SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1993
Commission File Number: 1-9916
FREEPORT-MCMORAN COPPER & GOLD INC.
Incorporated in Delaware 74-2480931
(IRS Employer Identification No.)
First Interstate Bank Building, One East First Street, Suite 1600, Reno,
Nevada 89501
Registrant's telephone number, including area code:
(702) 688-3000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes_X __No___
On June 30, 1993, there were issued and outstanding 56,810,995 shares of the
registrant's Class A Common Stock, par value $0.10 per share, and 142,129,602
shares of its Class B Common Stock, par value $0.10 per share.
The registrant hereby amends its Form 10-Q for the quarter ended June 30,
1993, as set forth in the pages attached herto and as discussed below.
After discussions with the staff of the Securities and Exchange
Commission (SEC), Freeport-McMoRan Copper & Gold Inc. (FCX) reclassified
certain expenses and accruals previously recorded in 1993 as restructuring
and valuation of assets. In response to inquiries, FCX advised the SEC
staff 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. FCX also informed the SEC staff 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 previously reported its investment in Rio Tinto Minera, S.A.
(RTM) 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,
accordingly, FCX hereby amends its report on Form 10-Q for the quarter
ended June 30, 1993 as attached hereto to reflect its investment in RTM on
a fully consolidated basis.
FREEPORT-McMoRan COPPER & GOLD INC.
TABLE OF CONTENTS
Page
----
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets ........................ 3
Statements of Operations......................... 4
Statements of Cash Flow.......................... 5
Notes to Financial Statements.................... 6
Remarks.............................................. 7
Management's Discussion and Analysis
of Financial Condition and
Results of Operations............................ 8
FREEPORT-McMoRan COPPER & GOLD INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED BALANCE SHEETS (Unaudited)
June 30, December 31,
1993 1992
---------- ------------
(in thousands)
ASSETS
Current assets:
Cash and short-term investments $ 4,678 $ 371,842
Accounts receivable:
Customers 87,813 130,587
Other 66,518 20,249
Inventories:
Product 61,258 13,911
Materials and supplies 128,591 118,347
Prepaid expenses 3,695 6,178
---------- ----------
Total current assets 352,553 661,114
Property, plant and equipment, net 1,387,080 993,412
Other assets 40,673 39,479
---------- ----------
Total assets $1,780,306 $1,694,005
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 188,136 $ 86,032
Royalties payable 1,630 3,973
Current portion of long-term debt 41,861 78,571
---------- ----------
Total current liabilities 231,627 168,576
Long-term debt, less current portion 451,607 471,429
Zero coupon exchangeable notes due 2011 118,772 173,583
Accrued postretirement benefits and
other liabilities 150,143 15,558
Deferred income taxes 203,778 196,953
Minority interest 5,809 21,449
Stockholders' equity 618,570 646,457
---------- ----------
Total liabilities and
stockholders' equity $1,780,306 $1,694,005
========== ==========
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
1993 1992 1993 1992
-------- -------- -------- --------
(in thousands,
except per share amounts)
Revenues $215,033 $241,684 $348,548 $348,433
Cost of sales:
Site production and
delivery 167,525 96,735 236,838 145,251
Depreciation and
amortization 15,636 16,049 27,699 23,437
-------- -------- -------- --------
Total cost of sales 183,161 112,784 264,537 168,688
Exploration expenses 9,303 2,868 15,716 4,402
Provision for restructuring
charges 17,380 - 20,795 -
General and administrative
expenses 23,652 16,771 40,509 30,870
-------- -------- -------- --------
Total costs and expenses 233,496 132,423 341,557 203,960
-------- -------- -------- --------
Operating income (loss) (18,463) 109,261 6,991 144,473
Interest expense, net (6,308) (5,009) (11,937) (10,334)
Other income, net 570 (391) 1,701 1,547
-------- -------- -------- --------
Income before income taxes
and minority interest (24,201) 103,861 (3,245) 135,686
Provision for income taxes 2,311 (41,220) (8,626) (52,045)
Minority interest 4,293 (12,925) 2,895 (16,613)
-------- -------- -------- --------
Income (loss) before changes in
accounting principle (17,597) 49,716 (8,976) 67,028
Cumulative effect of changes in
accounting principle, net of
taxes and minority interest - - (9,854) -
-------- -------- -------- --------
Net income (loss) (17,597) 49,716 (18,830) 67,028
Preferred dividends (3,927) - (7,854) -
-------- -------- -------- --------
Net income (loss)
applicable to common
stock $(21,524) $ 49,716 $(26,684) $ 67,028
======== ======== ======== ========
Net income (loss) per share
of common stock:
Before changes in accounting
principle $(.11) $.27 $(.09) $.37
Cumulative effect of changes in
accounting principle - - (.05) -
----- ---- ----- ----
$(.11) $.27 $(.14) $.37
===== ==== ===== ====
Average common shares
outstanding 197,550 182,137 196,608 182,134
======= ======= ======= =======
Dividends per common share $.15 $.15 $.30 $.30
==== ==== ==== ====
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF CASH FLOW (Unaudited)
Six Months Ended
June 30,
------------------
1993 1992
-------- --------
Cash flow from operating activities: (in thousands)
Net income (loss) $(18,830) $ 67,028
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Cumulative effect of changes in
accounting principle 9,854 -
Depreciation and amortization 27,699 23,437
Provision for restructuring
charges, net of payments 16,652 -
Deferred income taxes 10,737 18,578
Amortization of discount on
zero coupon notes 6,136 9,463
Minority interest's share of
net income (loss) (2,895) 16,613
(Increase) decrease in working capital,
net of acquisition:
Amount due from FTX - 20,000
Accounts receivable 26,316 (128,033)
Inventories (3,251) (14,231)
Prepaid expenses (137) (945)
Accounts payable and accrued liabilities (28,606) 21,730
Other (12,139) 3,523
-------- --------
Net cash provided by operating activities 31,536 37,163
-------- --------
Cash flow from investing activities:
Capital expenditures (199,673) (144,831)
Acquisition of Rio Tinto Minera, S.A.,
net of cash acquired (1,354) -
Other (358) -
-------- --------
Net cash used in investing activities (201,385) (144,831)
-------- --------
Cash flow from financing activities:
Cash dividends paid:
Common stock (58,834) (54,638)
Preference stock (7,854) -
Minority interest (10,037) (5,181)
Proceeds from debt 36,768 -
Repayment of debt (157,358) -
Conversion of zero coupon notes - (3,560)
Sale of subsidiary interest - 212,485
-------- --------
Net cash provided by (used in)
financing activities (197,315) 149,106
-------- --------
Net increase (decrease) in cash and
short-term investments (367,164) 41,438
Cash and short-term investments at
beginning of year 371,842 80,776
-------- --------
Cash and short-term investments at
end of period $ 4,678 $122,214
======== ========
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO FINANCIAL STATEMENTS
1. ACQUISITION OF RIO TINTO MINERA, S.A. (RTM)
In March 1993, Freeport-McMoRan Copper & Gold Inc. (FCX) acquired a 65%
interest in the Spanish company RTM, the metal/mining subsidiary of Ercros,
S.A., for approximately $52 million (excluding transaction costs), of which
$31.3 million will be paid over the next two years. The acquisition was
accounted for under the purchase method, and accordingly, the operating
results of RTM have been included in the consolidated operating results since
the date of acquisition.
2. RESTRUCTURING CHARGES
FCX recorded second-quarter 1993 expense of $17.4 million for restructuring of
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
management information systems (MIS) structure, and a write-off of costs
associated with PT-FI's previous credit agreement. During the first quarter
of 1993, FCX recorded expense of $3.4 million related primarily to the
outsourcing of FTX's research and engineering, environmental, and safety
functions.
3. CHANGES IN ACCOUNTING PRINCIPLE
Effective January 1, 1993, FCX 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 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. 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.
4. INTEREST COSTS
Interest expense is net of capitalized interest which totaled $6 million and
$6.2 million in the second quarter of 1993 and 1992, respectively, and $11.3
million and $12.4 million in the first six months of 1993 and 1992,
respectively.
5. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first six months of 1993
resulted in a shortfall of $14.5 million compared with a ratio of 6.3 to 1 for
the 1992 period. For this calculation, earnings are income from continuing
operations (including the restructuring charges discussed above)
before income taxes, minority interest, and fixed charges. Fixed charges are
interest and that portion of rent deemed representative of interest.
_______________________
Remarks
The information furnished herein should be read in conjunction with FCX's
financial statements contained in its 1992 Annual Report to stockholders and
incorporated by reference in its Annual Report on Form 10-K.
The information furnished herein reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for the
periods. All such adjustments are, in the opinion of management, of a normal
recurring nature.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
SECOND-QUARTER AND SIX-MONTHS 1993 RESULTS OF OPERATIONS COMPARED WITH
SECOND-QUARTER AND SIX MONTHS 1992
The following operating information includes the results of Freeport-
McMoRan Copper & Gold Inc. (FCX) and its majority-owned subsidiaries, P.T.
Freeport Indonesia Company (PT-FI) and Rio Tinto Minera, S.A. (RTM).
<TABLE>
<CAPTION>
Second Quarter Six Months
--------------------- -------------------
1993 1992 1993 1992
------- -------- ------- ------
<S> <C> <C> <C> <C>
PT-FI Results:
Ore milled (metric
tons, MT, per day) 56,600 58,200 59,000 56,600
Copper grade (%) 1.40 1.68 1.46 1.60
Gold grade (grams per MT) .95 1.23 1.06 1.20
Recovery rate (%)
Copper 87.3 88.9 86.7 88.9
Gold 76.7 74.5 74.7 74.2
Copper (000s of
recoverable pounds)
Production 133,500 165,100 284,100 303,700
Sales 140,000 218,200a 278,100 318,000a
Average realized
price b $.90cents $1.08cents $.92cents $1.07cents
Gold (recoverable ounces)
Production 116,900 148,800 263,700 275,400
Sales 127,200 202,800 267,500 297,800a
Average realized price $347.57 $337.52 $338.18 $340.32
Gross profit per pound of
copper:
Average realized price 90.3cents 108.4cents 91.6cents 107.1cents
Production costs:
Site production and
delivery 53.4 44.3 52.0 45.7
Gold and silver credits (32.4) (32.3) (32.8) (32.5)
Treatment charges 22.0 27.7 23.6 28.4
Royalty on recoverable
metals 1.3 2.3 1.7 2.1
------- ------- ------- -------
Cash production costs 44.3 42.0 44.5 43.7
Depreciation and
amortization 8.7 7.4 8.7 7.4
------- ------- ------- -------
Total production costs 53.0 49.4 53.2 51.1
------- ------- ------- -------
Revenue adjustments c (5.9) .1 (4.1) .5
------- ------- ------- -------
Gross profit per pound 31.4cents 59.1cents 34.3cents 56.5cents
======= ======= ======= =======
RTM Results (since acquisition):
Smelter operations:
Concentrate treated (MT) 115,300 115,300
New Anode production (MT) 46,500 46,500
Cathode production (MT) 34,600 34,600
Gold operations:
Ore milled (MT per day) 18,300 18,300
Grade (grams per MT) 1.02 1.02
Recovery rate (%) 82.0 82.0
Production (recoverable
ounces) 44,500 44,500
Average realized price $359.72 $359.72
<FN>
a. High sales volumes in 1992 resulted from the drawdown of product
inventories.
b. Includes amounts recognized on current period sales under the price
protection program (excluding amounts recognized under this program the
realization for the second-quarter and six-month periods of 1993 would
have been $.86 and $.87 per pound, respectively). Excludes the
adjustments discussed in Note c.
c. Reflects adjustments primarily for prior period concentrate sales (net of
related amounts recognized under the price protection program) and the
cost of the price protection program.
</TABLE>
FREEPORT-McMoRan COPPER & GOLD INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
After discussions with the staff of the Securities and Exchange
Commission (SEC), FCX reclassified certain expenses and accruals previously
recorded in 1993 as restructuring and valuation of assets. In response to
inquiries, FCX advised the SEC staff 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, as described in Note 3 to
the financial statements. FCX also informed the SEC staff 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 a second-quarter 1993 net loss applicable to common stock of
$21.5 million ($.11 per share) compared with income of $49.7 million ($.27 per
share) for the 1992 period. For the six months ended June 30, 1993, FCX
reported a net loss applicable to common stock of $26.7 million ($.14 per
share) compared with income of $67 million ($.37 per share) for the year-ago
period. Net income for the second-quarter and six-month periods of 1993 was
reduced by $9.6 million ($.05 per share) and $11.5 million ($.06 per share),
respectively, related to administrative restructuring costs (Note 2) and
income for the six-month period of 1993 was reduced by $9.9 million
($.05 per share) for changes in accounting principle discussed above and in
Note 3 to the financial statements. FCX's effective tax rate for
operations (excluding credits of $6.0 million and $7.3 million for the
second-quarter and six-month periods of 1993, respectively, attributable to
the restructuring charges) during the first half of 1993 is greater than
during the 1992 period due to the withholding requirement on interest and
dividends paid to FCX by PT-FI coupled with lower pretax earnings. FCX's
1993 earnings reflect a reduced minority interest ownership of PT-FI as a
result of FCX's December 1992 purchase of 49% of a publicly traded
Indonesian entity (which owns a 10% interest in PT-FI) and a reduction for
preferred stock dividends as a result of the July 1992 issuance of FCX's 7%
Convertible Exchangeable Special Preference Stock.
Revenues for the second-quarter and six-month periods of 1993
benefited from the acquisition of RTM, adding revenues of $84.2 million.
Excluding RTM, revenues for the second-quarter and six-month periods of
1993 were 46% and 24% lower, respectively, than in year-ago periods. The
second-quarter decline is primarily attributable to a 17% decrease in
copper realizations (including amounts realized from the price protection
program, discussed below) and reduced copper and gold sales volumes (36%
and 37%, respectively), due primarily to a mill level ore pass cave-in
discussed below and the high second-quarter 1992 sales levels achieved due
to the drawdown of inventories. A $7.4 million downward revenue adjustment
was made during the second quarter of 1993 due to falling copper prices,
compared with a $1.8 million upward revenue adjustment in the 1992 period.
At June 30, 1993, 127.5 million pounds of copper remained to be
contractually priced during future quotational periods. As a result of PT-
FI's price protection program, these pounds are recorded at an average
price of $.90 per pound. Revenues were positively impacted by a 5.7 cents
per pound decrease in treatment charges from the year-ago quarter, when PT-
FI had more spot market sales of its copper/gold concentrate, which carried
higher costs for treatment charges than long-term contracts. Treatment
charges were also favorably impacted by the lower copper prices, as the
charges vary with the price of copper. PT-FI has obtained sales
commitments from its purchasers for virtually all of its estimated 1993 and
1994 production to be priced at the then current market price under the
terms of the contracts.
In June 1993, one of PT-FI's four mill level ore passes caved,
resulting in a partial blockage of the ore pass and a restriction at an
adjacent pass. The blockage's primary effect was to limit mill throughput
to approximately 39,500 metric tons of ore per day (MTPD) for about six
weeks; however, the ore flow system has been repaired and production is
expected to reach 66,000 MTPD by the end of July. The impact of the cave-
in was minimized by using an ore stockpile adjacent to the mill and the
installation of conveyors to alternative ore pass systems. The second-
quarter 1993 copper recovery rate was lower because the ore milled from the
stockpile contained higher than normal oxidized copper, which yields lower
copper recoveries. Copper recovery rates are expected to improve upon
completion of the 66,000 MTPD expansion, and ore grades for 1993 are
projected to average 1.59% copper and 1.40 grams of gold per ton. PT-FI's
annual 1993 sales are estimated at 650 million recoverable pounds of copper
and 755,000 recoverable ounces of gold.
Early in the second quarter of 1993 copper prices dropped to their
lowest levels since 1987, due to lower demand caused by the continued
global recession. PT-FI has in place a price protection program which
eliminates exposure to declines in copper prices below an average $.90 per
recoverable pound for the estimated copper sales expected to be priced
during 1993 and 1994, and for virtually all of the estimated gold sales
expected to be priced during 1993 at an average floor price of $320 per
recoverable ounce of gold, while allowing full benefit from prices above
these amounts. PT-FI recognized $12 million of additional revenues
(excluding $2.7 million in amortized cost) in the second quarter of 1993 as
a result of this program. RTM has a policy of eliminating significant
exposure to copper price fluctuations by hedging purchases of concentrate
at its smelter at the time of each purchase.
Current quarter PT-FI site production and delivery costs, excluding
the $10.0 million charge discussed below, decreased 23% over the comparable
1992 period, due primarily to the decrease in copper sales volumes. Unit
site production and delivery costs increased 9.1 cents per pound primarily
as a result of costs incurred in connection with the ore pass cave-in,
(including a $2.5 million insurance deductible), lower production volumes,
and lower copper recovery rates. Operating efficiencies are expected to
lower the unit production costs during the third quarter of 1993 when
production reaches the 66,000 MTPD level. In addition, as more gold is
produced from the Grasberg ore body, cash production costs will benefit
from higher gold and silver credits. During the last half of 1993, these
credits are expected to increase significantly.
Effective January 1, 1993, PT-FI increased its depreciation rate to
8.3 cents per recoverable pound due to increased costs relating to the
66,000 MTPD expansion and the lack of any significant reserve additions.
FCX is also amortizing the cost in excess of book value relating to the
purchase of 49% of the capital stock of a publicly traded Indonesian entity
which owns a 10% interest in PT-FI. This additional depreciation totaled
$.6 million for each quarter of 1993. RTM depreciation totaled $3.4
million for the second-quarter and six-month periods of 1993.
Exploration expenses, currently budgeted at approximately $30 million
for 1993, excluding RTM, have increased as FCX aggressively explores
promising prospects in both the 24,700 acre original contract of work area
and the contiguous 6.5 million acre exploration area. In April 1993, a
subsidiary of FCX was granted an exploration permit which gives rights for
a limited period to explore for minerals on 2.5 million acres adjacent to
the 6.5 million acre exploration area. Preliminary exploration of this
area is expected to begin later this year.
FCX's general and administrative expenses for the six months ended
June 30, 1993 increased from $30.9 milion in 1992 to $40.5 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 $1.3 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).
During the second quarter of 1993, Freeport-McMoRan Inc. (FTX), the
parent company of FCX, 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 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.
In connection with the restructuring project, FCX changed its
accounting systems 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.
ENHANCED INFRASTRUCTURE PROJECT PT-FI has an agreement with Huarte S.A.
(Huarte) to construct the initial phase of the Enhanced Infrastructure
Project (EIP), which has an estimated cost of $200 million. Depending on
the success of PT-FI's exploration program, the total cost of the EIP,
including subsequent phases, could range between $500 million and $600
million.
Under the terms of a March 1993 agreement with ALatieF, an Indonesian
investor, certain portions of the EIP are to be sold by PT-FI to a joint
venture owned 1/3 by PT-FI and 2/3 by ALatieF for total consideration of
$270 million. The joint venture will purchase $90 million of EIP assets
annually over the period 1993-1995, with funding provided by equity
contributions from the joint venture partners ($90 million) and debt
financing ($180 million). The acquired assets will be made available to
PT-FI and its employees and designees under arrangements which will provide
the joint venture with a guaranteed minimum rate of return on its
investment. Certain existing EIP related contracts with Huarte will be
assigned to the joint venture as appropriate.
CAPITAL RESOURCES AND LIQUIDITY Cash flow from operations was $31.5 million
for the first six months of 1993, compared with $37.2 million for the 1992
period, due primarily to significant cash payments received for ore
shipments made at the end of 1992 and during 1993 compared with a
significant increase in accounts receivable during the 1992 period,
partially offset by a decrease in net income. The initial noncash impact
of the acquisition of RTM on FCX's consolidated balance sheet was to
decrease working capital by $15.1 million, increase property, plant and
equipment by $243.3 million, and increase long-term liabilities by $170.3
million.
Cash flow used in investing activities totaled $201.4 million,
reflecting an increase in capital expenditures for continued expansion and
the EIP and the March 1993 acquisition of RTM (Note 1). RTM will use the
FCX purchase proceeds for working capital requirements and capital
expenditures, including funding a portion of the cost of the expansion of
its smelter production capacity from its current 150,000 metric tons of
metal per year to at least 180,000 metric tons of metal per year by 1995.
In 1992 PT-FI entered into a long-term contract with RTM to provide the
smelter with a significant portion of its copper concentrate requirements
beginning in 1993.
Cash flow used in financing activities totaled $197.3 million compared
with $149.1 million provided by financing activities during the 1992
period. During the 1993 period, a net $120.6 million repayment of debt
occurred and dividend payments rose due to increased Class A shares
outstanding and dividends paid on depositary shares issued in July 1992.
In January 1992 $212.5 million was received from the sale of a 10% interest
in PT-FI to Indonesian investors in December 1991.
During the first six months of 1993 Zero Coupon Exchangeable Notes
(the Notes) with a face value of $241.8 million were tendered to FCX for
conversion, with FCX issuing approximately 3.6 million Class A shares in
return, leaving Notes with a face value of $466.8 million outstanding (45%
of the original face amount issued). As a result of the issuance by FCX of
its stock, it is contemplated that PT-FI will issue shares of its stock to
FCX as repayment for Notes converted for FCX stock.
At June 30, 1993, FCX had $4.7 million of cash and short-term
investments compared with $371.8 million at December 31, 1992. The
significant reduction reflects the capital expenditures and dividends paid
during the six month period as well as a reduction in borrowings under PT-
FI's amended credit agreement. PT-FI amended its credit agreement in June
1993, eliminating the requirement for a debt service reserve account and
making certain other changes to the credit agreement including reducing the
interest rate that PT-FI pays on its loans. In addition, the amended
credit agreement is guaranteed by FTX and FCX. The amended credit
agreement expires on December 31, 1999 and is structured as a 3 year
revolving line of credit followed by a 3 1/2 year reducing revolving line
of credit. On July 7, 1993 FCX issued 14 million depositary shares (each
with an initial dividend of $1.25 per year) for net proceeds of $340.7
million. These funds were loaned to PT-FI and were initially used to
reduce outstanding indebtedness. As of July 16, 1993, $488.3 million was
available under the credit facility. To the extent FTX and its other
subsidiaries incur additional borrowings, the amount available to PT-FI
under the credit facility will be reduced.
Future capital expenditures are expected to be significant through
1995 when PT-FI's 90,000 MTPD expansion is expected to be completed.
Subsequently, capital expenditures will be determined by the results of
FCX's exploration activities. Estimated capital expenditures for the
66,000 MTPD and 90,000 MTPD expansion programs ($90 million and $545
million, respectively), the initial phase of the EIP ($200 million) and the
acquisition of RTM ($52 million, excluding transaction costs) will be
funded by operating cash flow, sales of existing and to-be-constructed
infrastructure assets and a wide range of financing sources 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 issuances of public and private securities. Additional expenditures
for EIP assets beyond the initial phase, which could range between $300
million and $400 million, depend on the success of PT-FI's exploration
program. Additional EIP expenditures, if any, would be expected to be
funded by third-party financing sources, which may include debt, equity or
asset sales.
The new contract of work 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 Government of Indonesia 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 one-half of the smelter's copper
concentrate requirements at market prices.
Over the 1993 to 1995 period, capital expenditures are expected to be
greater than cash flow from operations. However, upon completion of the
90,000 MTPD expansion, expected to occur by year end 1995, annual
production is expected to approach 1 billion pounds of copper and 1.2
million to 1.5 million ounces of gold thereby allowing projected operating
cash flow to significantly exceed the level of capital expenditures related
to producing FCX's present reserves, enhancing FCX's financial flexibility.
On August 1, 1993, FCX paid a $.15 per common share dividend and a
$.4375 per depositary share dividend. 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 expenditures requirements and the availability and
cost of financing from third parties.
____________________
The results of operations reported and summarized above are not necessarily
indicative of future operating results.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
April 6, 1994
FREEPORT-McMoRan COPPER & GOLD INC.
By: /s/ John T. Eads
-------------------------------
John T. Eads
Vice President
