,757) (455) 32 Accounts payable and accrued liabilities (15,468) 16,713 (8,963) Accrued income taxes 21,745 16,034 (71,484) -------- -------- -------- (Increase) decrease in working capital (11,272) (65,361) 52,153 -------- -------- -------- Net cash provided by operating activities 568,784 478,827 513,552 -------- -------- -------- Cash flow from investing activities: Capital expenditures: PT Freeport Indonesia (151,015) (280,952) (530,191) Atlantic Copper (6,423) (8,422) (18,478) Investment in PT Smelting (3,384) (2,709) (36,243) Other 796 4,977 (7,705) -------- -------- -------- Net cash used in investing activities (160,026) (287,106) (592,617) -------- -------- -------- Cash flow from financing activities: Net borrowings from (repayments to) Rio Tinto (241,076) (144,760) 371,040 Proceeds from other debt 513,241 549,230 1,097,770 Repayment of other debt (590,377) (239,495) (723,398) Partial redemption of preferred stock (11,946) - - Purchase of FCX common shares (7,921) (259,213) (438,388) Cash dividends paid: Common stock - (35,382) (178,341) Preferred stock (38,019) (39,157) (40,543) Minority interests (13,674) (9,069) (33,773) Other (18,165) (16,957) (3,461) -------- -------- -------- Net cash provided by (used in) financing activities (407,937) (194,803) 50,906 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 821 (3,082) (28,159) Cash and cash equivalents at beginning of year 5,877 8,959 37,118 -------- -------- -------- Cash and cash equivalents at end of year $ 6,698 $ 5,877 $ 8,959 ======== ======== ======== Interest paid $194,546 $251,999 $155,658 ======== ======== ======== Income taxes paid $113,804 $91,567 $259,434 ======== ======== ========
The accompanying Notes to Financial Statements, which include information in Note 11 regarding noncash transactions, are an integral part of these financial statements. 32
FREEPORT-McMoRan COPPER & GOLD INC. BALANCE SHEETS December 31, ----------------------- 1999 1998 ---------- ---------- (In Thousands) ASSETS Current assets: Cash and cash equivalents $ 6,698 $ 5,877 Accounts receivable: Customers 141,325 180,978 Other 31,437 47,524 Inventories: Product 134,735 118,440 Materials and supplies 233,390 182,964 Prepaid expenses and other 16,869 10,111 ---------- ---------- Total current assets 564,454 545,894 Property, plant and equipment, net 3,363,291 3,474,451 Investment in PT Smelting 66,070 80,822 Other assets 89,101 91,467 ---------- ---------- Total assets $4,082,916 $4,192,634 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 317,339 $ 289,342 Current portion of long-term debt and short-term borrowings 114,789 127,804 Unearned customer receipts 40,235 55,564 Accrued income taxes 42,704 45,777 ---------- ---------- Total current liabilities 515,067 518,487 Long-term debt, less current portion 2,003,347 2,073,669 Note payable to Rio Tinto, less current portion 30,123 255,320 Accrued postretirement benefits and other liabilities 114,677 124,073 Deferred income taxes 553,394 471,178 Minority interests 181,921 146,484 Redeemable preferred stock 487,507 500,007 Stockholders' equity: Step-up convertible preferred stock 349,990 349,990 Class A common stock, par value $0.10, 97,071,944 shares issued and outstanding 9,707 9,707 Class B common stock, par value $0.10, 121,540,842 shares and 121,453,497 shares issued and outstanding, respectively 12,154 12,145 Capital in excess of par value of Retained earnings 291,401 190,614 Accumulated other comprehensive income 10,244 10,244 Common stock held in treasury - 55,115,819 shares and 54,217,541 shares, at cost, respectively (1,128,716) (1,120,030) ---------- ---------- Total stockholders' equity 196,880 103,416 ---------- ---------- Total liabilities and stockholders' equity $4,082,916 $4,192,634 ========== ==========
The accompanying Notes to Financial Statements are an integral part of these financial statements. 33
FREEPORT-McMoRan COPPER & GOLD INC. STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, ------------------------------------ 1999 1998 1997 ---------- ---------- ---------- (In Thousands) Step-Up Convertible Preferred Stock $ 349,990 $ 349,990 $ 349,990 ---------- ---------- ---------- Class A common stock 9,707 9,707 9,707 ---------- ---------- ---------- Class B common stock: Balance at beginning of year 12,145 12,140 12,098 Exercised stock options 9 5 42 ---------- ---------- ---------- Balance at end of year 12,154 12,145 12,140 ---------- ---------- ---------- Capital in excess of par value of common stock: Balance at beginning of year 650,746 649,792 636,100 Exercised stock options 1,354 954 13,692 ---------- ---------- ---------- Balance at end of year 652,100 650,746 649,792 ---------- ---------- ---------- Retained earnings: Balance at beginning of year 190,614 107,679 77,479 Net income 136,467 153,848 245,108 Cash dividends on common stock - (35,382) (178,341) Dividends on preferred stock (35,680) (35,531) (36,567) ---------- ---------- ---------- Balance at end of year 291,401 190,614 107,679 ---------- ---------- ---------- Accumulated other comprehensive income 10,244 10,244 10,244 ---------- ---------- ---------- Common stock held in treasury: Balance at beginning of year (1,120,030) (860,660) (420,239) Purchase of 844,200, 19,995,821, and 18,270,500 shares, respectively (7,765) (259,370) (439,827) Tender of 54,078 shares in 1999 and 20,527 shares in 1997 to FCX to exercise stock options (921) - (594) ---------- ---------- ---------- Balance at end of year (1,128,716) (1,120,030) (860,660) ---------- ---------- ---------- Total stockholders' equity $ 196,880 $ 103,416 $ 278,892 ========== ========== ==========
The accompanying Notes to Financial Statements are an integral part of these financial statements. 34 FREEPORT-McMoRan COPPER & GOLD INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation. The consolidated financial statements of Freeport-McMoRan Copper & Gold Inc. (FCX) include its majority- owned subsidiaries, P.T. Freeport Indonesia Company, including certain joint ventures involving PT Freeport Indonesia (Note 5), and P.T. Irja Eastern Minerals, as well as its wholly owned subsidiary, Atlantic Copper, S.A. FCX's unincorporated joint ventures with Rio Tinto plc are reflected using the proportionate consolidation method in accordance with standard industry practice (Note 2). PT Freeport Indonesia's investment in P.T. Smelting is accounted for under the equity method (Note 9) with PT Freeport Indonesia's share of operating results recorded in operating income. All significant intercompany transactions have been eliminated. Certain prior year amounts have been reclassified to conform to the 1999 presentation. Use of Estimates. The preparation of FCX's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. The more significant areas requiring the use of management estimates include the pricing of open concentrate sales, useful lives for depreciation and amortization, allowances for obsolete inventory, reclamation and environmental obligations, postretirement and other employee benefits, deferred taxes and valuation allowances, future cash flow associated with assets and proved and probable reserves. Actual results could differ from those estimates. Cash and Cash Equivalents. Highly liquid investments purchased with a maturity of three months or less are considered cash equivalents. Accounts Receivable. Customer accounts receivable include amounts due from PT Smelting totaling $27.6 million at December 31, 1999 and $20.8 million at December 31, 1998. Other accounts receivable include refundable value-added taxes, net of the allowance for uncollectible amounts, totaling $19.5 million at December 31, 1999 and $24.9 million at December 31, 1998. The allowance for uncollectible amounts totaled $5.5 million at December 31, 1999 and 1998. Inventories. Inventories are stated at the lower of cost or market. PT Freeport Indonesia uses the average cost method and Atlantic Copper uses the first-in, first-out (FIFO) cost method. Property, Plant and Equipment. Property, plant and equipment are carried at cost. Mineral exploration costs are expensed as incurred, except in the year a property is deemed to contain a viable mineral deposit, in which case they are capitalized. Development costs, including interest incurred during the construction and development period, are capitalized. Expenditures for replacements and improvements are capitalized. Depreciation for mining and milling life-of-mine assets is determined using the unit-of-production method based on estimated recoverable copper reserves. Other assets are depreciated on a straight-line basis over estimated useful lives of 15 to 20 years for buildings and 3 to 25 years for machinery and equipment. Income Taxes. FCX accounts for income taxes pursuant to Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." Deferred income taxes are provided to reflect the future tax consequences of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. Reclamation and Mine Closure. Estimated future reclamation and mine closure costs for PT Freeport Indonesia's current mining operations in Indonesia are accrued and charged to income over the estimated life of the mine by the unit-of-production method based on estimated recoverable copper reserves. Expenditures resulting from the remediation of conditions caused by past operations, which do not contribute to future revenue generation, are expensed. 35 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 market exposures. Costs or premiums and gains or losses on contracts meeting deferral criteria, including closed contracts, are recognized with the hedged transaction. 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. At December 31, 1999, FCX had redeemable preferred stock indexed to commodities, open foreign currency forward contracts, open forward copper purchase and sales contracts, and interest rate swap contracts (Note 11). Redeemable preferred stock indexed to commodities is treated as a hedge of future production and is carried at its original issue value. As redemption payments occur, differences between the carrying value and the payment are recorded as an adjustment to revenues. Atlantic Copper hedges a portion of its anticipated Spanish peseta cash outflows with foreign currency forward contracts. Changes in market value of foreign currency forward contracts which protect anticipated transactions are recognized in the period incurred. Atlantic Copper enters into contracts to hedge its copper price risk whenever its physical purchases and sales pricing periods do not match, and whenever Atlantic Copper extends the pricing terms on its copper sales. Gains and losses on these contracts are recognized with the hedged transaction. FCX and Atlantic Copper have interest rate swap contracts to limit the effect of increases in the interest rates on variable-rate debt. The costs associated with these contracts are amortized to interest expense over the terms of the agreements. In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activity," which establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. In June 1999, the FASB delayed SFAS 133's effective date by one year to fiscal years beginning after June 15, 2000 with earlier application permitted. FCX expects to adopt SFAS 133 effective January 1, 2001. Adoption is expected to require FCX to report other comprehensive income or loss items for changes in fair value of financial instruments that qualify as hedges. FCX expects to be able to continue its current accounting for its redeemable preferred stock indexed to commodities under the provisions of SFAS 133 that allow these instruments issued before January 1, 1998 to be excluded from those instruments required to be adjusted for changes in their fair values. Concentrate Sales. Revenues from PT Freeport Indonesia's concentrate sales are recorded net of royalties, treatment costs and the impact of the price protection program (Note 11). PT Freeport Indonesia's concentrate sales agreements, including its sales to Atlantic Copper and PT Smelting, provide for provisional billings based on world metals prices when shipped, primarily using then-current prices on the London Metal Exchange (LME). Actual settlement on the copper portion is generally based on the average LME price for a specified future period. Copper revenues on provisionally priced open pounds are adjusted monthly based on then-current prices. At December 31, 1999, FCX had consolidated provisionally priced copper sales totaling 161.3 million pounds recorded at an average price of $0.83 per pound. Approximately 90 percent of these open pounds are expected to be finally priced during the first quarter of 2000 with the remaining pounds to be priced during the second quarter of 2000. A one-cent movement in the average price used for these open pounds will have an approximate $0.8 million impact on FCX's 2000 net income. In January 2000, PT Freeport Indonesia entered into forward copper sales contracts to fix the price at $0.85 per pound on approximately 50 percent of the December 31, 1999 open pounds. Gold sales are priced according to individual contract terms, generally the average London Bullion Market Association price for the month of shipment. PT Freeport Indonesia pays royalties under a Contract of Work, with a 30-year term and two 10-year extensions permitted, entered into in December 1991 with the Government of Indonesia. The copper royalty rate payable by PT Freeport Indonesia under its Contract of Work 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 Contract of Work royalty rate for gold and silver sales is 1.0 percent. Because a large part of the mineral royalties under Government of Indonesia regulations are due to the provinces from which the minerals are extracted, in connection with the fourth concentrator mill expansion, PT Freeport Indonesia agreed to pay the Government of Indonesia voluntary additional royalties to provide further support to the local governments and the people of Irian Jaya (Papua). The additional royalties are paid on metal from production above 200,000 metric tons of ore per day. The additional royalty for copper equals the Contract of Work royalty rate, and for gold and silver equals twice the Contract of Work royalty rates. Therefore, PT Freeport Indonesia's royalty rate on copper net revenues from production above 200,000 metric tons of ore per day is double the Contract of Work royalty rate, and the royalty rates on gold and silver sales from production above 200,000 metric tons of ore per day are triple the Contract of Work royalty rates. The additional royalties became effective January 1, 1999. The combined royalties totaled $23.0 million in 1999, $16.2 million in 1998 and $31.4 million in 1997. 36 Foreign Currencies. Transaction gains and losses associated with Atlantic Copper's peseta-denominated and PT Freeport Indonesia's rupiah-denominated monetary assets and liabilities are included in net income. Atlantic Copper's peseta-denominated net monetary liabilities totaled $73.9 million at December 31, 1999 based on an exchange rate of 165.6 pesetas to one U.S. dollar. Excluding hedging amounts, net Atlantic Copper transaction gains (losses) totaled $10.9 million in 1999, $(3.8) million in 1998 and $16.8 million in 1997. PT Freeport Indonesia's rupiah-denominated net monetary assets totaled $18.1 million at December 31, 1999 based on an exchange rate of 6,970 rupiah to one U.S. dollar. Excluding hedging amounts, net PT Freeport Indonesia transaction gains (losses) related to these rupiah-denominated net monetary assets totaled $(1.4) million in 1999, $0.9 million in 1998 and $(6.3) million in 1997. Comprehensive Income. In 1998, FCX adopted SFAS 130, "Reporting Comprehensive Income," which establishes new rules for the reporting and display of comprehensive income (net income plus other comprehensive income, or all other changes in net assets from nonowner sources) and its components. FCX has no items of other comprehensive income for the years presented in the financial statements. Accumulated Other Comprehensive Income reported in the Statements of Stockholders' Equity consists solely of the cumulative foreign currency translation adjustment at Atlantic Copper as of December 31, 1995, for which there is no tax effect. Earnings Per Share. Basic net income per share of common stock was calculated by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the year. 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 year plus the net effect of dilutive stock options. Dilutive stock options represented 1.0 million shares in 1999, one thousand shares in 1998 and 1.3 million shares in 1997. Options with exercise prices greater than the average market price of the common stock during the year were excluded from the computation of diluted net income per share of common stock. This amounted to options for 11.0 million shares (average exercise price of $22 per share) in 1999, options for 10.5 million shares (average exercise price of $23 per share) in 1998 and options for 2.3 million shares (average exercise price of $33 per share) in 1997. The FCX Step-Up Convertible Preferred Stock outstanding was not included in the computation of diluted net income per share of common stock because including the conversion of these shares would have increased net income per share of common stock. The preferred stock was convertible into 11.7 million shares of common stock and accrued dividends totaled $22.2 million in 1999 and $21.0 million in 1998 and 1997. 2. OWNERSHIP IN SUBSIDIARIES AND JOINT VENTURES WITH RIO TINTO FCX's direct ownership in PT Freeport Indonesia totaled 81.3 percent at December 31, 1999 and 1998. FCX also owns 49 percent of P.T. Indocopper Investama Corporation (PT Indocopper Investama), a 9.4 percent owner of PT Freeport Indonesia, bringing FCX's total ownership in PT Freeport Indonesia to 85.9 percent at December 31, 1999 and 1998. At December 31, 1999, PT Freeport Indonesia's net assets totaled $935.7 million, including $732.0 million of retained earnings. FCX has various intercompany loans to PT Freeport Indonesia totaling $780.0 million at December 31, 1999. Substantially all of PT Freeport Indonesia's assets are located in Indonesia. Indonesia continues to face economic and political uncertainties. Economic conditions in Indonesia improved during 1999, reflecting international financial assistance, positive reactions to political developments, movements to reform financial systems, a stronger Indonesian rupiah and lower interest and inflation rates. The economy is expected to generate positive economic growth in 2000 following a large decline in 1998. However, religious and ethnic differences among people in the outlying provinces led to violence in some areas, most notably in the province of East Timor following a pro- independence vote. Subsequent United Nations peacekeeping efforts have restored order in East Timor. Pro-independence movements in certain areas also have become more prominent, especially in the province of Aceh, and to a lesser extent in Irian Jaya (Papua). The Government of Indonesia is responding by considering steps to provide more political and economic autonomy to the provincial governments. PT Freeport Indonesia's Contract of Work provides that the Government of Indonesia will not nationalize or expropriate PT Freeport Indonesia's mining operations. In 1997, PT Nusamba Mineral Industri (Nusamba), a subsidiary of P.T. Nusantara Ampera Bakti, acquired from a third party approximately 51 percent of the capital stock of PT Indocopper Investama. Nusamba financed $254.0 million of the $315.0 million purchase price with a variable-rate commercial loan maturing in March 2002. The purchase price was negotiated based primarily on FCX's market value at the time of the transaction. FCX has agreed that if Nusamba defaults on the loan, FCX will purchase the PT Indocopper Investama stock or the lenders' interest in the commercial loan for the amount then due by Nusamba under the loan. FCX also agreed to lend to Nusamba 37 any amounts to cover any shortfalls between the interest payments due on the commercial loan and the dividends received by Nusamba from PT Indocopper Investama. At December 31, 1999, $43.7 million was due in March 2002 from Nusamba because of interest payment shortfalls and is included in other assets. The amount of any future shortfalls will depend primarily on the level of PT Freeport Indonesia's dividends to PT Indocopper Investama. Once the total of the guaranteed loan and the amounts FCX has subsequently loaned to Nusamba reach the original purchase price ($315 million), FCX expects to begin expensing any additional amounts loaned to Nusamba. FCX's direct ownership in Eastern Minerals totaled 90 percent at December 31, 1999 and 1998. PT Indocopper Investama owns the remaining 10 percent of Eastern Minerals, bringing FCX's total ownership in Eastern Minerals to 94.9 percent at December 31, 1999 and 1998. FCX owns 100 percent of the outstanding Atlantic Copper stock. At December 31, 1999, Atlantic Copper's net assets totaled $97.5 million and FCX had no outstanding advances to Atlantic Copper. Atlantic Copper is not expected to pay dividends in the near future. In December 1999, FCX made a $40.0 million equity contribution to Atlantic Copper and forgave $24.2 million of outstanding advances, which had no impact on FCX's consolidated financial statements. Joint Ventures With Rio Tinto. Rio Tinto owns 23.9 million shares of FCX Class A common stock (approximately 15 percent of the December 31, 1999 outstanding common stock of FCX). In addition, FCX and Rio Tinto established joint ventures. Under the joint venture arrangements, Rio Tinto has a 40 percent interest in future development and exploration projects under PT Freeport Indonesia's Contract of Work and Eastern Minerals' Contract of Work, and the option to participate in 40 percent of any other future exploration projects in Irian Jaya (Papua). Under the arrangements, Rio Tinto funded $100 million in 1996 for approved exploration costs in the areas covered by the PT Freeport Indonesia and Eastern Minerals Contracts of Work. Substantially all exploration costs in the joint venture areas are now being shared 60 percent by FCX and 40 percent by Rio Tinto. PT Freeport Indonesia completed the "fourth concentrator mill expansion" of its facilities in early 1998. Pursuant to the joint venture agreement, Rio Tinto has a 40 percent interest in certain assets and future production exceeding specified annual amounts of copper, gold and silver through 2021 in Block A of PT Freeport Indonesia's Contract of Work, and, after 2021, a 40 percent interest in all production from Block A. In addition to funding its 40 percent share of all expansion capital, including the fourth concentrator mill expansion, Rio Tinto provided a $450 million nonrecourse loan to PT Freeport Indonesia for PT Freeport Indonesia's share of the cost of the expansion. PT Freeport Indonesia and Rio Tinto began sharing incremental cash flow attributable to the expansion effective January 1, 1998 on the basis of 60 percent to PT Freeport Indonesia and 40 percent to Rio Tinto. PT Freeport Indonesia is paying its share of incremental cash flow to Rio Tinto until Rio Tinto receives an amount equal to the funds loaned to PT Freeport Indonesia, plus interest based on Rio Tinto's cost of borrowing. Through December 31, 1999, PT Freeport Indonesia's share of incremental cash flow totaled $471.8 million, of which $30.9 million will be paid to RioTinto in 2000, $252.3 million was paid in 1999 and $188.6 million was paid in 1998. The incremental revenues from production from the expansion and total revenues from production from Block A, including production from PT Freeport Indonesia's previously existing reserves, share proportionately in operating, nonexpansion capital and administrative costs. PT Freeport Indonesia will continue to receive 100 percent of the cash flow from specified annual amounts of copper, gold and silver through 2021 calculated by reference to its proved and probable reserves as of December 31, 1994 and 60 percent of all remaining cash flow. 3. INVENTORIES The components of product inventories follow (in thousands):
December 31, -------------------- 1999 1998 -------- -------- PT Freeport Indonesia: Concentrates- Average Cost $ 13,424 $ 15,630 Atlantic Copper: Concentrates - FIFO 69,590 58,597 Work in process - FIFO 50,173 41,725 Finished goods - FIFO 1,548 2,488 -------- -------- Total product inventories $134,735 $118,440 ======== ========
The average cost method was used to determine the cost of essentially all materials and supplies inventory. Materials and supplies inventory is net of obsolescence reserves totaling $18.8 million at December 31, 1999 and $24.6 million at December 31, 1998. The increase in materials and supplies inventory supports PT Freeport Indonesia's expanded operations in Indonesia. 38 4. PROPERTY, PLANT AND EQUIPMENT, NET The components of net property, plant and equipment follow (in thousands):
December 31, ----------------------- 1999 1998 ---------- ---------- Exploration, development and other $1,019,164 $ 975,218 Buildings and infrastructure 1,148,027 1,103,753 Machinery and equipment 1,658,116 1,566,674 Mobile equipment 494,583 444,474 Infrastructure assets 615,412 619,631 Construction in progress 33,809 104,076 ---------- ---------- Property, plant and equipment 4,969,111 4,813,826 Accumulated depreciation and amortization (1,605,820) (1,339,375) ---------- ---------- Property, plant and equipment, net $3,363,291 $3,474,451 ========== ==========
Exploration, development and other include $124.8 million of excess costs related to investments in consolidated subsidiaries, which are being amortized over the lives of the related assets. Property, plant and equipment are net of grants from the Spanish government totaling $52.8 million. The grants are contingent on Atlantic Copper meeting specified conditions through December 2001. 5. LONG-TERM DEBT
December 31, ----------------------- 1999 1998 ---------- ---------- (In Thousands) Notes payable: FCX and PT Freeport Indonesia credit facilities, average rate 7.1% in 1999 and 7.4% in 1998 $ 648,000 $ 658,000 Atlantic Copper facility, average rate 7.5% in 1999 and 6.5% in 1998 204,529 275,785 Atlantic Copper working capital revolver, average rate 6.3% in 1999 and 6.0% in 1998 39,593 38,093 Rio Tinto loan, average rate 5.2% in 1999 and 5.6% in 1998 (Note 2) 60,563 301,640 Equipment loans 76,840 42,000 ALatieF loan, average rate 6.4% in 1999 and 6.6% in 1998 39,312 43,563 Other notes payable 24,818 5,345 9 3/4% Senior Notes due 2001 120,000 120,000 7.50% Senior Notes due 2006 200,000 200,000 7.20% Senior Notes due 2026 250,000 250,000 Infrastructure asset financings, average rate 11.6% in 1999 and 12.0% in 1998 484,604 522,367 ---------- ---------- 2,148,259 2,456,793 Less current portion and short-term borrowings 114,789 127,804 ---------- ---------- $2,033,470 $2,328,989 ========== ==========
Notes Payable. The FCX and PT Freeport Indonesia credit facilities provide total availability of $1.0 billion. PT Freeport Indonesia has a $550 million facility ($337.0 million of additional borrowings available at December 31, 1999), and FCX and PT Freeport Indonesia have a separate $450 million facility ($15.0 million of additional borrowings available at December 31, 1999). These credit facilities are also subject to a borrowing base, redetermined annually during the second quarter by the banks, which had approximately $724 million available at December 31, 1999. These variable-rate revolving facilities are available until December 2002 and contain provisions for minimum working capital requirements, specified cash flow to interest coverage and restrictions on other borrowings. PT Freeport Indonesia assigned its existing and future sales contracts and pledged its rights under the Contract of Work and most of its assets as security for its borrowings. 39 In December 1999, Atlantic Copper restructured its variable- rate project loan (the Atlantic Copper Facility) after reducing the term portion using a $40.0 million equity contribution from FCX. As of December 31, 1999, the variable-rate project loan, nonrecourse to FCX, consists of a $140.0 million term loan being repaid in 32 equal quarterly payments beginning March 2000 through December 2007 and a $65.0 million working capital revolver that matures December 2007. The Atlantic Copper Facility requires certain hedging arrangements, restricts other borrowings and specifies certain minimum coverage ratios. Borrowings under the Atlantic Copper Facility are secured by 100 percent of Atlantic Copper's capital stock, the smelter and refinery assets, and certain receivables and inventory. The bank providing the Atlantic Copper Facility has also made available a $30.0 million facility for Atlantic Copper to use primarily in support of scheduled term loan repayments. Amounts drawn on this facility must be matched with additional FCX equity contributions to Atlantic Copper. No amounts were outstanding under this facility as of December 31, 1999. In addition to the Atlantic Copper Facility, Atlantic Copper has a $40 million working capital revolver that is secured by certain shipments of copper concentrate, and has access to additional lines of credit, which are generally unsecured, with various financial institutions. FCX and PT Freeport Indonesia each have an equipment loan secured by certain PT Freeport Indonesia assets with a vendor. The FCX loan had a $35.0 million balance at December 31,1999 and interest accrues at 8.1 percent. Principal payments total $7.0 million annually with a final payment of $21.0 million in December 2001. In November 1999, PT Freeport Indonesia entered into a $41.8 million variable-rate equipment loan with the same vendor. The average interest rate for the period the loan was outstanding in 1999 was 8.6 percent. Principal payments total $4.2 million annually with a final payment of $12.5 million in December 2006. In March 1997, PT Freeport Indonesia completed the final $75.0 million sale of infrastructure assets to joint ventures then owned one-third by PT Freeport Indonesia and two-thirds by P.T. ALatieF Nusakarya Corporation (ALatieF), an Indonesian investor. The sales to the ALatieF joint ventures totaled $270.0 million during the period from December 1993 to March 1997. Funding for the purchases consisted of $90.0 million in equity contributions by the joint venture partners, a $60.0 million bank loan (the ALatieF loan) and FCX's 9 3/4% Senior Notes. PT Freeport Indonesia subsequently sold its one-third interest in the joint ventures to ALatieF in March 1997. In September 1998, PT Freeport Indonesia reacquired for $30 million an aggregate one-third interest in the joint ventures and continues to lease the infrastructure assets under infrastructure asset financing arrangements. PT Freeport Indonesia guarantees the ALatieF loan associated with the purchases and is consolidating the joint ventures because the agreements provide the joint venture partners with a guaranteed 15 percent after-tax minimum annual return on their investment. Senior Notes. The 9 3/4% Senior Notes are due April 15, 2001. Each holder of the 7.20% Senior Notes may elect early repayment in November 2003. The 7.50% and 7.20% Senior Notes are redeemable at the option of FCX at the greater of (a) their principal amount or (b) the remaining scheduled payments of principal and interest discounted to the date of redemption on a semiannual basis at the applicable treasury rate plus 30 basis points, together with, in either case, accrued interest to the date of redemption. Infrastructure Asset Financings. Through 1997 PT Freeport Indonesia sold assets for $458.2 million to a power joint venture, in which it previously had a 30 percent interest, and is purchasing power under infrastructure asset financing arrangements. The infrastructure asset financing obligations pursuant to the power sales agreement totaled $412.2 million at December 31, 1999 and $431.7 million at December 31, 1998. In 1995, PT Freeport Indonesia sold certain of its port, marine, logistics and construction equipment and facilities for $100.0 million to an unrelated joint venture and sold $48.0 million of its aviation assets to a joint venture, 25 percent owned by PT Freeport Indonesia. PT Freeport Indonesia guarantees certain of the bank loans totaling $56.9 million at December 31, 1999 associated with these sales. PT Freeport Indonesia is leasing these assets under infrastructure asset financing arrangements. The obligations under these infrastructure asset financings totaled $72.4 million at December 31, 1999 and $88.7 million at December 31, 1998. Maturities and Capitalized Interest. Maturities of debt instruments and infrastructure asset financings based on the amounts and terms outstanding at December 31, 1999 totaled $114.8 million in 2000, $221.2 million in 2001, $812.6 million in 2002, $308.3 million in 2003, $61.3 million in 2004 and $630.1 million thereafter. Capitalized interest totaled $3.8 million in 1999, $19.6 million in 1998 and $23.0 million in 1997. 40 6. REDEEMABLE PREFERRED STOCK FCX has outstanding 6.0 million depositary shares representing 300,000 shares of its Gold-Denominated Preferred Stock totaling $232.6 million. Each depositary share has a cumulative quarterly cash dividend equal to the value of 0.000875 ounce of gold and will be redeemed in August 2003 for the cash value of 0.1 ounce of gold. FCX has outstanding 4.3 million depositary shares representing 215,279 shares of its Gold-Denominated Preferred Stock, Series II totaling $167.4 million. Each depositary share has a cumulative quarterly cash dividend equal to the value of 0.0008125 ounce of gold and will be redeemed in February 2006 for the cash value of 0.1 ounce of gold. FCX has outstanding 4.8 million depositary shares representing 104,125 shares of its Silver-Denominated Preferred Stock totaling $87.5 million at December 31, 1999 and 119,000 shares totaling $100.0 million at December 31, 1998. As of December 31, 1999, each depositary share has a cumulative quarterly cash dividend equal to the value of 0.03609375 ounce of silver, which declines after each redemption payment. In August 1999, FCX made the first of eight annual redemption payments on the underlying Silver-Denominated Preferred Stock. 7. STOCKHOLDERS' EQUITY Common Stock. FCX has 473.6 million authorized shares of capital stock consisting of 423.6 million shares of common stock and 50.0 million shares of preferred stock. FCX has two classes of common stock which differ only as to their voting rights for the directors of FCX. Holders of Class B common stock elect 80 percent of the FCX directors while holders of Class A common stock and preferred stock elect 20 percent. Preferred Stock. FCX has outstanding 14.0 million depositary shares representing 700,000 shares of its Step-Up Convertible Preferred Stock. Each depositary share has a cumulative $1.75 annual cash dividend (payable quarterly) and a $25 liquidation preference, and is convertible at the option of the holder into 0.835 shares of FCX Class A common stock. FCX may redeem these depositary shares at $25 per share (payable in FCX Class A common stock, cash or a combination of both, at FCX's option) plus accrued and unpaid dividends. Stock Award Plans. FCX's Adjusted Stock Award Plan provided for the issuance of certain stock awards to employees, officers and directors of Freeport-McMoRan Inc. (FTX), the former parent of FCX, in connection with FTX's distribution of FCX shares in 1995. Under this plan, FCX made a one-time grant of awards to purchase up to 10.7 million Class B common shares, including stock appreciation rights (SARs), at prices equivalent to the original FTX price at date of grant as adjusted for the proportionate market value of FCX shares at the time of the distribution. All options granted under this plan expire 10 years from the original FTX date of grant. FCX's 1995 Stock Option Plan (the 1995 Plan) provides for the issuance of stock options and other stock-based awards (including SARs) for up to 10 million Class B common shares at no less than market value at the time of grant. During 1998, FCX converted 1.3 million SARs to stock options when FCX's stock price was below the SARs' exercise prices. FCX's 1995 Stock Option Plan for Non-Employee Directors (the Director Plan) authorizes FCX to grant options to purchase up to 2 million shares. Options granted under the Director Plan are exercisable in 25 percent annual increments beginning one year from the date of grant. For options granted under the Director Plan, FCX will pay cash to the option holder equal to an amount based on the maximum individual federal income tax rate in effect at the time of exercise. In May 1999, FCX's shareholders approved the 1999 Stock Incentive Plan (the 1999 Plan) to provide for the issuance of stock options, restricted stock and other stock-based awards. The 1999 Plan allows FCX to grant awards for up to 8 million common shares (3.2 million Class A common shares and 4.8 million Class B common shares) to eligible participants. 41 Awards granted under all of the plans generally expire 10 years after the date of grant. Awards for 7.2 million shares under the 1999 Plan, 1.5 million shares under the Director Plan and 0.5 million shares under the 1995 Plan were available for new grants as of December 31, 1999. A summary of stock options outstanding, including 43,955 SARs, follows:
1999 1998 1997 ------------------ ----------------- ----------------- Weighted Weighted Weighted Number Average Number Average Number Average of Option of Options of Options Options Price Options Price Options Price ---------- ------ --------- ------ --------- ------ Balance at January 11,430,582 $21.98 8,065,837 $23.84 7,990,083 $23.04 Granted 3,965,500 11.48 3,691,200 17.77 856,900 29.18 Exercised (87,345) 15.28 (51,749) 14.74 (579,612) 18.47 Expired/Forfeited (1,248,513) 20.08 (274,706) 21.29 (201,534) 30.45 ---------- --------- --------- Balance at December 31 14,060,224 19.23 1,430,582 21.98 8,065,837 23.84 ========== ========= =========
In 1998, two FCX executive officers were granted stock options under the 1995 Plan to purchase 2.6 million shares of FCX stock at $19.03 per share. The options may be exercised at any time through March 2006 and were granted in return for a five-year cap on their cash incentive compensation. Summary information of stock options outstanding at December 31, 1999, excluding SARs, follows:
Options Outstanding Options Exercisable ---------------------------- ------------------- Weighted Weighted Weighted Number Average Average Number Average of Remaining Option of Option Range of Exercise Prices Options Life Price Options Price - ------------------------ ---------- --------- ------- --------- ------- $9.94 to $14.63 3,791,500 9 years $10.90 230,250 $14.28 $14.94 to $21.27 7,778,975 4 years 18.98 6,835,975 19.27 $22.63 to $32.81 1,065,794 7 years 29.57 693,494 29.53 $35.50 1,380,000 6 years 35.50 828,000 35.50 ---------- --------- 14,016,269 8,587,719 ========== =========
FCX has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" and continues to apply APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based compensation plans. FCX recognized a $1.4 million charge in 1999 and a $25.3 million gain in 1997 for its SARs and grants under the Director Plan, which have the same accounting treatment as SARs, because of fluctuations in FCX's common stock price. Had compensation cost for FCX's stock option grants, excluding SARs, been determined based on the value at the grant dates for awards under those plans pursuant to the requirements of SFAS 123, FCX's stock-based compensaion costs would have increased by $12.4 million ($6.0 million to net income or $0.04 per share) in 1999, $34.3 million ($16.7 million to net income or $0.10 per share) in 1998 and $6.3 million ($3.4 million to net income or $0.02 per share) in 1997. For the pro forma computations, the values of the option grants were calculated on the dates of grant using the Black- Scholes option-pricing model. The weighted average fair value for stock option grants was $5.96 per option in 1999, $6.75 per option in 1998 (including the 1.3 million SARs converted to stock options) and $10.24 per option in 1997. The weighted average assumptions used include a risk-free interest rate of 5.1 percent in 1999, 5.8 percent in 1998 and 6.9 percent in 1997; expected volatility of 41 percent in 1999, 34 percent in 1998 and 30 percent in 1997; no annual dividend in 1999, $0.20 per share in 1998 and $0.90 per share in 1997; and expected lives of 7 years in 1999, 8 years in 1998 and 10 years in 1997. The pro forma effects on net income are not representative of future years. No other discounts or restrictions related to vesting or the likelihood of vesting of stock options were applied. 42 8. INCOME TAXES The components of FCX's deferred taxes follow (in thousands):
December 31, --------------------- 1999 1998 --------- --------- Deferred tax asset: Foreign tax credits $ 245,787 $ 181,749 U.S. alternative minimum tax credits 62,559 55,583 Atlantic Copper net operating loss carryforwards 82,789 91,653 Deferred compensation 5,496 4,658 Intercompany profit elimination 18,733 14,850 Obsolescence reserve 2,223 4,282 Valuation allowance (391,135) (328,985) --------- --------- Total deferred tax asset 26,452 23,790 --------- --------- Deferred tax liability: Property, plant and equipment (509,611) (463,312) Undistributed earnings in PT Freeport Indonesia (44,808) (22,832) Other (25,427) (8,824) --------- --------- Total deferred tax liability (579,846) (494,968) --------- --------- Net deferred tax liability $(553,394) $(471,178) ========= =========
FCX has provided a valuation allowance equal to its tax credit carryforwards ($308.3 million at December 31, 1999 and $237.3 million at December 31, 1998) as these would only be used should FCX be required to pay regular U.S. tax, which is considered unlikely for the foreseeable future. Atlantic Copper is subject to taxation in Spain and has not generated significant taxable income in recent years. FCX has provided a valuation allowance equal to the future tax benefits resulting from $236.5 million of Atlantic Copper net operating losses at December 31, 1999 and $261.9 million of net operating losses at December 31, 1998, which expire through the year 2009. PT Freeport Indonesia's Indonesian income tax returns have been audited through 1994 and the 1997 return is currently under examination. FCX's provision for income taxes consists of the following (in thousands):
1999 1998 1997 -------- -------- -------- Current income taxes: Indonesian $127,828 $100,336 $159,713 United States and other 7,721 8,065 9,885 -------- -------- -------- 135,549 108,401 169,598 Deferred Indonesian taxes 60,104 62,165 61,717 -------- -------- -------- $195,653 $170,566 $231,315 ======== ======== ========
43 Differences between income taxes computed at the contractual Indonesian tax rate and income taxes recorded follow (dollars in thousands):
1999 1998 1997 ---------------- --------------- -------------- Amount Percent Amount Percent Amount Percent -------- ------- ------- ------- ------ ------- Income taxes computed at the contractual Indonesian tax rate $133,292 35% $126,499 35% $180,868 35% Indonesian withholding tax on: Earnings/dividends 23,878 6 21,490 6 21,886 4 Interest 2,829 - 3,765 1 6,818 1 Increase (decrease) attributable to: Intercompany interest expense (11,444) (3) (15,103) (4) (24,192) (5) Parent company costs 37,568 10 26,504 7 24,926 5 Indonesian presidential decree - - - - 9,643 2 U.S. alternative minimum tax 7,400 2 7,500 2 8,500 2 Atlantic Copper net income (1,836) - (1,733) - (1,187) - Other, net 3,966 - 1,644 - 4,053 1 -------- -- -------- -- -------- -- Provision for income taxes $195,653 51% $170,566 47% $231,315 45% ======== == ======== == ======== ==
9. TRANSACTIONS WITH AFFILIATES AND EMPLOYEE BENEFITS Management Services Agreement. FM Services Company (FMS), owned 45 percent by FCX, provides certain administrative, financial and other services on a cost-reimbursement basis under a management services agreement. These costs, which include related overhead, totaled $25.8 million in 1999, $40.3 million in 1998 and $44.7 million in 1997. Management believes these costs do not differ materially from the costs that would have been incurred had the relevant personnel providing these services been employed directly by FCX. PT Smelting. PT Smelting, an Indonesian company, completed construction of its 200,000 metric tons of copper metal per year smelter/refinery in Gresik, Indonesia during the third quarter of 1998. PT Freeport Indonesia, Mitsubishi Materials Corporation (Mitsubishi Materials), Mitsubishi Corporation (Mitsubishi) and Nippon Mining & Metals Co., Ltd. (Nippon) own 25 percent, 60.5 percent, 9.5 percent and 5 percent, respectively, of the outstanding PT Smelting stock. PT Freeport Indonesia is providing all of PT Smelting's copper concentrate requirements at market rates; however, for the first 15 years of operations the treatment and refining charges will not fall below a specified minimum rate, currently $0.23 per pound, which was the rate for 1999 and is expected to be the rate for 2000. PT Freeport Indonesia has also agreed to assign, if necessary, its earnings in PT Smelting to support a 13 percent cumulative annual return to Mitsubishi Materials, Mitsubishi and Nippon for the first 20 years of commercial operations. Pension Plans and Other Benefits. FCX has a defined benefit pension plan to cover substantially all U.S. and certain overseas employees. In 1996, FCX changed the pension benefit formula to a cash balance formula from the prior benefit calculation based on years of service and final average pay. Under the amended plan, FCX credits each participant's account annually with at least 4 percent of the participant's qualifying compensation. Additionally, interest is credited annually to each participant's account balance. FCX funds its pension liability in accordance with Internal Revenue Service guidelines. Additionally, for those employees in the qualified defined benefit plan whose benefits are limited under federal income tax laws, FCX sponsors an unfunded, nonqualified plan. FCX also provides certain health care and life insurance benefits (Other Benefits) for retired employees. FCX has the right to modify or terminate these benefits. PT Freeport Indonesia has a defined benefit plan denominated in Indonesian rupiah covering substantially all of its Indonesian national employees. PT Freeport Indonesia funds the plan in accordance with Indonesian pension guidelines. The pension obligation was valued at an exchange rate of 6,970 rupiah to one U.S. dollar on December 31, 1999 and 7,725 rupiah to one U.S. dollar on December 31, 1998. Information on the FCX and PT Freeport Indonesia plans follows (dollars in thousands): 44
Pension Benefits Other Benefits -------------------------------------- ----------------- PT Freeport FCX Plan Indonesia Plan FCX ------------------ ----------------- ----------------- 1999 1998 1999 1998 1999 1998 -------- -------- ------- -------- ------ -------- Change in benefit obligation: Benefit obligation at beginning of year $(13,622) $(13,652) $(8,065) $(7,208) $(763) $(1,043) Service cost (852) (1,089) (1,061) (704) (42) (42) Interest cost (905) (926) (2,688) (728) (60) (50) Plan amendments - - - (729) (92) 301 Curtailment gain - - - 781 - - Special termination benefits - - - (5,873) - - Actuarial gains (losses) 876 1,721 (1,159) (287) 83 63 Foreign exchange gain (loss) - - (1,354) 42 - - Benefits paid 922 324 271 6,641 14 8 -------- -------- ------- ------- ------ ------- Benefit obligation at end of year (13,581) (13,622) (14,056) (8,065) (860) (763) -------- -------- ------- ------- ------ ------- Change in plan assets: Fair value of plan assets at beginning of year 8,381 7,660 2,992 2,030 - - Actual return on plan assets 1,167 1,045 1,185 594 - - Employer contributions 2,078 - 2,351 6,720 14 8 Foreign exchange gain - - 663 289 - - Benefits paid (922) (324) (271) (6,641) (14) (8) -------- ------- ------- ------- ------ ------ Fair value of plan assets at end of year 10,704 8,381 6,920 2,992 - - -------- ------- ------- ------- ------ ------ Funded status (2,877) (5,241) (7,136) (5,073) (860) (763) Unrecognized net actuarial (gain) loss (2,794) (1,650) 1,295 - (1,248) (1,311) Unrecognized transition asset (286) (344) - - - - Unrecognized prior service cost (633) (780) 2,908 2,938 (333) (473) -------- ------- ------- ------- ------- -------- Accrued benefit cost $ (6,590) $(8,015) $(2,933) $(2,135)$(2,441) $ (2,547) ======== ======= ======= ======= ======= ======== Weighted-average assumptions (percent): Discount rate 8.00 6.75 11.00 a 8.00 6.75 Expected return on plan assets 9.00 9.00 12.00 a - - Rate of compensation increase 4.25 4.25 9.00 a - -
a. Given the economic uncertainty in Indonesia, PT Freeport Indonesia used annual discount rates and expected return on plan assets of 35 percent in 1999 and 30 percent in 2000. For 2001 and thereafter, PT Freeport Indonesia used an 11 percent discount rate and a 12 percent expected return on plan assets. The annual rates of compensation increase used were 20 percent in 1999 and 2000, and 9 percent thereafter. The initial health care cost trend rate used for the other benefits was 7.0 percent for 1999, decreasing ratably each year until reaching 4.75 percent in 2004. A one-percentage-point increase or decrease in assumed health care cost trend rates would not have a significant impact on total service or interest cost. The components of net periodic benefit cost for FCX's plans follow (in thousands):
Pension Benefits Other Benefits -------------------- ------------------- 1999 1998 1997 1999 1998 1997 ----- ------ ------ ----- ---- ----- Service cost $ 852 $1,089 $1,410 $ 42 $ 42 $ 62 Interest cost 905 926 864 60 50 72 Expected return on plan assets (672) (652) (560) - - - Amortization of prior service cost (147) (147) (147) (47) (52) (26) Amortization of net actuarial gain (227) (135) (89) (147) (93) (94) Amortization of transition asset (58) (58) (58) - - - ----- ------ ------ ----- ---- ----- Net periodic benefit cost $ 653 $1,023 $1,420 $ (92) $(53) $ 14 ===== ====== ====== ===== ==== =====
45 The components of net periodic benefit cost for PT Freeport Indonesia's plan follow (in thousands):
1999 1998 1997 ------ ------ ------ Service cost $1,061 $ 704 $1,827 Interest cost 2,688 728 1,928 Expected return on plan assets (1,199) (285) (412) Amortization of prior service cost 315 217 857 Amortization of net actuarial loss - 280 - Curtailment gain - (781) - Special termination benefits - 5,873 - ------ ------ ------ Net periodic benefit cost $2,865 $6,736 $4,200 ====== ====== ======
During 1998, PT Freeport Indonesia offered special termination benefits to certain employees as part of a restructuring program following the completion of its latest expansion. The special termination benefits included separation and service allowances based on years of service, a lump sum pension payment and other cash incentives. PT Freeport Indonesia recognized a curtailment gain in accordance with SFAS 88 because the program significantly reduced the expected years of future service of employees. The PT Freeport Indonesia plan was also amended in 1998 to reflect changes in Indonesian laws eliminating the limits on pensionable pay. Atlantic Copper has an unfunded contractual obligation denominated in Spanish pesetas to supplement amounts paid to retired employees. The accrued liability was based on corresponding exchange rates of 165.6 pesetas to one U.S. dollar at December 31, 1999 and 142.7 pesetas to one U.S. dollar at December 31, 1998. Spanish legislation requires that Atlantic Copper begin funding this obligation in 2001. The discount rate used was 8 percent at December 31, 1999 and 1998. The interest cost for this obligation was $6.8 million in 1997. The actuarial valuation of this obligation was $80.9 million at December 31, 1999 and $96.4 million at December 31, 1998, based on a discount rate of 5 percent. Other information on the Atlantic Copper plan follows (in thousands):
1999 1998 ------- ------- Change in benefit obligation: Benefit obligation at beginning of year $72,300 $69,373 Interest cost 7,102 6,658 Foreign exchange loss (gain) (8,840) 3,429 Benefits paid (6,774) (7,160) ------- ------- Benefit obligation at end of year $63,788 $72,300 ======= =======
FCX has a savings plan under Section 401(k) of the Internal Revenue Code that allows eligible employees to contribute up to 20 percent of their pre-tax compensation. FCX matches 100 percent of the first 5 percent of the employees' contribution with such matching amounts vesting after 5 years. The costs charged to operations for FCX's plan totaled $0.7 million in 1999 and $0.8 million in 1998 and 1997. FCX has other employee benefit plans, certain of which are related to FCX's performance, which costs are recognized currently in general and administrative expense. 10. COMMITMENTS AND CONTINGENCIES Environmental, Reclamation and Mine Closure. FCX has an environmental policy committing it not only to compliance with federal, state and local environmental statutes and regulations, but also to continuous improvement of its environmental performance at every operational site. FCX believes that its operations are being conducted pursuant to applicable permits and are in compliance in all material respects with applicable environmental laws, rules and regulations. FCX incurs significant costs for environmental programs and projects. The ultimate amount of reclamation and closure costs to be incurred at PT Freeport Indonesia's operations cannot currently be projected with precision. PT Freeport Indonesia's best estimate at this time is that ultimate reclamation and closure costs may require as much as $100 million but are not expected to exceed $150 million. However, these estimates are subject to revision over time as more complete 46 studies are performed and more definitive plans are formulated. Some reclamation costs will be incurred throughout the life of the mine, while most closure costs and the remaining reclamation costs will be incurred at the end of the mine's life, which is currently estimated to exceed 30 years. PT Freeport Indonesia had $14.1 million accrued on a unit-of-production basis at December 31, 1999 for mine closure and reclamation costs, included in other liabilities. In 1996, PT Freeport Indonesia began contributing to a cash fund ($1.7 million balance at December 31, 1999) designed to accumulate at least $100 million by the end of its Indonesian mining activities. PT Freeport Indonesia plans to use this fund, including accrued interest, to pay for costs incurred for mine closure and reclamation. An increasing emphasis on environmental issues and future changes in regulations could require FCX to incur additional costs that would be charged against future operations. Estimates involving environmental matters are by their nature imprecise and can be expected to be revised over time because of changes in government regulations, operations, technology and inflation. Social and Economic Development Programs. FCX has a social and human rights policy to ensure that its operations are conducted in a manner respecting basic human rights, the laws and regulations of the host country, and the culture of the people who are indigenous to the areas in which FCX operates. In 1996, PT Freeport Indonesia established the Freeport Fund for Irian Jaya Development (FFIJD), through which PT Freeport Indonesia has made available funding and expertise to support the economic and social development of the area. PT Freeport Indonesia has committed to provide one percent of its annual revenue for ten years beginning in mid-1996 for the development of the local people through the FFIJD. PT Freeport Indonesia charged $14.7 million in 1999, $13.5 million in 1998 and $15.1 million in 1997 to production costs for this commitment. Long-Term Contracts and Operating Leases. Atlantic Copper has commitments with parties other than PT Freeport Indonesia to purchase concentrate totaling 332,000 metric tons in 2000, 373,000 metric tons in 2001, 340,000 metric tons in 2002, 220,000 metric tons in 2003 and 120,000 metric tons in 2004, at market prices. FCX's minimum annual contractual charges under noncancelable long-term contracts and operating leases which extend to 2002 total $1.4 million in 2000, $1.3 million in 2001 and $0.2 million in 2002. Total rental expense under long-term contracts and operating leases amounted to $1.3 million in 1999, $1.9 million in 1998 and $2.2 million in 1997. 11. FINANCIAL INSTRUMENTS Summarized below are financial instruments whose carrying amounts are not equal to their fair value and foreign exchange contracts at December 31, 1999 and 1998. Fair values are based on quoted market prices and other available market information.
1999 1998 ---------------------- ------------------------ Carrying Fair Carrying Fair Amount Value Amount Value ---------- ---------- ---------- ---------- (In Thousands) Price protection program: Open contracts in liability position $ - $ (1,093) $ - $ (1,575) Open contracts in asset position - 308 - - Debt: Long-term debt (Note 5) (2,148,259) (2,074,722) (2,456,793) (2,278,857) Interest rate swaps - 1,387 - (1,749) Foreign exchange contracts: $U.S./Indonesian rupiah - - 7,800 7,800 $U.S./Australian dollar - - (1,215) (1,215) $U.S./Spanish peseta (8,138) (8,138) 2,005 2,005 Redeemable preferred stock (Note 6) (487,507) (245,570) (500,007) (197,923)
Price Protection Program. From time to time, PT Freeport Indonesia enters into forward and option contracts to hedge the market risk associated with fluctuations in the prices of commodities it sells. As of December 31, 1999, FCX had no price protection contracts relating to its mine production other than its gold and silver-denominated redeemable preferred stock. FCX's revenues include net additions totaling $0.8 million in 1999 and $42.6 million in 1997 related to PT Freeport Indonesia's copper price protection program. Revenues also include net additions totaling 47 $0.6 million in 1999 from the initial annual redemption of FCX's Silver-Denominated Preferred Stock and $37.6 million in 1997 from gold forward contracts. In January 2000, PT Freeport Indonesia entered into forward copper sales contracts to fix the price at $0.85 per pound on approximately 50 percent of its December 31, 1999 open pounds. At December 31, 1999, Atlantic Copper had contracts to sell 19.6 million pounds at an average price of $0.79 per pound though February 2000. Atlantic Copper had purchased forward 3.7 million pounds of copper at an average price of $0.76 per pound through December 2000 to eliminate the price risk on trade receivables with terms that allow certain of its customers to purchase specified quantities of copper at a future date and at fixed prices. Debt. FCX, PT Freeport Indonesia and Atlantic Copper entered into interest rate swaps to manage exposure to interest rate changes on a portion of their variable-rate debt. Under the terms of these swaps, FCX pays an average of 6.3 percent on $320.0 million of financing at December 31, 1999 through January 2000. PT Freeport Indonesia's interest rate swaps matured December 30, 1999. Atlantic Copper pays an average of 6.1 percent on $97.8 million of financing at December 31, 1999, reducing quarterly through June 2000. From July 2000 through December 2000, Atlantic Copper will pay 4.7 percent on $82.1 million of financing. For the year 2001, Atlantic Copper will pay an average of 6.1 percent on an average of $68.6 million of financing. Interest on comparable floating rate debt averaged 5.4 percent in 1999, 5.7 percent in 1998 and 5.7 percent in 1997, resulting in additional interest costs of $1.1 million in 1999, $1.1 million in 1998 and $1.5 million in 1997. Atlantic Copper is a party to letters of credit totaling $7.5 million at December 31, 1999. Fair value of these letters of credit is not material at December 31, 1999. Foreign Exchange Contracts. Atlantic Copper has a currency hedging program to reduce its exposure to changes in the U.S. dollar and Spanish peseta exchange rate. As of December 31, 1999, Atlantic Copper has foreign exchange currency contracts through November 2001 totaling $129.9 million on 19.7 billion Spanish pesetas (an average exchange rate of 151.9 pesetas to 1 U.S. dollar). Atlantic Copper recorded gains (losses) to other income related to its forward currency contracts, totaling $(14.9) million in 1999, $3.7 million in 1998 and $(6.5) million in 1997. PT Freeport Indonesia had a currency hedging program for the Indonesian rupiah and Australian dollar that expired in September 1999. PT Freeport Indonesia recorded net gains to production costs totaling $3.7 million in 1999 and $4.3 million in 1998 related to these contracts. 12. SEGMENT INFORMATION FCX markets its products worldwide primarily pursuant to the terms of long-term contracts. As a percentage of consolidated revenues, revenues under long-term contracts totaled 89 percent in 1999, 91 percent in 1998 and 92 percent in 1997. The only customers under long-term contracts with over ten percent of revenues in at least one of the past three years are a group of Japanese companies with 11 percent in 1999, 12 percent in 1998 and 16 percent in 1997, and PT Smelting with 13 percent in 1999 and 1 percent in 1998. PT Freeport Indonesia's contract with the group of Japanese companies extends through 2000. There are several other long-term agreements in place, each representing less than 10 percent of FCX consolidated sales. Certain terms of these long-term contracts are negotiated annually. FCX revenues attributable to various countries based on the location of the customer follow:
1999 1998 1997 ---------- ---------- ---------- (In Thousands) Japan $ 358,556 $ 382,721 $ 470,373 Spain 328,720 324,202 402,276 Indonesia (PT Smelting) 252,586 25,610 - Switzerland 219,250 269,355 297,821 United States 187,731 250,922 131,042 Others 540,485 504,322 699,392 ---------- ---------- ---------- Total $1,887,328 $1,757,132 $2,000,904 ========== ========== ==========
FCX follows SFAS 131, "Disclosures About Segments of an Enterprise and Related Information" which requires that companies disclose segment data based on how management makes decisions about allocating resources to segments and measuring their performance. FCX has two operating segments: "mining and exploration" and "smelting and refining." The mining and exploration segment includes 48 PT Freeport Indonesia's copper and gold mining operations in Indonesia and FCX's Indonesian exploration activities. The smelting and refining segment includes Atlantic Copper's operations in Spain and PT Freeport Indonesia's equity investment in PT Smelting in Gresik, Indonesia. The segment data presented below were prepared on the same basis as the consolidated FCX financial statements.
Mining Smelting and and Eliminations FCX Exploration Refining and Other Total ---------- -------- --------- ---------- (In Thousands) 1999 Revenues $1,464,811a $764,466 $(341,949) $1,887,328 Production and delivery 534,119 709,038 (331,598) 911,559 Depreciation and amortization 259,372 29,373 4,468 293,213 Exploration expense 9,330 - 1,296 10,626 Loss in PT Smelting - 18,136b - 18,136 General and administrative expenses 52,410 9,572 8,642 70,624 ---------- -------- --------- ---------- Operating income (loss) $ 609,580 $ (1,653) $ (24,757) $ 583,170 ========== ======== ========= ========== Interest expense, net $ 137,787 $ 27,020 $ 29,262 $ 194,069 ========== ======== ========= ========== Provision (benefit) for income taxes $ 175,581 $ (2,983) $ 23,055 $ 195,653 ========== ======== ========= ========== Capital expenditures $ 150,596 $ 9,807 $ 419 $ 160,822 ========== ======== ========= ========== Total assets $3,432,068 $709,432c $ (58,584) $4,082,916 ========== ======== ========= ========== 1998 Revenues $1,351,123a $753,957 $(347,948) $1,757,132 Production and delivery 461,244 671,570 (333,131) 799,683 Depreciation and amortization 241,312 31,711 4,384 277,407 Exploration expense 11,542 - 1,491 13,033 Loss in PT Smelting - 4,948b - 4,948 General and administrative expenses 70,361 10,337 7,082 87,780 ---------- -------- --------- ---------- Operating income $ 566,664 $ 35,391 $ (27,774) $ 574,281 ========== ======== ========= ========== Interest expense, net $ 164,734 $ 27,953 $ 12,901 $ 205,588 ========== ======== ========= ========== Provision (benefit) for income taxes $ 152,795 $ (1,225) $ 18,996 $ 170,566 ========== ======== ========= ========== Capital expenditures $ 280,026 $ 11,131 $ 926 $ 292,083 ========== ======== ========= ========== Total assets $3,487,527 $722,767c $ (17,660) $4,192,634 ========== ======== ========= ========== 1997 Revenues $1,505,295 $874,514 $(378,905) $2,000,904 Production and delivery 604,851 799,473 (397,244) 1,007,080 Depreciation and amortization 178,289 31,693 3,873 213,855 Exploration expense 14,758 - 2,871 17,629 Loss in PT Smelting - 1,524 - 1,524 General and administrative expenses 76,549 11,197 8,855 96,601 ---------- -------- --------- ---------- Operating income $ 630,848 $ 30,627 $ 2,740 $ 664,215 ========== ======== ========= ========== Interest expense, net $ 141,595 $ 32,560 $ (22,435) $ 151,720 ========== ======== ========= ========== Provision for income taxes $ 193,284 $ - $ 38,031 $ 231,315 ========== ======== ========= ========== Capital expenditures $ 529,731 $ 54,721 $ 10,035 $ 594,487 ========== ======== ========= ========== Total assets $3,406,539 $742,184c $ 3,486 $4,152,209 ========== ======== ========= ==========
a. Includes PT Freeport Indonesia sales to PT Smelting totaling $252.6 million in 1999 and $25.6 million in 1998. b. Includes deferrals of intercompany profits on 25 percent of PT Freeport Indonesia's sales to PT Smelting, for which the final sale has not occurred, totaling $8.0 million in 1999 and $3.3 million in 1998. c. Includes PT Freeport Indonesia's equity investment in PT Smelting totaling $66.1 million at December 31, 1999, $80.8 million at December 31, 1998 and $83.1 million at December 31, 1997. 49 13. SUPPLEMENTARY MINERAL RESERVE INFORMATION (UNAUDITED) Total estimated proved and probable mineral reserves at the Grasberg and other Block A ore bodies in Indonesia follow:
Average Ore Grade Per Ton Recoverable Reserves Year -------------------------------- ---------------------------- - -End Ore Copper Gold Silver Copper Gold Silver - -------------------------------------------------------------------------------- (Metric Tons) (%) (Grams)(Ounce)(Grams)(Ounce)(Billions (Millions(Millions of Lbs.) of Ozs.) of Ozs.) 1995 1,899,244,000 1.17 1.18 .038 3.78 .121 40.3 52.1 111.1 1996 2,008,285,000 1.19 1.18 .038 3.80 .122 43.2 55.3 118.7 1997 2,166,212,000 1.20 1.20 .039 3.95 .127 47.1 62.7 138.4 1998 2,475,478,000 1.13 1.05 .034 3.83 .123 51.3 64.2 153.1 1999 2,395,175,000 1.13 1.05 .034 3.85 .124 49.9 61.6 148.8 By Deposit at December 31, 1999 Grasberg: Open pit 1,109,406,000 1.02 1.18 .038 2.99 .096 20.5 32.3 53.4 Under- groun 691,094,000 1.08 0.77 .025 3.15 .101 14.0 13.6 36.3 Kucing Liar 320,457,000 1.41 1.41 .045 5.30 .170 8.2 10.3 25.5 DOZ 185,250,000 1.16 0.83 .027 5.21 .168 4.1 4.0 16.4 Big Gossan 37,349,000 2.69 1.02 .033 16.42 .528 1.8 0.9 9.9 DOM 30,892,000 1.67 0.42 .014 9.63 .310 0.9 0.3 4.7 IOZ 20,727,000 1.05 0.39 .013 7.63 .245 0.4 0.2 2.6 ------------- ---- ---- ----- ----- ---- ---- ---- ------ Total 2,395,175,000 1.13 1.05 .034 3.85 .124 49.9 61.6 148.8
Estimated recoverable reserves were assessed using a copper price of $0.90 per pound and a gold price of $325 per ounce. Using prices of $0.75 per pound of copper and $280 per ounce of gold would reduce estimated recoverable reserves by approximately 9 percent for copper, 7 percent for gold and 9 percent for silver. In PT Freeport Indonesia's Block A, Rio Tinto provided a $450 million nonrecourse loan to PT Freeport Indonesia for PT Freeport Indonesia's share of cost of the fourth concentrator mill expansion (Note 2). Incremental cash flow attributable to the expansion is now being shared 60 percent PT Freeport Indonesia and 40 percent Rio Tinto. PT Freeport Indonesia has assigned its interest in such incremental cash flow to Rio Tinto until Rio Tinto has received an amount equal to the funds lent to PT Freeport Indonesia, plus interest based on Rio Tinto's cost of borrowing. Incremental cash flow consists of amounts generated from production in excess of specified annual amounts based on the December 31, 1994 reserves and mine plan. The incremental revenues from production from the expansion and total revenues from production from Block A, including production from PT Freeport Indonesia's previously existing operations, share proportionately in operating, nonexpansion capital and administrative costs. PT Freeport Indonesia receives 100 percent of cash flow from its existing pre-expansion production facilities as specified by the contractual arrangements. PT Freeport Indonesia's estimated net share of recoverable reserves follows:
Year -End Copper Gold Silver ----- -------- ------- ------- (Billions (Millions (Millions Of Lbs.) of Ozs.) Of Ozs.) 1995 34.6 46.0 96.7 1996 35.9 47.4 100.4 1997 37.8 51.3 111.3 1998 40.0 51.6 119.1 1999 38.7 49.5 115.3
50 14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Net Income Applicable Net Income Per Share Operating to Common ------------------ Revenues Income Stock Basic Diluted ---------- --------- --------- -------- ------- (In Thousands, Except Per Share Amounts) 1999 1st Quarter $ 415,836 $ 129,080 $ 17,710 $.11 $.11 2nd Quarter 470,335 130,189 18,961 .12 .12 3rd Quarter 473,658 152,796 26,809 .16 .16 4th Quarter a 527,499 171,105 37,307 .23 .23 ---------- --------- --------- $1,887,328 $ 583,170 $ 100,787 .62 .61 ========== ========= ========= 1998 1st Quarter $ 396,132 $ 129,804 $ 26,592 $.15 $.15 2nd Quarter 433,858 134,938 25,802 .14 .14 3rd Quarter b 442,126 135,088 23,842 .14 .14 4th Quarter b 485,016 174,451 42,081 .26 .26 ---------- --------- --------- $1,757,132 $ 574,281 $ 118,317 .67 .67 ========== ========= =========
a. Includes charges to operating income totaling $8.8 million ($5.7 million to net income or $0.03 per share) consisting of $3.6 million for an early retirement program, $1.4 million for costs of stock appreciation rights and $3.8 million for certain nonrecurring costs. b. Includes net charges to operating income totaling $4.5 million ($2.2 million to net income or $0.01 per share) in the third quarter and $4.6 million ($2.2 million to net income or $0.01 per share) in the fourth quarter associated with the sale of corporate aircraft. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF FREEPORT-McMoRan COPPER & GOLD INC.: We have audited the accompanying balance sheets of Freeport- McMoRan Copper & Gold Inc. (the Company), a Delaware Corporation, as of December 31, 1999 and 1998, and the related statements of income, cash flow and stockholders' equity for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1999 and 1998 and the results of its operations and its cash flow for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New Orleans, Louisiana, January 18, 2000 51 FCX Class A Common Shares Our Class A common shares trade on the New York Stock Exchange (NYSE) under the symbol "FCX.A." The FCX.A share price is reported daily in the financial press under "FMCGA" in most listings of NYSE securities. At year end 1999, the number of holders of record of our Class A common shares was 7,150. NYSE composite tape Class A common share price ranges during 1999 and 1998.
1999 1998 ------------------- ------------------- High Low High Low ------- ------- ------- ------- First Quarter $11.875 $ 9.000 $19.375 $12.938 Second Quarter 16.938 9.375 20.313 14.063 Third Quarter 17.438 12.750 15.875 10.938 Fourth Quarter 18.750 13.375 14.000 9.188
FCX Class B Common Shares Our Class B Common shares trade on the NYSE under the symbol "FCX." The FCX share price is reported daily in the financial press under "FMCG" in most listings of NYSE securities. At year-end 1999, the number of holders of record of our Class B common shares was 11,652. NYSE composite tape Class B common share price ranges during 1999 and 1998 were:
1999 1998 ------------------- ------------------- High Low High Low ------- ------- ------- ------- First Quarter $12.750 $ 9.125 $20.875 $13.063 Second Quarter 18.000 10.063 21.438 14.813 Third Quarter 18.688 14.000 16.625 11.250 Fourth Quarter 21.375 15.563 15.125 9.813
Common Shares Dividends In December 1998, in response to low commodity market prices for copper and gold, FCX's Board of Directors authorized elimination of the regular quarterly cash dividend on common stocks as part of FCX's cash flow enhancement efforts. FCX Class A and Class B common share cash dividends declared and paid for the quarterly periods of 1998 were:
Amount Record Payment Per Share Date Date ---------- ------------- ------------ First Quarter $.05 Apr. 15, 1998 May 1, 1998 Second Quarter .05 Jul. 15, 1998 Aug. 1, 1998 Third Quarter .05 Oct. 15, 1998 Nov. 1, 1998 Fourth Quarter - n/a n/a
Inside Back Cover EX-21 9 Exhibit 21.1 List of Subsidiaries of FREEPORT-McMoRan COPPER & GOLD INC. Name Under Which Entity Organized It Does Business - ------------------------------- ------------- ---------------- P.T. Freeport Indonesia Company Indonesia and Same Delaware P.T. Irja Eastern Minerals Indonesia Same Atlantic Coper, S.A. Spain Same FM Services Company Delaware Same EX-23 10 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hearby consent to the incorporation by reference of our reports included herein or incorporated by reference in this Form 10-K, into Freeport-McMoRan Copper & Gold Inc.'s previously filed Registration Statements on Form S-3 (File No. 333-31584) and on Forms S-8 (File Nos. 33-63267, 33-63269, 33-63271 and 333-85803). /s/Arthur Andersen LLP New Orleans, Louisiana, March 17, 2000 EX-23 11 Exhibit 23.2 INDEPENDENT MINING CONSULTANTS, INC. Pat Prejean Manager of Financial Reporting Freeport-McMoRan Copper & Gold Inc. 1615 Poydras Street New Orleans, LA 70112 Dear Mr. Prejean, We hearby consent to the incorporation by reference of our reports included herein or incorporated by reference in this Form 10-K, into Freeport-McMoRan Copper & Gold Inc.'s previously filed Registration Statement on Form S-3 (File No. 333-31584) and on Form S-8 (File Nos. 33-63267, 33-63269, 33-63271 and 333-85803). /s/John M. Marek John M. Marek President Tucson, Arizona March 17, 2000 EX-24 12 Exhibit 24.1 FREEPORT-McMoRan COPPER & GOLD INC. SECRETARY'S CERTIFICATE I, Douglas N. Currault II, Assistant Secretary of Freeport- McMoRan Copper & Gold Inc. (the "Corporation"), a Delaware corporation, do hereby certify that the following resolution was duly adopted by the Board of Directors of the Corporation at a meeting held on December 13, 1988, and that such resolution has not been amended, modified or rescinded and is in full force and effect: RESOLVED, that any report, registration statement or other form filed on behalf of this corporation pursuant to the Securities Exchange Act of 1934, or any amendment to such report, registration statement or other form, may be signed on behalf of any director or officer of this corporation pursuant to a power of attorney executed by such director or officer. IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of the Company on this the ____ day of March, 2000. (Seal) /s/ Douglas N. Currault II ------------------------ Douglas N. Currault II Assistant Secretary EX-24 13 Exhibit 24.2 POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and STEPHEN M. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ Robert W. Bruce III ----------------------- Robert W. Bruce III POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and STEPHEN M. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ Robert A. Day ----------------- Robert A. Day POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and STEPHEN M. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ Oscar Y. L. Groeneveld -------------------------- Oscar Y. L. Groeneveld POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and STEPHEN M. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ J. Bennett Johnston ----------------------- J. Bennett Johnston POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and STEPHEN M. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ Henry A. Kissinger ---------------------- Henry A. Kissinger POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and STEPHEN M. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ Bobby Lee Lackey -------------------- Bobby Lee Lackey POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and STEPHEN M. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ Rene L. Latiolais --------------------- Rene L. Latiolais POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and STEPHEN M. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ Gabrielle K. McDonald ------------------------- Gabrielle K. McDonald POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and STEPHEN M. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ George A. Mealey -------------------- George A. Mealey POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint RICHARD C. ADKERSON and STEPHEN M. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ James R. Moffett -------------------- James R. Moffett POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and STEPHEN M. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ B. M. Rankin, Jr. --------------------- B. M. Rankin, Jr. POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and STEPHEN M. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ J. Taylor Wharton ---------------------- J. Taylor Wharton POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ Stephen M. Jones -------------------- Stephen M. Jones POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and STEPHEN M. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ C. Donald Whitmire, Jr. --------------------------- C. Donald Whitmire, Jr. POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and STEPHEN M. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ H. Devon Graham, Jr. ------------------------ H. Devon Graham, Jr. POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and STEPHEN M. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ R. Leigh Clifford --------------------- R. Leigh Clifford POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and STEPHEN M. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1999, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 1st day of February, 2000. /s/ Gerald J. Ford ------------------ Gerald J. Ford EX-27 14
5 This schedule contains summary financial information extracted from Freeport-McMoRan Copper & Gold Inc.'s financial statements at December 31, 1999 and for the 12 months then ended, and is qualified in its entirety by reference to such financial statments. 0000831259 FREEPORT-MCMORAN COPPER & GOLD INC. 1,000 YEAR DEC-31-1999 DEC-31-1999 6,698 0 141,325 0 368,125 564,454 4,969,111 1,605,820 4,082,916 515,067 2,033,470 487,507 349,990 21,861 (174,971) 4,082,916 1,887,328 1,887,328 1,204,772 1,204,772 10,626 0 194,069 380,834 195,653 136,467 0 0 0 136,467 .62 .61
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