-----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, WSnXfvwC6149sE/dnGL71I0gk3GhMcoPy+8Q0SysOFXFJYIk0QhPea1hHQpeXouo EPHFajn+kwR3+UQh+k91tA== 0000831259-04-000031.txt : 20040806 0000831259-04-000031.hdr.sgml : 20040806 20040806153843 ACCESSION NUMBER: 0000831259-04-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040806 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11307-01 FILM NUMBER: 04958001 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-Q 1 f2q0410q.htm Ethan Frome
 
 
 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the Quarter Ended June 30, 2004

 
 
 

Commission File Number: 1-9916

 
 
 

Freeport-McMoRan Copper & Gold Inc.

 
 
 

Incorporated in Delaware

74-2480931

 

(IRS Employer Identification No.)

 
 

1615 Poydras Street, New Orleans, Louisiana  70112

 
 

Registrant's telephone number, including area code: (504) 582-4000

 
 
 
 


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __


Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes X No __


On June 30, 2004, there were issued and outstanding 173,770,485 shares of the registrant’s Class B Common Stock, par value $0.10 per share.



 




FREEPORT-McMoRan COPPER & GOLD INC.


TABLE OF CONTENTS


  


Page

Part I.  Financial Information


 
  

  Financial Statements:

 
  

Condensed Consolidated Balance Sheets

 (Unaudited)

 

3

  

Consolidated Statements of Operations (Unaudited)

 

4

  

Consolidated Statements of Cash Flows (Unaudited

 

5

  

Notes to Consolidated Financial Statements

 

6

  

  Remarks

 

11

  

  Report of Independent Registered Public Accounting Firm

12

  

  Management's Discussion and Analysis of Financial Condition

 

and Results of Operations

 

13

  

  Quantitative and Qualitative Disclosures about Market Risks

33

  

  Controls and Procedures

33

  

Part II.  Other Information

 

33

  

Signature

    

 

35

  

Exhibit Index

 

E-1

  






FREEPORT-McMoRan COPPER & GOLD INC.

PART I.  FINANCIAL INFORMATION


Item 1. Financial Statements.


FREEPORT-McMoRan COPPER & GOLD INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)


  

June 30,

  

December 31,

 
  

2004

  

2003

 
  

(In Thousands)

 

ASSETS

          

Current assets:

          

Cash and cash equivalents

 

$

299,752

  $

463,652

 

Restricted cash and investments

  

2,756

  

34,964

 

Accounts receivable

  

240,887

  

196,440

 

Inventories

  

417,147

  

397,027

 

Current taxes, prepaid expenses and other

   

73,152

  

8,050

 

Total current assets

  

1,033,694

  

1,100,133

 

Property, plant, equipment and development costs, net

  

3,285,880

  

3,261,697

 

Deferred mining costs

  

200,342

  

142,635

 

Other assets

  

151,175

  

155,722

 

Investment in PT Smelting

   

54,423

  

58,179

 

Total assets

 

$

4,725,514

  $

4,718,366

 
           

LIABILITIES AND STOCKHOLDERS’ EQUITY

          

Current liabilities:

          

Accounts payable and accrued liabilities

 

$

262,078

  $

311,948

 

Current portion of long-term debt and short-term borrowings

  

76,939

  

152,396

 

Accrued interest payable

  

49,021

  

49,276

 

Unearned customer receipts

  

35,260

  

35,335

 

Rio Tinto share of joint venture cash flows

  

11,888

  

39,693

 

Accrued income taxes

 

 

2,605

  

43,134

 

Total current liabilities

  

437,791

  

631,782

 

Long-term debt, less current portion:

          

Senior notes

  

911,336

  

571,041

 

Convertible senior notes

  

641,543

  

867,604

 

Redeemable preferred stock

  

192,381

  

192,381

 

PT Puncakjaya Power bank debt

  

161,643

  

187,008

 

Equipment and other loans

  

69,119

  

104,172

 

Atlantic Copper debt

  

58,004

  

153,728

 

Total long-term debt, less current portion

   

2,034,026

  

2,075,934

 

Accrued postretirement benefits and other liabilities

  

160,034

  

161,859

 

Deferred income taxes

  

954,667

  

885,248

 

Minority interests

  

190,633

  

187,559

 

Stockholders' equity

 

 

948,363

  

775,984

 

Total liabilities and stockholders' equity

 

$

4,725,514

  $

4,718,366

 
           


The accompanying notes are an integral part of these financial statements.






FREEPORT-McMoRan COPPER & GOLD INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 
 

2004

 

2003

 

2004

 

2003

 
 

(In Thousands, Except Per Share Amounts)

 

Revenues

$

486,334

 

$

609,455

 

$

846,519

 

$

1,134,051

 

Cost of sales:

            

Production and delivery

 

371,679

  

277,408

  

647,291

  

524,878

 

Depreciation and amortization

 

42,590

 

 

68,283

 

 

68,000

 

 

136,071

 

     Total cost of sales

 

414,269

  

345,691

  

715,291

  

660,949

 

Exploration expenses

 

2,787

  

1,827

  

5,014

  

3,331

 

General and administrative expenses

 

22,576

 

 

20,711

 

 

38,136

 

 

37,219

 

     Total costs and expenses

 

439,632

 

 

368,229

 

 

758,441

 

 

701,499

 

Operating income

 

46,702

  

241,226

  

88,078

  

432,552

 

Equity in PT Smelting earnings (losses)

 

(2,548

)

 

2,270

  

(2,906

)

 

2,947

 

Interest expense, net

 

(39,339

)

 

(55,478

)

 

(72,729

)

 

(107,987

)

Gains (losses) on early extinguishment and conversion of debt

 

643

  

(6,579

)

 

(14,000

)

 

(6,579

)

Other income (expense), net

 

(368

)

 

(2,328

)

 

3,174

 

 

(3,947

)

Income before income taxes and minority interests

 

5,090

  

179,111

  

1,617

  

316,986

 

Provision for income taxes

 

(38,210

)

 

(97,908

)

 

(56,551

)

 

(175,122

)

Minority interests in net income of consolidated subsidiaries

 

(5,118

)

 

(14,259

)

 

(2,687

)

 

(25,170

)

Net income (loss) before cumulative effect of change in accounting principle

 

(38,238

)

 

66,944

  

(57,621

)

 

116,694

 

Cumulative effect of change in accounting principle, net

 

-    

  

-    

  

-    

  

9,082

 

Net income (loss)

 

(38,238

)

 

66,944

  

(57,621

)

 

125,776

 

Preferred dividends

 

(15,073

)

 

(9,572

)

 

(15,241

)

 

(19,159

)

Net income (loss) applicable to common stock

$

(53,311

)

$

57,372

 

$

(72,862

)

$

106,617

 
             

Net income (loss) per share of common stock:

            

     Basic:

            

Before cumulative effect

 

$(0.30

)

 

$0.39

  

$(0.39

)

 

$0.67

 

Cumulative effect

 

   -    

  

   -    

  

   -    

  

0.06

 

Net income (loss) per share of common stock

 

$(0.30

)

 

$0.39

  

$(0.39

)

 

$0.73

 

Diluted:

            

Before cumulative effect

 

$(0.30

)

 

$0.37

  

$(0.39

)

 

$0.64

 

Cumulative effect

 

   -    

  

   -    

  

   -    

  

 0.05

 

Net income (loss) per share of common stock

 

$(0.30

)

 

$0.37

  

$(0.39

)

 

$0.69

 
             

Average common shares outstanding:

            

     Basic

 

175,202

  

145,907

  

186,570

  

145,574

 

     Diluted

 

175,202

  

190,990

  

186,570

  

190,122

 
             

Dividends paid per common share

 

$0.20

  

$0.09

  

$0.40

  

$0.09

 



The accompanying notes are an integral part of these financial statements.




FREEPORT-McMoRan COPPER & GOLD INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


  

Six Months Ended June 30,

 
  

2004

  

2003

 
  

(In Thousands)

 

Cash flow from operating activities:

           

Net income (loss)

 

$

(57,621

)

 

$

125,776

 

Adjustments to reconcile net income (loss) to net cash

       provided by (used in) operating activities:

    

Depreciation and amortization

  

68,000

    

136,071

 

Cumulative effect of change in accounting principle

  

        -

    

(9,082

)

Losses on early extinguishment and conversion of debt

  

14,000

    

6,579

 

Deferred income taxes

  

69,564

    

37,451

 

Equity in PT Smelting losses (earnings)

  

2,906

    

(2,947

)

Minority interests’ share of net income

  

2,687

    

25,170

 

Increase in deferred mining costs

  

(57,707

)

  

(21,652

)

Amortization of deferred financing costs

  

4,460

    

9,571

 

Currency translation loss (gain)

  

(1,847

)

  

6,277

 

Elimination of profit on PT Freeport Indonesia sales to

   PT Smelting

  

1,956

    

4,422

 

Provision for inventory obsolescence

  

4,025

    

3,000

 

Other

  

5,986

    

8,176

 

(Increases) decreases in working capital:

           

Accounts receivable

  

(47,949

)

  

(47,524

)

Inventories

  

(33,007

)

  

(11,309

)

Current taxes, prepaid expenses and other

  

(63,766

)

  

(4,844

)

Accounts payable and accrued liabilities

  

(28,286

)

  

19,448

 

Rio Tinto share of joint venture cash flows

  

(30,484

)

  

2,718

 

Accrued income taxes

 

 

(41,868

)

 

 

(3,234

)

Increase in working capital

 

 

(245,360

)

 

 

(44,745

)

Net cash provided by (used in) operating activities

 

 

(188,951

)

 

 

284,067

 

Cash flow from investing activities:

           

PT Freeport Indonesia capital expenditures

  

(59,583

)

  

(58,565

)

Atlantic Copper capital expenditures

  

(15,257

)

  

(3,623

)

Sale of restricted investments

  

19,346

    

23,645

 

Decrease in Atlantic Copper restricted cash

  

11,000

    

        -

 

Investment in PT Smelting

  

(1,106

)

  

        -

 

Other

 

 

 (113

)

 

 

1,890

 

Net cash used in investing activities

 

 

(45,713

)

 

 

(36,653

)

Cash flow from financing activities:

           

Net proceeds from sales of senior notes

  

344,354

    

1,046,437

 

Proceeds from other debt

  

57,708

    

47,400

 

Repayments of debt

  

(337,184

)

  

(593,742

)

Net proceeds from sale of convertible perpetual preferred stock

  

1,067,000

    

        -

 

Purchase of shares of common stock from Rio Tinto

  

(881,868

)

  

        -

 

Purchases of FCX common shares

  

(99,477

)

  

        -

 

Redemption of preferred stock

  

(1,110

)

  

        -

 

Cash dividends paid:

           

Common stock

  

(74,655

)

  

(13,090

)

Preferred stock

  

(5,219

)

  

(19,066

)

Minority interests

  

(929

)

  

        -

 

Net proceeds from exercised stock options

  

4,030

    

20,475

 

Bank credit facilities fees and other

 

 

(1,886

)

 

 

(3,304

)

Net cash provided by financing activities

 

 

70,764

  

 

485,110

 

Net increase (decrease) in cash and cash equivalents

  

(163,900

)

  

732,524

 

Cash and cash equivalents at beginning of year

   

463,652

  

 

7,836

 

Cash and cash equivalents at end of period

 

$

299,752

  

$

740,360

 





The accompanying notes are an integral part of these financial statements.




FREEPORT-McMoRan COPPER & GOLD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.

EARNINGS PER SHARE

Freeport-McMoRan Copper & Gold Inc.’s (FCX) basic net income (loss) per share of common stock was calculated by dividing net income (loss) applicable to common stock by the weighted average number of common shares outstanding during the period.  The following is a reconciliation of net income (loss) and weighted average common shares outstanding for purposes of calculating diluted net income (loss) per share (in thousands, except per share amounts):


  

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 
  

2004

 

2003

 

2004

 

2003

 

Net income (loss) before preferred dividends and cumulative effect of change in accounting principle

 


$


(38,238

)


$


66,944

 


$


(57,621

)


$


116,694

 

Preferred dividends

  

(15,073

)

 

(9,572

)

 

(15,241

)

 

(19,159

)

Net income (loss) before cumulative effect

  

(53,311

)

 

57,372

  

(72,862

)

 

97,535

 

Cumulative effect of change in accounting principle

  

-

  

-

  

-

  

9,082

 

Net income (loss) applicable to common stock

  

(53,311

)

 

57,372

  

(72,862

)

 

106,617

 

Plus income impact of assumed conversion of 8¼%

Convertible Senior Notes, after taxes

  

-

  


12,688

  

-

  


25,341

 

Diluted net income (loss) applicable to common stock

 

$

(53,311

)

$

70,060

 

$

(72,862

)

$

131,958

 
              

Weighted average common shares outstanding

  

175,202

  

145,907

  

186,570

  

145,574

 

Add:  Shares issuable upon conversion of 8¼% Convertible Senior Notes

  

-

  


42,220

  

-

  


42,220

 

Dilutive stock options

  

-

  

2,664

  

-

  

2,120

 

Restricted stock

  

-

  

199

  

-

  

208

 

Weighted average common shares outstanding for purposes of calculating diluted net income (loss) per share

  

175,202

  


190,990

  

186,570

  


190,122

 
              

Diluted net income (loss) per share of common stock:

             

Before cumulative effect

 

$

(0.30

)

$

0.37

 

$

(0.39

)

$

0.64

 

Cumulative effect

  

-

  

-

  

-

  

0.05

 

Net income (loss) per share of common stock

 

$

(0.30

)

$

0.37

 

$

(0.39

)

$

0.69

 


Stock options representing 2.7 million shares in the second quarter of 2004 and 3.0 million shares in the 2004 six-month period and unvested restricted stock representing 0.5 million shares in the second quarter of 2004 and 0.4 million shares in the 2004 six-month period, that otherwise would have been included in the 2004 periods’ earnings per share calculations, were excluded because of the net loss reported for the periods.


Outstanding stock options with exercise prices greater than the average market price of the common stock during the period are excluded from the computation of diluted net income per share of common stock.  In addition, FCX’s convertible preferred stock and convertible senior notes are excluded for the 2004 periods because of the net loss during the periods and certain of these instruments are excluded for the 2003 periods because including the conversion of these instruments would have increased reported diluted net income per share.  A recap of the excluded amounts follows (in thousands, except exercise prices):


 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 
 

2004

 

2003

 

2004

 

2003

 

Weighted average outstanding options

2,346

 

2,285

 

-   

 

2,759

 

Weighted average exercise price

$36.13

 

$32.79

 

-   

 

$30.61

 
           

Interest on 7% Convertible Senior Notes, net of taxesa

$10,357

 

$10,354

 

$20,715

 

$16,160

 

Weighted average shares issuable upon conversiona

18,625

 

18,625

 

18,625

 

14,406

 
             

Interest on 8¼% Convertible Senior Notes, net of taxesb

$1,399

 

-   

c

$3,363

 

-   

c

Weighted average shares issuable upon conversion

4,653

 

-   

c

5,464

 

-   

c


Dividends on 5½% Convertible Perpetual Preferred      Stockb  

$15,125

 

-   

 

$15,293

 

-   

 

Weighted average shares issuable upon conversion

20,682

 

-   

 

10,563

 

-   

 
             

Dividends on Step-Up Convertible Preferred Stock

-   

 

$6,125

 

-   

 

$12,250

 

Weighted average shares issuable upon conversion

-   

 

11,690

 

-   

 

11,690

 
             

a.

FCX’s 7% Convertible Senior Notes were issued on February 11, 2003, and are convertible into 18.6 million shares of common stock.

b.

See Note 3 for a discussion of these securities.

c.

Included in diluted calculation.


Stock-Based Compensation Plans.  FCX has four stock-based employee compensation plans and one stock-based director compensation plan, which are more fully described in Note 6 of FCX’s 2003 Annual Report on Form 10-K.  In May 2004, FCX’s shareholders approved the “2004 Director Compensation Plan” (the 2004 Plan).  The 2004 Plan authorizes awards of options and restricted stock relating to up to 1.0 million shares and the one-time grant of 66,882 stock appreciation rights.  During the second quarter, FCX granted 202,017 stock options, 20,000 restricted shares and 66,882 stock appreciation rights under the 2004 Plan.  Annual stock option and restricted stock grants vest under the 2004 Plan in 25 percent annual increments beginning one year from the date of grant.  FCX accounts for options issued under all of its plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, which require compensation cost for stock-based employee compensation plans to be recognized based on the difference on the date of grant, if any, between the quoted market price of the stock and the amount an employee must pay to acquire the stock. Because all the plans require that the employee pay at least the market price on the date of grant, FCX recognizes no compensation expense on the grant or exercise of its options.  The following table illustrates the effect on net income and earnings per share if FCX had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” which requires compensation cost for all stock-based employee compensation plans to be recognized based on a fair value method (in thousands, except per share amounts):


  

Three Months Ended

June 30,

 

Six Months Ended

June 30,

  

2004

 

2003

 

2004

 

2003

Net income (loss) applicable to common stock, as

   reported

 

$

(53,311

)

$

57,372

 

$

(72,862

)

$

106,617

 

Add:  Stock-based employee compensation expense included in reported net income (loss) for stock option conversions, stock appreciation rights and restricted stock units, net of taxes and minority interests

  

(16

)

 

1,424

  

374

 

 

2,047



Deduct:  Total stock-based employee compensation expense determined under fair value-based method for all awards, net of taxes and minority interests

  

(1,041

)

 

(2,484

)

 

(2,583

)

 

(4,449


)

Pro forma net income (loss) applicable to common stock

 

$

(54,368

)

$

56,312

 

$

(75,071

)

$

104,215

 
             

Earnings per share:

            

Basic – as reported

 

$

(0.30

)

$

0.39

 

$

(0.39

)

$

0.73

 

Basic – pro forma

 

$

(0.31

)

$

0.39

 

$

(0.40

)

$

0.72

 
             

Diluted – as reported

 

$

(0.30

)

$

0.37

 

$

(0.39

)

$

0.69

 

Diluted – pro forma

 

$

(0.31

)

$

0.35

 

$

(0.40

)

$

0.66

 


For the pro forma computations, the values of option grants were calculated on the dates of grant using the Black-Scholes option pricing model.  No other discounts or restrictions related to vesting or the likelihood of vesting of stock options were applied.  The following table summarizes the calculated average fair values and weighted average assumptions used to determine the fair value of FCX’s stock option grants under SFAS No. 123 during the periods presented.


 

Three Months Ended June 30,

 

Six Months Ended June 30,

 
 

2004

 

2003

 

2004

 

2003

 

Fair value per stock option

$

13.73

  

   -

 

$

15.00

 

$

10.04

 

Risk-free interest rate

 

4.3

%

 

   -

  

3.7

%

 

3.7

%

Expected volatility rate

 

48

%

 

   -

  

49

%

 

47

%

Expected life of options (in years)

 

6

  

   -

  

6

  

7

 

Assumed annual dividend

$

0.80

  

   -

 

$

0.80

  

-   

 


2.

BUSINESS SEGMENTS

FCX has two operating segments:  “mining and exploration” and “smelting and refining.”  The mining and exploration segment includes the copper and gold mining operations of PT Freeport Indonesia in Indonesia and FCX’s Indonesian exploration activities.  The smelting and refining segment includes Atlantic Copper’s operations in Spain and PT Freeport Indonesia’s equity investment in PT Smelting in Gresik, Indonesia.  The segment data presented below were prepared on the same basis as the consolidated FCX financial statements.


  

Mining

and Exploration

 

Smelting and Refining

 

Eliminations and Other

 

FCX Total

 
  

(In Thousands)

 

Three months ended June 30, 2004:

             

Revenues

 

$

330,841

a

$

171,736

 

$

(16,243

)

$

486,334

 

Production and delivery

  

175,243

  

201,542

  

(5,106

)b

 

371,679

 

Depreciation and amortization

  

33,417

  

7,028

  

2,145

  

42,590

 

Exploration expenses

  

2,679

  

-    

  

108

  

2,787

 

General and administrative expenses

  

16,339

c

 

3,114

  

3,123

c

 

22,576

 

Operating income (loss)

 

$

103,163

 

$

(39,948

)

$

(16,513

)

$

46,702

 

Equity in PT Smelting losses

 

$

-    

 

$

2,548

 

$

-    

 

$

2,548

 

Interest expense, net

 

$

5,494

 

$

2,919

 

$

30,926

 

$

39,339

 

Provision for income taxes

 

$

37,522

 

$

-   

 

$

688

 

$

38,210

 

Capital expenditures

 

$

34,002

 

$

6,491

 

$

6

 

$

40,499

 

Total assets

 

$

3,561,840

d

$

681,039

e

$

482,635

 

$

4,725,514

 
              

Three months ended June 30, 2003:

             

Revenues

 

$

524,613

a

$

210,681

 

$

(125,839

)

$

609,455

 

Production and delivery

  

163,728

  

204,944

  

(91,264

)b

 

277,408

 

Depreciation and amortization

  

57,700

  

7,046

  

3,537

  

68,283

 

Exploration expenses

  

1,790

  

-    

  

37

  

1,827

 

General and administrative expenses

  

22,404

c

 

2,761

  

(4,454

)c

 

20,711

 

Operating income (loss)

 

$

278,991

 

$

(4,070

)

$

(33,695

)

$

241,226

 

Equity in PT Smelting earnings

 

$

-    

 

$

2,270

 

$

-    

 

$

2,270

 

Interest expense, net

 

$

14,520

 

$

4,222

 

$

36,736

 

$

55,478

 

Provision for income taxes

 

$

96,912

 

$

-   

 

$

996

 

$

97,908

 

Capital expenditures

 

$

29,466

 

$

2,489

 

$

151

 

$

32,106

 

Total assets

 

$

3,615,896

d

$

705,340

e

$

628,319

 

$

4,949,555

 
              

Six months ended June 30, 2004:

             

Revenues

 

$

518,025

a

$

382,953

 

$

(54,459

)

$

846,519

 

Production and delivery

  

326,515

  

413,658

  

(92,882

)b

 

647,291

 

Depreciation and amortization

  

50,603

  

14,095

  

3,302

  

68,000

 

Exploration expenses

  

4,868

  

-    

  

146

  

5,014

 

General and administrative expenses

  

93,351

c

 

6,096

  

(61,311

)c

 

38,136

 

Operating income (loss)

 

$

42,688

 

$

(50,896

)

$

96,286

 

$

88,078

 

Equity in PT Smelting losses

 

$

-    

 

$

2,906

 

$

-    

 

$

2,906

 

Interest expense, net

 

$

11,213

 

$

6,771

 

$

54,745

 

$

72,729

 

Provision for income taxes

 

$

17,943

 

$

-    

 

$

38,608

 

$

56,551

 

Capital expenditures

 

$

59,703

 

$

15,257

 

$

(120

)

$

74,840

 
              


Six months ended June 30, 2003:

             

Revenues

 

$

954,724

a

$

429,076

 

$

(249,749

)

$

1,134,051

 

Production and delivery

  

324,066

  

413,427

  

(212,615

)b

 

524,878

 

Depreciation and amortization

  

114,932

  

14,091

  

7,048

  

136,071

 

Exploration expenses

  

3,264

   

-    

   

67

   

3,331

 

General and administrative expenses

   

38,826

c

 

5,188

   

(6,795

)c

 

37,219

 

Operating income (loss)

 

$

473,636

 

$

(3,630

)

$

(37,454

)

$

432,552

 

Equity in PT Smelting earnings

 

$

-    

 

$

 2,947

 

$

-    

 

$

2,947

 

Interest expense, net

 

$

29,872

 

$

8,200

 

$

69,915

 

$

107,987

 

Provision for income taxes

 

$

164,259

 

$

-    

 

$

10,863

 

$

175,122

 

Capital expenditures

 

$

58,337

 

$

3,623

 

$

228

 

$

62,188

 


a.

Includes PT Freeport Indonesia’s sales to PT Smelting totaling $166.2 million in the 2004 quarter, $154.6 million in the 2003 quarter, $293.2 million in the 2004 six-month period and $275.9 million in the 2003 six-month period.

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 $10.3 million in the 2004 quarter, $6.5 million in the 2003 quarter, $2.0 million in the 2004 six-month period and $4.4 million in the 2003 six-month period.

c.

Includes charges to the mining and exploration segment for FCX stock option exercises which are eliminated in consolidation totaling $2.2 million in the 2004 quarter, $6.8 million in the 2003 quarter, $66.8 million in the 2004 six-month period and $11.2 million in the 2003 six-month period.

d.

Includes PT Freeport Indonesia’s trade receivables with PT Smelting totaling $71.8 million at June 30, 2004, and $49.5 million at June 30, 2003.  

e.

Includes PT Freeport Indonesia’s equity investment in PT Smelting totaling $54.4 million at June 30, 2004, and $43.1 million at June 30, 2003.


3.

DEBT AND EQUITY TRANSACTIONS

During the first quarter of 2004, FCX completed a tender offer and privately negotiated transactions for a portion of its remaining 8¼% Convertible Senior Notes due 2006 resulting in the early conversion of $226.1 million of notes into 15.8 million shares of FCX common stock.  FCX recorded a $10.9 million charge to losses on early extinguishment and conversion of debt in the first quarter of 2004 in connection with these conversions.  The $10.9 million charge included $6.4 million of previously accrued interest costs that were reversed, resulting in an equivalent reduction to interest expense.  Of the $603.8 million of these notes issued in 2001, a total of $537.3 million had been converted to equity as of June 30, 2004.  In June 2004, the remaining $66.5 million of notes were called for redemption on July 31, 2004.  During July, all $66.5 million of the notes were converted into 4.7 million shares of FCX common stock.

 

On February 3, 2004, FCX sold $350 million of 6⅞% Senior Notes due 2014 for net proceeds of $344.4 million.  FCX used a portion of the proceeds from the sale of the 6⅞% Senior Notes to repay $162.4 million of Atlantic Copper borrowings and to refinance certain other FCX 2004 debt maturities.  Atlantic Copper recorded a $3.7 million charge for losses on early extinguishment of debt.  Interest on the notes is payable semiannually on February 1 and August 1 of each year, beginning August 1, 2004.  FCX may redeem some or all of the notes at its option at a make-whole redemption price prior to February 1, 2009, and afterwards at stated redemption prices.  The indenture governing the notes contains certain restrictions, including restrictions on incurring debt, creating liens, selling assets, entering into certain transactions with affiliates, paying cash dividends on common stock, repurchasing or redeeming common or pr eferred equity, prepaying subordinated debt and making investments.  During the second quarter of 2004, FCX purchased in the open market $9.7 million of the 6⅞% Senior Notes for $8.8 million, which including deferred financing costs resulted in a gain of $0.8 million recorded as a reduction to losses on early extinguishment and conversion of debt.


On March 30, 2004, FCX sold 1.1 million shares of 5½% Convertible Perpetual Preferred Stock for $1.1 billion, with net proceeds totaling $1.067 billion.  Each share of preferred stock is initially convertible into 18.8019 shares of FCX common stock, equivalent to a conversion price of approximately $53.19 per common share.  The conversion rate is adjustable upon the occurrence of certain events, including an increase in FCX’s common stock dividend rate above the current annual rate of $0.80 per share.  Beginning March 30, 2009, FCX may redeem shares of the preferred stock by paying cash, FCX common stock or any combination thereof for $1,000 per share plus unpaid dividends, but only if FCX’s common stock price has exceeded 130 percent of the conversion price for at least 20 trading days within a period of 30 consecutive trading days immediately preceding the notice of redemption.  FCX used a portion of the proceeds from the sale to purchase 23.9 million shares of FCX common stock owned by Rio Tinto for $881.9 million (approximately $36.85 per share) and used the remainder for general corporate purposes.


During the second quarter of 2004, FCX purchased 3.4 million shares of its common stock for $99.5 million ($29.39 per share average) under its 20-million-share repurchase program and 16.6 million shares remain available.


4.

EMPLOYEE BENEFITS

The components of net periodic pension benefit cost (credit) for the second quarters of 2004 and 2003 follow (in thousands):


 

FCX

 

PT Freeport Indonesia

 

Atlantic Copper

 
 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

Service cost

$

213

 

$

-

 

$

821

 

$

834

 

$

-

 

$

-

 

Interest cost

610

  

245

  

824

  

888

  

1,248

  

1,237

 

Expected return on plan assets

253

  

(317

)

 

(448

)

 

(485

)

 

-

  

-

 

Amortization of prior service cost

944

  

-

  

237

  

252

  

-     

  

-

 

Amortization of net actuarial loss

-

  

-

  

70

  

160

  

219

  

210

 

Net periodic benefit cost (credit)

$

2,020

a

$

(72

)

$

1,504

 

$

1,649

 

$

1,467

 

$

1,447

 


The components of net periodic pension benefit cost (credit) for the six months ended June 30, 2004 and 2003 follow (in thousands):


 

FCX

 

PT Freeport Indonesia

 

Atlantic Copper

 
 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

Service cost

$

284

 

$

-

 

$

1,702

 

$

1,479

 

$

-

 

$

-

 

Interest cost

 

993

  

594

  

1,707

  

1,589

  

2,543

  

2,405

 

Expected return on plan assets

 

(69

)

 

(898

)

 

(928

)

 

(919

)

 

-

  

-

 

Amortization of prior service cost

 

1,888

  

-

  

491

  

391

  

-

  

-

 

Amortization of net actuarial loss

 

-

  

-

  

146

  

193

  

449

  

431

 

Net periodic benefit cost (credit)

$

3,096

a

$

(304

)

$

3,118

 

$

2,733

 

$

2,992

 

$

2,836

 


a.

Includes $1.5 million in the second quarter and $2.6 million in the six month period for the new SERP

benefit plan discussed below.


In February 2004, FCX established a Supplemental Executive Retirement Plan (SERP) for its two most senior executive officers.  The SERP provides for retirement benefits payable in the form of a joint and survivor annuity or an equivalent lump sum.  The annuity will equal a percentage of the executive’s highest average compensation for any consecutive three-year period during the five years immediately preceding the earlier of the executive’s retirement or completion of 25 years of credited service.  The SERP benefit will be reduced by the value of all benefits due under FCX’s cash-balance pension plan and all other benefit plans sponsored by FCX or any other predecessor employer. Unrecognized prior service cost at inception of the SERP totaled $18.9 million and is being amortized over the five-year term of the executive officers’ current employment agreements.  


5.

INTEREST COST

Interest expense excludes capitalized interest of $0.7 million in the second quarter of 2004, $0.8 million in the second quarter of 2003, $1.1 million in the first six months of 2004 and $1.5 million in the first six months of 2003.

6.   COMPREHENSIVE INCOME

A summary of FCX’s comprehensive income is shown below (in thousands).


  

Three months ended June 30,

 

Six months ended June 30,

 
  

2004

 

2003

 

2004

 

2003

 

Net income (loss)

 

$

(38,238

)

$

66,944

 

$

(57,621

)

$

125,776

 

Other comprehensive income (loss):

             

    Change in unrealized derivatives’ fair value, net of taxes of $0.1 million for the 2004 periods

  

 

32

  

 

2,250

  

 

(114

 

)

 

 

4,660

 

    Reclass to earnings, with no tax effect

  

476

  

(1,982

)

 

982

  

(3,006

)

Total comprehensive income (loss)

 

$

(37,730

)

$

67,212

 

$

(56,753

)

$

127,430

 


7.

RATIO OF EARNINGS TO FIXED CHARGES

The ratio of earnings to fixed charges for the first six months of 2004 and 2003 was 1.0 to 1 and 3.8 to 1, respectively.  For this calculation, earnings consist of income from continuing operations before income taxes, minority interests and fixed charges.  Fixed charges include interest and that portion of rent deemed representative of interest.




----------------------

Remarks


The information furnished herein should be read in conjunction with FCX's financial statements contained in its 2003 Annual Report on Form 10-K.  The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the periods.  All such adjustments are, in the opinion of management, of a normal recurring nature.  




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To The Board of Directors and Stockholders of

Freeport-McMoRan Copper & Gold Inc.:


We have reviewed the condensed consolidated balance sheet of Freeport-McMoRan Copper & Gold Inc. (a Delaware Corporation) and subsidiaries as of June 30, 2004, the related consolidated statements of operations for the three-month and six-month periods ended June 30, 2004 and 2003, and the consolidated statements of cash flows for the six months ended June 30, 2004 and 2003.  These financial statements are the responsibility of the Company’s management.  


We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.


Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.


We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Freeport-McMoRan Copper & Gold Inc. as of December 31, 2003, and the related consolidated statements of income, stockholder’s equity, and cash flows for the year then ended not presented herein, and in our report dated January 28, 2004, which included an explanatory paragraph for changes in accounting principles, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.



ERNST & YOUNG LLP



New Orleans, Louisiana

July 21, 2004



Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.


OVERVIEW


In management’s discussion and analysis, “we,” “us” and “our” refer to Freeport-McMoRan Copper & Gold Inc. (FCX) and its consolidated subsidiaries.  In our discussions of production and sales, references to “aggregate” amounts mean the total of our share and Rio Tinto plc’s share as our joint venture partner.  You should read this discussion in conjunction with our financial statements, the related discussion and analysis of financial condition and results of operations and the discussion of our “Business and Properties” in our Form 10-K for the year ended December 31, 2003, filed with the Securities and Exchange Commission.  The results of operations reported and summarized below are not necessarily indicative of future operating results.


We operate through our majority-owned subsidiaries, PT Freeport Indonesia and PT Puncakjaya Power (Puncakjaya Power), and through Atlantic Copper, S.A. (Atlantic Copper) and PT Irja Eastern Minerals (Eastern Minerals), our principal wholly owned subsidiaries.  PT Freeport Indonesia, our principal operating subsidiary, conducts exploration, mining and production activities in a 24,700-acre area called Block A located in Papua, Indonesia.  PT Freeport Indonesia also conducts exploration activities (which are currently suspended) in an approximate 500,000-acre area called Block B in Papua.  Puncakjaya Power’s sole business is to supply power to PT Freeport Indonesia’s operations.  Our principal asset is the Grasberg mine located in Block A, which contains the largest single gold reserve and one of the largest copper reserves of any mine in the world.


Atlantic Copper’s operations are 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 owns 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 (which are also currently suspended) in Papua, Indonesia.  


We own approximately 90.64 percent of PT Freeport Indonesia, of which 9.36 percent is owned through our wholly owned subsidiary, PT Indocopper Investama.  The Government of Indonesia owns the remaining approximate 9.36 percent of PT Freeport Indonesia.  We received a request from the Indonesian Department of Energy and Mineral Resources to offer to sell to Indonesian Nationals shares in PT Indocopper Investama at fair market value.  In response to this request and in view of the potential benefits of having additional Indonesian ownership in our project, we have agreed to consider a potential sale of an interest in PT Indocopper Investama at fair market value.  Neither our Contract of Work with the Indonesian Government nor Indonesian law requires us to divest any portion of our ownership interest in PT Freeport Indonesia or PT Indocopper Investama.


Outlook

Our copper and gold sales volumes have averaged 1.4 billion pounds of copper and 2.35 million ounces of gold annually over the 1999 to 2003 period.  Average annual sales volumes over the next five years (2004 to 2008) are expected to approximate 1.3 billion pounds of copper and 2.2 million ounces of gold. Based on these estimates and copper prices at approximately $1.30 per pound, the impact on our annual cash flow for each $0.10 per pound change in copper prices would approximate $60 to $65 million, including the effects of price changes on royalty costs and treatment charges, and for each $25 per ounce change in gold prices would approximate $28 million.


Following the October 9, 2003, slippage event and the December 12, 2003, debris flow in the same section of the Grasberg open pit, PT Freeport Indonesia focused its open-pit operations on accelerating the removal of waste material from the south wall to restore safe access to the higher-grade ore areas in the pit.  These activities allowed PT Freeport Indonesia to resume in April 2004 previously planned mining operations in the key ore areas of the pit while continuing waste removal activities.  


As previously reported, a portion of the higher grade ore previously forecast to be mined in 2004 has been deferred to future periods, resulting in plans to produce significant volumes of copper and gold in the last half of 2004 and in 2005.  Compared to the first half of 2004, ore grades are expected to be higher for the remainder of 2004 and 2005 resulting in increased metal production in those periods.  


Annual sales are expected to approximate 1.0 billion pounds of copper and 1.5 million ounces of gold in 2004, and 1.5 billion pounds of copper and 2.9 million ounces of gold in 2005.  Consolidated operating cash flows for 2004 are expected to be adversely affected by the significant volume of PT Freeport Indonesia’s metal sales in the fourth quarter and Atlantic Copper’s operating results (see “Smelting and Refining”).  Consolidated operating cash flows in 2005 are expected to benefit from the projected increase in PT Freeport Indonesia’s metal sales.


Copper and Gold Markets

The graph above illustrates copper prices and estimated available world copper inventories through July 31, 2004.  Copper stocks at the London Metal Exchange (LME) and New York Commodity Exchange (COMEX) declined sharply in 2003 and in 2004.  The outlook for copper demand improved during the first quarter of 2004 with continued strong demand from China and emerging signs of increased manufacturing activity around the world and copper prices rose sharply following large increases in late 2003.  During the second quarter of 2004, steps taken by the Chinese government to slow growth in the Chinese economy, the expectations for increased U.S. interest rates, the resulting impact on foreign exchange rates particularly with respect to the U.S. dollar and euro exchange rate, and investor sentiment about commodity prices caused copper prices to be volatile.  Copper prices ranged from $1.16 to $1.44 per pound and averaged $1.26 per pound i n the second quarter of 2004.  Favorable supply and demand fundamentals and continued declines in world copper inventories have resulted in higher copper prices, which closed at $1.31 per pound on the LME on August 5, 2004.  The outlook for copper markets remains positive and many industry analysts are forecasting a market deficit in the next two years and average prices of over $1.00 per pound.


 

The positive environment for gold continued in the second quarter with gold prices ranging from $374 to $427 per ounce, supported by ongoing geo-political strife and terrorist fears, a weak U.S. dollar and large U.S. deficits, and actions by gold producers to reduce hedge positions.  Gold prices averaged $393 per ounce in the second quarter of 2004 and the current view of gold prices expressed by many market analysts remains positive.  Movements in gold prices have closely followed movements in the U.S. dollar against other currencies.  The London gold price closed at approximately $391 per ounce on August 5, 2004.  


World metal prices for copper and gold have historically fluctuated widely and are affected by numerous factors beyond our control as described further in our Form 10-K for the year ended December 31, 2003.  Accordingly, we make no predictions regarding future prices.


CONSOLIDATED RESULTS


Summary comparative results for the second-quarter and six-month periods follow (in millions, except per share amounts):

 

Second Quarter

 

Six Months

 
 

2004

 

2003

 

2004

 

2003

 

Revenues

$

486.3

 

$

609.5

 

$

846.5

 

$

1,134.1

 

Operating income

 

46.7

  

241.2

  

88.1

  

432.6

 

Net income (loss) applicable to common stock before cumulative effect adjustment

 

(53.3

 

)

 

57.4

  

(72.9

)

 

97.5

 

Net income (loss) applicable to common stock

 

(53.3

)

 

57.4

  

(72.9

)

 

106.6

 

Diluted net income (loss) per share of common stock:

            

Before cumulative effect adjustment

 

(0.30

)

 

0.37

  

(0.39

)

 

0.64

 

Applicable to common stock

 

(0.30

)

 

0.37

  

(0.39

)

 

0.69

 


Consolidated revenues include PT Freeport Indonesia’s sale of copper concentrates, which also contain significant amounts of gold and silver, and the sale by Atlantic Copper of copper anodes, cathodes, wire and wire rod, and gold in anodes and slimes.  Consolidated revenues and net income vary significantly with fluctuations in the market prices of copper and gold and other factors.  Based on PT Freeport Indonesia’s projected share of 2004 copper sales (1.0 billion pounds) and assuming an average price of $1.30 per pound of copper, a $0.01 per pound change in the average price realized would have an approximate $9 million impact on our revenues and an approximate $5 million impact on our net income.  A $5 per ounce change in the average price realized on PT Freeport Indonesia’s share of projected 2004 gold sales (1.5 million ounces) would have an approximate $7 million impact on our revenues and an approximate $4 million impact on our net income.  


On limited past occasions, in response to market conditions, we have entered into copper and gold price protection contracts for a 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.  We have outstanding gold-denominated and silver-denominated preferred stock with dividends and redemption amounts determined by commodity prices.  


Consolidated revenues for the second quarter and first six months of 2004 reflect substantially lower copper and gold revenues at PT Freeport Indonesia and at Atlantic Copper, compared with the same periods in 2003.  PT Freeport Indonesia’s revenues were adversely affected by lower ore grades and reduced mill throughput as PT Freeport Indonesia completed its efforts to restore safe access to the higher-grade ore areas in its Grasberg open-pit mine following the fourth-quarter 2003 slippage and debris flow events (see “Mining and Exploration – PT Freeport Indonesia Operating Results”).  Atlantic Copper’s revenues were adversely affected by its scheduled major maintenance turnaround (see “Smelting and Refining – Atlantic Copper Operating Results”).  PT Freeport Indonesia resumed mining activities in high grade ore areas in April 2004 and normal milling operations in June 2004.  


Second-quarter 2004 consolidated revenues included net reductions of $5.6 million ($2.9 million to net income or $0.02 per share) primarily for final pricing of concentrates sold in prior quarters, compared with $0.6 million ($0.3 million to net income or less than $0.01 per share) to second-quarter 2003 revenues.  Six-month 2004 consolidated revenues included net additions of $7.2 million ($3.7 million to net income or $0.02 per share) compared with $11.0 million ($5.7 million to net income or $0.03 per share), primarily for final pricing of concentrates sold in prior years.

 

Consolidated production and delivery costs for the 2004 periods were higher than the 2003 periods primarily because of the largely fixed nature of PT Freeport Indonesia’s cost structure and the lower level of sales from PT Freeport Indonesia to Atlantic Copper in the 2004 periods. Consolidated depreciation and amortization expense decreased to $42.6 million in the second quarter of 2004 and $68.0 million in the first six months of 2004 compared with $68.3 million and $136.1 million, respectively, in the 2003 periods, primarily because of lower sales volumes at PT Freeport Indonesia.  Exploration expenses increased to $2.8 million in the second quarter of 2004 and $5.0 million in the first six months of 2004, from $1.8 million and $3.3 million, respectively, in the 2003 periods, reflecting increased drilling in Block A during 2004.  General and administrative expenses increased to $22.6 million in the second quarter of 2004 and $38.1 mi llion in the first six months of 2004 from $20.7 million and $37.2 million, respectively, in the 2003 periods (see “Other Financial Results”).  


Net interest expense decreased to $39.3 million in the second quarter of 2004 from $55.5 million in the second quarter of 2003, and to $72.7 million in the first six months of 2004 from $108.0 million in the first six months of 2003 primarily because we reduced average debt levels, including through the early conversions of our 8¼% Convertible Senior Notes into common stock (see Note 3 and “Capital Resources and Liquidity – Financing Activities”).  First-quarter 2004 conversions of 8¼% Convertible Senior Notes also resulted in a $6.4 million reduction of interest expense for previously accrued amounts that were reclassified as losses on early extinguishment and conversion of debt.


Other income (expense) includes the impact of translating into U.S. dollars Atlantic Copper’s net euro-denominated liabilities, primarily its retiree pension obligations.  Changes in the $/€ exchange rate require us to adjust the dollar value of net euro-denominated liabilities and record the adjustment in earnings.  The exchange rate was $1.26 per euro at December 31, 2003, and $1.22 per euro at March 31, 2004 and June 30, 2004.  Exchange rate effects on our net income from euro-denominated liabilities were gains (losses) of $(0.2) million in the second quarter of 2004, $(3.8) million in the second quarter of 2003, $1.8 million in the first six months of 2004 and $(6.3) million in the first six months of 2003.


PT Freeport Indonesia’s Contract of Work provides for a 35 percent corporate income tax rate.  PT Indocopper Investama (100 percent owned by FCX) will pay a 30 percent corporate income tax on dividends it receives from its 9.36 percent ownership in PT Freeport Indonesia.  In addition, the tax treaty between Indonesia and the United States provides for a withholding tax rate of 10 percent on dividends and interest that PT Freeport Indonesia and PT Indocopper Investama pay to our parent company.  We also incur a U.S. alternative minimum tax at a rate of two percent based primarily on consolidated income, net of smelting and refining results.  We currently record no income taxes at Atlantic Copper, which is subject to taxation in Spain, because it has not generated significant taxable income in recent years and has substantial tax loss carryforwards for which we have provided no financial statement benefit.  We receive no c onsolidated tax benefit from these losses because they cannot be used to offset PT Freeport Indonesia’s profits in Indonesia.  


Parent company costs consist primarily of interest, depreciation and amortization, and general and administrative expenses.  We receive minimal tax benefit from these costs, including interest expense, primarily because our parent company generates no taxable income from U.S. sources.  As a result, our provision for income taxes as a percentage of our consolidated income before income taxes and minority interests will vary as PT Freeport Indonesia’s income changes absent changes in Atlantic Copper and parent company costs. Summaries of the approximate significant components of the calculation of our consolidated provision for income taxes are shown below (in thousands, except percentages).

 

 

Three months ended

June 30,

 

Six months ended

June 30,

 
 

2004

 

2003

 

2004

 

2003

 

Mining and exploration segment operating incomea

$

105,399

 

$

285,796

 

$

109,531

 

$

484,871

 

Mining and exploration segment interest expense, net

 

(5,494

)

 

(14,520

)

 

(11,213

)

 

(29,872

)

Intercompany operating profit recognized (deferred)

 

(9,561

)

 

(33,877

)

 

38,619

  

(35,885

)

     Income before taxes

 

90,344

   

237,399

   

136,937

   

419,114

 

Indonesian corporate income tax rate (35%) plus U.S. alternative minimum tax rate (2%)


37%

 

 

37%

 

 

37%

 

 

37%

 

Corporate income taxes

 

33,427

   

87,838

   

50,667

   

155,072

 
             

Approximate PT Freeport Indonesia net income

 

56,917

   

149,561

   

86,270

   

264,042

 

Withholding tax on FCX’s equity share

 

9.064%

   

9.064%

   

9.064%

   

9.064%

 

Withholding taxes

 

5,159

   

13,556

   

7,820

   

23,933

 
             

Tax refund

 

        -

  

        -

  

(2,182

)

 

        -

 

Other

 

(376

)

 

(3,486

)

 

246

  

(3,883

)

             

FCX consolidated provision for income taxes

$

38,210

 

$

97,908

 

$

56,551

 

$

175,122

 
             

FCX consolidated effective tax rate

 

(b)

  

55%

  

(b)

  

55%

 

 

 


 

a.

Excludes charges for FCX stock option exercises which are eliminated in consolidation totaling $2.2 million in the 2004 quarter, $6.8 million in the 2003 quarter, $66.8 million in the 2004 six-month period and $11.2 million in the 2003 six-month period.

b.

Rates are not meaningful for the 2004 periods because of the small amounts of consolidated income before taxes and minority interests.


RESULTS OF OPERATIONS


We have two operating segments:  “mining and exploration” and “smelting and refining.”  The mining and exploration segment consists of FCX’s Indonesian activities including PT Freeport Indonesia’s copper and gold mining operations, Puncakjaya Power’s power generating operations (after eliminations with PT Freeport 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.  Summary comparative operating income (loss) by segment follows (in millions):



 

Second Quarter

 

Six Months

 
 

2004

 

2003

 

2004

 

2003

 

Mining and explorationa

$

103.2

 

$

279.0

 

$

42.7

 

$

473.6

 

Smelting and refining

 

(40.0

)

 

(4.1

)

 

(50.9

)

 

(3.6

)

Intercompany eliminations and othera, b

 

(16.5

)

 

(33.7

)

 

96.3

  

(37.4

)

FCX operating income

$

46.7

 

$

241.2

 

$

88.1

 

$

432.6

 
             

a.

Includes charges to the mining and exploration segment for FCX stock option exercises which are eliminated in consolidation totaling $2.2 million in the 2004 quarter, $6.8 million in the 2003 quarter, $66.8 million in the 2004 six-month period and $11.2 million in 2003 six-month period.

b.

We defer recognizing profits on PT Freeport Indonesia’s sales to Atlantic Copper and on 25 percent of PT Freeport Indonesia’s sales to PT Smelting until their sales of final products to third parties.  Changes in the amount of these deferred profits impacted operating income by $(9.6) million in the second quarter of 2004, $(33.9) million in the second quarter of 2003, $38.6 million in the first six months of 2004 and $(35.9) million in the first six months of 2003.  Our consolidated quarterly earnings fluctuate depending on the timing and prices of these sales.  At June 30, 2004, our deferred profits to be recognized in future periods’ operating income totaled $17.6 million, $9.0 million to net income, after taxes and minority interest sharing.


MINING AND EXPLORATION

A summary of changes in PT Freeport Indonesia revenues between the periods follows (in millions):





 

Second

 

Six

 
 

Quarter

 

Months

 

PT Freeport Indonesia revenues – prior year period

$

524.6

 

$

954.7

 

Increases (decreases):

      

Sales volumes:

      

Copper

 

(143.1

)

 

(356.1

)

Gold

 

(173.2

)

 

(330.7

)

Price realizations:

      

Copper

 

95.8

  

151.8

 

Gold

 

14.8

  

23.1

 

Adjustments, primarily for copper pricing on prior period open sales

 

(15.1

)

 

3.6

 

Treatment charges, royalties and other

 

27.0

  

71.6

 

PT Freeport Indonesia revenues – current year period

$

330.8

 

$

518.0

 


PT Freeport Indonesia reported lower production and sales in the 2004 periods, reflecting the mining of lower grade material and accelerated waste removal activities following the fourth-quarter 2003 slippage and debris flow events.  Copper sales volumes totaled 205.1 million pounds in the second quarter of 2004, 48 percent lower than the 395.2 million pounds reported in the second quarter of 2003.  Second-quarter 2004 copper price realizations of $1.22 per pound were $0.47 per pound higher than the second-quarter 2003 realizations of $0.75 per pound.  Gold sales volumes totaled 351,100 ounces in the second quarter of 2004, 59 percent lower than the 849,200 ounces reported in the second quarter of 2003.  Gold price realizations of $389.97 per ounce in the second quarter of 2004 were $42 an ounce higher than second-quarter 2003 realizations of $347.69 per ounce.  For the six month periods, copper sales volumes totaled 310.5 mi llion pounds in 2004, 61 percent lower than the 787.2 million pounds in 2003, and gold sales volumes totaled 474,900 ounces, 67 percent lower than the 1,433,100 ounces in 2003.  Copper price realizations of $1.24 per pound in the first six months of 2004 were $0.49 per pound higher than the 2003 period realizations of $0.75 per pound.   Gold price realizations of $393.80 per ounce in the first six months of 2004 were approximately $49 an ounce higher than 2003 period realizations of $345.14 per ounce.


Treatment charges and royalties were lower in the 2004 periods compared with the 2003 periods primarily because of lower sales volumes.  Royalty costs totaled $7.9 million in the second quarter of 2004, $9.8 million in the second quarter of 2003, $12.7 million in the first six months of 2004 and $16.7 million in the first six months of 2003. Treatment charges vary with the volume of metals sold and the price of copper, and royalties vary with the volume of metals sold and the prices of copper and gold.  In addition, treatment charges vary based on PT Freeport Indonesia’s customer mix.


Substantially all of PT Freeport Indonesia’s concentrate sales contracts provide final copper pricing in a specified future period based on prices quoted on the LME.  PT Freeport Indonesia records revenues and invoices its customers based on LME prices at the time of shipment.  Under accounting rules, these terms create an “embedded derivative” in our concentrate sales contracts which must be adjusted to fair value through earnings each period until the date of final copper pricing.  PT Freeport Indonesia’s second-quarter 2004 revenues include net reductions of $15.8 million for adjustments to the fair value of embedded copper derivatives in second-quarter 2004 concentrate sales contracts, compared with net additions of $7.7 million in the second quarter of 2003.  PT Freeport Indonesia’s six-month 2004 revenues included net reductions of $0.8 million for adjustments to the fair value of embedded derivative s in concentrate sales contracts, compared with net additions of $1.9 million in the 2003 period.


At June 30, 2004, embedded derivatives on consolidated copper sales totaling 144.8 million pounds were recorded at an average price of $1.22 per pound.  All of these sales are expected to be finally priced over the next few months.  A one-cent movement in the average price used for these embedded derivatives will have an approximate $0.7 million impact on 2004 consolidated net income.


PT Freeport Indonesia sells its copper concentrates primarily under long-term sales agreements denominated in U.S. dollars, mostly to companies in Asia and Europe and to international trading companies.  In December 2003, PT Freeport Indonesia declared force majeure following the fourth-quarter 2004 slippage and debris flow events in the Grasberg open pit.  In April 2004, PT Freeport Indonesia established safe access and resumed mining activities in the higher-grade ore areas of the pit.  PT Freeport Indonesia’s share of sales for the third quarter of 2004 is projected to approximate 260 million pounds of copper and 360,000 ounces of gold, and 430 million pounds of copper and 660,000 ounces of gold for the fourth quarter of 2004.  PT Freeport Indonesia’s share of sales is expected to approximate 1.0 billion pounds of copper and 1.5 million ounces of gold in 2004, and 1.5 billion pounds of copper and 2.9 million ounces of gold in 2005.  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, and, after 2021, a 40 percent interest in all production from Block A.  The agreement provides for adjustments to the metal sharing when events such as the slippage and debris flow events described above occur. Our estimate of PT Freeport Indonesia’s share of sales is subject to adjustment based on actual results and interpretation of the joint venture agreement.


Safety continues as PT Freeport Indonesia’s highest priority and the information gained from recent technical studies following the 2003 slippage events is being incorporated in our long-range mine plans.  PT Freeport Indonesia’s share of annual sales over the five-year period from 2004 to 2008 is expected to average approximately 1.3 billion pounds of copper and 2.2 million ounces of gold.  Annual metal production is expected to vary depending on the sequence of mine phases at the Grasberg mine.  In addition, the recent mine plan incorporates a design would allow PT Freeport Indonesia to access at least 20 million metric tons of high-grade Grasberg underground reserves through the open pit, thereby extending the open pit life into 2015.


PT Freeport Indonesia has long-term contracts to provide approximately 60 percent of Atlantic Copper’s copper concentrate requirements at market prices and nearly all of PT Smelting’s copper concentrate requirements. Under the PT Smelting contract, for the first 15 years of PT Smelting’s operations beginning December 1998, the treatment and refining charges on the majority of the concentrate PT Freeport Indonesia provides will not fall below specified minimum rates, subject to renegotiation in 2008.  The rate was $0.23 per pound since commencement of PT Smelting’s operations in 1998 until April 2004, when it declined to a minimum of $0.21 per pound.  


PT Freeport Indonesia Operating Results


  

Second Quarter

  

Six Months

 
  

2004

  

2003

  

2004

  

2003

 

PT Freeport Indonesia, Net of Rio Tinto’s Interest

Copper (recoverable)

            

    Production (000s of pounds)

209,300

  

401,200

  

316,400

  

790,000

 

    Production (metric tons)

94,900

  

181,900

  

143,500

  

358,300

 

    Sales (000s of pounds)

 

205,100

  

395,200

  

310,500

  

787,200

 

    Sales (metric tons)

 

93,000

  

179,300

  

140,800

  

357,100

 

    Average realized price per pound

 

$1.22

  

$0.75

  

$1.24

  

$0.75

 

Gold (recoverable ounces)

            

    Production

 

364,900

  

858,400

  

490,200

  

1,438,000

 

    Sales

 

351,100

  

849,200

  

474,900

  

1,433,100

 

    Average realized price per ounce

 

$389.97

  

$347.69

  

$393.80

  

$345.14

 
 

PT Freeport Indonesia, Gross Profit per Pound of Copper (cents):

Average realized price

 

122.0

  

75.3

  

123.6

  

74.7

 

Production costs:

            

    Site production and delivery

 

84.0

a

 

40.0

a

 

104.2

a

 

39.9

a

    Gold and silver credits

 

(68.8

)

 

(76.2

)

 

(63.2

)

 

(64.5

)

    Treatment charges

 

21.2

  

17.4

  

21.7

  

17.6

 

    Royalty on metals

 

3.8

  

2.5

  

4.1

  

2.1

 

        Net cash production costs

 

40.2

  

(16.3

)

 

66.8

  

(4.9

)

    Depreciation and amortization

 

16.3

  

14.6

  

16.3

  

14.6

 

    Reclamation, noncash and other

 

1.4

  

1.6

  

1.0

  

1.3

 

        Total production costs

 

57.9

  

(0.1

)

 

84.1

  

11.0

 

Adjustments, primarily for copper  

   pricing on prior period open sales

 

(4.5

)

 

1.1

  

5.9

  

1.7

 

Gross profit per pound of copper

 

59.6

  

76.5

  

45.4

  

65.4

 



PT Freeport Indonesia, 100% Aggregate Operating Data

Ore milled (metric tons per day)

 

164,200

  

221,300

  

158,000

  

229,700

 

Average ore grade

            

    Copper (percent)

 

.82

  

1.24

  

.67

  

1.19

 

    Gold (grams per metric ton)

 

.95

  

1.95

  

.69

  

1.59

 

Recovery rates (percent)

            

    Copper

 

88.2

  

89.8

  

86.6

  

89.1

 

    Gold


 

84.6

  

87.9

  

81.5

  

87.2

 

Copper (recoverable)

            

    Production (000s of pounds)

229,000

  

474,700

  

347,900

  

935,200

 

    Production (metric tons)

 

103,900

  

215,300

  

157,800

  

424,200

 

    Sales (000s of pounds)

 

224,100

  

467,600

  

340,900

  

932,100

 

    Sales (metric tons)

 

101,600

  

212,100

  

154,600

  

422,800

 

Gold (recoverable ounces)

            

    Production

 

383,600

  

1,091,900

  

514,900

  

1,829,300

 

    Sales

 

369,600

  

1,080,100

  

499,700

  

1,822,600

 


a.

Net of deferred mining costs totaling $31.5 million (15.4 cents per pound) in the second quarter of 2004, $14.4 million (3.6 cents per pound) in the second quarter of 2003, $57.7 million (18.6 cents per pound) in the first six months of 2004 and $21.7 million (2.8 cents per pound) in the first six months of 2003.  


Mill throughput averaged 164,200 metric tons of ore per day in the second quarter of 2004, 221,300 metric tons of ore in the second quarter of 2003, 158,000 metric tons of ore in the first six months of 2004 and 229,700 metric tons of ore in the first six months of 2003.  The lower mill throughput rates reflect the mining of lower grade material and accelerated waste removal activities at the Grasberg open pit following the fourth-quarter 2003 slippage and debris flow events.   Mill throughput, which varies depending on ore types being processed, exceeded 200,000 metric tons of ore per day in June and is expected to average approximately 220,000 metric tons per day in the second half of 2004.  Approximate average daily throughput processed at our mill facilities from each of our producing mines follows (metric tons of ore per day):


 

Second Quarter

 

Six Months

 
 

2004

 

2003

 

2004

 

2003

 

Grasberg open pit

118,700

 

171,100

 

112,600

 

179,600

 

Deep Ore Zone underground mine

45,500

 

40,800

 

45,400

 

38,300

 

Intermediate Ore Zone underground mine

     -

 

9,400

 

     -

 

11,800

 

     Total mill throughput

164,200

 

221,300

 

158,000

 

229,700

 


Production from the Deep Ore Zone (DOZ) underground mine averaged 45,500 metric tons of ore per day, representing 28 percent of total second-quarter 2004 mill throughput.  DOZ operations continue to perform above design capacity of 35,000 metric tons of ore per day, and PT Freeport Indonesia expects to increase the sustained capacity of the DOZ underground operation to 50,000 metric tons per day with the addition of a second crusher and additional ventilation for an aggregate estimated capital cost of approximately $50 million over a three-year period (PT Freeport Indonesia’s share would approximate $30 million).  The DOZ has been developed as one of the world’s largest underground operations.  The Intermediate Ore Zone underground mine was depleted during the third quarter of 2003, producing almost 30 percent more copper and gold throughout its 10-year life than the initial reserve estimates.  


Second-quarter 2004 copper ore grades averaged 0.82 percent, compared with 1.24 percent in the second quarter of 2003.  Copper recovery rates were 88.2 percent for the second quarter of 2004, compared with 89.8 percent for the second quarter of 2003.  In the second quarter of 2004, ore milled averaged 0.95 grams per metric ton (g/t) of gold, compared with 1.95 g/t in the second quarter of 2003. Gold recovery rates were 84.6 percent for the second quarter of 2004, compared with 87.9 percent for the second quarter of 2003.  The mining of lower grade material and accelerated waste removal activities at the Grasberg open pit reduced second-quarter 2004 ore grades and recovery rates.  Compared to the first half of 2004, ore grades are expected to be higher for the remainder of 2004 and 2005 resulting in increased metal production in the second half of 2004 and in 2005.


Unit net cash production costs, including gold and silver credits, averaged $0.40 per pound of copper during the second quarter of 2004, compared with a net credit of $(0.16) per pound for the second quarter of 2003.  Higher unit site production and delivery costs in the 2004 period reflected significantly lower sales volumes resulting from PT Freeport Indonesia’s accelerated waste removal efforts on the south wall of the Grasberg pit, which were completed during the quarter, and the primarily fixed nature of a large portion of PT Freeport Indonesia’s cost structure.


Unit site production and delivery costs in the second quarter of 2004 averaged $0.84 per pound of copper, $0.44 per pound higher than the $0.40 reported in the second quarter of 2003.  For the first six months of 2004, unit site production and delivery costs of $1.04 per pound were $0.64 per pound higher than the $0.40 per pound in the 2003 period.  Unit production and delivery costs are net of deferred mining costs of $0.15 per pound ($31.5 million) for the second quarter of 2004, $0.04 per pound ($14.4 million) for the second quarter of 2003, $0.19 per pound ($57.7 million) for the first six months of 2004 and $0.03 per pound ($21.7 million) for the first six months of 2003.  The increase in deferred mining costs primarily reflects PT Freeport Indonesia’s accelerated waste removal efforts.  PT Freeport Indonesia’s second-quarter 2004 waste to ore ratio averaged 4.0 to 1, compared with a life-of-mine average ratio of 2. 2 to 1.  An increase in the sustained capacity of the DOZ underground operation as discussed above would result in a higher life-of-mine average waste to ore ratio.  


Unit treatment charges vary with the price of copper, and royalty rates vary with prices of copper and gold.  In addition, treatment charges vary based on PT Freeport Indonesia’s customer mix.  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.  In connection with our fourth concentrator mill expansion completed in 1998, PT Freeport Indonesia agreed to pay the Government of Indonesia voluntary additional royalties (royalties not required by the Contract of Work) to provide further support to the local governments and the people of the Indonesian province of Papua (see Note 1 of “Notes to Consolidated Financial Statements” in our 2003 Annual Report on Form 10- K).  As a result of the recent rise in copper prices, we expect our 2004 royalty costs to increase compared with 2003 royalty costs of $26.5 million.  If copper prices average $1.10 per pound and gold prices average $400 per ounce, we would expect royalty costs to total approximately $38 million ($0.04 per pound) for 2004.  If copper prices average $1.30 per pound and gold prices average $400 per ounce, we would expect royalty costs to total approximately $45 million ($0.045 per pound).  These estimates assume 2004 sales volumes of 1.0 billion pounds of copper and 1.5 million ounces of gold.


Assuming second-half 2004 average prices of $1.30 per pound for copper and $400 per ounce for gold, and copper and gold sales of 1.0 billion pounds and 1.5 million ounces for 2004, and 1.5 billion pounds and 2.9 million ounces for 2005, PT Freeport Indonesia estimates its net cash production costs, including gold credits, would average approximately $0.38 per pound in 2004 (a weighted average of $0.24 per pound for the remainder of the year, with a higher average in the third quarter and a lower average in the fourth quarter because of lower projected sales volumes in the third quarter) and a net credit of $0.04 per pound in 2005.  The weighted average net cash production cost for the two-year period would approximate $0.13 per pound.  Net unit cash production costs for 2004 would change by approximately $0.025 per pound for each $25 per ounce change in the average price of gold in the second half of the year.  Forecasted unit costs ar e calculated on the same basis as the historical unit costs, which are discussed above and reconciled in “Product Revenues and Production Costs.”  


The functional currency for our operations in Indonesia and Spain is the U.S. dollar.  All of our revenues and a significant portion of our costs are denominated in U.S. dollars; however, some costs and certain asset and liability accounts are denominated in Indonesian rupiah, Australian dollars or euros. Generally, our results are positively affected when the U.S. dollar strengthens in relation to these foreign currencies and adversely affected when the U.S. dollar weakens in relation to these foreign currencies.


PT Freeport Indonesia recorded gains (losses) totaling $0.4 million in the second quarter of 2004, $(1.3) million in the second quarter of 2003, $0.9 million in the first six months of 2004 and $(1.8) million in the first six months of 2003 related to its rupiah-denominated net monetary assets and liabilities.  PT Freeport Indonesia’s labor costs are mostly rupiah denominated.  At estimated annual aggregate rupiah payments of 1.3 trillion and an exchange rate of 9,400 rupiah to one U.S. dollar, the exchange rate as of June 30, 2004, a one-thousand-rupiah increase in the exchange rate would result in an approximate $13 million decrease in aggregate annual operating costs.  A one-thousand-rupiah decrease in the exchange rate would result in an approximate $16 million increase in aggregate annual operating costs.  


PT Freeport Indonesia purchases certain materials and supplies denominated in Australian dollars.  At estimated annual aggregate Australian dollar payments of 200 million and an exchange rate of $0.70 to one Australian dollar, the exchange rate as of June 30, 2004, a $0.01 increase or decrease in the exchange rate would result in an approximate $2 million change in aggregate annual costs.


At times, PT Freeport Indonesia has entered into foreign currency forward contracts to hedge a portion of its aggregate anticipated Indonesian rupiah and Australian dollar payments.  As of June 30, 2004, PT Freeport Indonesia had foreign currency contracts to hedge 450.0 billion in rupiah payments from April 2005 through December 2005, or approximately 34 percent of aggregate projected rupiah payments for 2005, at an average exchange rate of 10,059 rupiah to one U.S. dollar.  PT Freeport Indonesia accounts for these contracts as cash flow hedges.


Exploration Activities  

As previously reported, we completed a 37,000-meter, 65-hole diamond drilling program at “Deep MLZ,” a 250 million metric ton exploration target, and extended the drilling program to include an additional 9,000 meters.  The Deep MLZ is an underground exploration target below the current Mill Level Zone ore body.  To date, assay results have been received on 50 holes comprising approximately 31,000 meters.  The drilling intercepted mineralized zones in 46 holes with lengths ranging from 24 meters to 737 meters (average of 322 meters) with interval grades ranging from 0.41 percent to 7.11 percent copper equivalent (averaging approximately 1.9 percent copper equivalent).  We have initiated engineering studies on Deep MLZ required for reserve and resource determination.  Pursuant to our joint venture arrangements with Rio Tinto, Rio Tinto is entitled to a 40 percent interest in any reserve additions.  Copper equivalent percentage is used to express the relative value of multi-metal ores in terms of one metal, in this case, copper.  The calculation expresses the relative value of the ore using estimates of contained metal quantities, metal prices, recovery rates, treatment charges and royalties.  


The Indonesian government previously approved a suspension of our field exploration activities outside of our current mining operations area, which have been in suspension since 2000 due to safety and security issues and uncertainty relating to a possible conflict between our mining and exploration rights in certain forest areas covered by our Contracts of Work and an Indonesian law enacted in 1999 prohibiting open-pit mining in forest preservation areas. Recent Indonesian legislation allows for open-pit mining in PT Freeport Indonesia’s Block B area.  The current suspensions were granted for one-year periods ending February 26, 2005, for Block B; March 31, 2004, for PT Nabire Bakti Mining; and November 15, 2004, for Eastern Minerals.  We are currently seeking renewal for the PT Nabire Bakti Mining suspension and expect to continue to seek suspension renewals for additional one-year periods for each of the suspended areas as required.


SMELTING AND REFINING

Our investment in smelters serves an important role in our concentrate marketing strategy.  PT Freeport Indonesia generally sells approximately one-half of its concentrate production to its affiliated smelters, Atlantic Copper and PT Smelting, and the remainder to other customers.   


Treatment charges for smelting and refining copper concentrates represent a cost to PT Freeport Indonesia and income to Atlantic Copper and PT Smelting.  Through downstream integration, we are assured placement of a significant portion of our concentrate production and operating hedges for treatment and refining charges.  While currently low smelting and refining charges have adversely affected the operating results of Atlantic Copper, they have benefited the operating results of PT Freeport Indonesia’s mining operations.  


Atlantic Copper Operating Results

($ In Millions)

Second Quarter

Six Months

2004

2003

2004

2003

Gross profit (loss)

$(36.8

)a

$(1.3

)

$(44.8

) a

$1.6

 

Add depreciation and amortization expense

7.0

7.0

14.1

14.1

Other

3.5

0.4

4.0

0.3

Cash margin (deficit)

$(26.3

) a

$6.1

 

$(26.7

) a

$16.0

 

Operating loss

$(39.9

)

$(4.1

)

$(50.9

)

$(3.6

)

Concentrate and scrap treated (metric tons)

129,500

244,600

316,600

486,700

Anodes production (000s of pounds)

80,200

163,800

206,900

323,400

Cathodes, wire rod and wire sales (000s of pounds)

102,400

140,200

214,400

278,900

Gold sales in anodes and slimes (ounces)

49,000

205,600

176,800

447,600

a.   Includes costs related to Atlantic Copper’s 51-day major maintenance turnaround totaling $23.5 million for the second quarter and $27.5 million for the six-month period.


Atlantic Copper returned to normal operations on May 12, 2004 following the completion of a 51-day scheduled major maintenance turnaround that began in March 2004, adversely affecting second quarter results. Atlantic Copper’s operating cash margin was a $26.3 million deficit in the 2004 quarter, compared with a positive $6.1 million in the 2003 quarter, and a $26.7 million deficit in the first six months of 2004, compared with a positive $16.0 million in the first six months of 2003.  The deficits in the 2004 periods were primarily because of Atlantic Copper’s major maintenance turnaround.  


Atlantic Copper treated 129,500 metric tons of concentrate and scrap in the second quarter of 2004, compared with 244,600 metric tons in the year ago period.  For the six month periods, concentrate and scrap treated totaled 316,600 metric tons in 2004 and 486,700 metric tons in 2003.  Cathode production totaled 67.5 million pounds and sales totaled 102.4 million pounds during the second quarter of 2004, compared with 137.9 million pounds and 140.2 million pounds during the second quarter of 2003.  For the six month periods, cathode production totaled 196.3 million pounds and sales totaled 214.4 million pounds during 2004, compared with 272.8 million pounds and 278.9 million pounds during 2003.  Atlantic Copper’s cathode cash production costs per pound of copper, before currency hedging, averaged $0.57 in the second quarter of 2004, $0.16 in the second quarter of 2003, $0.36 in the first six months of 2004 and $0.16 in the fir st six months of 2003.  Unit costs for 2004 were adversely affected by lower production and higher costs from the maintenance turnaround.  Treatment charges Atlantic Copper receives continued at historically low levels averaging $0.15 per pound for the second quarters of 2004 and 2003, $0.15 per pound for the first six months of 2004 and $0.16 per pound for the first six months of 2003.  


Atlantic Copper reported operating losses of $39.9 million for the second quarter of 2004, $4.1 million for the second quarter of 2003, $50.9 million for the first six months of 2004 and $3.6 million for the first six months of 2003. During the second quarter of 2004, Atlantic Copper’s maintenance turnaround adversely affected costs and volumes resulting in an approximate $35.0 million reduction in operating results, including an approximately $11.5 million impact from lower volumes, compared with second-quarter 2003 results.  The effect of the 51-day turnaround on Atlantic Copper’s first half results was approximately $40 million, including an approximate $12 million impact from lower volumes.  Major maintenance turnarounds of this duration typically occur approximately every nine years for Atlantic Copper, with significantly shorter term maintenance turnarounds occurring in the interim.  Atlantic Copper has undertaken a co st reduction and operational enhancement plan, which will begin to be implemented during the second half of 2004.  Once fully implemented, the plan intends to reduce unit costs and enhance operating and administrative efficiencies.


We defer recognizing profits on PT Freeport Indonesia’s sales to Atlantic Copper and on 25 percent of PT Freeport Indonesia’s sales to PT Smelting until the final sales to third parties occur.  Changes in these net deferrals resulted in reductions to our operating income totaling $9.6 million ($4.9 million to net income) in the second quarter of 2004 and an addition of $38.6 million ($19.8 million to net income) in the first six months of 2004.  The second quarter reduction in net income was lower than previous estimates primarily because of the timing of sales to affiliated smelters and lower copper prices.  In the second quarter of 2003, changes in these net deferrals reduced operating income by $33.9 million ($17.4 million to net income) and by $35.9 million ($18.4 million) in the first six months of 2003.  At June 30, 2004, our net deferred profits on PT Freeport Indonesia concentrate inventories at Atlantic Copper a nd PT Smelting to be recognized in future periods’ net income totaled $9.0 million.  We expect that the net deferral of profits on PT Freeport Indonesia’s sales to Atlantic Copper and PT Smelting will result in a reduction to net income over the remainder of the year as PT Freeport Indonesia’s production and shipments to affiliated smelters increase.  Based on current copper and gold prices and shipping schedules, we estimate the change in deferred intercompany profits on PT Freeport Indonesia sales to Atlantic Copper and PT Smelting will approximate a $13 million reduction to net income in the third quarter of 2004.  The estimated change in deferred intercompany profits may differ substantially because of changes in the timing of shipments to affiliated smelters and metal prices.


The majority of Atlantic Copper’s revenues are denominated in U.S. dollars; however, operating costs, other than concentrate purchases, and certain asset and liability accounts are denominated in euros.  Atlantic Copper’s estimated annual euro payments total approximately 100 million euros.  At a June 30, 2004, exchange rate of $1.22 per euro, a $0.05 increase or decrease in the exchange rate would result in an approximate $5 million change in annual costs.


In March 2004, we used a portion of the proceeds from the sale of our 6⅞% Senior Notes to repay $162.4 million of Atlantic Copper borrowings (see “Capital Resources and Liquidity – Financing Activities”). Atlantic Copper recorded a $3.7 million ($0.02 per share) accounting charge for losses on early extinguishment of debt.  As of June 30, 2004, FCX’s net investment in Atlantic Copper totaled approximately $137 million, FCX had $189.5 million of loans outstanding to Atlantic Copper and Atlantic Copper’s debt under nonrecourse financing arrangements totaled $67.0 million.


Atlantic Copper had euro-denominated net monetary liabilities at June 30, 2004, totaling $51.7 million recorded at an exchange rate of $1.22 per euro.  The exchange rate was $1.22 per euro at March 31, 2004, and $1.26 per euro at December 31, 2003.  Adjustments to Atlantic Copper’s euro-denominated net liabilities to reflect changes in the exchange rate are recorded in other income (expense) and totaled $(0.2) million in the second quarter of 2004, $(3.8) million in the second quarter of 2003, $1.8 million in the first six months of 2004 and $(6.3) million in the first six months of 2003.


PT Smelting Operating Results  

   
 

Second Quarter

 

Six Months

 

2004

 

2003

 

2004

 

2003

 

(In millions)

PT Freeport Indonesia sales to PT Smelting

$166.2

 

$154.6

 

$293.2

 

$275.9

Equity in PT Smelting earnings (losses)

(2.5

)

2.3

 

(2.9

)

2.9

 

PT Freeport Indonesia operating profits deferred

10.3

 

6.5

 

2.0

 

4.4

 


PT Freeport Indonesia accounts for its 25 percent interest in PT Smelting using the equity method and provides PT Smelting with substantially all of its concentrate requirements.  During the second quarter of 2004, PT Smelting completed a 31-day maintenance turnaround two days ahead of schedule and resumed normal operations. Major maintenance turnarounds of this duration typically occur approximately every four years for PT Smelting, with significantly shorter term maintenance turnarounds in the interim.  PT Smelting treated 135,400 metric tons of concentrate in the second quarter of 2004, 208,400 metric tons in the 2003 quarter, 302,700 metric tons in the first six months of 2004 and 420,700 metric tons in the first six months of 2003.  


PT Smelting reported second-quarter 2004 production of 86.9 million pounds of cathodes and sales of 89.7 million pounds of cathodes, compared with production of 124.1 million pounds and sales of 128.2 million pounds during the second quarter of 2003.  For the first six months of 2004, cathode production totaled 183.9 million pounds and sales totaled 181.7 million pounds, compared with six-month 2003 totals of 245.1 million pounds and 245.0 million pounds.  PT Smelting’s unit cathode cash production costs averaged $0.22 per pound in the second quarter of 2004, $0.10 per pound in the second quarter of 2003, $0.17 per pound in the first six months of 2004 and $0.10 per pound in the first six months of 2003, reflecting the impact of lower volumes in 2004.  

  

OTHER FINANCIAL RESULTS


The FCX/Rio Tinto joint ventures incurred $4.3 million of aggregate exploration costs in the second quarter of 2004, $2.8 million in the second quarter of 2003, $7.9 million in the first six months of 2004 and $5.2 million in the first six months of 2003.  Our exploration program for 2004 is focused on the Block A area of our Contract of Work, primarily the Deep MLZ target discussed earlier, that have potential to add reserves and to provide information to support future exploration.  Our share of these exploration costs charged to expense totaled $2.8 million in the second quarter of 2004, $1.8 million in the second quarter of 2003, $5.0 million in the first six months of 2004 and $3.3 million in the first six months of 2003.  Aggregate exploration costs for the second half of 2004 are expected to total approximately $5 million, of which our share is expected to be approximately $3.5 million.


General and administrative expenses were $22.6 million in the second quarter of 2004 and $20.7 million in the second quarter of 2003.  For the first six months of 2004, general and administrative expenses totaled $38.1 million, compared with $37.2 million for the first six months of 2003.  The cost of our outstanding stock appreciation rights varies with the price of our common stock price, resulting in increases (decreases) in general and administrative expenses totaling $(1.1) million in the second quarter of 2004, $1.7 million in the second quarter of 2003, $(1.4) million in the first six months of 2004 and $1.8 million in the first six months of 2003.  Our parent company charges PT Freeport Indonesia for the in-the-money value of exercised employee stock options.  These charges are eliminated in consolidation; however, PT Freeport Indonesia shares these charges with Rio Tinto and Rio Tinto’s reimbursements reduce our cons olidated general and administrative expenses.  General and administrative expenses include Rio Tinto’s share of joint venture reimbursements for employee stock option exercises which increased (decreased) general and administrative expenses by $0.8 million in the second quarter of 2004, $(1.3) million in the second quarter of 2003, $(4.9) million in the first six months of 2004 and $(2.3) million in the first six months of 2003.  


Total interest cost (before capitalization) was $40.0 million in the second quarter of 2004, $56.3 million in the second quarter of 2003, $73.8 million in the first six months of 2004 and $109.4 million in the first six months of 2003. Interest costs decreased in 2004 primarily because we reduced average debt levels, including through the early conversions of a total of $537.3 million of our 8¼% Convertible Senior Notes into 37.6 million shares of common stock (see “Capital Resources and Liquidity – Financing Activities”).  First-quarter 2004 conversions of 8¼% Convertible Senior Notes also resulted in a $6.4 million reduction of interest expense for previously accrued amounts that were reclassified to losses on early extinguishment and conversion of debt.  Capitalized interests costs totaled $0.7 million in the second quarter of 2004, $0.8 million in the second quarter of 2003, $1.1 million in the first six months of 2004 and $1.5 million in the first six months of 2003.  


CAPITAL RESOURCES AND LIQUIDITY


Operating Activities  

Net cash used in operating activities during the first six months of 2004 totaled $189.0 million, including $245.4 million for working capital uses, compared with net operating cash flow provided by operating activities of $284.1 million, including $44.7 million for working capital uses, in the first six months of 2003.  The decrease in 2004 from the prior year reflects significantly lower production and sales and increased working capital requirements. Although we have $195 million available under our revolving credit facility, no amounts have been borrowed under this facility.  At June 30, 2004, we had $299.8 million of cash and cash equivalents.  Operating activities are expected to generate positive cash flows for the remainder of 2004 and for the foreseeable future based on anticipated operating results and metal prices.  Using current sales estimates and assuming metals prices of $1.30 per pound of copper and $40 0 per ounce of gold, we expect our consolidated operating cash flows to total approximately $215 million for 2004 ($400 million in the second half of the year) and $1.1 billion for 2005, before considering the possible receipt of any insurance proceeds discussed below.  Each $0.10 per pound change in copper prices in the balance of the year would affect 2004 cash flows by approximately $35 million and 2005 cash flows by approximately $75 million. Each $25 per ounce change in gold prices would affect 2004 cash flows by approximately $12 million and 2005 cash flows by approximately $36 million.  


PT Freeport Indonesia maintains property damage and business interruption insurance related to its operations.  We have notified our insurers of the October 9 and December 12, 2003 events and are in discussions with them about potential coverage for our losses from those events.  Any losses covered by insurance would be subject to a substantial deductible and various coverage limits.  No assurance can be provided at this time about the extent to which our losses will be covered by insurance.


Investing Activities  

Capital expenditures for PT Freeport Indonesia and Atlantic Copper totaled $74.8 million for the first six months of 2004, compared to the $62.2 million reported in the first six months of 2003.  Total capital expenditures for 2004 are expected to approximate $165 million, including approximately $26 million for long-term development projects, and are expected to total approximately $135 million in 2005.  We expect to fund our remaining 2004 and 2005 capital expenditures with operating cash flows and available cash.  


We sold $4.2 million of our restricted investments in the first six months of 2004 and $23.6 million in the first six months of 2003 to pay scheduled semiannual interest due on our 8¼% Convertible Senior Notes.  Conversions of the 8¼% Convertible Senior Notes during the first quarter of 2004 allowed us to sell an additional $15.1 million of our restricted investments.  Restricted investments totaling $2.8 million at June 30, 2004, are scheduled to fund interest payments through July 2004 on our remaining outstanding 8¼% Convertible Senior Notes (see below).  In the first quarter of 2004, Atlantic Copper repaid a working capital revolving credit facility that was secured by certain copper concentrate inventory and $11.0 million of previously restricted cash became unrestricted.  


Financing Activities

We completed several financing transactions during the first six months of 2004 to reduce interest costs and to improve our financial position.  In July 2004, Standard & Poor’s upgraded our corporate credit rating to “B+” from “B;” however, our rating remains limited by Indonesia’s sovereign rating.  In January 2004, we completed a tender offer and privately negotiated transactions for a portion of our remaining 8¼% Convertible Senior Notes due 2006 resulting in the early conversion of $226.1 million of notes into 15.8 million shares of our common stock.  We recorded a $10.9 million charge to losses on early extinguishment and conversion of debt in connection with these conversions.  The $10.9 million charge included $6.4 million of previously accrued interest costs, resulting in an equivalent reduction in interest expense.  Of the $603.8 million of 8¼% Convertible Senior Notes issued in 2001, a tota l of $537.3 million had been converted into 37.6 million shares of our common stock through June 30, 2004.  In June 2004, we called for redemption on July 31, 2004 the remaining $66.5 million of 8¼% Convertible Senior Notes.  During July, all $66.5 million of the notes were converted into 4.7 million shares of our common stock.  


On February 3, 2004, we sold $350 million of 6⅞% Senior Notes due 2014 for net proceeds of $344.4 million. We used a portion of the proceeds to repay $162.4 million of Atlantic Copper borrowings and to refinance other FCX 2004 debt maturities.  Atlantic Copper recorded a $3.7 million charge to losses on early extinguishment of debt to accelerate amortization of deferred financing costs.  Interest on the notes is payable semiannually on February 1 and August 1 of each year, beginning August 1, 2004.  We may redeem some or all of the notes at our option at a make-whole redemption price prior to February 1, 2009, and afterwards at stated redemption prices.  The indenture governing the notes contains certain restrictions, including restrictions on incurring debt, creating liens, selling assets, entering into transactions with affiliates, paying cash dividends on common stock, repurchasing or redeeming common or preferred equity , prepaying subordinated debt and making investments.  During the second quarter of 2004, we purchased in the open market $9.7 million of the 6⅞% Senior Notes due 2014 for $8.8 million, which resulted in a gain of $0.8 million recorded as a reduction to losses on early extinguishment and conversion of debt, including related deferred financing cost.


On March 30, 2004, we sold 1.1 million shares of 5½% Convertible Perpetual Preferred Stock for $1.1 billion, with net proceeds totaling $1.067 billion.  Each share of preferred stock is initially convertible into 18.8019 shares of our common stock, equivalent to a conversion price of approximately $53.19 per common share.  The conversion rate is adjustable upon the occurrence of certain events, including an increase in our common stock dividend rate above the current annual rate of $0.80 per share.  Beginning March 30, 2009, we may redeem shares of the preferred stock by paying cash, our common stock or any combination thereof for $1,000 per share plus unpaid dividends, but only if our common stock price has exceeded 130 percent of the conversion price for at least 20 trading days within a period of 30 consecutive trading days immediately preceding the notice of redemption.  We used a portion of the proceeds from the sale to purchase 23.9 million shares of FCX common stock owned by Rio Tinto for $881.9 million (approximately $36.85 per share) and used the remainder for general corporate purposes.


As discussed above, we took steps to improve Atlantic Copper’s liquidity and financial position during the first quarter of 2004 and repaid $162.4 million of Atlantic Copper’s debt, reducing their third-party debt to $67.0 million at June 30, 2004.  In April 2004, we prepaid $66.2 million of our vendor equipment financing.  We have no amounts outstanding under our $195 million credit facility.  


As of June 30, 2004, we had total unrestricted cash and cash equivalents of $299.8 million and total outstanding debt of $2.1 billion.  In February 2003, our Board of Directors authorized the initiation of an annual cash dividend on our common stock of $0.36 per share ($0.09 payable quarterly).  In October 2003, our Board of Directors authorized an increase in the common stock dividend to an annual rate of $0.80 per share.  Dividend payments on common stock totaled $74.7 million in the first six months of 2004 and $13.1 million in the first six months of 2003. The declaration and payment of dividends is at the discretion of the Board and will depend on our financial results, cash requirements, future prospects and other factors deemed relevant by the Board.  Pursuant to the restricted payment covenants in our 10⅛% Senior Notes and 6⅞% Senior Notes, the amount available for dividend payments and other restricted paymen ts as of June 30, 2004, was approximately $400 million.  


In 2003, the Board also approved a new open market share purchase program for up to 20 million shares, which replaced our previous program.  Under this new program, we acquired 3.4 million shares during the second quarter of 2004 for $99.5 million, $29.39 per share, and 16.6 million shares remain available.  No shares have been purchased during the third quarter of 2004 through August 5, 2004.  The timing of future purchases of our common stock is dependent on many factors including the price of our common shares, our cash flow and financial position, and general economic and market conditions.


During the first quarter of 2003, we completed two senior note offerings.  On January 29, 2003, we sold $500 million of 10⅛% Senior Notes due 2010.  Interest on the notes is payable semiannually on February 1 and August 1 of each year.  We may redeem some or all of the notes at our option at a make-whole redemption price prior to February 1, 2007, and afterwards at stated redemption prices.  The indenture governing the notes contains certain restrictions on incurring debt, creating liens, entering into sale leaseback transactions, taking actions to limit distributions from certain subsidiaries, selling assets, entering into transactions with affiliates, paying cash dividends on common stock, repurchasing or redeeming common or preferred equity, prepaying subordinated debt and making investments.  


On February 11, 2003, we sold $575 million of 7% Convertible Senior Notes due 2011.  Interest on the notes is payable semiannually on March 1 and September 1 of each year. The notes are convertible, at the option of the holder, at any time on or prior to maturity into shares of FCX’s common stock at a conversion price of $30.87 per share, which is equal to a conversion rate of approximately 32.39 shares of common stock per $1,000 principal amount of notes.  We used a portion of the $1.046 billion in net proceeds from the two first-quarter 2003 note offerings to repay all of the then-outstanding amounts under our bank credit facilities.


Below is a summary (in millions) of our debt maturities, including mandatorily redeemable preferred stock, based on loan balances as of June 30, 2004, and the June 30, 2004, London P.M. gold fixing price for one ounce of gold ($395.80) and the London silver fixing price for one ounce of silver ($5.91) in the London bullion market (which determine the preferred stock redemption amounts).  


 

2004

 

2005

 

2006

 

2007

 

2008

 

Thereafter

PT Puncakjaya Power bank debt

$

24.6

 

$

51.6

 

$

37.2

 

$

28.0

 

$

36.0

 

$

34.2

Redeemable preferred stocka

 

14.1

  

14.1

  

184.5

  

-

  

-

  

-

Atlantic Copper debt

 

1.8

  

7.3

  

0.2

  

57.5

  

0.2

  

-

Equipment loans and other

 

2.7

  

6.6

  

13.1

  

13.2

  

13.2

  

25.8

7.50% Senior Notes due 2006

 

  -

  

  -

  

66.5

  

-

  

-

  

-

8¼% Convertible Senior Notesb

 

  66.5

  

  -

  

  -

  

-

  

-

  

-

10⅛% Senior Notes due 2010

 

  -

  

  -

  

  -

  

-

  

-

  

500.0

7% Convertible Senior Notes due 2011c

 

  -

  

  -

  

  -

  

-

  

-

  

575.0

6⅞% Senior Notes due 2014

 

  -

  

  -

  

  -

  

-

  

-

  

340.3

7.20% Senior Notes due 2026

 

  -

  

  -

  

  -

  

-

  

-

  

4.5

        Total debt maturities

$

109.7

 

$

79.6

 

$

301.5

 

$

98.7

 

$

49.4

 

$

1,479.8


a.

Represents $14.1 million in 2004, 2005 and 2006 for our Silver-Denominated Preferred Stock and $170.4 million in February 2006 for our Gold-Denominated Preferred Stock, Series II.

b.

These notes were called for redemption on July 31, 2004.  During July 2004, all $66.5 million of the notes were converted into 4.7 million shares of our common stock.

c.

Conversion price is $30.87 per share.



CAUTIONARY STATEMENT


Our discussion and analysis contains forward-looking statements in which we discuss our expectations regarding future performance.  Forward-looking statements are all statements other than historical facts, such as those regarding anticipated sales volumes, ore grades, commodity prices, royalties costs, unit cash production costs, capital expenditures, exploration expenditures, cash flows, debt maturities and other financial commitments, and political, economic and social conditions in our areas of operations.  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.  The resources and mineralization described in “Mining and Exploration – Exploration Activities” will not qualify as reserves until comprehensive engineering studies establish their economic feasibility.  Accordingly, no assur ance can be given that the estimated resources and mineralization will become proved and probable reserves.  Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include unanticipated mining, milling and other processing problems, accidents that lead to personal injury or property damage, persistent commodity price reductions, changes in political, social or economic circumstances in our area of operations, variances in ore grades, labor relations, adverse weather conditions, the speculative nature of mineral exploration, fluctuations in interest rates and other adverse financial market conditions, and other factors described in more detail under the heading “Risk Factors” in our Form 10-K for the year ended December 31, 2003.  



PRODUCT REVENUES AND PRODUCTION COSTS


PT Freeport Indonesia Product Revenues and Net Cash Production Costs

Net cash production costs per pound of copper is a measure intended to provide investors with information about the cash generating capacity of our mining operations in Indonesia.  This measure is presented by other copper and gold mining companies, although our measures may not be comparable to similarly titled measures reported by other companies.


We calculate gross profit per pound of copper under a “by-product” method, while the copper, gold and silver contained within our concentrates are treated as co-products in our financial statements.  We use the by-product method in our presentation of gross profit per pound of copper because (1) the majority of our revenues are copper revenues, (2) we produce and sell one product, concentrates, which contains all three metals and (3) it is not possible to specifically assign our costs to revenues from the copper, gold and silver we produce in concentrates.  In the co-product method presentation below, costs are allocated to the different products based on their relative revenue values.  Presentations under both methods are presented below along with a reconciliation to amounts reported in our consolidated financial statements.





Three Months Ended June 30, 2004

    
 

By-Product

 

Co-Product Method

 

(In Thousands)

Method

 

Copper

 

Gold

 

Silver

 

Total

 

Revenues

$

251,178

 

$

251,178

 

$

136,115

 

$

4,951

 

$

392,244

 
                

Site production and delivery

 

172,371

  

110,380

  

59,815

  

2,176

  

172,371

 

Gold and silver credits

 

(141,066

)

 

-    

  

-    

  

-    

  

-    

 

Treatment charges

 

43,407

  

27,796

  

15,063

  

548

  

43,407

 

Royalty on metals

 

7,875

  

5,043

  

2,733

  

99

  

7,875

 

Net cash production costs

 

82,587

  

143,219

  

77,611

  

2,823

  

223,653

 

Depreciation and amortization

 

33,417

  

21,399

  

11,596

  

422

  

33,417

 

Reclamation, noncash and other

 

2,872

  

1,839

  

997

  

36

  

2,872

 

Total production costs

 

118,876

  

166,457

  

90,204

  

3,281

  

259,942

 

Adjustments, primarily for copper pricing on prior period open sales

 

(10,121

)

 

(10,121

)

 

-    

  

-    

  

(10,121

)

Gross profit

$

122,181

 

$

74,600

 

$

45,911

 

$

1,670

 

$

122,181

 
                

Pounds of copper sold (000s)

 

205,100

  

205,100

          

Ounces of gold sold

       

351,100

       

Ounces of silver sold

          

824,900

    
                

Gross profit per pound of copper (cents)/per ounce of gold and silver ($):

        

Revenues

 

122.0

  

122.0

  

389.97

  

6.15

    
                

Site production and delivery

 

84.0

  

53.8

  

170.37

  

2.64

    

Gold and silver credits

 

(68.8

)

 

-    

  

-    

  

-    

    

Treatment charges

 

21.2

  

13.6

  

42.90

  

0.66

    

Royalty on metals

 

3.8

  

2.5

  

7.78

  

0.12

    

Net cash production costs

 

40.2

  

69.9

  

221.05

  

3.42

    

Depreciation and amortization

 

16.3

  

10.4

  

33.03

  

0.51

    

Reclamation, noncash and other

 

1.4

  

0.9

  

2.84

  

0.04

    

Total production costs

 

57.9

  

81.2

  

256.92

  

3.97

    

Adjustments, primarily for copper pricing on prior period open sales

 

(4.5

)

 

(4.4

)

 

(2.29

)

 

(0.16

)

   

Gross profit per pound/ounce

 

59.6

  

36.4

  

130.76

  

2.02

    
                

Reconciliation to Amounts Reported

               

(In Thousands)

Revenues

 

Production and Delivery

 

Depreciation and Amortization

       

Totals presented above

$

392,244

 

$

172,371

 

$

33,417

       

Reclamation, noncash and other

 

N/A

  

2,872

  

N/A

       

Less:    Treatment charges per above

 

(43,407

)

 

N/A

  

N/A

       

Royalty per above

 

(7,875

)

 

N/A

  

N/A

       

Adjustments, primarily for copper pricing on prior period open sales per above

 

(10,121

)

 

N/A

  

N/A

       

Mining and exploration segment

 

330,841

  

175,243

  

33,417

       

Smelting and refining segment

 

171,736

  

201,542

  

7,028

       

Eliminations and other

 

(16,243

)

 

(5,106

)

 

2,145

       

As reported in FCX’s consolidated financial statements

$

486,334

 

$

371,679

 

$

42,590

       






Three Months Ended June 30, 2003

    
 

By-Product

 

Co-Product Method

 

(In Thousands)

Method

 

Copper

 

Gold

 

Silver

 

Total

 

Revenues

$

298,721

 

$

298,721

 

$

295,076

 

$

5,883

 

$

599,680

 
                

Site production and delivery

 

157,908

  

78,659

  

77,700

  

1,549

  

157,908

 

Gold and silver credits

 

(300,959

)

 

-    

  

-    

  

-    

  

-    

 

Treatment charges

 

68,613

  

34,179

  

33,761

  

673

  

68,613

 

Royalty on metals

 

9,814

  

4,889

  

4,829

  

96

  

9,814

 

Net cash production costs

 

(64,624

)

 

117,727

  

116,290

  

2,318

  

236,335

 

Depreciation and amortization

 

57,700

  

28,742

  

28,392

  

566

  

57,700

 

Reclamation, noncash and other

 

6,508

  

3,242

  

3,202

  

64

  

6,508

 

Total production costs

 

(416

)

 

149,711

  

147,884

  

2,948

  

300,543

 

Adjustments, primarily for copper pricing on prior period open sales

 

3,360

  

3,360

  

-    

  

-    

  

3,360

 

Gross profit

$

302,497

 

$

152,370

 

$

147,192

 

$

2,935

 

$

302,497

 
                

Pounds of copper sold (000s)

 

395,200

  

395,200

          

Ounces of gold sold

       

849,200

       

Ounces of silver sold

          

1,310,500

    
                

Gross profit per pound of copper (cents)/per ounce of gold and silver ($):

       

Revenues

 

75.3

  

75.3

  

347.69

  

4.49

    
                

Site production and delivery

 

40.0

  

19.9

  

91.50

  

1.18

    

Gold and silver credits

 

(76.2

)

 

-    

  

-    

  

-    

    

Treatment charges

 

17.4

  

8.6

  

39.76

  

0.51

    

Royalty on metals

 

2.5

  

1.2

  

5.69

  

0.07

    

Net cash production costs

 

(16.3

)

 

29.7

  

136.95

  

1.76

    

Depreciation and amortization

 

14.6

  

7.3

  

33.43

  

0.43

    

Reclamation, noncash and other

 

1.6

  

0.8

  

3.77

  

0.05

    

Total production costs

 

(0.1

)

 

37.8

  

174.15

  

2.24

    

Adjustments, primarily for copper pricing on prior period open sales

 

1.1

  

1.1

  

(0.21

)

 

(0.01

)

   

Gross profit per pound/ounce

 

76.5

  

38.6

  

173.33

  

2.24

    


Reconciliation to Amounts Reported

               

(In Thousands)


Revenues

 

Production and Delivery

 

Depreciation and Amortization

       

Totals presented above

$

599,680

 

$

157,908

 

$

57,700

       

Reclamation, noncash and other

 

N/A

  

6,508

  

N/A

       

Less:  Treatment charges per above

 

(68,613

)

 

N/A

  

N/A

       

           Royalty per above

 

(9,814

)

 

N/A

  

N/A

       

           Reclamation costs incurred

 

N/A

  

(688

)

 

N/A

       

Adjustments, primarily for copper pricing on prior period open sales per above

 

3,360

  

N/A

  

N/A

       

Mining and exploration segment

 

524,613

  

163,728

  

57,700

       

Smelting and refining segment

 

210,681

  

204,944

  

7,046

       

Eliminations and other

 

(125,839

)

 

(91,264

)

 

3,537

       

As reported in FCX’s consolidated financial statements

$

609,455

 

$

277,408

 

$

68,283

       






Six Months Ended June 30, 2004

    
 

By-Product

 

Co-Product Method

 

(In Thousands)

Method

 

Copper

 

Gold

 

Silver

 

Total

 

Revenues

$

388,717

 

$

388,717

 

$

187,310

 

$

8,743

 

$

584,770

 
                

Site production and delivery

 

323,546

  

215,073

  

103,636

  

4,837

  

323,546

 

Gold and silver credits

 

(196,053

)

 

-    

  

-    

  

-    

  

-    

 

Treatment charges

 

67,393

  

44,798

  

21,587

  

1,008

  

67,393

 

Royalty on metals

 

12,722

  

8,457

  

4,075

  

190

  

12,722

 

Net cash production costs

 

207,608

  

268,328

  

129,298

  

6,035

  

403,661

 

Depreciation and amortization

 

50,603

  

33,637

  

16,209

  

757

  

50,603

 

Reclamation, noncash and other

 

2,969

  

1,974

  

951

  

44

  

2,969

 

Total production costs

 

261,180

  

303,939

  

146,458

  

6,836

  

457,233

 

Adjustments, primarily for copper pricing on prior period open sales

 

13,370

  

13,370

  

-    

  

-    

  

13,370

 

Gross profit

$

140,907

 

$

98,148

 

$

40,852

 

$

1,907

 

$

140,907

 
                

Pounds of copper sold (000s)

 

310,500

  

310,500

          

Ounces of gold sold

       

474,900

       

Ounces of silver sold

          

1,378,200

    
                

Gross profit per pound of copper (cents)/per ounce of gold and silver ($):

       

Revenues

 

123.6

  

123.6

  

393.80

  

6.14

    
                

Site production and delivery

 

104.2

  

69.3

  

218.23

  

3.51

    

Gold and silver credits

 

(63.2

)

 

-    

  

-    

  

-    

    

Treatment charges

 

21.7

  

14.4

  

45.46

  

0.73

    

Royalty on metals

 

4.1

  

2.7

  

8.58

  

0.14

    

Net cash production costs

 

66.8

  

86.4

  

272.27

  

4.38

    

Depreciation and amortization

 

16.3

  

10.8

  

34.13

  

0.55

    

Reclamation, noncash and other

 

1.0

  

0.6

  

2.00

  

0.03

    

Total production costs

 

84.1

  

97.8

  

308.40

  

4.96

    

Adjustments, primarily for copper pricing on prior period open sales

 

5.9

  

5.8

  

0.62

  

0.20

    

Gross profit per pound/ounce

 

45.4

  

31.6

  

86.02

  

1.38

    
                

Reconciliation to Amounts Reported

               

(In Thousands)

Revenues

 

Production and Delivery

 

Depreciation and Amortization

       

Totals presented above

$

584,770

 

$

323,546

 

$

50,603

       

Reclamation, noncash and other

 

N/A

  

2,969

  

N/A

       

Less:    Treatment charges per above

 

(67,393

)

 

N/A

  

N/A

       

Royalty per above

 

(12,722

)

 

N/A

  

N/A

       

Adjustments, primarily for copper pricing on prior period open sales per above

 

13,370

  

N/A

  

N/A

       

Mining and exploration segment

 

518,025

  

326,515

  

50,603

       

Smelting and refining segment

 

382,953

  

413,658

  

14,095

       

Eliminations and other

 

(54,459

)

 

(92,882

)

 

3,302

       

As reported in FCX’s consolidated financial statements

$

846,519

 

$

647,291

 

$

68,000

       






Six Months Ended June 30, 2003

    
 

By-Product

 

Co-Product Method

 

(In Thousands)

Method

 

Copper

 

Gold

 

Silver

 

Total

 

Revenues

$

589,088

 

$

589,088

 

$

496,223

 

$

11,484

 

$

1,096,795

 
                

Site production and delivery

 

314,666

  

169,007

  

142,364

  

3,295

  

314,666

 

Gold and silver credits

 

(507,707

)

 

-    

  

-    

  

-    

  

-    

 

Treatment charges

 

138,172

  

74,212

  

62,513

  

1,447

  

138,172

 

Royalty on metals

 

16,654

  

8,945

  

7,535

  

174

  

16,654

 

Net cash production costs

 

(38,215

)

 

252,164

  

212,412

  

4,916

  

469,492

 

Depreciation and amortization

 

114,932

  

61,730

  

51,999

  

1,203

  

114,932

 

Reclamation, noncash and other

 

10,243

  

5,502

  

4,634

  

107

  

10,243

 

Total production costs

 

86,960

  

319,396

  

269,045

  

6,226

  

594,667

 

Adjustments, primarily for copper pricing on prior period open sales

 

12,755

  

12,755

  

-    

  

-    

  

12,755

 

Gross profit

$

514,883

 

$

282,447

 

$

227,178

 

$

5,258

 

$

514,883

 
                

Pounds of copper sold (000s)

 

787,200

  

787,200

          

Ounces of gold sold

       

1,433,100

       

Ounces of silver sold

          

2,544,600

    
                

Gross profit per pound of copper (cents)/per ounce of gold and silver ($):

       

Revenues

 

74.7

  

74.7

  

345.14

  

4.49

    
                

Site production and delivery

 

39.9

  

21.5

  

99.34

  

1.29

    

Gold and silver credits

 

(64.5

)

 

-    

  

-    

  

-    

    

Treatment charges

 

17.6

  

9.4

  

43.62

  

0.57

    

Royalty on metals

 

2.1

  

1.1

  

5.26

  

0.07

    

Net cash production costs

 

(4.9

)

 

32.0

  

148.22

  

1.93

    

Depreciation and amortization

 

14.6

  

7.8

  

36.28

  

0.47

    

Reclamation, noncash and other

 

1.3

  

0.7

  

3.23

  

0.04

    

Total production costs

 

11.0

  

40.5

  

187.73

  

2.44

    

Adjustments, primarily for copper pricing on prior period open sales

 

1.7

  

1.7

  

1.11

  

0.02

    

Gross profit per pound/ounce

 

65.4

  

35.9

  

158.52

  

2.07

    


Reconciliation to Amounts Reported

               

(In Thousands)


Revenues

 

Production and Delivery

 

Depreciation and Amortization

       

Totals presented above

$

1,096,795

 

$

314,666

 

$

114,932

       

Reclamation, noncash and other

 

N/A

  

10,243

  

N/A

       

Less:  Treatment charges per above

 

(138,172

)

 

N/A

  

N/A

       

           Royalty per above

 

(16,654

)

 

N/A

  

N/A

       

           Reclamation costs incurred

 

N/A

  

(843

)

 

N/A

       

Adjustments, primarily for copper pricing on prior period open sales per above

 

12,755

  

N/A

  


N/A

       

Mining and exploration segment

 

954,724

  

324,066

  

114,932

       

Smelting and refining segment

 

429,076

  

413,427

  

14,091

       

Eliminations and other

 

(249,749

)

 

(212,615

)

 

7,048

       

As reported in FCX’s consolidated financial statements

$

1,134,051

 

$

524,878

 

$

136,071

       


Atlantic Copper Cathode Cash Production Cost Per Pound Of Copper

Atlantic Copper cathode cash production cost per pound of copper is a measure intended to provide investors with information about the costs associated with our smelting operations in Spain.  Other smelting companies present this measure, although our measure may not be comparable to similarly titled measures reported by other companies.


Below is a reconciliation of our smelting and refining segment production costs reported in our consolidated financial statements to the production costs used to calculate Atlantic Copper’s cathode cash production cost per pound of copper (in thousands, except per pound amounts):


 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 
 

2004

 

2003

 

2004

 

2003

 

Smelting and refining segment production costs reported in FCX’s consolidated financial statements

$

201,542

a

$

204,944

 

$

413,658

a

$

413,427

 

Less:

            

Raw material purchase costs

 

(70,935

)

 

(88,901

)

 

(167,878

)

 

(170,597

)

Production costs of wire rod and wire

 

(55,561

)

 

(16,658

)

 

(84,291

)

 

(35,831

)

Production costs of anodes sold

 

(612

)

 

(3,423

)

 

(1,108

)

 

(6,678

)

Currency hedging

 

-    

  

2,502

  

-    

  

4,117

 

Other

 

(8,099

)

 

(7

)

 

(3,359

)

 

510

 

Credits:

            

Gold and silver revenues

 

(21,265

)

 

(71,116

)

 

(74,023

)

 

(152,189

)

Acid and other by-product revenues

 

(6,607

)

 

(4,760

)

 

(12,371

)

 

(9,345

)

Production costs used in calculating cathode cash production cost per pound

$

38,463

 

$

22,581

 

$

70,628

 

$

43,414

 
             

Pounds of cathode produced

 

67,500

  

137,900

  

196,300

  

272,800

 
             

Cathode cash production cost per pound before hedging

$

0.57

 

$

0.16

 

$

0.36

 

$

0.16

 
             


a.

Includes $23.5 million, $0.35 per pound, in the 2004 quarter and $27.5 million, $0.14 per pound, in the 2004 six-month period for costs related to Atlantic Copper’s major maintenance turnaround.


PT Smelting Cathode Cash Production Cost Per Pound of Copper

PT Smelting cathode cash production cost per pound of copper is a measure intended to provide investors with information about the costs associated with our 25 percent-owned smelting operations in Indonesia.  Other smelting companies present this measure, although our measure may not be comparable to similarly titled measures reported by other companies.


Below is a reconciliation of the production costs used to calculate PT Smelting’s cathode cash production cost per pound of copper to our equity in PT Smelting earnings (losses) reported in our consolidated financial statements (in thousands, except per pound amounts):

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 
 

2004

 

2003

 

2004

 

2003

 

Operating costs – PT Smelting (100%)

$

18,821

 

$

14,161

 

$

33,760

 

$

27,428

 

Add:   Gold and silver refining charges

 

552

  

1,372

  

1,712

  

2,863

 

Less:  Acid and other by-product revenues

 

(2,829

)

 

(1,873

)

 

(5,482

)

 

(3,888

)

Production cost of anodes sold

 

       -

  

(1,641

)

 

(12

)

 

(3,197

)

Other

 

2,315

  

468

  

1,585

  

773

 

Production costs used in calculating cathode cash production cost per pound

$

18,859

 

$

12,487

 

$

31,563

 

$

23,979

 
             

Pounds of cathode produced

 

86,900

  

124,100

  

183,900

  

245,100

 
             

Cathode cash production cost per pound

$

0.22

 

$

0.10

 

$

0.17

 

$

0.10

 
             
             
             

Reconciliation to Amounts Reported

            

Operating costs per above

$

(18,821

)

$

(14,161

)

$

(33,760

)

$

(27,428

)

Other costs

 

(154,608

)

 

(180,984

)

 

(334,906

)

 

(367,279

)

Revenue and other income

 

163,484

  

204,463

  

357,525

  

406,977

 

PT Smelting net income (loss)

 

(9,945

)

 

9,318

  

(11,141

)

 

12,270

 
             

PT Freeport Indonesia’s 25% equity interest

 

(2,486

)

 

2,330

  

(2,785

)

 

3,068

 

Amortization of excess investment cost

 

(62

)

 

(60

)

 

(121

)

 

(121

)

           Equity in PT Smelting earnings (losses) reported in FCX’s consolidated financial statements

$

(2,548

)

$

2,270

 

$

(2,906

)

$

2,947

 


Item 3.  Quantitative and Qualitative Disclosures about Market Risks.

There have been no significant changes in our market risks since the year ended December 31, 2003.  For more information, please read the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003.


Item 4.  Controls and Procedures.

Our chief executive officer and chief financial officer, with the participation of management, have evaluated the effectiveness of our “disclosure controls and procedures” as of a date within 90 days prior to the filing of this quarterly report on Form 10-Q.  Based on their evaluation, they have concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to FCX (including our consolidated subsidiaries) required to be disclosed in our periodic Securities and Exchange Commission filings.  There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.


PART II.   OTHER INFORMATION


Item 1.  Legal Proceedings.  

We are involved from time to time in various legal proceedings of a character normally incident to the ordinary course of our business.  We believe that potential liability in such proceedings would not have a material adverse effect on our financial condition or results of operations.  We maintain liability insurance to cover some, but not all, potential liabilities normally incident to the ordinary course of our business as well as other insurance coverage customary in our business, with coverage limits that we deem prudent.


Item 2.  Changes in Securities and Use of Proceeds.

The following table sets forth common shares we repurchased during the three month period ended June 30, 2004.

       

Current Programa

Period

 

Total

Shares Purchased

 

Average Price Paid Per Share

 

Shares Purchased

 

Shares Available for Purchase

          

April 1 to 30, 2004

 

706,600

 

$

29.78

 

706,600

 

19,293,400

          

May 1 to 31, 2004

 

2,678,000

  

29.29

 

2,678,000

 

16,615,400

          

June 1 to 30, 2004

 

-    

  

-    

 

-    

 

16,615,400

          

     Total

 

3,384,600

  

29.39

 

3,384,600

  
          

a.

In October 2003, our Board of Directors approved a new open market share purchase program for up to 20 million shares, which replaced our previous program.  The program does not have an expiration date.


Item 4. Submission of Matters to a Vote of Security Holders.


Our annual meeting of stockholders was held on May 6, 2004 (the “Annual Meeting”).  Proxies were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.  The following matters were submitted to a vote of security holders during our Annual Meeting:  


 

Votes Cast For


Authority Withheld


1. Election of Directors:

  

Robert J. Allison, Jr.

149,669,366

5,828,048

James R. Moffett

147,652,679

7,844,735

B. M. Rankin, Jr.

143,959,449

11,537,965

J. Taylor Wharton

152,199,133

3,298,281




There were no abstentions with respect to the election of directors.  In addition to the directors elected at the Annual Meeting, the terms of the following directors continued after the Annual Meeting: Robert A. Day, Gerald J. Ford, H. Devon Graham, Jr., J. Bennett Johnston and Bobby Lee Lackey.


 

For


Against


Abstentions


Broker

Non-Votes


2. Ratification of Ernst & Young LLP as independent accountants

151,873,950

2,441,219

976,125

-

3. Proposal to adopt 2004 Director Compensation Plan

103,979,630

29,652,378

1,691,862

19,967,424

4. Stockholder proposal urging management to halt all payments to the Indonesian military and security forces.  

9,545,073

111,189,892

14,588,905

19,967,424


Item 6.

Exhibits and Reports on Form 8-K.

(a)

The exhibits to this report are listed in the Exhibit Index beginning on Page E-1 hereof.

(b)

During the quarter for which this report is filed, the registrant filed two Current Reports on Form 8-K reporting events under Item 5 dated May 4, 2004 and June 25, 2004, and one Current Report on Form 8-K furnishing information under Item 12 dated April 20, 2004.


Subsequent to the end of the quarter for which this report is filed and prior to the date of this filing, the registrant filed two Current Reports on Form 8-K furnishing information under Item 5 dated July 14, 2004 and August 2, 2004, and one Current Report on Form 8-K furnishing information under Item 12 dated July 20, 2004.







FREEPORT-McMoRan COPPER & GOLD INC.



SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



FREEPORT-McMoRan COPPER & GOLD INC.




By:

/s/ C. Donald Whitmire, Jr.           

    C. Donald Whitmire, Jr.

Vice President and

Controller-Financial Reporting

(authorized signatory and

Principal Accounting Officer)


Date:  August 6, 2004










Freeport-McMoRan Copper & Gold Inc.

EXHIBIT INDEX


Exhibit

Number

  Description


2.1

 

Distribution Agreement dated as of July 5, 1995, between FTX and FCX.  Incorporated by reference

to Exhibit 2.3 to the Registration Statement on Form S-3 of FCX filed November 5, 2001 (the FCX

November 5, 2001 Form S-3).  

    

3.1

 

Amended and Restated 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 March 31, 2002 (the FCX 2002

First Quarter Form 10-Q).

    

3.2

 

Certificate of Amendment to Amended and Restated 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 March 31, 2003 (the FCX 2003 First Quarter Form 10-Q).

    

3.3

 

Amended By-Laws of FCX dated as of February 3, 2004.  Incorporated by reference to Exhibit 3.3 to

the Annual Report on Form 10-K of FCX for the fiscal year ended December 31, 2003 (the FCX 2003

Form 10-K).

    

4.1

 

Deposit Agreement dated as of January 15, 1994, among FCX, Mellon, as Depositary, and holders

of depositary receipts (Gold-Denominated II Depositary Receipts) evidencing certain Depositary

Shares, each of which, in turn, represented 0.05 shares of Gold-Denominated Preferred Stock II.

Incorporated by reference to Exhibit 4.5 to the Quarterly Report on Form 10-Q of FCX for the quarter

ended June 30, 2002 (the FCX 2002 Second Quarter Form 10-Q).

    

4.2

 

Form of Gold-Denominated II Depositary Receipt.  Incorporated by reference to Exhibit 4.6 to the

FCX 2002 Second Quarter Form 10-Q.

    

4.3

 

Deposit Agreement dated as of July 25, 1994, among FCX, Mellon, as Depositary, and holders of

depositary receipts (Silver-Denominated Depositary Receipts) evidencing certain Depositary Shares,

each of which, in turn, initially represented 0.025 shares of Silver-Denominated Preferred Stock.

Incorporated by reference to Exhibit 4.7 to the FCX 2002 Second Quarter Form 10-Q.

    

4.4

 

Form of Silver-Denominated Depositary Receipt.  Incorporated by reference to Exhibit 4.8 to the FCX

2002 Second Quarter Form 10-Q.

    

4.5

 

Certificate of Designations of 5½% Convertible Perpetual Preferred Stock of FCX.  Incorporated by

reference to Exhibit 4.1 to the Current Report on Form 8-K of FCX dated March 30, 2004 and filed

March 31, 2004.

    

4.6

 

Registration Rights Agreement dated as of March 30, 2004, by and between FCX, Merrill Lynch,

Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated.  Incorporated by

reference to Exhibit 4.16 to the Registration Statement on Form S-4 of FCX filed April 6, 2004.

    

4.7

 

Amended and Restated Credit Agreement dated as of September 30, 2003, but effective as of

October 2, 2003, among FCX, PT Freeport Indonesia, the several financial institutions that are

parties thereto, U.S. Bank Trust National Association, as PT Freeport Indonesia Trustee, J.P.

Morgan Securities Inc., as Arranger, and JPMorgan Chase Manhattan Bank as Administrative Agent,

Issuing Bank, Security Agent, JAA Security Agent and Documentation Agent.  Incorporated by

reference to Exhibit 4.7 to the Quarterly Report on Form 10-Q of FCX for the quarter ended

September 30, 2003.

    

4.8

 

Indenture dated as of August 7, 2001, from FCX and FCX Investment Ltd. to The Bank of New York,

as trustee with respect to the 8¼% Convertible Senior Notes due 2006.  Incorporated by reference

to Exhibit 4.1 to the FCX November 5, 2001 Form S-3.

   

4.9

 

Collateral Pledge and Security Agreement dated as of August 7, 2001, by and among FCX

Investment Ltd., as pledgor, The Bank of New York, as trustee, and The Bank of New York, as

collateral agent.  Incorporated by reference to Exhibit 4.3 to the FCX November 5, 2001 Form S-3.

    

4.10

 

Senior Indenture dated as of November 15, 1996, from FCX to The Chase Manhattan Bank, as

Trustee.  Incorporated by reference to Exhibit 4.4 to the FCX November 5, 2001 Form S-3.

    

4.11

 

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 the

7.50% Senior Notes due 2006 and the 7.20% Senior Notes due 2026.  Incorporated by reference to

Exhibit 4.5 to the FCX November 5, 2001 Form S-3.

    

4.12

 

Indenture dated as of January 29, 2003, from FCX to The Bank of New York, as Trustee, with

respect to the 10 % Senior Notes due 2010.  Incorporated by reference to Exhibit 4.1 to the Current

Report on Form 8-K of FCX dated February 6, 2003.

    

4.13

 

Indenture dated as of February 11, 2003, from FCX to The Bank of New York, as Trustee, with

respect to the 7% Convertible Senior Notes due 2011.  Incorporated by reference to Exhibit 4.1 to the

Current Report on Form 8-K of FCX dated February 11, 2003 and filed February 25, 2003.

    

4.14

 

Indenture dated as of February 3, 2004, from FCX to The Bank of  New York, as Trustee, with

respect to the 6 ⅞% Senior Notes due 2014.  Incorporated by reference to Exhibit 4.12 to the FCX

2003 Form 10-K.

    

4.15

 

Registration Rights Agreement dated as of February 3, 2004, by and between FCX, J.P. Morgan

Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co. Inc., Banc

One Capital Markets, Inc., Hibernia Southcoast Capital, Inc., HSBC Securities (USA) Inc. and Scotia

Capital (USA) Inc. Incorporated by reference to Exhibit 4.12 to the FCX 2003 Form 10-K.

    

4.16

 

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 Quarterly Report on Form

10-Q of FCX for the quarter ended March 31, 2000.

    

4.17

 

Amendment No. 1 to Rights Agreement dated as of February 26, 2002, between FCX and Mellon

Investor Services.  Incorporated by reference to Exhibit 4.16 to the FCX 2002 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 10.1 to the FCX November 5, 2001

Form S-3.

    

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

November 5, 2001 Form S-3.

    

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 Current Report on Form 8-K of FCX dated November 13, 1996 and filed

November 15, 1996.  

    

10.4

 

Concentrate Purchase and Sales Agreement dated effective December 11, 1996, between PT

Freeport Indonesia and PT Smelting.  Incorporated by reference to Exhibit 10.3 to the FCX

November 5, 2001 Form S-3.  

    

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

10.4 to the FCX November 5, 2001 Form S-3.

    

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 10.5 to the FCX November 5, 2001

Form S-3.

       

10.7

 

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 Annual Report on Form 10-K of FCX for the fiscal year ended December 31, 1997 (the FCX 1997 Form 10-K).

 
    

10.8

 

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 10.9 through 10.49)

    

10.9

 

Annual Incentive Plan of FCX as amended effective February 2, 1999.  Incorporated by reference to

Exhibit 10.11 to the Annual Report on Form 10-K of FCX for the fiscal year ended December 31,

1998 (the FCX 1998 Form 10-K).

    

10.10

 

FCX Performance Incentive Awards Program as amended effective February 2, 1999.  Incorporated

by reference to Exhibit 10.13 to the FCX 1998 Form 10-K.

    

10.11

 

FCX President’s Award Program.  Incorporated by reference to Exhibit 10.7 to the FCX November 5,

2001 Form S-3.

    

10.12

 

FCX Adjusted Stock Award Plan.  Incorporated by reference to Exhibit 10.12 to the FCX 2003 Form

10-K.

    

10.13

 

FCX 1995 Stock Option Plan.  Incorporated by reference to Exhibit 10.13 to the FCX 2003 Form

10-K.

    

10.14

 

FCX 1995 Stock Option Plan for Non-Employee Directors.  Incorporated by reference to Exhibit

10.14 to the FCX 2003 Form 10-K.

    

10.15

 

FCX 1999 Stock Incentive Plan.  Incorporated by reference to Exhibit 10.15 to the FCX 2003 Form

10-K.

    

10.16

 

Form of Notice of Grant of Nonqualified Stock Options and Limited Rights under the 1999 Stock Incentive Plan.

    

10.17

 

Form of Restricted Stock Unit Agreement under the 1999 Stock Incentive Plan.

    

10.18

 

Form of Performance-Based Restricted Stock Unit Agreement under the 1999 Stock Incentive Plan.

    

10.19

 

FCX 1999 Long-Term Performance Incentive Plan.  Incorporated by reference to Exhibit 10.19 to the

Annual Report of FCX on Form 10-K for the year ended December 31, 1999 (the FCX 1999 Form

10-K).

    

10.20

 

FCX Stock Appreciation Rights Plan dated May 2, 2000.  Incorporated by reference to Exhibit 10.20

to the Quarterly Report on Form 10-Q of FCX for the quarter ended June 30, 2001 (the FCX 2001

Second Quarter Form 10-Q).

    

10.21

 

FCX 2003 Stock Incentive Plan.  Incorporated by reference to Exhibit 10.18 to the FCX 2003 Form

10-K.

    

10.22

 

Form of Notice of Grant of Nonqualified Stock Options and Limited Rights under the 2003 Stock Incentive Plan.

    

10.23

 

Form of Restricted Stock Unit Agreement under the 2003 Stock Incentive Plan.

    

10.24

 

Form of Performance-Based Restricted Stock Unit Agreement under the 2003 Stock Incentive Plan.

    

10.25

 

FCX 2004 Director Compensation Plan.

    

10.26

 

Amended Financial Counseling and Tax Return Preparation and Certification Program of FCX.

Incorporated by reference to Exhibit 10.18 to the FCX 2003 First Quarter Form 10-Q.  

    

10.27

 

FM Services Company Performance Incentive Awards Program as amended effective February 2,

1999.  Incorporated by reference to Exhibit 10.19 to the FCX 1998 Form 10-K.

    

10.28

 

Amended FM Services Company Financial Counseling and Tax Return Preparation and Certification

Program.  Incorporated by reference to Exhibit 10.20 to the FCX 2003 First Quarter Form 10-Q.  

    

10.29

 

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.

    

10.30

 

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.

    

10.31

 

Letter Agreement dated January 27, 1997, among Kissinger Associates, Kent Associates, FTX, FCX

and FMS.  Incorporated by reference to Exhibit 10.26 to the Annual Report on Form 10-K of FCX for

the fiscal year ended December 31, 2001 (the FCX 2001 Form 10-K).  

    

10.32

 

Agreement for Consulting Services between FTX and B. M. Rankin, Jr. effective as of January 1,

1990 (assigned to FMS as of January 1, 1996).  Incorporated by reference to Exhibit 10.24 to the

FCX 1997 Form 10-K.

    

10.33

 

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.

    

10.34

 

Supplemental Agreement between FMS and B. M. Rankin, Jr. dated February 2, 2001.  Incorporated

by reference to Exhibit 10.29 to the Annual Report on Form 10-K of FCX for the fiscal year ended

December 31, 2000.

    

10.35

 

Letter Agreement effective as of January 7, 1997, between Senator J. Bennett Johnston, Jr. and

FMS.  Incorporated by reference to Exhibit 10.31 to the FCX 2001 Form 10-K.  

    

10.36

 

Supplemental Letter Agreement dated July 14, 2003, between J. Bennett Johnston, Jr. and FMS.

Incorporated by reference to Exhibit 10.28 to the Quarterly Report on Form 10-Q of FCX for the

quarter ended June 30, 2003 (the FCX 2003 Second Quarter Form 10-Q).

    

10.37

 

Letter Agreement dated November 1, 1999, between FMS and Gabrielle K. McDonald.  Incorporated

by reference to Exhibit 10.33 to the FCX 1999 Form 10-K.

    

10.38

 

Supplemental Letter Agreement dated July 14, 2003, between FMS and Gabrielle K. McDonald.

Incorporated by reference to Exhibit 10.30 to the FCX 2003 Second Quarter Form 10-Q.  

    

10.39

 

Executive Employment Agreement dated April 30, 2001, between FCX and James R. Moffett.

Incorporated by reference to Exhibit 10.35 to the FCX 2001 Second Quarter Form 10-Q.

    

10.40

 

Executive Employment Agreement dated April 30, 2001, between FCX and Richard C. Adkerson.

Incorporated by reference to Exhibit 10.36 to the FCX 2001 Second Quarter Form 10-Q.

    

10.41

 

Change of Control Agreement dated April 30, 2001, between FCX and James R. Moffett.

Incorporated by reference to Exhibit 10.37 to the FCX 2001 Second Quarter Form 10-Q.

    

10.42

 

Change of Control Agreement dated April 30, 2001, between FCX and Richard C. Adkerson.

Incorporated by reference to Exhibit 10.38 to the FCX 2001 Second Quarter Form 10-Q.

    

10.43

 

First Amendment to Executive Employment Agreement dated December 10, 2003, between FCX

and James R. Moffett.  Incorporated by reference to Exhibit 10.36 to the FCX 2003 Form 10-K.

    

10.44

 

First Amendment to Executive Employment Agreement dated December 10, 2003, between FCX

and Richard C. Adkerson.  Incorporated by reference to Exhibit 10.37 to the FCX 2003 Form 10-K.

    

10.45

 

First Amendment to Change of Control Agreement dated December 10, 2003, between FCX and

James R. Moffett.  Incorporated by reference to Exhibit 10.38 to the FCX 2003 Form 10-K.

    

10.46

 

First Amendment to Change of Control Agreement dated December 10, 2003, between FCX and

Richard C. Adkerson. Incorporated by reference to Exhibit 10.39 to the FCX 2003 Form 10-K.

    

10.47

 

Change of Control Agreement dated February 3, 2004, between FCX and Michael J. Arnold.

Incorporated by reference to Exhibit 10.40 to the FCX 2003 Form 10-K.

    

10.48

 

Change of Control Agreement dated February 3, 2004, between FCX and Mark J. Johnson.

Incorporated by reference to Exhibit 10.41 to the FCX 2003 Form 10-K.

    

10.49

 

Change of Control Agreement dated February 3, 2004, between FCX and Kathleen L. Quirk.

Incorporated by reference to Exhibit 10.42 to the FCX 2003 Form 10-K.

    

15.1

 

Letter from Ernst & Young LLP regarding unaudited interim financial statements.

    

31.1

 

Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d – 14(a).

    

31.2

 

Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d – 14(a).

    

32.1

 

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.

    

32.2

 

Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350.








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                                                                                                                                                                                         Exhibit 10.16



FREEPORT-McMoRan COPPER & GOLD INC.


Form of

NOTICE OF GRANT OF

NONQUALIFIED STOCK OPTIONS AND LIMITED RIGHTS

UNDER THE

1999 STOCK INCENTIVE PLAN




1.(a)

Pursuant to the Freeport-McMoRan Copper & Gold Inc. 1999 Stock Incentive Plan (the “Plan”), _________________ (the “Optionee”) is hereby granted effective _______________, 19,___, Options to purchase from the Company, on the terms and conditions set forth in this Notice and in the Plan, [           ] shares of the Class ___ Common Stock of the Company at a purchase price of $[          ] per Share.

(b)

Defined terms not otherwise defined in Section 12 of this Notice shall have the meanings set forth in Section 2 of the Plan.

(c)

The Options granted hereunder are intended to constitute nonqualified stock options and are not intended to constitute incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

2. (a)

All Options granted hereunder shall terminate on [                       ] unless terminated earlier as provided in Section 5 of this Notice.

(b)

The Options granted hereunder shall become exercisable in installments as follows:



Date Exercisable

Number of Shares






(c)

The Options granted hereunder may be exercised with respect to all or any part of the Shares comprising each installment as the Optionee may elect at any time after such Options become exercisable until the termination date set forth in Section 2(a) or Section 5, as the case may be.

(d)

Notwithstanding the foregoing provisions of this Section 2, the Options granted hereunder shall immediately become exercisable in their entirety at such time as there shall be a Change in Control of the Company.

3.

Upon each exercise of the Options granted hereunder, the Optionee shall give written notice to the Company, which shall specify the number of Shares to be purchased and shall be accompanied by payment in full of the aggregate purchase price thereof (which payment may be made in Shares owned by the Optionee), in accordance with procedures established by the Committee.  Such exercise shall be effective upon receipt by the Company of such notice in good order and payment.

4. (a)

Pursuant to the Plan, the Optionee is also hereby granted a Limited Right in respect of each Share subject to the Options granted in Section 1 of this Notice.

(b)

Each Limited Right will entitle the Optionee to receive the excess, if any, of the Offer Price on the date of exercise over the purchase price set forth in Section 1 of this Notice, such amount to be payable only in cash.  Upon the exercise of a Limited Right with respect to any Share subject to option hereunder, the corresponding Option to purchase such Share under the terms of this Notice shall be canceled.

(c)

No Limited Right shall be exercisable before the first day after the expiration date of an Offer or after the ninetieth day after the expiration date of such Offer.  All Limited Rights granted hereunder shall terminate on the date specified in Section 2(a) of this Notice unless terminated earlier as provided in Section 5 of this Notice.

5. (a)

Except as set forth in this Section 5, the Options and Limited Rights provided for in this Notice shall immediately terminate on the date that the Optionee ceases for any reason to be an Eligible Individual.

(b)

If the Optionee ceases to be an Eligible Individual for any reason other than death, Disability, Retirement or termination for Cause, any Option or Limited Right granted hereunder that is then exercisable shall remain exercisable in accordance with the terms of this Notice within three months after the date of such cessation, but in no event shall any such Option or Limited Right be exercisable after the termination dates specified in Section 2(a) and 4(c), respectively.

(c)

If the Optionee ceases to be an Eligible Individual by reason of the Optionee’s Disability or Retirement, (i) any Option granted hereunder that is exercisable on the date of such cessation, as well as any Option granted hereunder that would have become exercisable within one year after the date of such cessation had the Optionee continued to be an Eligible Individual, shall remain exercisable in accordance with the terms of this Notice within three years after the date of such cessation, but in no event shall any such Option be exercisable after the termination date specified in Section 2(a), and (ii) any Limited Right in respect of an Option granted hereunder remaining exercisable in accordance with clause (i) hereof shall remain exercisable in accordance with the terms of this Notice within three months after the date of such cessation, but in no ev ent shall any such Limited Right be exercisable after the termination date specified in Section 4(c).

(d) (i)

If the Optionee ceases to be an Eligible Individual as a result of the Optionee’s death, any Option granted hereunder that is exercisable on the date of such death, as well as any Option granted hereunder that would have become exercisable within one year after the date of such death had the Optionee continued to be an Eligible Individual, shall remain exercisable by the Optionee’s Designated Beneficiary in accordance with the terms of this Notice until the third anniversary of the date of such death, but in no event shall any such Option be exercisable after the termination date specified in Section 2(a).

(ii)

If the Optionee dies after having ceased to be an Eligible Individual and any Option granted hereunder is then exercisable in accordance with the provisions of this Section 5, such Option will remain exercisable by the Optionee’s Designated Beneficiary in accordance with the terms of this Notice until the third anniversary of the date the Optionee ceased to be an Eligible Individual, but in no event shall any such Option be exercisable after the termination date specified in Section 2(a).

(iii)

No Limited Rights granted hereunder may be exercised following the Optionee’s death.

(e)

If the Optionee ceases to be an Eligible Individual by reason of the Optionee’s termination for Cause, any Option or Limited Right granted hereunder that is exercisable on the date of such cessation shall terminate immediately.

6.

The Options and Limited Rights granted hereunder are not transferable by the Optionee otherwise than by will or by the laws of descent and distribution or pursuant to a domestic relations order, as defined in the Code, and shall be exercised during the lifetime of the Optionee only by the Optionee or by the Optionee’s duly appointed legal representative.

7.

All notices hereunder shall be in writing and, if to the Company, shall be delivered personally to the Secretary of the Company or mailed to its principal office, 1615 Poydras Street, New Orleans, Louisiana 70112, addressed to the attention of the Secretary; and, if to the Optionee, shall be delivered personally or mailed to the Optionee at the address on file with the Company.  Such addresses may be changed at any time by notice from one party to the other.

8.

The terms of this Notice shall bind and inure to the benefit of the Optionee, the Company and the successors and assigns of the Company and, to the extent provided in the Plan and in this Notice, the Designated Beneficiaries and the legal representatives of the Optionee.

9.

This Notice is subject to the provisions of the Plan.  The Plan may at any time be amended by the Board, except that any such amendment of the Plan that would impair the rights of the Optionee hereunder may not be made without the Optionee’s consent.  The Committee may amend, modify or terminate this Notice and any of the Options and Limited Rights granted hereunder at any time prior to payment or exercise in any manner not inconsistent with the terms of the Plan, including, without limitation, to change the date or dates as of which the Options and Limited Rights granted hereunder become exercisable.  Notwithstanding the foregoing, no such amendment, modification or termination may impair the rights of the Optionee hereunder without the Optionee’s consent.  Except as set forth above, any applicable determinations, orders, resolutions or other actions of the Committee shall be final, conclusive and binding on the Company and the Optionee.

10.

The Optionee is required to satisfy any obligation in respect of withholding or other payroll taxes resulting from the exercise of any Option or Limited Right granted hereunder, in accordance with procedures established by the Committee, as a condition to receiving any certificates for securities or cash payments resulting from the exercise of any such Award.

11.

Nothing in this Notice shall confer upon Optionee any right to continue in the employ of the Company or any of its Subsidiaries, or to interfere in any way with the right of the Company or any of its Subsidiaries to terminate Optionee’s employment relationship with the Company or any of its Subsidiaries at any time.

12.

As used in this Notice, the following terms shall have the meanings set forth below.

(a)

“Cause” shall mean any of the following: (i) the commission by the Optionee of an illegal act (other than traffic violations or misdemeanors punishable solely by the payment of a fine), (ii) the engagement of the Optionee in dishonest or unethical conduct, as determined by the Committee or its designee, (iii) the commission by the Optionee of any fraud, theft, embezzlement, or misappropriation of funds, (iv) the failure of the Optionee to carry out a directive of his superior, employer or principal, or (v) the breach of the Optionee of the terms of his engagement.

(b)

“Change in Control” shall mean the earliest of the following events:  (i) any person or any two or more persons acting as a group, and all affiliates of such person or persons, shall acquire beneficial ownership of more than 20% of all classes and series of the Company’s outstanding stock (exclusive of stock held in the Company’s treasury or by the Company’s Subsidiaries), taken as a whole, that has voting rights with respect to the election of directors of the Company (not including any series of preferred stock of the Company that has the right to elect directors only upon the failure of the Company to pay dividends) pursuant to a tender offer, exchange offer or series of purchases or other acquisitions, or any combination of those transactions, or (ii) there shall be a change in the composition of the Board at any time with in two years after any tender offer, exchange offer, merger, consolidation, sale of assets or contested election, or any combination of those transactions (a “Transaction”), such that (A) the persons who were directors of the Company immediately before the first such Transaction cease to constitute a majority of the board of directors of the corporation that shall thereafter be in control of the companies that were parties to or otherwise involved in such Transaction or (B) the number of persons who shall thereafter be directors of such corporation shall be fewer than two-thirds of the number of directors of the Company immediately prior to such first Transaction.

(c)

“Disability” shall mean long-term disability, as defined in the Company’s long-term disability plan.

(d)

“Retirement” shall mean early, normal or deferred retirement of the Optionee under a tax qualified retirement plan of the Company or any other cessation of the provision of services to the Company or a Subsidiary by the Optionee that is deemed by the Committee to constitute a retirement.

FREEPORT-McMoRan COPPER & GOLD INC.


By:                                                                      





 

EX-10 5 exhibit1017.htm FREEPORT-McMoRan COPPER & GOLD INC

Exhibit 10.17




FREEPORT-McMoRan COPPER & GOLD INC.


Form of

RESTRICTED STOCK UNIT AGREEMENT

UNDER THE 1999 STOCK INCENTIVE PLAN


AGREEMENT dated as of ____________, 20__ (the “Grant Date”), between Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the “Company”), and _______________ (the “Participant”).

1.        (a)        Pursuant to the Freeport-McMoRan Copper & Gold Inc. 1999 Stock Incentive Plan (the “Plan”), the Participant is hereby granted effective the Grant Date _________ restricted stock units (“Restricted Stock Units” or “RSUs”) on the terms and conditions set forth in this Agreement and in the Plan.



                        (b)

Defined terms not otherwise defined herein shall have the meanings set forth in Section 2 of the Plan.

(c)

Subject to the terms, conditions, and restrictions set forth in the Plan and herein, each RSU granted hereunder represents the right to receive from the Company, on the respective scheduled vesting date for such RSU set forth in Section 2(a) of this Agreement or on such earlier date as provided in Section 2(b) of this Agreement or Section 6(b) of this Agreement (the “Vesting Date”), one share (a “Share”) of Class __ Common Stock of the Company (“Common Stock”), free of any restrictions, all amounts notionally credited to the Participant’s Dividend Equivalent Account (as defined in Section 4 of this Agreement) with respect to such RSU, and all securities and property comprising all Property Distributions (as defined in Section 4 of this Agreement) deposited in such Dividend Equivalent Account with respec t to such RSU.

(d)

As soon as practicable after the Vesting Date for any RSUs granted hereunder, the Participant shall receive from the Company one or more stock certificates for the number of Shares to which the vested RSUs relate, free of any restrictions, a cash payment for all amounts notionally credited to the Participant’s Dividend Equivalent Account with respect to such vested RSUs (unless the receipt of such Shares and amounts has been deferred by the Participant pursuant to the provisions of Section 5(a) of this Agreement), and all securities and property comprising all Property Distributions deposited in such Dividend Equivalent Account with respect to such vested RSUs.

2.        (a)        The RSUs granted hereunder shall vest in installments as follows:



                                                Scheduled Vesting Date

Number of RSUs




(b)

Notwithstanding Section 2(a) of this Agreement, at such time as there shall be a Change in Control of the Company, all unvested RSUs shall be accelerated and shall immediately vest.

(c)

Until the respective Vesting Date for an RSU granted hereunder, such RSU, all amounts notionally credited in any Dividend Equivalent Account related to such RSU, and all securities or property comprising all Property Distributions deposited in such Dividend Equivalent Account related to such RSU shall be subject to forfeiture as provided in Section 6 of this Agreement.

3.

Except as provided in Section 4 of this Agreement, an RSU shall not entitle the Participant to any incidents of ownership (including, without limitation, dividend and voting rights) in any Share until the RSU shall vest and the Participant shall be issued a certificate for the Share to which such RSU relates nor in any securities or property comprising any Property Distribution deposited in a Dividend Equivalent Account related to such RSU until such RSU vests.

4.

From and after the Grant Date of an RSU until the issuance of a certificate for the Share payable in respect of such RSU, the Participant shall be credited, as of the payment date therefor, with (i) the amount of any cash dividends and (ii) the amount equal to the Fair Market Value of any Shares, Subsidiary securities, other securities, or other property distributed or distributable in respect of one share of Common Stock to which the Participant would have been entitled had the Participant been a record holder of one share of Common Stock at all times from the Grant Date to such issuance date (a “Property Distribution”).  All such credits shall be made notionally to a dividend equivalent account (a “Dividend Equivalent Account”) established for the Participant with respect to all RSUs granted hereunder with the same Vesting Date.  All credits to a Dividend Equivalent Account for the Participant shall be notionally increased by the Account Rate (as hereinafter defined), compounded quarterly, from and after the applicable date of credit until paid in accordance with the provisions of this Agreement.  The “Account Rate” shall be the prime commercial lending rate announced from time to time by The Chase Manhattan Bank, N.A. or by another major national bank headquartered in New York, New York designated by the Committee.  The Committee may, in its discretion, deposit in the Participant’s Dividend Equivalent Account the securities or property comprising any Property Distribution in lieu of crediting such Dividend Equivalent Account with the Fair Market Value thereof.

5.        (a)        Notwithstanding the provisions of Section 1(d) of this Agreement, if, one year prior to the Vesting Date for any RSUs, the Participant shall so elect in accordance with procedures established by the Committee, all or a portion of the Shares issuable to the Participant upon the vesting of such RSUs and all or a portion of the amounts notionally credited in the Dividend Equivalent Account related to such RSUs shall not be distributed on the Vesting Date but shall be deferred and paid in one or more periodic installments, not in excess of ten, beginning at such time or times elected by the Participant; provided, however, that the deferral period shall end no later than three months after the date (the “Termination Date”) that the Participant ceases for any reason to be an Eligible Individual (“Termination”) for any reason other than the Participant’s Disability or Retirement and shall end three years after the Termination Date if the Partici pant’s Termination occurs by reason of the Participant’s Disability or Retirement.  In the event of any Termination, a distribution of all amounts due hereunder shall be made in full to the Participant or his or her designated beneficiary as soon as administratively possible following the date the Participant is scheduled to receive a distribution hereunder.  All securities or property comprising Property Distributions deposited in such Dividend Equivalent Account related to such RSUs shall, however, be distributed to the Participant as soon as practicable after the Vesting Date for such RSUs, irrespective of such deferral election.



                        (b)

The provisions of Section 4 shall continue to apply to all such vested RSUs and all such credited amounts subject to a deferral election until paid in accordance with the provisions of this Agreement; provided, however, in the event that the Committee determines in its discretion to distribute the securities or property comprising a Property Distribution paid on or after the Vesting Date for such vested RSUs in lieu of crediting the Dividend Equivalent Account with respect to such vested RSUs with the Fair Market Value thereof, such securities or property shall not be deposited in such Dividend Equivalent Account but shall instead be distributed directly to the Participant.

6.          (a)       Except as set forth in Section 6(b) of this Agreement, all unvested RSUs provided for in this Agreement, all amounts credited to the Participant’s Dividend Equivalent Accounts with respect to such RSUs, and all securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts with respect to such RSUs shall immediately be forfeited on the Participant’s Termination Date.



                          (b)

Notwithstanding the foregoing, if the Participant ceases to be an Eligible Individual by reason of the Participant’s death, Disability, or Retirement, all the unvested RSUs granted hereunder, all amounts credited to the Participant’s Dividend Equivalent Accounts with respect to such RSUs, and all securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts with respect to such RSUs shall vest as of the Participant’s Termination Date.  In the event that the Participant ceases to be an Eligible Individual by reason of the Participant’s Termination by his employer or principal without Cause, the Committee may, in its sole discretion, determine that all or any portion of the unvested RSUs granted hereunder, all amounts credited to the Participant’s Dividend Equivalent Accounts with respect to such RSUs, and all securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts with respect to such RSUs shall vest as of the Participant’s Termination Date.

7.

The RSUs granted hereunder, any amounts notionally credited in the Participant’s Dividend Equivalent Accounts, and any securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts are not transferable by the Participant otherwise than by will or by the laws of descent and distribution or pursuant to a domestic relations order, as defined in the Code.

8.

All notices hereunder shall be in writing and, if to the Company, shall be delivered personally to the Secretary of the Company or mailed to its principal office, 1615 Poydras Street, New Orleans, Louisiana 70112, addressed to the attention of the Secretary; and, if to the Participant, shall be delivered personally or mailed to the Participant at the address on file with the Company.  Such addresses may be changed at any time by notice from one party to the other.

9.

This Agreement is subject to the provisions of the Plan.  The Plan may at any time be amended by the Board, except that any such amendment of the Plan that would materially impair the rights of the Participant hereunder may not be made without the Participant’s consent.  The Committee may amend this Agreement at any time in any manner not inconsistent with the terms of the Plan, including, without limitation, to change the date or dates as of which the RSUs granted hereunder vest.  Notwithstanding the foregoing, no such amendment may materially impair the rights of the Participant hereunder without the Participant’s consent.  Except as set forth above, any applicable determinations, orders, resolutions or other actions of the Committee shall be final, conclusive and binding on the Company and the Participant.

10.

The Participant is required to satisfy any obligation in respect of withholding or other payroll taxes resulting from the vesting of any RSU granted hereunder or the payment of any securities, cash, or property hereunder, in accordance with procedures established by the Committee, as a condition to receiving any certificates for securities, cash payments, or property resulting from the vesting of any RSU or otherwise.

11.

Nothing in this Agreement shall confer upon the Participant any right to continue in the employ of the Company or any of its Subsidiaries, or to interfere in any way with the right of the Company or any of its Subsidiaries to terminate the Participant’s employment relationship with the Company or any of its Subsidiaries at any time.

12.

As used in this Agreement, the following terms shall have the meanings set forth below.

(a)

“Cause” shall mean any of the following: (i) the commission by the Participant of an illegal act (other than traffic violations or misdemeanors punishable solely by the payment of a fine), (ii) the engagement of the Participant in dishonest or unethical conduct, as determined by the Committee or its designee, (iii) the commission by the Participant of any fraud, theft, embezzlement, or misappropriation of funds, (iv) the failure of the Participant to carry out a directive of his superior, employer or principal, or (v) the breach of the Participant of the terms of his engagement.

(b)

“Change in Control” shall mean the earliest of the following events:  (i) any person or any two or more persons acting as a group, and all affiliates of such person or persons, shall acquire beneficial ownership of more than 20% of all classes and series of the Company’s outstanding stock (exclusive of stock held in the Company’s treasury or by the Company’s Subsidiaries), taken as a whole, that has voting rights with respect to the election of directors of the Company (not including any series of preferred stock of the Company that has the right to elect directors only upon the failure of the Company to pay dividends) pursuant to a tender offer, exchange offer or series of purchases or other acquisitions, or any combination of those transactions, or (ii) there shall be a change in the composition of the Boa rd at any time within two years after any tender offer, exchange offer, merger, consolidation, sale of assets or contested election, or any combination of those transactions (a “Transaction”), such that (A) the persons who were directors of the Company immediately before the first such Transaction cease to constitute a majority of the board of directors of the corporation that shall thereafter be in control of the companies that were parties to or otherwise involved in such Transaction or (B) the number of persons who shall thereafter be directors of such corporation shall be fewer than two-thirds of the number of directors of the Company immediately prior to such first Transaction.

(c)

“Disability” shall mean long-term disability, as defined in the Company’s long-term disability plan.

(d)

“Fair Market Value” shall, with respect to a share of Class A Common Stock, a share of Class B Common Stock, a Subsidiary security, or any other security, have the meaning set forth in the Freeport-McMoRan Copper & Gold Inc. 1999 Stock Incentive Plan Policies of the Committee, and, with respect to any other property, mean the value thereof determined by the board of directors of the Company in connection with declaring the dividend or distribution thereof.

(e)

“Retirement” shall mean early, normal or deferred retirement of the Participant under a tax qualified retirement plan of the Company or any other cessation of the provision of services to the Company or a Subsidiary by the Participant that is deemed by the Committee or its designee to constitute a retirement.


IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day, month, and year first above written.


FREEPORT-McMoRan COPPER & GOLD INC.



By:______________________________________

 



                                                                             ________________________________________

                                                                             (Participant)


 

                                                                             ________________________________________

(Street Address)



                                                                             ________________________________________

(City) (State) (Zip Code)



EX-10 6 exhibit1018.htm FREEPORT-McMoRan COPPER & GOLD INC

Exhibit 10.18




FREEPORT-McMoRan COPPER & GOLD INC.


Form of

PERFORMANCE-BASED

RESTRICTED STOCK UNIT AGREEMENT

UNDER THE 1999 STOCK INCENTIVE PLAN


AGREEMENT dated as of ____________, 20__ (the “Grant Date”), between Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the “Company”), and _______________ (the “Participant”).

1.        (a)        Pursuant to the Freeport-McMoRan Copper & Gold Inc. 1999 Stock Incentive Plan (the “Plan”), the Participant is hereby granted effective the Grant Date _________ restricted stock units (“Restricted Stock Units” or “RSUs”) on the terms and conditions set forth in this Agreement and in the Plan.



                        (b)

Defined terms not otherwise defined herein shall have the meanings set forth in Section 2 of the Plan.

(c)

Subject to the terms, conditions, and restrictions set forth in the Plan and herein, each RSU granted hereunder represents the right to receive from the Company, on the respective scheduled vesting date for such RSU set forth in Section 2(a) of this Agreement or on such earlier date as provided in Section 2(b) of this Agreement or Section 6(b) of this Agreement (the “Vesting Date”), one share (a “Share”) of Class __ Common Stock of the Company (“Common Stock”), free of any restrictions, all amounts notionally credited to the Participant’s Dividend Equivalent Account (as defined in Section 4 of this Agreement) with respect to such RSU, and all securities and property comprising all Property Distributions (as defined in Section 4 of this Agreement) deposited in such Dividend Equivalent Account with respec t to such RSU.

(d)

Provided the condition of Section 7 of this Agreement, if applicable, has been met, as soon as practicable after the Vesting Date for any RSUs granted hereunder, the Participant shall receive from the Company one or more stock certificates for the number of Shares to which the vested RSUs relate, free of any restrictions, a cash payment for all amounts notionally credited to the Participant’s Dividend Equivalent Account with respect to such vested RSUs (unless the receipt of such Shares and amounts has been deferred by the Participant pursuant to the provisions of Section 5(a) of this Agreement), and all securities and property comprising all Property Distributions deposited in such Dividend Equivalent Account with respect to such vested RSUs.

2.         (a)        Provided the condition of Section 7 of this Agreement has been met, the RSUs granted hereunder shall vest in installments as follows:



                                                Scheduled Vesting Date

Number of RSUs




(b)

Notwithstanding Section 2(a) of this Agreement, at such time as there shall be a Change in Control of the Company, all unvested RSUs shall be accelerated and shall immediately vest.

(c)

Until the respective Vesting Date for an RSU granted hereunder, such RSU, all amounts notionally credited in any Dividend Equivalent Account related to such RSU, and all securities or property comprising all Property Distributions deposited in such Dividend Equivalent Account related to such RSU shall be subject to forfeiture as provided in Section 6 of this Agreement.

3.

Except as provided in Section 4 of this Agreement, an RSU shall not entitle the Participant to any incidents of ownership (including, without limitation, dividend and voting rights) in any Share until the RSU shall vest and the Participant shall be issued a certificate for the Share to which such RSU relates nor in any securities or property comprising any Property Distribution deposited in a Dividend Equivalent Account related to such RSU until such RSU vests.

4.

From and after the Grant Date of an RSU until the issuance of a certificate for the Share payable in respect of such RSU, the Participant shall be credited, as of the payment date therefor, with (i) the amount of any cash dividends and (ii) the amount equal to the Fair Market Value of any Shares, Subsidiary securities, other securities, or other property distributed or distributable in respect of one share of Common Stock to which the Participant would have been entitled had the Participant been a record holder of one share of Common Stock at all times from the Grant Date to such issuance date (a “Property Distribution”).  All such credits shall be made notionally to a dividend equivalent account (a “Dividend Equivalent Account”) established for the Participant with respect to all RSUs granted hereunder with the same Vesting Date.  All credits to a Dividend Equivalent Account for the Participant shall be notionally increased by the Account Rate (as hereinafter defined), compounded quarterly, from and after the applicable date of credit until paid in accordance with the provisions of this Agreement.  The “Account Rate” shall be the prime commercial lending rate announced from time to time by The Chase Manhattan Bank, N.A. or by another major national bank headquartered in New York, New York designated by the Committee.  The Committee may, in its discretion, deposit in the Participant’s Dividend Equivalent Account the securities or property comprising any Property Distribution in lieu of crediting such Dividend Equivalent Account with the Fair Market Value thereof.

5.        (a)        Notwithstanding the provisions of Section 1(d) of this Agreement, if, one year prior to the Vesting Date for any RSUs, the Participant shall so elect in accordance with procedures established by the Committee, all or a portion of the Shares issuable to the Participant upon the vesting of such RSUs and all or a portion of the amounts notionally credited in the Dividend Equivalent Account related to such RSUs shall not be distributed on the Vesting Date but shall be deferred and paid in one or more periodic installments, not in excess of ten, beginning at such time or times elected by the Participant; provided, however, that the deferral period shall end no later than three months after the date (the “Termination Date”) that the Participant ceases for any reason to be an Eligible Individual (“Termination”) for any reason other than the Participant’s Disability or Retirement and shall end three years after the Termination Date if the Partici pant’s Termination occurs by reason of the Participant’s Disability or Retirement.  In the event of any Termination, a distribution of all amounts due hereunder shall be made in full to the Participant or his or her designated beneficiary as soon as administratively possible following the date the Participant is scheduled to receive a distribution hereunder.  All securities or property comprising Property Distributions deposited in such Dividend Equivalent Account related to such RSUs shall, however, be distributed to the Participant as soon as practicable after the Vesting Date for such RSUs, irrespective of such deferral election.



                        (b)

The provisions of Section 4 shall continue to apply to all such vested RSUs and all such credited amounts subject to a deferral election until paid in accordance with the provisions of this Agreement; provided, however, in the event that the Committee determines in its discretion to distribute the securities or property comprising a Property Distribution paid on or after the Vesting Date for such vested RSUs in lieu of crediting the Dividend Equivalent Account with respect to such vested RSUs with the Fair Market Value thereof, such securities or property shall not be deposited in such Dividend Equivalent Account but shall instead be distributed directly to the Participant.

6.           (a)        Except as set forth in Section 6(b) of this Agreement, all unvested RSUs provided for in this Agreement, all amounts credited to the Participant’s Dividend Equivalent Accounts with respect to such RSUs, and all securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts with respect to such RSUs shall immediately be forfeited on the Participant’s Termination Date.



                            (b)             

    Notwithstanding the foregoing, and provided the condition of Section 7 of this Agreement has been met, if the Participant ceases to be an Eligible Individual by reason of the Participant’s death, Disability, or Retirement, all the unvested RSUs granted hereunder, all amounts credited to the Participant’s Dividend Equivalent Accounts with respect to such RSUs, and all securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts with respect to such RSUs shall vest as of the Participant’s Termination Date.  In the event that the Participant ceases to be an Eligible Individual by reason of the Participant’s Termination by his employer or principal without Cause, and provided the condition of Section 7 of this Agreement has been met, the Committee may, in its sole discretion, determine that all or any portion of the unvested RSUs granted hereunder, all amounts credited to the Participant’s Dividend Equivalent Accounts with respect to such RSUs, and all securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts with respect to such RSUs shall vest as of the Participant’s Termination Date.

7.

The other provisions of this Agreement notwithstanding, no unvested RSU granted hereunder shall vest on its scheduled Vesting Date under Section 2(a) of this Agreement or upon the Participant’s Termination pursuant to Section 6(b) of this Agreement unless the average of the Return on Investment for the five calendar years preceding the year in which such event occurs is at least 6% and, if required or deemed necessary to satisfy the requirements to qualify such RSU as “performance-based compensation” under Section 162(m), the appropriate members of the Committee shall have certified that such condition has been met.  Any unvested RSUs that do not vest upon the occurrence of any of such events as a result of the failure to meet the condition of this Section 7, all amounts credited to the Participant’s Dividend Equivalent Accounts with respec t to such RSUs, and all securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts with respect to such RSUs shall immediately be forfeited.

8.

The RSUs granted hereunder, any amounts notionally credited in the Participant’s Dividend Equivalent Accounts, and any securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts are not transferable by the Participant otherwise than by will or by the laws of descent and distribution or pursuant to a domestic relations order, as defined in the Code.

9.

All notices hereunder shall be in writing and, if to the Company, shall be delivered personally to the Secretary of the Company or mailed to its principal office, 1615 Poydras Street, New Orleans, Louisiana 70112, addressed to the attention of the Secretary; and, if to the Participant, shall be delivered personally or mailed to the Participant at the address on file with the Company.  Such addresses may be changed at any time by notice from one party to the other.

10.

This Agreement shall bind and inure to the benefit of the parties hereto and the successors and assigns of the Company and, to the extent provided in the Plan and in this Agreement, the Designated Beneficiaries and the legal representatives of the Participant.

11.

This Agreement is subject to the provisions of the Plan.  The Plan may at any time be amended by the Board, except that any such amendment of the Plan that would materially impair the rights of the Participant hereunder may not be made without the Participant’s consent.  Any determinations, orders, resolutions or other actions of the Committee shall be final, conclusive and binding on the Company and the Participant.

12.

The Participant is required to satisfy any obligation in respect of withholding or other payroll taxes resulting from the vesting of any RSU granted hereunder or the payment of any securities, cash, or property hereunder, in accordance with procedures established by the Committee, as a condition to receiving any certificates for securities, cash payments, or property resulting from the vesting of any RSU or otherwise.

13.

Nothing in this Agreement shall confer upon the Participant any right to continue in the employ of the Company or any of its Subsidiaries, or to interfere in any way with the right of the Company or any of its Subsidiaries to terminate the Participant’s employment relationship with the Company or any of its Subsidiaries at any time.

14.

As used in this Agreement, the following terms shall have the meanings set forth below.

(a)

“Cause” shall mean any of the following: (i) the commission by the Participant of an illegal act (other than traffic violations or misdemeanors punishable solely by the payment of a fine), (ii) the engagement of the Participant in dishonest or unethical conduct, as determined by the Committee or its designee, (iii) the commission by the Participant of any fraud, theft, embezzlement, or misappropriation of funds, (iv) the failure of the Participant to carry out a directive of his superior, employer or principal, or (v) the breach of the Participant of the terms of his engagement.

(b)

“Change in Control” shall mean the earliest of the following events:  (i) any person or any two or more persons acting as a group, and all affiliates of such person or persons, shall acquire beneficial ownership of more than 20% of all classes and series of the Company’s outstanding stock (exclusive of stock held in the Company’s treasury or by the Company’s Subsidiaries), taken as a whole, that has voting rights with respect to the election of directors of the Company (not including any series of preferred stock of the Company that has the right to elect directors only upon the failure of the Company to pay dividends) pursuant to a tender offer, exchange offer or series of purchases or other acquisitions, or any combination of those transactions, or (ii) there shall be a change in the composition of the Boa rd at any time within two years after any tender offer, exchange offer, merger, consolidation, sale of assets or contested election, or any combination of those transactions (a “Transaction”), such that (A) the persons who were directors of the Company immediately before the first such Transaction cease to constitute a majority of the board of directors of the corporation that shall thereafter be in control of the companies that were parties to or otherwise involved in such Transaction or (B) the number of persons who shall thereafter be directors of such corporation shall be fewer than two-thirds of the number of directors of the Company immediately prior to such first Transaction.

(c)

“Disability” shall mean long-term disability as defined in the Company’s long-term disability plan.

(d)

“Fair Market Value” shall, with respect to a share of Class A Common Stock, a share of Class B Common Stock, a Subsidiary security, or any other security, have the meaning set forth in the Freeport-McMoRan Copper & Gold Inc. 1999 Stock Incentive Plan Policies of the Committee, and, with respect to any other property, mean the value thereof determined by the board of directors of the Company in connection with declaring the dividend or distribution thereof.

(e)

“Managed Net Income” shall mean, with respect to any year, the sum of (i) the net income (or net loss) of the Company and its consolidated subsidiaries for such year as reviewed by the Company’s independent auditors and released by the Company to the public; plus (or minus) (ii) the minority interests’ share in the net income (or net loss) of the Company’s consolidated subsidiaries for such year as reviewed by the Company’s independent auditors and released by the Company to the public; plus (or minus) (iii) the effect of changes in accounting principles of the Company and its consolidated subsidiaries for such year plus (or minus) the minority interests’ share in such changes in accounting principles as reviewed by the Company’s independent auditors and released by the Company to the public.

(f)

“Net Cash Provided by Operating Activities” shall mean, with respect to any year, the net cash provided by operating activities of the Company and its consolidated subsidiaries for such year as reviewed by the Company’s independent auditors and released by the Company to the public.

(g)

“Net Interest Expense” shall mean, with respect to any year, the net interest expense of the Company and its consolidated subsidiaries for such year as reviewed by the Company’s independent auditors and released by the Company to the public.

(h)

“Retirement” shall mean early, normal or deferred retirement of the Participant under a tax qualified retirement plan of the Company or any other cessation of the provision of services to the Company or a Subsidiary by the Participant that is deemed by the Committee or its designee to constitute a retirement.

(i)

“Return on Investment” shall mean, with respect to any year, the result (expressed as a percentage) calculated according to the following formula:

a + (b - c)

d


in which “a” equals Managed Net Income for such year, “b” equals Net Interest Expense for such year, “c” equals Tax on Net Interest Expense for such year, and “d” equals Total Investment of Capital for such year.


(j)

“Tax on Net Interest Expense” shall mean, with respect to any year, the tax on the net interest expense of the Company and its consolidated subsidiaries for such year calculated at the appropriate statutory income tax rate for such year as reviewed by the Company’s independent auditors.

(k)

“Total Investment of Capital” shall mean, with respect to any year, the sum of (i) the weighted average of the stockholders’ equity in the Company and its consolidated subsidiaries for such year, (ii) the weighted average of the minority interests in the consolidated subsidiaries of the Company for such year, (iii) the weighted average of the redeemable preferred stock of the Company for such year and (iv) the weighted average of the long-term debt of the Company and its consolidated subsidiaries for such year, all as shown in the quarterly balance sheets of the Company and its consolidated subsidiaries for such year.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day, month, and year first above written.


FREEPORT-McMoRan COPPER & GOLD INC.



By:______________________________________________

 



                                                                                                                                                                        

(Participant)



                                                                                                                                                                         

(Street Address)


 

                                                                                                                                                                         

(City) (State) (Zip Code)


 


EX-10 7 exhibit1022.htm FREEPORT-McMoRan COPPER & GOLD INC

                                                                                                                                                                                                     Exhibit 10.22




FREEPORT-McMoRan COPPER & GOLD INC.


Form of

NOTICE OF GRANT OF

NONQUALIFIED STOCK OPTIONS AND LIMITED RIGHTS

UNDER THE

2003 STOCK INCENTIVE PLAN


1.    (a)    Pursuant to the Freeport-McMoRan Copper & Gold Inc. 2003 Stock Incentive Plan (the “Plan”), _________________ (the “Optionee”) is hereby granted effective _______________, ______, in consideration of future services, Options to purchase from the Company, on the terms and conditions set forth in this Notice and in the Plan, _______ shares of the Class B Common Stock of the Company at a purchase price of $_______ per share.



                    (b)   

    Defined terms not otherwise defined in Section 12 of this Notice shall have the meanings set forth in Section 2 of the Plan.

        (c)   

    The Options granted hereunder are intended to constitute nonqualified stock options and are not intended to constitute incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

2.     (a)    All Options granted hereunder shall terminate on __________, 20___, unless terminated earlier as provided in Section 5 of this Notice.



                    (b)  

     The Options granted hereunder shall become exercisable in installments as follows:

Date Exercisable

Number of Shares





        (c)

    The Options granted hereunder may be exercised with respect to all or any part of the Shares comprising each installment as the Optionee may elect at any time after such Options become exercisable until the termination date set forth in Section 2(a) or Section 5, as the case may be.

        (d)

    Notwithstanding the foregoing provisions of this Section 2, the Options granted hereunder shall immediately become exercisable in their entirety at such time as there shall be a Change in Control of the Company.

3.

Upon each exercise of the Options granted hereunder, the Optionee shall give written notice to the Company, which shall specify the number of Shares to be purchased and shall be accompanied by payment in full of the aggregate purchase price thereof (which payment may be made in Shares owned by the Optionee for at least six months), in accordance with procedures established by the Committee.  Such exercise shall be effective upon receipt by the Company of such notice in good order and payment.

4.     (a)    Pursuant to the Plan, the Optionee is also hereby granted a Limited Right in respect of each Share subject to the Options granted in Section 1 of this Notice.



                    (b) 

     Each Limited Right will entitle the Optionee to receive the excess, if any, of the Offer Price on the date of exercise over the purchase price set forth in Section 1 of this Notice, such amount to be payable only in cash.  Upon the exercise of a Limited Right with respect to any Share subject to option hereunder, the corresponding Option to purchase such Share under the terms of this Notice shall be canceled.  Upon the exercise of an Option to purchase a Share hereunder, the corresponding Limited Right with respect to such Share shall be canceled.

        (c)   

    No Limited Right shall be exercisable before the first day after the expiration date of an Offer or after the ninetieth day after the expiration date of such Offer.  All Limited Rights granted hereunder shall terminate on the date specified in Section 2(a) of this Notice unless terminated earlier as provided in Section 5 of this Notice.

5.    (a)    Except as set forth in this Section 5, the Options and Limited Rights provided for in this Notice shall immediately terminate on the date that the Optionee ceases for any reason to be an Eligible Individual.



                    (b)   

    If the Optionee ceases to be an Eligible Individual for any reason other than death, Disability, Retirement or termination for Cause, any Option or Limited Right granted hereunder that is then exercisable shall remain exercisable in accordance with the terms of this Notice within three months after the date of such cessation, but in no event shall any such Option or Limited Right be exercisable after the termination dates specified in Section 2(a) and 4(c), respectively.

        (c)

    If the Optionee ceases to be an Eligible Individual by reason of the Optionee’s Disability or Retirement, (i) any Option granted hereunder that is exercisable on the date of such cessation, as well as any Option granted hereunder that would have become exercisable within one year after the date of such cessation had the Optionee continued to be an Eligible Individual, shall remain exercisable in accordance with the terms of this Notice within three years after the date of such cessation, but in no event shall any such Option be exercisable after the termination date specified in Section 2(a), and (ii) any Limited Right in respect of an Option granted hereunder remaining exercisable in accordance with clause (i) hereof shall remain exercisable in accordance with the terms of this Notice within three months after the date of such cessa tion, but in no event shall any such Limited Right be exercisable after the termination date specified in Section 4(c).

        (d)    (i)    If the Optionee ceases to be an Eligible Individual as a result of the Optionee’s death, any Option granted hereunder that is exercisable on the date of such death, as well as any Option granted hereunder that would have become exercisable within one year after the date of such death had the Optionee continued to be an Eligible Individual, shall remain exercisable by the Optionee’s Designated Beneficiary in accordance with the terms of this Notice until the third anniversary of the date of such death, but in no event shall any such Option be exercisable after the termination date specified in Section 2(a).



                            (ii)    If the Optionee dies after having ceased to be an Eligible Individual and any Option granted hereunder is then exercisable in accordance with the provisions of this Section 5, such Option will remain exercisable by the Optionee’s Designated Beneficiary in accordance with the terms of this Notice until the third anniversary of the date the Optionee ceased to be an Eligible Individual, but in no event shall any such Option be exercisable after the termination date specified in Section 2(a).



                            (iii)    No Limited Rights granted hereunder may be exercised following the Optionee’s death.

                    (e)    If the Optionee ceases to be an Eligible Individual by reason of the Optionee’s termination for Cause, any Option or Limited Right granted hereunder that is exercisable on the date of such cessation shall terminate immediately.



            6.

The Options and Limited Rights granted hereunder are not transferable by the Optionee otherwise than by will or by the laws of descent and distribution or pursuant to a domestic relations order, as defined in the Code, and shall be exercised during the lifetime of the Optionee only by the Optionee or by the Optionee’s duly appointed legal representative.

7.

All notices hereunder shall be in writing and, if to the Company, shall be delivered personally to the Secretary of the Company or mailed to its principal office, 1615 Poydras Street, New Orleans, Louisiana 70112, addressed to the attention of the Secretary; and, if to the Optionee, shall be delivered personally or mailed to the Optionee at the address on file with the Company.  Such addresses may be changed at any time by notice from one party to the other.

8.

The terms of this Notice shall bind and inure to the benefit of the Optionee, the Company and the successors and assigns of the Company and, to the extent provided in the Plan and in this Notice, the Designated Beneficiaries and the legal representatives of the Optionee.

9.

This Notice is subject to the provisions of the Plan.  The Plan may at any time be amended by the Board, except that any such amendment of the Plan that would materially impair the rights of the Optionee hereunder may not be made without the Optionee’s consent.  The Committee may amend, modify or terminate this Notice and any of the Options and Limited Rights granted hereunder at any time prior to payment or exercise in any manner not inconsistent with the terms of the Plan, including, without limitation, to change the date or dates as of which the Options and Limited Rights granted hereunder become exercisable.  Notwithstanding the foregoing, no such amendment, modification or termination may materially impair the rights of the Optionee hereunder without the Optionee’s consent.  Except as set forth above, any applicable determinations, orders, resolutio ns or other actions of the Committee shall be final, conclusive and binding on the Company and the Optionee.

10.

The Optionee is required to satisfy any obligation in respect of withholding or other payroll taxes resulting from the exercise of any Option or Limited Right granted hereunder, in accordance with procedures established by the Committee, as a condition to receiving any certificates for securities or cash payments resulting from the exercise of any such Award.

11.

Nothing in this Notice shall confer upon Optionee any right to continue in the employ of the Company or any of its Subsidiaries, or to interfere in any way with the right of the Company or any of its Subsidiaries to terminate Optionee’s employment relationship with the Company or any of its Subsidiaries at any time.

12.

As used in this Notice, the following terms shall have the meanings set forth below.

(a)

“Cause” shall mean any of the following: (i) the commission by the Optionee of an illegal act (other than traffic violations or misdemeanors punishable solely by the payment of a fine), (ii) the engagement of the Optionee in dishonest or unethical conduct, as determined by the Committee or its designee, (iii) the commission by the Optionee of any fraud, theft, embezzlement, or misappropriation of funds, (iv) the failure of the Optionee to carry out a directive of his superior, employer or principal, or (v) the breach of the Optionee of the terms of his engagement.

(b)

“Change in Control” shall mean the earliest of the following events:  (i) any person or any two or more persons acting as a group, and all affiliates of such person or persons, shall acquire beneficial ownership of more than 20% of all classes and series of the Company’s outstanding stock (exclusive of stock held in the Company’s treasury or by the Company’s Subsidiaries), taken as a whole, that has voting rights with respect to the election of directors of the Company (not including any series of preferred stock of the Company that has the right to elect directors only upon the failure of the Company to pay dividends) pursuant to a tender offer, exchange offer or series of purchases or other acquisitions, or any combination of those transactions, or (ii) there shall be a change in the composition of the Board at any time withi n two years after any tender offer, exchange offer, merger, consolidation, sale of assets or contested election, or any combination of those transactions (a “Transaction”), such that (A) the persons who were directors of the Company immediately before the first such Transaction cease to constitute a majority of the board of directors of the corporation that shall thereafter be in control of the companies that were parties to or otherwise involved in such Transaction or (B) the number of persons who shall thereafter be directors of such corporation shall be fewer than two-thirds of the number of directors of the Company immediately prior to such first Transaction.

(c)

“Disability” shall mean long-term disability, as defined in the Company’s long-term disability plan.

(d)

“Retirement” shall mean early, normal or deferred retirement of the Optionee under a tax qualified retirement plan of the Company or any other cessation of the provision of services to the Company or a Subsidiary by the Optionee that is deemed by the Committee to constitute a retirement.


FREEPORT-McMoRan COPPER & GOLD INC.




By:_____________________________________




EX-10 8 exhibit1023.htm FREEPORT-McMoRan COPPER & GOLD INC

                                                                                                                                                                                                         Exhibit 10.23


FREEPORT-McMoRan COPPER & GOLD INC.


Form of

RESTRICTED STOCK UNIT AGREEMENT

UNDER THE 2003 STOCK INCENTIVE PLAN


AGREEMENT dated as of ____________, 20__ (the “Grant Date”), between Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the “Company”), and _______________ (the “Participant”).


1.        (a)        Pursuant to the Freeport-McMoRan Copper & Gold Inc. 2003 Stock Incentive Plan (the “Plan”), the Participant is hereby granted effective the Grant Date _________ restricted stock units (“Restricted Stock Units” or “RSUs”) on the terms and conditions set forth in this Agreement and in the Plan.



                        (b)

Defined terms not otherwise defined herein shall have the meanings set forth in Section 2 of the Plan.

(c)

Subject to the terms, conditions, and restrictions set forth in the Plan and herein, each RSU granted hereunder represents the right to receive from the Company, on the respective scheduled vesting date for such RSU set forth in Section 2(a) of this Agreement or on such earlier date as provided in Section 2(b) of this Agreement or Section 6(b) of this Agreement (the “Vesting Date”), one share (a “Share”) of Class B Common Stock of the Company (“Common Stock”), free of any restrictions, all amounts notionally credited to the Participant’s Dividend Equivalent Account (as defined in Section 4 of this Agreement) with respect to such RSU, and all securities and property comprising all Property Distributions (as defined in Section 4 of this Agreement) deposited in such Dividend Equivalent Account with respect to such RSU.

(d)

As soon as practicable after the Vesting Date for any RSUs granted hereunder, the Participant shall receive from the Company one or more stock certificates for the number of Shares to which the vested RSUs relate, free of any restrictions, a cash payment for all amounts notionally credited to the Participant’s Dividend Equivalent Account with respect to such vested RSUs (unless the receipt of such Shares and amounts has been deferred by the Participant pursuant to the provisions of Section 5(a) of this Agreement), and all securities and property comprising all Property Distributions deposited in such Dividend Equivalent Account with respect to such vested RSUs.

2.        (a)        The RSUs granted hereunder shall vest in installments as follows:



                                    Scheduled Vesting Date

 Number of RSUs


(b)

Notwithstanding Section 2(a) of this Agreement, at such time as there shall be a Change in Control of the Company, all unvested RSUs shall be accelerated and shall immediately vest.

(c)

Until the respective Vesting Date for an RSU granted hereunder, such RSU, all amounts notionally credited in any Dividend Equivalent Account related to such RSU, and all securities or property comprising all Property Distributions deposited in such Dividend Equivalent Account related to such RSU shall be subject to forfeiture as provided in Section 6 of this Agreement.

3.

Except as provided in Section 4 of this Agreement, an RSU shall not entitle the Participant to any incidents of ownership (including, without limitation, dividend and voting rights) in any Share until the RSU shall vest and the Participant shall be issued a certificate for the Share to which such RSU relates nor in any securities or property comprising any Property Distribution deposited in a Dividend Equivalent Account related to such RSU until such RSU vests.

4.

From and after the Grant Date of an RSU until the issuance of a certificate for the Share payable in respect of such RSU, the Participant shall be credited, as of the payment date therefor, with (i) the amount of any cash dividends and (ii) the amount equal to the Fair Market Value of any Shares, Subsidiary securities, other securities, or other property distributed or distributable in respect of one share of Common Stock to which the Participant would have been entitled had the Participant been a record holder of one share of Common Stock at all times from the Grant Date to such issuance date (a “Property Distribution”).  All such credits shall be made notionally to a dividend equivalent account (a “Dividend Equivalent Account”) established for the Participant with respect to all RSUs granted hereunder with the same Vesting Date.  All credits to a Divid end Equivalent Account for the Participant shall be notionally increased by the Account Rate (as hereinafter defined), compounded quarterly, from and after the applicable date of credit until paid in accordance with the provisions of this Agreement.  The “Account Rate” shall be the prime commercial lending rate announced from time to time by The Chase Manhattan Bank, N.A. or by another major national bank headquartered in New York, New York designated by the Committee.  The Committee may, in its discretion, deposit in the Participant’s Dividend Equivalent Account the securities or property comprising any Property Distribution in lieu of crediting such Dividend Equivalent Account with the Fair Market Value thereof.

5.    (a)    Notwithstanding the provisions of Section 1(d) of this Agreement, if, one year prior to the Vesting Date for any RSUs, the Participant shall so elect in accordance with procedures established by the Committee, all or a portion of the Shares issuable to the Participant upon the vesting of such RSUs and all or a portion of the amounts notionally credited in the Dividend Equivalent Account related to such RSUs shall not be distributed on the Vesting Date but shall be deferred and paid in one or more periodic installments, not in excess of ten, beginning at such time or times elected by the Participant; provided, however, that the deferral period shall end no later than three months after the date (the “Termination Date”) that the Participant ceases for any reason to be an Eligible Individual (“Termination”) for any reason other than the Participant’s Disability or Retirement and shall end three years after the Termination Date if the Participant’s Termination occurs by reason of the Participant’s Disability or Retirement.  In the event of any Termination, a distribution of all amounts due hereunder shall be made in full to the Participant or his or her designated beneficiary as soon as administratively possible following the date the Participant is scheduled to receive a distribution hereunder.  All securities or property comprising Property Distributions deposited in such Dividend Equivalent Account related to such RSUs shall, however, be distributed to the Participant as soon as practicable after the Vesting Date for such RSUs, irrespective of such deferral election.



                    (b)    The provisions of Section 4 shall continue to apply to all such vested RSUs and all such credited amounts subject to a deferral election until paid in accordance with the provisions of this Agreement; provided, however, in the event that the Committee determines in its discretion to distribute the securities or property comprising a Property Distribution paid on or after the Vesting Date for such vested RSUs in lieu of crediting the Dividend Equivalent Account with respect to such vested RSUs with the Fair Market Value thereof, such securities or property shall not be deposited in such Dividend Equivalent Account but shall instead be distributed directly to the Participant.



            6.     (a)       Except as set forth in Section 6(b) of this Agreement, all unvested RSUs provided for in this Agreement, all amounts credited to the Participant’s Dividend Equivalent Accounts with respect to such RSUs, and all securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts with respect to such RSUs shall immediately be forfeited on the Participant’s Termination Date.



                    (b)        Notwithstanding the foregoing, if the Participant ceases to be an Eligible Individual by reason of the Participant’s death, Disability, or Retirement, all the unvested RSUs granted hereunder, all amounts credited to the Participant’s Dividend Equivalent Accounts with respect to such RSUs, and all securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts with respect to such RSUs shall vest as of the Participant’s Termination Date.  In the event that the Participant ceases to be an Eligible Individual by reason of the Participant’s Termination by his employer or principal without Cause, the Committee, or any person to whom the Committee has delegated authority, may, in its or his sole discretion, determine that all or any portion of the unvested RSUs g ranted hereunder, all amounts credited to the Participant’s Dividend Equivalent Accounts with respect to such RSUs, and all securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts with respect to such RSUs shall vest as of the Participant’s Termination Date.



            7.

The RSUs granted hereunder, any amounts notionally credited in the Participant’s Dividend Equivalent Accounts, and any securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts are not transferable by the Participant otherwise than by will or by the laws of descent and distribution or pursuant to a domestic relations order, as defined in the Code.

8.

All notices hereunder shall be in writing and, if to the Company, shall be delivered personally to the Secretary of the Company or mailed to its principal office, 1615 Poydras Street, New Orleans, Louisiana 70112, addressed to the attention of the Secretary; and, if to the Participant, shall be delivered personally or mailed to the Participant at the address on file with the Company.  Such addresses may be changed at any time by notice from one party to the other.

9.

This Agreement is subject to the provisions of the Plan.  The Plan may at any time be amended by the Board, except that any such amendment of the Plan that would materially impair the rights of the Participant hereunder may not be made without the Participant’s consent.  The Committee may amend this Agreement at any time in any manner not inconsistent with the terms of the Plan, including, without limitation, to change the date or dates as of which the RSUs granted hereunder vest.  Notwithstanding the foregoing, no such amendment may materially impair the rights of the Participant hereunder without the Participant’s consent.  Except as set forth above, any applicable determinations, orders, resolutions or other actions of the Committee shall be final, conclusive and binding on the Company and the Participant.

10.

The Participant is required to satisfy any obligation in respect of withholding or other payroll taxes resulting from the vesting of any RSU granted hereunder or the payment of any securities, cash, or property hereunder, in accordance with procedures established by the Committee, as a condition to receiving any certificates for securities, cash payments, or property resulting from the vesting of any RSU or otherwise.

11.

Nothing in this Agreement shall confer upon the Participant any right to continue in the employ of the Company or any of its Subsidiaries, or to interfere in any way with the right of the Company or any of its Subsidiaries to terminate the Participant’s employment relationship with the Company or any of its Subsidiaries at any time.

12.

As used in this Agreement, the following terms shall have the meanings set forth below.

(a)

“Cause” shall mean any of the following: (i) the commission by the Participant of an illegal act (other than traffic violations or misdemeanors punishable solely by the payment of a fine), (ii) the engagement of the Participant in dishonest or unethical conduct, as determined by the Committee or its designee, (iii) the commission by the Participant of any fraud, theft, embezzlement, or misappropriation of funds, (iv) the failure of the Participant to carry out a directive of his superior, employer or principal, or (v) the breach of the Participant of the terms of his engagement.

(b)

“Change in Control” shall mean the earliest of the following events:  (i) any person or any two or more persons acting as a group, and all affiliates of such person or persons, shall acquire beneficial ownership of more than 20% of all classes and series of the Company’s outstanding stock (exclusive of stock held in the Company’s treasury or by the Company’s Subsidiaries), taken as a whole, that has voting rights with respect to the election of directors of the Company (not including any series of preferred stock of the Company that has the right to elect directors only upon the failure of the Company to pay dividends) pursuant to a tender offer, exchange offer or series of purchases or other acquisitions, or any combination of those transactions, or (ii) there shall be a change in the composition of the Board at any time with in two years after any tender offer, exchange offer, merger, consolidation, sale of assets or contested election, or any combination of those transactions (a “Transaction”), such that (A) the persons who were directors of the Company immediately before the first such Transaction cease to constitute a majority of the board of directors of the corporation that shall thereafter be in control of the companies that were parties to or otherwise involved in such Transaction or (B) the number of persons who shall thereafter be directors of such corporation shall be fewer than two-thirds of the number of directors of the Company immediately prior to such first Transaction.

(c)

“Disability” shall mean long-term disability, as defined in the Company’s long-term disability plan.

(d)

“Fair Market Value” shall, with respect to a share of Common Stock, a Subsidiary security, or any other security, have the meaning set forth in the Freeport-McMoRan Copper & Gold Inc. 2003 Stock Incentive Plan Policies of the Committee, and, with respect to any other property, mean the value thereof determined by the board of directors of the Company in connection with declaring the dividend or distribution thereof.

(e)

“Retirement” shall mean early, normal or deferred retirement of the Participant under a tax qualified retirement plan of the Company or any other cessation of the provision of services to the Company or a Subsidiary by the Participant that is deemed by the Committee or its designee to constitute a retirement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day, month, and year first above written.


FREEPORT-McMoRan COPPER & GOLD INC.



By:_______________________________________


 


                                                                               ______________________________________

                                                                                                            (Participant)



                                                                                _______________________________________

(Street Address)

 


                                                                                ________________________________________

(City) (State) (Zip Code)



EX-10 9 exhibit1024.htm FREEPORT-McMoRan COPPER & GOLD INC                                                                                                                                                                           &nb sp;                     Exhibit 10.24

FREEPORT-McMoRan COPPER & GOLD INC.


Form of

PERFORMANCE-BASED

RESTRICTED STOCK UNIT AGREEMENT

UNDER THE 2003 STOCK INCENTIVE PLAN


AGREEMENT dated as of ____________, 20__ (the “Grant Date”), between Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (the “Company”), and _______________ (the “Participant”).

1.        (a)        Pursuant to the Freeport-McMoRan Copper & Gold Inc. 2003 Stock Incentive Plan (the “Plan”), the Participant is hereby granted effective the Grant Date _________ restricted stock units (“Restricted Stock Units” or “RSUs”) on the terms and conditions set forth in this Agreement and in the Plan.



                        (b)

Defined terms not otherwise defined herein shall have the meanings set forth in Section 2 of the Plan.

(c)

Subject to the terms, conditions, and restrictions set forth in the Plan and herein, each RSU granted hereunder represents the right to receive from the Company, on the respective scheduled vesting date for such RSU set forth in Section 2(a) of this Agreement or on such earlier date as provided in Section 2(b) of this Agreement or Section 6(b) of this Agreement (the “Vesting Date”), one share (a “Share”) of Class B Common Stock of the Company (“Common Stock”), free of any restrictions, all amounts notionally credited to the Participant’s Dividend Equivalent Account (as defined in Section 4 of this Agreement) with respect to such RSU, and all securities and property comprising all Property Distributions (as defined in Section 4 of this Agreement) deposited in such Dividend Equivalent Account with respect to such RSU.

(d)

Provided the condition of Section 7 of this Agreement, if applicable, has been met, as soon as practicable after the Vesting Date for any RSUs granted hereunder, the Participant shall receive from the Company one or more stock certificates for the number of Shares to which the vested RSUs relate, free of any restrictions, a cash payment for all amounts notionally credited to the Participant’s Dividend Equivalent Account with respect to such vested RSUs (unless the receipt of such Shares and amounts has been deferred by the Participant pursuant to the provisions of Section 5(a) of this Agreement), and all securities and property comprising all Property Distributions deposited in such Dividend Equivalent Account with respect to such vested RSUs.

2.        (a)        Provided the condition of Section 7 of this Agreement has been met, the RSUs granted hereunder shall vest in installments as follows:



                                                Scheduled Vesting Date

 Number of RSUs


(b)

Notwithstanding Section 2(a) of this Agreement, at such time as there shall be a Change in Control of the Company, all unvested RSUs shall be accelerated and shall immediately vest.

(c)

Until the respective Vesting Date for an RSU granted hereunder, such RSU, all amounts notionally credited in any Dividend Equivalent Account related to such RSU, and all securities or property comprising all Property Distributions deposited in such Dividend Equivalent Account related to such RSU shall be subject to forfeiture as provided in Section 6 of this Agreement.

3.

Except as provided in Section 4 of this Agreement, an RSU shall not entitle the Participant to any incidents of ownership (including, without limitation, dividend and voting rights) in any Share until the RSU shall vest and the Participant shall be issued a certificate for the Share to which such RSU relates nor in any securities or property comprising any Property Distribution deposited in a Dividend Equivalent Account related to such RSU until such RSU vests.

4.

From and after the Grant Date of an RSU until the issuance of a certificate for the Share payable in respect of such RSU, the Participant shall be credited, as of the payment date therefor, with (i) the amount of any cash dividends and (ii) the amount equal to the Fair Market Value of any Shares, Subsidiary securities, other securities, or other property distributed or distributable in respect of one share of Common Stock to which the Participant would have been entitled had the Participant been a record holder of one share of Common Stock at all times from the Grant Date to such issuance date (a “Property Distribution”).  All such credits shall be made notionally to a dividend equivalent account (a “Dividend Equivalent Account”) established for the Participant with respect to all RSUs granted hereunder with the same Vesting Date.  All credits to a Dividend Equivalent Account for the Participant shall be notionally increased by the Account Rate (as hereinafter defined), compounded quarterly, from and after the applicable date of credit until paid in accordance with the provisions of this Agreement.  The “Account Rate” shall be the prime commercial lending rate announced from time to time by The Chase Manhattan Bank, N.A. or by another major national bank headquartered in New York, New York designated by the Committee.  The Committee may, in its discretion, deposit in the Participant’s Dividend Equivalent Account the securities or property comprising any Property Distribution in lieu of crediting such Dividend Equivalent Account with the Fair Market Value thereof.

5.        (a)        Notwithstanding the provisions of Section 1(d) of this Agreement, if, one year prior to the Vesting Date for any RSUs, the Participant shall so elect in accordance with procedures established by the Committee, all or a portion of the Shares issuable to the Participant upon the vesting of such RSUs and all or a portion of the amounts notionally credited in the Dividend Equivalent Account related to such RSUs shall not be distributed on the Vesting Date but shall be deferred and paid in one or more periodic installments, not in excess of ten, beginning at such time or times elected by the Participant; provided, however, that the deferral period shall end no later than three months after the date (the “Termination Date”) that the Participant ceases for any reason to be an Eligible Individual (“Termination”) for any reason other than the Participant’s Disability or Retirement and shall end three years after the Termination Date if the Partici pant’s Termination occurs by reason of the Participant’s Disability or Retirement.  In the event of any Termination, a distribution of all amounts due hereunder shall be made in full to the Participant or his or her designated beneficiary as soon as administratively possible following the date the Participant is scheduled to receive a distribution hereunder.  All securities or property comprising Property Distributions deposited in such Dividend Equivalent Account related to such RSUs shall, however, be distributed to the Participant as soon as practicable after the Vesting Date for such RSUs, irrespective of such deferral election.



                        (b)

The provisions of Section 4 shall continue to apply to all such vested RSUs and all such credited amounts subject to a deferral election until paid in accordance with the provisions of this Agreement; provided, however, in the event that the Committee determines in its discretion to distribute the securities or property comprising a Property Distribution paid on or after the Vesting Date for such vested RSUs in lieu of crediting the Dividend Equivalent Account with respect to such vested RSUs with the Fair Market Value thereof, such securities or property shall not be deposited in such Dividend Equivalent Account but shall instead be distributed directly to the Participant.

6.            (a)        Except as set forth in Section 6(b) of this Agreement, all unvested RSUs provided for in this Agreement, all amounts credited to the Participant’s Dividend Equivalent Accounts with respect to such RSUs, and all securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts with respect to such RSUs shall immediately be forfeited on the Participant’s Termination Date.



                            (b)

    Notwithstanding the foregoing, and provided the condition of Section 7 of this Agreement has been met, if the Participant ceases to be an Eligible Individual by reason of the Participant’s death, Disability, or Retirement, all the unvested RSUs granted hereunder, all amounts credited to the Participant’s Dividend Equivalent Accounts with respect to such RSUs, and all securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts with respect to such RSUs shall vest as of the Participant’s Termination Date.  In the event that the Participant ceases to be an Eligible Individual by reason of the Participant’s Termination by his employer or principal without Cause, and provided the condition of Section 7 of this Agreement has been met, the Committee, or any person to whom the Committee has delegated authority, may, in its or his sole discretion, determine that all or any portion of the unvested RSUs granted hereunder, all amounts credited to the Participant’s Dividend Equivalent Accounts with respect to such RSUs, and all securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts with respect to such RSUs shall vest as of the Participant’s Termination Date.

7.

The other provisions of this Agreement notwithstanding, no unvested RSU granted hereunder shall vest on its scheduled Vesting Date under Section 2(a) of this Agreement or upon the Participant’s Termination pursuant to Section 6(b) of this Agreement unless the average of the Return on Investment for the five calendar years preceding the year in which such event occurs is at least 6% and, if required or deemed necessary to satisfy the requirements to qualify such RSU as “performance-based compensation” under Section 162(m), the appropriate members of the Committee shall have certified that such condition has been met.  Any unvested RSUs that do not vest upon the occurrence of any of such events as a result of the failure to meet the condition of this Section 7, all amounts credited to the Participant’s Dividend Equivalent Accounts with respec t to such RSUs, and all securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts with respect to such RSUs shall immediately be forfeited.

8.

The RSUs granted hereunder, any amounts notionally credited in the Participant’s Dividend Equivalent Accounts, and any securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts are not transferable by the Participant otherwise than by will or by the laws of descent and distribution or pursuant to a domestic relations order, as defined in the Code.

9.

All notices hereunder shall be in writing and, if to the Company, shall be delivered personally to the Secretary of the Company or mailed to its principal office, 1615 Poydras Street, New Orleans, Louisiana 70112, addressed to the attention of the Secretary; and, if to the Participant, shall be delivered personally or mailed to the Participant at the address on file with the Company.  Such addresses may be changed at any time by notice from one party to the other.

10.

This Agreement shall bind and inure to the benefit of the parties hereto and the successors and assigns of the Company and, to the extent provided in the Plan and in this Agreement, the Designated Beneficiaries and the legal representatives of the Participant.

11.

This Agreement is subject to the provisions of the Plan.  The Plan may at any time be amended by the Board, except that any such amendment of the Plan that would materially impair the rights of the Participant hereunder may not be made without the Participant’s consent.  Any determinations, orders, resolutions or other actions of the Committee shall be final, conclusive and binding on the Company and the Participant.

12.

The Participant is required to satisfy any obligation in respect of withholding or other payroll taxes resulting from the vesting of any RSU granted hereunder or the payment of any securities, cash, or property hereunder, in accordance with procedures established by the Committee, as a condition to receiving any certificates for securities, cash payments, or property resulting from the vesting of any RSU or otherwise.

13.

Nothing in this Agreement shall confer upon the Participant any right to continue in the employ of the Company or any of its Subsidiaries, or to interfere in any way with the right of the Company or any of its Subsidiaries to terminate the Participant’s employment relationship with the Company or any of its Subsidiaries at any time.

14.

As used in this Agreement, the following terms shall have the meanings set forth below.

(a)

“Cause” shall mean any of the following: (i) the commission by the Participant of an illegal act (other than traffic violations or misdemeanors punishable solely by the payment of a fine), (ii) the engagement of the Participant in dishonest or unethical conduct, as determined by the Committee or its designee, (iii) the commission by the Participant of any fraud, theft, embezzlement, or misappropriation of funds, (iv) the failure of the Participant to carry out a directive of his superior, employer or principal, or (v) the breach of the Participant of the terms of his engagement.

(b)

“Change in Control” shall mean the earliest of the following events:  (i) any person or any two or more persons acting as a group, and all affiliates of such person or persons, shall acquire beneficial ownership of more than 20% of all classes and series of the Company’s outstanding stock (exclusive of stock held in the Company’s treasury or by the Company’s Subsidiaries), taken as a whole, that has voting rights with respect to the election of directors of the Company (not including any series of preferred stock of the Company that has the right to elect directors only upon the failure of the Company to pay dividends) pursuant to a tender offer, exchange offer or series of purchases or other acquisitions, or any combination of those transactions, or (ii) there shall be a change in the composition of the Boa rd at any time within two years after any tender offer, exchange offer, merger, consolidation, sale of assets or contested election, or any combination of those transactions (a “Transaction”), such that (A) the persons who were directors of the Company immediately before the first such Transaction cease to constitute a majority of the board of directors of the corporation that shall thereafter be in control of the companies that were parties to or otherwise involved in such Transaction or (B) the number of persons who shall thereafter be directors of such corporation shall be fewer than two-thirds of the number of directors of the Company immediately prior to such first Transaction.

(c)

“Disability” shall mean long-term disability as defined in the Company’s long-term disability plan.

(d)

“Fair Market Value” shall, with respect to a share of Common Stock, a Subsidiary security, or any other security, have the meaning set forth in the Freeport-McMoRan Copper & Gold Inc. 2003 Stock Incentive Plan Policies of the Committee, and, with respect to any other property, mean the value thereof determined by the board of directors of the Company in connection with declaring the dividend or distribution thereof.

(e)

“Managed Net Income” shall mean, with respect to any year, the sum of (i) the net income (or net loss) of the Company and its consolidated subsidiaries for such year as reviewed by the Company’s independent auditors and released by the Company to the public; plus (or minus) (ii) the minority interests’ share in the net income (or net loss) of the Company’s consolidated subsidiaries for such year as reviewed by the Company’s independent auditors and released by the Company to the public; plus (or minus) (iii) the effect of changes in accounting principles of the Company and its consolidated subsidiaries for such year plus (or minus) the minority interests’ share in such changes in accounting principles as reviewed by the Company’s independent auditors and released by the Company to the public.

(f)

“Net Cash Provided by Operating Activities” shall mean, with respect to any year, the net cash provided by operating activities of the Company and its consolidated subsidiaries for such year as reviewed by the Company’s independent auditors and released by the Company to the public.

(g)

“Net Interest Expense” shall mean, with respect to any year, the net interest expense of the Company and its consolidated subsidiaries for such year as reviewed by the Company’s independent auditors and released by the Company to the public.

(h)

“Retirement” shall mean early, normal or deferred retirement of the Participant under a tax qualified retirement plan of the Company or any other cessation of the provision of services to the Company or a Subsidiary by the Participant that is deemed by the Committee or its designee to constitute a retirement.

(i)

“Return on Investment” shall mean, with respect to any year, the result (expressed as a percentage) calculated according to the following formula:

a + (b - c)

d


in which “a” equals Managed Net Income for such year, “b” equals Net Interest Expense for such year, “c” equals Tax on Net Interest Expense for such year, and “d” equals Total Investment of Capital for such year.


(j)

“Tax on Net Interest Expense” shall mean, with respect to any year, the tax on the net interest expense of the Company and its consolidated subsidiaries for such year calculated at the appropriate statutory income tax rate for such year as reviewed by the Company’s independent auditors.

(k)

“Total Investment of Capital” shall mean, with respect to any year, the sum of (i) the weighted average of the stockholders’ equity in the Company and its consolidated subsidiaries for such year, (ii) the weighted average of the minority interests in the consolidated subsidiaries of the Company for such year, (iii) the weighted average of the redeemable preferred stock of the Company for such year and (iv) the weighted average of the long-term debt of the Company and its consolidated subsidiaries for such year, all as shown in the quarterly balance sheets of the Company and its consolidated subsidiaries for such year.


IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day, month, and year first above written.


FREEPORT-McMoRan COPPER & GOLD INC.



By:____________________________________________


 



                                                                                ___________________________________________

(Participant)



                                                                                 ___________________________________________

(Street Address)



                                                                                ____________________________________________

(City) (State) (Zip Code)



EX-10 10 exhibit1025.htm FREEPORT-MCMORAN COPPER & GOLD INC

EXHIBIT 10.25


FREEPORT-MCMORAN COPPER & GOLD INC.

2004 DIRECTOR COMPENSATION PLAN



1.

Purpose of the Plan.

The purpose of the Freeport-McMoRan Copper & Gold Inc. 2004 Director Compensation Plan is to promote the interests of the Company and its stockholders by strengthening the Company’s ability to attract, motivate and retain directors of experience and ability, and to encourage the highest level of director performance by providing directors with (i) a proprietary interest in the Company’s financial success and growth through the annual grants of Options to purchase the Company's Common Stock and Restricted Stock Units and the ability to elect to receive compensation in shares of Common Stock and (ii) the ability to defer compensation.  In recognition of their continued service to the Company and the Board, the Plan also provides for the issuance of Awards to each of the Advisory Directors to replace awards that have or will be terminated as a result of their resignat ions from the Board.  

2.

Definitions.

For purposes of this Plan, the following terms shall have the meanings indicated:

2.1

“Advisory Director” means a person designated as such by the Board.

2.2

“Award” means any Option, Restricted Stock Unit or Stock Appreciation Right granted under this Plan.

2.3

“Award Notice” means any written or electronic notice of grant, evidencing any Award.

2.4

“Board” means the Board of Directors of the Company.

2.5

“Cash Compensation” means the annual cash retainer paid to an Eligible Director and any meeting fees, but does not include any expense reimbursement paid to an Eligible Director.

2.6

“Change of Control.”  

(a)

“Change of Control” means (capitalized terms not otherwise defined will have the meanings ascribed to them in paragraph (b) below):

(i)

the acquisition by any Person together with all Affiliates of such Person, of Beneficial Ownership of the Threshold Percentage or more; provided, however, that for purposes of this Section 2.6(a)(i), the following will not constitute a Change of Control:

(A)

any acquisition (other than a “Business Combination,” as defined below, that constitutes a Change of Control under Section 2.6(a)(iii) hereof) of Common Stock directly from the Company,

(B)

any acquisition of Common Stock by the Company or its subsidiaries,

(C)

any acquisition of Common Stock by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation or other entity controlled by the Company, or

(D)

any acquisition of Common Stock pursuant to a Business Combination that does not constitute a Change of Control under Section 2.6(a)(iii) hereof; or

(ii)

individuals, excluding the representatives of Rio Tinto (as defined below), who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual, excluding any representative of Rio Tinto, becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board will be considered a member of the Incumbent Board, unless such individual’s initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or any other actual or threatened solicitation of proxies or consents by or o n behalf of a Person other than the Incumbent Board; or

(iii)

the consummation of a reorganization, merger or consolidation (including a merger or consolidation of the Company or any direct or indirect subsidiary of the Company), or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, immediately following such Business Combination:

(A)

the individuals and entities who were the Beneficial Owners of the Company Voting Stock immediately prior to such Business Combination have direct or indirect Beneficial Ownership of more than 50% of the then outstanding shares of common stock, and more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, of the Post-Transaction Corporation, and

(B)

no Person together with all Affiliates of such Person (excluding the Post-Transaction Corporation and any employee benefit plan or related trust of either the Company, the Post Transaction Corporation or any subsidiary of either corporation) Beneficially Owns 30% or more of the then outstanding shares of common stock of the Post Transaction Corporation or 30% or more of the combined voting power of the then outstanding voting securities of the Post Transaction Corporation; provided, that if that certain Agreement dated as of May 2, 1995 by and between the Company and Rio Tinto remains in effect as it may be amended from time to time with respect to the Post Transaction Corporation, then Rio Tinto and its Affiliates may Beneficially Own any amount less than the number of shares of the Post Transaction Corporation that could elect a majori ty of the directors of the Post Transaction Corporation if all directors were to be elected at a single meeting, and

(C)

at least a majority of the members of the board of directors of the Post-Transaction Corporation were members of the Incumbent Board at the time of the execution of the initial agreement, and of the action of the Board, providing for such Business Combination; or

(iv)

approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

(b)

As used in this Section 2.6 and elsewhere in this Plan, the following terms have the meanings indicated:

(i)

“Affiliate” means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another specified Person.

(ii)

“Beneficial Owner” (and variants thereof), with respect to a security, means a Person who, directly or indirectly (through any contract, understanding, relationship or otherwise), has or shares (A) the power to vote, or direct the voting of, the security, and/or (B) the power to dispose of, or to direct the disposition of, the security.

(iii)

“Company Voting Stock” means any capital stock of the Company that is then entitled to vote for the election of directors.

(iv)

“Effective Date” means the date this Plan is approved by the Company’s stockholders.

(v)

“Majority Shares” means the number of shares of Company Voting Stock that could elect a majority of the directors of the Company if all directors were to be elected at a single meeting.

(vi)

“Person” means a natural person or entity, and will also mean the group or syndicate created when two or more Persons act as a syndicate or other group (including without limitation a partnership, limited partnership, joint venture or other joint undertaking) for the purpose of acquiring, holding, or disposing of a security, except that “Person” will not include an underwriter temporarily holding a security pursuant to an offering of the security.

(vii)

“Post-Transaction Corporation”:  Unless a Change of Control includes a Business Combination, “Post-Transaction Corporation” means the Company after the Change of Control.  If a Change of Control includes a Business Combination, “Post-Transaction Corporation” will mean the corporation or other entity resulting from the Business Combination unless, as a result of such Business Combination, an ultimate parent entity controls the Company or all or substantially all of the Company’s assets either directly or indirectly, in which case, “Post Transaction Corporation” will mean such ultimate parent entity.

(viii)

“Threshold Percentage”: (A) As long as that certain Agreement dated as of May 2, 1995, by and between the Company and Rio Tinto Indonesia Limited (“Rio Tinto”) remains in effect as it may be amended from time to time, “Threshold Percentage” means with respect to Rio Tinto and its Affiliates, that percentage of Common Stock that would result in Rio Tinto and its Affiliates having Beneficial Ownership of shares of Company Voting Stock equal to or greater than the Majority Shares; provided that, solely for purposes of such calculation, the shares of Company Voting Stock issuable upon exercise of warrants, options or other rights, or upon conversion or exchange of convertible or exchangeable securities, owned by Rio Tinto and its Affiliates, will be treated as outstanding Company Voting Stock.  (B) With res pect to any other Person and its Affiliates, “Threshold Percentage” means 30% of all then outstanding Common Stock.

2.7

“Committee” means the Corporate Personnel Committee of the Board or a subcommittee thereof.  The Committee shall consist of not fewer than two members of the Board of Directors, each of whom shall (a) qualify as a “non-employee director” under Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the “1934 Act”), or any successor rule, and (b) qualify as an “outside director” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder.

2.8

“Common Stock” means the Class B common stock, $0.10 par value per share, of the Company.

2.9

“Company” means Freeport-McMoRan Copper & Gold Inc., a Delaware corporation.

2.10

“Director” means each member of the Board who is not employed by the Company or any of its subsidiaries.

2.11

“Disability” shall occur if (a) a physical or mental illness renders the Participant incapable of satisfactorily discharging his or her duties and responsibilities as a Director for a period of 90 consecutive days, and (b) a duly qualified physician chosen by the Company and reasonably acceptable to the Participant or his or her legal representative certifies in writing that the Participant has become disabled.

2.12

 “Eligible Director” means each Director and Advisory Director, and includes, for purposes of Sections 6.6 and 7.6 hereof only, former Directors and Advisory Directors who continue to provide services to the Company or a subsidiary of the Company pursuant to a consulting or other arrangement.

2.13

“Fair Market Value.”  Except as provided below in connection with a cashless exercise through a broker, for any purpose relevant under the Plan, the fair market value of a share of Common Stock or any other security shall be the average of the high and low quoted per share or security sale prices on the Composite Tape for New York Stock Exchange-Listed Stocks on the date in question or, if there are no reported sales on such date, on the last preceding date on which any reported sale occurred.  If on the date in question the shares of Common Stock or other securities in question are not listed on such Composite Tape, the fair market value shall be the average of the high and low quoted sale prices on the New York Stock Exchange on such date or, if no sales occurred on such date, on the last previous day on which a sale on the New York Stock Exchange is reported.  In the context of a cashless exercise through a broker, the fair market value shall be the price at which the shares of Common Stock are actually sold.

2.14

“Grant Date” means June 1, 2004, and each subsequent anniversary thereof throughout the term of this Plan, provided shares of Common Stock remain available for issuance hereunder.

2.15

“Participant” means any individual granted an Award under this Plan.

2.16

“Option” means a stock option granted under Section 5 of this Plan that does not satisfy the requirements of Section 422 of the Code.

2.17

“Plan” means the Freeport-McMoRan Copper & Gold Inc. 2004 Director Compensation Plan as set forth herein and as amended, restated, supplemented or otherwise modified from time to time.

2.18

“Restricted Stock Unit” or “RSU” means an award of restricted stock units granted under Section 5 of this Plan.

2.19

“Stock Appreciation Right” or “SAR” means an award of stock appreciation rights granted under Section 5 of this Plan.

3.

Shares of Common Stock Subject to the Plan.

3.1

Subject to the adjustment provisions of Section 11, the aggregate number of shares of Common Stock that may be issued pursuant to the terms of the Plan shall be 1,000,000.  Shares issued or delivered upon the exercise of Options or the vesting of RSUs may be either authorized but unissued shares or shares issued and thereafter acquired by the Company.

3.2

To the extent any shares of Common Stock subject to an Award are not issued because the Award is forfeited or cancelled or the Award is paid in cash, such shares shall again be available for grant pursuant to Awards granted under the Plan.  If the exercise price of any Option granted under this Plan is satisfied by tendering shares of Common Stock to the Company (by either actual delivery or by attestation), only the number of shares of Common Stock issued net of the shares of Common Stock tendered shall be deemed delivered for purposes of determining the maximum number of shares of Common Stock available for delivery under the Plan.

4.

Administration of the Plan.

4.1

The Plan shall be administered by the Committee, which shall have the power to interpret the Plan and, subject to its provisions, to prescribe, amend and rescind Plan rules and to make all other determinations necessary for the Plan’s administration.  

4.2

All action taken by the Committee in the administration and interpretation of the Plan shall be final and binding upon all parties.  No member of the Committee will be liable for any action or determination made in good faith by the Committee with respect to the Plan or any Award.

4.3

The Committee does not have the authority to make discretionary grants of Awards under the Plan. Grants may be made only as provided in Section 5 hereof.

5.

Grant of Options, Restricted Stock Units and Stock Appreciation Rights.

5.1

On each Grant Date, each Eligible Director shall be automatically granted

(a)

an Option to acquire 10,000 shares of Common Stock; and

(b)

2,000 Restricted Stock Units.

5.2

While the Plan remains in effect and shares of Common Stock remain available for issuance hereunder, upon any person’s initial election or appointment as an Eligible Director, otherwise than at an annual meeting of stockholders, such person shall be granted an Option and RSUs as follows:

(a)

If less than six full calendar months have elapsed since the most recent Grant Date, then the Eligible Director shall receive an Option to acquire 10,000 shares of Common Stock and 2,000 Restricted Stock Units; or

(b)

If six or more full calendar months have elapsed since the most recent Grant Date, then the Eligible Director shall receive an Option to acquire 5,000 shares of Common Stock and 1,000 Restricted Stock Units.

5.3

On February 9, 2004, two Directors resigned from the Board and were appointed Advisory Directors.  All outstanding incentive awards previously granted to such directors under the Company’s 1995 Stock Option Plan for Non-Employee Directors and the Company’s Stock Appreciation Rights Plan were or will be terminated under the terms of those plans as a result of such individuals’ resignations from the Board.  Accordingly, on May 9, 2004, the following Advisory Directors will receive a one-time grant of Options and SARs as described below to replace the previously granted awards that have or will terminate.

(a)

Gabrielle K. McDonald shall receive Options to acquire 79,517 shares of Common Stock and 52,131 SARs related to an equal number of shares of Common Stock, which Options and SARs shall have the specific terms described on Annex A hereto.

(b)

J. Stapleton Roy shall receive Options to acquire 22,500 shares of Common Stock and 14,751 SARs related to an equal number of shares of Common Stock, which Options and SARs shall have the specific terms described on Annex A hereto.

6.

Terms and Conditions of Options and Stock Appreciation Rights.

6.1

Unless exercisability is accelerated as provided in Section 12.1 hereof and except for grants described in Section 5.3 hereof, the Options shall become exercisable in one-quarter increments on the first, second, third and fourth anniversaries of the applicable Grant Date.

6.2

Unless terminated earlier as provided in Sections 5.3, 6.6 or 12.2, the Options shall expire ten years following the applicable Grant Date.

6.3

Except for grants described in Section 5.3, the exercise price of the Options granted to Eligible Directors shall be equal to the Fair Market Value, as defined herein, of a share of Common Stock on the applicable Grant Date.

6.4

Options must be exercised by delivering written notice to the Company or any person or entity designated by the Company on forms approved by the Company and payment of the purchase price thereof in full.  Any such exercise shall be effective upon receipt by the Company or its designee of such notice and such payment.  Unless the Committee shall determine otherwise in any particular case, such payment may be made by (a) cash, (b) cash equivalent (which may be the personal check of the exercising holder of the Option), (c) by tendering shares of Common Stock, either by actual delivery or by attestation, that are owned by such holder and that have been held by the Participant or eligible transferee for at least six months, or (d) instructing a broker approved by the Company to sell shares of Common Stock acquired upon the exercise of the option and to remit to the Company a sufficient portion of the cash proceeds to pay the exercise price; or (e) a combination thereof, in each case having an aggregate Fair Market Value equal to the aggregate exercise price of the portion of the Option being exercised.

6.5

Any provision of this Plan or any Award Notice to the contrary notwithstanding, the Committee may cause any Award granted hereunder to be canceled in consideration of a cash payment or alternative Award made to the holder of such canceled Award equal in value to such canceled Award.  Notwithstanding the foregoing, except for adjustments permitted under Sections 11 and 12.2 hereof, no action by the Committee shall cause a reduction in the exercise price of Options granted under the Plan without the approval of the stockholders of the Company.  The determinations of value under this subparagraph shall be made by the Committee in its sole discretion.

6.6 (a)

For purposes of this Section 6.6, if a Participant continues to provide services to the Company or a subsidiary of the Company pursuant to a consulting or other arrangement, the Participant will not “cease to be an Eligible Director” until such time as the Participant no longer provides such services.  

(b)

If a Participant ceases to be an Eligible Director for any reason other than death, Disability or retirement from the Board, all of the Options and SARs granted to such Participant while serving as an Eligible Director shall be terminated except that any Options and SARs, to the extent then exercisable, may be exercised by the holder thereof within three months after such Participant ceases to be an Eligible Director, but not later than the termination date of the Award.  

(c)

If a Participant ceases to be an Eligible Director by reason of the Participant’s Disability or retirement from the Board, all of the Options and SARs granted to such Participant while serving as an Eligible Director shall be terminated except that any Options and SARs, to the extent then exercisable or exercisable within one year thereafter, may be exercised by the holder thereof within three years after such Participant ceases to be an Eligible Director, but not later than the termination date of the Award.

(d)

If a Participant dies while serving as an Eligible Director, all Options and SARs granted to such Participant shall be terminated, except that any Options and SARs, to the extent exercisable by the holder thereof at the time of such death or exercisable within one year thereafter, may be exercised until the third anniversary of the date of such death, but not later than the termination date of the Award, by the holder thereof, the Participant’s estate, or the person designated in the Participant’s last will and testament, as appropriate.

(e)

If a Participant dies after ceasing to be an Eligible Director, all of the Options and SARs granted to such Participant shall be terminated, except that any Options and SARs, to the extent still outstanding and exercisable by the holder thereof at the time of such death, may be exercised until the third anniversary of the date the Participant ceased to be an Eligible Director, but not later than the termination date of the Award, by the holder thereof, the Participant’s estate, or the person designated in the Participant’s last will and testament, as appropriate.

6.7

A Stock Appreciation Right is a right to receive, without payment to the Company, for each share of Common Stock to which the SAR relates, an amount in cash equal to the excess, if any, of the Fair Market Value of a Share on the date of exercise of the SAR over the grant price. SARs will only be granted under the Plan in accordance with Section 5.3 hereof.

7.

Terms and Conditions of Restricted Stock Units.

7.1

Subject to the terms, conditions, and restrictions set forth herein, each RSU granted under Section 5.1 hereof represents the right to automatically receive from the Company, on the respective scheduled vesting date for such RSU, one share (a “Share”) of Common Stock, free of any restrictions and all cash, securities and property credited to or deposited in the Participant’s Dividend Equivalent Account (as defined in Section 7.4) with respect to such RSU.

7.2

Unless vesting is accelerated as provided in Section 7.6 or 12.1, the RSUs shall vest in one-quarter increments on the first, second, third and fourth anniversaries of the applicable Grant Date.  Upon vesting, a Participant shall be issued the Shares to which the Participant is entitled, unless the Participant has elected to defer receipt as permitted herein.

7.3

Except as provided in Section 7.4, an RSU shall not entitle the Participant to any incidents of ownership (including, without limitation, dividend and voting rights) (a) in any Share until the RSU shall vest and the Participant shall be issued a Share to which such RSU relates nor (b) in any cash, securities or property credited to or deposited in a Dividend Equivalent Account related to such RSU until such RSU vests.

7.4

From and after the Grant Date of an RSU until the issuance of the Share payable in respect of such RSU, the Participant shall be credited, as of the payment date therefor, with (a) the amount of any cash dividends and (b) the amount equal to the Fair Market Value of any Shares, securities, or other property distributed or distributable in respect of one share of Common Stock to which the Participant would have been entitled had the Participant been a record holder of one share of Common Stock at all times from the Grant Date to such issuance date (a “Property Distribution”).  All such credits shall be made notionally to a dividend equivalent account (a “Dividend Equivalent Account”) established for the Participant with respect to all RSUs granted with the same vesting date.  All credits to a Dividen d Equivalent Account for the Participant shall be notionally increased by the Account Rate (as hereinafter defined), compounded quarterly, from and after the applicable date of credit until paid in accordance with the terms of the Plan and the applicable Award Notice.  The “Account Rate” shall be the prime commercial lending rate announced from time to time by JP Morgan Chase Bank or by another major national bank headquartered in New York, New York designated by the Committee.  The Committee may, in its discretion, deposit in the Participant’s Dividend Equivalent Account the securities or property comprising any Property Distribution in lieu of crediting such Dividend Equivalent Account with the Fair Market Value thereof.

7.5     No later than one year prior to the applicable vesting date of RSUs, a Participant may elect, in accordance with procedures established by the Committee, that all or a portion of the Shares issuable to the Participant upon the vesting of such RSUs and all or a portion of the amounts notionally credited in the Dividend Equivalent Account related to such RSUs shall not be distributed on the vesting date but shall be deferred and paid in one or more periodic installments not in excess of ten, beginning at such time or times elected by the Participant; provided, however, that the deferral period shall end no later than 10 years after the date that the Participant ceases to be an Eligible Director (“Termination”) for any reason.  In the event of any Termination, a distribution of all amounts due hereunder shall be made in full to the Participant or his or her designated beneficiary as soon as administratively possible following the date the Participant is scheduled to re ceive a distribution hereunder.  All securities or property comprising Property Distributions deposited in such Dividend Equivalent Account related to such RSUs shall, however, be distributed to the Participant as soon as practicable after the vesting date for such RSUs, irrespective of such deferral election.  

7.6  (a)

Except as otherwise set forth in Section 7.6(b), all unvested RSUs, all amounts credited to the Participant’s Dividend Equivalent Accounts with respect to such RSUs, and all securities and property comprising Property Distributions deposited in such Dividend Equivalent Accounts with respect to such RSUs shall immediately be forfeited on the date the Participant ceases to be an Eligible Director, unless the Participant continues providing services to the Company pursuant to a consulting or other arrangement.

(b)

If a Participant ceases to be an Eligible Director by reason of the Participant’s death, Disability or retirement, all unvested RSUs and all amounts credited to or property deposited in the Participant’s Dividend Equivalent Accounts with respect to such RSUs shall vest as of the date the Participant ceases to be an Eligible Director.

(c)

For purposes of this Section 7.6, if a Participant continues to provide services to the Company or a subsidiary of the Company pursuant to a consulting or other arrangement, the Participant will not “cease to be an Eligible Director” until such time as the Participant no longer provides such services.

8.

Election to Have Annual Retainer Paid in Common Stock.

8.1

Each Eligible Director may make a stock purchase election on a form approved by the Committee (the “Stock Purchase Election Form”) directing that up to one hundred percent of his or her annual retainer, in twenty-five percent increments, be allocated to the purchase of Common Stock on his or her behalf.  

8.2

A stock purchase election will be effective on the first date that the portion of the annual retainer subject to the election is paid that is at least five business days after the date the Stock Purchase Election Form is filed with the Company’s Human Resources Department in the manner required by the Company.  Stock purchase elections may be revoked or modified effective on the first date that the portion of the annual retainer is paid that is at least five business days following the date the revocation or modified election is filed with the Company in the manner required by the Company.

8.3

If an Eligible Director has timely submitted a satisfactory Stock Purchase Election Form, the Eligible Director shall be issued that number of whole shares of Common Stock, rounded down if necessary, equal to the amount of the Director's retainer to be allocated to the purchase of Common Stock on that date divided by the Fair Market Value of a share of Common Stock as of the trading date immediately preceding the issue date.

9.

Deferral of Cash Compensation.

9.1

Each Eligible Director may elect to defer his or her Cash Compensation that is not used to purchase Common Stock pursuant to Section 8 hereof, in twenty-five percent increments, to a deferred compensation account (a “Deferred Compensation Account”) established for the Eligible Director’s benefit.  An election to defer Cash Compensation hereunder shall be made by means of a form approved by the Company (the “Deferral Election Form”) and shall be effective only with respect to Cash Compensation earned on or after January 1st of the fiscal year following the receipt of the Deferral Election Form by the Company’s Human Resources Department.  

9.2

An Eligible Director may revoke or modify an election made pursuant to Section 9.1 with respect to deferrals of Cash Compensation to be earned in the future and such revocation or modification shall take effect one year following receipt of the written revocation or modification by the Committee and subject to such other rules as may be established by the Committee.

10.

Deferred Compensation Accounts.

10.1

A Deferred Compensation Account shall be established for each Eligible Director who executes a Deferral Election Form.

10.2

An Eligible Director’s Deferred Compensation Account shall be credited with that portion of the Eligible Director’s Cash Compensation that the Eligible Director has elected to defer to his or her Deferred Compensation Account pursuant to Section 9.1 as of the date such Compensation would otherwise have been paid to the Eligible Director.

10.3

All amounts in an Eligible Director’s Deferred Compensation Account shall accrue interest at a rate equal to the prime commercial lending rate announced from time to time by JP Morgan Chase (compounded quarterly) or by another major national bank headquartered in New York, New York and designated by the Committee.

10.4

Amounts credited to an Eligible Director's Deferred Compensation Account shall be distributed in either a single lump sum or annual installments (not to exceed ten), as designated by the Eligible Director in his or her applicable Deferral Election Form.  Distribution of a Deferred Compensation Account shall be made (in the case of a lump sum payment) or commence (in the case of installment payments) within 45 days following the date the Eligible Director ceases to be an Eligible Director and shall be completed within 10 years of such date.  However, if the Eligible Director elects in his or her Deferral Election Form, the distribution (in the case of a lump sum payment) or the commencement of the distribution (in the case of installment payments) of the Eligible Director's Deferred Compensation Account shall occur on any specifi ed date at least two years after the date the Deferral Election Form is received by the Committee.  If an Eligible Director elects to have his or her Deferred Compensation Account distributed in installments, the amount of the first installment shall be a fraction of the value of the Eligible Director's Deferred Compensation Account, the numerator of which is one and denominator of which is the total number of installments elected, and the amount of each subsequent installment shall be a fraction of the value (including income credited pursuant to Section 10.3) on the date preceding each subsequent payment, the numerator of which is one and the denominator of which is the total number of installments elected minus the number of installments previously paid.

10.5

In the event of the death of an Eligible Director prior to the distribution of his or her Deferred Compensation Account in full, the value of such Deferred Compensation Account shall be determined as of the date of death and such amount shall be distributed in a single lump sum payment to the Eligible Director's estate or designated beneficiary as soon as administratively feasible thereafter.

10.6

At least once per year, each Eligible Director who has executed a Deferral Election Form shall be provided with a statement of his or her Deferred Compensation Account.

10.7

The right of any Eligible Director to receive distributions under the provisions of this Section 10 shall constitute an unsecured claim against the general assets of the Company.

11.

Adjustment Provisions.

In the event of any recapitalization, reclassification, stock dividend, stock split, combination of shares or other change in the Common Stock, all limitations on numbers of shares of Common Stock provided in this Plan, and the number of shares subject to outstanding Options, SARs, RSUs and stock purchase elections, shall be equitably adjusted in proportion to the change in outstanding shares of Common Stock.  In addition, in the event of any such change in the Common Stock, the Committee shall make any other adjustment that it determines to be equitable, including without limitation adjustments to the exercise price of any Option or base price of any SAR in order to provide Participants with the same relative rights before and after such adjustment.  

12.

Change of Control.

12.1

Upon a Change of Control, or immediately prior to the closing of a transaction that will result in a Change of Control if consummated, all outstanding Options and SARs  granted pursuant to this Plan shall automatically become fully vested and exercisable, and all outstanding RSUs shall become fully vested.  

12.2

No later than 30 days after a Change of Control, the Committee, acting in its sole discretion without the consent or approval of any Participant (and notwithstanding any removal or attempted removal of some or all of the members thereof as directors or Committee members), may act to effect one or more of the alternatives listed below, which may vary among individual Participants and which may vary among Options, SARs and RSUs held by any individual Participant:

(a)

require that all outstanding Options and SARs be exercised on or before a specified date (before or after such Change of Control) fixed by the Committee, after which specified date all unexercised Options and SARs and all rights of Participants thereunder shall terminate,

(b)

make such equitable adjustments to Awards then outstanding as the Committee deems appropriate to reflect such Change of Control (provided, however, that the Committee may determine in its sole discretion that no adjustment is necessary),

(c)

provide for mandatory conversion or exchange of some or all of the outstanding Options and SARs held by some or all Participants as of a date, before or after such Change of Control, specified by the Committee, in which event such Options and SARs shall be deemed automatically cancelled and the Company shall pay, or cause to be paid, to each such Participant an amount of cash per share equal to the excess, if any, of the Change of Control Value of the shares subject to such Option or SAR, as defined and calculated below, over the per share exercise price of such Options and SARs or, in lieu of such cash payment, the issuance of Common Stock or securities of an acquiring entity having a Fair Market Value equal to such excess, or

(d)

provide that thereafter, upon any exercise of an Option that entitles the holder to receive Common Stock, the holder shall be entitled to purchase or receive under such Option, in lieu of the number of shares of Common Stock then covered by such Option, the number and class of shares of stock or other securities or property (including, without limitation, cash) to which the holder would have been entitled pursuant to the terms of the agreement providing for the reorganization, share exchange, merger, consolidation or asset sale, if, immediately prior to such Change of Control, the holder had been the record owner of the number of shares of Common Stock then covered by such Option.

12.3

For the purposes of any conversions or exchanges under paragraph (c) of Section 12.2, the “Change of Control Value” shall equal the amount determined by whichever of the following items is applicable:

(a)

the per share price to be paid to holders of Common Stock in any such merger, consolidation or other reorganization,

(b)

the price per share offered to holders of Common Stock in any tender offer or exchange offer whereby a Change of Control takes place, or

(c)

in all other events, the Fair Market Value of a share of Common Stock, as determined by the Committee as of the date determined by the Committee to be the date of conversion or exchange.

12.4

In the event that the consideration offered to stockholders of the Company in any transaction described in this Section 12 consists of anything other than cash, the Committee shall determine the fair cash equivalent of the portion of the consideration offered that is other than cash.

13.

General Provisions.

13.1

Nothing in the Plan or in any instrument executed pursuant to the Plan will confer upon any Eligible Director any right to continue as an Eligible Director or affect the right of the Board to remove any Eligible Director.

13.2

No shares of Common Stock will be issued or transferred pursuant to an Award unless and until all then-applicable requirements imposed by federal and state securities and other laws, rules and regulations and by any regulatory agencies having jurisdiction, and by any stock exchanges upon which the Common Stock may be listed, have been fully met to the Company’s satisfaction.  As a condition precedent to the issuance of shares pursuant to an Award, the Company may require the Participant to take any reasonable action to meet such requirements.  

13.3

No Participant and no beneficiary or other person claiming under or through such Participant will have any right, title or interest in or to any shares of Common Stock allocated or reserved under the Plan or subject to any Award except as to such shares of Common Stock, if any, that have been issued or transferred to such Participant.

13.4

No Awards granted hereunder, including amounts notionally credited to the Participant’s Dividend Equivalent Account, and any Property Distributions deposited in such Dividend Equivalent Account, may be transferred, pledged, assigned or otherwise encumbered by a Participant except: (i) by will; (ii) by the laws of descent and distribution; (iii) pursuant to a domestic relations order, as defined in the Code, if permitted by the Committee and so provided in the Award Notice or an amendment thereto; or (iv) if permitted by the Committee and so provided in the Award Notice or an amendment thereto, Options may be transferred or assigned (w) to Immediate Family Members, (x) to a partnership in which Immediate Family Members, or entities in which Immediate Family Members are the owners, members or beneficiaries, as appropriate, are the part ners, (y) to a limited liability company in which Immediate Family Members, or entities in which Immediate Family Members are the owners, members or beneficiaries, as appropriate, are the members, or (z) to a trust for the benefit of Immediate Family Members; provided, however, that no more than a de minimus beneficial interest in a partnership, limited liability company or trust described in (x), (y) or (z) above may be owned by a person who is not an Immediate Family Member or by an entity that is not beneficially owned solely by Immediate Family Members.  “Immediate Family Members” shall be defined as the spouse and natural or adopted children or grandchildren of the Participant and their spouses.  Any attempted assignment, transfer, pledge, hypothecation or other disposition of Awards, or levy of attachment or similar process upon Awards not specifically permitted herein, shall be null and void and without effect.  The designation of a designated beneficiary shall not be a violation of this Section 13.4.

13.5

Each Award shall be evidenced by an Award Notice.

14.

Amendment, Discontinuance or Termination of the Plan.

14.1

The Board may amend or discontinue the Plan at any time; provided, however, that no such amendment may

(a)

without the approval of the stockholders, (i) increase, subject to adjustments permitted herein, the maximum number of shares of Common Stock that may be issued through the Plan, (ii) materially increase the benefits accruing to Participants under the Plan, (iii) materially expand the classes of persons eligible to participate in the Plan, (iv) expand the types of awards available under the Plan, (v) materially extend the term of the Plan, (vi) materially change the method for determining the exercise price of an Award, or (vii) amend Section 6.5 to permit a reduction in the exercise price of Options; or

(b)

materially impair, without the consent of the recipient, an Award previously granted.

14.2

Term of the Plan.  Subject to Section 14.1, no Awards may be granted under the Plan later than May 6, 2014, which is ten years after the Effective Date of the Plan; provided, however, that Awards granted prior to such date shall remain in effect until all such Awards have either been satisfied, expired or canceled under the terms of the Plan.



ANNEX A to 2004 Director Compensation Plan


Special Awards to be Granted May 9, 2004


Gabrielle K. McDonald, Advisory Director, shall receive the following Options and SARs:


Number of
Options/SARs

Exercise
Price

Vesting Schedule

Termination
Date*

7,017 options

$20.2672

May 9, 2004

    May 1, 2005

10,000 options

$26.6875

May 9, 2004

August 1, 2005

10,000 options

$30.4375

May 9, 2004

August 1, 2006

10,000 options

$29.1563

May 9, 2004

August 1, 2007

10,000 options

$17.3125

May 9, 2004

August 1, 2009

5,000 options

$  9.0938

50% on May 9, 2004, and 50% on August 1, 2004

August 1, 2010

7,500 options

$11.165

33.3% on May 9, 2004, 33.3% on August 1, 2004, and on the next anniversary thereof

August 1, 2011

10,000 options

$15.195

25% on May 9, 2004, 25% on August 1, 2004, and on each of the next two anniversaries thereof

August 1, 2012

10,000 options

$26.975

25% on August 1, 2004, and on each of the next three anniversaries thereof

August 1, 2013



  

4,600 SARs

$20.2672

May 9, 2004

    May 2, 2005

6,556 SARs

$26.6875

May 9, 2004

August 1, 2005

6,556 SARs

$30.4375

May 9, 2004

August 1, 2006

6,556 SARs

$29.1563

May 9, 2004

August 1, 2007

6,556 SARs

$17.3125

May 9, 2004

August 1, 2009

3,278 SARs

$9.0938

50% on May 9, 2004, and 50% on August 1, 2004

August 1, 2010

4,917 SARs

$11.165

33.3% on May 9, 2004, 33.3% on August 1, 2004, and on the next anniversary thereof

August 1, 2011

6,556 SARs

$15.195

25% on May 9, 2004, 25% on August 1, 2004, and on each of the next two anniversaries thereof

August 1, 2012

6,556 SARs

$26.975

25% on August 1, 2004 and on each of the next three anniversaries thereof

August 1, 2013


J. Stapleton Roy, Advisory Director, shall receive the following Options and SARs:


Number of
Options/SARs

Exercise
Price

Vesting Schedule

Termination
Date*

5,000 options

$11.165

50% on August 1, 2004, and on the next anniversary thereof

August 1, 2011

7,500 options

$15.195

33.3% on August 1, 2004, and on each of the next two anniversaries thereof

August 1, 2012

10,000 options

$26.975

25% on August 1, 2004, and on each of the next three anniversaries thereof

August 1, 2013



3,278 SARs

$11.165

50% on August 1, 2004, and on the next anniversary thereof

August 1, 2011

4,917 SARs

$15.195

33.3% on August 1, 2004, and on each of the next two anniversaries thereof

August 1, 2012

6,556 SARs

$26.975

25% on August 1, 2004, and on each of the next three anniversaries thereof

August 1, 2013

_______________

*Unless terminated earlier pursuant to the terms of the Plan.


EX-15 11 exhibit151.htm Exhibit151-3q03.doc  (EXHIBI~1.DOC;1)

Exhibit 15.1


Freeport-McMoRan Copper & Gold Inc.

1615 Poydras St.

New Orleans, LA  70112


July 21, 2004


To the Board of Directors and Stockholders of Freeport-McMoRan Copper & Gold Inc.:


We are aware of the incorporation by reference in the Registration Statements on Forms S-3 (File Nos. 333-31584, 333-104564 and 333-114430) and in the related Prospectus, Forms S-4 (File Nos. 333-104563 and 333-114217) and in the related Prospectus, and Forms S-8 (File Nos. 33-63267, 33-63269, 33-63271, 333-85803, 333-105535 and 333-115292) of Freeport-McMoRan Copper & Gold Inc. of our report dated July 21, 2004 relating to the unaudited condensed interim financial statements of Freeport-McMoRan Copper & Gold Inc. that is included in its Form 10-Q for the quarter ended June 30, 2004.



Very truly yours,


/s/Ernst & Young LLP

EX-31 12 exhibit311.htm Exhibit 31

Exhibit 31.1

CERTIFICATION



I, Richard C. Adkerson, certify that:


1.

I have reviewed this quarterly report on Form 10-Q of Freeport-McMoRan Copper & Gold Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of  the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 6, 2004



         /s/ Richard C. Adkerson

Richard C. Adkerson

             President and Chief Executive Officer






 


EX-31 13 exhibit312.htm Exhibit 31

Exhibit 31.2

CERTIFICATION


I, Kathleen L. Quirk, certify that:


1.

I have reviewed this quarterly report on Form 10-Q of Freeport-McMoRan Copper & Gold Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of  the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 6, 2004



  

              /s/ Kathleen L. Quirk

Kathleen L. Quirk

Senior Vice President,

Chief Financial Officer and Treasurer






 


EX-32 14 exhibit321.htm Exhibit 32


 





Exhibit 32.1



Certification Pursuant to 18 U.S.C. Section 1350

(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)



In connection with the Quarterly Report on Form 10-Q of Freeport-McMoRan Copper & Gold Inc. (the “Company”) for the quarter ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Richard C. Adkerson, as President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:


(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated:  August 6, 2004



    /s/ Richard C. Adkerson

Richard C. Adkerson

President and Chief Executive Officer



A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.


This certification shall not be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.

 







EX-32 15 exhibit322.htm Exhibit 32


 





Exhibit 32.2



Certification Pursuant to 18 U.S.C. Section 1350

(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)



In connection with the Quarterly Report on Form 10-Q of Freeport-McMoRan Copper & Gold Inc. (the “Company”) for the quarter ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Kathleen L. Quirk, as Senior Vice President, Chief Financial Officer and Treasurer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of her knowledge:


(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated:  August 6, 2004




    /s/ Kathleen L. Quirk

Kathleen L. Quirk

Senior Vice President,

Chief Financial Officer and Treasurer



A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.


This certification shall not be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.











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