-----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, AF34kQ5aZgxEjWQ0/wCE/TFngCWUr9WJOknkqm/uxSjwDQQGlehECUqqbbSzRGkF Nmc/5AgrnJ/UGLq/WVl8dw== 0000831259-01-500005.txt : 20010326 0000831259-01-500005.hdr.sgml : 20010326 ACCESSION NUMBER: 0000831259-01-500005 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010323 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: 1577652 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 k10.txt 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, 2000 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 0.01875 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 15, 2001 was approximately $1,201,000,000. On March 15, 2001, there were issued and outstanding 55,457,860 shares of Class A Common Stock and 88,474,099 shares of Class B Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of our Annual Report for the year ended December 31, 2000 are incorporated by reference into Parts II and IV of this report and portions of the Proxy Statement for our 2001 Annual Meeting to be held on May 3, 2001 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 14 Item 4. Submission of Matters to a Vote of Security Holders 15 Executive Officers of the Registrant 15 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 16 Item 6. Selected Financial Data 16 Items 7. and 7A. Management's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk 16 Item 8. Financial Statements and Supplementary Data 16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 16 Part III Item 10. Directors and Executive Officers of the Registrant 16 Item 11. Executive Compensation 17 Item 12. Security Ownership of Certain Beneficial Owners and Management 17 Item 13. Certain Relationships and Related Transactions 17 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 17 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 mining 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, 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 (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. PT 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 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 proved and probable reserves are located in Block A (see "Ore Reserves"). PT Freeport Indonesia's Contract of Work governs our rights and obligations relating to taxes, exchange controls, royalties, repatriation and other matters (see "Contracts of Work"). The Contract of Work provides a 35 percent corporate income tax rate for PT Freeport Indonesia and a withholding tax rate of 10 percent (based on the tax treaty between Indonesia and the United States) on dividends and interest paid to us by PT Freeport Indonesia. The Contract of Work also provides for royalties on the metals PT Freeport Indonesia sells. Another of our operating subsidiaries, PT 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 London, 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. Field exploration activities outside of our current mining operations in Block A have been temporarily suspended pending the resolution of regulatory and local community issues. 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 PT Smelting, an Indonesian company that operates a copper smelter and refinery in Gresik, Indonesia. 1 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. 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 Abdurrahman Wahid as president and Megawati Sukarnoputri as vice president. Economic and political conditions remain challenging in Indonesia. The Indonesian economy grew by an estimated 5 percent in 2000 after remaining flat in 1999 and contracting by 13 percent in 1998. Indonesia is Asia's second largest exporter of oil and continues to benefit from higher oil prices. While the economy has exceeded growth projections, progress on reforming the nation's failed banking system and raising capital from bank- related assets has been slow. As a result, the country remains heavily reliant on foreign aid to balance its budget and the national currency, the rupiah, declined approximately 32 percent in value during 2000. Despite gradual improvements on the economic front, Indonesia's recovery remains vulnerable to ongoing political and social tensions. There have been repeated challenges to the political leadership of President Wahid. Incidents of violence and separatist pressures continue to add to political instability within the country as the Wahid administration struggles to address the country's economic and social issues. No incidents of violence were reported in PT Freeport Indonesia's area of operations, where the local community leaders continue to support peaceful solutions to the complex issue of regional autonomy. President Wahid and his administration have focused in recent months on issues involving regional autonomy. The program to shift a greater share of revenues and greater control of economic, regulatory and social affairs to Indonesia's 31 provinces and over 300 regencies is one of the government's most important initiatives. Although new autonomy laws became effective January 1, 2001, there will be a transition period to allow the provinces to prepare for the assumption and administration of these new responsibilities. While the uncertainties of the autonomy process have created concern among foreign investors, the Indonesian government has repeatedly assured investors that existing contracts would be honored. Our belief that our Contracts of Work will continue to be honored is further supported by U.S. laws, which prohibit U.S. aid to countries that nationalize property owned by, or take steps to nullify a contract with, a U.S. citizen or company at least 50 percent owned by U.S. citizens if the foreign country does not within a reasonable time take appropriate steps to provide full value compensation or other relief under international law. 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 area surrounding our mining development is sparsely populated by local people 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. 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, although none have occurred in our area of operations. We have a board-approved policy statement on social and human rights, and have comprehensive and 2 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 people 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. See "Cautionary Statements." 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, which we believe, following significant geological assessment, contain the most promising exploration opportunities. Eastern Minerals signed its Contract of Work in August 1994. The Contract of Work originally covered approximately 2.5 million acres. 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. Because of regulatory and local community issues, we requested and received from the Government of Indonesia formal temporary suspensions of our obligations under the Contracts of Work in all areas outside of Block A. Like the PT Freeport Indonesia contract, the Eastern Minerals Contract of Work requires us to relinquish our rights 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, 2000, we had relinquished approximately 1.25 million acres, and within three months of resuming exploratory activity under the Contract of Work we must relinquish an approximate 0.6 million additional acres. 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 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. PT Freeport Indonesia also has agreed to pay voluntary additional royalties 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 combined royalties, including the voluntary additional royalties which became effective January 1, 1999, totaled $20.2 million in 2000, $23.0 million in 1999 and $16.2 million in 1998. Ore Reserves During 2000, additions to the aggregate proved and probable reserves at the Grasberg mining complex totaled approximately 202 million metric tons of ore representing increases of 2.7 billion recoverable pounds of copper and 4.5 million recoverable ounces of gold. Year-end aggregate proved and probable recoverable reserves, net of 2000 production, were 2.51 billion metric tons of ore averaging 1.10 percent copper, 1.04 grams of gold per metric ton and 3.40 grams of silver per metric ton representing 50.9 billion pounds of copper, 63.7 million ounces of gold and 139.6 million ounces of silver. Approximately one-half of the reserve additions are in the Ertsberg Stockwork Zone, an 3 underground deposit contiguous to our existing Deep Ore Zone ore body, with the remainder of the reserve additions being in the Grasberg open pit and underground ore bodies. Pursuant to joint venture arrangements between PT Freeport Indonesia and Rio Tinto, Rio Tinto has a 40 percent interest in future production from reserves above those reported at December 31, 1994. Net of Rio Tinto's share, PT Freeport Indonesia's share of proved and probable recoverable copper, gold and silver reserves was 38.9 billion pounds of copper, 50.3 million ounces of gold and 108.5 million ounces of silver as of December 31, 2000. We estimated recoverable reserves using a copper price of $0.90 per pound and a gold price of $300 per ounce. Using a gold price of $270 per ounce would not have a significant impact on our estimated recoverable reserves. All of our proved and probable reserves lie within Block A. 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, 2000 are shown below along with those of our other deposits, as verified by Independent Mining Consultants, Inc., experts in mining, geology and reserve determination. See "Cautionary Statements."
Average Ore Grade per Metric Ton Recoverable Reserves Metric Tons --------------------- ------------------------- of ore (000s) Copper Gold Silver Copper Gold Silver ------------- ------ ----- ------ -------- ------- ------- (%) (Ounce) (Ounce) (Billions (Millions(Millions of Lbs.) of Ozs.) of Ozs.) Grasberg: Open pit 1,080,805 0.99 .038 .075 19.3 32.0 40.3 Underground 743,033 1.09 .025 .089 15.1 14.1 35.5 Kucing Liar 320,457 1.41 .045 .170 8.2 10.3 25.5 Deep Ore Zone 185,476 1.19 .026 .187 4.2 4.0 18.4 Big Gossan 37,349 2.69 .033 .528 1.8 0.9 9.9 Ertsberg Stockwork Zone 100,731 0.55 .026 .056 1.1 2.0 3.2 Dom 30,892 1.67 .014 .310 0.9 0.3 4.7 Intermediate Ore Zone 15,789 1.09 .014 .249 0.3 0.1 2.1 --------- ---- ---- ----- Total 2,514,532 1.10 .033 .109 50.9 63.7 139.6 ========= ==== ==== =====
Mining Operations Mines in Production. We currently have three mines in operation: the Grasberg open pit, the Intermediate Ore Zone and the Deep Ore Zone. We began open-pit mining of the Grasberg ore body in January 1990. Production is at the 3,600- to 4,250-meter elevation level and totaled 76.8 million metric tons of ore in 2000, which provided 91 percent of our mill feed. The underground Grasberg reserves will be mined near the end of open-pit mining, which is expected to continue until approximately 2015. 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 6.7 million metric tons of ore in 2000. We expect to fully deplete the Intermediate Ore Zone by 2003. 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. Production using the block- cave method at the Deep Ore Zone officially restarted in September 2000. Production is at the 3,150-meter elevation level and totaled 0.6 million metric tons of ore in 2000. The Deep Ore Zone will ramp up from its approximately 3,000 metric tons of ore per day rate at December 31, 2000 to approximately 14,000 metric tons of ore per day by the end of 2001 and a full production rate of 25,000 metric tons of ore per day by 2004. We are conducting a feasibility study to assess increasing the Deep Ore Zone mine production rate to 35,000 metric tons of ore per day. Mines in Development. Four other significant ore bodies, referred to as the Dom, Big Gossan, Kucing Liar and the newly discovered Ertsberg Stockwork Zone are located in Block A. These ore bodies are at various stages of 4 development, and are included in our proved and probable reserves. See "Cautionary Statements." 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 and may not begin until after completion of open-pit mining. 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 expect to use a variety of stoping methods to mine the deposit, and plan to complete a detailed feasibility study in 2001 to determine when to begin production. 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- to 3,100-meter elevation level. We are reviewing development plans for Kucing Liar. The Ertsberg Stockwork Zone ore body extends off the southwest side of the Deep Ore Zone ore body at the 3,150- to 3,750-meter elevation level. Drilling efforts continue to determine the extent of this ore body, which we expect to mine using a block-cave method after we complete mining at the Deep Ore Zone ore body. Exploration As a result of our joint venture arrangements with Rio Tinto, they pay for 40 percent of our exploration and drilling costs in Irian Jaya (Papua). We continue drilling in Block A to better define the ore bodies at Kucing Liar (as discussed above), Grasberg Underground, the underground Ertsberg Stockwork Zone and a newly defined surface target called Guru Ridge. One rig continues to drill between the Kucing Liar reserve and the Grasberg Underground reserve and indicates positive results for continuity of mineralization. Several rigs drilled from the Deep Ore Zone mine into the Ertsberg Stockwork Zone to define its extent. Several more rigs conducted drilling on the Guru Ridge surface target which lies 2,000 meters east of the original Ertsberg open-pit mine. In June 1998, we entered into a 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 shares in 40 percent of our interest and costs in this exploration joint venture. We and Rio Tinto can earn up to a 62 percent interest in the PT Nabirie Bakti Mining Contract of Work by spending up to $21 million on exploration and other activities in the joint venture areas. We have spent $15.2 million through December 31, 2000. Field exploration activities 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 have been suspended pending the resolution of regulatory and local community issues. All of these areas are outside of our current mining operations area. 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. In less than two and one-half years, PT 5 Freeport Indonesia repaid the $450 million loan, plus interest, from its share of incremental cash flow attributable to the expansion. Operating, nonexpansion capital and administrative costs are shared proportionately between PT Freeport Indonesia and Rio Tinto based on the ratio of (a) the incremental revenues from production from the expansion and (b) total revenues from production from Block A, including production from PT Freeport Indonesia's previously existing reserves. PT Freeport Indonesia receives 100 percent of the cash flow from specified annual amounts of copper, gold and silver production through 2021 and will receive 60 percent of all remaining cash flow thereafter. Our production results for 1999 and 2000 follow:
Years Ended December 31, ---------------------- Percentage 2000 1999 Change --------- --------- ---------- Mill throughput (metric tons of ore per day) 223,500 220,700 1% Copper production, net to PT Freeport Indonesia (000 pounds) 1,388,100 1,428,100 (3)% Gold production, net to PT Freeport Indonesia (ounces) 1,899,500 2,379,100 (20)% Average net cash production costs per pound of copper $0.23 $0.09 156%
In May 2000, PT Freeport Indonesia, in consultation with the Government of Indonesia, voluntarily agreed to temporarily limit Grasberg open-pit production because of an incident at its Wanagon overburden stockpile. Normal overburden placement at the Wanagon overburden stockpile resumed and the restriction on production from the Grasberg open pit was lifted at the end of 2000 (see "Wanagon Overburden Stockpile Slippage"). Gold production in 2000 declined primarily because of lower ore grades, but is expected to improve in 2001. Average net cash production costs per pound of copper were higher in 2000 because of lower credits from gold sales and because of higher mine maintenance and energy costs. 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. 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. From December 1993 to March 1997, PT Freeport Indonesia sold $270.0 million of infrastructure assets to joint ventures owned one-third by PT Freeport Indonesia and two-thirds by PT ALatieF Nusakarya Corporation (ALatieF), an Indonesian investor. Funding for the purchases consisted of $90.0 million in equity contributions by the joint venture partners, a $60.0 million bank 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. During 2000, PT Freeport Indonesia purchased the remaining interest in the joint ventures for $25.9 million cash and the assumption of $34.1 million of bank debt. In December 1997, we sold the new coal-fired 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 6 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 average London Bullion Market Association price for a specified month near the month of shipment. Revenues from concentrate sales are recorded net of royalties (see "Contracts of Work"), 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 2001 production at market prices. We expect our share of sales for 2001 to approximate 1.4 billion pounds of copper and 2.4 million ounces of gold. Projected 2001 copper and gold sales reflect the expectation of higher average mill throughput rates than in 2000 and higher gold grades. See "Cautionary Statements." PT Freeport Indonesia has a long-term contract through 2007 to provide Atlantic Copper with approximately 60 percent of its copper concentrate requirements at market prices. PT Freeport Indonesia's agreement with PT Smelting provides for the supply of 100 percent of the copper concentrate requirements necessary to reach the Gresik smelter's design capacity and substantially all of any incremental copper concentrate requirements that may be needed in excess of that amount. For the first 15 years of PT Smelting's operations, the treatment and refining charges on the majority of the concentrate PT Freeport Indonesia supplies will not fall below a specified minimum rate, currently $0.23 per pound, the rate for 2000 and the expected rate for 2001. We anticipate that PT Freeport Indonesia will sell approximately 50 percent of its annual concentrate production to Atlantic Copper and PT Smelting. Investment in Smelters Our investment in smelters (Atlantic Copper and PT Smelting) serves an important role in our concentrate marketing strategy. Through downstream integration, we are able to substantially offset the effect of changes in treatment charges for smelting and refining PT Freeport Indonesia's copper concentrates. While low smelter treatment and refining charges adversely affect the operating results of our smelter operations, they benefit the operating results of the mining operations of PT Freeport Indonesia. Taking into account taxes and minority ownership interests, an equivalent change in the rates PT Freeport Indonesia pays and the rates Atlantic Copper and PT Smelting receive would essentially offset in our consolidated operating results. Atlantic Copper, S.A. Atlantic Copper's smelter has a design capacity of 290,000 metric tons of metal per year. During 2000, Atlantic Copper treated 916,300 metric tons of concentrate and produced 289,900 metric tons of new copper anodes. Atlantic Copper purchased approximately 64 percent of its 2000 concentrate requirements from PT Freeport Indonesia at market prices. We contributed $40.0 million to Atlantic Copper in December 1999 and an additional $32.4 million during 2000. The funds are intended to strengthen Atlantic Copper's financial structure during this period of extremely low treatment and refining charge rates. 7 PT Smelting PT Smelting temporarily shut down its smelter, as planned, at the end of March 2000 for the tie-in of a new third anode furnace as well as for planned maintenance. The smelter restarted at the end of April and during the third quarter of 2000 achieved its goal of reaching full design capacity of 200,000 metric tons of copper per year. During 2000, PT Smelting treated 582,200 metric tons of concentrate and produced 173,800 metric tons of new copper anodes. 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 common stock. PT Freeport Indonesia agreed to assign 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 and possess multiple mining assets less geographically concentrated in a single area 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 and Human Rights 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 * charitable donations In 1996, PT Freeport Indonesia agreed to commit at least one percent of its revenues for the following 10 years to the Freeport Fund for Irian Jaya Development to support village-based health, education, economic and social development programs in its area of operations. This commitment replaced our community development programs in which we spent a similar amount of money each year. We contributed $14.1 million in 2000, $14.7 million in 1999 and $13.5 million in 1998 to the Freeport Fund for Irian Jaya Development. Lembaga Pengembangan Masyarakat-Irian Jaya, or the People's Development Foundation-Irian Jaya, oversees disbursement of the funds we contribute to the Freeport Fund for Irian Jaya Development. The foundation's 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 and leaders of the three local churches. We believe that our social and economic development programs are responsive to the issues raised by the local villages and people and should help us to avoid disruptions of mining operations. Nevertheless, social and political instability in the area may adversely impact our mining operations. In December 2000, we endorsed the joint U.S. State Department-British Foreign Office Voluntary Principles on Human Rights and Security. The Voluntary Principles were endorsed by several major natural resources companies and 8 by important human rights organizations. We participated in drafting these principles with all of the parties involved and added them to our social and human rights policy. 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. We have committed to independent external environmental audits of our Irian Jaya (Papua) operations 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 are being 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. We have environmental approvals from the Government of Indonesia to expand our milling rate up to a maximum of 300,000 metric tons of ore per day. In 2000 we averaged 223,500 metric tons of ore per day and we expect to average 235,000 metric tons of ore per day in 2001. 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 during mining activities, while we will incur most closure costs and the remaining reclamation costs at the end of our mining activities, which are currently estimated to continue for more than 30 years. We had $19.2 million accrued on a unit-of- production basis at December 31, 2000 for mine closure and reclamation costs. In 1996, we began contributing to a cash fund ($2.5 million balance at December 31, 2000) 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. During 1999, Atlantic Copper achieved ISO 14001 certification for its two remaining uncertified facilities. 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. 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 9 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." Wanagon Overburden Stockpile Slippage On May 4, 2000, a slippage occurred in the overburden waste stockpile at the Wanagon basin following a period of excessive rainfall, causing a wave of water and material to overflow from the basin. Four employees of a contractor to PT Freeport Indonesia were working in the area and perished. Contained within the mud were the treatment solids from the lime precipitation of acid rock drainage, which then entered the tailings river system near the village of Banti. Sampling and monitoring were initiated at a number of stations covering the entire tailings system between the mine and estuary for a period of several months. A specific risk analysis was conducted as a result of this event and was based on the monitoring program. No long-term environmental effects were found from the direct monitoring nor predicted by the risk assessment. The slippage caused a flow of sediments containing slightly elevated levels of precipitated copper. As a result, water quality in the river was temporarily diminished due to higher levels of total suspended solids. PT Freeport Indonesia engaged international experts and outside consultants led by a team from the Institute of Technology of Bandung (Indonesia) to conduct a comprehensive study of the cause of the slippage and to recommend a future course of action. Working with the close cooperation of the Indonesian Department of Energy and Natural Resources and also BAPEDAL (the Indonesian environmental protection agency), the company initiated a stockpile stabilization program and voluntarily agreed to a temporary limitation on production from the Grasberg open pit of 200,000 tons per day average. Underground ore production was not affected. A safe-zone based on engineering calculations was subsequently identified along the Wanagon River and within the village of Banti. The residents within this zone were temporarily moved to Tembagapura, our original mining town site, and the houses were removed. These families are being relocated to new housing designed according to their wishes and located on higher ground in Banti. After successful completion of the stabilization program and consultation with the Indonesian government and affected local residents, normal overburden placement at the Wanagon stockpile resumed and the restriction on production from the Grasberg open pit was lifted at the end of 2000. Employees and Relationship with FM Services Company As of December 31, 2000, PT Freeport Indonesia had 6,934 employees (approximately 98 percent Indonesian). In addition, as of December 31, 2000, PT Freeport Indonesia had 1,953 contract workers, the vast majority of whom were Indonesian. Approximately 50 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 expires September 30, 2001. PT Freeport Indonesia's relations with the workers' union have generally been positive. As of December 31, 2000, Atlantic Copper had 739 employees, of which approximately 78 percent are covered by a union contract that expires December 31, 2002. Atlantic Copper experienced no work stoppages in 2000 and relations with these unions have also generally been good. FM Services Company, a Delaware corporation 45 percent owned by us as of December 31, 2000, 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, 2000, FCX had 17 employees and FM Services had 134 employees. FM Services employees also provide services to two other publicly traded companies. 10 Cautionary Statements This report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, 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, and exploration efforts and results. Forward-looking statements are based on our assumptions and analyses made in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. These statements are subject to a number of assumptions, risks and uncertainties, including the risk factors discussed below and in our other filings with the Securities and Exchange Commission, general economic and business conditions, the business opportunities that may be presented to and pursued by us, changes in laws and other factors, many of which are beyond our control. We undertake no obligation to update or revise any forward-looking statements. Readers are cautioned that forward-looking statements are not guarantees of future performance and the actual results or developments may differ materially from those projected in the forward-looking statements. Important factors that could cause actual results to differ materially from our expectations include, among others, the following: 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. 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 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 formed a "fact-finding" team in 2000 that reviewed 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. The Indonesian government has not yet formally released its report, but we expect a positive resolution in 2001. 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 11 personal injury or property damage, and our concentrate shipments were not interrupted. In March 1996, local people 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. New regional autonomy laws became effective January 1, 2001, and there is a transition period to allow the provinces to prepare for the assumption and administration of these new responsibilities. The manner in which new autonomy laws will be implemented and the degree of political and economic autonomy that is being provided to individual provinces, including Irian Jaya (Papua), is uncertain and 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 people 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 judgment of a foreign court or arbitration against a sovereign nation within its own territory. We have significant scheduled debt and redeemable preferred stock maturities in 2002 and 2003 that will be difficult to refinance. Our scheduled debt and redeemable preferred stock maturities total approximately $200 million in 2001, $1 billion in 2002 and $500 million in 2003, based on year-end 2000 gold and silver prices. Our $1 billion bank facility matures in December 2002. The outstanding balance at December 31, 2000 was $760.0 million, and $162.0 million was available under PT Freeport Indonesia's $550 million facility and $78.0 million was available under the FCX/PT Freeport Indonesia $450 million facility. We have begun discussions with the banks in our credit facility regarding extending its maturity and revising its terms. If the banks agree to an extension and revision of terms it would result in scheduled maturity requirements, higher financing costs and certain restrictions on our financial management. Our guarantee of a $254 million bank loan to Nusamba, which is discussed below, also matures in 2002. We are working on a plan to coordinate any payment that might be required as a result of our guarantee with the extension of the maturity of amounts due under the $1 billion bank facility. In addition, we have maturities of senior notes and redeemable preferred stock in 2003 totaling approximately $400 million, based on year-end 2000 gold and silver prices. Because of the economic and political issues affecting Indonesia, our current ability to obtain capital is limited. 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. In 1997 we guaranteed a $254 million loan from a commercial bank to Nusamba. Nusamba used the funds plus $61.0 million of cash, for a total of $315 million, to purchase stock in PT Indocopper Investama, a company whose only significant asset is 9.36 percent of PT Freeport Indonesia's stock. 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 dividends received 12 by Nusamba on the PT Indocopper Investama stock. At December 31, 2000, we had loaned Nusamba $56.1 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 $310.1 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. In connection with our discussions with banks in our $1 billion bank credit facility (see above), we are discussing with the banks involved in the Nusamba loan a plan to finance the payment that might be required as a result of our guarantee. This plan would be coordinated with the extension of the maturity of amounts due under the $1 billion bank credit facility. This plan is currently being discussed with the banks and the outcome is pending. 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 (see "Wanagon Overburden Stockpile Slippage"). In the presence of air, water and naturally occurring bacteria, some overburden 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. 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. 13 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. 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. 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/euros. 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. 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. However, our hedging strategies may not be successful, and any of our unhedged foreign exchange payment requirements will continue to be subject to market fluctuations. 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 March 2000, the Civil District Court for the Parish of Orleans, State of Louisiana, granted our exception of no cause of action and dismissed the entire case with prejudice. The plaintiff has appealed to the Louisiana Fourth Circuit Court of Appeal, which is expected to hear oral arguments in second quarter of 2001. 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 14 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, 2001 about our executive officers, including their position or office with Freeport- McMoRan Copper & Gold Inc. (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 54 President and Chief Financial Officer of FCX. Director and Executive Vice President of PT Freeport Indonesia. Chairman of Atlantic Copper. W. Russell King 51 Senior Vice President of FCX. Adrianto Machribie 59 President Director of PT Freeport Indonesia. James R. Moffett 62 Director, Chairman of the Board and Chief Executive Officer of FCX. President Commissioner of PT Freeport Indonesia. Richard C. Adkerson has served as FCX's President since April 1997 and Chief Financial Officer since October 2000. 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. 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. 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. 15 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 15, 2001, there were 6,253 and 10,457 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 20 and 21 of our Annual Report is incorporated herein by reference.
Years Ended December 31, ----------------------------------- 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- Ratio of earnings to fixed charges 4.5x 3.8x 2.5x 2.9x 2.3x Ratio of earnings to fixed charges and preferred stock dividends 2.6x 2.8x 1.9x 2.2x 1.7x
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 22 through 34, as well as the "Working Toward Sustainable Development" report on pages 6 through 19, of our 2000 Annual Report, are incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. Our financial statements and the notes thereto appearing on pages 36 through 57, the report thereon of Arthur Andersen LLP appearing on page 35, and the report of management on page 35 of our 2000 Annual Report are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. 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 2001 Annual Meeting to be held on May 3, 2001 is incorporated herein by reference. 16 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 2001 Annual Meeting to be held on May 3, 2001 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 2001 Annual Meeting to be held on May 3, 2001 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 2001 Annual Meeting to be held on May 3, 2001 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. 17 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 23, 2001. 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 23, 2001. Signatures - ---------- Chairman of the Board, Chief /s/ James R. Moffett Executive Officer and - ----------------------------- Director (Principal Executive Officer) James R. Moffett * Vice Chairman of the Board and Director - ----------------------------- B. M. Rankin, Jr. * President and Chief Financial Officer - ----------------------------- Richard C. Adkerson * Vice President and Controller-Financial - ----------------------------- Reporting (Principal Accounting Officer) C. Donald Whitmire, Jr. * Director - ----------------------------- Robert J. Allison, Jr. * Director - ----------------------------- Robert W. Bruce III * Director - ----------------------------- R. Leigh Clifford * Director - ---------------------------- Robert A. Day S-1 * Director - ---------------------------- Gerald J. Ford * Director - ---------------------------- H. Devon Graham, Jr. * Director - ---------------------------- Oscar Y. L. Groeneveld * Director - ---------------------------- J. Bennett Johnston * Director - ---------------------------- Bobby Lee Lackey * Director - ---------------------------- Gabrielle K. McDonald Director - ---------------------------- J. Stapleton Roy * 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 36 through 57, and the report of Arthur Andersen LLP appearing on page 35 of our 2000 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 2000 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-4 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 auditing standards generally accepted in the United States, the financial statements as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000 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, 2001. 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, 2001 F-1 FREEPORT-McMoRan COPPER & GOLD INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS
December 31, ----------------------- 2000 1999 ---------- ---------- (In Thousands) Assets: Cash and cash equivalents $ 1,161 $ 832 Interest receivable 4,968 7,746 Due from affiliates 20,147 16,862 Notes receivable from PT Freeport Indonesia 602,306 779,991 Note receivable from Nusamba 56,081 43,702 Investment in PT Freeport Indonesia and PT Indocopper Investama 742,832 824,513 Investment in Atlantic Copper 123,124a 97,518b Other assets 43,821 41,616 ---------- ---------- Total assets $1,594,440 $1,812,780 ========== ========== Liabilities and Stockholders' Equity: Accounts payable and accrued liabilities $ 20,016 $ 23,173 Long-term debt, including current portion 999,694 1,060,411 Other long-term liabilities 26,419 - Deferred income taxes 35,375 44,809 Redeemable preferred stock 475,005 487,507 Stockholders' equity 37,931 196,880 ---------- ---------- Total liabilities and stockholders' equity $1,594,440 $1,812,780 ========== ==========
STATEMENTS OF INCOME
Years Ended December 31, ---------------------------- 2000 1999 1998 -------- -------- -------- (In Thousands) Income from investment in PT Freeport Indonesia and PT Indocopper Investama, net of PT Freeport Indonesia tax provision $178,026 $237,606 $211,232 Net income (loss) from investment in Atlantic Copper (29,906) (18,982) 4,674 Intercompany charges and eliminations 10,200 (4,457) (7,700) Exploration expenses (2,428) (7,055) (8,958) General and administrative expenses (5,744) (8,643) (7,082) Depreciation and amortization (4,704) (4,468) (4,384) Interest expense, net (82,321) (76,246) (66,141) Interest income on PT Freeport Indonesia notes receivable: Promissory notes 17,423 28,461 29,273 Gold and silver production payment loans 16,395 17,568 19,212 8.235% debenture - - 8,101 Other income (expense), net 46 (379) 1,326 Provision for income taxes (20,000) (26,938) (25,705) -------- -------- -------- Net income 76,987 136,467 153,848 Preferred dividends (37,487) (35,680) (35,531) -------- -------- -------- $ 39,500 $100,787 $118,317 ======== ======== ========
a. Includes additional support payments and commitments to Atlantic Copper totaling $55.5 million during 2000. b. Includes a $40.0 million equity contribution in 1999. The footnotes to the consolidated financial statements of FCX contained in FCX's 2000 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, 2000 1999 1998 --------- --------- --------- (In Thousands) Cash flow from operating activities: Net income $ 76,987 $ 136,467 $ 153,848 Adjustments to reconcile net income to net cash provided by operating activities: Income from investment in PT Freeport Indonesia and PT Indocopper Investama (178,071) (237,606) (211,232) Deferred income taxes (8,684) 21,976 16,613 Net (income) loss from investment in Atlantic Copper 29,906 18,982 (4,674) Elimination of intercompany profit (10,200) 4,457 7,700 Dividends received from PT Freeport Indonesia and PT Indocopper Investama 268,670 18,361 48,832 Depreciation and amortization 4,704 4,468 4,384 Decrease in interest receivable and due from affiliates 2,527 2,888 50,933 Increase (decrease) in accounts payable and accrued liabilities (4,202) 2,320 (1,699) Other (29,505)a 752 3,208 --------- --------- --------- Net cash provided by (used in) operating activities 152,132 (26,935) 67,913 --------- --------- --------- Cash flow from investing activities: Investment in Atlantic Copper (3,000) (40,000) - Other (3,559) (2,403) (9,583) --------- --------- --------- Net cash used in investing activities (6,559) (42,403) (9,583) --------- --------- --------- Cash flow from financing activities: Cash dividends paid: Class A common stock - - (14,157) Class B common stock - - (21,225) Step-up convertible preferred stock (24,500) (24,500) (24,500) Mandatory redeemable preferred stock (13,213) (13,520) (14,657) Proceeds from debt 9,532 104,673 161,506 Repayment of debt (70,249) (11,514) (19,504) Partial redemption of preferred stock (11,893) (11,946) - Repayment from PT Freeport Indonesia 177,077 51,946 150,000 Loans to Nusamba (12,379) (18,264) (17,824) Purchases of FCX common shares (199,945) (7,921) (259,213) Other 326 414 545 --------- --------- --------- Net cash provided by (used in) financing activities (145,244) 69,368 (59,029) --------- --------- --------- Net increase (decrease) in cash and cash equivalents 329 30 (699) Cash and cash equivalents at beginning of year 832 802 1,501 --------- --------- --------- Cash and cash equivalents at end of year $ 1,161 $ 832 $ 802 ========= ========= ========= Interest paid $ 85,190 $ 76,804 $ 68,950 ========= ========= ========= Taxes paid $ 29,736 $ 5,281 $ 8,629 ========= ========= =========
a. Includes support payments to Atlantic Copper totaling $29.4 million. The footnotes to the consolidated financial statements of FCX contained in FCX's 2000 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
Col. A Col. B Col. C Col. D Col. E - ----------------------- ---------- -------------------- -------- --------- 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: 2000 Materials and supplies reserves $18,751 $6,000 $ - $(7,943)a $16,808 Allowance for uncollectible value-added taxes 5,491 - - (5,191)b 300 Allowance for uncollectible accounts receivable - 2,500 - - 2,500 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 Reclamation and mine shutdown reserves: 2000 PT Freeport Indonesia 14,085 5,135 - - 19,220 1999 PT Freeport Indonesia 9,229 4,856 - - 14,085 1998 PT Freeport Indonesia 5,466 3,763 - - 9,229
a. Primarily represents write-offs of obsolete materials and supplies inventories. b. Represents a reversal of previously accrued amounts based on an updated analysis of historical refunds of value-added tax payments. 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 of Designations of the Gold-Denominated Preferred Stock of FCX. Incorporated by reference to Exhibit 4.3 to the FCX 1995 Second Quarter Form 10-Q. 4.5 Deposit Agreement dated as of August 12, 1993 among FCX, ChaseMellon, as Depositary, and holders of depositary receipts (Gold-Denominated Depositary Receipts) evidencing certain Depositary Shares, each of which, in turn, represents 0.05 shares of Gold-Denominated Preferred Stock. Incorporated by reference to Exhibit 4.8 to the FCX 1993 Form 10-K. 4.6 Form of Gold-Denominated Depositary Receipt. Incorporated by reference to Exhibit 4.9 to the FCX 1993 Form 10-K. 4.7 Certificate of Designations of the Gold-Denominated Preferred Stock, Series II (the Gold-Denominated Preferred Stock II) of FCX. Incorporated by reference to Exhibit 4.4 to the FCX 1995 Second Quarter Form 10-Q. 4.8 Deposit Agreement dated as of January 15, 1994, among FCX, ChaseMellon, as Depositary, and holders of depositary receipts (Gold-Denominated II Depositary Receipts) evidencing certain Depositary Shares, each of which, in turn, represents 0.05 shares of Gold-Denominated Preferred Stock II. Incorporated by reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q of FCX for the quarter ended March 31, 1994 (the FCX 1994 First Quarter Form 10-Q). E-1 Freeport-McMoRan Copper & Gold Inc. EXHIBIT INDEX Exhibit Number Description - ------ ----------- 4.9 Form of Gold-Denominated II Depositary Receipt. Incorporated by reference to Exhibit 4.3 to the FCX 1994 First Quarter Form 10-Q. 4.10 Certificate of Designations of the Silver-Denominated Preferred Stock of FCX. Incorporated by reference to Exhibit 4.5 to the FCX 1995 Second Quarter Form 10-Q. 4.11 Deposit Agreement dated as of July 25, 1994 among FCX, ChaseMellon, as Depositary, and holders of depositary receipts (Silver-Denominated Depositary Receipts) evidencing certain Depositary Shares, each of which, in turn, initially represents 0.025 shares of Silver-Denominated Preferred Stock. Incorporated by reference to Exhibit 4.2 to the July 15, 1994 Form 8-A. 4.12 Form of Silver-Denominated Depositary Receipt. Incorporated by reference to Exhibit 4.1 to the July 15, 1994, Form 8-A. 4.13 $550 million Composite Restated Credit Agreement dated as of July 17, 1995 (the PT Freeport Indonesia Credit Agreement) among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PT Freeport Indonesia Trustee, Chemical Bank, as administrative agent and FCX collateral agent, and The Chase Manhattan Bank (National Association), as documentary agent. Incorporated by reference to Exhibit 4.16 to the Annual Report of FCX on Form 10-K for the year ended December 31, 1995 (the FCX 1995 Form 10-K). 4.14 Amendment dated as of July 15, 1996 to the PT Freeport Indonesia Credit Agreement among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PT Freeport Indonesia Trustee, Chemical Bank, as administrative agent and FCX collateral agent, and The Chase Manhattan Bank (National Association), as documentary agent. Incorporated by reference to Exhibit 4.2 to the Quarterly Report of FCX on Form 10-Q for the quarter ended September 30, 1996 (the FCX 1996 Third Quarter Form 10-Q). 4.15 Amendment dated as of October 9, 1996 to the PT Freeport Indonesia Credit Agreement among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PT Freeport Indonesia Trustee, The Chase Manhattan Bank (formerly Chemical Bank), as administrative agent, security agent and JAA security agent, and The Chase Manhattan Bank (as successor to The Chase Manhattan Bank (National Association)), as documentary agent. Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of FCX dated and filed November 13, 1996 (the FCX November 13, 1996 Form 8-K). 4.16 Amendment dated as of March 7, 1997 to the PT Freeport Indonesia Credit Agreement among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PT Freeport Indonesia Trustee, The Chase Manhattan Bank, as administrative agent, security agent and JAA security agent, and The Chase Manhattan Bank, as documentary agent. Incorporated by reference to Exhibit 4.16 to the Annual Report of FCX on Form 10-K for the year ended December 31, 1997 (the FCX 1997 Form 10-K). 4.17 Amendment dated as of July 24, 1997 to the PT Freeport Indonesia Credit Agreement among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PT Freeport Indonesia Trustee, The Chase Manhattan Bank, as administrative agent, security agent and JAA security agent, and The Chase Manhattan Bank, as documentary agent. Incorporated by reference to Exhibit 4.17 to the FCX 1997 Form 10-K. E-2 Freeport-McMoRan Copper & Gold Inc. EXHIBIT INDEX Exhibit Number Description - ------ ----------- 4.18 $200 million Credit Agreement dated as of June 30, 1995 (the CDF) among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PT Freeport Indonesia Trustee, Chemical Bank, as administrative agent and FCX collateral agent, The Chase Manhattan Bank (National Association), as documentary agent. Incorporated by reference to Exhibit 4.2 to the FCX 1995 Third Quarter Form 10-Q. 4.19 Amendment dated as of July 15, 1996 to the CDF among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as PT Freeport Indonesia Trustee, Chemical Bank, as administrative agent and FCX collateral agent, and The Chase Manhattan Bank (National Association), as documentary agent. Incorporated by reference to Exhibit 4.1 to the FCX 1996 Third Quarter Form 10-Q. 4.20 Amendment dated as of October 9, 1996 to the CDF among PT Freeport Indonesia, FCX, the several financial institutions that are parties thereto, First Trust of New York, National Association, as 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. 4.25 Certificate of Designations of Series A Participating Cumulative Preferred stock of FCX. Incorporated by reference to Exhibit 4.25 to the Quarterly Report on Form 10- Q of FCX for the quarter ended March 31, 2000 (the FCX 2000 First Quarter Form 10-Q). 4.26 Rights Agreement dated as of May 3, 2000 between FCX and Chasemellon Shareholder Services, L.L.C., as Rights Agent. Incorporated by reference to Exhibit 4.26 to the FCX 2000 First Quarter Form 10-Q. 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. E-3 Freeport-McMoRan Copper & Gold Inc. EXHIBIT INDEX Exhibit Number Description - ------ ----------- 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. 10.4 Concentrate Purchase and Sales Agreement dated effective December 11, 1996 between PT Freeport Indonesia and PT Smelting. Incorporated by reference to Exhibit 10.34 to the Annual Report of FCX on Form 10-K for the year ended December 31, 1999 (the FCX 1999 Form 10-K). 10.5 Participation Agreement dated as of October 11, 1996 between PT Freeport Indonesia and P.T. RTZ-CRA Indonesia with respect to a certain contract of work. Incorporated by reference to Exhibit 10.5 to the FCX November 13, 1996 Form 8-K. 10.6 Second Amended and Restated Joint Venture and Shareholders' Agreement dated as of December 11, 1996 among Mitsubishi Materials Corporation, Nippon Mining and Metals Company, Limited and PT Freeport Indonesia. Incorporated by reference to Exhibit 10.3 of the FCX 1996 Form 10-K. 10.7 Put and Guaranty Agreement dated as of March 21, 1997 between FCX and The Chase Manhattan Bank. Incorporated by reference to Exhibit 10.7 to the FCX 1997 Form 10-K. 10.8 Subordinated Loan Agreement dated as of March 21, 1997 between FCX and PT Nusamba Mineral Industri. Incorporated by reference to Exhibit 10.8 to the FCX 1997 Form 10-K. 10.9 Amended and Restated Power Sales Agreement dated as of December 18, 1997 between PT Freeport Indonesia and P.T. Puncakjaya Power. Incorporated by reference to Exhibit 10.9 to the FCX 1997 Form 10-K. 10.10 Option, Mandatory Purchase and Right of First Refusal Agreement dated as of December 19, 1997 among PT Freeport Indonesia, P.T. Puncakjaya Power, Duke Irian Jaya, Inc., Westcoast Power, Inc. and P.T. Prasarana Nusantara Jaya. Incorporated by reference to Exhibit 10.10 to the FCX 1997 Form 10-K. Executive Compensation Plans and Arrangements (Exhibits 10.11 through 10.33) 10.11 Annual Incentive Plan of FCX as amended effective February 2, 1999. Incorporated by reference to Exhibit 10.11 to the 1998 FCX Form 10-K. 10.12 1995 Long-Term Performance Incentive Plan of FCX. Incorporated by reference to Exhibit 10.9 to the FCX 1996 Form 10-K. 10.13 FCX Performance Incentive Awards Program as amended effective February 2, 1999. Incorporated by reference to Exhibit 10.13 to the 1998 FCX Form 10-K. 10.14 FCX President's Award Program. Incorporated by reference to Exhibit 10.8 to the FCX 1995 Form 10-K. 10.15 FCX Adjusted Stock Award Plan, as amended. Incorporated by reference to Exhibit 10.15 to the 1997 FCX Form 10-K. 10.16 FCX 1995 Stock Option Plan. Incorporated by reference to Exhibit 10.13 to the FCX 1996 Form 10-K. 10.17 FCX 1995 Stock Option Plan for Non-Employee Directors, as amended. Incorporated by reference to Exhibit 10.17 to the FCX 1997 Form 10-K. E-4 Freeport-McMoRan Copper & Gold Inc. EXHIBIT INDEX Exhibit Number Description - ------ ----------- 10.18 FCX 1999 Stock Incentive Plan. Incorporated by reference to Exhibit 10.18 to the Quarterly Report on Form 10-Q of FCX for the quarter ended June 30, 1999. 10.19 FCX 1999 Long-Term Performance Incentive Plan. Incorporated by reference to Exhibit 10.19 to the FCX 1999 Form 10-K. 10.20 Financial Counseling and Tax Return Preparation and Certification Program of FCX. Incorporated by reference to Exhibit 10.12 to the FCX 1995 Form 10-K. 10.21 FM Services Company Performance Incentive Awards Program as amended effective February 2, 1999. Incorporated by reference to Exhibit 10.19 to the 1998 FCX Form 10-K. 10.22 FM Services Company Financial Counseling and Tax Return Preparation and Certification Program. Incorporated by reference to Exhibit 10.14 to the FCX 1995 Form 10-K. 10.23 Consulting Agreement dated as of December 22, 1988 between FTX and Kissinger Associates, Inc. (Kissinger Associates). Incorporated by reference to Exhibit 10.21 to the FCX 1997 Form 10-K. 10.24 Letter Agreement dated May 1, 1989 between FTX and Kent Associates, Inc. (Kent Associates, predecessor in interest to Kissinger Associates). Incorporated by reference to Exhibit 10.22 to the FCX 1997 Form 10-K. 10.25 Letter Agreement dated January 27, 1997 among Kissinger Associates, Kent Associates, FTX, FCX and FMS. Incorporated by reference to Exhibit 10.20 to the FCX 1996 Form 10-K. 10.26 Agreement for Consulting Services between FTX and B. M. Rankin, Jr. effective as of January 1, 1991 (assigned to FMS as of January 1, 1996). Incorporated by reference to Exhibit 10.24 to the FCX 1997 Form 10-K. 10.27 Supplemental Agreement between FMS and B. M. Rankin, Jr. dated December 15, 1997. Incorporated by reference to Exhibit 10.25 to the FCX 1997 Form 10-K. 10.28 Supplemental Agreement between FMS and B. M. Rankin, Jr. dated December 7, 1998. Incorporated by reference to Exhibit 10.26 to the 1998 FCX Form 10-K. 10.29 Supplemental Agreement between FMS and B. M. Rankin, Jr. dated February 5, 2001. 10.30 Letter Agreement effective as of January 7, 1997 between Senator J. Bennett Johnston, Jr. and FMS. Incorporated by reference to Exhibit 10.25 of the FCX 1996 Form 10-K. 10.31 Supplemental Letter Agreement dated April 13, 2000 between J. Bennett Johnston, Jr. and FMS. Incorporated by reference to Exhibit 10.30 to the FCX 2000 First quarter Form 10-Q. 10.32 Letter Agreement dated November 1, 1999 between FMS and Gabrielle K. McDonald. Incorporated by reference to Exhibit 10.33 of the FCX 1999 Form 10-K. 10.33 Supplemental Letter Agreement dated May 17, 2000 between FMS and Gabrielle K. McDonald. Incorporated by reference to Exhibit 10.35 of the FCX 2000 Second Quarter Form 10-Q. 12.1 FCX Computation of Ratio of Earnings to Fixed Charges. E-5 Freeport-McMoRan Copper & Gold Inc. EXHIBIT INDEX Exhibit Number Description - ------ ----------- 13.1 Those portions of the 2000 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. 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 pursuant to which this report has been signed on behalf of certain officers and directors of FCX. E-6 EX-10 2 exh1029.txt Exhibit 10.29 February 2, 2001 B. M. Rankin, Jr. 300 Crescent Court, 1380 Dallas, TX 75210 Dear Mr. Rankin: I am writing in reference to your Consulting Agreement dated January 1, 1991 (the "Agreement") and the Supplemental Agreement dated December 7, 1998 between you and FM Services Company (the "Company"). In conjunction with your election to Vice Chairman of McMoRan Exploration Co. and Freeport-McMoRan Copper & Gold Inc., the Company would like to increase your quarterly consulting fee, effective February 1, 2001, from $60,000 to $122,500. All other terms and conditions of the Agreement and the Supplemental Agreement shall remain unchanged. Please confirm that the foregoing correctly sets forth our 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 Richard C. Adkerson Agree to and accepted this 5th Day of February, 2001 By: /s/ B.M. Rankin Jr. ___________________________ B. M. Rankin, Jr. EX-12 3 exh12a.txt EXHIBIT 12.1 FREEPORT-McMoRan COPPER & GOLD INC. Computation of Ratio of Earnings to Fixed Charges:
Years Ended December 31, 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- (In Thousands) Income from continuing operations$226,249 $245,108 $153,848 $136,467 $ 76,987 Add: Provision for income taxes 247,168 231,315 170,566 195,653 159,573 Minority interests' share of net income 48,529 40,343 37,012 48,714 36,680 Interest expense, net 117,291 151,720 205,588 194,069 205,346 Rental expense factor(a) 457 240 323 188 - -------- -------- -------- -------- -------- Earnings available for fixed charges $639,694 $668,726 $567,337 $575,091 $478,586 ======== ======== ======== ======== ======== Interest expense, net $117,291 $151,720 $205,588 $194,069 $205,346 Capitalized interest 22,979 23,021 19,612 3,768 7,216 Rental expense factor(a) 457 240 323 188 - -------- -------- -------- -------- -------- Fixed charges $140,727 $174,981 $225,523 $198,025 $212,562 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges(b) 4.5x 3.8x 2.5x 2.9x 2.3x ==== ==== ==== ==== ====
Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends:
Years Ended December 31, 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- (In Thousands) Income from continuing operations$226,249 $245,108 $153,848 $136,467 $ 76,987 Add: Provision for income taxes 247,168 231,315 170,566 195,653 159,573 Minority interests' share of net income 48,529 40,343 37,012 48,714 36,680 Interest expense, net 117,291 151,720 205,588 194,069 205,346 Rental expense factor(a) 457 240 323 188 - -------- -------- -------- -------- -------- Earnings available for fixed charges $639,694 $668,726 $567,337 $575,091 $478,586 ======== ======== ======== ======== ======== Interest expense, net $117,291 $151,720 $205,588 $194,069 $205,346 Capitalized interest 22,979 23,021 19,612 3,768 7,216 Rental expense factor(a) 457 240 323 188 - Preferred dividends(c) 101,083 65,896 65,847 68,697 72,717 -------- -------- -------- -------- -------- Fixed charges $241,810 $240,877 $291,370 $266,722 $285,279 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges(b) 2.6x 2.8x 1.9x 2.2x 1.7x ==== ==== ==== ==== ====
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. c. For purposes of this calculation, we assume that our preferred stock dividend requirements were equal to the pre-tax earnings that would be required to cover those dividend requirements. EX-13 4 exh13.txt 6 WORKING TOWARD SUSTAINABLE DEVELOPMENT 2000 ECONOMIC, SOCIAL AND ENVIRONMENTAL REPORT Introduction Two years ago, we announced our commitment at Freeport-McMoRan Copper & Gold Inc. (FCX) to work toward sustainable development and our desire to become known as an industry leader in sustainable development practices. This commitment, "Working Toward Sustainable Development," became the new title for the Economic, Social and Environmental Report presented each year here in our annual report. This report and its predecessors are available on our web site (fcx.com). But changing the title of our report was the least of what we have done. We have reexamined our environmental and social practices from the ground up, including seeking the professional opinions of outside experts in every area, as part of our continuous search for ways to improve in every aspect of our operations. We have joined a worldwide, collaborative effort among the mining industry, economic groups and nongovernmental organizations to define the principles and practices of sustainable development for our industry. Sustainable development - balancing economic, social and environmental issues in a way that meets the needs of the present without compromising the ability of future generations to meet their own needs - is particularly challenging for the mining industry. Most important, we have found and continue to find many ways to improve - to lessen our environmental impacts, or to mitigate them when they occur; to improve our relationship with the local people where we operate; and to make certain that the local people are reaping the benefits of our success in terms of real improvements in their quality of life. These positive steps, which measure our progress along the path to sustainable development during the year 2000, are detailed in this report. The definition of "sustainability" is unique to every situation and changes as global and local conditions change. Because of this, our quest for sustainable development will be unending. We think it is the search for sustainability itself that keeps us sharp and on the leading edge of continual improvements in our industry. So we will continue "Working Toward Sustainable Development" and reporting our progress to you. (Photo) This corn project is part of an integrated agriculture, aquaculture and animal husbandry program taking shape in the Ajkwa Deposition Area. Fig. #1 Financial benefits of PT Freeport Indonesia's operations to the people and Government of Indonesia. (Pie charts showing the following data)
For Years For 1992-2000 2000 --------- ---- (in millions) Domestic Reinvestments $3,953 $224 Goods & Services Purchased 2,253 226 Dividends, Royalties & Taxes 1,633 165 Wages, Salaries & Benefits 547 54 Charitable Contributions 220 31 ------ ---- $8,606 $700 ====== ====
7 PT FREEPORT INDONESIA I. Economic Impacts PT Freeport Indonesia contributes to the economies of the province of Irian Jaya (Papua) and the Republic of 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 of local and national goods. PT Freeport Indonesia has frequently been the largest taxpayer in the Republic of Indonesia. In addition, it pays royalties on all minerals removed from the ground. Since 1991, these direct benefits to Indonesia have totaled $1.6 billion. Taxes and royalties are paid to the central government in Jakarta and then distributed according to government policy and priorities. Indonesia's central and regional governments are currently changing the distribution of such revenues so that a greater portion will benefit the regional government. We support this change. Since it began development activities more than 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 2000, PT Freeport Indonesia directly employed 6,934 people and another 1,953 contract workers were employed by companies that provide services locally and exclusively to PT Freeport Indonesia. Of this total of 8,887 employees, 2,186, or 25%, were Papuans. 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. Besides the $1.6 billion paid in direct benefits to the Government of Indonesia under PT Freeport Indonesia's new Contract of Work from 1992- 2000, operations have provided another $7.0 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 (see Fig. #1). II. Social Change and Development Population Growth and Social Impacts 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 fewer than 1,000 and a relatively small mine, the company's initial programs were simple and limited. 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 the efforts by the Indonesian government and PT Freeport Indonesia to respond to them with an array of social and economic programs spiraled in complexity. The very success of the company and these programs became an attraction - economic and educational opportunities brought in thousands of Papuans from outside the company area, hoping for a better life for their children. Hospitals and specialized medical care programs to treat malaria, tuberculosis and sexually transmitted diseases drew those with chronic illnesses from other areas where no treatment is available. The Indonesian government, pursuing its policy of transmigration, moved thousands of people into the area from other parts of Indonesia. Other businesses have located in the area, adding to the local economy and population. The result of these trends has been to bring together a complex mixture of Papuan indigenous peoples, which have their own history of interethnic tensions, with Indonesians from other islands who have different ethnic and cultural backgrounds. These diverse groups were all combined in a population that rapidly grew to its present size of more than 100,000. This rapid growth and urbanization has had significant social and environmental impacts. The Amungme and Kamoro peoples, the traditional inhabitants, find themselves outnumbered by Papuans from other tribes who have moved in from outside the area, drawn by the magnet of opportunity. The Papuans as a whole in this area are now outnumbered by Indonesians from other islands. During 2000, PT Freeport Indonesia undertook a study of the people living within the Mimika district in order to better understand the demographics of the area and what this portends for the company's efforts to work toward sustainability in its social and environ- 8 mental influences. The company is working hard to provide a solid planning foundation to help the residents of the area - Amungme and Kamoro, other Papuans and the non- Papuans who have settled there - to take the next important steps in creating a sustainable community in which services and opportunity are available equally to all residents, human rights and dignity are respected and the company's operations are a long-term positive force for sustainable development. 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 this 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 understanding necessary for building constructive relationships. Perhaps most important is our commitment to treat the local people with respect and to consult them on important operational issues that impact their communities. (Photo) In the lowlands near our operations, we support local development like this fish-raising project. PT Freeport Indonesia understands the need of the unique peoples of Irian Jaya (Papua) to preserve their cultures in the face of modernization. For this reason, the company has long supported the Asmat Art and Cultural Festival and sponsors the annual Kamoro Art and Cultural Festival. PT Freeport Indonesia has also sponsored social, cultural, language and economic studies of the Amungme and Kamoro people - traditional inhabitants of the land where the company operates - and this work has resulted in improved communication and understanding as well as better education and training programs. Milestone Agreements with the Amungme and Kamoro In July 2000, a formal memorandum of understanding was signed by PT Freeport Indonesia and the local community organizations representing the Amungme and Kamoro peoples. The agreement - which addresses socioeconomic resources, human rights, land rights and environmental rights was the result of five years of dialogue. The early discussions were facilitated by the Indonesian Human Rights Commission. The agreement details the aspirations of the traditional residents of the company's operations area and PT Freeport Indonesia to seek harmonious and mutually beneficial relationships based on equality, honesty and justice. The purpose of the agreement is to improve the quality of life of the Amungme and Kamoro communities and to ensure that they fairly benefit from the company's operations; to improve the appreciation of human rights and respect for the dignity and understanding of the culture of the Amungme and Kamoro communities and others in the company's operations area; and to improve the quality of the environment. The agreement is intended to be the foundation for mutually beneficial initiatives and several have already resulted, including the formation of a company by the local people to perform earth moving and levee maintenance in the tailings deposition area; the development of an integrated agriculture, aquaculture and animal husbandry program in the tailings deposition area; and the building of offices and residences for local leaders. The agreement also establishes procedures to continue negotiations between community organizations and the company. A second memorandum of understanding was signed on December 27, 2000 between PT Freeport Indonesia and the residents of Banti, a village approximately two miles from Tembagapura, our mine's residential community. Some residents of the village felt threatened after an 9 (Photo) A mother and child visit the Mimika outpatient "Poliklinik," a unit of the Mimika Community Hospital, funded by the Freeport Fund for Irian Jaya Development. incident in May 2000 when an overburden stockpile slipped and a wave of water and material flowed down the river adjacent to the village. (See "Wanagon Overburden Stockpile Slippage" on page 15.) No residents of the village were injured and no long-term environmental effects resulted, but there was minor property damage and it was determined that some houses in the village were not safe. Discussions with Banti residents resulted in a plan to build new homes, using a design of their choosing, for the affected residents in another location. The agreement also provides for enhanced local economic opportunities for the community and expanded educational programs, as well as continued discussions between the company and the people of Banti about issues of mutual concern. Freeport Fund for Irian Jaya Development In April 1996, PT Freeport Indonesia agreed to commit at least one percent of its revenues for the next ten years to the Freeport Fund for Irian Jaya Development 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 cost a similar amount of money each year. Through the end of 2000, contributions to the fund have totaled $74.8 million, including $66.1 million from PT Freeport Indonesia and $8.7 million from the company's joint venture partner in the Grasberg project, Rio Tinto plc. In 2000, the fund received a total of $16.9 million, $14.1 million from PT Freeport Indonesia and $2.8 million from Rio Tinto. The 2000 expenditures supported programs on health care, education and village development. The Lembaga Pengembangan Masyarakat-Irian Jaya (LPM), or the People's Development Foundation-Irian Jaya, oversees disbursement of these 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; and leaders of the three local churches. Human Rights Issues 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 rights violations in connection with some of these incidents. Some of these allegations have been investigated and some 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 Initiatives 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 our Board of Directors. The policy includes specific actions to support human rights to be undertaken by the company and by employees. Over the past two years that policy has been implemented in steps through training of employees to better understand the implications of human rights policy in the context of our operations. The most intensive training has been undertaken in PT Freeport Indonesia's Security Department. Outside trainers from Indonesian human rights organizations and from local universities have provided theoretical and practical training. In the meantime, revisions to our Social and Human Rights Policy - already considered to be one of the most proactive in industry - have been recommended and are being adopted during 2001. These revisions, some proposed by human rights 10 organizations, will further strengthen our policy. We have also contracted with an expert on corporate policies and codes of conduct to establish benchmarks during 2001 for evaluating our Social and Human Rights Policy, so that we may measure and monitor its effectiveness. As part of enhancing human rights awareness throughout the company, Judge Gabrielle McDonald was appointed as Special Counsel to the Chairman for Human Rights. Already a member of our Board of Directors, Judge McDonald has had a distinguished career as a civil rights lawyer, a federal judge and as President of the International Criminal Tribunal for the former Yugoslavia. In 2000, she undertook an extensive tour of Indonesia and met with many prominent local leaders and human rights advocates in Jakarta, Jayapura and Timika and reported publicly on her findings. In December 2000, we endorsed the joint U.S. State Department-British Foreign Office Voluntary Principles on Human Rights and Security. The Voluntary Principles were endorsed by several major natural resources companies and by important human rights organizations. We participated in drafting the principles and have incorporated the principles in our Social and Human Rights Policy. In announcing the principles and naming the companies that had endorsed them, U.S. Secretary of State Madeleine Albright called the agreement "a landmark for corporate responsibility ... (that) ... demonstrates that the best-run companies realize that they must pay attention not only to the particular needs of their communities, but also to universal standards of human rights, and that in addressing those needs and standards there is no necessary conflict between profit and principle." Although clashes between separatists and Indonesian government forces resulted in numerous violent incidents in other parts of Irian Jaya (Papua) during the year 2000, peace prevailed in the area of PT Freeport Indonesia's operations. This is due in part to the efforts of Thom Beanal, a member of the PT Freeport Indonesia Board of Commissioners and the leader of LEMASA, the Amungme tribal organization; and Mama Yosepha Alomang and her HAMAK Foundation. We have worked hard to gain their trust and they, in turn, have worked hard with their people to seek peaceful solutions. Mama Yosepha declared the Mimika district, where we operate, a "Zone of Peace" during December 2000 and wrote FCX's Chairman of the Board, J.R. Moffett, expressing appreciation for the human rights seminar organized by PT Freeport Indonesia's security department and the Cenderawasih University. Land Rights Under the Indonesian Constitution, all unimproved land is legally state- owned land. Similarly, all minerals belong to the state. PT Freeport Indonesia's "January Agreement" of 1974 with the Amungme was the first recognition in Indonesia of hak ulayat, or the right of traditional people to undeveloped land for hunting and gathering. Subsequent to that landmark agreement, the Government of Indonesia formally recognized hak ulayat land rights. Fig. #2 PT Freeport Indonesia has surpassed its goals for Papuan employees and Papuan staff since 1996. (Graphs showing the following data)
Total Papuan Employees Papuan Staff ---------------------- ------------- Target Actual Target Actual ------ ------ ------ ------ 3/96 640 640 48 48 12/96 738 759 52 55 12/97 868 1,060 56 89 12/98 998 1,122 61 87 12/99 1,128 1,254 66 103 12/00 1,258 1,523 71 114
Fig. #3 Tests on tailings show a non-acid forming potential. (Graph showing the following data)
1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- (Annual Average Value) Potential kilograms (35) (24) (36) (22) (34) of acid per metric ton of tailings
11 Cash compensation is paid only for improvements to land, such as agriculture and gardens. Because its operations have rarely affected improved land, PT Freeport Indonesia has only infrequently paid cash compensation and the amounts have been very minor. Hak ulayat, however, is a communal property right. Instead of cash, communal benefits called recognisi are provided for the release of hak ulayat rights following a negotiation involving both the government and the local people. PT Freeport Indonesia has agreed to pay recognisi in several instances, as approved by the government: * The "January Agreement" of 1974 between the company and the Amungme recognized the hak ulayat rights of the Amungme to traditional lands used for company operations and the payment of recognisi was agreed upon and paid. This agreement released the mining area, Tembagapura, the airport site, port site and the road/pipeline right of way connecting them. * A 1993 agreement involving the company and the Kamoro residents of the village of Iwaka concluded a hak ulayat release for the townsite of Kuala Kencana and recognisi was paid to the villagers. * Agreements in 1997 between the company and the Kamoro tribal communities of Nawaripi and Tipuka concluded hak ulayat releases of traditional rights to additional lands for the tailings deposition area, power transmission lines, additional roads and the expansion of the port and other facilities. This agreement and the payment of recognisi was facilitated by the Sejati Foundation, an Indonesian nongovernmental organization that works to protect the rights of indigenous people. In 1981, 1983 and 1985, the Government of Indonesia concluded three separate hak ulayat agreements with the Kamoro people for large tracts for the transmigration program sites, the Timika town site and sites for additional facilities near the airport. PT Freeport Indonesia was not a party to these agreements. PT Freeport Indonesia is also currently negotiating with the Amungme and Kamoro peoples voluntary additional recognisi as a reflection of the expanded scope and continuing success of the mining operations. Education, Training and Employment In 1996, PT Freeport Indonesia initiated 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. At the end of 2000, PT Freeport Indonesia had 1,523 Papuan employees, compared to 640 in 1996; and 114 Papuan staff employees, compared to 48 in 1996 (see Fig. #2). Because there has not been a strong tradition of education in Irian Jaya (Papua), special educational efforts are necessary to continue to increase the Papuan share of the company's work force. In addition to the educational programs that are part of the Freeport Fund for Irian Jaya Development, PT Freeport Indonesia is also working on establishing a training institute. This institute will have training for all levels of mine and support personnel and will include a technical high school and polytechnic training. (Photo) Our operations have directly supported the building of three schools for local children, provided financial support for 12 other schools and 5,000 scholarships for Papuans. 12 III. Environmental Management Environmental Commitments We are fully committed to minimizing the impact of our operations on the surrounding environment and to reclaiming 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 assist us in finding and applying appropriate environmental technologies; to comprehensive monitoring to ensure that our practices are working; and to both internal and external environmental audits to measure performance. Auditing Our Environmental Policy requires the performance of annual internal environmental audits. The 2000 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 technical 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 external environmental audit of its operations under a new voluntary program of the Government of Indonesia. The independent, internationally qualified environmental consulting firm Dames & Moore conducted the technical audit. The results of that audit were made public and its 33 primary recommendations were implemented. The second external triennial technical environmental audit of PT Freeport Indonesia was completed in 1999 and its results were also 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." Montgomery Watson also provided specific recommendations, including that PT Freeport Indonesia conduct a comprehensive groundwater study and additional groundwater monitoring, increase biological monitoring in estuaries, modify the closure plan to include tailings and port site areas, and continue development of effective and innovative technology for the treatment of acid rock drainage. All of these major recommendations were acted upon during 2000, although some of the recommendations are long-term and action will be ongoing. Responding (Photo) Our overburden reclamation continues to show promising results in a very challenging high-altitude environment. 13 to these recommendations, PT Freeport Indonesia has conducted comprehensive groundwater studies to assist in capturing and monitoring the impacts of acid rock drainage; increased monitoring of mangrove invertebrates including mollusk and crustacean species; initiated a crocodile and turtle survey; initiated the expansion of the site-wide project closure plan with a renewed focus on end-of-mine-life social issues; and conducted a comprehensive global review and pilot plant studies of acid rock drainage treatment technologies, resulting in selection of a proprietary treatment process. The first stage of the treatment plant is to be commissioned in the third quarter of 2001. Early in 2000, following the public release in December 1999 of the Montgomery Watson audit, the Indonesian State Minister for the Environment and BAPEDAL (the Indonesian environmental protection agency) posed questions about the audit. A number of additional meetings were held with BAPEDAL staff and substantial additional information was provided. In its validation report on the audit, BAPEDAL and the State Minister for the Environment made a number of critical comments about the Montgomery Watson audit. Montgomery Watson responded to these points in detail and PT Freeport Indonesia continues to work cooperatively with BAPEDAL to strengthen and enhance the voluntary environmental audit process. The 1996 audit report by Dames & Moore and the executive summary of the 1999 audit by Montgomery Watson are available on our Internet web site "fcx.com." In addition, the full text of the Montgomery Watson audit report is available upon request. ISO 14001 Environmental Management System ISO 14001 is a voluntary international standard that provides a systematic approach to continual improvement by companies in their Environmental Management System. PT Freeport Indonesia has committed to achieve the certification for its operations. In the year 2000, PT Freeport Indonesia completed the distribution of Environmental Management System documents and conducted training of personnel in the newly revised and organized Environmental Management System. An internal audit was conducted in August 2000 to review the completeness of the Environmental Management System and, based on its findings, the company then solicited several ISO certification companies to submit bid proposals for conducting the formal certification audit in 2001. (Photo) Three phases of reclamation in the Ajkwa Deposition Area are shown here: at top, recent tailings deposition; in the middle, natural succession of local grasses, shrubs and trees; and at bottom, agricultural tests being conducted at our reclamation test center. Tailings Management Plan Tailings are the finely ground natural rock left over from the processing of copper ore by physical grinding and flotation methods. Under PT Freeport Indonesia's Tailings Management Plan, approved by the Government of Indonesia, the Ajkwa Deposition Area operates as an engineered, managed system for the deposition and control of tailings. Tailings reclamation studies show that the Ajkwa Deposition Area, a portion of the flood plain of the Ajkwa River currently encompassing some 14,000 hectares, can be readily revegetated with native and agricultural plant species once mining is completed (see "Reclamation and Revegetation" below). PT Freeport Indonesia has conducted comprehensive technical evaluations of alternative tailings disposal options and has selected the most appropriate management system for the site conditions. Both independent environmental audits of PT Freeport Indonesia's 14 Environmental Management Systems - by Dames & Moore in 1996 and Montgomery Watson in 1999 - have concluded that the company's Tailings Management Plan represents the best alternative considering the applicable geotechnical, topographic, climatologic, seismic and water quality conditions. Tailings have an alkaline pH 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 (see Fig. #3). (The pH is a measure of acidity or its opposite, alkalinity. Neutral is 7.0, meaning any pH greater than that is alkaline.) The annual average pH in the Ajkwa River for 1996 through 2000 ranged from 7.5 to 8.1. Comprehensive water quality sampling of the tailings management system shows that the water in the Ajkwa River and Ajkwa Deposition Area meets not only Indonesian Government water quality limits, but also U.S. Environmental Protection Agency (EPA) and World Health Organization (WHO) drinking water standards for metals, including copper (see Fig. #4). In addition, when the data are compared to U.S. EPA water quality criteria and other scientific information on copper impacts on aquatic organisms, the values for dissolved copper in the Ajkwa River system are within the acceptable range of these values. 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 1996 1997 1998 1999 2000 ----- ----- ----- ----- ----- (Annual Average Concentration) U.S. EPA water quality criteria for copper 1.300 1.300 1.300 1.300 1.300 WHO drinking water standard for copper 1.000 1.000 1.000 1.000 1.000 Ajkwa River 0.050 0.018 0.015 0.011 0.009
Extensive biological sampling shows that comparable numbers of species and aquatic organisms were collected in the Ajkwa and Minajerwi estuaries downstream of the Ajkwa Deposition Area (with tailings) as were found in the Kamora and Otokwa estuaries (without tailings) (see Fig. #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. (Graphs showing the following data)
Number of Number of species Organisms --------- --------- (1996 to 2000 Quarterly Average) Rivers with tailings Ajkwa 21 865 Minajerwi 26 1,192 Rivers without tailings Kamora 27 941 Otokwa 23 626
Reclamation and Revegetation In fulfillment of its commitment to reclaim or revegetate land disturbed by its operations, PT Freeport Indonesia has conducted comprehensive scientific programs for years in both the highlands and the lowlands areas. In the lowlands, the reclamation programs have demonstrated that both native and agricultural species grow well on tailings soil. The purpose of the programs is to provide the necessary knowledge to transform the Ajkwa Deposition Area into agriculturally productive land or return it to native vegetation in the future. Plants successfully tested include grasses for fodder; local trees such as casuarina and sago; cash-crop trees such as guava, coconut, banana, papaya, orange, avocado, starfruit, mango, breadfruit and others; other cash-crop plants such as peanuts, pineapple and sugar cane; vegetables such as green beans, soy beans, peas, chili peppers, cucumbers and tomatoes; other cash crops such as coffee, cloves and oil palms; and crops favored by the local people such as taro and sweet potato (see Fig. #6). PT Freeport Indonesia's comprehensive sampling program monitors environmental conditions in the tailings deposition area. Rigorous testing performed on edible plants and fruits grown on tailings impacted areas continues to show that the metals consituents remain safely below recommended national and international standards. 15 Also being successfully tested in the lowlands tailings deposition area are aquaculture ponds for raising food fish such as barramundi and tilapia; and goldfish, also favored as a food fish by many Indonesians. In a new program, featuring a partnership between the local people and a professional farmer, commercial agriculture is being tested on tailings soil. In the highlands, the reclamation studies are perhaps more challenging. Alpine plant species are more difficult to propagate and grow more slowly in the colder, higher elevations around the mine site. In many cases, PT Freeport Indonesia's scientists are conducting original research on species about which little is known. Because the end of the mine's life is at least decades into the future, PT Freeport Indonesia should have sufficient time to complete these studies and programs which will meet our commitment to revegetate with native species those highland areas disturbed by mining activities (see Fig. #6). Fig. #6 Reclamation tests show success for many species on tailings; overburden testing to date reflects challenges of high-altitude reclamation. (Data is cumulative 1995 through 2000). (Graph showing the following data)
Species Species Tested Successful ------- ---------- (Number of plant species) Tailings 118 108 Overburden 57 33
Ecological Risk Assessment PT Freeport Indonesia continues to conduct a formal, protocol-structured ecological risk assessment of its tailings management plan. The risk assessment, which includes both environmental and human health components, consists of three phases. The first phase, the screening level risk assessments, were completed early in 2000 and investigated potential risks from the tailings management system to human health and terrestrial and aquatic ecosystems. Each potential risk was examined and quantified and those that were found to pose no significant risk were screened out, or eliminated from further detailed study. The second phase required implementation of individual scientific studies or data- gathering projects to provide the risk assessors with information for further, detailed review of potential risks not screened out. Completion of the phase two data gathering was accomplished by the end of 2000. The final phase, the detailed risk assessments, is under way with the environmental risk assessment final report to be completed in mid-2001. The results of this comprehensive series of studies will guide PT Freeport Indonesia's future tailings management decisions. These assessments are being conducted by a team of Indonesian and international scientific experts in the field. The ecological risk assessment includes dozens of scientific studies on a broad array of topics including water chemistry, human use and dietary survey, groundwater and hydrogeologic data collection, surveys of metals in tailings soil and windblown dust, uptake of metals to plants, impact of tailings sediments on aquatic ecosystems, analysis of fish tissue, and many others. This PT Freeport Indonesia project is believed to be the most extensive privately funded ecological risk assessment ever conducted. Fig. #7 The comprehensive Long-Term Monitoring Plan encompasses a large number of samples and analyses every year. (Graphs showing the following data)
Number of samples Number of analyses ------------------ -------------------- 1998 1999 2000 1998 1999 2000 Type of Sample: Aquatic Biology 474 408 634 1,896 1,224 1,268 Aquatic Tissue 611 850 770 3,932 4,250 9,410 Mine Water 120 258 133 1,743 6,709 4,429 Surface Water 1,095 766 440 8,676 22,984 25,235 Tailings 2,349 2,451 3,954 11,745 12,258 11,162
Wanagon Overburden Stockpile Slippage On May 4, 2000, a slippage occurred in the overburden waste stockpile at the Wanagon basin following a period of excessive rainfall, causing a wave of water and material to overflow from the basin. Four employees of a contractor to PT Freeport Indonesia were working in the area and perished. Contained 16 (Photo) Supported by a cooperative program between PT Freeport Indonesia and the local people, growing chili peppers has shown success as a cash crop. within the mud were the treatment solids from the lime precipitation of acid rock drainage, which then entered the tailings river system near the village of Banti. Sampling and monitoring were initiated at a number of stations covering the entire tailings system between the mine and estuary for a period of several months. A specific risk analysis was conducted as a result of this event and was based on the monitoring program. No long-term environmental effects were found from the direct monitoring nor predicted by the risk assessment. The slippage caused a flow of sediments containing slightly elevated levels of precipitated copper. As a result, water quality in the river was temporarily diminished due to higher levels of total suspended solids. PT Freeport Indonesia engaged international experts and outside consultants led by a team from the Institute of Technology of Bandung (Indonesia) to conduct a comprehensive study of the cause of the slippage and to recommend a future course of action. Working with the close cooperation of the Indonesian Department of Energy and Natural Resources and also BAPEDAL, the company initiated a stockpile stabilization program and voluntarily agreed to a temporary limitation on ore production from the Grasberg open pit of 200,000 metric tons per day average. (Underground production was not affected.) A safe-zone based on engineering calculations was subsequently identified along the Wanagon River and within the village of Banti. The residents within this zone were temporarily moved to Tembagapura and the houses were removed. These families are being relocated to new housing designed according to their wishes and located on higher ground in Banti. After successful completion of the stabilization program and consultation with the Indonesian government and affected local residents, normal overburden placement at the Wanagon stockpile resumed and the restriction on production from the Grasberg open pit was lifted at the end of 2000. Overburden and Acid Rock Drainage Management Overburden is the rock with no economic value that has to be moved aside in accordance with a comprehensive Overburden Management Plan in order to reach the ore in the mining process. Most metals occur in nature as minerals called sulphides. If they are mined, and rock containing sulphides is left exposed to the elements, the action of water, oxygen and natural bacteria can create sulphuric acid. This acidic water can dissolve metals contained in rock and, if not collected or treated, the contaminated water can be harmful to aquatic organisms and plants. This condition is called acid rock drainage. PT Freeport Indonesia continuously monitors and manages acid rock drainage. For a short time following the Wanagon event in May, restrictions were placed on the usage of the Wanagon basin for storage of overburden by the Government of Indonesia. This resulted in short-term modifications of the mining plan and use of the Carstenzwiede and Manado overburden stockpile areas. Overburden placement resumed in the Wanagon Basin in July with the commencement of an 8-million-ton overburden stockpile stability program. In September, this stability program was evaluated and extended to accommodate an additional 25 million tons. A comprehensive evaluation of the overburden stockpile program was completed in December and normal overburden placement at the Wanagon basin resumed, with approval of the Indonesian Department of Energy and Natural Resources. 17 For several years a liming plant has been used in the Wanagon basin to neutralize acid rock drainage and to precipitate from it the dissolved copper. The precipitation solids were contained within the Wanagon basin. After the Wanagon event, the same system and facilities remained in operation, except that it was not possible to contain the precipitate within the basin. Water quality of the Wanagon River below the basin has been monitored since the Wanagon slippage event. With few exceptions, the dissolved copper in this water has remained well below water quality limits for environmental safety. During 2000, a technical study of copper removal treatment options was completed which led to further testing of the three most promising treatment schemes. From this work, which included the operation of a pilot plant, fluid bed reactor iron cementation technology was determined to be the most appropriate. Construction will be completed and the plant will begin operation in 2001. The fluid bed reactor iron cementation plant will be constructed in the mill area for the purpose of removing dissolved copper from acid rock drainage. This facility will be used to treat acid rock drainage collected from the mining, overburden storage and other areas. The fluid bed reactor plant will be constructed in modules of approximately 5,000- gallon-per-minute capacity each, allowing for future expansion as the need arises. The first plant module is planned to be operational by mid- 2001. The fluid bed reactor is a modern adaptation of the proven process of iron reduction. It is planned to be capable of removing dissolved copper from water in the ranges of approximately 20 milligrams per liter to 1,000 milligrams per liter. The effluent from the fluid bed reactor will be neutralized with lime solution and added to the tailings thickener where it can be either reused or released with the tailings. The recovered copper will become salable product and the net proceeds from the sales will be used for community support. Long-Term Environmental Monitoring Plan PT Freeport Indonesia conducts a Long-term Environmental Monitoring Plan to evaluate the potential impact of its operations on water quality, biology, hydrology, sediments and air quality. This comprehensive program ensures that the company 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. Fig. #7 shows the number of samples and analyses conducted in 2000 as part of this extensive program. Waste Management and Recycling PT Freeport Indonesia has implemented a comprehensive waste management system utilizing the principles of reuse, recycling and reduction. Waste minimization programs involving reduction and substitution of environmentally friendly products are already in place. Bulk containers, waste oil (see Fig. #8), used paper and tires are all reused locally in environmentally acceptable manners. Other recyclable materials such as aluminum, scrap metals and used batteries are collected and stored pending the issuance of government regulations on resale or trade. The company conducts waste segregation, including small amounts of hazardous waste, at the point of origin wherever possible. Medical wastes are separated from other wastes in special containers for final destruction in a medical waste incinerator. Collection and packaging of the small amount of wastes from assay work on ore samples, which is shipped off-site to a special hazardous waste facility, are strictly conducted under Indonesian government regulations. The other solid wastes are disposed of in three specially designated locations at landfills for inert wastes and a landfill for biodegradable wastes, which is lined and equipped with a leachate collection and treatment system. Mimika Environmental Forum Although PT Freeport Indonesia has comprehensive programs to minimize and manage all of its environmental impacts, these programs are focused on the company's operations. Rapid urbanization is taking place surrounding the company's operations in the local Mimika regency of Irian Jaya (Papua), Indonesia, and this growth also has environmental impacts. The population in this area has grown from less than 1,000 to more than 100,000 in three decades. The new regional government is struggling to cope with issues that even more developed regions of Indonesia, or the world, would find challenging. Among them are clean water distribution, waste disposal, drainage and flood control, power generation and transmission, roads and other infrastructure. 18 PT Freeport Indonesia is lending its expertise to the local government to help face these challenges in ways that will benefit everyone in the future. In addition, the company has worked to open an ongoing, community-wide dialogue to better understand and manage the environmental issues associated with growth. PT Freeport Indonesia and the local Mimika government have invited an environmental non-governmental organization, Eco Bumi Nusantara, to serve as a facilitator for the Mimika Environmental Forum. The forum, made up of local tribal, religious, government and business leaders, meets regularly to discuss ways to minimize the environmental impacts that result from rapid growth and to manage and mitigate those impacts that do occur. The organization's goal is to educate and involve the community in striking a balance between growth and environmental responsibility. Fig. #8 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) 1996 4.84 7.26 1997 5.91 8.51 1998 8.81 7.94 1999 7.39 7.91 2000 6.69 6.90
Training and Technology 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. Fig. #9 shows the number of personnel involved and worker-hours spent in environmental training in 1997, 1998, 1999 and 2000. Fig. #9 Environmental training of PT Freeport Indonesia and contractor personnel. (Graph showing the following data)
1997 1998 1999 2000 ----- ----- ----- ------ Personal Trained 1,918 2,951 7,008 9,708 Worker-hours of Training 5,171 7,506 9,785 14,478
ATLANTIC COPPER, S.A. Environmental Programs Update Atlantic Copper was one of just four companies nominated in May 2000 for the sixth Prince Felipe Excellence-in-Business Award for Environmental Industrial Management, a prestigious award given to selected businesses in Spain for efficiency and excellence in addressing and managing their environmental issues. The ceremony was held in Madrid in the Ministry of Industry and Energy in the presence of Prince Felipe and government ministers. Atlantic Copper had achieved ISO 14001 certification of all its facilities in 1999, and had been validated for compliance with the European Union Regulation on Environmental Eco-Management and Eco- Auditing. In 2000, these systems were further strengthened by successfully passing follow-up ISO audits. In addition, the annual internal environmental audits of all of the Atlantic Copper operations found that the company had a sound and comprehensive environmental management system and was in material compliance at all operation sites. In 2000, Atlantic Copper also further modified systems and made other improvements to continue to reduce air emissions and water discharges. Huelva Weak Acid Disposal As reported a year ago, in proceedings brought by a single individual and concerning a specific time period, 19 (Photo) Training and the transfer of technology have resulted in many skilled Papuans. a Spanish court ruled against Atlantic Copper's past practices for the reuse of weak acid and waste refinery electrolyte from its smelter in a copper recovery/ore leach process. The court, however, expressly found that there has been no proof of damage to the environment or human health as a result of the practices. The company is now building two new plants that will reuse the weak acid to produce marketable gypsum. This practice will purify and recirculate refinery electrolyte, thereby eliminating the previous practices. 20 FREEPORT-McMoRan COPPER & GOLD INC. Selected Financial and Operating Data
Years Ended December 31, 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------- (Financial Data in Thousands, Except Per Share Amounts) FCX FINANCIAL DATA Revenues $1,868,610 $1,887,328 $1,757,132 $2,000,904 $1,905,036 Operating income 478,700a 568,242b 577,947c 657,738d 637,309e Net income applicable to common stock 39,500a 100,787b 118,317c 208,541d 174,680e Basic net income per common share .26a .62b .67c 1.06d .90e Diluted net income per common share .26a .61b .67c 1.06d .89e Dividends paid per common share - - .20 .90 .90 Basic average shares outstanding 153,997 163,613 175,353 196,392 194,910 Diluted average shares outstanding 154,519 164,567 175,354 197,653 196,682 At December 31: Property, plant and equipment, net 3,248,710 3,381,465 3,504,221 3,558,736 3,106,042 Total assets 3,950,741 4,082,916 4,192,634 4,152,209 3,865,534 Long-term debt, including current portion and short- term borrowings 2,190,025 2,148,259 2,456,793 2,388,982 1,562,916 Redeemable preferred stock 475,005 487,507 500,007 500,007 500,007 Stockholders' equity 37,931 196,880 103,416 278,892 675,379 PT FREEPORT INDONESIA OPERATING DATA, Net of Rio Tinto's Interest Copper Production (000s of recoverable pounds) 1,388,100 1,428,100 1,427,300 1,166,500 1,118,800 Sales (000s of recoverable pounds) 1,393,700 1,441,000 1,419,500 1,188,600 1,097,000 Average realized price $.82 $.75 $.73 $.94f $1.02f Gold Production (recoverable ounces)1,899,500 2,379,100 2,227,700 1,798,300 1,695,200 Sales (recoverable ounces)1,921,400 2,423,900 2,190,300 1,888,100 1,698,900 Average realized price $276.06 $276.53 $290.57 $346.14g $390.96g Silver Production (recoverable ounces)3,542,400 3,444,500 3,421,200 2,568,700 2,360,600 Sales (recoverable ounces)3,542,300 3,479,600 3,412,300 2,724,300 2,532,000 Average realized price $4.98 $5.21 $5.29 $4.68 $4.95 ATLANTIC COPPER OPERATING DATA Concentrate treated (metric tons) 916,300 949,400 973,900 929,700 804,500 Anodes (000s of pounds) Production 639,100 647,100 642,400 639,800 547,900 Sales 80,600 84,300 96,900 133,500 77,300 Cathodes (000s of pounds) Production 567,900 556,600 544,800 505,600 462,900 Sales (including wire rod and wire) 562,300 558,500 544,300 505,300 461,100 Gold sales in anodes and slimes (ounces) 605,700 792,700 678,700 532,900 421,300 Cash production cost per pound $.14 $.15 $.14 $.12 $.15
21 FREEPORT-McMoRan COPPER & GOLD INC. Selected Financial and Operating Data
Years Ended December 31, 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------- PT SMELTING OPERATING DATA h Concentrate treated (metric tons) 582,200 436,000 - Anodes (000s of pounds) Production 383,200 279,400 - Sales 33,100 50,300 - Cathodes (000s of pounds) Production 349,200 200,100 - Sales 349,700 193,800 - Cathode cash production cost per pound $.13 $.12 - PT FREEPORT INDONESIA, 100% OPERATING DATA Ore milled (metric tons per day) 223,500 220,700 196,400 128,600 127,400 Average ore grade Copper (percent) 1.07 1.12 1.30 1.37 1.35 Gold (grams per metric ton) 1.10 1.37 1.49 1.51 1.52 Gold (ounce per metric ton) .035 .044 .048 .049 .049 Silver (grams per metric ton) 2.97 2.78 3.17 3.11 3.10 Silver (ounce per metric ton) .095 .089 .102 .100 .100 Recovery rates (percent) Copper 88.2 84.6 86.9 85.4 83.8 Gold 84.3 83.7 85.3 81.4 77.1 Silver 60.0 63.4 71.8 65.6 64.6 Copper (000s of recoverable pounds) Production 1,636,700 1,630,700 1,721,300 1,166,500 1,118,800 Sales 1,643,500 1,647,800 1,706,700 1,188,600 1,097,000 Gold (recoverable ounces) Production 2,362,600 2,993,100 2,839,700 1,798,300 1,695,200 Sales 2,387,300 3,047,100 2,774,700 1,888,100 1,698,900 Silver (recoverable ounces) Production 3,833,200 3,781,300 4,040,600 2,568,700 2,360,600 Sales 3,847,700 3,829,400 4,008,000 2,724,300 2,532,000
Notes a. Includes net charges totaling $12.4 million ($8.0 million to net income or $0.05 per share) consisting of $6.0 million for contribution commitments to support small business development programs within Irian Jaya (Papua) and $7.9 million for personnel severance costs, partly offset by a $1.5 million gain for the reversal of stock appreciation rights and related costs caused by the decline in FCX's common stock price. b. 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. c. 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. d. 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. e. 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. f. Amounts were $0.90 in 1997 and $0.97 in 1996 before hedging adjustments. g. Amounts were $326.08 in 1997 and $382.62 in 1996 before hedging adjustments. h. PT Smelting began operations in the fourth quarter of 1998. Amounts were insignificant for 1998. 22 FREEPORT-McMoRan COPPER & GOLD INC. Management's Discussion and Analysis OVERVIEW Our "Working Toward Sustainable Development" report on pages 6 through 9 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. The following discussion should be read together with our financial statements and the related notes. We operate through our majority-owned subsidiaries, PT Freeport Indonesia 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 (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 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. 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 originally covering a 2.5 million-acre area. Under the terms of the Eastern Minerals Contract of Work, we have already relinquished 1.25 million acres and must relinquish an additional 0.6 million acres. In addition to the PT Freeport Indonesia and Eastern Minerals exploration acreage, we have the right to conduct other mineral exploration activities in Irian Jaya (Papua) pursuant to a joint venture through PT Nabire Bakti Mining. Field exploration activities outside of our current mining operations in Block A have been temporarily suspended pending the resolution of regulatory and local community issues. 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. Operating, nonexpansion capital and administrative costs are shared proportionately between PT Freeport Indonesia and Rio Tinto based on the ratio of (a) the incremental revenues from production from our most recent expansion and (b) 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 Minerals' blocks. Reserves During 2000, additions to the aggregate proved and probable reserves of the Grasberg and other Block A ore bodies totaled approximately 202 million tons of ore representing 2.7 billion recoverable pounds of copper and 4.5 million recoverable ounces of gold (see "Exploration"). Net of Rio Tinto's share, PT Freeport Indonesia's share of proved and probable recoverable reserves as of December 31, 2000 was 38.9 billion pounds of copper, 50.3 million ounces of gold and 108.5 million ounces of silver (see Note 13 of "Notes to Financial Statements"). Estimated recoverable reserves were assessed using a copper price of $0.90 per pound and a gold price of $300 per ounce. Using a gold price of $270 per ounce would not have a significant impact on our estimated recoverable reserves. 23 FREEPORT-McMoRan COPPER & GOLD INC. Management's Discussion and Analysis CONSOLIDATED RESULTS OF OPERATIONS Our consolidated revenues, which include PT Freeport Indonesia and Atlantic Copper revenues, have remained relatively constant over the past three years primarily because of offsetting variances in PT Freeport Indonesia's copper and gold sales volumes and price realizations. Revenues in 2000 benefited from higher copper prices, offset by lower copper and gold sales volumes when compared with 1999 and 1998. Revenues in 1999 benefited from higher copper and gold sales volumes and significantly lower treatment charge rates, partly offset by lower gold prices when compared with 1998. Higher production and delivery costs in 2000 reflect higher mine maintenance and energy costs at PT Freeport Indonesia and the net mark-to-market gains and losses on our foreign currency contracts ($21.7 million loss in 2000, $11.8 million loss in 1999 and $7.2 million gain in 1998), which are designed to hedge anticipated future operating costs. Beginning in 2001, new accounting rules will result in deferring unrealized gains/losses on our foreign currency contracts that meet new hedging criteria. Our production and delivery costs increased in 1999 when compared with 1998 primarily because of higher production rates and a strengthening of the Indonesian currency, the rupiah. Our joint ventures with Rio Tinto incurred exploration costs of $13.3 million in 2000, $17.7 million in 1999 and $29.4 million in 1998. The reduction in exploration costs reflects a change beginning in 1999 to focus primarily on those areas with near- term exploitation opportunities and a reduction in field activities outside of Block A because of regulatory and local community issues. 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 1998 primarily were incurred in the Eastern Minerals and PT Freeport Indonesia Block B areas. All of our Block A exploration costs in 1998 were reimbursed by $100 million of exploration funding received from Rio Tinto in 1996. The FCX/Rio Tinto joint ventures' 2001 exploration budgets total approximately $10 million. We account for our interest in PT Smelting using the equity method. The losses include our share of PT Smelting's operating losses plus the impact of deferring PT Freeport Indonesia's profits on 25 percent of its sales to PT Smelting that are still in PT Smelting's inventory at year end. Our share of PT Smelting's operating losses totaled $13.6 million in 2000, $10.1 million in 1999 and $1.6 million in 1998. Charges for deferring profits on intercompany sales totaled $2.0 million in 2000, $8.0 million in 1999 and $3.3 million in 1998. General and administrative expenses were basically unchanged in 2000 when compared with 1999. In 1999 we reduced general and administrative expenses by $17.2 million compared with 1998. The reductions in 1999 were primarily because of initiatives to reduce costs and the effect of sharing these costs with Rio Tinto pursuant to joint venture agreements. The 2000 amount includes charges totaling $6.0 million associated with contribution commitments to support small business development programs within Irian Jaya (Papua) over a two-year period and $2.6 million for personnel severance costs, partly offset by a $1.5 million reversal of costs for stock appreciation rights caused by a decrease in FCX's common stock price. The 1999 amount includes charges totaling $5.5 million for costs of stock appreciation rights caused by the increase in FCX's common 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 2000 and 1999, and approximately 5 percent in 1998. Our total interest cost (before capitalization) of $212.6 million in 2000 was higher than the 1999 level of $197.9 million primarily because of higher interest rates. Total interest cost for 1999 was lower than the $225.2 million reported in 1998 primarily because we reduced debt levels during 1999. Capitalized interest totaled $7.2 million in 2000, $3.8 million in 1999 and $19.6 million in 1998. Capitalized interest in 1998 related primarily to our most recent expansion of our mining and milling processing capacity. FCX's effective tax rate was 58 percent in 2000, 51 percent in 1999 and 47 percent in 1998 (see Note 8 of "'Notes to Financial Statements"). 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. The withholding also applies to 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. 24 FREEPORT-McMoRan COPPER & GOLD INC. Management's Discussion and Analysis Additionally, we only receive a small U.S. tax benefit on costs incurred by our parent company because it has no U.S.- sourced income. As a result, our effective tax rate will vary with the level of earnings at PT Freeport Indonesia, Atlantic Copper and the parent company. The decrease in minority interest charges in 2000 compared with 1999 and the increase in 1999 compared with 1998 primarily reflect changes in ownership of certain consolidated PT Freeport Indonesia infrastructure joint ventures (see "Capital Resources and Liquidity"). 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, 2000 1999 1998 - ------------------------------------------------------------ Mining and exploration $490.0 $609.6 $566.7 Smelting and refining (17.3) (16.7) 39.0 Intercompany eliminations and other 6.0 (24.7) (27.8) ------ ------ ------ Operating income a $478.7 $568.2 $577.9 ====== ====== ======
a. Because we eliminate the profit on PT Freeport Indonesia's sales to Atlantic Copper and PT Smelting until the copper concentrate is processed and sold to a third party, operating income was increased by $18.9 million in 2000 and decreased by $(17.2) million in 1999 and $(19.1) million in 1998. Our consolidated earnings fluctuate depending on the timing and prices of these sales. MINING AND EXPLORATION OPERATIONS A summary of changes in PT Freeport Indonesia revenues follows (in millions):
2000 1999 - --------------------------------------------------------- Revenues - prior year $1,464.8 $1,351.1 Price realizations: Copper 96.2 27.4 Gold (0.9) (34.0) Sales volumes: Copper (35.3) 15.7 Gold (139.0) 67.9 Adjustments, primarily for copper pricing on prior year open sales 7.8 (20.8) Treatment charges, royalties and other 19.5 57.5 -------- -------- Revenues - current year $1,413.1 $1,464.8 ======== ========
Gross Profit Per Pound of Copper (cents)
Years Ended December 31, 2000 1999 1998 - ---------------------------------------------------------- Average realized price 81.6 74.7 72.8 ----- ----- ----- Production costs: Site production and delivery 42.7 36.5 32.2 Gold and silver credits (39.3) (47.8) (46.0) Treatment charges 18.2 18.9 23.5 Royalty on metals 1.4 1.6 1.3 ----- ----- ----- Cash production costs 23.0 9.2 11.0 Depreciation and amortization 18.0 18.0 17.0 ----- ----- ----- Total production costs 41.0 27.2 28.0 ----- ----- ----- Adjustments, primarily for copper pricing on prior year open sales 0.1 (0.5) 1.2 ----- ----- ----- Gross profit per pound of copper 40.7 47.0 46.0 ===== ===== =====
25 FREEPORT-McMoRan COPPER & GOLD INC. Management's Discussion and Analysis PT Freeport Indonesia Operating Results - 2000 Compared with 1999 PT Freeport Indonesia's 2000 revenues benefited from a 9 percent increase in copper price realizations, offset by a 21 percent decline in gold sales volumes and a 3 percent decline in copper sales volumes compared to 1999. Lower ore grades, partly offset by improved recovery rates, resulted in lower 2000 sales volumes. (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 "Disclosures About Market Risks.") PT Freeport Indonesia's 2000 revenues benefited by $7.8 million compared with 1999 revenues because of repricing open copper sales including hedging contracts. Treatment charges in total were lower in 2000 primarily because of lower treatment rates and copper sales. A portion of treatment charges varies with the price of copper and royalties vary with volumes and prices of copper and gold. Royalties totaled $20.2 million in 2000 and $23.0 million in 1999. PT Freeport Indonesia's mill throughput averaged 223,500 metric tons of ore per day compared with 220,700 metric tons of ore per day for 1999. Lower ore grades during 2000, partly offset by higher recovery rates at the mill, resulted in lower gold production compared with 1999. In May 2000, PT Freeport Indonesia, in consultation with the Government of Indonesia, voluntarily agreed to temporarily limit Grasberg open-pit production because of an incident at its Wanagon overburden stockpile. In January 2001, PT Freeport Indonesia resumed normal mining operations at Grasberg after receiving governmental approval (see "Wanagon Overburden Stockpile Slippage" in our "Working Toward Sustainable Development" report). Mill throughput rates will vary based on the characteristics of the ore being processed as we manage our operations to optimize metal production. At the Deep Ore Zone underground mine, initial production of ore commenced in September 2000. Production averaged 2,700 metric tons of ore per day during the fourth quarter of 2000 and is expected to reach 14,000 metric tons of ore per day by the end of 2001 and full production of 25,000 metric tons of ore per day by 2004. Site production and delivery costs in 2000 averaged 42.7 cents per pound of copper, 6.2 cents per pound higher than the 36.5 cents per pound reported in 1999. Higher mine maintenance and energy costs contributed to the higher unit costs. Gold credits in 2000 declined to 39.3 cents per pound as compared with 47.8 cents per pound in 1999 because of lower gold sales. Unit treatment charges were lower in 2000 than in 1999, but are expected to increase slightly in 2001 because of market conditions. Unit royalty costs were lower in 2000 compared with 1999 because of lower gold sales. A portion of PT Freeport Indonesia's surface mining costs associated with waste rock removal at the Grasberg open-pit mine are initially deferred and subsequently charged to operating costs on the basis of the average ratio of waste rock to ore over the life of the mine. Because of the nature of the Grasberg deposit, mining costs associated with waste rock removal are significantly higher in the early years of the mine's life than in the later years. As a result, waste rock removal costs are deferred in the early years of the mine's life. Prior to 2000, ongoing delineation drilling efforts combined with successive large expansions of PT Freeport Indonesia's mining and milling capacity caused significant variability in engineering estimates of the quantity of estimated waste rock required to be removed over the Grasberg pit's life. As a result, PT Freeport Indonesia's deferral of waste rock removal costs was determined using waste-to-ore ratios excluding the years near the end of the productive life of the Grasberg pit. However, PT Freeport Indonesia determined that its future surface mine plans are sufficiently established to substantiate the use of estimated life-of-mine waste rock tonnage in its 2001 mine plan in the determination of its deferred waste rock removal costs. In the fourth quarter of 2000, PT Freeport Indonesia changed its life-of-mine waste-to-ore ratio to 1.6 to 1 from 2.4 to 1. The fourth-quarter 2000 impact of the change was a $9.9 million deferral of mining costs. Total mining costs deferred for the year 2000 were immaterial. In 1999 PT Freeport Indonesia amortized $11.6 million of previously deferred mining costs to production costs. The life-of-mine waste-to-ore ratio and the remaining life of the surface mine will be reassessed at least annually by PT Freeport Indonesia, and any changes in estimates will be reflected prospectively in the determination of deferred waste rock removal costs. Based on its current mine plan, PT Freeport Indonesia expects to defer approximately $46 million of waste rock removal costs during 2001. PT Freeport Indonesia's depreciation rate of 18.0 cents per pound for 2000 remained unchanged from 1999 and is expected to remain the same for 2001. 26 FREEPORT-McMoRan COPPER & GOLD INC. Management's Discussion and Analysis 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. 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. PT Freeport Indonesia's average mill throughput rate was 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 copper and gold production to PT Freeport Indonesia, net of Rio Tinto's interest, in 1999. 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 PT Freeport Indonesia mined lower grade ore and because of a stronger Indonesian rupiah. (See "Disclosures about Market Risks.") 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. In 1999, PT Freeport Indonesia agreed to pay voluntary additional royalties to provide further support to the local governments and the people of Irian Jaya (Papua). (See Note 1 of "Notes to Financial Statements.") PT Freeport Indonesia's depreciation rate of 18.0 cents per pound for 1999 represents an increase over the 1998 rate to reflect a full year of depreciation on the assets from the fourth concentrator mill expansion 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 2001 production at market prices. Net of Rio Tinto's interest, PT Freeport Indonesia's share of sales for 2001 is expected to approximate 1.4 billion pounds of copper and 2.4 million ounces of gold. Projected 2001 copper and gold sales reflect the expectation of higher average mill throughput rates than in 2000 and higher gold ore grades. 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 nearly all of PT Smelting's copper concentrate requirements. For the first 15 years of PT Smelting's operations, the treatment and refining charges on the majority of the concentrate PT Freeport Indonesia provides will not fall below a specified minimum rate, currently $0.23 per pound, the rate for 2000 and the expected rate for 2001. We anticipate that PT Freeport Indonesia will sell approximately 50 percent of its concentrate production annually to Atlantic Copper and PT Smelting. Exploration Our exploration activities are primarily focused on prospects in Irian Jaya (Papua), Indonesia. Rio Tinto shares in 40 percent of our exploration costs in Irian Jaya (Papua) and has a 40 percent interest in future development and exploration projects. Exploration drilling within PT Freeport Indonesia's Block A area is ongoing on the Kucing Liar underground ore body, the Grasberg underground ore body, the underground Ertsberg Stockwork Zone and a newly defined surface target called Guru Ridge. Our exploration and mining efforts resulted in the addition of approximately 202 million tons of ore to our December 31, 2000 reserves (see Note 13 of "Notes to Financial Statements"). Approximately one-half of the 2000 reserve additions are in the Ertsberg Stockwork Zone, an underground deposit contiguous to our existing Deep Ore Zone ore body, with the remainder of the reserve additions being in the Grasberg open pit and underground ore bodies. Additional drilling is continuing at the newly defined Guru Ridge target located at the surface between the Dom and previously mined Ertsberg East ore bodies. Depending on results of additional drilling, this geological resource could be classified as a mineable reserve in the near future and considering its proximity to existing mine and mill infrastructure, it could possibly be brought into production in a relatively short timeframe. Field exploration activities outside of our current mining operations area have been temporarily suspended pending the resolution of a number of regulatory and local community issues. 27 FREEPORT-McMoRan COPPER & GOLD INC. Management's Discussion and Analysis SMELTING AND REFINING OPERATIONS Our investment in smelters serves an important role in our concentrate marketing strategy. Approximately one-half of PT Freeport Indonesia's concentrate production is sold to its affiliated smelters, Atlantic Copper and PT Smelting, and the remainder is sold to other customers. Through downstream integration, we are able to achieve operating hedges for changes in treatment charges for smelting and refining PT Freeport Indonesia's copper concentrates. While low smelter treatment and refining charges adversely affect the operating results of our smelter operations, they benefit the operating results of our mining operations of PT Freeport Indonesia. Taking into account taxes and minority ownership interests, an equivalent change in the rates PT Freeport Indonesia pays and the rates Atlantic Copper and PT Smelting receive would essentially offset in our consolidated operating results.
Atlantic Copper Operating Results Years Ended December 31, 2000 1999 1998 - -------------------------------------------------------------------- Cash margin before hedging (in millions) $52.6 $57.5 $81.2 Operating income (loss) (in millions) $(1.7) $1.6 $44.0 Concentrate treated (metric tons) 916,300 949,400 973,900 Anode production (000s of pounds) 639,100 647,100 642,400 Cathode, wire rod and wire sales (000s of pounds) 562,300 558,500 544,300 Gold sales in anodes and slimes (ounces) 605,700 792,700 678,700
Atlantic Copper Operating Results - 2000 Compared with 1999 Atlantic Copper's cash margin before hedging, which is revenues less production costs, decreased from $57.5 million in 1999 to $52.6 million in 2000 primarily because of lower treatment rates, partly offset by lower costs resulting from a weaker Spanish peseta/euro. Treatment rates averaged $0.17 per pound of copper in 2000 and $0.20 per pound in 1999. Lower treatment charges, which negatively affect Atlantic Copper, benefit PT Freeport Indonesia. Atlantic Copper's unit cash production costs improved to $0.14 per pound of copper in 2000 compared with $0.15 per pound in 1999 primarily because of the weaker Spanish peseta/euro. The majority of Atlantic Copper's operating costs are denominated in Spanish pesetas/euros, and it uses foreign currency forward contracts to hedge a portion of its anticipated future costs. As part of its debt refinancing in June 2000, Atlantic Copper was required to significantly expand its program to hedge anticipated peseta/euro-denominated operating costs. Atlantic Copper's operating income (loss) includes mark-to-market adjustments for changes in the market value of its Spanish peseta/euro currency hedging contracts (see "Disclosures About Market Risks") totaling charges of $16.4 million in 2000 and $14.9 million in 1999. Atlantic Copper Operating Results - 1999 Compared with 1998 Atlantic Copper's cash margin was $57.5 in 1999 compared with $81.2 million in 1998. The $23.7 million decline in the cash margin primarily reflects lower treatment rates of $0.20 per pound in 1999 compared with $0.25 per pound in 1998. Excess smelter capacity, combined with limited copper concentrate availability, have caused long-term treatment and refining rates to decline since early 1998. Operating income included a $14.9 million charge in 1999 and a $3.7 million gain in 1998 for the mark-to-market effect of Atlantic Copper's peseta/euro currency contracts.
PT Smelting Operating Results (in millions) Years Ended December 31, 2000 1999 1998 - ------------------------------------------------------------------ PT Freeport Indonesia sales to PT Smelting $343.3 $252.6 $25.6 ====== ====== ===== PT Freeport Indonesia share of net losses $ 13.6 $ 10.1 $ 1.6 PT Freeport Indonesia profits deferred 2.0 8.0 3.3 ------ ------ ----- Equity in PT Smelting losses $ 15.6 $ 18.1 $ 4.9 ====== ====== =====
28 FREEPORT-McMoRan COPPER & GOLD INC. Management's Discussion and Analysis PT Smelting Operating Results - 2000 Compared with 1999 PT Freeport Indonesia accounts for its 25 percent interest in PT Smelting under the equity method and provides PT Smelting with nearly all of its concentrate requirements (see Note 9 of "Notes to Financial Statements"). Our revenues include PT Freeport Indonesia sales to PT Smelting, but we defer recognizing profits on 25 percent of PT Freeport Indonesia sales to PT Smelting that are still in PT Smelting's inventory at year end. PT Smelting temporarily shut down its smelter, as planned, at the end of March 2000 for the tie-in of a new third anode furnace as well as for planned maintenance. The smelter restarted at the end of April and during the third quarter of 2000 achieved its goal of reaching full design capacity of 200,000 metric tons of copper per year. PT Smelting produced 173,800 metric tons of copper during 2000 compared with 126,700 metric tons of copper in 1999. PT Smelting Operating Results - 1999 Compared with 1998 PT Smelting operated at an average rate of approximately 94 percent of design capacity during the fourth quarter of 1999. PT Smelting treated 436,000 metric tons of concentrate and produced 126,700 metric tons of copper in 1999, its first full year of operations. 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 2000 our operating cash flows funded our capital expenditures and allowed us to purchase 19.5 million of our own shares after servicing our debt and paying dividends on our preferred stock. In 1999, we generated 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 2001 operating and capital needs and repay scheduled debt maturities. Operating Activities Our 2000 consolidated operating cash flow declined 9 percent or $52.8 million compared with 1999, mostly because of lower net income, partly offset by favorable working capital changes. Operating cash flow increased 19 percent or $90.0 million in 1999 compared with 1998, primarily because of working capital changes. Working capital, excluding cash, decreased $41.2 million in 2000 primarily because of the timing of payments for accounts payable and accrued liabilities and Rio Tinto's share of November and December 2000 joint venture cash flows, partly offset by increases in product inventory and income taxes paid. Working capital 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 levels support our expanded operations in Indonesia, and the reduction in accounts receivable in 1999 reflects collections from our high fourth-quarter 1998 sales. Investing Activities PT Freeport Indonesia's capital expenditures for 2000 included approximately $33 million for development of the Deep Ore Zone underground mine. Development of the Deep Ore Zone underground mine is expected to continue until 2004 at a total estimated aggregate cost of $240 million (shared 60 percent by PT Freeport Indonesia and 40 percent Rio Tinto), and PT Freeport Indonesia expects to incur approximately $40 million for its share of development costs in 2001. In early 1998, PT Freeport Indonesia completed construction of the fourth concentrator mill expansion. PT Freeport Indonesia's share of the cost of this expansion was funded almost entirely with nonrecourse borrowings from Rio Tinto. We expect our capital expenditures, including development of the Deep Ore Zone underground mine, to total approximately $215 million in 2001, which we expect to fund with operating cash flows and availability under our bank credit facilities ($240.0 million available at December 31, 2000). Financing Activities Our net repayments of debt totaled $18.0 million in 2000 and $318.2 million in 1999, compared with net borrowings of $165.0 million in 1998. Repayments of other debt included payments to acquire full ownership in the PT ALatieF Nusakarya joint ventures totaling $25.9 million in 2000, $12.5 million in 1999 and $17.5 million in 1998. Net repayments to Rio Tinto totaled $60.6 million in 2000, $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. In less than two and one-half years, PT Freeport Indonesia fully repaid the $450 million loan from Rio Tinto, which funded PT Freeport Indonesia's share of the fourth concentrator mill expansion cost. PT Freeport Indonesia's 60 percent share of incremental cash flows from the expansion is now available for its general use. 29 FREEPORT-McMoRan COPPER & GOLD INC. Management's Discussion and Analysis 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 Nasakarya in March 1997. In April 2000, PT Freeport Indonesia paid $12.5 million to increase its aggregate ownership interest in the joint ventures to 47 percent. In August 2000, PT Freeport Indonesia purchased the remaining 53 percent interest in the joint ventures for $13.4 million cash and the assumption of $34.1 million of bank debt. The cash payments and assumption of the bank debt in 2000, which totaled $60.0 million, reduced minority interests on our balance sheet. PT Freeport Indonesia now owns 100 percent of the joint ventures. PT Freeport Indonesia's increased ownership in the joint ventures is expected to benefit net income because it will eliminate PT Freeport Indonesia's obligation to pay a guaranteed 15 percent after-tax return to the previous owners in the joint ventures. Our first two annual mandatory partial redemption payments on our Silver-Denominated Preferred Stock totaled $11.9 million in August 2000 and $11.9 million in August 1999. Six annual redemption payments remain and will vary with the price of silver. In June 2000, our Board of Directors authorized a 20-million- share increase in our open market share purchase program, bringing the total shares approved for purchase under this program to 80 million. During 2000, we purchased 19.5 million of our shares for $201.8 million (an average of $10.35 per share), and from January 1 through March 12, 2001 we purchased 0.2 million of our shares for $1.6 million (an average of $8.35 per share) under our open market share purchase program. From inception of this program in July 1995 through March 12, 2001, we have purchased a total of 70.7 million shares for $1.24 billion (an average of $17.53 per share) and 9.3 million shares remain available under the program. The timing of future purchases is dependent upon many factors, including the price of common shares, our business and financial position, and general economic and market conditions. During 1999, we purchased 0.8 million shares for $7.8 million (an average of $9.20 per share). During 1998, we purchased 20.0 million shares for $259.4 million (an average of $12.97 per share). In December 1998, we eliminated our quarterly cash dividend of $0.05 per share ($0.20 per share annually) on common stock. Cash dividends paid to minority interests increased by $38.2 million in 2000 compared with1999 primarily because of an increase in PT Freeport Indonesia dividends. In response to volatile copper and gold markets, in early 1998 we initiated a concentrated effort to reduce our costs and enhance our production. Our overall strategy remains focused on optimizing the performance of our mining and milling facilities so that we can achieve higher sales levels at low costs. PT Freeport Indonesia implemented a number of initiatives in 2000 designed to further improve operating processes and reduce costs. We believe our projected operating cash flows provide us with the overall financial flexibility to continue to invest in operations, maintain our exploration program and repay or refinance scheduled debt maturities. Our credit facility matures in December 2002. The outstanding balance at December 31, 2000 was $760.0 million, and $162.0 million was available under PT Freeport Indonesia's $550 million facility and $78.0 million was available under the FCX/PT Freeport Indonesia $450 million facility. We have begun discussions with the banks in our credit facility regarding extending its maturity and revising its terms. We believe an extension of the maturity would result in scheduled maturity requirements, higher financing costs and certain restrictions on our financial management. We believe we can generate sufficient cash flows from operations in 2001 to meet our planned capital requirements without obtaining new capital, barring unforeseen events. However, because of the economic and political issues affecting Indonesia, our current ability to obtain capital on terms we would consider acceptable is limited. In 1997, we guaranteed a $254.0 million loan from a commercial bank group to PT Nusamba Mineral Industri, an Indonesian company. Nusamba used the funds plus $61.0 million of cash, for a total of $315.0 million, to purchase from a third party 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 on the market value of FCX's publicly traded common shares 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 dividends received by Nusamba on the PT Indocopper Investama stock. At December 31, 2000, we had loaned $56.1 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 will charge any additional amounts we loan to Nusamba to expense. 29 FREEPORT-McMoRan COPPER & GOLD INC. Management's Discussion and Analysis The effect of the current economic and political situation in Indonesia on Indonesian companies, including Nusamba, is uncertain. Should these uncertainties result in our being required to honor our guarantee of Nusamba's commercial bank loan, we would anticipate negotiating satisfaction of the amounts due either through our available financial resources or through external financing. In connection with our discussions with the banks in the FCX/PT Freeport Indonesia bank credit facility (see above), we are discussing with the banks involved in the Nusamba loan a plan to finance the payment that might be required as a result of our guarantee. This plan would be coordinated with the extension of the maturity of amounts due under the FCX/PT Freeport Indonesia bank credit facility. 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 "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 PT Freeport Indonesia's total 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 during mining activities, while most closure costs and the remaining reclamation costs will be incurred at the end of mining activities, which are currently estimated to continue for more than 30 years. Included in other liabilities at December 31, 2000 is $19.2 million accrued on a unit-of-production basis for mine closure and reclamation costs. In 1996, we began contributing to a cash fund ($2.5 million balance at December 31, 2000) 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 which 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 PT Freeport Indonesia copper 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 PT Freeport Indonesia gold 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. We currently have no copper or gold price protection contracts relating to our 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, 2000, we had consolidated copper sales totaling 237.0 million pounds recorded at an average price of $0.80 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 2001. A one-cent movement in the average price used for these open pounds will have an approximate $1.2 million impact on our 2001 net income. 31 FREEPORT-McMoRan COPPER & GOLD INC. Management's Discussion and Analysis In late 1999, PT Freeport Indonesia began a program using copper forward contracts to fix the prices of a portion of its quarter-end open pounds when market conditions are favorable. PT Freeport Indonesia entered into contracts to hedge its open pounds at the end of the first two quarters of 2000 and the third and fourth quarters of 1999, and recorded additional revenues of $1.7 million in 2000 and $0.8 million in 1999 from these forward sales. PT Freeport Indonesia has not entered into any contracts for its December 31, 2000 open pounds. We have outstanding three issues of redeemable preferred stock indexed to gold and silver prices. We account for these securities as a hedge of future production and carry them on our balance sheets at their 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 of "Notes to Financial Statements"). Future redemption payments denominated in ounces and equivalent value in dollars, as well as dollar-equivalent dividend payments, based on gold and silver prices used to determine the February 1, 2001 scheduled dividend payments, follow (dollars in millions):
Gold Silver - --------------------------------------------------------------------------- Redemption Carrying Dividend Redemption Carrying Dividend Ounces Amount Value Amount Ounces Amount Value Amount - --------------------------------------------------------------------------- 2001 - $ - $ - $9.6 2,380,000 $11.1 $12.5 $2.6 2002 - - - 9.6 2,380,000 11.1 12.5 2.2 2003 600,000 164.3 232.6 8.1 2,380,000 11.1 12.5 1.7 2004 - - - 3.8 2,380,000 11.1 12.5 1.3 2005 - - - 3.8 2,380,000 11.1 12.5 0.8 Thereafter 430,000 117.7 167.4 1.0 2,380,000 11.1 12.5 0.3 ------ ------ ----- ----- $282.0 $400.0 $66.6 $75.0 ====== ====== ===== =====
The fair values of the redeemable preferred stock based on December 31, 2000 quoted market prices were $164.4 million for the preferred stock indexed to gold prices and $37.5 million for the preferred stock indexed to silver prices. 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, 2000, Atlantic Copper had contracts, with a fair value of $0.1 million, to sell 39.1 million pounds at an average price of $0.84 per pound through February 2001. 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 rupiahs, Australian dollars or Spanish pesetas/euros. 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/U.S. dollar exchange rate has been volatile. One U.S. dollar was equivalent to 9,215 rupiahs at December 31, 2000, 6,970 rupiahs at December 31, 1999 and 7,725 rupiahs at December 31, 1998. PT Freeport Indonesia recorded losses to production costs totaling $0.2 million in 2000, $1.2 million in 1999 and $0.9 million in 1998 related to its rupiah-denominated net monetary assets. At December 31, 2000, these net assets totaled $15.1 million at an exchange rate of 9,215 rupiahs to one U.S. dollar. Operationally PT Freeport Indonesia has benefited from a weakened Indonesian rupiah, primarily through lower labor costs. At estimated annual aggregate rupiah payments of 800 billion and a December 31, 2000 exchange rate of 9,215 rupiahs to one U.S. dollar, a one-thousand-rupiah increase in the exchange rate would result in an approximate $8 million decrease in annual operating costs. A one-thousand-rupiah decrease in the exchange rate would result in an approximate $11 million increase in annual operating costs. 32 FREEPORT-McMoRan COPPER & GOLD INC. Management's Discussion and Analysis During the first quarter of 1998, PT Freeport Indonesia began a currency hedging program to reduce its exposure to changes in the Indonesian rupiah and Australian dollar exchange rates by entering into foreign currency forward contracts to hedge a portion of its anticipated payments in these currencies. The last of these contracts expired in September 1999. We recorded net gains to production costs totaling $3.1 million in 1999 and $3.5 million in 1998 related to these contracts. During the second quarter of 2000, PT Freeport Indonesia entered into foreign currency forward contracts to hedge a portion of its aggregate anticipated Australian dollar payments for the remainder of 2000 and for 2001. As of December 31, 2000, these contracts hedge 96.0 million of Australian dollar payments through December 2001, or approximately 50 percent of aggregate projected 2001 Australian dollar payments at an average exchange rate of $0.58 to one Australian dollar. The exchange rate was $0.56 to one Australian dollar at December 31, 2000. Each $0.01 change in the U.S. dollar/Australian dollar exchange rate impacts the market value of these contracts by approximately $1 million. In July 2000, PT Freeport Indonesia entered into foreign currency forward contracts to hedge a portion of its aggregate projected April through July 2001 Indonesian rupiah payments. The contracts hedge 60 billion of rupiah payments during the period covered at an exchange rate of 10,000 rupiahs to one U.S. dollar. PT Freeport Indonesia recorded net losses to production costs related to the Australian dollar and rupiah contracts totaling $5.3 million in 2000. Each 1,000-rupiah change in the Indonesian rupiah/U.S. dollar exchange rate impacts the market value of these contracts by approximately $0.5 million. Our accounting treatment for these foreign currency forward contracts changed effective January 1, 2001 (see "New Accounting Standards"). A portion of Atlantic Copper's operating costs and certain of its asset and liability accounts are denominated in Spanish pesetas/euros. On January 1, 1999, a new common currency (the euro) was introduced to member states of the European Union, including Spain. A transition period extends until January 1, 2002. Atlantic Copper's current management information systems are designed to accommodate multiple currencies and will not require major modifications to process transactions involving the euro. Any outstanding peseta hedging contracts owned by Atlantic Copper will be set at a fixed exchange rate to the euro and would continue to achieve their objectives. Atlantic Copper had peseta/euro-denominated net monetary liabilities at December 31, 2000 totaling $65.6 million recorded at an exchange rate of 178.8 pesetas to one U.S. dollar or $0.93 per euro. The December 31, 1999 exchange rate was 165.6 pesetas to one U.S. dollar or $1.00 per euro, and the December 31, 1998 exchange rate was 142.7 pesetas to one U.S. dollar or $1.17 per euro. Adjustments to Atlantic Copper's peseta/euro-denominated net liabilities to reflect changes in the exchange rate are recorded in other income (loss) and totaled $4.4 million in 2000, $10.9 million in 1999 and $(3.8) million in 1998. At estimated annual peseta/euro payments of 15 billion pesetas/90 million euros and a December 31, 2000 exchange rate of 178.8 pesetas to one U.S. dollar or $0.93 per euro, a 10- peseta/$0.06 increase or decrease in the exchange rate would result in an approximate $5 million change in annual costs, before any hedging effects. As part of refinancing its debt in June 2000, Atlantic Copper was required to significantly expand its program to hedge anticipated peseta/euro-denominated operating costs. At December 31, 2000, Atlantic Copper had contracts to purchase 30.3 billion pesetas/182.3 million euros at an average exchange rate of 162.5 pesetas per one U.S. dollar or $1.02 per euro through December 2003. These contracts currently hedge approximately 60 percent of Atlantic Copper's projected 2001 through 2003 peseta/euro disbursements. Mark-to-market gains (losses) related to Atlantic Copper's forward currency contracts are included in production costs and totaled $(16.4) million in 2000, $(14.9) million in 1999 and $3.7 million in 1998. Each $0.01 change in the US$/euro exchange rate impacts the market value of these contracts by approximately $2 million. Our accounting treatment for these foreign currency forward contracts changed effective January 1, 2001 (see "New Accounting Standards"). 33 FREEPORT-McMoRan COPPER & GOLD INC. Management's Discussion and Analysis Interest Rate Risk The table below presents our scheduled maturities of principal for outstanding debt and notional amounts for interest rate swaps at December 31, 2000 and fair value at December 31, 2000 (dollars in millions). Atlantic Copper has interest rate swap contracts to fix interest rates on a portion of its variable- rate debt through March 2003. The costs associated with these contracts are amortized to interest expense over the terms of the agreements. Also see Notes 5 and 11 of "Notes to Financial Statements."
Fair 2001 2002 2003 2004 2005 Thereafter Value - ------------------------------------------------------------------------------- Long-term debt: Fixed rate $127.0 $ - $250.0 $ - $ - $200.0 $ 463.6 Average interest rate 9.7% - 7.2% - - 7.5% 7.9% Variable rate $75.3 $942.7 $ 77.0 $72.4 $71.5 $374.1 $1,613.1 Average interest rate 10.2% 8.7% 10.4% 10.7% 10.7% 10.7% 9.3% Interest rate swaps: Amount $74.4 $ 59.6 $ 51.5 $ - $ - $ - $ 1.0 Average interest rate 6.1% 7.2% 6.0% - - - 6.5%
As discussed above, we are discussing with the banks participating in the FCX/PT Freeport Indonesia bank credit facility and the Nusamba loan a plan that provides, among other things, extending maturities and higher interest rates. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," 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. We adopted SFAS 133 effective January 1, 2001. SFAS 133 allows us to report changes in the fair value of financial instruments that qualify as cash flow hedges, including foreign currency contracts and interest rate swaps, in other comprehensive income, a component of stockholders' equity, until realized. We will continue our current accounting for our redeemable preferred stock indexed to commodities under the provisions of SFAS 133 that allow such instruments issued before January 1, 1998 to be excluded from those instruments required to be adjusted for changes in their fair values (see Note 1 of "Notes to Financial Statements"). The most significant impact on our financial statements of adopting SFAS 133 is on our accounting for rupiah, Australian dollar and peseta/euro foreign currency contracts. Changes in the fair values of these open foreign currency contracts that hedge anticipated future operating costs will be reflected in other comprehensive income and will not affect earnings until the contracts mature. Through December 31, 2000, the changes in the market values of our foreign currency contracts that are intended to cover anticipated future operating costs were recorded in earnings. On January 1, 2001 we recorded a $0.8 million gain to other income for the difference between the recorded values of our outstanding foreign currency contracts at December 31, 2000 and their fair values as calculated under SFAS 133. We expect that any hedge ineffectiveness associated with our interest rate swaps and currency contracts will be immaterial. DEVELOPMENTS IN INDONESIA The Indonesian economy grew by an estimated 5 percent in 2000 after remaining flat in 1999 and contracting by 13 percent in 1998. Indonesia is Asia's second largest exporter of oil and continues to benefit from higher oil prices. While the economy has exceeded growth projections, progress on reforming the nation's failed banking system and raising capital from seized assets has been slow. As a result, the country remains heavily reliant on foreign aid to balance its budget and the national currency, the rupiah, declined approximately 32 percent in value during 2000. Despite gradual improvements on the economic front, Indonesia's recovery remains vulnerable to ongoing political and social tensions. There have been repeated challenges to the political leadership of President Abdurrahman Wahid. Incidents of violence and separatist pressures continue to add to political instability within the country as the Wahid administration struggles to address the country's economic and social issues. Incidents of separatist-related violence have been reported in 34 FREEPORT-McMoRan COPPER & GOLD INC. Management's Discussion and Analysis Aceh and Irian Jaya (Papua), and the Indonesian government has taken a strong stance in an effort to halt the violence in these areas. No incidents of violence were reported in PT Freeport Indonesia's area of operations, where the local community leaders continue to support peaceful solutions to the complex issue of regional autonomy. While the Indonesian government permitted representatives of the Papuan people to conduct a meeting of the Papuan congress in June 2000 to express their aspirations regarding political autonomy, the president and other Indonesian leaders have made it clear that Irian Jaya (Papua) must remain part of Indonesia. Moreover, the U.S. Government, Japan, Australia and the European Union have stated that they do not support independence for Irian Jaya (Papua) and support the territorial integrity of Indonesia. Key Papuan leaders supporting independence have said independence should be regarded as a long-term goal and that they should pursue that goal peacefully. However, there have been several incidences of violence and conflicts between native Papuans and the local police and military personnel in areas of the province apart from the location of our operations. President Wahid and his administration have focused in recent months on issues involving regional autonomy. The program to shift a greater share of revenues and greater control of economic, regulatory and social affairs to Indonesia's 31 provinces and over 300 regencies is one of the government's most important initiatives. Although new autonomy laws became effective January 1, 2001, there will be a transition period to allow the provinces to prepare for the assumption and administration of these new responsibilities. While the uncertainties of the autonomy process have created concern among foreign investors, the Indonesian government has assured investors that existing contracts of work would be honored. 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. Our belief that our Contracts of Work will continue to be honored is further supported by U.S. laws, which prohibit U.S. aid to countries that nationalize property owned by, or take steps to nullify a contract with, a U.S. citizen or company at least 50 percent owned by U.S. citizens if the foreign country does not within a reasonable time take appropriate steps to provide full value compensation or other relief under international law. 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. See our "Working Toward Sustainable Development" report beginning on page 6. 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, capital expenditures, future environmental costs, debt repayments and refinancing, political, economic and social conditions in our areas of operations, treatment charge rates, depreciation rates, exploration efforts and results, introduction of the euro and the availability of financing. 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, Indonesian political risks and other factors described in more detail under the heading "Cautionary Statements" in our Form 10-K for the year ended December 31, 2000. 35 FREEPORT-McMoRan COPPER & GOLD INC. 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 accounting principles generally accepted in the United States 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 auditing standards generally accepted in the United States, 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 R. Moffett /s/ Richard C. Adkerson James R. Moffett Richard C. Adkerson Chairman of the Board and President and Chief Executive Officer Chief Financial Officer 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, 2000 and 1999, and the related statements of income, cash flow and stockholders' equity for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States. 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, 2000 and 1999 and the results of its operations and its cash flow for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP New Orleans, Louisiana, January 18, 2001 36 FREEPORT-McMoRan COPPER & GOLD INC. Statements of Income
Years Ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------- (In Thousands, Except Per Share Amounts) Revenues $1,868,610 $1,887,328 $1,757,132 Cost of sales: Production and delivery 1,010,922 926,487 796,017 Depreciation and amortization 283,556 293,213 277,407 ---------- ---------- ---------- Total cost of sales 1,294,478 1,219,700 1,073,424 Exploration expenses 8,849 10,626 13,033 Equity in PT Smelting losses 15,633 18,136 4,948 General and administrative expenses 70,950 70,624 87,780 ---------- ---------- ---------- Total costs and expenses 1,389,910 1,319,086 1,179,185 ---------- ---------- ---------- Operating income 478,700 568,242 577,947 Interest expense, net (205,346) (194,069) (205,588) Other income (expense), net (114) 6,661 (10,933) Income before income taxes and minority interests 273,240 380,834 361,426 ---------- ---------- ---------- Provision for income taxes (159,573) (195,653) (170,566) Minority interests in net income of consolidated subsidiaries (36,680) (48,714) (37,012) ---------- ---------- ---------- Net income 76,987 136,467 153,848 Preferred dividends (37,487) (35,680) (35,531) ---------- ---------- ---------- Net income applicable to common stock $ 39,500 $ 100,787 $ 118,317 ========== ========== ========== Net income per share of common stock: Basic $.26 $.62 $.67 ==== ==== ==== Diluted $.26 $.61 $.67 ==== ==== ==== Average common shares outstanding: Basic 153,997 163,613 175,353 ======= ======= ======= Diluted 154,519 164,567 175,354 ======= ======= ======= Dividends paid per common share $ - $ - $.20 ==== ==== ====
The accompanying Notes to Financial Statements are an integral part of these financial statements. 37 FREEPORT-McMoRan COPPER & GOLD INC. Statements of Cash Flow
Years Ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------ (In Thousands) Cash flow from operating activities: Net income $ 76,987 $ 136,467 $ 153,848 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 283,556 293,213 277,407 Deferred income taxes 49,154 60,104 62,165 Minority interests' share of net income 36,680 48,714 37,012 Deferred stock appreciation rights costs, mining costs and other 12,800 23,422 8,808 Equity in PT Smelting losses 15,633 18,136 4,948 (Increases) decreases in working capital: Accounts receivable 17,955 42,062 (103,976) Inventories (39,624) (52,854) 6,323 Prepaid expenses and other 5,407 (6,757) (455) Accounts payable and accrued liabilities 57,830 (15,606) 7,408 Rio Tinto share of joint venture cash flows 34,342 138 9,305 Accrued income taxes (34,700) 21,745 16,034 (Increase) decrease in working capital 41,210 (11,272) (65,361) --------- --------- --------- Net cash provided by operating activities 516,020 568,784 478,827 --------- --------- --------- Cash flow from investing activities: Capital expenditures: PT Freeport Indonesia (156,199) (151,015) (280,952) Atlantic Copper (14,760) (6,423) (8,422) Investment in PT Smelting (5,717) (3,384) (2,709) Other (4,538) 796 4,977 --------- --------- --------- Net cash used in investing activities (181,214) (160,026) (287,106) --------- --------- --------- Cash flow from financing activities: Net repayments to Rio Tinto (60,564) (241,076) (144,760) Proceeds from other debt 354,634 513,241 549,230 Repayment of other debt (312,117) (590,377) (239,495) Partial redemption of preferred stock (11,893) (11,946) - Purchases of FCX common shares (199,945) (7,921) (259,213) Cash dividends paid: Common stock - - (35,382) Preferred stock (37,713) (38,019) (39,157) Minority interests (51,923) (13,674) (9,069) Other (14,015) (18,165) (16,957) --------- --------- --------- Net cash used in financing activities (333,536) (407,937) (194,803) --------- --------- --------- Net increase (decrease) in cash and cash equivalents 1,270 821 (3,082) Cash and cash equivalents at beginning of year 6,698 5,877 8,959 --------- --------- --------- Cash and cash equivalents at end of year $ 7,968 $ 6,698 $ 5,877 ========= ========= ========= Interest paid $ 211,352 $ 194,546 $ 251,999 ========= ========= ========= Income taxes paid $ 136,984 $ 113,804 $ 91,567 ========= ========= =========
The accompanying Notes to Financial Statements, which include information in Notes 1, 5, 6 and 11 regarding noncash transactions, are an integral part of these financial statements. 38 FREEPORT-McMoRan COPPER & GOLD INC. Balance Sheets
December 31, 2000 1999 - -------------------------------------------------------------------- (In Thousands) ASSETS Current assets: Cash and cash equivalents $ 7,968 $ 6,698 Accounts receivable: Customers 128,198 141,325 Other 20,887 31,437 Inventories: Product 158,868 134,735 Materials and supplies 241,739 233,390 Prepaid expenses and other 11,462 16,869 ----------- ----------- Total current assets 569,122 564,454 Property, plant and equipment, net 3,248,710 3,381,465 Investment in PT Smelting 56,154 66,070 Other assets 76,755 70,927 ----------- ----------- Total assets $ 3,950,741 $ 4,082,916 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 313,208 $ 277,365 Current portion of long-term debt and short-term borrowings 202,294 114,789 Rio Tinto share of joint venture cash flows 78,706 39,974 Unearned customer receipts 28,688 40,235 Accrued income taxes 11,016 42,704 ----------- ----------- Total current liabilities 633,912 515,067 Long-term debt, less current portion 1,987,731 2,033,470 Accrued postretirement benefits and other liabilities 112,831 114,677 Deferred income taxes 599,536 553,394 Minority interests 103,795 181,921 Redeemable preferred stock 475,005 487,507 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, 121,687,529 shares and 121,540,842 shares issued and outstanding, respectively 12,169 12,154 Capital in excess of par value of common stock 657,239 652,100 Retained earnings 330,901 291,401 Accumulated other comprehensive income 10,244 10,244 Common stock held in treasury - 74,718,076 shares and 55,115,819 shares, at cost, respectively (1,332,319) (1,128,716) ----------- ----------- Total stockholders' equity 37,931 196,880 ----------- ----------- Total liabilities and stockholders' equity $ 3,950,741 $ 4,082,916 =========== ===========
The accompanying Notes to Financial Statements are an integral part of these financial statements. 39 FREEPORT-McMoRan COPPER & GOLD INC. Statements of Stockholders' Equity
Years Ended December 31, 2000 1999 1998 - --------------------------------------------------------------------------- (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 12,154 12,145 12,140 Exercised stock options 15 9 5 ----------- ----------- ----------- Balance at end of year 12,169 12,154 12,145 ----------- ----------- ----------- Capital in excess of par value of common stock: Balance at beginning of year 652,100 650,746 649,792 Exercised stock options 2,199 1,354 954 Restricted stock grants 2,940 - - ----------- ----------- ----------- Balance at end of year 657,239 652,100 650,746 ----------- ----------- ----------- Retained earnings: Balance at beginning of year 291,401 190,614 107,679 Net income 76,987 136,467 153,848 Cash dividends on common stock - - (35,382) Dividends on preferred stock (37,487) (35,680) (35,531) ----------- ----------- ----------- Balance at end of year 330,901 291,401 190,614 ----------- ----------- ----------- Accumulated other comprehensive income 10,244 10,244 10,244 ----------- ----------- ----------- Common stock held in treasury: Balance at beginning of year (1,128,716) (1,120,030) (860,660) Purchase of 19,493,300, 844,200 and 19,995,821 shares, respectively (201,761) (7,765) (259,370) Tender of 108,957 shares in 2000 and 54,078 shares in 1999 to FCX to exercise stock options (1,842) (921) - Balance at end of year (1,332,319) (1,128,716) (1,120,030) ----------- ----------- ----------- Total stockholders' equity $ 37,931 $ 196,880 $ 103,416 =========== =========== ===========
The accompanying Notes to Financial Statements are an integral part of these financial statements. 40 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements NOTE 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, PT Freeport Indonesia, including certain joint ventures involving PT Freeport Indonesia (Note 5), and PT 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 (Note 2). PT Freeport Indonesia's investment in PT 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 2000 presentation. Use of Estimates. The preparation of FCX's financial statements in conformity with accounting principles generally accepted in the United States 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, the estimated average ratio of waste rock to ore over the life of the open-pit mine, 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 Equivalents. Highly liquid investments purchased with maturities of three months or less are considered cash equivalents. Accounts Receivable. Customer accounts receivable include amounts due from PT Smelting totaling $22.6 million at December 31, 2000 and $27.6 million at December 31, 1999. Other accounts receivable include refundable value-added taxes, net of the allowance for estimated uncollectible amounts, totaling $15.2 million at December 31, 2000 and $19.5 million at December 31, 1999. The allowance for estimated uncollectible amounts totaled $0.3 million at December 31, 2000 and $5.5 million at December 31, 1999. 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. Costs related to periodic scheduled maintenance (turnarounds) are expensed as incurred. Depreciation for mining and milling life-of- mine assets, including future development costs, is determined using the unit-of-production method based on estimated recoverable proved and probable 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. Deferred Mining Costs. Surface mining costs associated with waste rock removal at PT Freeport Indonesia's open-pit mine are initially deferred and subsequently charged to operating costs on the basis of the average ratio of waste rock to ore over the life of the mine. PT Freeport Indonesia's geologists and engineers reassess the waste rock to ore ratio and the remaining life of its open-pit mine at least annually. During the fourth quarter of 2000, PT Freeport Indonesia changed its estimated average ratio of waste rock to ore over the life of the mine in its deferred mining costs calculation to 1.6 to 1 from 2.4 to 1. The change reflects PT Freeport Indonesia's finalization of its overall open- pit mine plan after reviewing various alternative pit designs during its previous mining and milling expansions. The fourth- quarter 2000 impact of the change was a $9.9 million deferral of mining costs and for the full year the net deferral was immaterial. 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 proved and probable copper reserves. Expenditures resulting from the remediation of conditions caused by past operations that do not contribute to future revenue generation are charged to expense. 41 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements 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. Under the accounting method for such contracts specified in promulgated accounting rules through December 31, 2000, costs or premiums and gains or losses on contracts meeting deferral criteria are recognized with the hedged transaction. Gains or losses are recognized in the current period 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. At December 31, 2000, FCX had redeemable preferred stock indexed to commodities, open foreign currency forward contracts, open forward copper 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 and PT Freeport Indonesia hedge a portion of their anticipated Spanish peseta/euro, Australian dollar and Indonesian rupiah 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. Gains and losses on these contracts are recognized with the hedged transaction. Atlantic Copper also has interest rate swap contracts to limit the effect of increases in the interest rates on variable-rate debt. The costs associated with these swap contracts are amortized to interest expense over the terms of the agreements. In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133, as subsequently amended, is effective for fiscal years beginning after June 15, 2000 and 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. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. FCX adopted SFAS 133 effective January 1, 2001. FCX elected to continue its current accounting for its redeemable preferred stock indexed to commodities under the provisions of SFAS 133 which allow such instruments issued before January 1, 1998 to be excluded from those instruments required to be adjusted for changes in their fair values. Certain of PT Freeport Indonesia's concentrate sales contracts allow for final pricing in future periods. Under SFAS 133, these pricing terms cause a portion of the contracts to be considered embedded derivatives which must be recorded at fair value. PT Freeport Indonesia's open pricing positions are recorded at current market values and SFAS 133 will not have a significant impact on FCX's financial results with respect to these sales contracts. Prior to adoption of SFAS 133, Atlantic Copper's and PT Freeport Indonesia's foreign currency forward contracts did not qualify for hedge accounting because they are intended to cover anticipated transactions. The market value of these contracts, which extend through December 2003, was recorded in the balance sheet ($9.2 million in accrued liabilities and $5.3 million in other liabilities at December 31, 2000). Through December 31, 2000, changes in the market value of these contracts were recognized in earnings as they occurred. Atlantic Copper and PT Freeport Indonesia recorded gains (losses) to production costs totaling $(21.7) million in 2000, $(11.8) million in 1999 and $7.2 million in 1998 related to these contracts. Under SFAS 133, Atlantic Copper and PT Freeport Indonesia have designated their foreign currency contracts as cash flow hedges, whereby changes in fair value will be recognized in other comprehensive income (a component of stockholders' equity) until realized, when resulting gains and losses will be recorded in earnings. Upon adoption of SFAS 133, FCX recorded a $0.8 million gain to other income based on December 31, 2000 values for a change in accounting principle to adjust the recorded values of FCX's foreign currency forward contracts to fair value, as calculated under SFAS 133. For all other contracts that are not excluded from SFAS 133's provisions, the impact of the adoption of SFAS 133 is not material to FCX's financial position or results of operations. Any hedge ineffectiveness associated with contracts designated as hedges is also expected to be immaterial. 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 42 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements 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, 2000, FCX had consolidated provisionally priced copper sales totaling 237.0 million pounds recorded at an average price of $0.80 per pound. Approximately 90 percent of these open pounds are expected to be finally priced during the first quarter of 2001. A one-cent movement in the average price used for these open pounds will have an approximate $1.2 million impact on FCX's 2001 net income. Gold sales are priced according to individual contract terms, generally the average London Bullion Market Association price for a specified month near 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. PT Freeport Indonesia also has agreed to pay voluntary additional royalties 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 combined royalties, including the voluntary additional royalties which became effective January 1, 1999, totaled $20.2 million in 2000, $23.0 million in 1999 and $16.2 million in 1998. Foreign Currencies. Transaction gains and losses associated with Atlantic Copper's peseta/euro-denominated and PT Freeport Indonesia's rupiah-denominated monetary assets and liabilities are included in net income. Atlantic Copper's euro-denominated net monetary liabilities totaled $65.6 million at December 31, 2000 based on an exchange rate of $0.93 per euro. Excluding hedging amounts, net Atlantic Copper transaction gains (losses) totaled $4.4 million in 2000, $10.9 million in 1999 and $(3.8) million in 1998. PT Freeport Indonesia's rupiah-denominated net monetary assets totaled $15.1 million at December 31, 2000 based on an exchange rate of 9,215 rupiahs to one U.S. dollar. Excluding hedging amounts, net PT Freeport Indonesia transaction losses related to these rupiah-denominated net monetary assets totaled $0.2 million in 2000, $1.2 million in 1999 and $0.9 million in 1998. 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 and restricted stock. Dilutive stock options represented 0.3 million shares in 2000, 1.0 million shares in 1999 and one thousand shares in 1998. Dilutive restricted stock totaled 0.2 million shares in 2000. 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 11.4 million shares in 2000, 11.0 million shares in 1999 and 10.5 million shares in 1998. The average exercise prices for these options totaled $22 per share in 2000 and 1999, and $23 per share in 1998. 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 $24.5 million in 2000, $22.2 million in 1999 and $21.0 million in 1998. 43 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements NOTE 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, 2000 and 1999. FCX also owns 49 percent of PT 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, 2000 and 1999. At December 31, 2000, PT Freeport Indonesia's net assets totaled $826.7 million, including $623.1 million of retained earnings. FCX has various intercompany loans to PT Freeport Indonesia totaling $602.3 million at December 31, 2000. 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 somewhat during 2000, but the situation remains uncertain as the government continues efforts to reform financial systems and strengthen the Indonesian rupiah. Religious and ethnic differences among people in the outlying provinces are a source of tension, leading to violence in certain areas. 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 has responded with new laws providing more political and economic autonomy to the provincial governments beginning in 2001. 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 PT Nusantara Ampera Bakti, acquired from a third party approximately 51 percent of the capital stock of PT Indocopper Investama. Nusamba paid $61.0 million in cash and 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 on the market value of FCX's publicly traded common shares 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 any amounts to cover any shortfalls between the interest payments due on the commercial loan and dividends received by Nusamba from PT Indocopper Investama. In other assets at December 31, 2000 is $56.1 million due in March 2002 from Nusamba because of interest payment shortfalls. 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 will charge any additional amounts loaned to Nusamba to expense. FCX's direct ownership in Eastern Minerals totaled 90 percent at December 31, 2000 and 1999. PT Indocopper Investama owns the remaining 10 percent of Eastern Minerals, bringing FCX's total ownership in Eastern Minerals to 94.9 percent. FCX owns 100 percent of the outstanding Atlantic Copper stock. At December 31, 2000, Atlantic Copper's net assets totaled $100.0 million and FCX had no outstanding advances to Atlantic Copper. Atlantic Copper is not expected to pay dividends in the near future. Under the terms of its concentrate sales agreements with Atlantic Copper, PT Freeport Indonesia had outstanding trade receivables from Atlantic Copper totaling $119.3 million at December 31, 2000. FCX made cash contributions to Atlantic Copper totaling $32.4 million in 2000 and $40.0 million in 1999. In addition to the contributions, FCX forgave $24.2 million of outstanding advances in 1999. These transactions 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 16.6 percent of the December 31, 2000 outstanding common stock of FCX). In addition, FCX and Rio Tinto have 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. 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. Operating, nonexpansion capital and administrative costs are shared proportionately between PT Freeport Indonesia and Rio Tinto based on the ratio of (a) the incremental revenues from production from the expansion and (b) total revenues from production from Block A, including production from PT Freeport Indonesia's 44 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements 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. 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 paid its share of incremental cash flow to Rio Tinto until Rio Tinto received an amount equal to the funds loaned to PT Freeport Indonesia, plus interest based on Rio Tinto's cost of borrowing. PT Freeport Indonesia's share of incremental cash flow through the final payment in May 2000 totaled $502.6 million, of which $61.7 million was paid to RioTinto in 2000, $252.3 million in 1999 and $188.6 million in 1998. NOTE 3. INVENTORIES The components of product inventories follow (in thousands):
December 31, 2000 1999 - --------------------------------------------------------------------- PT Freeport Indonesia:Concentrates - Average Cost $ 7,779 $ 13,424 Atlantic Copper: Concentrates - FIFO 110,591 69,590 Work in process - FIFO 33,938 50,173 Finished goods - FIFO 6,560 1,548 -------- -------- Total product inventories $158,868 $134,735 ======== ========
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 $16.8 million at December 31, 2000 and $18.8 million at December 31, 1999. NOTE 4. PROPERTY, PLANT AND EQUIPMENT, NET The components of net property, plant and equipment follow (in thousands):
December 31, 2000 1999 - ----------------------------------------------------------------- Exploration, development and other $1,051,403 $1,019,164 Buildings and infrastructure 1,206,404 1,148,027 Machinery and equipment 1,669,552 1,658,116 Mobile equipment 508,788 494,583 Infrastructure assets 572,884 615,412 Construction in progress 100,426 33,809 ---------- ---------- Property, plant and equipment 5,109,457 4,969,111 Accumulated depreciation and amortization (1,878,893) (1,605,820) Deferred mining costs 18,146 18,174 ---------- ---------- Property, plant and equipment, net $3,248,710 $3,381,465 ========== ==========
Exploration, development and other includes $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. 45 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements NOTE 5. LONG-TERM DEBT
December 31, 2000 1999 - -------------------------------------------------------------------- (In Thousands) Notes payable: FCX and PT Freeport Indonesia credit facilities, average rate 8.2% in 2000 and 7.1% in 1999 $ 760,000 $ 648,000 Atlantic Copper facility, average rate 8.3% in 2000 and 7.5% in 1999 194,824 204,529 Atlantic Copper working capital revolver, average rate 7.2% in 2000 and 6.3% in 1999 38,900 39,593 Atlantic Copper deferral loan, average rate 9.0% in 2000 25,000 - Equipment loans 65,656 76,840 Rio Tinto loan, average rate 6.2% in 2000 and 5.2% in 1999 (Note 2) - 60,563 Other notes payable 24,637 24,818 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 12.1% in 2000 and 11.2% in 1999 511,008 523,916 ---------- ---------- 2,190,025 2,148,259 Less current portion and short-term borrowings 202,294 114,789 ---------- ---------- $1,987,731 $2,033,470 ========== ==========
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 ($162.0 million of additional borrowings available at December 31, 2000), and FCX and PT Freeport Indonesia have a separate $450 million facility ($78.0 million of additional borrowings available at December 31, 2000). These credit facilities are also subject to a borrowing base, redetermined annually during the second quarter by the banks, out of which approximately $665 million was available at December 31, 2000. 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. In June 2000, Atlantic Copper refinanced its variable-rate project loan (the Atlantic Copper Facility). As of December 31, 2000, the variable-rate project loan, nonrecourse to FCX, consisted of a $130.0 million term loan being repaid with variable quarterly installments through December 2007 ($3.0 million a quarter in 2001) 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. Atlantic Copper has a variable-rate $40 million working capital revolver ($38.9 million outstanding at December 31, 2000) 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. The revolver matures December 2002. Atlantic Copper has a variable-rate $30.0 million deferral loan available for use primarily in support of its cash requirements. Amounts drawn on this facility must be matched with additional FCX support payments to Atlantic Copper. Atlantic Copper had $25.0 million outstanding under this facility as of December 31, 2000. The loan matures January 2008. 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 $28.0 million balance at December 31, 2000. Interest accrues at 8.1 percent until December 2001 and then the rate is variable. Principal payments total $7.0 million annually. In November 1999, PT Freeport Indonesia entered into a $41.8 million variable-rate equipment loan with the same vendor ($37.7 million outstanding at December 31, 2000). The average interest rate was 9.0 percent for 2000 and 8.6 percent for the period the loan was outstanding in 1999. Principal payments total $4.2 million annually with a final payment of $12.5 million in December 2006. 46 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements 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 $387.0 million at December 31, 2000 and $412.2 million at December 31, 1999. In 1995, PT Freeport Indonesia sold certain of its port, marine, logistics and construction equipment assets 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 a bank loan totaling $34.9 million at December 31, 2000 associated with these sales. PT Freeport Indonesia is leasing these assets under infrastructure asset financing arrangements. The obligations under these infrastructure asset financings totaled $56.2 million at December 31, 2000 and $72.4 million at December 31, 1999. From December 1993 to March 1997, PT Freeport Indonesia sold $270.0 million of infrastructure assets to joint ventures owned one-third by PT Freeport Indonesia and two-thirds by PT ALatieF Nusakarya Corporation (ALatieF), an Indonesian investor. Funding for the purchases consisted of $90.0 million in equity contributions by the joint venture partners, a $60.0 million bank 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. During 2000, PT Freeport Indonesia purchased the remaining interest in the joint ventures for $25.9 million cash and the assumption of $34.1 million of bank debt. The cash payments and assumption of debt in 2000, which totaled $60.0 million, reduced minority interests on FCX's balance sheet. The balance of the original $60.0 million bank loan totaled $35.1 million at December 31, 2000 and $39.3 million at December 31, 1999, and the balance of the bank debt assumed during 2000 totaled $32.7 million at December 31, 2000. Maturities and Capitalized Interest. Maturities of debt instruments and infrastructure asset financings based on the amounts and terms outstanding at December 31, 2000 totaled $202.3 million in 2001, $942.7 million in 2002, $327.0 million in 2003, $72.4 million in 2004, $71.5 million in 2005 and $574.1 million thereafter. Capitalized interest totaled $7.2 million in 2000, $3.8 million in 1999 and $19.6 million in 1998. NOTE 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 is mandatorily redeemable 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 is mandatorily redeemable in February 2006 for the cash value of 0.1 ounce of gold. FCX has outstanding 4.8 million depositary shares representing 89,250 shares of its Silver-Denominated Preferred Stock totaling $75.0 million at December 31, 2000 and 104,125 shares totaling $87.5 million at December 31, 1999. As of December 31, 2000, each depositary share has a cumulative quarterly cash dividend equal to the value of 0.0309375 ounce of silver, which declines after each redemption payment. FCX made annual mandatory partial redemption payments on the underlying Silver-Denominated Preferred Stock in August 2000 and August 1999. For each of the two partial redemptions, the $0.6 million difference between FCX's carrying amount of $12.5 million and the actual redemption payments of $11.9 million was credited to revenues. Six annual redemption payments remain and will vary with the price of silver. 47 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements NOTE 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. FCX's 1999 Stock Incentive Plan (the 1999 Plan) provides 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. FCX granted 0.2 million shares of restricted stock in 2000 that vest ratably over three years. Awards granted under all of the plans generally expire 10 years after the date of grant. Awards for 5.9 million shares under the 1999 Plan, 1.4 million shares under the Director Plan and no shares under the 1995 Plan were available for new grants as of December 31, 2000. A summary of stock options outstanding, including 0.5 million SARs, follows:
2000 1999 1998 - ------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Number Option Number Option Number Option of Options Price of Options Price of Options Price - ------------------------------------------------------------------------------- Balance at January 1 14,060,224 $19.23 11,430,582 $21.98 8,065,837 $23.84 Granted 1,967,054 17.57 3,965,500 11.48 3,691,200 17.77 Exercised (146,687) 14.78 (87,345) 15.28 (51,749) 14.74 Expired/Forfeited (813,889) 17.69 (1,248,513) 20.08 (274,706) 21.29 ---------- ---------- ---------- Balance at December 31 15,066,702 19.14 14,060,224 19.23 11,430,582 21.98 ========== ========== ==========
48 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements 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, 2000, excluding SARs, follows:
Options Outstanding Options Exercisable - --------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Number Remaining Option Number Option Range of Exercise Prices of Options Life Price of Options Price - --------------------------------------------------------------------------- $9.09 to $10.31 3,066,750 8 years $ 9.90 933,375 $ 9.94 $14.63 to $21.27 9,082,536 7 years 18.58 7,229,961 19.01 $22.63 to $32.81 990,069 6 years 29.58 881,219 29.63 $35.50 1,380,000 5 years 35.50 1,104,000 35.50 ---------- ---------- 14,519,355 10,148,555 ========== ==========
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 $1.5 million gain in 2000 and a $1.4 million charge in 1999 for its outstanding 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 net income would have been reduced by $7.3 million to $32.2 million ($0.21 per share) in 2000, by $6.0 million to $94.7 million ($0.58 per share) in 1999 and by $16.7 million to $101.6 million ($0.58 per share) in 1998. 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 $9.44 per option in 2000, $5.96 per option in 1999 and $6.75 per option in 1998 (including the 1.3 million SARs converted to stock options). The weighted average assumptions used include a risk-free interest rate of 6.7 percent in 2000, 5.1 percent in 1999 and 5.8 percent in 1998; expected volatility of 44 percent in 2000, 41 percent in 1999 and 34 percent in 1998; no annual dividend in 2000 or 1999 and $0.20 per share in 1998; and expected lives of 7 years in 2000, 7 years in 1999 and 8 years in 1998. The pro forma effects on net income are not representative of future years because of the potential changes in the factors used in calculating the Black-Scholes valuation and the number and timing of option grants. No other discounts or restrictions related to vesting or the likelihood of vesting of stock options were applied. NOTE 8. INCOME TAXES The components of FCX's deferred taxes follow (in thousands):
December 31, 2000 1999 - -------------------------------------------------------------- Deferred tax asset: Foreign tax credits $ 255,500 $ 245,787 U.S. alternative minimum tax credits 65,294 62,559 Atlantic Copper net operating loss carryforwards 72,702 82,789 Intercompany profit elimination 15,644 21,555 Valuation allowance (393,496) (391,135) --------- --------- Total deferred tax asset 15,644 21,555 --------- --------- Deferred tax liability: Property, plant and equipment (552,869) (509,611) Undistributed earnings in PT Freeport Indonesia (35,375) (44,808) Other (26,936) (20,530) --------- --------- Total deferred tax liability (615,180) (574,949) --------- --------- Net deferred tax liability $(599,536) $(553,394) ========= =========
49 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements FCX has provided a valuation allowance equal to its tax credit carryforwards ($320.8 million at December 31, 2000 and $308.3 million at December 31, 1999) 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 Atlantic Copper net operating losses totaling $207.7 million at December 31, 2000 and $236.5 million at December 31, 1999, 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):
2000 1999 1998 - ----------------------------------------------------------- Current income taxes: Indonesian $106,587 $127,828 $100,336 United States and other 3,832 7,721 8,065 -------- -------- -------- 110,419 135,549 108,401 Deferred Indonesian taxes 49,154 60,104 62,165 -------- -------- -------- $159,573 $195,653 $170,566 ======== ======== ========
Differences between income taxes computed at the contractual Indonesian tax rate and income taxes recorded follow (dollars in thousands):
2000 1999 1998 - -------------------------------------------------------------------------------- Amount Percent Amount Percent Amount Percent - -------------------------------------------------------------------------------- Income taxes computed at the contractual Indonesian tax rate $ 95,634 35% $133,292 35% $126,499 35% Indonesian withholding tax on: Earnings/dividends 18,095 6 23,878 6 21,490 6 Interest 2,776 1 2,829 - 3,765 1 Increase (decrease) attributable to: Intercompany interest expense (7,168) (3) (11,444) (3) (15,103) (4) Parent company costs 28,981 11 37,568 10 26,504 7 U.S. alternative minimum tax 4,600 2 7,400 2 7,500 2 Atlantic Copper net loss (income) 10,467 4 (1,836) - (1,733) - Other, net 6,188 2 3,966 1 1,644 - -------- -- -------- -- -------- -- Provision for income taxes $159,573 58% $195,653 51% $170,566 47% ======== == ======== == ======== ==
NOTE 9. TRANSACTIONS WITH AFFILIATES AND EMPLOYEE BENEFITS Management Services Agreement. FM Services Company, 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 $27.6 million in 2000, $25.8 million in 1999 and $40.3 million in 1998. 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, operates a 200,000 metric tons of copper metal per year smelter/refinery in Gresik, Indonesia. 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 common stock. PT Freeport Indonesia is providing nearly all of PT Smelting's copper concentrate requirements. For the first 15 years of PT Smelting's operations, the treatment and refining charges on the majority of the concentrate PT Freeport Indonesia supplies will not fall below a specified minimum rate, currently $0.23 per 50 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements pound, the rate for 2000 and the expected rate for 2001. PT Freeport Indonesia has also agreed to assign 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. During 2000, FCX decided to terminate its defined benefit pension plan covering substantially all U.S. and certain overseas employees and replace this plan with a defined contribution plan for its employees, as further discussed below. All participants' account balances in the plan were fully vested on June 30, 2000 and interest credits will continue to accrue under the plan until the assets are finally liquidated. The final distribution will occur once approved by the Internal Revenue Service and the Pension Benefit Guaranty Corporation, which is expected in 2001. 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 pension plan denominated in Indonesian rupiahs 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 9,215 rupiahs to one U.S. dollar on December 31, 2000 and 6,970 rupiahs to one U.S. dollar on December 31, 1999. Information on the FCX and PT Freeport Indonesia plans follows (dollars in thousands):
Pension Benefits Other Benefits - ------------------------------------------------------------------------------ PT Freeport FCX Plan Indonesia Plan FCX - ------------------------------------------------------------------------------ 2000 1999 2000 1999 2000 1999 - ------------------------------------------------------------------------------ Change in benefit obligation: Benefit obligation at beginning of year $(13,581) $(13,622) $(14,056) $ (8,065) $ (860) $ (763) Service cost (301) (852) (1,056) (1,061) (15) (42) Interest cost (896) (905) (1,070) (2,688) (30) (60) Plan amendments - - - - - (92) Curtailment loss (1,000)a - - - - - Actuarial gains (losses) (37) 876 (1,078) (1,159) 7 83 Foreign exchange gain (loss) - - 3,640 (1,354) - - Benefits paid 1,039 922 900 271 56 14 -------- -------- -------- -------- ------- ------- Benefit obligation at end of year (14,776) (13,581) (12,720) (14,056) (842) (860) -------- -------- -------- -------- ------- ------- Change in plan assets: Fair value of plan assets at beginning of year 10,704 8,381 6,920 2,992 - - Actual return on plan assets 524 1,167 673 1,185 - - Employer contributions - 2,078 2,491 2,351 56 14 Foreign exchange gain (loss) - - (1,905) 663 - - Benefits paid (1,039) (922) (900) (271) (56) (14) -------- -------- -------- -------- ------- ------- Fair value of plan assets at end of year 10,189 10,704 7,279 6,920 - - -------- -------- -------- -------- ------- ------- Funded status (4,587) (2,877) (5,441) (7,136) (842) (860) Unrecognized net actuarial (gain) loss (2,685) (2,794) 2,080 1,295 (1,239) (1,248) Unrecognized transition asset (257) (286) - - - - Unrecognized prior service cost - (633) 1,937 2,908 (291) (333) -------- -------- -------- -------- ------- ------- Accrued benefit cost $ (7,529) $ (6,590) $ (1,424) $ (2,933) $(2,372) $(2,441) ======== ======== ======== ======== ======= ======= Weighted-average assumptions (percent): Discount rate N/Aa 8.00 11.00 11.00 7.50 8.00 Expected return on plan assets N/Aa 9.00 12.00 12.00 - - Rate of compensation increase N/Aa 4.25 9.00 9.00 - -
a. As discussed above, FCX has elected to terminate its defined benefit pension plan, resulting in a $1.0 million curtailment loss, and ceased accruing benefits on June 30, 2000. 51 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements The initial health care cost trend rate used for the other benefits was 6.5 percent for 2000, 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 - -------------------------------------------------------------------- 2000 1999 1998 2000 1999 1998 - -------------------------------------------------------------------- Service cost $ 301 $ 852 $1,089 $ 15 $ 42 $ 42 Interest cost 896 905 926 30 60 50 Curtailment loss 1,000 - - - - - Expected return on plan assets (884) (672) (652) - - - Amortization of prior service cost (633) (147) (147) (42) (47) (52) Amortization of net actuarial gain (109) (227) (135) (15) (147) (93) Amortization of transition asset (29) (58) (58) - - - ------ ----- ------ ---- ----- ---- Net periodic benefit cost$ 542 $ 653 $1,023 $(12) $ (92) $(53) ====== ===== ====== ==== ===== ====
The components of net periodic benefit cost for PT Freeport Indonesia's plan follow (in thousands):
2000 1999 1998 - -------------------------------------------------------- Service cost $1,056 $1,061 $ 704 Interest cost 1,070 2,688 728 Expected return on plan assets (810) (1,199) (285) Amortization of prior service cost 291 315 217 Amortization of net actuarial loss - - 280 Curtailment gain - - (781) Special termination benefits - - 5,873 ------ ------ ------ Net periodic benefit cost $1,607 $2,865 $6,736 ====== ====== ======
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 178.8 pesetas to one U.S. dollar at December 31, 2000 and 165.6 pesetas to one U.S. dollar at December 31, 1999. Amended Spanish legislation requires that Atlantic Copper begin funding this obligation in November 2002, instead of the previously anticipated initial funding date of January 2001. The actuarial valuation of this obligation was $73.1 million at December 31, 2000, based on a discount rate of 6 percent, and $80.9 million at December 31, 1999, based on a discount rate of 5 percent. Other information on the Atlantic Copper plan follows (in thousands):
2000 1999 1998 - ---------------------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year $63,788 $72,300 $69,373 Interest cost 6,883 7,102 6,658 Foreign exchange (gain) loss (4,104) (8,840) 3,429 Benefits paid (5,968) (6,774) (7,160) ------- ------- ------- Benefit obligation at end of year $60,599 $63,788 $72,300 ======= ======= =======
52 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements FCX has an employee 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. As a result of FCX's decision to terminate its defined benefit pension plan effective July 1, 2000, FCX fully vested all active Section 401(k) plan participates on June 30, 2000. Subsequently, all new plan participants will vest in FCX's matching contributions upon three years of service with FCX. Additionally, FCX established a defined contribution plan for substantially all its employees. Under this plan, FCX contributes amounts to individual accounts totaling either 4 percent or 10 percent of each employee's pay, depending on a combination of each employee's age and years of service with FCX. The costs charged to operations for FCX's employee savings plan and defined contribution plan totaled $0.8 million in 2000, $0.7 million in 1999 and $0.8 million in 1998. 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. NOTE 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 studies are performed and more definitive plans are formulated. Some reclamation costs will be incurred during mining activities, while most closure costs and the remaining reclamation costs will be incurred at the end of mining activities, which are currently estimated to continue for more than 30 years. Included in other liabilities at December 31, 2000, PT Freeport Indonesia had $19.2 million accrued on a unit-of- production basis for mine closure and reclamation costs. In 1996, PT Freeport Indonesia began contributing to a cash fund ($2.5 million balance at December 31, 2000) 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 $14.1 million in 2000, $14.7 million in 1999 and $13.5 million in 1998 to production costs for this commitment. Long-Term Contracts. Atlantic Copper has commitments with parties other than PT Freeport Indonesia to purchase concentrate totaling 337,000 metric tons in 2001, 424,000 metric tons in 2002, 350,000 metric tons in 2003, 220,000 metric tons in 2004 and 100,000 metric tons in 2005, at market prices. Share Purchase Program. In June 2000, FCX's Board of Directors authorized a 20-million-share increase in FCX's open market share purchase program, bringing the total shares approved for purchase under this program to 80 million. From inception of this program in July 1995 through December 31, 2000, FCX has purchased a total of 70.5 million shares for $1.24 billion (an average of $17.55 per share) and 9.5 million shares remained available under the program. 53 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements NOTE 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, 2000 and 1999 (in thousands). Fair values are based on quoted market prices and other available market information. Upon adoption of SFAS 133 on January 1, 2001, the fair values for foreign exchange contracts will be adjusted to conform to the new accounting rules.
2000 1999 - -------------------------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value - -------------------------------------------------------------------------- Price protection program: Open contracts in liability position $ - $ - $ - $ (1,093) Open contracts in asset position - 85 - 308 Redeemable preferred stock (Note 6) (475,005) (201,910) (487,507) (245,570) Debt: Long-term debt (Note 5) (2,190,025) (2,076,672) (2,148,259) (2,074,722) Interest rate swaps - (982) - 1,387 Foreign exchange contracts: $U.S./Spanish peseta/euro (11,514) (11,514) (8,138) (8,138) $U.S./Australian dollar (2,244) (2,244) - - $U.S./Indonesian rupiah 27 27 - -
50 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements 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, 2000, 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 $1.7 million in 2000 and $0.8 million in 1999 related to PT Freeport Indonesia's copper price protection program. Revenues also include net additions totaling $0.6 million in 2000 and 1999 from the annual redemptions of FCX's Silver-Denominated Preferred Stock. At December 31, 2000, Atlantic Copper had open contracts to sell 39.1 million pounds at an average price of $0.84 per pound through February 2001. 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. PT Freeport Indonesia's contracts matured in December 1999 and FCX's contracts matured in January 2000. Under the terms of its swaps, Atlantic Copper pays an average of 6.5 percent on $74.4 million of financing at December 31, 2000, reducing quarterly through March 2003. Atlantic Copper will pay an average of 6.1 percent on an average of $68.6 million of financing in 2001, 7.2 percent on an average of $56.4 million in 2002 and 6.0 percent on $51.5 million in the first quarter of 2003. Interest on comparable floating rate debt averaged 6.5 percent in 2000, 5.4 percent in 1999 and 5.7 percent in 1998, resulting in a reduction in interest costs totaling $0.9 million in 2000 and additional interest costs of $1.1 million in 1999 and 1998. Atlantic Copper is a party to letters of credit totaling $9.6 million at December 31, 2000. Fair value of these letters of credit is not material at December 31, 2000. Foreign Exchange Contracts. Atlantic Copper has a currency hedging program to reduce its exposure to changes in the U.S. dollar and Spanish peseta/euro exchange rate. As of December 31, 2000, Atlantic Copper has foreign exchange currency contracts through December 2003 totaling $186.7 million on 30.3 billion Spanish pesetas/182.3 million euros at an average exchange rate of 162.5 pesetas per 1 U.S. dollar or $1.02 per euro. Atlantic Copper recorded gains (losses) to production costs related to its forward currency contracts, totaling $(16.4) million in 2000, $(14.9) million in 1999 and $3.7 million in 1998. PT Freeport Indonesia entered into a currency hedging program in 2000 for the Indonesian rupiah and Australian dollar. As of December 31, 2000, PT Freeport Indonesia has foreign exchange currency contracts through December 2001 totaling $55.7 million on 96.0 million Australian dollars and contracts from April 2001 through July 2001 totaling $6.0 million on 60.0 54 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements billion Indonesian rupiahs. PT Freeport Indonesia's previous currency hedging program for the Indonesian rupiah and Australian dollar expired in September 1999. PT Freeport Indonesia recorded net gains (losses) to production costs totaling $(5.3) million in 2000, $3.1 million in 1999 and $3.5 million in 1998 related to these contracts. NOTE 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 94 percent in 2000, 89 percent in 1999 and 91 percent in 1998. 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 2000 and 1999 and 12 percent in 1998, and PT Smelting with 19 percent in 2000, 13 percent in 1999 and 1 percent in 1998. Beginning in 2001 PT Freeport Indonesia will market its product into Japan through separate agreements with the various Japanese smelting companies rather than through the former pool method. None of these agreements when taken separately is expected to account for over ten percent of FCX's projected consolidated revenues. There are several other long-term agreements in place, each representing less than ten 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 (in thousands):
2000 1999 1998 - --------------------------------------------------------- Spain $ 371,665 $ 328,720 $ 324,202 Indonesia (PT Smelting) 358,138 252,586 25,610 Japan 302,040 358,556 382,721 Switzerland 199,419 219,250 269,355 United States 92,411 187,731 250,922 Others 544,937 540,485 504,322 ---------- ---------- ---------- Total $1,868,610 $1,887,328 $1,757,132 ========== ========== ==========
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 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 (in thousands) were prepared on the same basis as the consolidated FCX financial statements. 55 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements
Mining Smelting and and Eliminations FCX Exploration Refining and Other Total - ---------------------------------------------------------------------- 2000 Revenues $1,413,099a $768,814 $(313,303) $1,868,610 Production and delivery 608,107 734,083 (331,268) 1,010,922 Depreciation and amortization 250,864 27,989 4,703 283,556 Exploration expenses 7,318 - 1,531 8,849 Equity in PT Smelting losses - 15,633b - 15,633 General and administrative expenses 56,779 8,426 5,745 70,950 ---------- -------- --------- ---------- Operating income (loss) $ 490,031 $(17,317) $ 5,986 $ 478,700 ========== ======== ========= ========== Interest expense, net $ 133,804 $ 25,411 $ 46,131 $ 205,346 ========== ======== ========= ========== Provision (benefit) for income taxes $ 131,442 $ (755) $ 28,886 $ 159,573 ========== ======== ========= ========== Capital expenditures $ 155,187 $ 20,477 $ 1,012 $ 176,676 ========== ======== ========= ========== Total assets $3,290,026 $677,851c $ (17,136) $3,950,741 ========== ======== ========= ========== 1999 Revenues $1,464,811a $764,466 $(341,949) $1,887,328 Production and delivery 534,119 723,966 (331,598) 926,487 Depreciation and amortization 259,372 29,373 4,468 293,213 Exploration expenses 9,330 - 1,296 10,626 Equity in PT Smelting losses - 18,136b - 18,136 General and administrative expenses 52,410 9,572 8,642 70,624 Operating income (loss) $ 609,580 $(16,581) $ (24,757) $ 568,242 ========== ======== ========= ========== 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 461,244 667,904 (333,131) 796,017 Depreciation and amortization 241,312 31,711 4,384 277,407 Exploration expenses 11,542 - 1,491 13,033 Equity in PT Smelting losses - 4,948b - 4,948 General and administrative expenses 70,361 10,337 7,082 87,780 Operating income $ 566,664 $ 39,057 $ (27,774) $ 577,947 ========== ======== ========= ========== 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 ========== ======== ========= ==========
a. Includes PT Freeport Indonesia sales to PT Smelting totaling $343.3 million in 2000, $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 $2.0 million in 2000, $8.0 million in 1999 and $3.3 million in 1998. c. Includes PT Freeport Indonesia's equity investment in PT Smelting totaling $56.2 million at December 31, 2000, $66.1 million at December 31, 1999 and $80.8 million at December 31, 1998. 56 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements NOTE 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 - -------------------------------------------------------------------------------- (Thousand (%)(Grams)(Ounce)(Grams)(Ounce)(Billions (Millions(Millions Metric Tons) of Lbs.) of Ozs.) of Ozs.) 1996 2,008,285 1.19 1.18 .038 3.80 .122 43.2 55.3 118.7 1997 2,166,212 1.20 1.20 .039 3.95 .127 47.1 62.7 138.4 1998 2,475,478 1.13 1.05 .034 3.83 .123 51.3 64.2 153.1 1999 2,395,175 1.13 1.05 .034 3.85 .124 49.9 61.6 148.8 2000 2,514,532 1.10 1.04 .033 3.40 .109 50.9 63.7 139.6 By Deposit at December 31, 2000: Grasberg: Open pit 1,080,805 0.99 1.20 .038 2.32 .075 19.3 32.0 40.3 Under- ground 743,033 1.09 0.79 .025 2.77 .089 15.1 14.1 35.5 Kucing Liar 320,457 1.41 1.41 .045 5.30 .170 8.2 10.3 25.5 Deep Ore Zone 185,476 1.19 0.82 .026 5.83 .187 4.2 4.0 18.4 Big Gossan 37,349 2.69 1.02 .033 16.42 .528 1.8 0.9 9.9 Ertsberg Stockwork Zone 100,731 0.55 0.80 .026 1.75 .056 1.1 2.0 3.2 Dom 30,892 1.67 0.42 .014 9.63 .310 0.9 0.3 4.7 Interme- diate Ore Zone 15,789 1.09 0.42 .014 7.76 .249 0.3 0.1 2.1 --------- ---- ---- ---- ---- ---- ---- ---- ----- Total 2,514,532 1.10 1.04 .033 3.40 .109 50.9 63.7 139.6 ========= ==== ==== ==== ==== ==== ==== ==== =====
Estimated recoverable reserves were assessed using a copper price of $0.90 per pound and a gold price of $300 per ounce. Using a gold price of $270 per ounce would not have a significant impact on our estimated recoverable reserves. Incremental cash flow attributable to the fourth concentrator mill expansion is shared 60 percent PT Freeport Indonesia and 40 percent Rio Tinto (Note 2). 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.) 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 2000 38.9 50.3 108.5
57 FREEPORT-McMoRan COPPER & GOLD INC. Notes to Financial Statements NOTE 14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Net Income Net Income (Loss)(Loss) Per Share Operating Applicable to ---------------- Revenues Income Common Stock Basic Diluted - ----------------------------------------------------------------------- (In Thousands, Except Per Share Amounts) 2000 1st Quarter $ 467,592 $117,693 $ 9,241 $ .06 $ .06 2nd Quarter 397,348 65,499 (18,613) (.12) (.12) 3rd Quarter 473,837 90,099 (9,192) (.06) (.06) 4th Quarter 529,833 205,409 58,064 .40 .40 ---------- -------- -------- $1,868,610 $478,700a $ 39,500a .26a .26a ========== ======== ======== 1999 1st Quarter $ 415,836 $122,546 $ 17,710 $.11 $.11 2nd Quarter 470,335 127,681 18,961 .12 .12 3rd Quarter 473,658 154,319 26,809 .16 .16 4th Quarter b 527,499 163,696 37,307 .23 .23 ---------- -------- -------- $1,887,328 $568,242 $100,787 .62 .61 ========== ======== ========
a. Includes net charges totaling $12.4 million ($8.0 million to net income or $0.05 per share) consisting of $6.0 million for contribution commitments to support small business development programs within Irian Jaya (Papua) and $7.9 million for personnel severance costs, partly offset by a $1.5 million reversal of costs for stock appreciation rights. b. 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. Inside Back Cover 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 2000, the number of holders of record of our Class A common shares was 6,433. NYSE composite tape Class A common share price ranges during 2000 and 1999:
2000 1999 High Low High Low - --------------------------------------------------------- First Quarter $18.625 $11.000 $11.875 $ 9.000 Second Quarter 11.750 8.438 16.938 9.375 Third Quarter 9.875 8.000 17.438 12.750 Fourth Quarter 8.813 6.750 18.750 13.375
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 2000, the number of holders of record of our Class B common shares was 10,681.
2000 1999 High Low High Low - --------------------------------------------------------- First Quarter $21.438 $12.063 $12.750 $ 9.125 Second Quarter 12.750 8.813 18.000 10.063 Third Quarter 10.625 8.188 18.688 14.000 Fourth Quarter 9.375 6.750 21.375 15.563
Common Share 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. There were no cash dividends paid on common stock during 1999 and 2000. EX-21 5 exh21.txt Exhibit 21.1 List of Subsidiaries of FREEPORT-McMoRan COPPER & GOLD INC. Name Under Which Entity Organized It Does Business - ------------------------------- ------------- ---------------- PT Freeport Indonesia Indonesia and Same Delaware PT Irja Eastern Minerals Indonesia Same Atlantic Copper, S.A. Spain Same FM Services Company Delaware Same EX-23 6 exh231.txt 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 23, 2001 EX-23 7 exh232.txt 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 23, 2001 EX-24 8 exh24.txt 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 on the date hereof: 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 Corporation on this 21st day of March, 2001. /s/ Douglas N. Currault II -------------------------- Douglas N. Currault II Assistant Secretary Seal EX-24 9 exh242.txt 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, his true and lawful attorney-in-fact 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, 2000, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorney full power and authority to do and perform each and every act and thing whatsoever that said attorney 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 may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 30th day of January, 2001. /s/ Richard C. Adkerson - ------------------------ Richard C. Adkerson 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, 2000, 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 30th day of January, 2001. /s/ Robert J. Allison, Jr. - -------------------------- Robert J. Allison, 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 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, 2000, 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 30th day of January, 2001. /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 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, 2000, 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 30th day of January, 2001. /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 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, 2000, 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 30th day of January, 2001. /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 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, 2000, 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 30th day of January, 2001. /s/ Gerald J. Ford - ------------------ Gerald J. Ford 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, 2000, 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 30th day of January, 2001. /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 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, 2000, 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 30th day of January, 2001. /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 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, 2000, 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 30th day of January, 2001. /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 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, 2000, 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 30th day of January, 2001. /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 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, 2000, 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 30th day of January, 2001. /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 RICHARD C. ADKERSON, his true and lawful attorney-in-fact 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, 2000, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorney full power and authority to do and perform each and every act and thing whatsoever that said attorney 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 may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 30th day of January, 2001. /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 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, 2000, 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 30th day of January, 2001. /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 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, 2000, 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 30th day of January, 2001. /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, 2000, 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 30th day of January, 2001. /s/ C. Donald Whitmire, Jr. - --------------------------- C. Donald Whitmire, Jr. -----END PRIVACY-ENHANCED MESSAGE-----