This Prospectus is filed under Rule 424(b)(2) and
relates to Registration Statement No. 33-52257
33-52257-01
- ------------------------------------------------------------------------------
P R O S P E C T U S
- ------------------------------------------------------------------------------
$120,000,000
P.T. ALatieF Freeport Finance Company B.V.
9 3/4% Senior Notes Due 2001
Unconditionally Guaranteed by
[LOGO] Freeport-McMoRan Copper & Gold Inc.
Interest payable October 15 and April 15 Due April 15, 2001
---------------
The 9 3/4% Senior Notes Due 2001 (the "Guaranteed Notes") will be issued by
P.T. ALatieF Freeport Finance Company B.V., a corporation organized under
the laws of The Netherlands (the "Issuer"). The Issuer is a wholly owned
subsidiary of Freeport-McMoRan Copper & Gold Inc. ("FCX"). The Guaranteed
Notes will be unsecured and will be unconditionally guaranteed on a senior
basis as to principal, premium, if any, Additional Amounts (as defined), if
any, and interest by FCX. The Issuer will lend the net proceeds of the
Guaranteed Notes to P.T. ALatieF Freeport Infrastructure Corporation
("AFIC") and one or more affiliated entities which will use the proceeds of
such loan to purchase infrastructure assets from P.T. Freeport Indonesia
Company, an Indonesian limited liability company domesticated in Delaware
("PT-FI"). See "Use of Proceeds" and "Business of the Issuer." FCX
directly owns 81.28% of PT-FI's outstanding capital stock.
Except as described below, the Guaranteed Notes are not redeemable at the
option of the Issuer or FCX. If any withholding tax is imposed in the
future, the Issuer will, subject to certain exceptions, pay Additional
Amounts so that the net amount received by the holder of a Guaranteed Note
after such withholding will be equal to the amount that would have been
received if no tax had been applicable. Upon the occurrence of certain
changes with respect to United States, Netherlands or Indonesian tax law
requiring Additional Amounts to be paid by the Issuer with respect to the
Guaranteed Notes or an increase in Underlying Additional Amounts (as
defined) required to be paid by PT-FI, AFIC or any Infrastructure Affiliate
(as defined) with respect to the PT-FI Note (as defined) or the Underlying
Notes (as defined), the Issuer may redeem the Guaranteed Notes, in whole
but not in part, at 100% of the principal amount thereof, plus accrued and
unpaid interest to the date of redemption. Upon a Repurchase Event (as
defined), each holder of Guaranteed Notes may require FCX to repurchase
such Guaranteed Notes at 101% of the principal amount thereof plus accrued
interest to the date of repurchase. See "Description of the Guaranteed
Notes." The Guaranteed Notes have been approved for listing on the New York
Stock Exchange.
---------------
See "Special Considerations" for a discussion of certain factors that should
be considered in connection with an investment in the Guaranteed Notes.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
==============================================================================
Price to Underwriting Proceeds to
Public(1) Discount(2) Issuer(1)(3)
- ------------------------------------------------------------------------------
Per Guaranteed Note 99.897% 2.375% 97.522%
- ------------------------------------------------------------------------------
Total $119,876,400 $2,850,000 $117,026,400
==============================================================================
(1) Plus accrued interest, if any, from April 19, 1994.
(2) PT-FI has agreed to reimburse the Issuer for the underwriting discount.
(3 Before deduction of expenses payable by the Issuer estimated at $750,000.
Taking into account PT-FI's reimbursement to the Issuer of the
underwriting discount and offering expenses, Proceeds to Issuer will be
$119,876,400.
---------------
The Guaranteed Notes are offered by the several Underwriters when, as
and if issued by the Issuer and delivered to and accepted by the several
Underwriters and subject to their right to reject orders in whole or in part.
It is expected that the Guaranteed Notes will be ready for delivery on or
about April 19, 1994.
CS First Boston Chase Securities, Inc.
---------------
The date of this Prospectus is April 13, 1994.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
GUARANTEED NOTES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE OFFERING OF THE GUARANTEED NOTES IS NOT AND SHALL NOT BE DIRECTED TO
PERSONS ESTABLISHED OR DOMICILED OR HAVING THEIR NORMAL PLACE OF RESIDENCE IN
THE NETHERLANDS.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Annual Report on Form 10-K of FCX for the fiscal year ended
December 31, 1993 and the Current Reports on Form 8-K of FCX dated January
7, 1994 (as amended on April 7, 1994), January 12, 1994 and March 2,
1994 (as amended on April 6, 1994) are incorporated by reference in this
Prospectus.
All documents filed by FCX pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Securities and Exchange Act of 1934, as amended (the "Exchange Act")
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Guaranteed Notes shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Copies of the above documents (excluding exhibits to the information that
is incorporated by reference unless such exhibits are specifically
incorporated by reference into the information this Prospectus incorporates)
may be obtained upon request without charge from FCX, c/o Freeport-McMoRan
Inc. at 1615 Poydras Street, New Orleans, Louisiana 70112 (telephone (504)
582-4000), attention: Michael C. Kilanowski, Jr., Secretary.
ENFORCEMENT OF CIVIL LIABILITIES
The Issuer is a Netherlands corporation. All or a substantial portion of
its assets are located outside the United States. The Issuer has been advised
by legal counsel in The Netherlands, Stibbe Simont Monahan Duhot, that the
United States and The Netherlands do not currently have a treaty providing for
reciprocal recognition and enforcement of judgments (other than arbitration
awards) in civil and commercial matters. Therefore, a final judgment for the
payment of money rendered by any federal or state court in the United States
based on civil liability, whether or not predicated solely upon the federal
securities laws, would not be enforceable in The Netherlands. However, if the
party in whose favor such final judgment is rendered brings a new suit in a
competent court in The Netherlands, such party may submit to the Netherlands
court the final judgment which has been rendered in the United States. If the
Netherlands court finds that the jurisdiction of the federal or state court in
the United States has been based on grounds which are internationally
acceptable and that proper legal procedures have been observed, the
Netherlands court would, in principle, give binding effect to the final
judgment which has been rendered in the United States unless such judgment
contravenes Netherlands' principles of public policy.
FCX, the Guarantor of the Guaranteed Notes, is a Delaware corporation
with its principal executive offices in the United States. Accordingly,
process may be served and judgments enforced against FCX in the United
States, including judgments predicated upon the civil liabilities provisions
of the federal securities laws of the United States.
PROSPECTUS SUMMARY
The following summary is qualified by the detailed information and
financial statements in this Prospectus (the "Prospectus").
FCX and the Issuer
P.T. ALatieF Freeport Finance Company B.V. (the "Issuer") is a
wholly owned subsidiary of Freeport-McMoRan Copper & Gold Inc. ("FCX")
that has been organized for the purpose of issuing the Guaranteed Notes and
lending the net proceeds thereof to P.T. ALatieF Freeport Infrastructure
Corporation ("AFIC") and one or more Infrastructure Affiliates (as defined
below). Such proceeds will be used by AFIC and such Infrastructure
Affiliates to purchase from P.T. Freeport Indonesia Company ("PT-FI")
certain infrastructure assets supporting PT-FI's mining activities in Irian
Jaya, Indonesia. See "The Enhanced Infrastructure Project and AFIC" below
and "Use of Proceeds."
FCX, a Delaware corporation, conducts its operations in Indonesia through
its 81.28% directly owned subsidiary PT-FI. PT-FI is a limited liability
company organized under the laws of the Republic of Indonesia and domesticated
in Delaware. PT-FI engages in the exploration for and development, mining,
production and processing of copper, gold and silver in Indonesia and in the
marketing of concentrates containing such metals worldwide. In 1993, FCX
acquired the Spanish company Rio Tinto Minera, S.A. ("RTM"), which provides
an additional market for a portion of PT-FI's copper concentrates. See "Recent
Developments--Purchase of Interest in RTM." FCX also owns Eastern Mining
Company, Inc. ("Eastern Mining"), a separate subsidiary which has been granted
certain mineral exploration rights in Irian Jaya, Indonesia.
PT-FI is among the world's largest copper companies in terms of reserves
and believes that it has one of the lowest cost copper-producing operations in
the world, taking into account customary by-product credits for related gold
and silver production. PT-FI's operations are set in remote, rugged,
mountainous terrain and are characterized by relatively high ore-grade mineral
deposits. FCX, through PT-FI or its predecessor, has operated in Indonesia
since 1967, substantially increasing reserves and production during this time.
Since the signing of its original Contract of Work in 1967, PT-FI has enjoyed
and continues to enjoy favorable and stable relations with the Government of
the Republic of Indonesia (the "Indonesian Government").
In 1993, PT-FI achieved record copper production of 658.4 million
recoverable* pounds, approximately 6% more than in 1992. Gold production was a
record 786,700 recoverable ounces, an increase of 23% over 1992. See "Summary
FCX Operating Data" below.
- --------------------
* As used herein, "recoverable" reflects adjustments made in the metal
content of the feedstock ore for estimated losses in mining, concentrating,
smelting and refining. FCX uses the terms "recoverable" and "payable"
interchangeably.
PT-FI currently has two principal mines in operation in Irian Jaya,
Indonesia: Grasberg and Ertsberg East, located within approximately three
kilometers of each other. The Grasberg deposit commenced operations in 1990
and now contains the largest single gold reserve of any mine in the world and
one of the five largest open pit copper reserves. Ertsberg East is an
underground mine which commenced operations in 1980 and is expected to be
depleted by the second half of 1994.
PT-FI also has several mines in various stages of development. The
Intermediate Ore Zone (the "IOZ"), which lies below the Ertsberg East ore
body, is currently under development and is entering the initial stages of
production. The Deep Ore Zone (the "DOZ"), also an underground mine, lies
below the IOZ. Production at the DOZ, which was temporarily suspended in 1991,
is expected to resume once the IOZ ore body is depleted sometime after 1998.
Also under development is the "DOM" (from the Dutch word meaning "cathedral")
ore body, an underground mine situated on a mountain adjacent to Ertsberg
East.
In addition to continued delineation of the Grasberg deposit and other
existing deposits, PT-FI is continuing its ongoing exploration program for
copper and gold mineralization within the 24,700 acre mining area covered by
its original Contract of Work (the "1967 Mining Area"). PT-FI recently
discovered mineralization at two sites, Big Gossan and Wanagon, which are
located west of the Ertsberg open pit and southwest of Grasberg. Mine planning
for development of Big Gossan has commenced, and development is expected to
begin in late 1994 or early 1995. In addition, PT-FI has begun driving a
horizontal access adit from the mill site at the 2,900 meter level, which is
below the Grasberg ore body as currently delineated. The new adit, expected to
be completed in 1996, will facilitate further deep exploration and delineation
of the extent of the Grasberg deposit. Preliminary drilling from the existing
3,700 meter level adit indicates significant additional mineralization below
the existing proved and probable reserves.
A new Contract of Work signed by PT-FI and the Indonesian Government on
December 30, 1991 (the "New COW") covers both the 1967 Mining Area and a new
contiguous 6.5 million acre exploration area (the "New COW Area"). On April
29, 1993 Eastern Mining was granted exclusive exploration rights on 2.5
million acres adjacent to the New COW Area (the "Eastern Mining Area").
Preliminary investigation of the New COW Area has indicated many promising
targets. Within the New COW Area extensive stream sediment sampling has
generated analytical results which are being evaluated. No assurance can be
given that any of the exploration areas in the 1967 Mining Area (other than
Big Gossan), the New COW Area or the Eastern Mining Area contains commercially
exploitable mineral deposits. FCX's exploration expenses were $33.7 million
for 1993, compared to $12.2 million for 1992.
At December 31, 1993, PT-FI's total estimated proved and probable
reserves were 26.8 billion recoverable pounds of copper and 39.1 million
recoverable ounces of gold. Net of 1993 production, PT-FI's total estimated
proved and probable reserves increased since December 31, 1992 by 5.9 billion
recoverable pounds of copper (a 28% increase) and 7.0 million recoverable
ounces of gold (a 22% increase). These new reserves were added primarily at
the Grasberg deposit, but also include additions at the DOZ deposit and the
recently discovered Big Gossan deposit.
The following table summarizes PT-FI's estimated proved and probable
reserves at the end of each of the years shown, as verified by Independent
Mining Consultants, Inc. (see "Special Considerations--FCX--Reserves").
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1989 1990 1991 1992 1993
---- ---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C> <C>
Reserves:
Ore reserves--dry metric tons............................... 256.4 445.7 768.0 733.2 1,074.1
Copper--recoverable pounds.................................. 8,300 13,900 21,800 20,900 26,800
Gold--recoverable ounces.................................... 8.1 19.5 32.4 32.1 39.1
</TABLE>
During 1993, PT-FI completed, within budget and ahead of schedule, the
production facilities designed to enable it to mine and mill at least 66,000
metric tons* of ore per day ("MTPD"). Average mill throughput during 1993 was
62,300 MTPD, an increase of 63% from the average level of ore milled in 1991.
Additionally, PT-FI has begun work on a further expansion to 115,000 MTPD
which is expected to be completed by year-end 1995 and to result in annual
production rates approaching 1.1 billion pounds of copper and 1.5 million
ounces of gold. Expansion from the current 66,000 MTPD to 115,000 MTPD is
projected to require an investment of approximately $685 million (of which
approximately $120 million had been spent through December 31, 1993),
excluding the capital required for the Enhanced Infrastructure Project (as
defined below) and other infrastructure improvements.
- --------------------
As used herein, ``ton'' refers to a metric ton, which is equivalent to
2,204.62 pounds on a dry weight basis.
Freeport-McMoRan Inc. ("FTX") currently owns approximately 70% of FCX's
outstanding common stock. FCX directly owns 81.28% of PT-FI's outstanding
common stock. Of the remaining 18.72% of the outstanding PT-FI common stock,
9.36% is owned by the Indonesian Government and 9.36% is owned by an
Indonesian corporation, P.T. Indocopper Investama Corporation ("PT-II"), in
which FCX owns a 49% interest.
The Enhanced Infrastructure Project and AFIC
The location of PT-FI's operations in a remote and undeveloped area
requires that such operations be virtually self-sufficient. PT-FI's
infrastructure in Irian Jaya currently includes an airport, a heliport, a 119
kilometer road with bridges and tunnels, an aerial service tramway to
transport personnel, equipment and supplies to the mines, a hospital and two
town sites with schools, housing and other required facilities sufficient to
support approximately 12,000 persons.
PT-FI has commenced a long-term program (the "Enhanced Infrastructure
Project" or "EIP"), the goal of which is to develop and promote the growth of
local activities and enterprises in Irian Jaya through the creation of certain
necessary physical support facilities. The full Enhanced Infrastructure
Project includes plans for various commercial, residential, educational,
retail, medical, recreational, environmental and other infrastructure
facilities to be constructed during the next 10 to 20 years, which facilities
would be available for PT-FI's workforce and others. In connection with the
expansion of PT-FI's mining and processing facilities to 115,000 MTPD, the
first phase of the Enhanced Infrastructure Project is being implemented. This
first phase envisages the construction of dwelling units and related power,
water and waste disposal systems, a light industrial park and new small
business development facilities, improvements to the port and airport
facilities, an 84-room guest house with dining, recreational and meeting
facilities near the airport and other general infrastructure facilities.
AFIC was formed in 1993 principally to purchase and operate certain
existing infrastructure assets and new EIP assets. P.T. ALatieF Nusakarya
Corporation ("ALatieF"), which is one of an affiliated group of corporations
(the "ALatieF Group"), owns 66.7% and PT-FI owns 33.3% of AFIC's capital
stock. ALatieF Group is one of the largest Indonesian retail and property
management groups. Pursuant to the Joint Venture Agreement between ALatieF and
PT-FI (the "Joint Venture Agreement"), PT-FI has agreed to sell to AFIC new
EIP assets and existing infrastructure assets at an aggregate price of $270
million through 1995. The first acquisition, principally consisting of
dormitory-style residential properties and associated food service facilities,
was completed in December 1993 for a purchase price of $90 million. This
acquisition was financed, and future acquisitions will be financed, with the
proceeds of indebtedness in a principal amount equal to two-thirds of the
acquisition cost and equity contributions equal to one-third of the
acquisition cost. See "Business of the Issuer--AFIC". AFIC currently
anticipates acquiring approximately $45 million of EIP assets in each of June
and December 1994, although the timing and amount of such purchases may
change. These assets are expected to consist principally of a guest house and
additional residential properties. The acquisitions which are anticipated for
1994 and later are subject to the execution of definitive agreements and
certain Indonesian Government approvals. Depending on the long-term growth of
PT-FI's operations, the total cost of the EIP, including subsequent phases,
could range between $500 million and $600 million. Indonesian laws or
regulations may require that certain EIP assets that would otherwise be sold
to AFIC be held by a separate entity. Accordingly, one or more affiliated
entities having similar equity ownership and capital structure to AFIC (each,
an "Infrastructure Affiliate") may be organized to acquire and operate such
assets.
The net proceeds of the Guaranteed Notes will be loaned by the
Issuer to AFIC and one or more Infrastructure Affiliates to provide the
balance of the debt funding required for the purchases of the first $270
million of infrastructure assets from PT-FI. PT-FI has agreed to reimburse
the Issuer for the underwriting discount and expenses associated with the
issuance of these Guaranteed Notes so that the net proceeds to the Issuer
from the issuance of the Guaranteed Notes are expected to equal the
offering price thereof. AFIC and each Infrastructure Affiliate will issue
one or more promissory notes (the "Underlying Notes") to the Issuer in an
aggregate principal amount equal to the principal amount of loans by the
Issuer to such entity. PT-FI will enter into one or more agreements with
AFIC and any Infrastructure Affiliate (each, a "Master Services Agreement")
pursuant to which PT-FI will compensate AFIC or such Infrastructure
Affiliate for the use and occupancy of the infrastructure assets purchased
by such entity with the proceeds of the Guaranteed Notes. The Master
Services Agreements will provide for minimum payments by PT-FI thereunder
in an aggregate amount sufficient to satisfy the reasonable costs and
expenses of AFIC or such Infrastructure Affiliate, including, without
limitation, principal of, interest on and any Underlying Additional Amounts
(as defined below) payable with respect to, the Underlying Notes. PT-FI
has expressly agreed that all amounts required to be paid with respect to
AFIC's outstanding debt, the Underlying Notes and any Master Services
Agreement will be deemed to be "reasonable" for this purpose; however, if
AFIC or any Infrastructure Affiliate incurs "unreasonable" expenses, PT-
FI's covenant would not require reimbursement in respect of those amounts,
with the effect that AFIC or such Infrastructure Affiliate, after paying
those expenses, would be left with insufficient funds to make required
payments on the Underlying Notes. Each Master Services Agreement will have
a term of 120 days beyond the final payment of the Guaranteed Notes. See
"Business of the Issuer--Master Services Agreements." The rights of AFIC
and any Infrastructure Affiliate under the Master Services Agreements to
the payment of fees for the use of such infrastructure assets and to
amounts paid with respect to obligations under the Underlying Notes will be
pledged to secure the obligations of AFIC and such Infrastructure Affiliate
to the Issuer under the Underlying Notes. The Guaranteed Notes, however,
will not be secured by any infrastructure assets or the Underlying Notes.
See "Description of the Guaranteed Notes--Application of Proceeds Under
Indenture."
Ownership Structure
[GRAPHIC A]
(SEE APPENDIX A FOR DESCRIPTION OF GRAPHIC MATERIAL)
The Issuer's principal executive office is located at Building "Coolse
Poort", Coolsingel 139, 9th Floor, 3012 AG Rotterdam, The Netherlands and its
telephone number is 011-31-10 402-4323. FCX's principal executive office is
located at First Interstate Bank Building, One East First Street, Suite 1600,
Reno, Nevada 89501 and its telephone number is (702) 688-3000.
Recent Developments
Issuance of Gold-Denominated Preferred Stock
On January 21, 1994, FCX issued 4,305,580 Depositary Shares, Series II,
each representing 0.05 shares of Gold-Denominated Preferred Stock, Series II,
in an underwritten public offering. The net proceeds of $158.5 million are
being used by PT-FI to fund capital expenditures associated with the expansion
of mining and milling activities and to reduce borrowings under the PT-FI
Credit Agreement (as defined below), thereby increasing the facility's
availability for general corporate purposes. For a brief description of the
terms of the Gold-Denominated Preferred Stock, see "Description of FCX
Preferred Stock and Special Preference Stock -- Gold-Denominated Preferred
Stock."
Redemption of Zero Coupon Notes
Effective January 18, 1994, FCX redeemed its outstanding Zero Coupon
Exchangeable Notes due 2011 (the "Zero Coupon Notes"). Of the $118.6 million
principal amount of Zero Coupon Notes outstanding at the initiation of the
call for redemption, $118.3 million principal amount was converted into an
aggregate of approximately 6.7 million shares of FCX's Class A Common Stock.
The balance of the Zero Coupon Notes was redeemed for cash.
Purchase of Interest in RTM
In March 1993, FCX acquired a 65% interest in RTM, which is principally
engaged in the smelting and refining of copper in Spain, for approximately $50
million, excluding transaction costs. In December 1993, RTM redeemed the
remaining 35% interest for approximately $19 million. RTM has announced plans
to expand its smelter production capacity from its current 150,000 metric tons
of metal per year to approximately 180,000 metric tons of metal per year by
mid-1995 at a cost of approximately $50 million. RTM is studying further
expansion to as much as 270,000 metric tons of metal production per year.
During 1993, PT-FI supplied RTM with approximately 90,000 metric tons of
copper concentrate and is expected to supply approximately 150,000 metric tons
in 1994, providing for approximately 20% and 33%, respectively, of RTM's
requirements in those years. Beginning in 1996, PT-FI is expected to provide
the RTM smelter with approximately one-half of its copper concentrate
requirements. For further information concerning RTM, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
herein and FCX's Current Report on Form 8-K dated January 7, 1994,
as amended on April 7, 1994 (which includes financial information for the
nine months ended September 30, 1993 as if RTM had been consolidated since
March 31, 1993).
Recent Infrastructure Developments
In December 1993, PT-FI announced the execution of a Letter of Intent
with Duke Energy Corp. ("Duke Energy"), a wholly owned affiliate of Duke Power
Company, and PowerLink Corporation ("PowerLink"), a subsidiary of Northstar
Energy Corporation, pursuant to which PT-FI would sell its existing and to be
constructed power generation and transmission assets and certain other
power-related assets to a joint venture (the "Power Joint Venture") whose
ownership consists of Duke Energy (30%), PowerLink (30%), PT-FI (30%) and an
Indonesian investor (10%). The total value of the transaction is estimated at
$200 million and is expected to be concluded in two phases. The first sale,
representing the existing assets, is expected to exceed $100 million and to
occur in mid-1994. The final sale, representing the to-be-constructed
expansion-related assets, is expected to occur during the first half of 1995.
Under the agreement, the Power Joint Venture will own these assets and be
responsible for providing the electrical power services required by PT-FI at
its mining, milling and support operations in Irian Jaya, including the power
services required for the expansion of ore throughput to 115,000 MTPD. PT-FI
has also entered into two separate letters of intent with respect to sales to
joint ventures of certain aircraft, airport and related operations and certain
port facilities and related marine logistics, construction equipment and other
assets. These transactions are subject to the execution of definitive
agreements, financing and certain Indonesian Government approvals. See
"Business of FCX--Transportation, Other Infrastructure and Recent
Infrastructure Developments."
The Offering
Securities Offered............. $120,000,000 aggregate principal amount of
9 3/4% Senior Notes Due 2001.
Interest Payment Dates......... October 15 and April 15, commencing
October 15, 1994.
Guaranty....................... Payment of principal, premium, if any,
Additional Amounts, if any, and interest on
the Guaranteed Notes and any obligation to
repurchase Guaranteed Notes following a
Repurchase Event or pursuant to an Asset
Disposition Offer will be unconditionally
guaranteed on a senior basis by FCX.
Optional Redemption............ The Guaranteed Notes are not redeemable
at the option of the Issuer or FCX,
except as described under ``Tax Redemption''
below.
Sinking Fund................... None.
Withholding Tax................ There is currently no United States,
Netherlands or Indonesian withholding tax
applicable to payments on the Guaranteed
Notes. If any such withholding tax is
imposed in the future, subject to certain
exceptions, the Issuer will pay Additional
Amounts so that the net amount received by
the holder of a Guaranteed Note after such
withholding will be equal to the amount that
would have been received if no tax had been
applicable. See "Description of the
Guaranteed Notes--Maturity, Interest and
Principal." Any reference in this Prospectus
to principal, premium or interest with
respect to any Guaranteed Note shall be
deemed to include any such Additional
Amounts payable in connection therewith.
Tax Redemption................. Upon the occurrence of certain changes with
respect to United States, Netherlands or
Indonesian tax law requiring Additional
Amounts to be paid by the Issuer or an
increase in the Underlying Additional
Amounts (as defined below) to be paid by
PT-FI, AFIC or any Infrastructure Affiliate
with respect to the PT-FI Note or the
Underlying Notes, the Issuer may redeem the
Guaranteed Notes, in whole but not in part,
at 100% of the principal amount thereof plus
accrued and unpaid interest to the date of
redemption. See "Description of the
Guaranteed Notes--Tax Redemption."
Assumption by FCX.............. FCX may at any time, in its sole discretion,
assume all obligations of the Issuer in
respect of the Guaranteed Notes and may be
substituted for the Issuer in all respects,
in which event the Issuer will be released
from all obligations under the Guaranteed
Notes and the indenture pursuant to which
the Guaranteed Notes will be issued (the
"Indenture").
Certain Covenants.............. The Indenture will restrict, among other
things, the ability of FCX to incur liens on
the capital stock of PT-FI without equally
and ratably securing the Guaranteed Notes,
to engage in certain transactions with
affiliates and to merge with or consolidate
with or into, or sell or otherwise transfer
its properties and assets as an entirety.
The Indenture will also require that the
proceeds of certain Asset Dispositions be
used to repay certain debt or be reinvested
in natural resource businesses. All of these
limitations are subject to a number of
important qualifications, however. See
"Description of the Guaranteed
Notes--Certain Covenants."
Change of Control.............. Upon a Repurchase Event, each holder of the
Guaranteed Notes may require FCX to
repurchase such holder's Guaranteed Notes at
101% of the principal amount thereof plus
accrued and unpaid interest and Additional
Amounts, if any, to the date of repurchase.
A "Repurchase Event" is defined to mean the
occurrence of a Change of Control followed
by a Rating Decline within 60 days of the
first public announcement of such Change of
Control. See "Description of the Guaranteed
Notes--Repurchase in Event of Change of
Control and Rating Decline."
Absence of Public Market....... The Guaranteed Notes are a new issue of
securities with no established trading
market. Each of the Underwriters has advised
the Issuer that it intends to act as a
market maker for the Guaranteed Notes.
However, the Underwriters are not obligated
to do so and any such market-making may be
discontinued at any time without notice. No
assurance can be given as to the liquidity
of the trading market for the Guaranteed
Notes.
Listing........................ The Guaranteed Notes have been approved for
listing on the New York Stock Exchange.
Use of Proceeds................ The net proceeds will be loaned to AFIC
and one or more Infrastructure Affiliates
for the purchase of infrastructure assets
from PT-FI as part of the first phase of
the EIP. Pending such use, the net
proceeds will be loaned by the Issuer to
PT-FI on a senior unsecured basis. See
"Use of Proceeds."
Special Considerations......... See "Special Considerations" for a
discussion of certain factors that should be
considered in connection with an investment
in the Guaranteed Notes.
Summary FCX Financial Data
The following Summary Financial Data are derived from the consolidated
financial statements of FCX and should be read in conjunction with those
statements. The income statement data for the three years ended December 31,
1993 and the balance sheet data as of December 31, 1993 and 1992 are derived
from audited consolidated financial statements included and incorporated by
reference herein. The income statement data for the years ended December 31,
1990 and 1989 and the balance sheet data as of December 31, 1991, 1990 and
1989 are derived from audited consolidated financial statements not included
in this Prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------
1989 1990 1991 1992 1993
------ ------ ------ ------ ------
(in thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues(1)........................$367,886 $434,148 $467,522 $714,315 $925,932
Cost of sales:
Site production and delivery....... 118,489 160,045 204,353 308,948 567,148
Depreciation and amortization...... 24,594 35,479 38,397 48,272 67,906
-------- -------- -------- -------- --------
Total cost of sales............... 143,083 195,524 242,750 357,220 635,054
-------- -------- -------- -------- --------
Exploration expenses............... 363 4,086 6,502 12,185 33,748
Provision for restructuring
charges........................... -- -- -- -- 20,795
General and administrative
expenses.......................... 21,206 29,989 40,550 68,481 81,399
-------- -------- -------- -------- --------
Total costs and expenses.......... 164,652 229,599 289,802 437,886 770,996(2)
-------- -------- -------- -------- --------
Operating income................... 203,234 204,549 177,720 276,429 154,936(2)
Minority interest.................. (17,415) (13,726) (12,199) (31,075) (9,134)
Net income applicable to
common stock...................... 98,927 90,179 96,159(4) 122,868 21,862(3)
Ratio of Earnings to Fixed
Charges(5):....................... 27.6x 9.2x 4.5x 6.5x 3.6x
Balance Sheet Data (at end of period):
Net property, plant and
equipment....................... 264,688 502,171 601,675 993,412 1,646,603
Total assets...................... 415,072 676,727 1,157,615 1,694,005 2,116,653
Long-term debt (including
current portion thereof)........ 130,000 294,000 631,961 723,583 228,967
Minority interest................. 19,632 8,899 14,237 21,449 46,781
Gold-Denominated Preferred Stock.. -- -- -- -- 232,620
Stockholders' equity.............. 113,759 176,557 172,545 646,457 947,927
Other Financial Data:
EBITDA(6)......................... 227,828 240,028 216,117 324,701 222,842(2)
Depreciation and amortization..... 24,594 35,479 38,297 48,272 67,906
Capital expenditures.............. 138,448 187,544 239,954 367,842 453,122
Interest incurred(7).............. 7,261 21,761 39,727 42,871 39,846
Ratio of EBITDA to
interest incurred............... 31.4x 11.0x 5.4x 7.6x 5.6x
<FN>
- ------------------
(1) Net of treatment charges, royalties to the Indonesian Government and
amortization of the cost of the price protection program.
(2) Includes charges totaling $37.1 million ($14.7 million noncash) related
to restructuring the administrative organization at FTX, the parent
company of FCX, and adjustments to general and administrative expenses and
site production and delivery costs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(3) Includes the items discussed in Note 2 ($20.5 million after taxes and
minority interest; $.10 per share) and a noncash charge of $9.9 million
($.05 per share) related to the changes in accounting principle as
discussed in Note 1 of "Notes to Financial Statements."
(4) Reflects a $5.8 million reduction for the cumulative effect of the change
in accounting for postretirement benefits and a $26.5 million reduction in
PT-FI's income tax provision due to the signing of the New COW.
(5) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes,
minority interest and fixed charges. Fixed charges consist of interest
and that portion of rent deemed representative of interest.
(6) Earnings before interest, taxes and depreciation and amortization
(EBITDA) consists of operating income after non-recurring expenses ($37.1
million in 1993 as discussed in Note 2) plus depreciation and
amortization. EBITDA should not be considered by an investor as an
alternative to net income as an indicator of FCX's operating performance
or to the information included in FCX's statement of cash flow and
accompanying Management's Discussion and Analysis as a measure of
liquidity.
(7) Includes interest expense plus capitalized interest.
</TABLE>
Summary FCX Operating Data
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------
1989 1990 1991 1992 1993
------ ------ ------ ------ ------
PT-FI Results(1)
<S> <C> <C> <C> <C> <C>
Mill Operations:
Ore milled--metric tons
("MT") per day.................. 24,700 31,700 38,200 57,600 62,300
Average copper grade.............. 1.84% 1.61% 1.77% 1.59% 1.57%
Grams of gold--per MT............. .60 .98 1.23 1.35 1.46
Recoverable Metal Production(2):
Copper--thousand pounds........... 317,400 361,800 466,700 619,100 658,400
Gold--ounces...................... 139,000 284,000 420,800 641,000 786,700
Recoverable Metal Sales:
Copper--thousand pounds........... 317,800 348,000 439,700 651,800 645,700
Gold--ounces...................... 140,000 273,000 397,900 679,300 762,900
Average Realizations:
Copper--per pound(3)..............$ 1.24 $ 1.20 $ 1.01 $ 1.03 $ .90
Gold--per ounce................... 383.28 378.30 358.76 340.11 361.74
Gross Profit Per Pound of Copper:
Average realized price.............. 123.6 Cents 120.4 Cents 101.1 Cents 103.3 Cents 90.4 Cents
------- ------- ------- ------- -------
Production Costs:
Site production and delivery...... 37.2 46.0 46.5 47.4 49.3
Gold and silver credits........... (20.3) (32.0) (34.0) (36.2) (43.4)
Treatment charges................. 25.1 25.2 23.5 27.1 23.7
Royalty on recoverable metals..... 3.4 3.1 2.4 2.4 1.5
------- ------- ------- ------- -------
Cash production costs........... 45.4 42.3 38.4 40.7 31.1
Depreciation and amortization..... 7.8 10.2 8.7 7.4 8.7
------- ------- ------- ------- -------
Total production costs.......... 53.2 52.5 47.1 48.1 39.8
------- ------- ------- ------- -------
Revenue adjustments(4)............ 0.4 0.7 (2.9) (0.4) (2.4)
------- ------- ------- ------- -------
Gross profit per pound.............. 70.8 Cents 68.6 Cents 51.1 Cents 54.8 Cents 48.2 Cents
======= ======= ======= ======= =======
RTM Results (since March 1993 acquisition)
Smelter operations:
Concentrate treated--MT........... 330,200
Anode production--MT.............. 135,800
Cathode production--MT............ 103,100
Gold operations:
Ore milled--MTPD.................. 17,900
Grade--grams per MT............... 1.05
Production--recoverable ounces.... 132,500
Average realized price............ $ 369.06
<FN>
- ------------------
(1) Mill operations, recoverable metal production, recoverable metal sales
and average realizations reflect 100% of PT-FI's results and have not
been adjusted for the minority ownership in PT-FI.
(2) Derived by multiplying total annual mill throughput in tons times grade
times recovery percentage times a recoverable factor of .965 for copper
and .963 for gold and multiplying the product by 2,204.62 (in the case of
copper) or dividing the product by 31.1035 (in the case of gold).
(3) Includes amounts recognized on current period sales under the price
protection program. Excludes the adjustments discussed in Note 4.
(4) Reflects adjustments primarily for prior period concentrate sales
contractually priced (net of related amounts recognized under the price
protection program) or adjusted during the respective periods. In
addition, for periods subsequent to the year ended December 31, 1990,
reflects amortization of the cost of PT-FI's price protection program for
such periods. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
</TABLE>
SPECIAL CONSIDERATIONS
An investment in the Guaranteed Notes involves certain risks.
Accordingly, prospective investors should consider carefully the following
special considerations, in addition to the other information concerning FCX
and the Issuer and their business contained in this Prospectus, before
purchasing the Guaranteed Notes offered hereby.
FCX
Prices of Minerals
Because FCX's revenues are derived almost entirely from the sale of
concentrates containing copper, gold and silver by PT-FI, FCX's earnings are
directly related to market prices for copper, gold and, to a lesser extent,
silver. Prices for such minerals have historically fluctuated widely and are
affected by numerous factors beyond FCX's control. A price protection program
has been implemented for estimated copper sales priced during 1994 at a price
of $.90 per pound. During the fourth quarter of 1993, copper prices averaged
significantly below $.90 per pound.
Location and Industry Risks
The current mining area, most of the new 6.5 million acre exploration
area and the Eastern Mining Area, are located in steeply mountainous terrain,
which makes access to certain parts of these areas difficult. These areas are
subject to considerable rainfall, which has in the past led to periodic floods
and mud slides. The mining area is located in an area of known seismic
activity, and some earth tremors have been experienced from time to time.
None of these factors has caused personal injury to FCX employees or
significant property damage not covered by insurance or any significant
interruptions to production, although no assurance can be given that delays,
injury or damage will not occur in the future. The climate and remoteness of
the area have required PT-FI to overcome special engineering difficulties.
PT-FI is also subject to the usual risks encountered in the mining industry,
including unexpected geological conditions resulting in cave-ins, flooding and
rock-bursts and unexpected changes in rock stability conditions. FTX
purchases, for the benefit of PT-FI, substantial insurance involving such
amounts and types of coverage as it believes are appropriate for PT-FI's
exploration, development, mining and processing activities in Indonesia.
Political Factors
Maintaining its good relationship with the Indonesian Government is of
particular importance to PT-FI because its operations are located solely in
Indonesia. The Indonesian Government currently owns 9.36% of PT-FI's
outstanding common stock. PT-FI operates in Indonesia by virtue of the New
COW, which has a 30-year term and provides for two 10-year extensions under
certain conditions. The 1967 Foreign Capital Investment Law, which expresses
Indonesia's foreign investment policy, provides basic guaranties of remittance
rights and protection against nationalization, a framework for incentives and
some basic rules as to other rights and obligations of foreign investors.
PT-FI's rights and obligations relating to taxes, exchange controls,
repatriation and other matters are governed by the New COW, which was
concluded pursuant to the 1967 Foreign Capital Investment Law.
Indonesia has a presidential republic system of government. Elections
for the Indonesian Parliament and the office of President are held every five
years. President Suharto, who assumed power following an attempted communist
coup, was reelected in March 1993 to serve a sixth consecutive five-year term.
Reserves
With respect to PT-FI's reserves, it should be noted that such quantities
are estimates only. The mines from which PT-FI's reserves are presently being
or are expected to be produced may not conform to geological or other
expectations with the result that the volume and grade of reserves recovered
and the rates of production may be more or less than anticipated. Further,
market price fluctuations in copper, gold and, to a lesser extent, silver, and
changes in operating and capital costs may render certain ore reserves
uneconomic to develop. No assurance can be given that PT-FI's exploration
programs will result in the replacement of current reserves with new reserves.
Relationship of FCX and FTX
FTX currently owns approximately 70% of the combined total outstanding
shares of FCX's Class A Common Stock and Class B Common Stock. Through this
ownership, FTX has control over FCX, and through FCX, over PT-FI. FTX thus
controls the composition of the Board of Directors of FCX and the Board of
Commissioners of PT-FI and the dividend policies of both and also has
sufficient voting control under Delaware law to effect major corporate actions
at FCX such as "going private" transactions and mergers without the
concurrence of other stockholders. Among the various companies owned or
controlled by FTX, it is intended that FCX and its subsidiaries will have
priority with respect to the exploration, development and mining of copper and
associated minerals in Indonesia. However, if any conflict of interest arises
between FCX or one of its subsidiaries and another company owned or controlled
by FTX relating to business opportunities in Indonesia, FTX will resolve such
dispute. In addition, FCX and PT-FI are parties, with FTX, to a Management
Services Agreement, pursuant to which FTX provides a variety of management
services to FCX and PT-FI. Under the terms of this Agreement, FCX and PT-FI
reimburse FTX on a monthly basis at FTX's cost for such services, including
allocated overhead. In addition, FTX is a party to a credit agreement,
pursuant to which, under certain circumstances, FTX might be required to
pledge the stock of FCX owned by FTX and its affiliates to secure its
outstanding borrowings under such credit agreement. See "Relationship of the
FCX Group with the FTX Group" and Note 7 of "Notes to Financial Statements."
FCX made payments to FTX pursuant to the Management Services Agreement
of $44.9 million and $49.0 million (excluding $10.7 million of
restructuring costs) and paid dividends to FTX of $85.4 million and $85.9
million in 1992 and 1993, respectively.
Environmental Matters
Although the management of FCX believes that it is in compliance with
Indonesian environmental laws, rules and regulations, and that there will
be no significant adverse impact on the environment as a result of the
planned expansion of its operations, the Indonesian Government may revise
its environmental laws and regulations periodically. The impact, if any,
of such possible revisions on FCX's current or future operations cannot be
accurately predicted. In February 1994, the Indonesian Government approved
an environmental impact study, submitted by PT-FI, with respect to the
proposed expansion of copper production to 115,000 MTPD.
Holding Company Structure
FCX is a holding company which conducts its business through its
subsidiaries PT-FI, RTM and Eastern Mining. As a result, FCX's cash flow and
consequent ability to meet its debt obligations are primarily dependent upon
the earnings of its subsidiaries, and on dividends and other payments
therefrom. Any right of FCX to participate in any distribution of the assets
of its subsidiaries upon the liquidation, reorganization or insolvency thereof
would, with certain exceptions, be subject to the claims of creditors
(including trade creditors) and preferred stockholders, if any, of such
subsidiaries.
Fraudulent Conveyance Considerations
FCX has guaranteed the payment of principal of, premium, if any,
Additional Amounts, if any, and interest on the Guaranteed Notes. It is
possible, however, that under certain circumstances a court could hold that
the direct obligations of FCX to any other direct creditor of FCX could be
superior to the obligations under the Guaranty. In addition, it is possible
that the amount for which FCX is liable under such Guaranty would be limited
or subject to avoidance by application of fraudulent conveyance laws and other
similar legal principles. If any of the obligations of FCX with respect to
the Guaranty are held unenforceable, as a fraudulent conveyance or otherwise,
claims of creditors of FCX effectively will have priority with respect to the
assets and earnings of such companies over the claims of the holders of the
Guaranteed Notes. Although the standards will vary depending upon the law of
the jurisdiction applied, in general, if a court were to find that at the time
of the issuance of the Guaranty, FCX issued the Guaranty with the intent of
defrauding creditors or received less than fair consideration or reasonably
equivalent value for issuing the Guaranty and among other things, was
insolvent or rendered insolvent by reason of issuing the Guaranty, was engaged
in a business for which its remaining assets constituted unreasonably small
capital, or was acting with the intent or belief that it would incur debts
beyond its ability to repay such debts as they matured (as the foregoing terms
are defined or interpreted under applicable federal and state bankruptcy and
fraudulent conveyance statutes), then such court could avoid the payment of
amounts by FCX pursuant to the Guaranty and require the return of such
payments to FCX. The Guaranty could also become equitably subordinated to
general creditors of FCX or could, under certain circumstances, be
invalidated. Management of FCX believes that, after giving effect to the
application of the proceeds from the Offering, FCX would not be considered
insolvent at the time of the issuance of the Guaranty or rendered insolvent by
reason of such issuance, would not be considered to be engaged in a business
or transaction for which its assets constituted unreasonably small capital to
carry on its business and would not be considered to intend to incur, or
believe that it would incur, debts beyond its ability to pay such debts as
they mature.
The Issuer
Dependence Upon PT-FI for Revenues from Infrastructure Assets
The Issuer will obtain funds to service the Guaranteed Notes from
payments from PT-FI, AFIC and any Infrastructure Affiliate in respect of
advances made to such entities by the Issuer with the net proceeds of the
Guaranteed Notes. The Underlying Notes will be secured by a pledge of certain
rights of AFIC and any Infrastructure Affiliate under their respective Master
Services Agreements. See "Business of the Issuer--Master Services
Agreements." The Guaranteed Notes, however, will not be secured. AFIC
and any Infrastructure Affiliate will be dependent upon revenues from PT-FI
for use and occupancy of the infrastructure assets of AFIC and such
Infrastructure Affiliate under the Master Services Agreements in order to
service the Underlying Notes. These infrastructure assets are located in a
remote and undeveloped area, are designed to support PT-FI's mining activities
and are generally not suitable for alternative uses. Accordingly, the
performance of AFIC and any Infrastructure Affiliate is largely dependent upon
the performance of PT-FI.
Certain Infrastructure Properties Not Yet Identified
Certain of the infrastructure assets that are planned to be sold to
AFIC have not yet been built. No assurance can be given that such assets
will be built in a timely manner. In addition, if the aggregate audited
cost of construction of the infrastructure assets to be sold to AFIC by
PT-FI pursuant to the Joint Venture Agreement is less than $270 million,
PT-FI has agreed to make available additional assets for purchase, with the
approval of ALatieF, so that the aggregate audited construction cost of the
assets sold is not less than $270 million. Accordingly, certain of the
assets that may be acquired by the Issuer have not yet been identified.
Nevertheless, the Joint Venture Agreement provides that fees payable by
PT-FI and third parties to AFIC for use of such assets must be sufficient to
provide specified minimum returns on the shareholders' investments. See
"Business of the Issuer." The proceeds of this Offering will initially be
loaned by the Issuer to PT-FI by means of a promissory note issued to the
Issuer (the "PT-FI Note") pending the use of such proceeds to fund the
acquisition of infrastructure assets by AFIC or one or more Infrastructure
Affiliates. See "Use of Proceeds." There can be no assurance that any such
infrastructure assets will be acquired or that such proceeds will be loaned
to AFIC or one or more Infrastructure Affiliates.
Sources of Capital
ALatieF and PT-FI have committed to subscribe for additional shares of
capital stock of AFIC in the aggregate amounts of $40 million and $20 million,
respectively. These obligations are not secured. Any delay or default by
ALatieF in funding its equity commitments could delay or prevent the transfer
of some or all of the infrastructure assets proposed to be acquired by AFIC
from PT-FI. See "Business of the Issuer -- AFIC." Pending any such transfer,
PT-FI would continue to be obligated on the PT-FI Note, with respect to net
proceeds of this Offering previously loaned by the Issuer to PT-FI and not
theretofore repaid. See "Description of the Guaranteed Notes--Application of
Proceeds under Indenture."
Lack of Public Market for the Guaranteed Notes
There is no existing market for the Guaranteed Notes. The Guaranteed
Notes have been approved for listing on the New York Stock Exchange, but
there can be no assurance as to the liquidity of any market that may
develop for the Guaranteed Notes, the ability of holders of the Guaranteed
Notes to sell their Guaranteed Notes or the price at which such holders
would be able to sell their Guaranteed Notes. If such market were to
develop, the Guaranteed Notes could trade at prices that may be lower than
the initial offering price thereof, depending on many factors, including
prevailing interest rates, FCX's operating results and markets for similar
debt securities. The Underwriters have advised FCX that they currently
intend to make a market in the Guaranteed Notes. However, they are not
obligated to do so, and any market making with respect to the Guaranteed
Notes may be discontinued at any time without notice.
Historically, the market for non-investment grade debt has been subject
to disruptions that have caused substantial volatility in the prices of
securities similar to the Guaranteed Notes. There can be no assurance that the
market for the Guaranteed Notes will not be subject to similar disruptions.
USE OF PROCEEDS
The proceeds from the sale of the Guaranteed Notes, approximately $120
million, will be loaned by the Issuer to AFIC and one or more
Infrastructure Affiliates. PT-FI has agreed to reimburse the Issuer for
the underwriting discount and expenses associated with the issuance of the
Guaranteed Notes. The proceeds of such loan will be used by AFIC and any
such Infrastructure Affiliate, together with the proceeds of equity
subscriptions by the stockholders of AFIC and any such Infrastructure
Affiliate, to purchase infrastructure assets from PT-FI having an aggregate
purchase price of $180 million. Pending such application, the proceeds
from the sale of the Guaranteed Notes will be loaned on a senior unsecured
basis to to PT-FI and used for general corporate purposes, including
funding of capital expenditures associated with the expansion of its mining
and milling activities and the development of infrastructure assets.
FCX CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization
of FCX at December 31, 1993 and as adjusted to reflect (i) the sale of the
Guaranteed Notes offered hereby and the application of the net proceeds
thereof, (ii) the sale in January 1994 of 4,305,580 Depositary Shares, Series
II, each representing 0.05 shares of Gold-Denominated Preferred Stock, Series
II, and the application of the net proceeds thereof and (iii) the call for
redemption of the Zero Coupon Notes and the issuance of approximately 5.8
million shares of Class A Common Stock upon conversion thereof.
<TABLE>
<CAPTION>
December 31, 1993
--------------------------------
Actual As Adjusted(1)
----------- ------------
<S> (in thousands)
Cash and short-term <C> <C>
investments................................................................... $ 13,798 $ 275,283
========== ==========
RTM short-term borrowings..................................................... $ 31,692 $ 31,692
Current portion of RTM gold and silver denominated loans(2)................... 13,774 13,774
Current portion of long-term debt............................................. 3,325 3,325
---------- ----------
Total current debt........................................................ 48,791 48,791
---------- ----------
RTM notes payable to banks.................................................... 2,049 2,049
Note payable to FTX........................................................... 12,270 12,270
PT-FI bank loan............................................................... 13,000 --
RTM gold and silver denominated loans(2)...................................... 25,510 25,510
AFIC medium-term bank loan.................................................... 57,000 57,000
Guaranteed Notes offered hereby............................................... -- 119,876
Zero Coupon Exchangeable Notes due 2011....................................... 102,039 --
---------- ----------
Total long-term debt...................................................... 211,868 216,705
---------- ----------
Minority interest............................................................. 46,781 62,328
---------- ----------
Gold-Denominated Preferred Stock represented by depositary
shares, issued and outstanding 300,000 shares............................... 232,620 232,620
Gold-Denominated Preferred Stock, Series II, represented by depositary
shares, Series II, issued and outstanding 215,279 shares, as adjusted....... -- 167,380
---------- ----------
232,620 400,000
---------- ----------
Stockholders' equity:
Preferred Stock, par value $0.10, 2,000,000 shares authorized:
Step-Up Convertible Preferred Stock represented by depositary
shares, issued and outstanding 700,000 shares(3).......................... 350,000 350,000
Special Stock, par value $0.10, 110,000,000 shares authorized:
Special Preference Stock represented by depositary shares,
issued and outstanding 26,400,000 shares.................................. 224,400 224,400
Class A Common Stock, issued and outstanding 58,022,582 shares
actual; 63,803,313 shares, as adjusted(4)................................. 5,802 6,380
Class B Common Stock, par value $0.10, authorized 200,000,000
shares, issued and outstanding 142,129,602 shares........................... 14,213 14,213
Capital in excess of par value................................................ 334,166 426,456
Cumulative foreign translation adjustment..................................... (10,012) (10,012)
Retained earnings............................................................. 29,358 29,358
---------- ----------
Total stockholders' equity................................................ 947,927 1,040,795
---------- ----------
Total capitalization.......................................................... $1,487,987 $1,768,619
========== ==========
<FN>
- ------------------
(1) Does not include adjustments for dividends paid on February 1, 1994
totaling $30.8 million for Common Stock and $10.4 million for Preferred
Stock. Assumes estimated underwriting discount and expenses in
connection with the Offering of approximately $3.6 million.
(2) Payable with 107,800 ounces of gold, 36,800 ounces within one year, and
953,100 ounces of silver, 423,600 ounces within one year, which are
carried at the market prices of gold ($331.70 per ounce) and silver
($3.70 per ounce), respectively, at the date of acquisition.
(3) In addition to the 515,279 currently outstanding shares of
Gold-Denominated Preferred Stock.
(4) Does not include (a) approximately 9.1 million shares of Class A Common
Stock authorized for issuance upon conversion of the Company's Special
Preference Stock, or (b) approximately 11.6 million shares of Class A
Common Stock authorized for issuance upon conversion of the Step-Up
Convertible Preferred Stock.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Ore Reserve Addition and Ongoing Exploration Program
Total estimated proved and probable recoverable reserves at PT-FI have
increased since December 31, 1992 by 5.9 billion pounds of copper (a 28%
increase), 7.0 million ounces of gold (a 22% increase), and 32.0 million
ounces of silver (a 72% increase), bringing PT-FI's total year-end 1993
estimated proved and probable recoverable reserves to 26.8 billion pounds of
copper, 39.1 million ounces of gold and 76.7 million ounces of silver. The
increases, net of production during the year, were added primarily at the
Grasberg deposit, but also include additions at PT-FI's underground mine at
the DOZ deposit and the recently discovered Big Gossan deposit.
In addition to continued delineation of the Grasberg deposit and other
deposits including Big Gossan, PT-FI is proceeding with its ongoing
exploration program for mineralization within the original mining area. During
1993, PT-FI initiated helicopter-supported surface drilling of the Wanagon
gold/silver/copper prospect, located approximately 2 kilometers northwest of
Big Gossan and approximately 3 kilometers southwest of Grasberg, where seven
holes were drilled. Significant copper mineralization has been encountered
below the 2,900 meter elevation.
Preliminary exploration of the New COW Area has indicated numerous
promising targets. Extensive stream sediment sampling within the new acreage
has generated analytical results which are being evaluated. This sampling
program, when coupled with regional mapping completed on the ground and from
aerial photographs, has led to the outlining of over 50 exploration targets.
PT-FI has also completed a fixed-wing air-magnetometer survey of the entire
New COW Area. Detailed follow-up exploration of these anomalies by additional
mapping and sampling and through the use of both aerial and ground magnetic
surveys is now in progress. Systematic drilling of these targets has already
commenced with significant mineralization being discovered at several
prospects. Additional drilling is required to determine if any of these are
commercially viable. Initial surface and stream sampling has also begun on the
Eastern Mining Area.
1993 Results of Operations Compared with 1992
After discussions with the staff of the Securities and Exchange
Commission (the "Commission"), FCX is reclassifying certain expenses and
accruals previously recorded in 1993 as restructuring and valuation of assets.
In response to inquiries, FCX advised the staff of the Commission that $15.5
million originally reported as restructuring and valuation of assets
represented the cumulative effect of changes in accounting principle
resulting from the adoption of the new accounting policies that FCX
considered preferable. See Note 1 of "Notes to Financial Statements".
FCX also informed the staff of the Commission of the components of
other charges included in the amount originally reported as restructuring
and valuation of assets. FCX concluded that the reclassification and the
related supplemental disclosures more accurately reflect the nature of
these charges to 1993 net income in accordance with generally accepted
accounting principles. These reclassifications had no impact on net income
or net income per share.
FCX reported 1993 net income applicable to common stock of $21.9 million
($.11 per share) compared with net income of $122.9 million ($.66 per share)
for 1992. The results for 1993 reflect (a) a $15.7 million loss for RTM since
its acquisition and (b) charges totaling $52.6 million ($30.4 million to net
income or $.15 per share), of which $28.3 million was noncash, related to (1)
restructuring the administrative organization at FTX, the parent company of
FCX, (2) adjustments to general and administrative expenses and site
production and delivery costs discussed below, and (3) changes in accounting
principle. As discussed further below, operating income was lower in 1993 due
to a lower gross margin resulting primarily from lower copper realizations;
higher exploration expenses; administrative restructuring costs, and higher
general and administrative costs. Also impacting net income were lower
interest expense resulting from reduced debt levels, a higher effective tax
rate and an increase in preferred dividends. See Notes 1 and 6 of "Notes to
Financial Statements."
Revenues in 1993 increased as a result of the acquisition of RTM, adding
sales of copper cathodes and anodes ($204.9 million), gold bullion ($57.4
million), and other byproducts ($26.1 million). Excluding RTM, revenues
declined 4% when compared to 1992. Copper price realizations, taking into
account PT-FI's $.90 per pound price protection program, were 12% lower than
in 1992, but gold price realizations were up 6%. Although ore production
averaged 62,300 MTPD in 1993 (8% higher than in 1992), copper sales volumes
decreased slightly from 1992 primarily because of sales from inventory in
1993. Gold sales volumes in 1993 benefited from significantly higher
fourth-quarter 1993 gold grades (a 46% increase over fourth-quarter 1992 and a
38% increase over third-quarter 1993), which are not anticipated to continue
in 1994, and an increase in gold recovery rates for the year, which improve
with higher gold grades. See "Summary FCX Operating Data."
A reconciliation of revenues from 1992 to 1993 is presented below (in
millions):
Revenues -- 1992.................................... $714.3
RTM revenues........................................ 288.4
Elimination of intercompany sales................... (47.7)
Concentrate:
Price realizations:
Copper.......................................... (84.7)
Gold............................................ 14.7
Sales volumes:
Copper.......................................... (5.5)
Gold............................................ 30.2
Treatment charges................................. 23.6
Adjustments to prior year concentrate sales....... (13.0)
Other............................................. 5.6
------
Revenues -- 1993.................................... $925.9
======
Revenues in 1993 also benefited from a decline in treatment charges
of 3.4 cents per pound from 1992 resulting from a tightening in the
concentrate market, as the industry's inventories were reduced for much of
1993. Additionally, lower copper prices led to lower treatment charges
since these charges vary with the price of copper.
Adjustments to prior year concentrate sales include changes in prices
on all metals for prior year open sales as well as the related impact on
treatment charges. Open copper sales at the beginning of 1993 were
recorded at an average price of $1.04 per pound, but subsequently were
adjusted downward as copper prices fell during the year, negatively
impacting 1993 revenues. As of December 31, 1993, 213.4 million pounds of
copper remained to be contractually priced during future quotational
periods. As a result of PT-FI's price protection program, discussed
below, these pounds are recorded at $.90 per pound. The copper price on
the London Metal Exchange ("LME") was $.84 per pound on February 1, 1994.
In June 1993, two of PT-FI's four mill level ore passes caved,
resulting in a blockage of a portion of the ore pass delivery system. The
blockage's primary effect was to limit mill throughput to approximately
40,700 MTPD for approximately eight weeks. The impact of the blockage was
minimized by using an ore stockpile adjacent to the mill and installing
conveyors to alternative ore pass systems. The ore pass blockage has been
rectified through the temporary use of alternative delivery systems and
by-passes. A permanent delivery system is expected to be in service by
mid-1994. The copper recovery rate for 1993 was adversely affected
because the ore milled from the stockpile contained higher than normal
oxidized copper, which yields lower copper recoveries. PT-FI's insurance
policies are expected to cover the property damage and business
interruption claims relative to the blockage.
PT-FI's unit site production and delivery costs, excluding the $10.0
million charge discussed below, increased slightly from 1992 primarily as
a result of costs incurred in connection with the ore pass blockage and an
increase in production overhead costs related to expansion activities.
Unit cash production costs declined significantly to 31.1 cents per pound
in 1993 from 40.7 cents per pound in 1992, benefiting from higher gold and
silver credits, lower treatment charges, and reduced royalties primarily
due to lower copper prices on which such royalties are based. PT-FI's
depreciation rate increased from 7.4 cents per recoverable pound during
1992 to 8.3 cents in 1993, reflecting the increased cost relating to the
66,000 MTPD expansion. As a result of the reserve additions discussed
earlier, PT-FI's depreciation rate is expected to decrease to 7.5 cents
per recoverable pound for 1994, absent any other significant changes in
ore reserves. In addition, FCX is amortizing costs in excess of book
value ($2.4 million of amortization in 1993) relating to certain capital
stock transactions with PT-FI. Amortization of these excess costs is
expected to be $3.6 million per year starting in 1994.
Exploration expenditures in Irian Jaya totaled $12.2 million in 1992,
compared to $31.7 million in 1993, and they are projected to be
approximately $35 million in 1994. Exploration expenditures in Spain are
expected to be approximately $6 million in 1994.
FCX's general and administrative expenses increased from $68.5
million in 1992 to $81.4 million in 1993 primarily because of the
additional personnel and facilities needed due to the expansion at
PT-FI and the acquisition of RTM. Included in the 1993 expense is $5.0
million for RTM (since its acquisition in March 1993) and charges of
$6.3 million primarily consisting of a write-off of deferred charges
incurred in 1992 related to a planned securities offering that was
withdrawn ($2.0 million) and costs to downsize FCX's computing and
management information systems (``MIS'') structure ($4.0 million).
Further increases in general and administrative expenses by FCX are
anticipated in conjunction with continuing expansion at PT-FI. General
and administrative expenses, including those of RTM, are currently
expected to increase by approximately 25% in 1994.
During the second quarter of 1993, FTX undertook a restructuring of
its administrative organization. This restructuring represented a major
step by FTX to lower its costs of operating and administering its
businesses in response to weak market prices of the commodities produced
by its operating units. As part of this restructuring, FTX significantly
reduced the number of employees engaged in administrative functions,
changed its MIS environment to achieve efficiencies, reduced its needs for
office space, outsourced a number of administrative functions, and
implemented other actions to lower costs. As a result of this
restructuring process, the level of FCX's administrative cost has been
reduced substantially over what it would have been otherwise, which
benefit will continue in the future. However, the restructuring process
entailed incurring certain one-time costs by FTX, portions of which were
allocated to FCX pursuant to its Management Services Agreement (the
"Management Agreement") with FTX.
FCX's restructuring costs totaled $20.8 million, including $10.7
million allocated from FTX based on historical allocations, consisting
of the following: $8.3 million for personnel related costs; $3.2
million relating to excess office space and furniture and fixtures
resulting from the staff reduction; $6.1 million relating to the cost
to downsize its computing and MIS structure; and $3.2 million of
deferred charges relating to PT-FI's 1989 credit facility which was
substantially revised in June 1993 (the "PT-FI Credit Agreement"). As
of December 31, 1993, the remaining accrual for these restructuring
costs totaled $1.5 million relating to excess office space.
In connection with the restructuring project, FCX changed its
accounting system and undertook a detailed review of its accounting
records. As a result of this process, FCX recorded a $10.0 million charge
to site production and delivery costs comprised of the following: $5.0
million for materials and supplies inventory obsolescence; $2.5 million
for revised estimates of value added taxes and import duties related to
prior years; and $2.5 million of adjustments for various items identified
in converting its accounting system.
Interest expense was $18.9 million in 1992 and $15.3 million in 1993,
excluding $24.0 million and $24.5 million of capitalized interest,
respectively.
The New COW provides a 35% corporate income tax rate for PT-FI and a
15% withholding tax on interest for debt incurred after the signing of the
New COW and on dividends paid to FCX by PT-FI. The additional withholding
required on interest and on dividends paid to FCX by PT-FI, and a $15.7
million loss by RTM for which no tax benefit is recorded, results in a
1993 effective tax rate of 52%.
Trends and Outlook--Marketing
PT-FI's copper concentrates, which contain significant amounts of
recoverable gold and silver, are sold primarily under long-term sales
agreements which accounted for virtually all of PT-FI's 1993 sales. PT-FI
has commitments from various parties to purchase virtually all of its
estimated 1994 production. Concentrate sales agreements provide for
provisional billings based on world metals prices, primarily the LME,
generally at the time of loading. As is customary within the industry,
sales under these long-term contracts usually "final-price" within a few
months of shipment. Certain terms of the long-term contracts, including
treatment charges, are negotiated annually on a portion of the tonnage to
reflect current market conditions. Treatment charges have declined during
1993 as a result of the tightening in the concentrate market and are
expected to remain at or below 1993 levels. RTM has commitments from most
of its suppliers for 1994 treatment charge rates in excess of current spot
market rates.
The increased production at PT-FI has required it to market its
concentrate globally. Its principal markets include Japan, Asia, Europe
and North America. PT-FI's mill throughput is currently forecast to be
approximately 67,000 MTPD for 1994 as PT-FI continues to integrate new
mill equipment for the expansion to 115,000 MTPD. Current estimates for
1994 production are approximately 700 million pounds of copper and 780,000
ounces of gold for PT-FI and 165,000 ounces of gold at RTM. RTM, whose
smelter can be expanded, was acquired to provide low-cost smelter capacity
for a portion of PT-FI's concentrate and to improve PT-FI's competitive
position in marketing concentrate to other parties.
During 1993, copper prices dropped to their lowest levels since 1987,
reflecting lower demand caused by the continuing global recession, but
recovered to a level in excess of $.80 per pound. Prices for copper, gold
and silver are influenced by many factors beyond FCX's control and can
fluctuate sharply. PT-FI has a price protection program for virtually all
of its estimated copper sales to be priced in 1994 at an average floor
price of $.90 per pound of copper, while allowing full benefit from prices
above this amount. Based on projected 1994 PT-FI copper sales of
approximately 720 million pounds, a 1 cent per pound change in the average
annual copper price received over $.90 per pound would have an
approximately $6 million effect on pretax operating income and cash flow.
Based on projected 1994 gold sales of approximately 800,000 ounces by
PT-FI, a $10 per ounce change in the average annual gold price received
would have an approximately $8 million effect on 1994 pretax operating
income and cash flow.
Capital Resources and Liquidity
Cash flow from operations decreased from $252.6 million for 1992 to
$158.5 million during 1993, due primarily to lower net income and an
increase in inventories. Materials and supplies increased over year-end
1992 as additional explosives, reagents and chemicals, fuel, and spare
parts were required for the expanding PT-FI operations. For the year
ended December 31, 1993, consolidated working capital decreased by $352.0
million from December 31, 1992, primarily as a result of a $358.0 million
decrease in cash and short-term investments, which was used to reduce
long-term debt and fund capital expenditures, and the negative working
capital position of RTM.
Cash flow used in investing activities totaled $579.7 million in 1992
compared with $463.5 million in 1993. Capital expenditures increased 23%
in 1993 due to increased expansion activities. During 1992, FCX acquired
an indirect interest in PT-FI for $211.9 million.
Cash flow provided by financing activities totaled $618.2 million in
1992 compared with $53.1 million used in financing activities in 1993.
FCX issued shares of its Step-Up Preferred Stock and its Gold-Denominated
Preferred Stock during 1993 for net proceeds totaling $561.1 million. Net
proceeds from the two offerings were used in part to reduce borrowings
under the PT-FI amended credit agreement by a net $537.0 million, thereby
increasing the facility's availability for general corporate purposes and
the continued expansion of mining and milling operations. Also in 1993,
PT-FI received net proceeds of $80.0 million from the sale of a portion of
PT-FI's infrastructure assets. In 1992, $212.5 million was received from
the sale of a 10% interest in PT-FI to Indonesian investors in December
1991 and $392.0 million was received from the sale of Class A Common Stock
and Special Preference Stock. Dividend payments rose in 1993 due to
increased Class A shares outstanding and dividends paid on the Special
Preference and Preferred Stock issued in 1992 and 1993. FCX called its
Zero Coupon Notes for redemption in January 1994 (substantially all of
which were exchanged for Class A Common Stock) and completed a public
offering of its Gold-Denominated Preferred Stock, Series II which yielded
net proceeds of $158.5 million to be used primarily for expansion related
activities.
Cash flow from operations increased from $73.9 million for 1991 to
$252.6 million during 1992, due primarily to higher net income. Customer
accounts receivable rose by $76.1 million to $130.6 million because of
increased sales. Partially offsetting the increase in receivables was an
increase in accounts payable and accrued liabilities associated with
expansion activities. Cash flow used in investing activities increased
from $240.0 million during 1991 to $579.7 million for 1992, due to
increased capital expenditures for the 57,000 MTPD expansion and the
purchase of an indirect interest in PT-FI. Cash flow from financing
activities increased $415.8 million in 1992 compared with 1991, primarily
due to the sale of Class A Common Stock, Special Preference Stock, and a
10% interest in PT-FI to Indonesian investors. The proceeds from these
financing activities were used to purchase an indirect interest in PT-FI
and to fund ongoing expansion related expenditures.
RTM's principal operations currently consist of a copper smelter. The
FCX purchase proceeds will be used by RTM for working capital requirements
and capital expenditures, including funding a portion of the expansion of
its smelter production capacity (expected to cost approximately $50
million) from its current 150,000 metric tons of metal per year to 180,000
metric tons of metal per year by mid-1995. On February 28, 1994, RTM
obtained a commitment for short-term bank financing for up to $45 million
to fund the cost of expansion to 180,000 metric tons of metal per year, of
which $5 million is currently outstanding. FCX expects to replace this
financing at maturity with long-term financing. RTM is also studying
further expansion of the smelter facilities to as much as 270,000 metric
tons of metal production per year and is assessing the opportunity to
expand its tankhouse operations from 135,000 metric tons per year to
215,000 metric tons per year. RTM's 1993 cash flow from operations was
negative ($5.9 million) primarily due to cash requirements related to
shut-down costs for RTM's gold mine. RTM has relied on short-term credit
facilities and the FCX purchase proceeds to fund this shortfall. In
addition, RTM is currently evaluating financing alternatives to fund its
short-term needs and to provide long-term funding for expansion. RTM's
future cash flow is dependent on a number of variables including
fluctuations in the exchange rate between the United States dollar and the
Spanish peseta, future prices and sales volumes of gold, the size and
timing of the smelter and tankhouse expansions, and the supply/demand for
smelter capacity and its impact on related treatment and refining charges.
During 1992, the Company established the EIP. The full EIP
(currently expected to involve aggregate costs of as much as $500 million
to $600 million) includes plans for commercial, residential, educational,
retail, medical, recreational, environmental and other infrastructure
facilities to be constructed during the next 20 years for PT-FI
operations. The EIP will develop and promote the growth of local and
other third-party activities and enterprises in Irian Jaya through the
creation of certain necessary support facilities. The initial phase of
the EIP is under construction and is scheduled for completion in 1995.
Additional expenditures for EIP assets beyond the initial phase depend on
the long-term growth of PT-FI's operations and would be expected to be
funded by third-party financing sources, which may include debt, equity or
asset sales. Certain portions of the EIP and other existing infrastructure
assets are expected to be sold in the near future to provide additional
funds for the expansion to 115,000 MTPD.
Through 1995, capital expenditures are expected to be greater than
cash flow from operations. Upon completion of the previously announced
115,000 MTPD expansion by year-end 1995, annual production is expected to
approach 1.1 billion pounds of copper and 1.5 million ounces of gold.
Subsequently, capital expenditures will be determined by the results of
FCX's exploration activities and ongoing capital maintenance programs.
Estimated capital expenditures for 1994 and 1995 for the expansion to
115,000 MTPD, the initial phase of the EIP, ongoing capital maintenance
expenditures, and the expansion of RTM's smelter to 180,000 metric tons of
metal per year are expected to range from $850 million to $950 million and
will be funded by operating cash flow, sales of existing and
to-be-constructed infrastructure assets and a wide range of financing
sources FCX believes are available as a result of the future cash flow
from PT-FI's mineral reserve asset base. These sources include, but are
not limited to, PT-FI's credit facility and the public and private
issuances of securities.
The New COW contains provisions for PT-FI to conduct or cause to be
conducted a feasibility study relating to the construction of a copper
smelting facility in Indonesia and for the eventual construction of such a
facility, if it is deemed to be economically viable by PT-FI and the
Government of Indonesia. PT-FI has participated in a group assessing the
feasibility of constructing a copper smelting facility in Indonesia.
PT-FI amended its $550.0 million credit agreement in June 1993. The
amended credit agreement, which, among other things eliminated a required
debt service reserve and provided a lower interest rate, is guaranteed by
FCX and FTX, and is structured as a three year revolving line of credit
followed by a 3 1/2 year reducing revolving line of credit. As of February
1, 1994, $425.0 million was available to PT-FI under the credit facility.
To the extent FTX and its other subsidiaries incur additional debt, the
amount available to PT-FI under the credit facility may be reduced. See
"Description of Certain Indebtedness--PT-FI Credit Agreement."
Payment of future dividends by FCX will depend on the payment of
dividends by PT-FI, which, in turn, depends on PT-FI's economic resources,
profitability, cash flow and capital expenditures. It is the policy of
PT-FI to maximize its dividend payments to stockholders, taking into
account its operational cash needs including debt service requirements.
FCX currently pays an annual cash dividend of 60 cents per share to its
common shareholders. Management anticipates that this dividend will
continue at this level through completion of the expansion in 1995, absent
significant changes in the prices of copper and gold. However, FCX's
Board of Directors determines its dividend payment on a quarterly basis
and in its discretion may change or maintain the dividend payment. In
determining dividend policy, the Board of Directors considers many
factors, including current and expected future prices and sales volumes,
future capital expenditure requirements and the availability and cost of
financing from third parties.
PT-FI has had good relations with the Indonesian Government since it
commenced operations in Indonesia in 1967. The New COW provides that the
Indonesian Government will not nationalize the mining operations of PT-FI
or expropriate assets of PT-FI. Disputes under the New COW are to be
resolved by international arbitration. The 1967 Foreign Capital
Investment Law, which expresses Indonesia's foreign investment policy,
provides basic guaranties of remittance rights and protection against
nationalization, a framework for incentives and some basic rules as to
other rights and obligations of foreign investors.
Environmental
FTX and affiliates, including FCX, have a history of commitment to
environmental responsibility. Since the 1940s, long before public
attention focused on the importance of maintaining environmental quality,
FTX has conducted preoperational, bioassay, marine ecological, and other
environmental surveys to ensure the environmental compatibility of its
operations. FTX's Environmental Policy commits FTX's operations to full
compliance with local, state, and federal laws and regulations.
PT-FI believes it is in compliance with Indonesian environmental
laws, rules, and regulations. PT-FI had a team of environmental
scientists from a leading Indonesian scientific institution conduct a
study to update its 1984 Environmental Impact Assessment that covered
expansion to 66,000 MTPD. Subsequently, that document was expanded by
other independent scientists to cover all environmental aspects of the
current expansion to 115,000 MTPD. The latest study document was approved
by the Indonesian Government in February 1994.
FCX has made, and will continue to make, expenditures at its
operations for protection of the environment. Increasing emphasis on
environmental matters can be expected to require FCX to incur additional
costs, which will be charged against income from future operations. On
the basis of its analysis of its operations in relation to current and
presently anticipated environmental requirements, management does not
anticipate that these investments will have a significant adverse impact
on its future operations, liquidity, capital resources, or financial
position.
1992 Results of Operations Compared with 1991
FCX reported 1992 net income of $122.9 million ($.66 per share),
compared with 1991 net income of $96.2 million ($.53 per share). A
reconciliation of revenues from 1991 to 1992 is presented below (in
millions):
Revenues - 1991....................................... $467.5
Price realizations:
Copper.............................................. 8.8
Gold................................................ (7.4)
Sales volumes:
Copper.............................................. 218.5
Gold................................................ 95.7
Treatment charges..................................... (73.0)
Adjustments to prior year concentrate sales........... 12.5
Other................................................. (8.3)
------
Revenues--1992........................................ $714.3
======
Revenues increased 53% in 1992, reflecting higher production rates
due to the mine/mill expansion, higher gold grades, and the sale of all
year-end 1991 inventory. Price realizations were relatively unchanged
between years (2% increase in copper realizations and 5% decrease in gold
realizations), but sales volumes benefited significantly from the
expansion, higher gold grades, and inventory sales discussed above. Copper
sales volumes increased 48% and gold sales volumes increased 71%.
Partially offsetting the benefit from sales volumes increases was a 3.6
cents per pound increase in treatment charges because of tight market
conditions in the smelting industry early in 1992 and increased spot
market sales attributable to higher than anticipated production due to the
early completion of the 57,000 MTPD expansion program. A $5.7 million
upward revenue adjustment was made in 1992 compared with a $6.8 million
downward revenue adjustment in 1991 for prior year concentrate sales
contractually priced during the year.
Cost of sales for 1992 were $357.2 million, an increase of 47% from
1991 due primarily to the 48% increase in copper sales volumes. Unit site
production and delivery costs in 1992 approximated 1991 costs. FCX's
depreciation rate declined from an average 8.7 cents per recoverable pound
in 1991 to 7.4 cents in 1992 because of the significant increase in ore
reserves during 1991.
Interest expense was $21.5 million during 1991 compared with $18.9
million in 1992, excluding $18.3 million and $24.0 million of capitalized
interest, respectively.
General and administrative expenses rose from $40.6 million in 1991
to $68.5 million in 1992, because of several financing transactions and
operational and environmental studies in 1992 which required additional
corporate personnel whose salaries and related overhead, were charged to
FCX. General and administrative expenses also increased because of the
additional personnel and facilities needed in Indonesia for the expanding
operations.
Minority interest share of net income reflects FCX's 90% ownership
interest in PT-FI for 1991, compared with its 80% interest during 1992.
[GRAPHIC B]
(SEE APPENDIX B FOR DESCRIPTION OF GRAPHIC MATERIAL)
BUSINESS OF FCX
General
FCX, a Delaware corporation, conducts its operations in Indonesia
through its 81.28% directly owned subsidiary, PT-FI, a limited liability
company organized under the laws of Indonesia and domesticated in
Delaware. Of the remaining 18.72% of the outstanding PT-FI common stock,
9.36% is owned by the Indonesian Government and 9.36% is owned by PT-II,
in which FCX owns a 49% interest. PT-FI engages in the exploration for
and development, mining and processing of concentrates containing copper,
gold and silver in Indonesia and the marketing of concentrates containing
such metals worldwide. In 1993, FCX acquired RTM, as described under
"Prospectus Summary-- Recent Developments." FCX also owns Eastern Mining,
a separate subsidiary which has been granted certain mineral exploration
rights in Irian Jaya, Indonesia.
PT-FI's operations are located in the rugged highlands of the
Sudirman Mountain Range in the province of Irian Jaya, Indonesia, located
on the western half of the island of New Guinea. Over the last 25 years,
PT-FI has met an extraordinary combination of engineering and construction
challenges to develop its mining and milling complex and supporting
infrastructure in one of the least explored areas in the world. PT-FI's
largest mine, Grasberg, discovered in 1988, contains the largest single
gold reserve and one of the five largest open-pit copper reserves of any
mine in the world. In order to develop the Grasberg deposit, PT-FI
undertook an expansion program in stages, initially from 20,000 MTPD to
57,000 MTPD. Expansion from 57,000 MTPD to 66,000 MTPD was completed in
1993 ahead of schedule and within budget. PT-FI has begun work on a
further expansion of its overall mining and milling rate to 115,000 MTPD
which is expected to be completed by year-end 1995 and to result in annual
production rates approaching 1.1 billion pounds of copper and 1.5 million
ounces of gold.
Copper and Gold
Copper. Copper's primary property, that of high thermal and
electrical conductivity, makes it one of the most important metals in the
industrial world. It is used worldwide in electrical wiring, phone lines,
plumbing, industrial machinery, transportation equipment, consumer, and
general products. Building construction accounts for over 40% of all
copper consumed and the average car contains more than 40 pounds of
copper. Copper remains the product of choice in the plumbing market due
to its durability and bactericide properties. Another important area of
copper consumption involves its use as the basis for many industrial
alloys including brass, bronze, and as an important addition with other
alloys based on lead, zinc, nickel and aluminum.
Gold. Gold is used as a source of decoration in jewelry, a raw
material for industrial uses, and as a store of value especially during
times of economic or political uncertainty.
Jewelry accounts for one-half of the world's consumption of gold.
Gold's natural softness prevents fabrication in its pure form but when
alloyed with such metals as copper, zinc, silver and nickel, a wide range
of colors in gold jewelry can be achieved. Changes in real income have
the most impact on the direction of gold jewelry demand. From 1980 to
1992, gold fabrication in Asia increased at a trend line growth rate of
over 20% as the rise in economic prosperity created a large, wealthy
population with a strong affinity towards the metal.
Industrial uses of gold account for less than 10% of total demand.
These uses are mostly confined to dentistry and the electronics industry
where it is used for plating fine wires and contacts to assure minimum
resistance. Gold is also used in the manufacture of certain
semi-conductors and printed circuits.
Gold as an investment vehicle can take the form of physical purchases
of gold bars, coins and jewelry or through paper purchases of gold futures
and option contracts or gold mining equities. The latter medium is more
prevalent in the modern world and can have a significant impact on gold
prices.
The demand for and supply of gold affects gold prices but not in the
same manner as those of the vast majority of other commodities. Because
the supply of gold is made up largely of gold produced in past years, the
amount produced in a single year constitutes a very small portion of the
total supply. Thus, variations in current production levels do not have a
significant impact on the price of gold.
Contract of Work
In 1967, PT-FI's predecessor, Freeport Indonesia, Incorporated, a
Delaware corporation ("FII"), and the Indonesian Government entered into a
contract of work (the "1967 COW") governing FII's mining activities in
Indonesia. From 1967 until the end of 1991, FII operated as the sole
contractor for the production and marketing of certain minerals from a
24,700 acre area (the "1967 Mining Area"). On December 30, 1991, FII was
merged into PT-FI in Delaware and PT-FI and the Indonesian Government
signed a new contract of work (the "New COW") which superseded the 1967
COW. The New COW covers both the 1967 Mining Area and an additional
contiguous 6.5 million acre exploration area (the "New COW Area"). The
New COW has a 30-year term with provisions for two 10-year extensions
under certain conditions. Since the signing of the 1967 COW, PT-FI has
enjoyed and continues to enjoy favorable and stable relations with the
Indonesian Government.
The New COW contains a provision under which PT-FI must progressively
relinquish its rights to the parts of the New COW Area in amounts equal to
25% of the 6.5 million acres at the end of each of three specified
periods, the first of which is scheduled to expire on December 30, 1994,
and the last of which is set to expire five to seven years after the
signing of the New COW. In light of these relinquishment provisions, PT-FI
has implemented an active exploration program with a focus on both what it
believes to be the most promising exploration opportunities in the New COW
Area as well as identification of areas which appear to hold the least
promise. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Ore Reserve Addition and Ongoing Exploration
Program." The New COW also contains provisions for PT-FI to conduct or
cause to be conducted a feasibility study relating to the construction of
a copper smelting facility in Indonesia and for the eventual construction
of such a facility by PT-FI, if such facility is deemed to be economically
viable by PT-FI and the Indonesian Government and is not constructed by
others. PT-FI is pursuing with another company the feasibility of
constructing a copper smelting facility in Indonesia, in which PT-FI would
hold a minority interest and supply approximately one-half of the
smelter's currently anticipated copper concentrate requirements.
The New COW provides that PT-FI may be required after 2001, if
requested by the Indonesian Government to meet the then existing
requirements of Indonesian law, and subject to certain other specified
conditions, to sell up to an additional 25% of its common stock through
offerings on the Jakarta Stock Exchange or up to an additional 31% if sold
otherwise to Indonesian nationals, with all such sales to be at market
prices to be determined at the times of sale. However, the New COW
further stipulates that PT-FI is entitled to the benefit of any changes in
Indonesian law, regulations, or policy subsequent to the signing of the
New COW that impose less burdensome divestiture requirements. Indonesian
regulations promulgated in 1992 require that 20% of the capital stock of a
corporation such as PT-FI ultimately be held by Indonesian investors. The
Investment Coordinating Board of Indonesia has indicated that such
regulations apply to PT-FI.
On April 29, 1993, FCX's subsidiary, Eastern Mining, was granted
exclusive exploration rights on 2.5 million acres adjacent to the New COW
Area (see "Eastern Mining" below.)
Ore Reserves of PT-FI
The following table summarizes PT-FI's estimated proved and probable
reserves at the end of each of the years shown, as verified by Independent
Mining Consultants, Inc. (see "Special Considerations--FCX --Reserves"):
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1989 1990 1991 1992 1993
----- ------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C>
Reserves:
Ore reserves--dry metric tons......... 256.4 445.7 768.0 733.2 1,074.1
Copper--recoverable pounds............ 8,300 13,900 21,800 20,900 26,800
Gold--recoverable ounces.............. 8.1 19.5 32.4 32.1 39.1
</TABLE>
Primarily as a result of the drilling operations at the Grasberg
mine (see "Mines in Production" below), PT-FI's proved and probable copper
and gold ore reserves have increased since December 31, 1989 by
approximately 223% and 383%, respectively, and from year-end 1992 by
approximately 28% and 22%, respectively. PT-FI's Grasberg deposit now
contains the largest single gold reserve and one of the five largest
open-pit copper reserves of any mine in the world.
This increase in proved and probable reserves, net of production,
reflects the addition of approximately 340.9 million tons of ore since
December 31, 1992 (a 46% increase) as the result of a drilling program
that includes data obtained from the surface down to the 3,100 meter
elevation at the Grasberg copper/gold ore body, bringing total proved and
probable ore reserves to approximately 1,074.1 million tons. PT-FI's
proved and probable reserves at Grasberg do not include reserves below the
3,100 meter level. PT-FI has begun driving an adit (the "Amole adit") from
the mill site to a point below the currently delineated Grasberg ore body
at the 2,900 meter level. The Amole adit, expected to be completed in
1996, will facilitate further deep exploration to delineate the extent of
the Grasberg deposit below the 3,100 meter level. Preliminary drilling
from the existing 3,700 meter adit indicates significant additional
mineralization below the existing proved and probable reserves. There can
be no assurance, however, that PT-FI's exploration programs will result in
the delineation of additional reserves in commercial quantities.
PT-FI's proved and probable ore reserves at December 31, 1993 of
approximately 1,074.1 million tons had an average grade of 1.31% copper
and 1.47 grams of gold per ton compared with approximately 733.2 million
tons of ore with an average grade of 1.47% copper and 1.72 grams of gold
per ton at December 31, 1992.
The Grasberg mine reserves alone approximate 976.6 million tons of
ore at an average grade of 1.25% copper and 1.55 grams of gold per ton.
Mines in Production
PT-FI currently has two mines in operation: Grasberg and Ertsberg
East, both within the 1967 Mining Area. PT-FI milled ore at an average
rate of approximately 57,600 MTPD in 1992 and 62,300 MTPD in 1993.
Open-pit mining of the Grasberg ore body commenced in January 1990.
In 1993, Grasberg mine output totaled approximately 19.8 million tons of
ore, providing approximately 81% of total PT-FI ore production.
Production from the Grasberg ore body during January 1994 averaged 77,700
MTPD.
Ertsberg East is an underground mine which commenced production in
1980. Block caving operations are conducted in two separate zones of the
ore body with a common haulage level at the 3,530 meter elevation. In
1993, mine output from Ertsberg East totaled approximately 4.4 million
tons of ore and provided approximately 18% of total PT-FI ore production.
Ertsberg East is expected to be depleted by the second half of 1994, and
production primarily from Grasberg, supplemented by production from the
IOZ ore body (see "Mines in Development" below), is expected to offset the
Ertsberg East production. Production from Ertsberg East during January
1994 averaged 2,700 MTPD.
Mines in Development
Three major additions to PT-FI's underground mining operations, which
are intended to replace existing underground production areas when they
become depleted, have previously been developed: the DOM, the DOZ and the
IOZ. The IOZ is located vertically between the Ertsberg East and the DOZ
ore bodies.
The DOM ore body's initial working level is some 380 meters above the
Ertsberg East mining operation. The DOM ore body will initially be mined
using the block caving method. Pre-production development is complete and
the first block cave area has been prepared. All maintenance, warehouse
and service facilities are in place. Production at the DOM has been
deferred as a result of the continued increase in the Grasberg ore
reserves.
The mine being developed at the IOZ ore body is situated
approximately 350 meters above the 2,900 meter level adit. Delineation
drilling and pre-production development began in 1991. The IOZ is being
developed to gradually replace production from the Ertsberg East mine
beginning in 1993 using the same block caving method. Mining will proceed
downward from the IOZ to the DOZ.
The DOZ, also an underground mine within the 1967 Mining Area, lies
vertically below the IOZ ore body and is currently capable of production.
Initial production from the DOZ commenced in 1989. However, at the end of
1991, mine output from the DOZ was temporarily suspended, and it is
anticipated that it will resume once the IOZ ore body has been depleted
sometime after 1998.
Exploration
In addition to continued delineation of the Grasberg deposit and
other deposits discussed above, PT-FI is continuing its ongoing
exploration program for copper and gold mineralization within the 1967
Mining Area. Two anomalous zones in the vicinity of PT-FI's current mining
operations are under active exploratory drilling. The Big Gossan and
Wanagon mineralizations are located west of the Ertsberg open pit,
southwest of the Grasberg copper/gold ore body and anchor the ends of a
clearly defined mineralized structure trending roughly east-west for 4.5
kilometers. The Big Gossan mineralization, as drilled to date, extends
approximately 1,100 meters from just east of the intersection of the Amole
adit.
Over 50 holes have been drilled from the Amole adit and from an
exploration drift being driven in a westerly direction parallel to the Big
Gossan structure, which drilling resulted in the addition of 8.5 million
metric tons of ore at an average grade of 2.4% copper and 0.77 grams of
gold per metric ton to PT-FI's total proved and probable reserves at
December 31, 1993. Earlier surface drilling of the western portion of the
Big Gossan anomaly, approximately 300-500 meters west of the underground
drilling, established a mineral resource in excess of 6 million metric
tons with an average grade of 5% copper and 2.9 grams of gold per metric
ton which is not included in PT-FI's total proved and probable reserves at
December 31, 1993. Further underground exploration of the resources
established by the surface drilling as well as the area between it and the
reserves discovered near the Amole adit will be carried out in 1994 from
the exploration drift as it is extended.
Mine planning for development of Big Gossan has commenced with
development estimated to cost approximately $100 million and to begin in
late 1994 or early 1995.
During the first quarter of 1993, PT-FI initiated
helicopter-supported surface drilling of the Wanagon gold/silver/copper
prospect. Seven holes were drilled during 1993 at Wanagon, located
approximately 2 kilometers northwest of Big Gossan and approximately 3
kilometers southwest of Grasberg. Significant copper values have been
encountered below the 2,900 meter elevation. Target evaluation in other
parts of the 1967 Mining Area is also continuing.
Preliminary exploration of the New COW Area has indicated many
promising targets. Extensive stream sediment sampling within the new
acreage has generated analytical results which are being evaluated. This
sampling program, when coupled with the regional mapping completed on the
ground and from aerial photographs, has led to the outlining of over 50
exploration targets. Detailed follow-up exploration of these anomalies by
additional mapping and sampling and through the use of both ground and
aerial magnetic surveys is now in progress. PT-FI has completed a
fixed-wing air-magnetometer survey of the entire New COW Area and,
together with extensive geologic data gathered from surface sampling, this
air-magnetometer survey will enable PT-FI to efficiently direct future
exploratory efforts. Drilling of several of these targets has already
commenced.
PT-FI has focused its initial drilling in the New COW Area on two
prospects 30 kilometers and 40 kilometers north of Grasberg that display
anomalous geochemical and magnetic characteristics. Although these
prospects require additional exploratory drilling, initial results
indicate a large mineralized district that covers three times the aerial
extent or approximately 75,000 acres when compared to the original
24,700-acre district that contained the Ertsberg, Grasberg, Ertsberg East,
IOZ, DOZ, Big Gossan and DOM ore bodies. The discovery of widespread
igneous activity, including volcanic rocks, in these new areas indicates
the potential for Grasberg-type stockwork and porphyry deposits as well as
skarn-type copper/gold deposits similar to the Ertsberg, Ertsberg East,
IOZ, DOZ and DOM ore bodies. PT-FI has also initiated drilling programs
for four other prospects. Drilling results are being interpreted. No
assurance can be given that any of these new areas contain commercially
exploitable mineral deposits.
PT-FI's exploration expenses were $31.7 million for 1993, compared to
$12.2 million for 1992.
Milling, Expansion and Production
Milling. Most of the ore from PT-FI's mines moves by a conveyor
system to an ore pass through which it drops to the mill site. At the mill
site, which is located approximately 2,900 meters above sea level, the ore
is crushed and ground. The powdered ore is then mixed in tanks with
chemical reagents and continuously agitated with air. At this stage the
copper-bearing concentrate rises to the top of the tanks from which it is
removed and thickened. The product leaves the mill site as a thickened
concentrate slurry, consisting of approximately 65% solids by weight.
During 1993, the recovery rates for the milling facilities averaged
approximately 87.0% of the copper content and 76.2% of the gold content of
the ore processed, compared to 88.2% and 73.7%, respectively, during 1992.
Expansion. In 1993 PT-FI completed, within budget and ahead of
schedule, the expansion of its production facilities increasing its mining
and milling capacity from 57,000 MTPD to 66,000 MTPD at its Indonesian
complex. During 1992, production averaged 57,600 MTPD. The average mill
throughput during 1993 was 62,300 MTPD. PT-FI has begun work on a further
expansion of its overall mining and milling rate to 115,000 MTPD at an
estimated cost of approximately $685 million, excluding the capital
required for the EIP and other infrastructure improvements, of which
approximately $120 million had been spent through December 31, 1993. This
expansion is expected to be completed by or about year-end 1995. Funding
for this expansion will be obtained from existing cash balances, cash flow
from operations and additional financing, if required. Such expansion
beyond 66,000 MTPD will also require certain Indonesian Government
approvals. This expansion will further PT-FI's goal of approaching annual
copper production of 1.1 billion pounds and annual gold production of
approximately 1.5 million ounces.
Production. In 1993, PT-FI achieved record copper production of
658.4 million recoverable pounds, approximately 6% more than in 1992.
Gold production was a record 786,700 recoverable ounces, an increase of
23% over 1992.
Transportation, Other Infrastructure and Recent Infrastructure
Developments
Transportation. From the mill site, the thickened concentrate is
pumped down two 115 kilometer pipelines to the port site facility at
Amamapare. At the port site the slurry is filtered, dried and stored for
shipping. The concentrate is transported by front-end loaders from the
storage shed to a conveyor belt shiploader system. When ships arrive,
they are loaded at the dock facilities at the port site until they draw
their maximum water. The ships normally move to deeper water, where
loading is completed from shuttling barges.
Other Infrastructure. The location of PT-FI's operations in a remote
and undeveloped area requires that such operations be virtually
self-sufficient. The existing facilities, in addition to those described
above, include an airport, a heliport, a 119 kilometer road with bridges
and tunnels, an aerial service tramway to transport personnel, equipment
and supplies to the mines, a hospital and two town sites with schools,
housing and other required facilities sufficient to support approximately
12,000 persons, including approximately 360 who are located at the port
site.
AFIC was formed in 1993 principally to purchase and operate certain
existing and new infrastructure facilities designed to serve the
residential and community needs associated with the current and expected
long-term expansion of FCX's operations and to facilitate the long-term
economic development of the area of Irian Jaya in which its mining and
milling operations are located. See "Business of the Issuer."
In conjunction with the expansion of the mining and processing
facilities to 115,000 MTPD, the first phase of the EIP is being
implemented. PT-FI has commenced the EIP, the goal of which is to develop
and promote the growth of local and other third party activities and
enterprises in Irian Jaya through the creation of certain necessary
physical support facilities. The assets acquired and to be acquired by
AFIC and one or more Infrastructure Affiliates are part of the EIP. The
full EIP includes plans for various commercial, residential, educational,
retail, medical, recreational, environmental and other infrastructure
facilities to be constructed during the next 10 to 20 years, which
facilities would be available for PT-FI's workforce and others. These
facilities will support PT-FI's expansion of its production by providing
housing and related support facilities for the benefit of PT-FI's
employees and their families and by expanding logistical facilities and
transportation systems in Irian Jaya. The first phase of the EIP
envisages the construction of dwelling units and related power, water and
waste disposal systems, a light industrial park and new small business
development facilities, improvements to the port and airport facilities,
an 84-room guest house with dining, recreational and meeting facilities
near the airport and other general infrastructure facilities. Depending on
the long-term success of PT-FI's exploration program, the total cost of
the EIP, including subsequent phases, could range between $500 million and
$600 million.
Recent Infrastructure Developments. In December 1993, PT-FI
announced the execution of a Letter of Intent with Duke Energy and
PowerLink, pursuant to which PT-FI would sell its existing and
to-be-constructed power generation and transmission assets and certain
other power-related assets to a joint venture (the "Power Joint Venture")
whose ownership consists of Duke Energy (30%), PowerLink (30%), PT-FI
(30%) and an Indonesian investor (10%). The total value of the
transaction is estimated at $200 million and is expected to be concluded
in two phases. The first sale, representing the existing assets, is
expected to exceed $100 million and to occur in mid-1994. The final sale,
representing the to-be-constructed expansion-related assets, is expected
to occur during the first half of 1995. Under the agreement, the Power
Joint Venture will own these assets and be responsible for providing the
electrical power services required by PT-FI at its mining, milling and
support operations in Irian Jaya including the power services required for
the expansion of ore throughput to 115,000 MTPD.
PT-FI has also entered into two separate letters of intent with
respect to the sale to joint ventures of certain aircraft, airport and
related operations (the "Airport Joint Venture") and certain construction
equipment, port facilities and related marine, logistics and related
assets (the "Port Joint Venture"). PT-FI would have a 25% equity interest
in the Airport Joint Venture, with certain Indonesian investors
controlling the remainder. PT-FI would enter into one or more agreements
with the Airport Joint Venture for air transport services for both
passengers and cargo. It is expected that the purchase price of the assets
transferred to the Airport Joint Venture will be approximately $30
million.
The Port Joint Venture is expected to be owned by a multinational
shipping concern and three to five Indonesian investors (one of which is
expected to be ALatieF). PT-FI is not expected to have an equity interest
in the Port Joint Venture. PT-FI would enter into one or more agreements
with the Port Joint Venture for use of the transferred assets. It is
expected that the purchase price of the assets transferred to the Port
Joint Venture will not exceed $100 million.
The foregoing letters of intent are not binding and are subject to
the execution of definitive agreements, financing, and certain Indonesian
Government approvals. No assurance can be given that any of these
transactions will be consummated.
Marketing
PT-FI's copper concentrates, which contain significant gold and
silver components, are sold primarily under long-term U.S.
dollar-denominated contracts, pursuant to which the selling price is based
on world metals prices, generally the London Metal Exchange settlement
prices for Grade A copper metal, less certain allowances. Under a major
long-term contract signed in late 1990, approximately 34% and 44% of the
concentrates produced by PT-FI in 1992 and 1993, respectively, were sold
to a pool of Japanese copper smelting companies. PT-FI also supplies
copper concentrates to other Asian, European and North American smelters
and international trading companies under long-term sales agreements.
Approximately 66% of 1992 copper production was sold under long-term
contracts, with the balance sold on the spot market. Spot sales were
especially high in 1992 because the 57,000 MTPD expansion program was
completed earlier than planned. Virtually all of PT-FI's 1993 production
of copper concentrates was sold under prior commitments, and PT-FI has
commitments from various parties to purchase virtually all of its
estimated 1994 production of copper concentrates.
PT-FI has in place a price protection program that eliminates
exposure to copper price declines below an average of 90 cents per
recoverable pound for estimated copper sales pricing in 1994, while
allowing full benefit to PT-FI from prices above that level. The cost of
the 1994 price protection program, $6 million, is included in product
inventories and is being amortized as an adjustment to revenues as sales
are priced during 1994.
Eastern Mining
FCX's subsidiary Eastern Mining was granted an exploration permit
(the "SIPP") on April 29, 1993 which gives exclusive rights for a limited
period to explore for minerals on 2.5 million acres (the "SIPP Area")
adjacent to the 6.5 million acre exploration area covered by PT- FI's New
COW. Preliminary exploration of the SIPP Area is under way.
A draft of a contract of work ("Eastern Mining Draft") was initialled
on January 30, 1993 by the Ministry of Mines and Energy of the Indonesian
Government and Eastern Mining which covers the SIPP Area. The Eastern
Mining Draft will be submitted to the President of Indonesia, with
execution of a definitive contract of work expected in 1994. The Eastern
Mining Draft, as initialled, provides for a 30-year term and for two
10-year extensions under certain circumstances. Upon execution, an
Indonesian limited liability company will be formed to hold the definitive
contract of work which initially is to be owned 80% by Eastern Mining and
10% by each of PT-II and an unrelated Indonesian corporation.
Purchase of Interest in RTM
In March 1993, FCX acquired a 65% interest in RTM, which is
principally engaged in the smelting and refining of copper in Spain, for
approximately $50 million, excluding transaction costs. In December 1993,
RTM redeemed the remaining 35% interest for approximately $19 million.
RTM has announced plans to expand its smelter production capacity from its
current 150,000 metric tons of metal per year to approximately 180,000
metric tons of metal per year by 1995 at a cost of approximately $50
million. RTM is studying further expansion to as much as 270,000 metric
tons of metal production per year. During 1993, PT-FI supplied RTM with
approximately 90,000 metric tons of copper concentrate and is expected to
supply approximately 150,000 metric tons in 1994, providing for
approximately 20% and 33%, respectively, of RTM's requirements in those
years. Beginning in 1996, PT-FI is expected to provide the RTM smelter
with approximately one-half of its copper concentrate requirements. For
further information concerning RTM, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" herein
and FCX's Current Report on Form 8-K dated January 7, 1994, as amended
on April 7, 1994 (which includes financial information for the nine months
ended September 30, 1993 as if RTM had been consolidated since
March 31, 1993).
Republic of Indonesia
The economy of Indonesia is based on export commodity agriculture,
the extraction of petroleum, natural gas and other mineral resources,
wholesale and retail trade, and to an increasing extent, manufacturing.
Indonesia has a presidential republic system of government. President
Suharto assumed power in 1966 following an attempted communist coup and
has been in office since then. The Indonesian Government has maintained a
high degree of stability for the past 26 years. President Suharto was
re-elected in March 1993 to serve a sixth consecutive five-year term.
The Indonesian Government has promoted policies designed to help
develop Indonesia economically and has encouraged foreign investment in
numerous areas where such investment would benefit the Indonesian economy.
Indonesia's foreign investment policy is expressed in the 1967 Foreign
Capital Investment Law. It provides basic guaranties of remittance rights
and protection against nationalization, a framework for incentives and
some basic rules as to the other rights and obligations of foreign
investors. PT-FI's rights and obligations relating to taxes, exchange
controls, repatriation and other matters are governed by the New COW which
was concluded pursuant to the 1967 Foreign Capital Investment Law.
PT-FI has had and continues to enjoy a good working relationship with
the Indonesian Government. PT-FI's mining complex was Indonesia's first
copper mining project and was the first major foreign investment made in
Indonesia following the new economic development program instituted by the
Suharto administration in 1967. PT-FI works closely with the various
levels of the Indonesian Government in development efforts in the vicinity
of its operations. PT-FI incurs significant costs associated with
providing health and educational assistance, job training, employment
opportunities, agricultural assistance and other community development
services and facilities for the Indonesian people living in the areas of
its operations. In 1990, PT-FI established a foundation to provide
educational and work opportunities for the benefit of the people of Irian
Jaya. PT-FI has contributed or will contribute at least $10 million to
the foundation for community projects over the next several years. PT-FI
also has in place a long-term business development program to provide
financing for new and emerging businesses, many of which are expected to
be suppliers of goods and services for PT-FI's operations. Over time,
PT-FI anticipates investing $25 million in this program.
FCX has the benefit of political risk insurance from the Overseas
Private Investment Corporation, the Multilateral Investment Guaranty
Agency and commercial insurers, where available, which covers a portion of
its investment in PT-FI. The insurance is primarily designed to cover
certain breach of contract risks.
Research and Development
FTX has maintained engineering and mine development groups in New
Orleans, Louisiana, which provide the engineering, design and construction
supervision activities required to implement new ventures and apply
improvements to existing operations of PT-FI. In February 1993, FTX
outsourced its corporate engineering, research and development, corporate
environmental and corporate safety functions and, to that end, contracted
with a new company initially owned and staffed by former employees of FTX,
Crescent Technology, Inc., that will furnish similar services to PT-FI.
Environmental Matters
The management of FCX believes that it is in compliance with the
environmental laws, rules and regulations in Indonesia and Spain,
respectively. PT-FI had a team of environmental scientists from a
leading Indonesian scientific institution conduct a study to update its
1984 Environmental Evaluation Study, with particular focus on its
66,000 MTPD expansion program. The study has been submitted to the
Indonesian Government. In February 1994, the Indonesian Government
approved an environmental impact study, submitted by PT-FI, with
respect to the proposed expansion of copper production to 115,000 MTPD.
It is possible that both the Indonesian Government and the government
of Spain could revise their environmental laws and/or regulations
periodically. The impact, if any, of such possible revisions on PT-FI's
and RTM's operations, respectively, cannot be accurately predicted.
Both PT-FI and RTM, through FTX, maintain insurance coverage in
amounts deemed prudent for certain types of damages associated with
environmental liabilities which arise from sudden, unexpected and
unforeseen events.
PT-FI has made, and continues to make, expenditures at its operations
for protection of the environment. Public emphasis on environmental
matters can be expected to require both PT-FI and RTM to incur additional
costs, which will be charged against income from future operations. On
analyzing its operations in relation to current and presently anticipated
environmental requirements, neither PT-FI nor RTM anticipates that these
investments will have a significant adverse impact on its future
operations, liquidity, capital resources or financial position.
Employees
In order to allow access to the FTX employee benefit plans for United
States citizens employed full time in PT- FI's business, such persons are
formally employed by a United States subsidiary of FTX. For all
operational purposes, however, such individuals are regarded as employees
of PT-FI and references herein to PT-FI employees include such
individuals.
FCX, PT-FI and FTX are parties to a Management Services Agreement
pursuant to which FTX furnishes various management services to FCX and
PT-FI. See "Relationship of the FCX Group with the FTX Group--Management
Services Agreement."
As of December 31, 1993, PT-FI had a total of 6,054 employees
(approximately 94% Indonesian), compared with 5,300 employees
(approximately 92% Indonesian) at year-end 1992. In addition, as of
December 31, 1993, PT-FI had approximately 6,600 contract workers, most of
whom were Indonesian. Approximately 40% of PT-FI's Indonesian employees
are members of the All Indonesia Workers' Union, which operates under
Indonesian Government supervision, and with which PT-FI has a labor
agreement running until September 30, 1995 covering PT-FI's hourly paid
Indonesian employees. PT-FI has experienced no work stoppages in recent
years, and relations with the union have generally been good. The
management of FCX believes that PT-FI has good relations with all other
personnel employed in its operations.
Competition
PT-FI competes with other mining companies in connection with the
sale of its mineral concentrates and the recruitment and retention of
qualified personnel. Some competing companies possess financial resources
equal to or greater than those of PT-FI. The management of FCX believes
that PT-FI is one of the lowest cost copper producers in the world, taking
into account customary by-product credits for related gold and silver
production.
Legal Proceedings
Although each of FCX and PT-FI from time to time is involved in
various legal proceedings of a character normally incident to the ordinary
course of its business, the management of each of FCX and PT-FI believes
that the potential liability in any known pending or threatened proceeding
will not have a material adverse effect on the financial condition or
results of operations of FCX or PT-FI, respectively. Each of FCX and
PT-FI, through FTX, maintains liability insurance to cover some, but not
all, potential liabilities normally incident to the ordinary course of its
business, as well as other insurance coverages of the types customary in
its business, with such coverage limits as management deems prudent.
BUSINESS OF THE ISSUER
The Issuer is a wholly owned subsidiary of FCX that has been
organized for the purpose of issuing the Guaranteed Notes and to lend
the net proceeds thereof to AFIC and one or more Infrastructure
Affiliates. The Indenture prohibits the Issuer from engaging in any
business activities other than issuing the Guaranteed Notes and
applying the proceeds therefrom as provided in the Indenture, enforcing
its rights under the PT-FI Note and taking such actions as are called
for by the Indenture. The Indenture also prohibits the Issuer from
issuing any additional securities. The Issuer was incorporated in The
Netherlands in 1994.
AFIC and any Infrastructure Affiliate will use any of the net
proceeds loaned by the Issuer to purchase certain existing and new
infrastructure assets that are part of the EIP. The majority
shareholder of AFIC is, and the majority shareholder of any
Infrastructure Affiliate will be, ALatieF, which is part of ALatieF
Group, a major Indonesian retail and property management company. The
acquired assets will be managed by AFIC or an Infrastructure Affiliate
and will be made available to PT-FI and its employees and designees
under arrangements that will provide the shareholders of AFIC or such
Infrastructure Affiliate with a guaranteed minimum return on
investment. See "Master Services Agreements."
AFIC and one or more Infrastructure Affiliates are expected to
purchase an aggregate of approximately $180 million in additional
assets. Funding will be provided by equity contributions from AFIC's
shareholders ($60 million) and debt ($120 million, virtually all of
which will be funded with the net proceeds of the Guaranteed Notes
offered hereby).
The location of PT-FI's operations in a remote and undeveloped area
requires that such operations be virtually self-sufficient. The
facilities currently include an airport, a heliport, a 119 kilometer road
with bridges and tunnels, an aerial service tramway to transport
personnel, equipment and supplies to the mines, a hospital and two town
sites with schools, housing and other required facilities sufficient to
support approximately 12,000 persons. In conjunction with the expansion
of the mining and processing facilities to 115,000 MTPD, the first phase
of the EIP is currently being implemented.
The first purchase of assets by AFIC was completed in December 1993.
Most of the assets purchased are located at Tembagapura, on the access
road to PT-FI's mining area. The buildings purchased include
dormitory-style residential properties and associated food service
facilities, office, security, shop and warehouse facilities, recreation
centers and a shopping center.
Future purchases are expected to cover similar existing facilities
serving PT-FI's Indonesia operations. In addition, as part of the EIP,
PT-FI is planning and developing a new residential community, New Town,
to relieve development constraints at Tembagapura. New Town will offer a
variety of commercial, administrative civic and cultural facilities. The
commercial cluster will include a department store, supermarket, bank,
restaurants and a variety of retail service facilities. The first phase
of the New Town development is planned to include housing for 3,500
persons and is scheduled to be completed by December 1995. A light
industrial park, to be located south of New Town, is planned to serve as
the "hub" distribution, logistics and support staging area for PT-FI's
current and future operations.
Finally, to accommodate the increasing number of visitors and guests
of PT-FI, an 84-room guest house is being developed at Timika. This
facility will include a main lodge building, guest cottage and
recreational facilities. Completion is scheduled for June 1994. See
"Business of FCX--Transportation, Other Infrastructure and Recent
Infrastructure Developments."
Certain assets to be purchased by AFIC and any Infrastructure
Affiliate have not been identified and the Issuer will have no control
over the selection of such assets. Under the Joint Venture Agreement (as
defined below), PT-FI has certain rights to substitute the assets sold to
AFIC. See "Special Considerations -- Certain Infrastructure Properties
Not Yet Identified" and "--AFIC."
Master Services Agreements
AFIC and any Infrastructure Affiliate will enter into one or more
Master Services Agreements with PT-FI pursuant to which AFIC or such
Infrastructure Affiliate will make available to PT-FI, its affiliates and
employees or designated third parties, certain infrastructure assets
acquired from PT-FI and certain services in connection therewith. The
Master Services Agreements will provide that the fees paid by PT-FI for
use of such assets for any period will not be less than the reasonable
expenses of AFIC or such Infrastructure Affiliate for such period,
including, without limitation, principal of, interest on and Underlying
Additional Amounts with respect to the Underlying Notes. PT-FI has
expressly agreed that all amounts required to be paid with respect to
AFIC's outstanding debt, the Underlying Notes and any Master Services
Agreement will be deemed to be "reasonable" for this purpose; however, if
AFIC or any Infrastructure Affiliate incurs "unreasonable" expenses,
PT-FI's covenant would not require reimbursement in respect of those
amounts, with the effect that AFIC or such Infrastructure Affiliate, after
paying those expenses, would be left with insufficient funds to make
required payments on the Underlying Notes. All payments by PT-FI under the
Master Services Agreements will be made in U.S. dollars. AFIC and any
Infrastructure Affiliate will pledge as security for the Underlying
Notes their rights under their respective Master Services Agreements to
the payment of fees for the use of such infrastructure assets and to
amounts paid with respect to obligations under the Underlying Notes.
The Master Services Agreements may not be amended without the consent
of the holders of a majority in outstanding principal amount of the
Guaranteed Notes unless (i) such amendment does not reduce the amounts
payable by PT-FI and third parties to AFIC or an Infrastructure Affiliate
for any period prior to the stated maturity of the Guaranteed Notes to an
amount less than an amount sufficient to cover all of the expenses of AFIC
or such Infrastructure Affiliate with respect to the Underlying Notes for
such period and (ii) such amendment does not otherwise adversely affect
the interests of the holders of the Guaranteed Notes. See "Description of
the Guaranteed Notes."
AFIC
Pursuant to the Joint Venture Agreement between ALatieF and PT-FI
dated March 11, 1993 (the "Joint Venture Agreement"), ALatieF and PT-FI
agreed to organize AFIC for the purpose of purchasing from PT-FI and
operating certain existing and new infrastructure properties that are part
of the EIP. It is expected that a similar agreement will be entered into
with respect to each Infrastructure Affiliate. AFIC's purpose is to serve
the residential and community needs associated with the expected long-term
expansion of PT-FI's operations and to facilitate the long-term economic
development of the area of Irian Jaya in which its mining and milling
operations are located.
PT-FI and ALatieF initially purchased shares of AFIC's equity for an
aggregate price of $30 million. ALatieF currently owns two-thirds of the
outstanding shares and PT-FI currently owns one-third. ALatieF and PT-FI
have agreed to contribute an additional $60 million to AFIC's authorized
capital in the same proportion as their current share ownership in
installments through December 31, 1995. If either PT-FI or ALatieF
defaults on the payment of the subscription price, the non-defaulting
party will have the right to subscribe for the shares to be subscribed for
by the defaulting party and to acquire all (but not part) of the
defaulting party's shares. See "Special Considerations -- Sources of
Capital."
PT-FI has agreed to be responsible for arranging financing for AFIC
in a principal amount of up to $180 million for a seven-year period ending
in 2000. Pursuant to this commitment, PT-FI arranged the loan under the
AFIC Credit Agreement in the principal amount of $60 million and is
required to arrange additional financing in the principal amount of $120
million. AFIC will be solely responsible for refinancing at the end of the
initial seven-year term.
Pursuant to the Joint Venture Agreement, ALatieF and PT-FI have
generally agreed not to transfer any shares of AFIC to any other person,
subject to certain exceptions and except, in the case of ALatieF, with the
consent of AFIC's shareholders. Any transfer of shares pursuant to the
Joint Venture Agreement is subject to the receipt of all necessary
approvals of the Indonesian Government. Each party may transfer its
shares to an affiliate that has a net worth acceptable to the other party
(or if the transferring party undertakes to guarantee such affiliate's
fulfillment of its obligations under the Joint Venture Agreement).
ALatieF has the non-transferable option to acquire all of AFIC's
shares owned by PT-FI or any of its affiliates on or after October 26,
2000. The purchase price for such shares would be equal to the par value
of such shares if the option is exercised on October 26, 2000 or the fair
market value of such shares (determined in accordance with the Joint
Venture Agreement) if exercised thereafter.
ALatieF has agreed that if it wishes to accept a bona fide offer from
a third party to purchase any or all of its shares of AFIC, PT-FI will
have a right of first refusal to acquire all of the shares proposed to be
sold on the terms and conditions specified in the offer. If the party
owning a majority of AFIC's shares of capital stock (currently ALatieF)
receives an offer from an Indonesian person (or a group including a
certain portion of Indonesian persons) to purchase all of such party's
shares, such party will, if requested by the other party, seek to include
the other party's shares in that sale.
If ALatieF elects to pursue a public offering of the shares of AFIC,
the parties have agreed to cooperate to obtain all approvals necessary or
desirable for AFIC to be authorized to offer its shares to the public. If
ALatieF elects to have any of AFIC's shares then owned by it included in
such offering, PT-FI has agreed to allow the same percentage of its shares
of AFIC to be included in such offering.
The Joint Venture Agreement provides that AFIC's Board of Directors
will consist of a maximum of three members, all of whom will be nominated
by ALatieF, and the Board of Commissioners will consist of at least three
members who will be nominated by ALatieF and PT-FI in proportion to their
respective holdings of shares of AFIC. The Board of Directors of AFIC is
responsible for the management and day-to-day operations of AFIC. The
approval of a majority of the members of the Board of Commissioners,
including at least one Commissioner elected from persons nominated by
PT-FI, is required before the Board of Directors can cause AFIC to take
certain actions, including (i) adoption of an annual operating and capital
budget, (ii) borrowing money, binding AFIC as guarantor or granting
certain security interests, (iii) acquiring or selling property having a
value in excess of limits set by the Board of Commissioners from time to
time, (iv) proposing any amendment to AFIC's Articles of Association, (v)
participating in any other business enterprise, including establishing any
subsidiary or (vi) distributing to shareholders the proceeds arising from
the sale of any infrastructure assets.
PT-FI and ALatieF have agreed to cause AFIC to use its equity capital
contributed by the parties and the proceeds of the financing to acquire
infrastructure properties from PT-FI for an aggregate purchase price of
$180 million in addition to the $90 million of infrastructure assets
previously acquired by AFIC. The purchase price of such assets will be
equal to the audited construction cost thereof. If AFIC acquires
infrastructure assets that are under construction, AFIC is required to pay
to PT-FI a construction management fee equal to 2.5% of the purchase price
thereof, unless waived by PT-FI.
The purchase price for each asset will be equal to the total cost of
construction of the asset, and the total price for all assets listed in
the Joint Venture Agreement (including those previously acquired) will be
$270 million. If the actual cost of the assets to be sold to AFIC is less
than $270 million, PT-FI will make available for acquisition by AFIC
additional properties approved by ALatieF so that the cost of all acquired
infrastructure properties is not less than $270 million.
PT-FI and AFIC have agreed to cooperate with each other to cause the
geographical area encompassing the site of AFIC's assets to be established
as an economic development zone so that they will enjoy certain benefits,
including relief from certain taxes and duties. Although an economic
development zone has not been established, PT-FI has received letters from
the Director General of Taxes and the Director General of Customs and
Excise which provide PT-FI relief from postponed import duties,
value-added taxes and other taxes that would have become due at the time
of any transfer of assets to AFIC.
The Joint Venture Agreement provides that PT-FI may at any time
reacquire any asset previously transferred to AFIC if PT-FI determines
that a commercially exploitable deposit of minerals exists under, near or
as part of such asset, if PT-FI requires all or part of such asset as the
location of equipment or other facilities in connection with its mining
and milling activities, if PT-FI determines that the asset has become or
is likely to become a physical hazard to any person or property or if
PT-FI reasonably determines that such reacquisition is necessary or
advisable to enable it to comply with the New COW. In the event of such a
reacquisition, AFIC has the option to require PT-FI to construct a
property substantially similar to the reacquired asset, substitute another
asset if available or pay a repurchase price equal to the greater of the
fair market value of the asset or the debt encumbering such asset.
With respect to each infrastructure asset acquired from PT-FI,
AFIC has agreed to comply fully with the standards set forth in the
purchase and sale agreement (or a services agreement entered into for
such property), for the management, operation and maintenance of such
property. The Joint Venture Agreement provides that the revenues
received by AFIC under such agreements and from third parties will
result in an annual after-tax cash flow to AFIC of not less than 15% on
equity and 10% on debt on the original purchase price of the acquired
infrastructure assets in each of the first seven years ending December
2000. Thereafter, for so long as PT-FI conducts mining operations in
that area of Irian Jaya where the acquired infrastructure assets are
located, the rate of return will be fixed at 11.67% per annum after tax
applied to the original purchase price of the acquired infrastructure
assets, calculated in accordance with the Joint Venture Agreement. PT-
FI has agreed that until December 2000, subject to certain exceptions,
it will subordinate or assign its share of any profits distributed by
AFIC to ALatieF so that ALatieF will receive 100% of all distributable
cash flow of AFIC in the most tax effective manner for both parties.
MANAGEMENT OF FCX
Set forth below is information regarding the names, ages, principal
occupations, other directorships and positions over the past five years of
the directors and executive officers of FCX. Certain information
regarding compensation and securities ownership of these directors and
officers is incorporated by reference. See "Incorporation of Documents By
Reference."
Directors
The following table shows, as of December 31, 1993, the ages,
principal occupations and employment during the past five years, other
directorships and positions with FCX of each of its current directors, and
the years in which they first became directors of FCX. None of the
organizations referred to in such table is an affiliate of FCX except for
FTX and PT-FI.
Principal Occupations Year First
Other Directorships and Positions Elected a
Name of Director Age Over the Past Five Years Director
- ----------------- ---- --------------------------------- ----------
Leland O. Erdahl 65 Consultant. President and Chief 1988
Executive Officer of Albuquerque
Uranium Corp., producer and seller
of uranium concentrates, until
1992. President and Chief Executive
Officer of Stolar Inc., mining
industry services, products, and
equipment, until 1991. Director of
Canyon Resources Corporation, Hecla
Mining Company and Original Sixteen
to One Mine, Inc. Trustee of Freedom
Investment Trusts I, II and III.
Ronald Grossman 57 Consultant, Commissioner of PT-FI. 1988
Senior Vice President of FCX until
1993. Executive Vice President and
Chief Financial Officer of FTX
until 1993. Senior Vice President
of FTX until 1992.
Rene L. Latiolais 51 Director, President and Chief 1993
Operating Officer of FTX. Commissioner
of PT-FI. Executive Vice President
of FTX until 1993. Senior Vice
President of FTX until 1992.
George A. Mealey 60 President and Chief Executive Officer 1988
of FCX. Executive Vice President of
FTX. Director and Executive Vice
President of PT-FI.
James R. Moffett 55 Chairman of the Board of FCX. 1992
Director, Chairman of the Board and
Chief Executive
Officer of FTX. President Commissioner
of PT-FI.
Wolfgang F. Siege 61 Senior Vice President of Kreditanstalt 1988
fur Wiederaufbau, a bank owned by the
Federal Republic of Germany (the "FRG")
and the states comprising the FRG.
Elwin E. Smith 71 Sole proprietor of Elwin Smith Inter- 1988
national, consultants to global
industrial corporations.
Eiji Umene 68 Executive Advisor of Nippon Steel 1992
Corporation. Managing Director of
Nippon Steel Corporation and President
of its subsidiary, Nippon Steel
U.S.A., Inc., until 1989. Director of
Schlumberger Limited.
Executive Officers
In addition to the elected executive officers of FCX (the "Elected FCX
Executive Officers"), certain officers and employees of affiliates of FCX are
deemed by FCX to be executive officers of FCX (the "Designated FCX Executive
Officers") for purposes of the federal securities laws. Listed below are the
names and ages, as of December 31, 1993, of each of the Elected FCX Executive
Officers and the Designated FCX Executive Officers, together with the
principal positions and offices with FCX, FTX and PT-FI held by each. All
officers of FCX, FTX and PT-FI are elected or appointed for one-year terms,
subject to earlier death, resignation or removal.
Name Age Position or Office
---- --- -------------------------------
Richard C. Adkerson 47 Senior Vice President of FCX.
Senior Vice President of FTX.
Commissioner of PT-FI.
John G. Amato 50 General Counsel of FCX. General
Counsel of FTX.
Commissioner of PT-FI.
Richard H. Block* 43 Senior Vice President of FTX.
Thomas J. Egan* 49 Senior Vice President of FTX.
Charles W. Goodyear 36 Senior Vice President of FCX.
Senior Vice President of FTX.
Commissioner of PT-FI.
Hoediatmo Hoed* 54 President Director of PT-FI.
W. Russell King* 44 Senior Vice President of FTX.
Rene L. Latiolais* 51 Director of FCX. Director,
President and
Chief Operating Officer of FTX.
Commissioner
of PT-FI.
George A. Mealey 60 Director, President and Chief
Executive Officer of FCX. Executive
Vice President of FTX. Director and
Executive Vice President of PT-FI.
James R. Moffett 55 Director and Chairman of the Board
of FCX. Director, Chairman of the
Board and Chief Executive Officer
of FTX. President Commissioner of
PT-FI.
- --------------------
* This individual is a Designated FCX Executive Officer and not an Elected FCX
Executive Officer. He is deemed by FCX to be a Designated FCX Executive
Officer solely for purposes of the federal securities laws in view of his
position and responsibilities as an executive officer of FTX or PT-FI as
applicable; he holds no actual position as an officer of FCX.
The individuals listed above, with the exceptions of Messrs. Adkerson,
Amato and Goodyear, have served FCX, FTX or PT-FI in various executive
capacities for at least the last five years. Until 1989, Mr. Adkerson was a
partner in Arthur Andersen & Co. and Mr. Goodyear was a Vice President of
Kidder, Peabody & Co. Incorporated, an investment banking firm. During the
past five years and prior to that period, Mr. Amato was engaged in the private
practice of law and served as outside counsel to FCX, FTX and PT-FI.
RELATIONSHIP OF THE FCX GROUP
WITH THE FTX GROUP
Ownership of Stock
FTX currently owns approximately 70% of the combined total outstanding
shares of FCX's Class A Common Stock and Class B Common Stock. Through this
ownership, FTX has, and will continue to have, the ultimate ability to control
FCX and, through the direct ownership by FCX of 81.28% of PT-FI's capital
stock, to control PT-FI. FTX and its consolidated subsidiaries other than FCX
and PT-FI (the "FTX Group") have and will continue to have a variety of other
corporate relationships with FCX and PT-FI. In addition to such other
obligations as it may assume, FTX, as a controlling stockholder of FCX, has a
fiduciary obligation under Delaware law to act in good faith and to exercise
its rights of control in a manner that is fair and reasonable to the other
stockholders of FCX.
FTX, as FCX's ultimate controlling stockholder, controls and will
continue to have the power to control the election of directors and decisions
with respect to the use of cash generated by FCX and its subsidiaries (the
"FCX Group"), including those with respect to the FCX Group's dividend policy.
The determination of FTX as to the use of cash generated by the FCX Group may
be affected by factors related to the cash requirements of the FTX Group. FTX
also has sufficient voting control under Delaware corporate law to effect
major corporate actions such as "going private" transactions and mergers
without the concurrence of other stockholders.
Although PT-FI has in the past relied on FTX to provide many management,
administrative and technical services and will continue, under the Management
Agreement discussed below, to make use of these services, it has always
operated as a separate unit within FTX and will continue to do so.
Under the terms of a credit agreement dated as of June 1, 1993, as
amended (the "PT-FI Credit Agreement"), failure by FTX to maintain control of
PT-FI or direct or indirect ownership of at least 50.1% of the PT-FI common
stock would allow acceleration of the indebtedness thereunder. Similarly, for
FCX to retain the benefits of insurance provided by the Overseas Private
Investment Corporation, it is necessary for at least a majority of FCX's
capital stock and of each class thereof to be held beneficially by U.S.
persons.
Conflicts of Interests
FTX is involved in the exploration for and extraction of natural
resources. To avoid conflicts between the interests of the various FTX
entities with respect to any future opportunities which may arise, it is
anticipated that the FCX Group will have a priority with respect to copper
exploration, development and mining in Indonesia. If the FCX Group determines
for any reason not to pursue any opportunity within its area of priority, then
FTX will be free to offer it to another FTX entity as it sees fit. It may be
determined that it would be impractical for the FCX Group to act with respect
to a particular exploration or development opportunity outside the mining area
covered by the contract of work which preceded the New COW. For example, due
to the size of the exploration area covered by the New COW, development of
certain mineral prospects may be beyond the financial or other resources of
FCX and might be undertaken by FTX alone or in conjunction with one or more
third parties, which could include one of FTX's other subsidiaries. In
addition, acquisition of certain mineral prospects or mining companies may be
beyond the financial or other resources of FCX and might be undertaken by FTX
alone or in conjunction with one of its other subsidiaries. Such development
or acquisitions could lead to competition between the FCX Group and members of
the FTX Group.
Management Agreement
Pursuant to the terms of a Management Services Agreement (the "Management
Agreement"), FTX furnishes general executive, administrative, financial,
accounting, legal, environmental, insurance, personnel, engineering, tax,
research and development, sales and certain other services to FCX and PT-FI.
The nature and extent of the services provided under the Management Agreement
are similar to those historically provided by FTX. The services of each of
the executive officers of FCX and certain officers and employees of PT-FI are
provided to FCX and PT-FI under the Management Agreement.
The Management Agreement is subject to termination by any party on any
December 31 if six months' prior written notice is given. FCX and PT-FI have
agreed to reimburse FTX at FTX's cost, including allocated overhead, for such
services on a monthly basis. The Management Agreement also provides for the
use of the services of certain of FCX's and PT-FI's employees by FTX and its
subsidiaries on a similar cost reimbursement basis. The cost of such services
is reimbursed monthly. The total amount charged by FTX to FCX and PT-FI,
excluding any amounts paid with respect to employees seconded to PT-FI from
FTX, was $33.4 million, $44.9 million and $49.0 million (excluding $10.7
million of restructuring costs) for the years ended December 31, 1991, 1992
and 1993, respectively.
In February 1993, FTX outsourced its corporate engineering, research and
development, environmental and safety functions and, to that end, contracted
with a new company initially owned and staffed by former employees of FTX.
The new company will furnish services similar to services provided by FTX in
the past, and is anticipated to save PT-FI significant costs.
Debt Instruments
The FTX Group maintains a revolving credit agreement with a syndicate of
banks, dated as of June 1, 1993, as amended and restated (the "FTX Credit
Agreement"), to provide funds for FTX's general corporate purposes. The FTX
Credit Agreement provides that, under certain circumstances relating to excess
borrowings thereunder or events of default thereunder, FTX and such affiliates
must pledge stock owned by them, including the Class A Common Stock and Class
B Common Stock of FCX owned directly by FTX, to secure outstanding borrowings
under the FTX Credit Agreement. As of the date of this Prospectus, no FCX
stock was pledged under the FTX Credit Agreement. To the extent FTX and its
other subsidiaries incur additional debt, the amount available to PT-FI under
the PT-FI Credit Agreement may be reduced.
DESCRIPTION OF THE GUARANTEED NOTES
General
The Guaranteed Notes will be issued under an indenture to be dated as
of April 15, 1994 (the "Indenture"), by and among the Issuer, FCX and
Chemical Bank, as Trustee (the "Trustee"). FCX will provide, without
charge, to each person, including any beneficial owner, to whom this
Prospectus is delivered, upon such person's written or oral request, a copy
of the Indenture relating to the Guaranteed Notes and the Guaranty. Any
such request should be delivered to FCX, c/o FTX at 1615 Poydras Street,
New Orleans, Louisiana 70112 (telephone (504) 582-4000), attention:
Michael C. Kilanowski, Jr., Secretary. The following summaries of certain
provisions of the Indenture do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all the provisions
of the Indenture, including the definitions therein of certain terms
included herein. Wherever particular sections or defined terms of the
Indenture are referred to herein, such sections or defined terms shall be
incorporated herein by reference. Unless the context otherwise requires,
references to sections and defined terms refer to sections and defined
terms of the Indenture.
The Guaranteed Notes will be senior obligations of the Issuer
unconditionally guaranteed on a senior basis by FCX, limited to $120 million
in aggregate principal amount. The Guaranteed Notes will be issued in
registered form, without coupons, in denominations of $1,000 and any integral
multiple thereof. The principal of, premium, if any, Additional Amounts, if
any, and interest on the Guaranteed Notes will be payable, and the Guaranteed
Notes will be exchangeable and transferable, at the office or agency of the
Issuer maintained for such purpose in The City of New York; provided, that
payment of interest may be made at the option of the Issuer by check mailed to
the holders of the Guaranteed Notes. Unless otherwise designated by the
Issuer, the office of the Trustee maintained for such purpose shall be the
Trustee's office or agency in The City of New York. No service charge will be
made for any registration of transfer or exchange of Guaranteed Notes, but the
Issuer may require payment of a sum sufficient to cover any tax, assessment or
other governmental charge payable in connection therewith.
The Indenture contains no restrictions on the ability of FCX to incur
additional debt or to pay dividends or other distributions to its
stockholders.
Maturity, Interest and Principal
The Guaranteed Notes will mature on April 15, 2001. Interest on the
Guaranteed Notes will accrue at a rate of 9 3/4% per annum, and will be
payable semi-annually on each October 15 and April 15 commencing October
15, 1994, to the holders of record of the Guaranteed Notes on the
immediately preceding October 1 and April 1.
There is currently no United States, Netherlands or Indonesian
withholding tax applicable to payments on the Guaranteed Notes. If any such
withholding tax is imposed in the future, the Issuer will, subject to certain
exceptions, pay Additional Amounts so that the net amount received by the
holder of a Guaranteed Note after such withholding will be equal to the amount
that would have been received if no tax had been applicable.
"Additional Amounts" means, subject to certain limitations and exceptions
(as set forth below), payment by the Issuer to a holder of a Guaranteed Note
of such amounts as may be necessary so that every net payment of principal of,
or interest on, the Guaranteed Notes, after deduction or withholding for or on
account of any present or future tax, assessment or other governmental charge
imposed upon such holder by reason of the making of such payment or deemed
payment by the United States, The Netherlands and Indonesia or any political
subdivision or taxing authority of or in any of them, will not be less than
the amount provided for in the Guaranteed Notes. However, the payments for or
on account of the following shall be excluded from the above definition of
"Additional Amounts":
(a) any tax, assessment or other governmental charge imposed by the
United States or any political or taxing authority thereof or therein
which would not have been imposed but for (i) the existence of any present
or former connection between such holder (or between a fiduciary, settlor,
beneficiary, member or shareholder of, or possessor of a power over, such
holder, if such holder is an estate, trust, partnership or corporation)
and the United States, including, without limitation, such holder (or such
fiduciary, settlor, beneficiary, member, shareholder or possessor) being
or having been a citizen or resident thereof or being or having been
present or engaged in a trade or business therein or having had a
permanent establishment therein, (ii) such holder's past or present status
as a personal holding company, foreign personal holding company or
controlled foreign corporation with respect to the United States or as a
corporation which accumulates earnings to avoid United States federal
income tax or (iii) such holder's past or present status as the actual or
constructive owner of 10% or more of the total combined voting power of
all classes of stock entitled to vote of FCX;
(b) any tax, assessment or other governmental charge imposed by The
Netherlands or any political subdivision or taxing authority thereof or
therein which would not have been imposed but for the existence of any
present or former connection between such holder (or between a fiduciary,
settlor, beneficiary, member or shareholder of, or possessor of a power
over, such holder, if such holder is an estate, trust, partnership or
corporation) and The Netherlands, including, without limitation, such
holder (or such fiduciary, settlor, beneficiary, member, shareholder or
possessor) being or having been a citizen, resident or deemed resident
thereof or being or having been present or engaged in a trade or business
therein or having had a permanent establishment therein;
(c) any tax, assessment or other governmental charge imposed by
Indonesia or any political subdivision or taxing authority thereof or
therein which would not have been imposed but for the existence of any
present or former connection between such holder (or between a fiduciary,
settlor, beneficiary, member or shareholder of, or possessor of a power
over, such holder, if such holder is an estate, trust, partnership or
corporation) and Indonesia including, without limitation, such holder (or
such fiduciary, settlor, beneficiary, member, shareholder or possessor)
being or having been a citizen or resident thereof or being or having been
present or engaged in a trade or business therein or having had a
permanent establishment therein;
(d) any tax, assessment or other governmental change that would not
have been imposed but for the presentation of a Guaranteed Note for
payment on a date more than 15 days after the date on which such payment
became due and payable or the date on which payment thereof is duly
provided for, whichever occurs later;
(e) any estate, inheritance, gift, sales, transfer, personal
property or similar tax, assessment or other governmental charge;
(f) any tax, assessment or other governmental charge which is
payable otherwise than by withholding from payments of the principal of or
interest on a Guaranteed Note;
(g) any tax, assessment or other governmental charge which would not
have been imposed but for the failure of the holder to comply with
certification, information or other reporting requirements concerning the
nationality, residence, identity or connections of the holder or
beneficial owner of such Guaranteed Note (i) with the United States, if
the tax, assessment or governmental charge is imposed by the United States
or any political subdivision or taxing authority thereof or therein, (ii)
with The Netherlands, if the tax, assessment or governmental charge is
imposed by The Netherlands or any political subdivision or taxing
authority thereof or therein, and (iii) with Indonesia, if the tax,
assessment or governmental charge is imposed by Indonesia or any political
subdivision or taxing authority thereof or therein, if in each case such
compliance is required by statute or by regulation of the respective
taxing authority to establish entitlement to an exemption from such tax,
assessment or other governmental charge; or
(h) any combination of items (a), (b), (c), (d), (e), (f) and (g);
nor shall Additional Amounts be paid to any holder who is a fiduciary or
partnership or other than the sole beneficial owner of the Guaranteed Notes to
the extent the beneficiary or settlor with respect to such fiduciary or a
member of such partnership or a beneficial owner of the Guaranteed Notes would
not have been entitled to payment of Additional Amounts had such
beneficiary, settlor, member or beneficial owner been the holder of the
Guaranteed Note.
Guaranty
Payment of the principal of, premium, if any, Additional Amounts, if any,
and interest on the Guaranteed Notes as well as any obligations of FCX to
repurchase the Guaranteed Notes following any Repurchase Event (as defined
below) or an Asset Disposition Offer (as defined below) will be
unconditionally guaranteed on a senior basis by FCX.
Application of Proceeds under Indenture
The proceeds of the Offering of the Guaranteed Notes will be loaned by
the Issuer to AFIC and one or more Infrastructure Affiliates and used to
purchase infrastructure assets from PT-FI. See "Use of Proceeds." The
Guaranteed Notes will not be secured by any infrastructure assets or the
Underlying Notes. However, the obligations of AFIC and each Infrastructure
Affiliate to the Issuer pursuant to the Underlying Notes will be secured by
a pledge of the Master Services Agreements, as described below. Prior to
the time that AFIC or an Infrastructure Affiliate purchases infrastructure
assets from PT-FI, the proceeds from the Guaranteed Notes will be loaned to
PT-FI on a senior unsecured basis, as described below. The Indenture
permits the Issuer to subsequently advance to PT-FI, AFIC or an
Infrastructure Affiliate the proceeds of any repayments of the PT-FI Note
or the Underlying Notes. The terms of the Underlying Notes are designed,
together with the PT-FI Note, to provide the Issuer with funds in amounts
and at times sufficient to allow the Issuer to meet all of its obligations
on the Guaranteed Notes.
PT-FI Note
The proceeds from the sale of the Guaranteed Notes will initially be
loaned by the Issuer to PT-FI on a senior, unsecured basis, and PT-FI will
issue the PT-FI Note to the Issuer. The PT-FI Note will initially be in an
aggregate principal amount equal to the aggregate principal amount of the
Guaranteed Notes. The PT-FI Note will bear interest at a rate equal to the
interest rate on the Guaranteed Notes plus up to .25% per annum, payable
semi-annually on the interest payment dates on the Guaranteed Notes. The PT-FI
Note will require PT-FI to pay to the Issuer such Underlying Additional
Amounts as will allow the Issuer to pay any Additional Amounts that may be
required to be paid by the Issuer on the Guaranteed Notes. The PT-FI Note will
mature on August 14, 2001. The PT-FI Note will be subject to prepayment, in
whole or in part, upon demand of the Issuer at any time. PT-FI will not have
the right to prepay voluntarily the PT-FI Note. PT-FI may, with the Issuer's
consent, reborrow funds it has previously repaid to the Issuer, and the
principal amount of the PT-FI Note will be increased accordingly.
Underlying Notes
The proceeds from the sale of the Guaranteed Notes are intended to be
loaned by the Issuer to AFIC and one or more Infrastructure Affiliates to fund
the purchase of infrastructure assets from PT-FI. Certain of the
infrastructure assets to be acquired from PT-FI have not been identified. The
first acquisition of infrastructure assets with the proceeds from the
Guaranteed Notes is anticipated to take place in mid-1994.
Prior to the time that AFIC or an Infrastructure Affiliate purchases
infrastructure assets from PT-FI, it will notify the Issuer of such planned
purchase, the aggregate purchase price for such assets, and the U.S. dollar
amount to be borrowed by AFIC or such Infrastructure Affiliate to fund that
purchase. The Issuer will require PT-FI to repay all or a portion of the PT-FI
Note in an amount equal to the U.S. dollar amount to be loaned by the Issuer
to AFIC or such Infrastructure Affiliate. AFIC or such Infrastructure
Affiliate will issue an Underlying Note in an amount equal to the amount
loaned to it by the Issuer. The repayment of the PT-FI Note and the issuance
of the Underlying Note will occur simultaneously.
The Underlying Notes will be denominated in U.S. dollars, will bear
interest at a rate equal to the interest rate on the Guaranteed Notes plus up
to .25% and will be subject to redemption at any time in whole or in part (i)
in connection with the repayment of the Guaranteed Notes, (ii) to fund a loan
by the Issuer to PT-FI on the same terms as the PT-FI Note or (iii) to fund a
loan by the Issuer to AFIC or an Infrastructure Affiliate on the same terms as
the Underlying Notes.
There is currently a 10% withholding tax applicable to payments on the
Underlying Notes and the PT-FI Note. AFIC, any Infrastructure Affiliate and
PT-FI will pay the Underlying Additional Amounts so that the amount received
by the Issuer after such withholding will be equal to the amount that would
have been received if no such tax had been payable.
"Underlying Additional Amounts" means payment to the Issuer by PT-FI,
AFIC or an Infrastructure Affiliate of such amounts as may be necessary so
that every net payment of principal of, or interest on, the PT-FI Note or any
Underlying Note, as the case may be, after deduction or withholding for or on
account of any present or future tax, assessment or other governmental charge
imposed upon such holder by reason of the making of such payment or deemed
payment by the United States, The Netherlands and Indonesia or any political
subdivision or taxing authority of or in any of them, will not be less than
the amount provided for in the PT-FI Note or such Underlying Note, as the case
may be.
The Underlying Notes will be secured by a pledge by AFIC or the
applicable Infrastructure Affiliate of certain rights under their
respective Master Services Agreement to the payment of fees for the use of
the infrastructure assets acquired with the proceeds of the Underlying
Notes and to amounts paid with respect to obligations under the Underlying
Notes. See "Business of the Issuer--Master Services Agreements." The
Underlying Notes will provide that AFIC or such Infrastructure Affiliate
will not amend, waive or terminate that Master Services Agreement if such
amendment (i) would reduce the amounts payable by PT-FI to AFIC and all
Infrastructure Affiliates for any period prior to the Stated Maturity of
the Guaranteed Notes to an amount less than an amount sufficient to assure
the payment of the principal of, interest on and Underlying Additional
Amounts with respect to, the Underlying Notes or (ii) would in any other
respect have a material adverse effect on the holders of the Guaranteed
Notes, unless in either such case the holders of a majority in principal
amount of the Guaranteed Notes consent to such amendment, waiver or
termination. In addition, payment of amounts under the Master Services
Agreements in respect of principal of, interest on and Underlying
Additional Amounts with respect to, the Underlying Notes shall be made
directly to a U.S. dollar account maintained by the Issuer with Chemical
Bank outside Indonesia.
The Indenture will require the Issuer to take or cause to be taken, all
action required or desirable to maintain good and valid title to the PT-FI
Note and the Underlying Notes. The Indenture will prohibit the Issuer from
amending, waiving or terminating any provisions in the PT-FI Note or the
Underlying Notes other than in connection with a permitted repayment of any
such note. The Issuer will agree in the Indenture to enforce diligently and
expeditiously all of its rights under the PT-FI Note and the Underlying Notes.
Optional Redemption
The Guaranteed Notes are not redeemable at the option of the Issuer or
FCX, except as provided below under ``Tax Redemption.''
Tax Redemption
The Guaranteed Notes may be redeemed, in whole but not in part, at the
option of the Issuer, upon not less than 30 nor more than 60 days' notice, at
the redemption price of 100% of the principal amount plus accrued interest to
the redemption date, if the Issuer, PT-FI, AFIC or any Infrastructure
Affiliate becomes legally obligated, as a result of statutory or regulatory
changes adopted on or after the date hereof generally affecting United States,
Netherlands or Indonesian withholding taxes, to pay amounts on the Guaranteed
Notes, the PT-FI Note or the Underlying Notes, as the case may be, in excess
of amounts required to be paid by the Issuer, PT-FI, AFIC or such
Infrastructure Affiliate on the date of the issuance of the Guaranteed Notes,
PT-FI Note or the Underlying Notes, as the case may be; provided, however,
that (1) no such notice of redemption may be given earlier than 90 days prior
to the earliest date on which the Issuer would be required to pay such
Additional Amounts, or PT-FI, AFIC or any Infrastructure Affiliate would be
required to pay such Underlying Additional Amounts, were a payment in respect
of the Guaranteed Notes, PT-FI Note or the Underlying Notes then due, as the
case may be, and (2) at the time such notice of redemption is given, such
obligation to pay such Additional Amounts or Underlying Additional Amounts
remains in effect. Immediately prior to the publication of any notice of
redemption pursuant to this paragraph, the Issuer shall deliver to the Trustee
(i) a certificate stating that the Issuer is entitled to effect such
redemption and setting forth a statement of facts showing that the conditions
precedent to the right of the Issuer so to redeem have occurred, and (ii) an
opinion of independent legal counsel of recognized standing to the effect that
the Issuer has or will become obligated to pay such Additional Amounts or that
PT-FI, AFIC or any Infrastructure Affiliate, as the case may be, has or will
become obligated to pay such Underlying Additional Amounts, in each case as a
result of such change.
Certain Covenants
Merger and Consolidation
Neither the Issuer nor FCX will merge or consolidate with or into, or
permit any person to consolidate with or merge into the Issuer or FCX, or
convey, sell, transfer, lease or otherwise dispose of all or substantially all
of its assets to any person, unless (i) the resulting, surviving or transferee
person (if not FCX or the Issuer, as the case may be), shall be a person
organized and existing under the laws of the United States or any State
thereof or the District of Columbia except that, if only the Issuer enters
into one of the aforementioned transactions, such person may be a person
organized under the laws of The Netherlands, and such person shall expressly
assume all obligations of the Issuer or FCX, as the case may be, for the
payment of all amounts due in respect of the Guaranteed Notes and the
performance of the Issuer's or FCX's, as the case may be, obligations under
the Indenture by supplemental indenture satisfactory to the Trustee pursuant
to the Indenture, (ii) immediately after giving effect to such merger,
consolidation, sale or conveyance (and treating any Debt which becomes an
obligation of, or any Lien which applies to any assets of, such successor
entity or any Subsidiary of FCX or the Issuer as a result of such transaction
as having been incurred by such entity or such Subsidiary at the time of such
transaction), the Issuer or FCX, as the case may be, or such successor person
shall not be in default in the performance of any covenant or condition of the
Indenture to be performed or observed by the Issuer or FCX, as the case may
be, and no Event of Default and no event which, after notice or lapse of time
or both, would become an Event of Default shall have occurred and be
continuing and (iii) the Issuer and FCX shall each have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such merger, consolidation, sale or conveyance and such supplemental indenture
(if any) comply with the Indenture.
Limitation on Liens
FCX will not create, incur, assume or suffer to exist any Lien upon any
Capital Stock of the Issuer or PT-FI owned by FCX or any of its Subsidiaries
securing any Indebtedness unless contemporaneously therewith effective
provision is made to secure the Guaranteed Notes equally and ratably with such
Indebtedness (or if such Indebtedness is subordinate in right of payment to
the Guaranteed Notes, then the Guaranteed Notes are to be so secured prior to
such Indebtedness) for so long as such Indebtedness is so secured.
"Capital Lease Obligations" of a person means any obligation which is
required to be classified and accounted for as a capital lease on a balance
sheet of such person prepared in accordance with Generally Accepted Accounting
Principles.
"Capital Stock" means any and all shares, interests, rights to purchase,
options, participations or other equivalents of or interests in (however
designated) corporate stock, including any Preferred Stock.
"Commodity Price Protection Agreement" of any person means any forward
contract, commodity swap, commodity option or other financial agreement or
arrangement designed to protect against fluctuations in commodity prices.
"Currency Exchange Protection Agreement" of any person means any forward
foreign exchange agreement, currency swap, currency option or other financial
agreement or arrangement designed to protect against fluctuations in currency
exchange rates.
"Debt" of any person means, without duplication,
(i) the principal of and premium (if any) in respect of (A) indebtedness
of such person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
person is responsible or liable;
(ii) all Capital Lease Obligations of such person;
(iii) all obligations of such person issued or assumed as the deferred
(for 180 days or more) purchase price of property, all conditional sale
obligations of such person and all obligations of such person under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business);
(iv) all obligations of such person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing obligations
(other than obligations described in (i) through (iii) above) entered into in
the ordinary course of business of such person to the extent such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third Business Day following receipt by such
person of a demand for reimbursement following payment on the letter of
credit);
(v) the amount of all obligations of such person with respect to the
redemption, repayment or other repurchase of any Redeemable Stock (but
excluding any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through (v)
of other persons and all dividends of other persons for the payment of which,
in either case, such person is responsible or liable, directly or indirectly,
as obligor, guarantor or otherwise, including by means of any Guaranty; and
(vii) all obligations of the type referred to in clauses (i) through (vi)
of other persons secured by any Lien on any property or asset of such person
(whether or not such obligation is assumed by such person), the amount of such
obligation being deemed to be the lesser of the value of such property or
assets or the amount of the obligation so secured.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States which are in effect on the
date of determination.
"Indebtedness" of any person means, without duplication, all obligations
of such person under any Debt, Interest Rate Protection Agreement, Currency
Exchange Protection Agreement or Commodity Price Protection Agreement.
"Interest Rate Protection Agreement" of any person means any interest
rate swap agreement, interest rate cap agreement or other financial agreement
or arrangement designed to protect against fluctuations in interest rates,
including any agreement which exchanges a fixed rate interest obligation for a
floating rate interest obligation.
"Lien" means any mortgage, deed of trust, pledge, charge, security
interest, assignment, conditional sale, encumbrance or other title retention
agreement.
"Preferred Stock", as applied to Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Redeemable Stock" means any Capital Stock that by its terms or otherwise
is required to be redeemed on or prior to the first anniversary of the Stated
Maturity of the Guaranteed Notes or is redeemable at the option of the holder
thereof at any time on or prior to the first anniversary of the Stated
Maturity of the Guaranteed Notes.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the principal of such security is
due and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency unless such
contingency has occurred).
"Subsidiary" of a person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such person or any of its Subsidiaries,
and any partnership of which more than 50% of the partnership interests are
owned, directly or indirectly, by such person or any of its Subsidiaries.
Transactions with Affiliates
FCX will not, and will not permit the Issuer, PT-FI or any Transferee
Subsidiary to enter into any transaction or series of related transactions
with any Affiliate of FCX (other than FCX, PT-FI, the Issuer or any
Majority-Owned Subsidiary of any of FCX, the Issuer or PT-FI) that involves
aggregate consideration in excess of $1 million and that is not in the
ordinary course of its business and consistent with past practice between FCX,
the Issuer, PT-FI or such Transferee Subsidiary, on the one hand, and its
respective Affiliates, on the other hand, unless the transaction or series of
related transactions is in writing and either (i) the Board of Directors of
FCX or, as to any transaction involving PT-FI and its Subsidiaries, the Board
of Commissioners of PT-FI, has adopted a resolution approving such transaction
as having terms which are no less favorable to such person than those that
would have been obtained in a comparable transaction by such person with an
unrelated third person or (ii) FCX, the Issuer, PT-FI or such Transferee
Subsidiary, as the case may be, delivers to the Trustee on behalf of the
holders of the Guaranteed Notes a written opinion of a nationally recognized
investment banking firm stating that such transaction is fair to FCX, the
Issuer, PT-FI or such Transferee Subsidiary, as the case may be, from a
financial point of view. The following transactions shall not be subject to
this covenant: (1) transactions representing the pro rata rights of Affiliates
of FCX, the Issuer, PT-FI or any Transferee Subsidiary as stockholders of FCX,
the Issuer, PT-FI or such Transferee Subsidiary, including the right to
receive pro rata dividends or other distributions, (2) the entry into or
preformance of obligations under any management or administrative services
arrangement or tax sharing or other similar agreement or arrangement that is
either consistent with past practices of FCX, the Issuer, PT-FI or any
Transferee Subsidiary or is approved by the Board of Directors of FCX as being
in the best interests of FCX, the Issuer, PT-FI or such Transferee Subsidiary,
as the case may be, (3) the sale, lease or other disposition of EIP Assets,
now existing or to be constructed, or Undeveloped Mining Assets, and all
arrangements related to the development, operation, use and financing of such
assets (other than any sale, lease or other disposition to, or arrangement
with, an entity which is an Affiliate other than by virtue of FCX's interest
therein); provided that the Board of Directors of FCX, or, as to any
transaction involving PT-FI and its Subsidiaries, the Board of Commissioners
of PT-FI, shall have approved such transaction as being in the best interests
of FCX or PT-FI, as the case may be, (4) transactions between FCX, the Issuer,
PT-FI or such Transferee Subsidiary, or any of their respective Subsidiaries,
on the one hand, and any employee of FCX, the Issuer, PT-FI or such Transferee
Subsidiary, or any of their respective Subsidiaries, on the other hand, (5)
the payment of reasonable and customary fees to directors and commissioners of
FCX, the Issuer, PT-FI or such Transferee Subsidiary and (6) at any time when
AFIC is an Affiliate of FCX and is not a Majority-Owned Subsidiary of FCX,
the Issuer or PT-FI, any amendment to the Bank Master Services Agreement or
any related agreement or arrangement involving any assets subject to such
agreement that is made at the request of the Banks party to the AFIC
Credit Agreement.
"Affiliate" of any specified person means (i) any other person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified person or (ii) any other person who is a director
or officer (A) of such specified person, (B) of any Subsidiary of such
specified person or (C) of any person described in clause (i) above. For
purposes of this definition, control of a person means the power, direct or
indirect, to direct or cause the direction of the management and policies of
such person whether by contract or otherwise and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. Notwithstanding the
foregoing, no bank (or trustee or security agent therefor) party to the AFIC
Credit Agreement, the PT-FI Credit Agreement or the FTX Credit Agreement, or
any amendment to or replacement of any of the foregoing, shall be deemed to be
an "Affiliate" by virtue of compliance with the requirements of any of the
foregoing agreements, amendments or replacements, including the granting of
the Liens provided for therein.
"EIP Assets" means the commercial, residential, educational, retail,
medical, recreational, environmental and other infrastructure facilities
(including without limitation power, water and waste disposal systems, an
industrial park, small business development facilities, port, marine,
logistics and related assets under construction, airport, flood control or
road facilities, hotel or other guest facilities and other general
infrastructure facilities), constructed or to be constructed in connection
with or to support the mining and milling operations of PT-FI in Irian Jaya,
Indonesia; provided that the mining and milling production facilities of PT-FI
in Irian Jaya, Indonesia shall not constitute EIP Assets.
"Majority-Owned Subsidiary" means a Subsidiary of which more than 50% of
the total voting power of shares of Capital Stock or other interests
(including partnership interests) entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
person, and any partnership of which more than 50% of the partnership
interests are owned, directly or indirectly, by such person.
"Transferee Subsidiary" means any Subsidiary of FCX to which PT-FI has
transferred, after the date of the Indenture, property, plant and equipment
with an aggregate net book value on the date of transfer in excess of $10
million.
"Undeveloped Mining Assets" means the rights to explore for, mine,
process, store and transport minerals and any assets or facilities used in
connection with such rights or the exercise thereof; provided that the term
"Undeveloped Mining Assets" shall not include (i) any such rights with respect
to COW Area Block A, (ii) any assets or facilities used in connection with
mining or processing on COW Area Block A or (iii) any such rights, assets or
facilities to the extent acquired or developed with the proceeds of an Asset
Disposition. The term "COW Area Block A" is defined in the New COW and
includes all currently existing producing mines and proved and probable
reserves of PT-FI in Irian Jaya, Indonesia.
Certain Sales of Assets
FCX will not, and will not permit PT-FI or any Transferee Subsidiary to,
consummate any Asset Disposition other than in the ordinary course of
business, unless: (i) FCX, PT-FI or such Transferee Subsidiary, as the case
may be, receives consideration at the time of such Asset Disposition at least
equal to the fair market value (as determined in good faith, including as to
the value of all non-cash consideration, by the Board of Directors of FCX or,
as to any transaction involving PT-FI or its Subsidiaries, the Board of
Commissioners of PT-FI, whose determination shall be conclusive, of the shares
or assets subject to such Asset Disposition, provided, that the requirements
of this clause (i) will not apply to an Asset Disposition constituting a
spin-off or other distribution to stockholders of FCX, PT-FI or such
Transferee Subsidiary or, in the case of property subject to a Lien, to the
sale of such property in a commercially reasonable manner by or on behalf of
the person secured thereby or the taking possession of such property by such
person in satisfaction of debt, and (ii) within the time period specified
below, either (a) FCX, PT-FI or such Transferee Subsidiary applies the Net
Proceeds either: (1) to acquire Guaranteed Notes or to repay any Senior Debt
of FCX or any Debt of PT-FI (other than Indebtedness owing to any Affiliate of
FCX or PT-FI but including any Indebtedness owing by PT-FI to AFIC under the
Bank Master Services Agreement) or such Transferee Subsidiary or any
Indebtedness secured by such shares or assets sold or otherwise disposed of,
or (2) to commence to reinvest, either directly or through a Majority-Owned
Subsidiary of FCX, such Net Proceeds in any natural resource business
(including, without limitation, the production, exploration, extraction,
development or refining of natural resources), whether or not conducted by FCX
or PT-FI as of the date of the Indenture; or (b) to the extent FCX, PT-FI or
such Transferee Subsidiary does not apply (or commence to apply) all or any
part of such Net Proceeds in accordance with the immediately preceding clause
(a), FCX makes an offer (the "Asset Disposition Offer") in accordance with
applicable law to purchase a principal amount of the Guaranteed Notes and any
other Senior Debt of FCX or any Debt of PT-FI or a Subsidiary thereof (other
than Indebtedness owed to any Affiliate of FCX or PT-FI, but including any
Indebtedness owed by PT-FI to AFIC under the Bank Master Services Agreement),
which is senior to or pari passu with the Guaranteed Notes and which contains
a covenant substantially similar to this one equal to the amount of such Net
Proceeds which FCX, PT-FI or such Transferee Subsidiary have not so applied
(or commenced to apply in the case of clause (ii)(a)(2) above) pursuant to
clause (a) above (the "Asset Disposition Offer Amount") at 100% of the
principal amount thereof plus accrued interest or 100% of accreted value in
the case of Indebtedness issued at a discount to its face amount. Other than
in the case of an Asset Disposition of the type described in clause (B) of the
definition of Net Proceeds, the acquisition or repayment must be completed, or
such reinvestment must commence, or such Asset Disposition Offer must be made,
within 360 days after the later of the consummation of the Asset Disposition
or the receipt of the Net Proceeds therefrom. In the case of an Asset
Disposition of the type described in clause (B) of the definition of Net
Proceeds, FCX, PT-FI or such Transferee Subsidiary must complete an
application of the Net Proceeds under either clause (ii)(a)(1) or (ii)(b)
above at or prior to the distribution, spin-off, dividend or repurchase
covered by clause (B) of the definition of Net Proceeds. Notwithstanding the
foregoing, the acquisition, reinvestment or Asset Disposition Offer required
by this covenant need not be made except to the extent that the aggregate
cumulative amount of Net Proceeds received by FCX, PT-FI and any Transferee
Subsidiary from all Asset Dispositions and not previously applied as provided
in either clauses (a) or (b) above exceeds $150 million. To the extent the
Asset Disposition Offer is not fully subscribed, the remaining Net Proceeds
may be used for general corporate purposes, including without limitation the
payment of dividends. Pending the required application of Net Proceeds, such
Net Proceeds may be invested only in Permitted Investments. If an Asset
Disposition Offer would otherwise be required to be made and the amount of
such Asset Disposition Offer would be less than $20 million, FCX shall not be
required to make such offer until such time as the total amount of Asset
Dispositions which have occurred and as to which Asset Disposition Offers have
not been made exceeds $20 million.
"Asset Disposition" means, with respect to any person, any sale,
transfer, conveyance, lease or other disposition (including, without
limitation, by way of merger or consolidation, spin-off, or sale of shares of
Capital Stock in any Subsidiary of such person but excluding any
Sale-Leaseback Transaction) that is entered into and completed after the date
of the Indenture to any person (other than a Majority-Owned Subsidiary of FCX,
PT-FI or the Issuer) of (i) any assets (other than EIP Assets or Undeveloped
Mining Assets) of such person or (ii) any shares of Capital Stock of such
person's Subsidiaries (other than a Subsidiary substantially all of whose
assets are EIP Assets, Undeveloped Mining Assets or both), which, in either
case, results in Net Proceeds of $10 million or more. For purposes of this
definition, the term "Asset Disposition" shall not include (i) any sale,
transfer, conveyance, lease or other disposition of assets and properties of
FCX governed by the "Merger and Consolidation" covenant or (ii)
the granting of any Lien unless and until the property subject to such Lien is
sold by or on behalf of the person secured thereby or such person takes
possession of such property in satisfaction of debt.
"Net Proceeds" from an Asset Disposition means:
(A) cash payments received (including any cash payments received by
way of deferred payment of principal pursuant to a note or installment
receivable or otherwise, but only as and when received and also including
any cash received upon sale or disposition of such note or receivable or
upon sale or other disposition of other non-cash proceeds, but excluding
any consideration received in the form of assumption by the acquiring
person of Debt or other obligations relating to such properties or assets
or received in any other non-cash form) therefrom; and
(B) (i) in the case of an Asset Disposition (other than an Asset
Disposition described in clauses (ii) or (iii) below) the aggregate fair
market value of any non-cash assets received as consideration for such
Asset Disposition, but only to the extent that such non-cash assets are
then distributed by FCX as a dividend or other distribution to its
stockholders, (ii) in the case of an Asset Disposition constituting a
spin-off or other distribution to stockholders of FCX, the aggregate fair
market value on the date of such Asset Disposition of any non-cash assets
that are distributed by FCX as a dividend or other distribution to its
stockholders as part of such Asset Disposition and (iii) in the case of an
Asset Disposition pursuant to which FCX sells or otherwise conveys any
non-cash assets to any of its stockholders (other than pursuant to a pro
rata distribution to all of its stockholders) as consideration for the
repurchase by FCX of any of its Capital Stock from such stockholders, the
aggregate fair market value of the Capital Stock repurchased, provided
that in each such case, fair market value shall be determined in good
faith by the Board of Directors of FCX and such determination shall be
conclusive; and, provided further, that, in the case of each of subclauses
(i), (ii) and (iii) of this clause (B), any such Net Proceeds shall be
deemed to have been received, in respect of any Asset Disposition, at the
time when FCX distributes or otherwise sells or conveys such non-cash
assets to its stockholders,
in each case, net of all expenses, commissions and other fees or obligations
incurred, all taxes required to be accrued and reasonable reserves for the
after-tax cost of any indemnification (including environmental
indemnification) payments and in each case net of all payments made on any
Debt which is secured by any assets subject to such Asset Disposition, in
accordance with the terms of any Lien upon such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset Disposition, or
by applicable law be repaid out of the proceeds from such Asset Disposition,
and net of all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Disposition.
"Permitted Investment" means (i) interest bearing deposit accounts in
United States national or state banks having a combined capital and surplus of
not less than $100 million and a Moody's Bank Credit Report Service short-term
deposit rating of P-1; (ii) bankers' acceptances drawn on and accepted by
commercial banks having a combined capital and surplus of not less than $100
million and a Moody's Bank Credit Report Service short-term deposit rating of
P-1; (iii) obligations of the United States of America or any agency or
instrumentality of the United States of America; (iv) commercial or finance
company paper which is rated A-1 by Standard & Poor's or P-1 by Moody's
Investors Service; (v) corporate debt securities rated A-1 by Standard &
Poor's or P-1 by Moody's Investors Service; (vi) repurchase agreements with
banking or financial institutions having a combined capital and surplus of not
less than $100 million and a Moody's Bank Credit Report Service short-term
deposit rating of P-1 with respect to any of the foregoing obligations or
securities; and (vii) money market funds with assets of at least $1 billion
and portfolio guidelines consistent with the foregoing obligations and
securities. Such investments shall have maturity dates, or shall be subject
to redemption by the holder at the option of the holder, prior to the date
which is one year from the date of purchase of such investment.
"Sale-Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby a person transfers such property to
another person and the transferor leases it from such person.
"Senior Debt" of any person means any Debt of such person unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinated in right of
payment to the Guaranteed Notes; provided, however, that Senior Debt shall not
be deemed to include (1) any obligations of such person to any Subsidiary, (2)
any liability for Federal, state, local or other taxes owed or owing by such
person or (3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including Guaranties thereof or
instruments evidencing such liabilities).
Repurchase in Event of Change of Control and Rating Decline
Upon the occurrence of any Repurchase Event (as defined below), each
holder of a Guaranteed Note shall have the right, at such holder's option, to
require FCX to repurchase, and upon the exercise of such right FCX shall
repurchase, all or any part of such holder's Guaranteed Notes, in integral
multiples of $1,000, on the Repurchase Date (as defined below) at a repurchase
price in cash equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to any Repurchase Date (the "Repurchase Price"), on
the terms and conditions described below.
Unless the Issuer shall have already called for the redemption of all
outstanding Guaranteed Notes, within 30 days of the occurrence of any
Repurchase Event, FCX or, at the request of FCX, the Trustee, shall mail to
all holders of record of the Guaranteed Notes, and cause to be published as
provided in the Indenture, a notice of the occurrence of such Repurchase Event
and of the rights of each holder of Guaranteed Notes in connection therewith.
To exercise a repurchase right, a holder of Guaranteed Notes shall
deliver to the Trustee within 30 days after receiving the notice of the
type described above, (1) irrevocable written notice of such holder's
exercise of such right and (2) the Guaranteed Notes with respect to which
the repurchase right is being exercised, duly endorsed for transfer to FCX.
Guaranteed Notes held by a securities depository may be delivered in such
other manner as may be agreed to by such securities depository and FCX or
the Trustee. If the Repurchase Date falls during the period between the
close of business on October 1 or April 1 in any year and the opening of
business on the following October 15 or April 15, and the Guaranteed Notes
have not been called for redemption on a redemption date within such period
(or on such October 15 or April 15), any Guaranteed Notes delivered to the
Trustee to be repurchased must be accompanied by payment of an amount equal
to the interest thereon, if any, which the registered holder thereof is to
receive on such October 15 or April 15, and, notwithstanding such
repurchase, such interest payment will be made by FCX to the registered
holder thereof on the next preceding October 1 or April 1.
In the event a repurchase right shall be exercised in accordance with the
terms of the Indenture, FCX shall pay or cause to be paid the Repurchase Price
in cash to such holder on the Repurchase Date.
If any Guaranteed Note surrendered for repurchase shall not be so paid on
the Repurchase Date, such Guaranteed Note shall, until paid, continue to
accrue interest, to the extent permitted by applicable law, from the
Repurchase Date at the rate per annum specified on the face thereof. FCX
shall pay to the holder of such Guaranteed Note the accrued amounts arising
from this paragraph at the same time that it pays the Repurchase Price.
Any Guaranteed Note which is to be repurchased only in part shall be
surrendered at any office or agency of FCX designated for that purpose by FCX
(with, if FCX or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to, FCX and the Trustee duly
executed by, the holder thereof or his attorney duly authorized in writing),
and FCX shall execute, and the Trustee shall authenticate and deliver to the
holder of such Guaranteed Note without service charge, a new Guaranteed Note
or Notes, of any authorized denomination as requested by such holder, in
aggregate principal amount equal to and in exchange for the unrepurchased
portion of the Guaranteed Note so surrendered.
"Repurchase Event" means the occurrence of a Change of Control followed
by a Rating Decline within the period of 60 days following the first public
announcement of the circumstances giving rise to that Change of Control (the
"Announcement") (which period shall be extended if during such 60 days either
both Rating Agencies shall have placed FCX on credit watch or one of the
Rating Agencies shall have placed FCX on credit watch and the other Rating
Agency shall have made the determination described in the definition of Rating
Decline, until such time as it can be determined that there has been a Rating
Decline).
"Change of Control" means the occurrence of any of the following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) (other than FTX in respect of FCX and FCX in respect
of the Issuer) is or becomes the beneficial owner (as defined in Section
13(d) of the Exchange Act and the rules promulgated thereunder except that
a person shall be deemed to have "beneficial ownership" of all shares that
any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total voting power of the Voting Stock
of the Issuer or FCX;
(ii) FCX ceases to own, directly or indirectly, at least 50.1% of
the outstanding shares of the Capital Stock of PT-FI, or ceases to have
the right, by share ownership, contract or otherwise, to elect at least
one-half of the members of the Board of Commissioners of PT-FI; provided
that no Change of Control shall be deemed to have occurred upon a
consolidation or merger of PT-FI with or into FCX or into any Subsidiary
of FCX in which FCX's direct or indirect percentage ownership interest
equals or exceeds FCX's direct or indirect percentage ownership interest
in PT-FI immediately prior to such transaction; or
(iii) any direct or indirect sale, transfer, lease or conveyance, in
one transaction or in a series of related transactions, of assets of PT-FI
having a fair market value (as determined in good faith by the Board of
Directors of FCX, which determination shall be conclusive) in excess of
half of the aggregate fair market value (determined as set forth above) of
PT-FI's assets as of the time of such sale, lease, transfer or conveyance
to any person (other than a direct or indirect Subsidiary of FCX in which
FCX's direct or indirect percentage ownership interest equals or exceeds
FCX's direct or indirect percentage ownership interest in PT-FI
immediately prior to such transaction) occurs.
A "Rating Decline" shall be deemed to have occurred if the Guaranteed
Notes shall be rated by each of the Rating Agencies at a rating which is lower
than the rating of the Guaranteed Notes by such Rating Agency on the day
before the Announcement by more than one gradation (whether or not within the
same Rating Category).
"Rating Agency" means Standard & Poor's Rating Group and its successors
("S&P") and Moody's Investors Service, Inc. and its successors ("Moody's"),
or, if either S&P or Moody's shall not make a rating of the Guaranteed Notes
publicly available, a nationally recognized statistical rating agency or
agencies, as the case may be, selected by FCX which shall be substituted for
S&P or Moody's or both, as the case may be.
"Rating Category" means each major rating category symbolized by (x) in
the case of S&P, AAA, AA, A, BBB, BB, B, CCC, CC and C and each such Rating
Category shall include pluses or minuses ("gradations") modifying such capital
letters; (y) in the case of Moody's, Aaa, Aa, A, Baa, Ba, B, Caa, Ca and C and
each such Rating Category shall include added numerals such as 1, 2 or 3
("gradations") modifying such letters; and (2) with respect to any other
Rating Agency, comparable or equivalent symbols.
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled to vote in the
election of directors.
Events of Default; Notice of Default and Waiver
The Indenture provides that, if an Event of Default specified therein
shall have occurred and be continuing, either the Trustee or the holders of
not less than 25% in aggregate principal amount of the Guaranteed Notes then
outstanding may declare 100% of the principal amount thereof plus accrued and
unpaid interest, if any, and Additional Amounts, if any, through the date of
such declaration, on all Guaranteed Notes then outstanding to be immediately
due and payable. In the case of certain events of bankruptcy or insolvency,
the principal amount plus accrued and unpaid interest through the date of the
occurrence of such event shall automatically become and be immediately due and
payable. Under certain circumstances, the holders of a majority in aggregate
principal amount of the outstanding Guaranteed Notes may rescind any such
acceleration with respect to the Guaranteed Notes and its consequences.
Interest shall accrue and be payable on demand on overdue interest and
Additional Amounts, if any (to the extent that the payment of such interest
shall be legally enforceable).
Under the Indenture, an Event of Default is defined as any of the
following: (i) default in payment of interest or Additional Amounts, with
respect to any Guaranteed Note, when the same becomes due and payable, and
continuance of such default for 30 days, (ii) default in payment of the
principal with respect to any Guaranteed Note when the same becomes due and
payable at its Stated Maturity, upon redemption or otherwise, (iii) failure by
the Issuer to redeem or repurchase the Guaranteed Notes when required to do so
under the Indenture or the Guaranteed Notes, (iv) failure by the Issuer or FCX
to comply with the "Mergers and Consolidations" covenant, (v) failure by the
Issuer or FCX to comply with any of its other agreements or covenants in the
Guaranteed Notes or the Indenture, but only upon the receipt by the Issuer of
notice of such default from the Trustee or from holders of not less than 25%
in aggregate principal amount of the Guaranteed Notes then outstanding and the
Issuer's or FCX's failure, as the case may be, to cure such default within 60
days after receipt by the Issuer of such notice, (vi) the acceleration of the
maturity or non-payment within any applicable grace period after final
maturity of any other Indebtedness (other than Non-Recourse Debt and other
than Debt described in clause (v) of the definition of "Debt") of the Issuer,
FCX, PT-FI, AFIC, any Infrastructure Affiliate or any Significant Subsidiary
in a principal amount exceeding $20 million (or an equivalent amount in
another currency) if such acceleration has not been rescinded or annulled
within 30 days, (vii) the rendering of one or more judgments or decrees for
the payment of money against the Issuer, FCX, PT-FI, AFIC, any Infrastructure
Affiliate or any Significant Subsidiary in an aggregate amount equal to or in
excess of $20 million (net of insurance) and either (a) any such judgments or
decrees are not vacated, discharged, stayed or bonded pending appeal within 60
days after the judgment becomes final and nonappealable or (b) an enforcement
proceeding has been commenced by any creditor upon such judgment or decree,
(viii) certain events of bankruptcy or insolvency of the Issuer, FCX, PT-FI,
AFIC, any Infrastructure Affiliate or any Significant Subsidiary or (ix) the
FCX Guaranty shall cease for any reason to be in full force and effect or FCX
shall assert that the FCX Guaranty is not in full force and effect.
The Trustee shall give notice to holders of the Guaranteed Notes of any
continuing default known to it within 90 days after the occurrence thereof;
provided, that the Trustee may withhold such notice as to any default other
than a payment default, if it determines in good faith that withholding the
notice is in the interest of the holders.
The holders of a majority in aggregate principal amount of the
outstanding Guaranteed Notes may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee; provided, that the
Trustee may refuse to follow any direction which is in conflict with any law
or the Indenture and subject to certain other limitations. Before proceeding
to exercise any right or power under the Indenture at the direction of such
holders, the Trustee shall be entitled to receive from such holders reasonable
security or indemnity satisfactory to it against the cost, expenses and
liabilities which might be incurred by it in complying with any such
direction. No holder of any Guaranteed Note will have any right to pursue any
remedy with respect to the Guaranteed Notes, unless (i) such holder shall have
previously given the Trustee written notice of a continuing event of default;
(ii) the holders of at least 25% in aggregate principal amount of the
outstanding Guaranteed Notes shall have made a written request to the Trustee
to pursue such remedy; (iii) such holder or holders shall have offered to the
Trustee reasonable indemnity satisfactory to it; (iv) the holders of a
majority in aggregate principal amount of the outstanding Guaranteed Notes
shall not have given the Trustee a direction inconsistent with such request
within 60 days after receipt of such request; and (v) the Trustee shall have
failed to comply with the request within such 60-day period.
Notwithstanding the foregoing, the right of any holder (x) to receive
payments of principal, premium, if any, Additional Amounts, if any, or
interest payable with respect to any Guaranteed Note and any interest in
respect of a default in the payment of any such amounts on such Guaranteed
Note, on or after the due date expressed in such Guaranteed Note or (y) to
institute suit for the enforcement of any such payment rights shall not be
impaired or adversely affected without such holder's consent. The holders of
at least a majority in aggregate principal amount at maturity of Guaranteed
Notes at the time outstanding may waive any existing default and its
consequences, other than (i) any default in any payment on the Guaranteed
Notes, or (ii) any default in respect of certain covenants or provisions in
the Indenture which may not be modified without the consent of the holder of
each Guaranteed Note as described in "Modification" below.
The Issuer and FCX will be required to furnish to the Trustee annually a
statement as to any default by the Issuer or FCX in the performance and
observance of their respective obligations under the Indenture.
"Non-Recourse Debt" means any Debt issued pursuant to any agreement or
instrument which limits the liability of the borrower to the collateral
securing such Debt so long as such collateral does not include any assets
within or constituting a part of COW Area Block A.
"Significant Subsidiary" means any Subsidiary of FCX which at the time of
determination either (A) had assets which, as of the date of FCX's most recent
quarterly consolidated balance sheet, constituted at least 5% of FCX's total
assets on a consolidated basis as of such date, or (B) had revenues for the
12-month period ending on the date of FCX's most recent quarterly consolidated
statement of income which constituted at least 5% of FCX's total revenues on a
consolidated basis for such period.
Modification
Modification and amendment of the Indenture or the Guaranteed Notes may
be effected by the Issuer, FCX and the Trustee with the consent of the holders
of not less than a majority in aggregate principal amount of the Guaranteed
Notes then outstanding. However, without the consent of each holder affected
thereby, no amendment may, among other things, (i) change the stated maturity
of the principal of, or any installment of interest on, any Guaranteed Note,
alter the principal amount of a Guaranteed Note or the rate of, or extend the
time of payment of, interest thereon or any premium or Additional Amounts
payable thereon, change the place of payment where or the coin or currency in
which amounts due on the Guaranteed Notes are payable, reduce or alter the
method of computation of any amount payable on redemption or repayment thereof
(or the time at which any such redemption may be made); (ii) make any
reduction in the principal amount of Guaranteed Notes whose holders must
consent to an amendment or any waiver under the Indenture or modify the
Indenture provisions relating to such amendments or waivers; (iii) impair or
affect the right to institute suit for the enforcement of any payment with
respect to the Guaranteed Notes; (iv) following the mailing of an Asset
Disposition Offer or an occurrence of a Repurchase Event, modify the Indenture
provisions with respect to such offer or Repurchase Event in a manner adverse
to such holder or (v) change in any manner adverse to the interests of any
holders of the Guaranteed Notes the obligations of FCX pursuant to the FCX
Guaranty.
Without the consent of any holder of Guaranteed Notes, the Issuer, FCX
and the Trustee may amend the Indenture to (i) cure any ambiguity, defect or
inconsistency, provided that no such amendment will materially and
adversely affect the interests of the holders of the Guaranteed Notes;
(ii) provide for the assumption by a successor to the Issuer or
FCX of the respective obligations of the Issuer or FCX under the Indenture,
(iii) provide for uncertificated Guaranteed Notes in addition to certificated
Guaranteed Notes, so long as such uncertificated Guaranteed Notes are in
registered form for United States federal income tax purposes, (iv) make any
change that does not adversely affect the interests of the holders of
Guaranteed Notes, (v) make any change to comply with any requirement of the
Commission in connection with the qualification of the Indenture under the
Trust Indenture Act of 1939, as amended, or (vi) add to the covenants or
obligations of the Issuer or FCX under the Indenture or surrender any right,
power or option conferred by the Indenture on the Issuer or FCX.
Satisfaction, Discharge and Defeasance of the Indenture
The Issuer may satisfy and discharge the obligations of the Issuer and
FCX under the Indenture and the Guaranty by delivering to the Trustee for
cancellation all outstanding Guaranteed Notes or by depositing with the
Trustee, after the Guaranteed Notes have become due and payable, cash
sufficient to pay at the Stated Maturity all of the outstanding Guaranteed
Notes and paying all other sums payable under the Indenture by the Issuer.
Under terms satisfactory to the Trustee, the Issuer may discharge
substantially all obligations of the Issuer and FCX under the Indenture to
holders of Guaranteed Notes which by their terms are due and payable within
one year (or are scheduled for redemption within one year) by irrevocably
depositing with the Trustee in trust for the benefit of the holders, (i) money
in an amount or (ii) U.S. government obligations which through the payment of
interest and principal will provide, not later than one day before the due
date of payments in respect of the Guaranteed Notes, money in an amount, or
(iii) a combination thereof, sufficient to pay and discharge the principal of
and premium, if any, Additional Amounts, if any, and interest on, the
Guaranteed Notes then outstanding at and through the maturity or redemption
date; provided that FCX has theretofore assumed the obligations of the Issuer
under the Guaranteed Notes as described under "Assumption of Direct
Obligations by FCX."
FCX may also discharge substantially all of its obligations under the
Indenture ("defeasance"); provided that FCX has theretofore assumed the
obligations of the Issuer under the Guaranteed Notes as described under
"Assumption of Direct Obligations by FCX." Under terms satisfactory to the
Trustee, the Issuer and FCX may instead be released from the obligations
imposed by certain provisions of the Indenture ("Defeasable Events"),
including the covenants described above limiting liens, consolidations,
mergers, transactions with affiliates and investments by the Issuer and
requiring repurchase of the Guaranteed Notes in the event of certain Asset
Dispositions and upon an occurrence of any Repurchase Event and omit to comply
with such provisions without creating an Event of Default ("covenant
defeasance"). Defeasance or covenant defeasance may be effected only if,
among other things, the Issuer or FCX irrevocably deposits with the Trustee in
trust for the benefit of the holders, (i) money in an amount or (ii) United
States government obligations which through the payment of interest and
principal will provide, not later than one day before the due date of
principal of, premium, if any, and each installment of interest in respect of
the Guaranteed Notes, money in an amount, or (iii) a combination thereof,
sufficient to pay and discharge the principal of, premium, if any, and
interest on the Guaranteed Notes then outstanding at maturity or at the
earliest date at which the Issuer or FCX may redeem such Guaranteed Notes if
the Issuer or FCX has made adequate arrangements with the Trustee to redeem
such Guaranteed Notes at such time. Such a trust may only be established if
the Issuer has delivered to the Trustee an Opinion of Counsel acceptable to
the Trustee (who may be counsel to the Issuer) to the effect that the
defeasance and discharge will not be deemed, or result in, a taxable event,
with respect to holders of the Guaranteed Notes and that the creation of the
trust will not violate the Investment Company Act of 1940. The Indenture will
not be discharged if, among other things, an Event of Default (other than a
Defeasable Event), or an event which with notice or lapse of time would have
become such an Event of Default, shall have occurred and be continuing on the
date of such deposit or during the period ending on the 91st day after such
date. In the event of any such defeasance and discharge, the holders of the
Guaranteed Notes will thereafter be able to look only to such trust fund for
payment of principal and interest on the Guaranteed Notes.
Information Concerning the Trustee
Chemical Bank will initially be the Trustee and Registrar under the
Indenture. Chemical Bank has performed a variety of financial services for
FCX and is agent bank and a lender under FTX's Credit Agreement.
Financial Reports
The Issuer and FCX will each provide to the Trustee a copy of all
financial reports each files with the Commission. If, during any reporting
period, FCX is not required to file such reports with the Commission, FCX will
provide to the Trustee the same financial reports concerning FCX as if FCX
were so required.
Assumption of Direct Obligations by FCX
FCX may at any time, in its sole discretion, directly assume, by a
supplemental indenture, the obligations of the Issuer for the payment of the
principal of, premium, if any, Additional Amounts, if any and interest on the
Guaranteed Notes and for the fulfillment of all covenants of the Issuer
contained in the Indenture. Upon such assumption by FCX, FCX will succeed to
and be substituted in all respects for the Issuer under the Indenture, and the
Issuer will be released from all of its obligations under the Indenture and
the Guaranteed Notes.
TAXATION
The following summary of certain United States federal, Netherlands and
Indonesia income taxes is based on the advice of Miller & Chevalier,
Chartered, tax counsel to the Issuer and FCX, with respect to United States
federal income taxes, Stibbe Simont Monahan Duhot, Netherlands counsel to the
Issuer and FCX, with respect to Netherlands taxes and Drs. Siddharta &
Siddharta, a member firm of Coopers & Lybrand (International), Indonesia tax
advisors to the Issuer and FCX, with respect to Indonesian taxes. For purposes
of this summary, a "U.S. Holder" is any holder of Guaranteed Notes that is (i)
a citizen or resident of the United States, (ii) a corporation, partnership,
or other entity created or organized in or under the laws of the United
States, or (iii) an estate or trust the income of which is subject to United
States federal income taxation regardless of source. A "Non-U.S. Holder" is
any holder of Guaranteed Notes that is not a U.S. Holder. This summary is
addressed to original holders that hold the Guaranteed Notes as capital assets
and does not address aspects of United States federal income taxation that may
be applicable to particular U.S. Holders, such as insurance companies, banks,
or dealers in securities or currencies, or to U.S. Holders that will hold a
Guaranteed Note as part of a position in a "straddle" or as part of a hedging
transaction for United States tax purposes or that have a "functional
currency" other than the United States dollar. PROSPECTIVE INVESTORS SHOULD
CONSULT THEIR OWN TAX ADVISORS AS TO THE UNITED STATES, NETHERLANDS,
INDONESIA, AND ANY OTHER TAX CONSEQUENCES OF AN INVESTMENT IN THE GUARANTEED
NOTES.
United States Income Tax Considerations
The Issuer believes, and intends to take the position, that the
Guaranteed Notes are debt of the Issuer for United States federal income tax
purposes. It is possible because of the FCX Guaranty that the Internal
Revenue Service ("IRS") could assert that the Guaranteed Notes are debt of
FCX, but such a characterization should not affect holders to which this
summary applies. Recently enacted legislation authorizes the Treasury
Secretary to issue regulations recharacterizing "multiple-party financing
transactions" as a transaction directly among any two or more of the parties
involved where the Secretary determines that such recharacterization is
"appropriate" to prevent avoidance of any United States federal taxes. It is
possible that such regulations could be issued and could apply retroactively
to the Guaranteed Notes with the result, depending on the scope of such
regulations, that the Guaranteed Notes might be recharacterized for United
States federal tax purposes as debt of FCX, AFIC, or an Infrastructure
Affiliate. The following discussion assumes that the Guaranteed Notes will be
treated as debt of the Issuer for federal income tax purposes.
Interest. The gross amount of interest (including Additional Amounts, if
any, paid in respect of withholding taxes) on a Guaranteed Note will be
included in the income of a U.S. Holder in accordance with the holder's usual
method of tax accounting, and will be treated as foreign source income for
United States federal income tax purposes.
Sale, Exchange or Disposition. A U.S. Holder will recognize gain or loss
upon the sale, exchange or other disposition of the Guaranteed Notes in an
amount equal to the difference between the amount realized upon the sale,
exchange or other disposition and the U.S. Holder's adjusted tax basis in such
Guaranteed Notes. Gain or loss recognized by a U.S. Holder on a sale,
exchange or other disposition of Guaranteed Notes will be long-term capital
gain or loss if the Guaranteed Notes have been held more than one year at the
time of the sale. Any gain or loss recognized by a U.S. Holder generally will
be treated as from sources within the United States.
Assumption of Guaranteed Notes by FCX. It is unclear whether the
assumption of the obligations on the Guaranteed Notes by FCX pursuant to its
option would constitute a taxable event for federal income tax purposes. Under
proposed Treasury regulations, an alteration of a legal right or obligation is
not a modification of a debt instrument if it occurs by operation of the
original terms of the instrument. If the assumption were treated as a
significant modification of the Guaranteed Notes, however, it would be treated
as a taxable exchange of the Guaranteed Notes for new notes of FCX ("New FCX
Notes"). Holders would recognize gain or loss on the exchange measured by the
difference between the issue price of the New FCX Notes (as determined under
applicable Treasury regulations) and the adjusted tax basis of the Guaranteed
Notes.
Taxation of Non-U.S. Holders. Non-U.S. Holders will not be subject to
United States federal income tax on payments of interest (and Additional
Amounts, if any) with respect to the Guaranteed Notes, unless such interest
and Additional Amounts are effectively connected with the conduct by such
Non-U.S. Holder of a trade or business in the United States. If the Guaranteed
Notes were treated as FCX debt, Non-U.S. Holders would not be subject to
United States income or withholding taxes on interest (and Additional Amounts,
if any) so long as (1) the Guaranteed Note is not effectively connected with
the conduct by such Non-U.S. Holder of a trade or business in the United
States, (2) the Non-U.S. Holder is not related to FCX through stock ownership,
and (3) at least 80% of FCX's gross income for a relevant three-year testing
period has been derived from sources outside the United States and is
attributable to non-U.S. active business operations. Significantly more than
80% of FCX's income (which is derived primarily from interest and dividends
from PT-FI) has been and is likely to continue to be active foreign business
income. A Non-U.S. Holder generally will not be subject to United States
federal income tax on any gain realized on the sale, exchange, or other
disposition of Guaranteed Notes, unless (i) such gain is effectively connected
with the conduct by such Non-U.S. Holder of a trade or business in the United
States, or (ii) in the case of gain realized by an individual Non-U.S. Holder,
such Non-U.S. Holder is present in the United States for 183 days or more
during the year of such sale, exchange or disposition and certain other
conditions are met. The same rules would apply to a sale, exchange or other
disposition if the Guaranteed Notes were treated as FCX debt.
Information Reporting and Backup Withholding. Certain payments in
respect of Guaranteed Notes may be subject to information reporting to the IRS
and to a 31% United States backup withholding tax. Backup withholding will
not apply, however, to a holder who furnishes a correct taxpayer
identification number or certificate of foreign status and makes any other
required certification or who is otherwise exempt from backup withholding.
Generally, a U.S. Holder will provide such certification on Form W-9 (Request
for Taxpayer Identification Number and Certification) and a Non-U.S. Holder
will provide such certification on Form W-8 (Certificate of Foreign Status).
Netherlands Tax Considerations
Payments under the Guaranteed Notes by the Issuer and by any paying agent
to a holder of the Guaranteed Notes will not be subject to Netherlands
withholding tax.
A holder of the Guaranteed Notes is not subject to Netherlands income tax
in respect of any payments under the Guaranteed Notes or in respect of any
gain realized on the alienation of the Guaranteed Notes, provided that such
holder:
i) is not a resident or deemed resident of The Netherlands;
ii) does not own an enterprise or an interest in an enterprise which is
carried on through a permanent establishment or permanent representative in
The Netherlands to which or to whom the Guaranteed Notes or the payments under
the Guaranteed Notes are attributable; and
iii) does not have a substantial interest or deemed substantial interest
in the share capital of the Issuer or, in the event a holder does have such
interest, such interest is attributable to an enterprise carried on by the
holder or on his behalf.
A taxpayer is considered to have a substantial interest in the share
capital of the Issuer if he owned during the preceding five years, directly or
indirectly, at least one third of the entire paid-in capital or of the paid-in
capital of a certain class or classes of shares of the Issuer. If the
taxpayer is an individual, shares owned by certain relatives will be
attributed to the taxpayer, but in the case of attribution from relatives the
taxpayer will only be deemed to own a substantial interest in the Issuer if he
owns, directly or indirectly, with attribution from his spouse, more than 7%
of the nominal paid-in capital of the Issuer or of a certain class or classes
of shares of the Issuer.
A holder of the Guaranteed Notes is not subject to Netherlands net wealth
tax in respect of the Guaranteed Notes, provided such holder is not an
individual, or, if such holder is an individual, provided that such holder
does not own an enterprise or an interest in an enterprise which is carried on
through a permanent establishment or permanent representative in The
Netherlands to which or to whom the Guaranteed Notes are attributable.
No gift, estate or inheritance tax arises in The Netherlands on a gift of
Guaranteed Notes by, or on the death of a holder of, the Guaranteed Notes who
is neither a resident nor a deemed resident of The Netherlands, unless such
holder of the Guaranteed Notes owns, or owned, an enterprise or an interest in
an enterprise which is carried on through a permanent establishment or
permanent representative in The Netherlands to which or to whom the Guaranteed
Notes are attributable.
Indonesia Tax Considerations
Payments of interest under the PT-FI Note and the Underlying Notes are
currently subject to Indonesian withholding tax in the amount of 10%, a
reduced rate applicable to residents of The Netherlands under the double tax
treaty between Indonesia and The Netherlands. AFIC has agreed, and each
Infrastructure Affiliate will agree, to pay Underlying Additional Amounts with
respect to the Underlying Notes so that the net amount received by the Issuer
after such withholding will be equal to the amount that would have been
received if no such tax had been payable. If PT-FI, AFIC and/or any
Infrastructure Affiliate becomes legally obligated, as a result of statutory
or regulatory changes adopted on or after the date hereof generally affecting
Indonesian withholding taxes, to pay Underlying Additional Amounts on the
PT-FI Note or the Underlying Notes, as the case may be, the Issuer may redeem
the Guaranteed Notes, in whole but not in part, at 100% of the principal
amount thereof plus accrued and unpaid interest on the date of redemption.
See "Description of the Guaranteed Notes--Tax Redemption."
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of the instruments governing certain indebtedness
of AFIC does not purport to be complete and is qualified in its entirety by
reference to such instruments, copies of which have been filed, or
incorporated by reference, as exhibits to the Registration Statement of which
this Prospectus is a part. Capitalized terms used but not defined herein have
the meanings ascribed to them in such instruments. Simultaneously with the
issuance of the Guaranteed Notes, the AFIC Credit Agreement and related
documents will be amended in certain respects, which will require the consent
of the lenders that are signatories under the AFIC Credit Agreement (the
"Banks"). Unless otherwise indicated the following descriptions of the AFIC
Credit Agreement assume the effectiveness of such amendments and consent.
AFIC Credit Agreement
Pursuant to the AFIC Credit Agreement dated as of December 15, 1993,
among AFIC, the Banks and The Chase Manhattan Bank (National Association), as
agent for the Banks (the "Agent"), the Banks have made a term loan to AFIC in
an aggregate principal amount of $60 million with a final maturity of December
15, 1999. The loan bears interest on the unpaid principal amount at a rate
per annum equal to a reserve adjusted eurodollar rate plus 2-1/2%. AFIC is
required to repay the principal amount of the loan in quarterly installments
of $750,000 commencing March 15, 1994 through September 15, 1999. In addition,
the AFIC Credit Agreement provides for mandatory prepayments upon the
occurrence of certain events.
Description of Guaranty and Security. The obligations of AFIC under the
AFIC Credit Agreement are guaranteed by PT-FI and they are secured by a pledge
of all of AFIC's existing assets financed with proceeds of borrowings under
the AFIC Credit Agreement and related receivables but not including the Master
Services Agreements (other than the Bank Master Services Agreement).
Covenants of AFIC and PT-FI. Financial covenants under the AFIC Credit
Agreement include (i) a requirement that AFIC maintain certain insurance
coverage and certain limitations with respect to the use of proceeds of such
insurance, (ii) restrictions on mergers, consolidations and acquisitions by
AFIC with certain limited exceptions related to identified infrastructure
assets, (iii) restrictions on sales of assets (subject to certain limited
exceptions), (iv) a restriction on AFIC's entry into new lines of business,
(v) a limitation on AFIC granting liens in respect of its assets subject to
certain exceptions, including for liens created pursuant to the security
documents in favor of the Banks, (vi) a limitation on investments which may be
made by AFIC, (vii) a restriction on dividend payments by AFIC, subject to
certain exceptions for quarterly cash dividends so long as there is no default
on the loans and subject to certain other conditions, (viii) a limitation on
affiliate transactions and (ix) a restriction on the ability of AFIC to
transfer any ownership interests in AFIC or any securities convertible into
any such shares, without prior written consent of Banks. The AFIC Credit
Agreement also limits the ability of AFIC to incur additional indebtedness
other than the Underlying Notes.
Under the Guarantee Agreement, PT-FI has agreed to certain covenants,
including a limitation on its ability to incur debt. The Guarantee Agreement
requires that PT-FI maintain a Fixed Charge Ratio (as defined) as of the end
of any fiscal quarter of 1.25 to 1. The Guarantee Agreement contains certain
additional covenants, including covenants which limit the ability of PT-FI to
merge or consolidate with other entities or to convey, sell, lease, transfer
or otherwise dispose of a substantial portion of its assets.
Events of Default. The AFIC Credit Agreement specifies certain events of
default which permit the Banks to declare all outstanding amounts under the
AFIC Credit Agreement to be due and payable. These include, among other
things, a default in the payment when due of any installment of principal on
the loan; a default in the payment when due of any interest on the loan and
continuance of such default for five days after the due date; PT-FI default
in payment of any amounts due under the PT-FI Guarantee; bankruptcy of AFIC or
PT-FI; any representation, warranty or certificate by AFIC or PT-FI in the
AFIC Credit Agreement or related documents shall prove to have been false or
misleading in any material respect when made; a default by any of AFIC or
PT-FI in the performance of its covenants set forth in the AFIC Credit
Agreement or related agreements, subject in the case of certain covenants to a
notice requirement; a default by AFIC in the payment when due of any amount in
respect of any indebtedness (other than the loan under the AFIC Credit
Agreement) having an aggregate principal amount of at least $500,000, or the
occurrence of any event specified in an agreement relating to any indebtedness
(other than the loan under the AFIC Credit Agreement) that has the effect to
cause or (with or without the giving of any required notice or the expiration
of any grace period or both) to permit the holders of such indebtedness to
cause indebtedness of AFIC at least equal to $500,000 to become due; a
cross-default of any PT-FI debt over $10 million; a default by PT-FI under the
FTX Credit Agreement; termination of the New COW; a failure by PT-FI to make
payments under the Bank Master Services Agreement; judgment and ERISA
defaults; a default by any of AFIC, ALatieF or PT-FI in its obligations under
any Project Document that is not remedied or waived within 30 days after the
occurrence thereof; a failure by FTX to own directly or indirectly,
beneficially or of record, at least 50.1% of the voting stock of PT-FI or
otherwise to possess the power to direct the management of PT-FI.
Bank Master Services Agreement. AFIC has entered into a Master Services
Agreement dated as of December 15, 1993 with PT-FI (the "Bank Master Services
Agreement") pursuant to which AFIC has agreed to assume responsibility for the
performance of certain administrative and supply services related to the
initial group of assets transferred by PT-FI to AFIC. The Bank Master Services
Agreement provides that PT-FI will pay sufficient amounts thereunder to cover
all of AFIC's expenses, including debt servicing so long as loans under the
AFIC Credit Agreement are outstanding. PT-FI has also agreed to provide
certain support services including electricity, water, waste disposal,
transportation, maintenance and repairs, security and other similar services
necessary in connection with the ownership, construction, maintenance and
operation by AFIC of the acquired assets. These support services may
initially be provided by PT-FI to AFIC free of charge, although PT-FI reserves
the option to later establish reasonable charges and contractual arrangements
for any and all such support services.
PT-FI Credit Agreement
PT-FI entered into an amended $550 million credit agreement in June 1993
(the "PT-FI Credit Agreement"). The PT-FI Credit Agreement, guaranteed by FCX
and FTX, is structured as a three year revolving line of credit followed by a
3 1/2 year reducing revolving line of credit. The PT-FI Credit Agreement is
part of an $800 million committed credit facility available to FTX and its
subsidiaries including PT-FI and is subject to a borrowing base, redetermined
annually by the banks, which establishes maximum consolidated debt for FTX and
its subsidiaries, including PT-FI. PT-FI's limit under the facility is $550
million subject to the borrowing base discussed above. Interest is variable
and commitment fees are payable at 0.375% per annum on the average daily
unused commitment. The PT-FI Credit Agreement provides for working capital
requirements, specified coverage of fixed charges, and restrictions on other
borrowings. PT-FI has assigned its existing and future sales contracts and
pledged its rights under the New COW, accounts receivable and other assets as
security for its borrowings under the PT-FI Credit Agreement. As of December
31, 1993, $547.5 million was available under the current borrowing base and
$412.0 million of borrowings were unused under the credit facility. To the
extent FTX and its other subsidiaries incur additional debt, the amount
available to PT-FI under the PT-FI Credit Agreement may be reduced. The
average interest rate on borrowings under the PT-FI Credit Agreement was 4.4%
during 1993, 5.1% during 1992 and 7.4% during 1991.
The PT-FI Credit Agreement contains covenants addressing financial
reporting requirements, maintenance of insurance, limitations on mergers and
acquisitions, restrictions on asset dispositions, limitations on liens and
limitations on the incurrence of additional indebtedness and various other
covenants that are customary for credit facilities of this type.
Under the terms of the PT-FI Credit Agreement, events of default include
failure to pay principal and interest when due, failure to comply with the
covenants set forth in the PT-FI Credit Agreement, cross-default to certain
other indebtedness, a bankruptcy filing on either a voluntary or involuntary
basis and the failure of FTX to own directly or indirectly such number of
shares of voting stock of PT-FI as is needed to effectively control its policy
and direction. However, a number of the events of default under the PT-FI
Credit Agreement also relate to FTX and its other subsidiaries as well as to
PT-FI and may occur independently of actions taken or not taken by PT-FI. As
of December 31, 1993, PT-FI was in compliance with the terms of the PT-FI
Credit Agreement.
DESCRIPTION OF FCX PREFERRED STOCK
AND SPECIAL PREFERENCE STOCK
Step-Up Convertible Preferred Stock
As of December 31, 1993, FCX had outstanding 700,000 shares of Step-Up
Convertible Preferred Stock, par value $0.10 per share. The Step-Up
Convertible Preferred Stock is represented by depositary shares, each of which
represents 0.05 shares of such stock. The Step-Up Convertible Preferred Stock
ranks, as to payment of dividends and distribution upon liquidation, pari
passu with Special Preference Stock (as defined below) and Gold-Denominated
Preferred Stock (as defined below) of FCX and senior to the Class A and Class
B Common Stock of FCX.
The depositary shares have a liquidation preference of $25.00 per share
(equivalent to $500.00 per share of Step-Up Convertible Preferred Stock) and
are convertible at the option of the holder at any time, unless previously
redeemed, into approximately 0.826 shares of Class A Common Stock (equivalent
to a conversion price of $30.28 per share of Class A Common Stock), subject to
adjustment in certain circumstances. Dividends on the Step-Up Convertible
Preferred Stock are cumulative and are payable quarterly in an amount
equivalent to $1.25 per annum per depositary share through August 1, 1996 and
thereafter in an amount equivalent to $1.75 per annum per depositary share
until redemption or conversion.
The depositary shares are not redeemable prior to August 1, 1996.
Thereafter and prior to August 1, 1999, the depositary shares are redeemable
at the option of FCX, in whole or in part, for such number of shares of Class
A Common Stock as are issuable at a conversion rate of approximately 0.826
shares of Class A Common Stock for each depositary share, subject to
adjustment in certain circumstances. FCX may exercise this option only if the
trading prices of the Class A Common Stock as measured for a specified number
of trading days prior to public notice of the redemption have exceeded $38.44
per share, subject to adjustment in certain circumstances. On and after
August 1, 1999, the depositary shares are redeemable, in whole or in part, at
the option of FCX, at a redemption price of $25.00 per depositary share plus
accrued and unpaid dividends. FCX may, at its option, subject to certain
exceptions, pay the redemption price in cash, Class A Common Stock or any
combination thereof.
The Step-Up Convertible Preferred Stock has limited voting rights
triggered by the failure of FCX to pay dividends in an amount equal to six
full quarterly dividends or by the proposed amendment to the Certificate of
Incorporation of FCX so as to adversely affect the rights of holders of
Step-Up Convertible Preferred Stock. Voting rights are not triggered upon
amendment to the Certificate of Incorporation to authorize other series of
stock of FCX ranking on a parity with or junior to the Step-Up Convertible
Preferred Stock as to dividends or rights upon liquidation.
Special Preference Stock
As of December 31, 1993, FCX had outstanding 26,400,000 shares of 7%
Convertible Exchangeable Special Preference Stock, par value $0.10 per share
(the "Special Preference Stock"), a series of Special Stock. The Special
Preference Stock is represented by depositary shares, each of which represents
2 16/17 shares of Special Preference Stock. The Special Preference Stock is
redeemable at the option of FCX, in whole or in part, at prices declining to
$25.00 per depositary share, commencing on August 1, 1995. The Special
Preference Stock ranks, as to payment of dividends and distributions upon
liquidation, pari passu with the Step-Up Convertible Preferred Stock and the
Gold-Denominated Preferred Stock and prior to the Class A and Class B Common
Stock. Holders of shares of Special Preference Stock will be entitled to
receive cumulative cash dividends at an annual rate equivalent to $0.595 per
share ($1.75 per depositary share) when and as and if declared by the Board of
Directors of FCX, which dividends are payable quarterly. After full
cumulative dividends on Special Preference Stock for all past and current
quarterly dividend periods, have been paid in full, the Special Preference
Stock will not be entitled to participate with the Class A and Class B Common
Stock in any further distributions by FCX (except upon liquidation,
dissolution or winding up of FCX). In the event of any such liquidation,
dissolution or winding up, after payment or provision for payment of the debts
and other liabilities of FCX, the holders of Special Preference Stock will be
entitled to receive out of the remaining net assets of FCX $8.50 per share
($25.00 per depositary share) in cash plus accrued and unpaid dividends before
any distribution is made or set apart for the holders of the Class A and Class
B Common Stock or any other stock of FCX ranking junior to the Special
Preference Stock as to dividends or distribution of assets upon liquidation,
dissolution or winding up of the affairs of FCX.
Each depositary share representing Special Preference Stock is
convertible at the option of the holder at any time, unless previously
redeemed, into approximately 1.009 shares of Class A Common Stock (equivalent
to a conversion price of $24.77 per share of Class A Common Stock), subject to
adjustment in certain circumstances. The depositary shares are exchangeable
in whole at the option of FCX on any quarterly dividend payment date,
commencing August 1, 1994, for FCX's 7% Convertible Subordinated Debentures
due 2007 (the "Debentures") at a rate of $25.00 principal amount of Debentures
for each depositary share. The Debentures, if issued, will be convertible at
the option of the holder at any time, unless previously redeemed, into Class A
Common Stock at the conversion price for depositary shares for which the
Debentures have previously been exchanged, subject to adjustments in certain
circumstances.
The Special Preference Stock has limited voting rights triggered by the
failure of FCX to pay dividends in an amount equal to six full quarterly
dividends or by FCX's proposed amendment to its Certificate of Incorporation
so as to adversely affect the rights of holders of Special Preference Stock.
Voting rights are not triggered upon amendment to the Certificate of
Incorporation to authorize other series of stock of FCX, whether ranking
senior to, on a parity with or junior to the Special Preference Stock as to
dividends or rights upon liquidation.
Gold-Denominated Preferred Stock
As of December 31, 1993, FCX had outstanding 300,000 shares of
Gold-Denominated Preferred Stock (referred to herein as "Series I") and on
January 21, 1994 FCX issued 215,279 shares of Gold-Denominated Preferred
Stock, Series II (collectively, "Gold-Denominated Preferred Stock"). The
Gold-Denominated Preferred Stock is represented by depositary shares, each of
which represents 0.05 shares of such stock. The Gold-Denominated Preferred
Stock ranks, as to the payment of dividends and distribution upon liquidation
pari passu with the Special Preference Stock and the Step-Up Convertible
Preferred Stock and senior to FCX's Class A and Class B Common Stock.
The depositary shares have a liquidation preference equal to the dollar
equivalent value of 0.10 ounces of gold per depositary share plus accrued and
unpaid dividends. Dividends on the Gold-Denominated Preferred Stock are
cumulative and are payable quarterly, in the case of Gold-Denominated
Preferred Stock, Series I, in an amount equal to the dollar equivalent value
of 0.000875 ounces of gold per depositary share per quarter, and, in the case
of Gold-Denominated Preferred Stock, Series II, commencing May 1, 1994 in an
amount equal to the dollar equivalent value of 0.0008125 ounces of gold per
depositary share per quarter.
The depositary shares are subject to mandatory redemption, out of funds
legally available therefor, on August 1, 2003 and on February 1, 2006,
respectively, at an amount equal to the dollar equivalent value of 0.10 ounces
of gold per depositary share plus accrued and unpaid dividends. The
depositary shares are not subject to redemption at the option of FCX, except
in limited circumstances. FCX does not have the right to make any mandatory
or optional redemption of any depositary shares unless full cumulative
dividends for all past dividend periods shall have been paid or declared and
set aside for payment upon all depositary shares and all other outstanding
shares of stock of FCX ranking, as to dividends, on a parity with the
depositary shares. For purposes of this discussion, the "dollar equivalent
value" of a specified number of ounces of gold means that number of ounces
multiplied by a reference price determined by taking the average of the London
P.M. gold fixing price for an ounce of gold on a specified number of days
prior to the date of determination.
The Gold-Denominated Preferred Stock has limited voting rights triggered
by the failure of FCX to pay dividends in an amount equal to six full
quarterly dividends or by any amendment to FCX's Certificate of Incorporation
that would adversely affect the rights of holders of Gold-Denominated
Preferred Stock or create, authorize or issue any series or class of stock
ranking senior to the shares of Gold-Denominated Preferred Stock with respect
to dividends or distribution of assets upon liquidation, dissolution or
winding up of FCX. Voting rights are not triggered upon amendment to the
Certificate of Incorporation to authorize other series of stock of FCX ranking
on a parity with or junior to the Gold-Denominated Preferred Stock as to
dividends or rights upon liquidation, dissolution or winding up.
UNDERWRITING
The Underwriters named below have severally agreed to purchase from the
Issuer the following principal amounts of Guaranteed Notes:
Principal Amount
Underwriters of Guaranteed Notes
------------ -------------------
CS First Boston Corporation.......................... $ 90,000,000
Chase Securities, Inc................................ 30,000,000
------------
Total............................................. $120,000,000
============
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, and that the
Underwriters will be obligated to purchase all of the Guaranteed Notes, if any
are purchased.
The Issuer has been advised by the Underwriters that the Underwriters
propose to offer all Guaranteed Notes to the public initially at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession of 1.1875% of the principal amount per
Guaranteed Note; that the Underwriters and such dealers may allow a discount
of 0.25% of such principal amount on sales to certain other dealers; and that
after the initial public offering, the public offering price and concession
and discount may be changed by the Underwriters.
The Guaranteed Notes are a new issue of securities with no established
trading market. Each of the Underwriters has advised the Issuer that it
intends to act as a market maker for the Guaranteed Notes. However, the
Underwriters are not obligated to do so and any such market-making may be
discontinued at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Guaranteed Notes.
Chase Securities, Inc. is an affiliate of The Chase Manhattan Bank
(National Association), which is agent bank for the AFIC Credit Agreement and
a lender under both the FTX Credit Agreement and the PT-FI Credit
Agreement.
The Issuer and FCX have jointly and severally agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act of 1933, as amended (the"Securities Act"), and to
contribute to payments the Underwriters may be required to make in respect
thereof.
LEGAL MATTERS
The validity of the Guaranteed Notes will be passed upon by Davis Polk &
Wardwell. The tax matters under "Taxation" will be passed upon for the Issuer
and FCX by Miller & Chevalier, Chartered, tax counsel to the Issuer and FCX as
to matters of United States law, by Stibbe Simont Monahan Duhot, counsel to
the Issuer and FCX, as to matters of Netherlands law, and Drs. Siddharta &
Siddharta, a member firm of Coopers & Lybrand (International), tax advisors to
the Issuer and FCX as to matters of Indonesian law. Certain legal matters will
be passed upon for the Underwriters by Sullivan & Cromwell. Davis Polk &
Wardwell and Sullivan & Cromwell will rely upon the opinion of Stibbe Simont
Monahan Duhot as to all matters of Netherlands law.
EXPERTS
The audited balance sheet of the Issuer and the audited financial
statements of FCX included in this Prospectus and incorporated by reference
to FCX's Annual Report on Form 10-K and FCX's Current Report on Form 8-K
dated March 2, 1994, as amended on April 6, 1994 for the year ended
December 31, 1993, have been audited by Arthur Andersen & Co., independent
public accountants, as indicated in their reports with respect thereto, and
are included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
PT-FI's reserves as of December 31, for the years 1989 through 1993
included herein and incorporated herein by reference have been verified by
Independent Mining Consultants, Inc., and such reserve information has been
included herein in reliance upon the authority of said firm as experts in
mining, geology and reserve determinations.
ADDITIONAL INFORMATION
This Prospectus constitutes a part of a Registration Statement filed by
the Issuer and FCX with the Commission in compliance with United States
federal securities laws. This Prospectus omits certain of the information
contained in the Registration Statement in accordance with the rules and
regulations of the Commission. Reference is hereby made to the Registration
Statement and related exhibits for further information with respect to the
Issuer, FCX and the Guaranteed Notes. In addition, the Issuer and FCX, in
compliance with applicable state securities laws, have made certain required
filings. Statements contained herein concerning the provisions of any document
are not necessarily complete and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
AVAILABLE INFORMATION
FCX is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports and other information with the
Commission. Reports, proxy statements and other information filed by FCX with
the Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 or at its Regional Offices located at Suite 1400, Northwestern
Atrium Center, 500 West Madison, Chicago, Illinois 60661 and 13th Floor, 7
World Trade Center, New York, New York 10007, and copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Certain securities
of FCX are listed on the New York Stock Exchange (the "NYSE") and on The
Australian Stock Exchange. Reports, proxy statements and other information
concerning FCX can be inspected at the offices of the NYSE, 20 Broad Street,
New York, New York 10005.
The Issuer is a special purpose entity, is a wholly owned subsidiary of
FCX and is not engaged in any business operations independent of FCX. In view
of the FCX Guaranty, the Issuer does not intend to provide separate reports to
holders of the Guaranteed Notes.
NOTICE TO CANADIAN RESIDENTS
The distribution of the Guaranteed Notes in Canada is being made only
on a private placement basis exempt from the requirement that the Issuer
prepare and file a prospectus with the securities regulatory authorities in
each province where trades of Guaranteed Notes are effected. Accordingly,
any resale of the Guaranteed Notes in Canada must be made in accordance
with applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the
Guaranteed Notes.
Each purchaser of Guaranteed Notes in Canada who receives a purchase
confirmation will be deemed to represent to the Issuer, FCX and the dealer
from whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such
Guaranteed Notes without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has
reviewed the text above.
Notice to Ontario Residents
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Ontario Securities Act. As
a result, Ontario purchasers must rely on other remedies that may be
available, including common law rights of action for damages or rescission
or rights of action under the civil liability provisions of the United
States federal securities laws.
All of the Issuer's managing directors and FCX's directors and officers
as well as the experts named herein may be located outside of Canada and, as
a result, it may not be possible for Ontario purchasers to effect service
of process within Canada upon FCX, the Issuer or such persons. All or a
substantial portion of the assets of FCX, the Issuer and such persons may
be located outside of Canada and, as a result, it may not be possible to
satisfy a judgment against FCX, the Issuer or such persons in Canada or to
enforce a judgment obtained in Canadian courts against FCX, the Issuer or
persons outside of Canada.
Notice to British Columbia Residents
A purchaser of Guaranteed Notes to whom the British Columbia
Securities Act applies is advised that such purchaser is required to file
with the British Columbia Securities Commission a report within ten days of
the sale of any Guaranteed Notes acquired by such purchaser pursuant to
this offering. Such report must be in the form attached to British
Columbia Securities Commission Blanket Order BOR #88/5, a copy of which may
be obtained from FCX. Only one such report must be filed in respect of
Guaranteed Notes acquired on the same date and under the same prospectus
exemption.
INDEX TO FINANCIAL STATEMENTS
Page
----
P.T. ALatieF Freeport Finance Company B.V. (Audited)
Report of Independent Public Accountants . . . . . . . . . . . . . F-2
Balance Sheet as of February 3, 1994 and Note to Balance Sheet F-3
Freeport-McMoRan Copper & Gold Inc. Financial Statements (Audited):
Report of Independent Public Accountants . . . . . . . . . . . . . F-4
Balance Sheets as of December 31, 1992 and 1993. . . . . . . . . . F-5
Statements of Income for the years ended December 31, 1991,
1992 and 1993. . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Statements of Cash Flow for the years ended December 31, 1991,
1992 and 1993 . . . . . . . . . . . . . . . . . . . . .. . . . . F-7
Statements of Stockholders' Equity for the years ended
December 31, 1991, 1992 and 1993 . . . . . . . . . . . . . . . . F-8
Notes to Financial Statements . . . . . . . . . . . . . . . . . . F-9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To P.T. ALatieF Freeport Finance Company B.V.:
We have audited the accompanying balance sheet of P.T. ALatieF Freeport
Finance Company B.V. (a Netherlands corporation) as of February 3, 1994. This
balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of P.T. ALatieF Freeport Finance
Company B.V. as of February 3, 1994 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN & CO.
New Orleans, Louisiana,
February 10, 1994
P.T. ALATIEF FREEPORT FINANCE COMPANY B.V.
BALANCE SHEET
February 3, 1994
Cash $20,510
=======
Common stock, issued and outstanding 40 shares $20,510
=======
Note to Balance Sheet
Basis of Presentation
P.T. ALatieF Freeport Finance Company B.V. (the "Issuer") is a wholly
owned subsidiary of Freeport-McMoRan Copper & Gold Inc. ("FCX"). The Issuer
was organized to issue notes and lend the net proceeds thereof to P.T. ALatieF
Freeport Infrastructure Corporation and one or more affiliated entities which
will use the proceeds of such loan to purchase infrastructure assets from P.T.
Freeport Indonesia Company, a subsidiary of FCX.
The Issuer was formed on February 3, 1994 with a capital contribution
from FCX of 40,000 Dutch Guilders. The Issuer's authorized capital amounts to
200,000 Dutch Guilders and is divided into 200 shares with a par value of
1,000 Dutch Guilders. The accompanying balance sheet has been converted to
United States dollars using the exchange rate on the date of formation.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Freeport-McMoRan Copper & Gold Inc.:
We have audited the accompanying balance sheets of Freeport-McMoRan
Copper & Gold Inc. (the "Company"), a Delaware corporation, as of December 31,
1993 and 1992, and the related statements of income, cash flow and
stockholders' equity for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1993 and 1992 and the results of its operations and its cash flow
for each of the three years in the period ended December 31, 1993 in
conformity with generally accepted accounting principles.
As discussed in Notes 9 and 1 to the financial statements, effective
January 1, 1991, the Company changed its method of accounting for
postretirement benefits other than pensions and effective January 1, 1993,
changed its method of accounting for periodic scheduled maintenance costs,
deferred charges, and costs of management information systems.
ARTHUR ANDERSEN & CO.
New Orleans, Louisiana,
January 25, 1994
FREEPORT-MCMORAN COPPER & GOLD INC.
BALANCE SHEETS
December 31,
------------------------
1992 1993
----------- ----------
(amounts in thousands)
ASSETS
Current assets:
Cash and short-term investments $ 371,842 $ 13,798
Accounts receivable:
Customers 130,587 122,527
Other 20,249 66,202
Inventories:
Products 13,911 58,247
Materials and supplies 118,347 153,681
Prepaid expenses and other 6,178 13,787
---------- ---------
Total current assets 661,114 428,242
---------- ---------
Property, plant and equipment 1,443,939 2,172,222
Less accumulated depreciation and amortization 450,527 525,619
--------- ---------
Net property, plant and equipment 993,412 1,646,603
--------- ---------
Other assets 39,479 41,808
--------- ---------
Total assets $1,694,005 $2,116,653
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 88,876 $ 218,083
Current portion of long-term debt and
short-term borrowings 78,571 48,791
Accrued income and other taxes 1,129 20,865
--------- ---------
Total current liabilities 168,576 287,739
Long-term debt, less current portion 645,012 211,868
Accrued post-retirement benefits and other liabilities 15,558 188,165
Deferred income taxes 196,953 201,553
Minority interest 21,449 46,781
Mandatory redeemable gold-denominated preferred stock -- 232,620
Stockholders' equity:
Special preference stock 224,400 224,400
Step-Up preferred stock -- 350,000
Class A common stock, par value $.10 5,318 5,802
Class B common stock, par value $.10 14,213 14,213
Capital in excess of par value of common stock 353,697 334,166
Cumulative foreign translation adjustment -- (10,012)
Retained earnings 48,829 29,358
--------- ---------
646,457 947,927
--------- ----------
Total liabilities and stockholders' equity $1,694,005 $2,116,653
========== ==========
The accompanying notes are an integral part of these financial statements.
FREEPORT-MCMORAN COPPER & GOLD INC.
STATEMENTS OF INCOME
Years Ended December 31,
----------------------------
1991 1992 1993
-------- -------- --------
(amounts in thousands,
except per share amounts)
Revenues $467,522 $714,315 $925,932
Cost of sales:
Site production and delivery 204,353 308,948 567,148
Depreciation and amortization 38,397 48,272 67,906
-------- -------- --------
Total cost of sales 242,750 357,220 635,054
Exploration expenses 6,502 12,185 33,748
Provision for restructuring charges -- -- 20,795
General and administrative expenses 40,550 68,481 81,399
-------- -------- --------
Total costs and expenses 289,802 437,886 770,996
-------- -------- --------
Operating income 177,720 276,429 154,936
Interest expense, net (21,451) (18,897) (15,327)
Other income (expense), net 3,477 7,162 (2,216)
-------- -------- --------
Income before income taxes and minority
interest 159,746 264,694 137,393
Provision for income taxes (45,585) (103,726) (67,589)
Minority interest (12,199) (31,075) (9,134)
-------- -------- --------
Income before changes in accounting principle 101,962 129,893 60,670
Cumulative effect of changes in accounting
principle, net of taxes and minority interest (5,803) -- (9,854)
-------- -------- --------
Net income 96,159 129,893 50,816
Preferred dividends -- (7,025) (28,954)
-------- -------- --------
Net income applicable to common stock $ 96,159 $122,868 $ 21,862
======== ======== ========
Net income per share of common stock:
Before changes in accounting principle $.56 $.66 $.16
Cumulative effect of changes in accounting
principle (.03) -- (.05)
---- ---- ----
$.53 $.66 $.11
==== ==== ====
Average common shares outstanding 182,130 187,343 197,929
======== ======== ========
Dividends per common share $.55 $.60 $.60
==== ==== ====
The accompanying notes are an integral part of these financial statements.
FREEPORT-MCMORAN COPPER & GOLD INC.
STATEMENTS OF CASH FLOW
Years Ended December 31,
----------------------------
1991 1992 1993
-------- -------- --------
(amounts in thousands)
Cash flow from operating activities:
Net income $ 96,159 $129,893 $ 50,816
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of changes in accounting
principle 5,803 -- 9,854
Depreciation and amortization 38,397 48,272 67,906
Provision for restructuring charges,
net of payments -- -- 4,623
Deferred income taxes 17,052 52,154 8,512
Amortization of discount on zero coupon
exchangeable notes 9,162 17,297 10,844
Minority interest's share of net income 12,199 31,075 9,134
(Increase) decrease in working capital,
net of effect of acquisition:
Amount due from FTX (20,000) 20,000 --
Accounts receivable (24,647) (77,448) (16,904)
Inventories (50,086) (10,644) (36,669)
Prepaid expenses and other (939) (4,157) (10,503)
Accounts payable and accrued liabilities (794) 44,035 32,792
Accrued income and other taxes (9,988) 1,129 19,736
Other 1,554 963 8,404
-------- -------- --------
Net cash provided by operating activities 73,872 252,569 158,545
-------- -------- --------
Cash flow from investing activities:
Capital expenditures (239,954) (367,842) (453,122)
Purchase of indirect interest in PT-FI -- (211,892) --
Acquisition of RTM, net of cash acquired -- -- (10,390)
-------- -------- --------
Net cash used in investing activities (239,954) (579,734) (463,512)
-------- -------- --------
Cash flow from financing activities:
Cash dividends paid:
Common stock (100,171) (111,365) (118,575)
Preferred stock -- (4,407) (22,981)
Minority interest (8,945) (15,643) (19,143)
Conversion of zero coupon exchangeable notes -- (7,848) --
Proceeds from debt 103,000 153,000 397,971
Repayment of debt (10,000) -- (931,439)
Net proceeds from infrastructure financing -- -- 80,000
Net proceeds from sale of:
Step-Up preferred stock -- -- 340,700
Gold-denominated preferred stock -- -- 220,390
Class A common stock -- 174,142 --
Special preference stock -- 217,867 --
Subsidiary interest -- 212,485 --
Zero coupon exchangeable notes 218,560 -- --
-------- -------- --------
Net cash provided by (used in) financing
activities 202,444 618,231 (53,077)
-------- -------- --------
Net increase (decrease) in cash and
short-term investments 36,362 291,066 (358,044)
Cash and short-term investments at
beginning of year 44,414 80,776 371,842
-------- -------- --------
Cash and short-term investments at end of year $ 80,776 $371,842 $ 13,798
======== ======== ========
Interest paid $ 32,482 $ 22,581 $ 29,122
======== ======== ========
Income taxes paid $ 38,521 $ 50,029 $ 39,314
======== ======== ========
The accompanying notes, which include information in Notes 1, 2, 3, and 7
regarding noncash transactions, are an integral part of these financial
statements.
FREEPORT-MCMORAN COPPER & GOLD INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31,
----------------------------
1991 1992 1993
-------- -------- --------
(amounts in thousands)
Special Preference Stock:
Balance at beginning of year $ -- $ -- $224,400
Sale of shares to the public -- 224,400 --
-------- -------- --------
Balance at end of year -- 224,400 224,400
-------- -------- --------
Step-Up Preferred Stock:
Sale of shares to the public -- -- 350,000
-------- -------- --------
Class A common stock:
Balance at beginning of year 2,000 2,000 5,318
Two-for-one stock split -- 2,000 --
Sale of shares to the public -- 863 --
Conversion of zero coupon exchangeable notes -- 455 484
-------- -------- --------
Balance at end of year 2,000 5,318 5,802
-------- -------- --------
Class B common stock:
Balance at beginning of year 7,106 7,106 14,213
Two-for-one stock split -- 7,107 --
-------- -------- --------
Balance at end of year 7,106 14,213 14,213
-------- -------- --------
Capital in excess of par value of common stock:
Balance at beginning of year 167,451 163,439 353,697
Issuance cost of Mandatory Redeemable Gold-
Denominated and Step-Up Preferred Stock -- -- (21,530)
Sale of Class A and Special Preference Stock -- 166,746 --
Conversion of zero coupon exchangeable notes -- 69,945 79,241
Two-for-one stock split -- (9,107) --
Cash dividends on common stock (4,012) (37,326) (65,587)
Dividends on preferred stocks -- -- (11,655)
-------- -------- --------
Balance at end of year 163,439 353,697 334,166
-------- -------- --------
Cumulative foreign translation adjustment:
Current year adjustment -- -- (10,012)
-------- -------- --------
Retained earnings:
Balance at beginning of year -- -- 48,829
Net income 96,159 129,893 50,816
Cash dividends on common stock (96,159) (74,039) (52,988)
Dividends on preferred stocks -- (7,025) (17,299)
-------- -------- --------
Balance at end of year -- 48,829 29,358
-------- -------- --------
Total stockholders' equity $172,545 $646,457 $947,927
======== ======== ========
The accompanying notes are an integral part of these financial statements.
FREEPORT-MCMORAN COPPER & GOLD INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation. The consolidated financial statements of
Freeport-McMoRan Copper & Gold Inc. ("FCX" or the "Company") include its
majority-owned subsidiaries, including P.T. Freeport Indonesia Company
("PT-FI") and Rio Tinto Minera, S.A. ("RTM"). Reclassifications were made to
prior year financial statements to conform to the 1993 presentation. All
significant intercompany transactions have been eliminated.
Cash and Short-Term Investments. The Company considers highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents. PT-FI and RTM cash is not available to FCX until cash dividends
are paid to FCX. At December 31, 1993, PT-FI's net assets totaled $184.3
million, including $24.6 million of retained earnings. On January 5, 1994,
PT-FI declared a $42.1 million dividend of which $36.1 million was due to FCX.
At December 31, 1993, RTM's net assets totaled $40.2 million. RTM is not
expected to pay a dividend to FCX in the near future.
Inventories. Inventories are generally stated at the lower of cost or
market. PT-FI uses the average cost method and RTM uses the first-in,
first-out (FIFO) cost method.
Property, Plant and Equipment. Property, plant and equipment is carried
at cost. Mineral exploration costs are expensed as incurred, except in the
year the property is deemed to contain a viable mineral deposit, in which case
they are capitalized. Development costs, which include interest incurred
during the construction and development period, are capitalized. Expenditures
for replacements and improvements are capitalized. Depreciation expense for
mining and milling operations is determined using the unit-of-production
method based on estimates of recoverable reserves. Other assets, including
RTM's smelter, are depreciated on a straight-line basis over estimated useful
lives of 15 to 20 years for buildings and 3 to 25 years for machinery and
equipment.
Hedging. PT-FI has a price protection program for virtually all of its
estimated copper sales to be priced in 1994 at an average floor price of $.90
per pound, while allowing full benefit from prices above that amount. The cost
of this program ($6.0 million at December 31, 1993) is included in product
inventories and will be amortized during 1994. Based on an average 1994
forward market price of approximately $.82 per pound of copper (December 31,
1993 forward prices per London Metal Exchange, "LME"), the market value of
these contracts is approximately $56 million. The contracts are with a
diversified group of financially strong counterparties.
RTM has forward contracts for approximately 61% of its estimated 1994
gold production at $383.80 per ounce and 38% of its estimated 1995 gold
production at $394.80 per ounce. RTM has also hedged approximately 53% and
38% of its estimated 1994 and 1995 silver production at $4.70 and $4.80 per
ounce, respectively. Based on a market price of $390.65 per ounce of gold and
$5.12 per ounce of silver (December 31, 1993 price per LME), these contracts
are in a loss position of approximately $2 million. Additionally, RTM has a
policy of eliminating significant exposure to copper price fluctuations by
hedging purchases of concentrate at its smelter through the use of forward
contracts. At December 31, 1993, RTM sold forward approximately 4.2 million
pounds of its concentrate inventory at approximately $.78 per pound of copper.
Concentrate Sales. Revenues associated with PT-FI's sales of metal
concentrates are recorded net of royalties, treatment costs, and amortization
of the cost of its price protection program. PT-FI's concentrate sales
agreements provide for provisional billings based on world metals prices,
primarily the LME, with actual settlement generally based on appropriate
future metals prices. Revenues, recorded initially using provisional prices,
are adjusted using current prices. At December 31, 1993, copper sales
totaling 213.4 million pounds remained to be contractually priced at various
times in 1994. As a result of PT-FI's price protection program, these pounds
are recorded at an average price of $.90 per pound. Gold sales are priced
according to individual contract terms.
Foreign Translation Adjustment. The functional currency for RTM is the
Spanish peseta. RTM's assets and liabilities are translated to U.S. dollars
using the exchange rate in effect at the balance sheet date. The cumulative
results of the translation adjustment are recorded as a separate component of
stockholders' equity. Results of operations are translated using the average
exchange rates during the period. Gains and losses resulting from foreign
currency transactions, which were not material, are included in net income.
Changes in Accounting Principle. During 1993, the Company adopted the
following changes to accounting policies:
Periodic Scheduled Maintenance Costs. Costs related to periodic
scheduled maintenance (turnarounds) were previously capitalized when
incurred and amortized generally over six months to two years. Effective
January 1, 1993, the method of accounting was changed to expense these
costs when incurred.
Deferred Charges. The accounting for deferred charges was changed to
provide for deferral of only those costs that directly relate to the
acquisition, construction, and development of assets and to the issuance
of debt and related instruments. Previously, certain other costs that
benefitted future periods were amortized over the periods benefitted.
Management Information Systems. Costs of management information
systems ("MIS") equipment and software that have a material impact on
periodic measurement of net income are capitalized and amortized over
their estimated productive lives. Other MIS costs, including equipment
and purchased software that involve relatively immaterial amounts
(currently individual expenditures of less than $.5 million) and short
estimated productive lives (currently less than three years) are charged
to expense when incurred. During 1993, approximately $3.5 million of
equipment and purchased software was charged to expense. Previously, most
expenditures for MIS equipment and purchased software were capitalized.
The accounting for MIS costs was changed to recognize the rapid rate of
technology change in MIS which results in short productive lives of
equipment and software and a need for continuing investments.
The changes in accounting policy were adopted to improve the
measurement of operating results by reporting cash expenditures as
expenses when incurred unless they are directly related to long-lived
asset additions. In addition, the administrative costs of accounting for
assets will be reduced by not capitalizing and amortizing relatively
insignificant expenditures that do not have a material effect on measuring
periodic net income.
If these changes in accounting principle had not been adopted, 1993
income before changes in accounting principle would not have been
materially different from the amount reported. If the changes in
accounting principle had been applied in prior years, 1992 and 1991 net
income would not have been materially different from amounts reported.
Restructuring Charges. FCX recognized expense of $20.8 million during
1993 for restructuring the administrative organization (including
primarily personnel related costs and a write-off of excess office
facilities) of Freeport-McMoRan Inc. ("FTX"), the parent company of FCX,
the cost to downsize PT-FI's computing and MIS structure, and a write-off
of costs associated with PT-FI's previous credit agreement.
See Management's Discussion and Analysis of Financial Condition and Results
of Operations for information about a reclassification of restructuring
charges from those previously reported resulting from views expressed by
the Securities and Exchange Commission staff.
2. Ownership in PT-FI
In January 1991, the Government of Indonesia (the "Indonesian
Government") increased its ownership in PT-FI from 8.9% to 10% by purchasing
2,242 PT-FI shares owned by FCX for $18.1 million. FCX withholds 40% of PT-FI
dividends on all Indonesian Government-owned shares until the non-interest
bearing receivable ($2.2 million at December 31, 1993) is satisfied.
In December 1991, FCX exchanged 21,300 shares of PT-FI common stock for a
$212.5 million subordinated promissory note from PT-FI, reducing FCX's
ownership in PT-FI to approximately 89% with the remaining 11% being owned by
the Indonesian Government. Interest on the note is due quarterly at a rate
equal to the effective rate under PT-FI's amended credit agreement, and
principal is payable in twenty equal, quarterly installments beginning January
2000. If interest or principal is in arrears, PT-FI cannot pay dividends on
its common stock.
In December 1991, PT-FI and the Indonesian Government signed a new
contract of work (the "New COW") which has a 30-year term with two 10-year
extensions permitted. Under the New COW, FCX pays the Indonesian Government a
royalty of 1.5% to 3.5% on the value of copper sold, net of delivery costs and
treatment and refining charges, and a 1% royalty on the sales value of gold
and silver ($9.5 million in 1993, $15.7 million in 1992, and $10.5 million in
1991). The New COW required FCX to increase the ownership by Indonesian
entities in PT-FI to 20%, which was achieved through the sale of 10% (21,300
shares) of PT-FI common stock to an entity owned by Indonesian investors on
December 31, 1991.
In December 1992, FCX purchased 49% (10.5 million shares) of the capital
stock of the publicly traded Indonesian entity which owned the 10% of PT-FI
sold in 1991. In December 1993, PT-FI issued 8,321 shares of its stock to FCX
in exchange for the conversion of certain notes (Note 7). FCX's direct
ownership in PT-FI totaled 80.8% and 80.0% at December 31, 1993 and 1992,
respectively. In 1994, PT-FI issued an additional 6,169 shares of its stock
to FCX for conversion of the remaining notes, increasing FCX's direct
ownership in PT-FI to 81.28%.
Each transaction discussed above used the fair market value of FCX Class
A common stock at the time of the agreements as the basis to calculate the
purchase and sale prices.
3. Acquisition of RTM
In March 1993, FCX acquired a 65% interest in RTM, which operates a
copper smelter and a gold mine with an estimated remaining life of fewer than
four years, by investing approximately $50 million, excluding transaction
costs, to be used by RTM for working capital requirements and capital
expenditures, including funding a portion of the costs of the expansion of its
smelter production capacity from its current 150,000 metric tons of metal per
year to 180,000 metric tons of metal per year by mid-1995. In December 1993,
RTM redeemed the remaining 35% interest for approximately $19 million.
Selected balance sheet information reflecting the allocation of the purchase
price to the assets and liabilities acquired is as follows (in thousands):
Current assets $101,454
Current liabilities (158,445)
Property, plant and equipment, net 277,170
Other assets 5,358
Long-term debt (38,941)
Accrued postretirement benefits and other liabilities (176,206)
--------
Net cash investment $ 10,390
========
Unaudited pro forma data giving effect to the purchase of RTM as if it
had been acquired on January 1 of each year is as follows:
Years Ended December 31,
-----------------------
1992 1993
----------- ----------
Revenues (000s) $1,176,612 $1,024,097
Operating income (000s) 267,951 152,484
Net income before changes in accounting principle
(000s) 96,760 22,578
Net income per share .52 .11
The pro forma results are not necessarily indicative of the actual
results that would have been achieved nor are they indicative of future
results.
4. Redeemable Preferred Stock
In August 1993, FCX sold publicly 6.0 million depositary shares
representing 300,000 shares of its Gold-Denominated Preferred Stock. Each
depositary share has a cumulative quarterly cash dividend equal to the value
of 0.000875 ounces of gold and is subject to mandatory cash redemption in
August 2003 for the value of 0.1 ounces of gold. The depositary shares are
recorded at their offering price and are being reflected as a hedge of future
gold sales for accounting purposes. The net proceeds from this offering
($220.4 million) were loaned to PT-FI in the form of a Gold Production Payment
Loan, requiring quarterly production payments of 6,176 ounces of refined gold
bullion or the dollar equivalent thereof. Based on the December 31, 1993
closing market price, these depositary shares had a market value of $258.0
million.
In January 1994, FCX sold publicly 4.3 million depositary shares
representing 215,279 shares of its Gold-Denominated Preferred Stock, Series
II. Each depositary share has a cumulative quarterly cash dividend equal to
the value of 0.0008125 ounces of gold and is subject to mandatory cash
redemption in February 2006 for the value of 0.1 ounces of gold. The net
proceeds from this offering ($158.5 million) were loaned to PT-FI under terms
similar to the Gold Production Payment Loan discussed above.
5. Stockholder's Equity
FCX has 312.0 million authorized shares of capital stock consisting of
110.0 million of Special stock, 200.0 million of Class B common stock, and 2.0
million of Preferred stock.
Special and Preferred Stock. At December 31, 1993, there were 84.4
million shares of Special stock issued and outstanding, 58.0 million as Class
A common stock and 26.4 million as Special Preference Stock.
In July 1992, FCX sold publicly 8.6 million shares of its Class A common
stock and 9.0 million depositary shares. Each depositary share represents
2-16/17 shares of its 7% Convertible Exchangeable Special Preference Stock
("Special Preference Stock"), has a cumulative annual cash dividend of $1.75
(payable quarterly) and a $25 liquidation preference, and is convertible at
the option of the holder into approximately 1.009 shares of FCX Class A common
stock (equivalent to a conversion price of $24.77 per share of FCX Class A
common stock). Beginning August 1, 1995, FCX may redeem these depositary
shares for cash at $26.225 per share (declining ratably to $25 per share in
March 2002) plus accrued and unpaid dividends. A portion of the proceeds were
used to purchase the 49% interest in the publicly traded Indonesian entity
which owned a 10% interest in PT-FI and $145.7 million, net of $4.3 million of
expenses, was loaned to PT-FI in January 1993, in exchange for an 8.235%
Convertible Subordinated Debenture due August 1, 2007.
In July 1993, FCX sold publicly 14.0 million depositary shares
representing 700,000 shares of its Step-Up Convertible Preferred Stock
("Step-Up Preferred Stock"). Each depositary share has a cumulative annual
cash dividend of $1.25 through August 1, 1996 and thereafter $1.75 (payable
quarterly) and a $25 liquidation preference, and is convertible at the option
of the holder into approximately 0.826 shares of FCX Class A common stock
(equivalent to a conversion price of $30.28 per share of FCX Class A common
stock). From August 1, 1996 and prior to August 1, 1999, FCX may redeem these
depositary shares for approximately 0.826 shares of FCX Class A common stock
per depositary share if the market price of FCX Class A common stock exceeds
certain specified levels. Thereafter, FCX may redeem these depositary shares
at $25 per share (payable in FCX Class A common stock, cash or a combination
of both, at FCX's option) plus accrued and unpaid dividends. The net proceeds
from this offering ($341.3 million) were loaned to PT-FI in the form of a
Step-Up Perpetual Convertible Subordinated Debenture bearing interest at the
rate of 5.88% per annum through August 1, 1996 and 8.235% thereafter on the
unpaid principal amount.
6. Income Taxes
FCX records income taxes pursuant to Statement of Financial Accounting
Standards No. 109. Substantially all temporary differences relate to
property, plant and equipment. FCX has provided a valuation allowance for all
tax credit carryforwards ($29.5 million) as these would only be utilized
should FCX be required to pay regular U.S. tax, which FCX views as unlikely
because Indonesian taxes exceed U.S. taxes. In addition, RTM, which is
subject to a separate tax jurisdiction (Spain), has net operating loss
carryforwards totaling approximately $108 million ($91 million
pre-acquisition) which expire from 1994 to 1998. FCX has provided a valuation
allowance for the full amount of these carryforwards as RTM has not generated
taxable income in recent years.
The provision for income taxes consists of the following:
Years Ended December 31,
----------------------------
1991 1992 1993
-------- -------- --------
(amounts in thousands)
Current income taxes:
Indonesian $ 20,198 $ 45,996 $54,994
United States 3,178 5,376 3,933
State 150 200 150
-------- -------- --------
23,526 51,572 59,077
-------- -------- --------
Deferred income taxes:
Indonesian 43,240 52,771 4,600
Adjustment for change in rates under New COW (26,465) -- --
United States 277 (617) --
-------- -------- --------
17,052 52,154 4,600
-------- -------- --------
Provision for income taxes $ 40,578 $103,726 $ 63,677
======== ======== ========
Reconciliations of the differences between income taxes computed at the
contractual Indonesian tax rate and income taxes recorded are as follows:
Years Ended December 31,
---------------------------------------------------
1991 1992 1993
---------------- ------------------ ---------------
Percent Percent Percent
of Income of Income of Income
Before Before Before
Income Income Income
Amount Taxes Amount Taxes Amount Taxes
------ --------- ------ --------- ------ ------
(dollar amounts in thousands)
Income taxes computed
at contractual
Indonesian rate $62,342 42% $ 92,643 35% $42,656 35%
Indonesian tax withheld
on:
Dividend payments -- -- 11,732 4 19,765 16
Interest payments -- -- -- -- 4,170 3
Increase (decrease)
attributable to:
Adjustment for change
in rates under
New COW (26,465) (18) -- -- -- --
Intercompany interest
expense -- -- -- -- (18,645) (15)
RTM net loss -- -- -- -- 5,500 5
United States tax 3,370 2 5,302 2 4,083 3
Other, net 1,331 1 (5,951) (2) 6,148 5
------- -- -------- -- ------- --
Provision for income
taxes $40,578 27% $103,726 39% $63,677 52%
======= == ======== == ======= ==
7. Long-term Debt
December 31,
-------------------------
1992 1993
---------- ---------
(amounts in thousands)
PT-FI revolver, average rate 5.1% in 1992 and
4.4% in 1993 $550,000 $ 13,000
Zero coupon exchangeable notes 173,583 102,039
ALatieF joint venture bank loan (Note 10) -- 60,000
Note payable to FTX, average rate 4.2% -- 12,270
RTM gold and silver denominated loans, average
rate 1.3% -- 39,284
RTM bank loan -- 2,374
RTM short-term borrowings, average rate 11% -- 31,692
-------- --------
723,583 260,659
Less current portion and short-term borrowings 78,571 48,791
-------- --------
$645,012 $211,868
======== ========
PT-FI amended its $550.0 million credit agreement in June 1993. The
amended credit agreement (the "Credit Agreement"), guaranteed by FCX and FTX,
is structured as a three-year revolving line of credit followed by a 3 1/2
year reducing revolver. The Credit Agreement is part of an $800.0 million
committed credit facility available to FTX and its subsidiaries including
PT-FI, and is subject to a borrowing base, redetermined annually by the banks,
which establishes maximum consolidated debt for FTX and its subsidiaries,
including PT-FI. PT-FI's limit under the facility is $550.0 million subject
to the borrowing base discussed above. Interest is variable and commitment
fees are payable at 0.38% per annum on the average daily unused commitment.
The Credit Agreement provides for working capital requirements, specified
coverage of fixed charges, and restrictions on other borrowings. PT-FI
assigned its existing and future sales contracts and pledged its rights under
the New COW and its accounts receivables and other assets as security for its
borrowings under the Credit Agreement. As of December 31, 1993, $547.5
million was available under the current borrowing base and $412.0 million of
borrowings were unused under the credit facility. To the extent FTX and its
other subsidiaries incur additional debt, the amount available to PT-FI under
the Credit Agreement may be reduced.
In July 1991, FCX sold $1.035 billion face amount of subordinated Zero
Coupon Exchangeable Notes (the "Zero Coupon Notes"). The net proceeds were
loaned to PT-FI under similar terms. The remaining Zero Coupon Notes
outstanding were redeemed in January 1994. Zero Coupon Notes with a face
amount of $386.0 million, $322.6 million and $326.4 million were presented for
exchange in 1994, 1993, and 1992, respectively, for which FCX issued 5.8
million, 4.8 million, and 4.5 million shares of Class A common stock, and the
Company paid $.3 million in 1994 and $7.9 million in 1992. As a result of the
issuance by FCX of its Class A common stock, PT-FI issued 14,490 shares of its
stock to FCX. Had the Company called the Zero Coupon Notes for redemption on
January 1, 1993, net income would have been $.10 per common share for 1993.
In 1993, FCX borrowed funds from FTX for the acquisition of RTM and $12.3
million was outstanding at December 31, 1993. Interest accrues at a rate
equal to the effective rate under the Credit Agreement and was $.2 million in
1993.
RTM's gold and silver loans are payable with 107,800 ounces of gold
(9,200 ounces payable quarterly) and 953,100 ounces of silver (105,900 ounces
payable quarterly), and are carried at the market price of gold ($331.70 per
ounce) and silver ($3.70 per ounce) at the date of FCX's acquisition. The
loans are accounted for as a hedge. Interest is calculated on the outstanding
ounces at the current prices on the date of payment. Based on the December
31, 1993 LME quotes for gold and silver, the market value of this debt was
approximately $47 million.
RTM also has several short-term credit facilities with banks. The stated
rates of interest on these loans range from 3.7% to 13%. RTM has pledged
certain of its assets as security for these loans.
The minimum principal payments for debt scheduled for each of the five
succeeding years based on the amounts outstanding at December 31, 1993,
assuming the terms of the Credit Agreement are not extended and the note to
FTX is repaid by borrowing from the Credit Agreement, are $48.8 million in
1994, $18.8 million in 1995, $15.0 million in 1996, $13.5 million in 1997, and
$55.2 million in 1998.
The Company has an interest rate exchange agreement resulting in a fixed
rate of 8.3% on $85.7 million of financing at December 31, 1993, reducing
$14.3 million annually through December 1999. Based on market conditions at
December 31, 1993, unwinding this interest swap would cost an estimated $8.3
million.
Capitalized interest totaled $24.5 million in 1993, $24.0 million in
1992, and $18.3 million in 1991.
8. Major Customers
Historically, most of PT-FI's sales have been made under long-term
contracts. The following table details the percentage of total product sold by
PT-FI to its customers:
Years Ended December 31,
--------------------------
1991 1992 1993
------- -------- -------
Long-term contracts
Japanese companies 36% 34% 44%
Swiss firm 17 13 13
German firm 11 7 7
Other 12 12 35
Spot sales 24 34 1
The contract with a group of Japanese companies extends through December
31, 2000, whereas the contracts with the Swiss and German firms extend through
December 31, 1995 and 1994, respectively. Certain terms of these long-term
contracts are negotiated annually. There are several other long-term
agreements in place, each accounting for less than 10% of 1993 sales. During
1993, PT-FI supplied RTM with approximately 90,000 metric tons of copper
concentrate and is expected to supply approximately 150,000 metric tons in
1994, providing for approximately 20% and 33%, respectively, of RTM's
requirements in those years. Beginning in 1996, PT-FI is expected to provide
RTM with approximately one-half of its copper concentrate requirements.
RTM's customers are located primarily in Spain and European Union
countries, none of which accounted for over 10% of the Company's total
revenues.
9. Transactions with FTX and Employee Benefits
Management Services Agreement. FTX furnishes general executive,
administrative, financial, accounting, legal, and certain other services to
the Company under a management services agreement terminable by either party
on December 31 in any year, upon six months written notice. These costs,
which include related overhead, are non-interest bearing, reimbursed monthly
and totaled $49.0 million in 1993 (excluding $10.7 million of restructuring
costs), $44.9 million in 1992, and $33.4 million in 1991.
Pension Plans. Substantially all the employees seconded to the Company
from FTX are covered by FTX's defined benefit plan for salaried employees. The
accumulated benefits and plan assets are not determined separately from FTX
and amounts allocated to FCX under this plan have not been material. As of
December 31, 1993, FTX's accumulated benefit obligation under the plan was
fully funded.
PT-FI has a defined benefit plan covering substantially all of its
Indonesian national employees which is funded through cash payments to
retirees at the date of retirement. Benefits are based on years of service
and level of compensation. It is anticipated that in order to comply with new
Indonesian pension laws, certain amendments to the plan will be made in 1994
which will affect future benefits provided and funding requirements. These
amendments are not expected to have a material effect on the financial
statements. The actuarial present value of the accumulated benefit
obligation, determined by the projected credit method, was fully accrued at
December 31, 1993, and amounted to $6.0 million. The projected benefit
obligation at December 31, 1993, was $11.9 million assuming a discount rate of
11% and an annual increase in future compensation levels of 9%. The pension
expense for each of the three years in the period ended December 31, 1993, was
not material.
RTM has a contractual obligation to supplement the amounts paid to
retired employees. Based on an assumed discount rate of 8%, the liability
accrued for such payments totaled $79.4 million at December 31, 1993 ($76.6
million for retirees and $2.8 million for current employees). Since the
initial acquisition, RTM has recorded expense of $5.2 million compared with
cash payments of $8.0 million. This obligation is unfunded.
Other Postretirement Benefits. FTX provides certain health care and life
insurance benefits for retired employees, including employees seconded to FCX.
Effective January 1, 1991, FCX adopted Statement of Financial Accounting
Standards No. 106 ("FAS 106") requiring current accrual for postretirement
benefits other than pensions, recording an $11.4 million charge as the
cumulative effect of the accounting change. The FAS 106 expense totaled $1.1
million in 1993 ($.2 million for service cost and $.9 million in interest for
prior period services), $1.3 million in 1992 ($.3 million for service cost and
$1.0 million in interest for prior period services), and $1.3 million in 1991
($.4 million for service cost and $.9 million in interest for prior period
services). Summary information of the plan is as follows:
December 31,
-------- --------
1992 1993
-------- --------
(amounts in thousands)
Actuarial present value of accumulated
postretirement obligation:
Retirees $ 8,604 $ 9,953
Fully eligible active plan participants 2,077 1,312
Other active plan participants 1,981 1,747
-------- --------
Total accumulated postretirement obligation 12,662 13,012
Unrecognized net loss (575) (668)
-------- --------
Accrued postretirement benefit cost $ 12,087 $ 12,344
======== ========
In determining the FAS 106 amounts, FTX used an initial health care cost
trend rate of 11.5% for 1993 (12% for 1992), decreasing 1/2% per year until
reaching 6%. A 1% increase in the trend rate would increase the FAS 106
amounts by approximately 10%. The discount rate used was 7% in 1993 and 8.5%
in 1992. FCX anticipates funding these costs, in addition to the annual cash
costs, over the expected life of its mineral reserves. FTX has the right to
modify or terminate these benefits.
10. Commitments and Contingencies.
Environmental. PT-FI believes it is in compliance with all applicable
Indonesian environmental laws, rules and regulations. Based on current
Indonesian environmental regulations, eventual mine closure and reclamation
costs, at the mine in Irian Jaya, is not expected to be material.
RTM's capital expenditures for 1994 are expected to include approximately
$18 million to modify its sulphuric acid plants, including expanding their
capacity, to comply with certain environmental standards in Spain.
Additionally, at December 31, 1993, the Company had an accrual of $10.3
million related to RTM's impending mine closure and the eventual closure of
its smelter.
Long-Term Contracts and Operating Leases. At December 31, 1993, RTM had
purchase commitments totaling $25.6 million related to the expansion of its
smelter. In addition, it had commitments to purchase concentrate from third
parties (excluding PT-FI) of 305,000 metric tons in 1994, 295,000 metric tons
in 1995, 260,000 metric tons in 1996, 140,000 metric tons in 1997, and a total
of 580,000 metric tons from 1998-2002, at then market prices.
FCX's minimum annual contractual charges under noncancellable long-term
contracts and operating leases which expire during the period 1994 to 2000,
totals $35.4 million, with $11.8 million in 1994, $8.3 million in 1995, $6.1
million in 1996, $4.2 million in 1997 and $3.8 million in 1998. Total rental
expense under long-term contracts and operating leases amounted to $15.4
million, $3.9 million, and $3.3 million in 1993, 1992, and 1991, respectively.
Infrastructure Assets Sales. During 1993, the Company entered into a
joint venture agreement with P.T. ALatieF Nusakarya Corporation ("ALatieF"),
an Indonesian investor, which provides for the sale of certain portions of the
to-be-constructed infrastructure assets and certain existing assets by PT-FI
to a joint venture or ventures (the "ALatieF Joint Venture") owned one-third
by PT-FI and two-thirds by ALatieF for total consideration of $270.0 million.
The acquired assets will be made available to PT-FI and its employees and
designees under arrangements which will provide the ALatieF Joint Venture with
a guaranteed minimum rate of return on its investment. Funding of the ALatieF
Joint Venture is expected to be provided by $90.0 million in equity
contributions from the ALatieF Joint Venture partners and $180.0 million in
debt financing, which is expected to be guaranteed by PT-FI, FCX or both. The
sale of the first group of assets to the ALatieF Joint Venture was completed
in December 1993 for a price of $90.0 million. The sale was partially financed
with a $60.0 million medium term loan facility which is guaranteed by PT-FI
(Note 7). The variable rate loan has a 5% per year amortization with a
balloon payment after five years. The ALatieF Joint Venture is consolidated
and no gain or loss was recorded on the sale. The sales which are anticipated
for 1994 and later are subject to the execution of definitive agreements and
certain Indonesian Government approvals.
In December 1993, PT-FI announced the execution of a Letter of Intent
with Duke Energy Corp. ("Duke Energy"), a wholly owned affiliate of Duke
Power Company, and PowerLink Corporation ("PowerLink"), a subsidiary of
Northstar Energy Corporation, pursuant to which PT-FI would sell its existing
and to-be-constructed power generation and transmission assets and certain
other power-related assets to a joint venture (the "Power Joint Venture")
whose ownership consists of Duke Energy (30%), PowerLink (30%), PT-FI (30%)
and an Indonesian investor (10%). The total value of the transaction is
estimated at $200 million and is expected to be concluded in two phases. The
first sale, representing the existing assets, is expected to exceed $100
million and to occur in mid-1994. The final sale, representing the
to-be-constructed expansion-related assets, is expected to occur during the
first half of 1995. Under the agreement, the Power Joint Venture will own
these assets and be responsible for providing the electrical power services
required by PT-FI at its mining, milling and support operations in Irian Jaya,
Indonesia, including the power services required for the expansion of ore
throughput to 115,000 metric tons of ore milled per day. The transaction is
subject to the execution of definitive agreements between PT-FI and the Power
Joint Venture, financing, and certain Indonesian Government approvals.
PT-FI is proceeding with plans to sell other non-operating assets under
terms whereby the purchaser will operate the assets and provide services to
PT-FI and its employees and designees.
11. Mineral Reserves (Unaudited)
The Company's estimated proved and probable mineral reserves were as
follows:
<TABLE>
<CAPTION>
Average Ore Grade Per Ton Recoverable* Content
----------------------------------------- --------------------------------
Year End Ore Copper Gold Silver Copper Gold Silver
- -------- ------------- ------- --------------- ---------------- --------- ---------- ---------
(Metric Tons) (%) (Grams) (Ounce) (Grams) (Ounce) (billions (millions (millions
of lbs.) of ozs.) of ozs.)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PT-FI
1989 256,400,000 1.64 1.24 .040 5.23 .168 8.3 8.1 27.2
1990 445,741,000 1.59 1.71 .055 4.60 .148 13.9 19.5 34.7
1991 768,045,000 1.45 1.66 .053 3.86 .124 21.8 32.4 50.0
1992 733,173,000 1.47 1.72 .055 3.87 .124 20.9 32.1 44.7
1993 1,074,100,000 1.31 1.47 .047 4.04 .130 26.8 39.1 76.7
RTM
1993 12,700,000 -- 1.03 .033 50.45 1.622 -- 0.4 8.5
</TABLE>
- --------------
* Recoverable production and reserves are used synonymously with payable
production and reserves.
FREEPORT-MCMORAN COPPER & GOLD INC.
NOTES TO FINANCIAL STATEMENTS (concluded)
12. Summarized Quarterly Financial Information (Unaudited)
Net Income (Loss) Net Income
Operating Applicable to (Loss)
Revenues Income(Loss) Common Stock Per Share
--------------------------------------------------------
(amounts in thousands, except per share amounts)
1993
1st Quarter (a)(b)(c) $133,515 $ 25,454 ($5,160) $(.03)
2nd Quarter (a)(c) 215,033 (18,463) (21,524) (.11)
3rd Quarter (a) 261,504 59,462 19,188 .10
4th Quarter 315,880 88,483 29,358 .15
-------- -------- --------
$925,932 $154,936 $ 21,862 .11
======== ======== ========
1992
1st Quarter $106,749 $ 35,212 $ 17,312 $.10
2nd Quarter 241,684 109,261 49,716 .27
3rd Quarter 157,114 58,658 23,379 .12
4th Quarter 208,768 73,298 32,461 .17
-------- -------- --------
$714,315 $276,429 $122,868 .66
======== ======== ========
a. The quarterly results have been restated to reflect the cumulative
effect of the changes in accounting principle (Note 1) and the RTM
investment on a fully consolidated basis. FCX previously reported
this investment using the equity method of accounting because FCX
anticipated reducing its interest below 50% within one year of the
initial investment in RTM. FCX is now considering alternative forms
of financing.
b. Includes a $9.9 million charge ($.05 per share), net of taxes and
minority interest, for the cumulative effect of the changes in
accounting principle.
c. Includes restructuring charges of $3.4 million ($1.9 million to net
income or $.01 per share) and $17.4 million ($9.6 million to net
income or $.05 per share) during the first and second quarters,
respectively. The second quarter includes nonrecurring charges totaling
$16.3 million ($9.0 million to net income or $.05 per share).
NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE ISSUER, FCX OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE ISSUER OR FCX SINCE SUCH DATE.
TABLE OF CONTENTS
Page
----
Incorporation of Documents by Reference........................... 2
Enforcement of Civil Liabilities.................................. 2
Prospectus Summary................................................ 3
Special Considerations............................................ 12
Use of Proceeds................................................... 15
FCX Capitalization................................................ 16
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 17
Business of FCX................................................... 24
Business of the Issuer............................................ 33
Management of FCX................................................. 37
Relationship of the FCX Group with the FTX Group.................. 40
Description of the Guaranteed Notes............................... 42
Taxation.......................................................... 57
Description of Certain Indebtedness............................... 59
Description of FCX Preferred Stock and Special Preference Stock... 62
Underwriting...................................................... 64
Legal Matters..................................................... 64
Experts........................................................... 65
Additional Information............................................ 65
Available Information............................................. 65
Notice to Canadian Residents...................................... 65
Index to Financial Statements..................................... F-1
P.T. ALatieF Freeport
Finance Company B.V.
$120,000,000
9 3/4% Senior Notes Due 2001
Unconditionally Guaranteed by
Freeport-McMoRan
Copper & Gold Inc.
--------------------
P R O S P E C T U S
--------------------
CS First Boston
Chase Securities, Inc.
APPENDIX A
A chart showing ownership structure of the Issuer, PT-FI, AFIC and
Infrastructure Affiliate, and in particular:
(i) 81.28% direct equity ownership of PT-FI by FCX; (ii) 100% equity
ownership of the Issuer by FCX and the Guaranty of the Issuer's Guaranteed
Notes by FCX; (iii) 49% equity ownership of P.T. Indocopper Investama
Corporation by FCX; (iv) 9.36% equity ownership of PT-FI by P.T.
Indocopper Investama Corporation; (v) 9.36% equity ownership of PT-FI by
the Indonesian Government; (vi) 33.3% equity ownership of AFIC and
Infrastructure Affiliates by PT-FI and Master Services Agreements between
PT-FI and AFIC, and between PT-FI and Infrastructure Affiliates; (vii)
66.7% equity ownership of AFIC and Infrastucture Affiliates by ALatieF and
(viii) $120 million loan from the Issuer to AFIC and Infrastructure
Affiliates.
APPENDIX B
Map showing location of PT-FI's Contract of Work Area and principal
ore bodies.
