SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1998
Commission File Number: 1-9916
Freeport-McMoRan Copper & Gold Inc.
Incorporated in Delaware 74-2480931
(IRS Employer Identification No.)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code: (504) 582-4000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
On June 30, 1998, there were issued and outstanding 72,042,844
shares of the registrant's Class A Common Stock, par value $0.10
per share, and 107,829,877 shares of its Class B Common Stock,
par value $0.10 per share.
FREEPORT-McMoRan COPPER & GOLD INC.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Income 4
Statements of Cash Flow 5
Notes to Financial Statements 6
Remarks 7
Report of Independent Public Accountants 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information 17
Signature 18
Exhibit Index E-1
<PAGE> 2
FREEPORT-McMoRan COPPER & GOLD INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ----------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,223 $ 8,959
Accounts receivable 168,647 129,611
Inventories 289,032 314,800
Prepaid expenses and other 6,295 9,719
---------- ----------
Total current assets 469,197 463,089
Property, plant and equipment, net 3,565,734 3,521,715
Investment in PT Smelting 84,975 83,061
Other assets 98,251 84,344
---------- ----------
Total assets $4,218,157 $4,152,209
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 286,292 $ 363,294
Current portion of long-term debt
and short-term borrowings 95,211 80,852
Accrued income taxes 37,133 31,519
---------- ----------
Total current liabilities 418,636 475,665
Long-term debt, less current portion:
FCX and PT-FI credit facilities 452,000 250,000
Senior notes 570,000 570,000
Infrastructure asset financings, net 649,244 664,506
Rio Tinto loan 402,543 464,360
Atlantic Copper debt 307,173 311,223
Other notes payable 45,528 48,041
Accrued postretirement benefits
and other liabilities 122,342 125,980
Deferred income taxes 432,361 403,047
Minority interests 71,096 60,488
Mandatory redeemable preferred stock 500,007 500,007
Stockholders' equity 247,227 278,892
---------- ----------
Total liabilities and
stockholders' equity $4,218,157 $4,152,209
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 3
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ --------------------
1998 1997 1998 1997
-------- -------- -------- ----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues $433,858 $566,950 $829,990 $1,090,730
Cost of sales:
Production and delivery 210,915 262,918 396,773 512,404
Depreciation and
amortization 63,978 54,609 122,253 101,865
-------- -------- -------- ----------
Total cost of sales 274,893 317,527 519,026 614,269
Exploration expenses 4,919 6,234 7,566 8,962
General and
administrative expenses 19,108 29,488 38,656 56,190
-------- -------- -------- ----------
Total costs and expenses 298,920 353,249 565,248 679,421
-------- -------- -------- ----------
Operating income 134,938 213,701 264,742 411,309
Interest expense, net (53,262) (40,476) (101,842) (73,624)
Other income
(expense), net (789) (523) (2,088) 1,475
-------- -------- -------- ----------
Income before income
taxes and minority
interests 80,887 172,702 160,812 339,160
Provision for income taxes (38,726) (78,284) (75,882) (156,890)
Minority interests
in net income of
consolidated
subsidiaries (7,423) (15,361) (14,565) (31,392)
-------- -------- -------- ----------
Net income 34,738 79,057 70,365 150,878
Preferred dividends (8,936) (9,205) (17,971) (18,575)
Net income applicable -------- -------- -------- ----------
to common stock $ 25,802 $ 69,852 $ 52,394 $ 132,303
======== ======== ======== ==========
Net income per share of common stock:
Basic $.14 $.35 $.29 $.66
==== ==== ==== ====
Diluted $.14 $.35 $.29 $.66
==== ==== ==== ====
Average common shares outstanding:
Basic 180,561 199,289 180,906 200,311
======= ======= ======= =======
Diluted 180,772 200,875 181,040 201,945
======= ======= ======= =======
Dividends paid
per common share $.05 $.225 $.10 $.45
==== ===== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 4
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF CASH FLOW (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
---------------------
1998 1997
-------- --------
(In Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 70,365 $150,878
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 122,253 101,865
Deferred income taxes 24,313 49,968
Deferral of unearned income - 30,102
Recognition of unearned income - (70,229)
Minority interests' share of
net income 14,565 31,392
Other (9,722) (17,131)
(Increase) decrease in working capital:
Accounts receivable (51,338) (29,023)
Inventories 17,193 (23,799)
Prepaid expenses and other 3,423 1,091
Accounts payable and
accrued liabilities (18,455) 25,118
Accrued income taxes 7,517 (45,625)
-------- --------
Increase in working capital (41,660) (72,238)
-------- --------
Net cash provided by
operating activities 180,114 204,607
-------- --------
Cash flow from investing activities:
Capital expenditures:
PT-FI (207,840) (249,462)
Atlantic Copper (4,306) (3,111)
Investment in PT Smelting (2,606) (16,859)
Other (4,623) (344)
-------- --------
Net cash used in investing activities (219,375) (269,776)
-------- --------
Cash flow from financing activities:
Net proceeds from
(repayment to) Rio Tinto (27,500) 265,286
Proceeds from other debt 279,301 242,425
Repayment of other debt (99,139) (250,208)
Net proceeds from
infrastructure financing - 27,344
Purchase of FCX common shares (66,885) (102,319)
Cash dividends paid:
Common stock (18,128) (90,321)
Preferred stock (19,771) (20,650)
Minority interests (3,955) (16,918)
Other (8,398) (2,981)
-------- --------
Net cash provided by
financing activities 35,525 51,658
-------- --------
Net decrease in cash and
cash equivalents (3,736) (13,511)
Cash and cash equivalents at
beginning of year 8,959 37,118
-------- --------
Cash and cash equivalents at
end of period $ 5,223 $ 23,607
======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 5
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO FINANCIAL STATEMENTS
1. NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128 (SFAS
128), "Earnings Per Share," which simplifies the computation of
earnings per share (EPS). Freeport-McMoRan Copper & Gold Inc.
(FCX) adopted SFAS 128 in the fourth quarter of 1997 and restated
prior periods' EPS data as required by SFAS 128.
Basic net income per share of common stock was calculated by
dividing net income applicable to common stock by the weighted-
average number of common shares outstanding during the period.
Diluted net income per share of common stock was calculated by
dividing net income applicable to common stock by the weighted-
average number of common shares outstanding during the period
plus the net effect of dilutive stock options. Dilutive stock
options represented 0.2 million shares in the second quarter of
1998, 0.1 million shares in the six-month 1998 period and 1.6
million shares in each of the 1997 periods.
Options to purchase common stock that were outstanding
during the periods presented but were not included in the
computation of diluted net income per share of common stock
totaled options for 10.0 million and 10.1 million shares in the
second quarter and first six months of 1998, respectively, at an
average exercise price of approximately $23 per share, and
options for 1.6 million shares at an average exercise price of
approximately $35 per share in the second-quarter and six-month
1997 periods. These options were excluded because their exercise
prices were greater than the average market price of the common
stock during the period. The FCX convertible preferred stock
outstanding was not included in the computation of diluted net
income per share of common stock because including the conversion
of these shares would have increased net income per share of
common stock. The preferred stock was convertible into 11.7
million shares of common stock in 1998 and 1997. Dividends
accrued on convertible preferred stock totaled $5.2 million in
the second quarters of 1998 and 1997 and $10.5 million in the
six-month periods of 1998 and 1997.
In June 1997, the FASB issued SFAS 130, "Reporting
Comprehensive Income," which establishes standards for reporting
and display of comprehensive income in the financial statements.
Comprehensive income is the total of net income and all other
nonowner changes in equity, of which FCX currently only has
cumulative foreign currency translation adjustments. There were
no changes to the cumulative foreign currency translation
adjustments balance during the periods presented. SFAS 130 is
effective for 1998 and adoption of this standard by FCX effective
January 1, 1998 had no effect on FCX's financial position or
results of operations.
In June 1998, the FASB issued SFAS 133, "Accounting for
Derivative Instruments and Hedging Activity," which establishes
accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows
a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS 133 is
effective for fiscal years beginning after June 15, 1999 with
earlier application permitted beginning as early as July 1, 1998.
FCX is currently assessing the impact that adoption of SFAS 133
would have on its current accounting for the financial contracts
discussed below and on its financial statements, if any, and has
not yet determined the timing or method of adoption of SFAS 133;
however, it could impact earnings and other comprehensive income.
2. FINANCIAL CONTRACTS
At certain times, FCX has entered into financial contracts to
manage certain risks resulting from fluctuations in commodity
prices (primarily copper and gold), foreign currency exchange
rates and interest rates by creating offsetting exposures. Costs
or premiums and gains or losses on contracts meeting deferral
criteria, including closed contracts, are recognized with the
hedged transaction. Gains or losses are recognized if the hedged
transaction is no longer expected to occur or if deferral
criteria are not met. FCX monitors its credit risk on an ongoing
basis and considers this risk to be minimal because its contracts
are with a diversified group of financially strong
counterparties.
<PAGE> 6
At June 30, 1998, FCX had redeemable preferred stock indexed
to commodities, deferred costs on closed foreign currency option
contracts, open foreign currency forward contracts, open forward
copper sales and purchase contracts, open forward silver sales
contracts and interest rate swap contracts. Redeemable preferred
stock indexed to commodities is treated as a hedge of future
production and is carried at its original issue value. As
principal payments occur, differences between the carrying value
and the payment will be recorded as an adjustment to revenues.
FCX hedges a portion of its anticipated Spanish peseta,
Indonesian rupiah and Australian dollar cash outflows with
foreign currency forward contracts. Changes in market value of
foreign currency forward contracts which protect anticipated
transactions are recognized in the period incurred. Atlantic
Copper, S.A., (Atlantic) a wholly owned subsidiary of FCX, enters
into futures contracts to hedge its copper price risk whenever
its physical purchases and sales pricing periods do not match.
Atlantic also hedges its silver price risk with silver forward
sales contracts. Gains and losses on these contracts are
recognized with the hedged transaction. FCX has interest rate
swap contracts to limit the effect of increases in the interest
rates on floating rate debt. The costs associated with these
contracts are amortized to interest expense over the terms of the
agreements.
3. INTEREST COST
Interest expense excludes capitalized interest of $4.8 million in
the second quarter of 1998, $5.1 million in the second quarter of
1997, $14.9 million in the first six months of 1998 and $6.8
million in the first six months of 1997.
4. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first six months
of 1998 and 1997 was 2.2 to 1 and 5.1 to 1, respectively. For
this calculation, earnings consist of income from continuing
operations before income taxes, minority interests and fixed
charges. Fixed charges include interest and that portion of rent
deemed representative of interest.
----------------------
Remarks
The information furnished herein should be read in conjunction
with FCX's financial statements contained in its 1997 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.
<PAGE> 7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Freeport-McMoRan Copper & Gold Inc.:
We have reviewed the accompanying condensed balance sheet of
Freeport-McMoRan Copper & Gold Inc. (a Delaware corporation) as
of June 30, 1998, and the related statements of income for the
three and six-month periods ended June 30, 1998 and 1997, and the
statements of cash flow for the six- month periods ended June 30,
1998 and 1997. These financial statements are the responsibility
of the Company's management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data
and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the balance sheet of Freeport-
McMoRan Copper & Gold Inc. as of December 31, 1997, and the
related statements of income, stockholders' equity and cash flow
for the year then ended (not presented herein), and, in our
report dated January 20, 1998, we expressed an unqualified
opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed balance sheet
as of December 31, 1997, is fairly stated, in all material
respects, in relation to the balance sheet from which it has been
derived.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
July 21, 1998
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OVERVIEW
Freeport-McMoRan Copper & Gold Inc. (FCX) operates through its
majority-owned subsidiaries, P.T. Freeport Indonesia Company (PT-
FI) and P.T. Irja Eastern Minerals Corporation (Eastern Mining),
and through Atlantic Copper, S.A. (Atlantic), a wholly owned
subsidiary. PT-FI's operations involve mineral exploration and
development, mining and milling of ore containing copper, gold
and silver in Irian Jaya, Indonesia and the worldwide marketing
of concentrates containing those metals. PT-FI also has a 25
percent interest in P.T. Smelting Co. (PT Smelting), an
Indonesian company formed to construct and operate a copper
smelter and refinery in Gresik, Indonesia. Eastern Mining
conducts mineral exploration activities in Irian Jaya. Atlantic
is engaged in the smelting and refining of copper concentrates in
Spain and the marketing of refined copper products.
Summary FCX comparative results for the second-quarter and
six-month periods follow (in millions, except per share amounts):
<TABLE>
<CAPTION>
Second Quarter Six Months
-------------- ---------------
1998 1997 1998 1997
------ ------ ------ --------
<S> <C> <C> <C> <C>
Revenues $433.9 $567.0 $830.0 $1,090.7
Operating income 134.9 213.7 264.7 411.3
Net income applicable
to common stock 25.8 69.9 52.4 132.3
Diluted net income per
share of common stock .14 .35 .29 .66
</TABLE>
FCX's revenues include PT-FI's sale of copper concentrates,
which also contain significant amounts of gold, and the sale of
copper cathodes and wire rod by Atlantic. FCX's revenues and net
income vary significantly with fluctuations in the market prices
of copper and gold and other factors. At various times, in
response to market conditions, FCX has entered into copper and
gold price protection contracts for some portion of its expected
future mine production to mitigate the risk of adverse price
fluctuations (see "PT-FI Outlook and Price Protection Program").
FCX currently has no copper or gold price protection contracts
relating to its mine production. Based on PT-FI's projected 1998
sales volumes, a $0.01 per pound change in the average price
realized on copper sales would have an approximate $14 million
impact on revenues and an approximate $7 million impact on net
income. A $10 per ounce change in the average price realized on
PT-FI annual gold sales would have an approximate $22 million
impact on revenues and an approximate $11 million impact on net
income.
Lower second-quarter and six-month 1998 revenues primarily
reflect significantly lower copper and gold realizations,
partially offset by higher sales volumes at PT-FI because of
increased production from the "fourth concentrator mill
expansion," which continues to ramp up. Second-quarter 1998
revenues benefited by $3.9 million ($1.9 million to net income or
$0.01 per share) from adjustments to March 31, 1998 "open"
concentrate sales and the six-month 1998 period benefited by
$23.3 million ($11.4 million to net income or $0.06 per share)
from adjustments to December 31, 1997 open sales. The second-
quarter and six-month 1997 periods benefited from adjustments to
prior period open concentrate sales, the previous sale of copper
put option contracts and the impact of forward copper and gold
sales contracts, which collectively provided $63.9 million to
second-quarter 1997 revenues ($31.1 million to net income or
$0.15 per share) and $119.0 million to six-month 1997 revenues
($58.0 million to net income or $0.29 per share).
Cost of sales decreased by $42.6 million for the 1998 second
quarter when compared with the 1997 quarter and by $95.2 million
for the 1998 six-month period when compared with the 1997 six-
month period. The decreases were caused by a number of factors,
including lower labor costs reflecting the devaluation of the
Indonesian rupiah, lower diesel fuel and power costs, and cost
reduction efforts, partially offset by higher sales volumes and
an increase in the PT-FI depreciation rate resulting from
additional capital assets being subject to depreciation. Most
exploration costs are now being shared 60 percent by FCX and 40
percent by Rio Tinto plc (Rio Tinto) except in PT-FI's Block A
area where $6.4 million remains to be applied against Rio Tinto's
$100 million exploration funding received in 1996. General and
administrative expenses in the 1998 periods were lower primarily
because of cost reduction efforts and cost sharing with Rio
Tinto. Increased net interest expense primarily reflects higher
average debt levels. The lower provision for income taxes and
minority interests charges in the 1998 periods compared with the
1997 periods primarily reflect reduced net income levels at PT-
FI.
<PAGE> 9
RESULTS OF OPERATIONS
FCX has two operating segments: "mining and exploration" and
"smelting and refining." The mining and exploration segment
includes PT-FI's copper and gold mining operations in Indonesia
and the Indonesian exploration activities of both PT-FI and
Eastern Mining. The smelting and refining segment includes
Atlantic's operations in Spain and PT-FI's equity investment in
PT Smelting. Summary comparative results for the second-quarter
and six-month periods follow (in millions):
<TABLE>
<CAPTION>
Second Quarter Six Months
-------------- --------------
1998 1997 1998 1997
------ ------ ------ -------
<S> <C> <C> <C> <C>
Mining and exploration $120.9 $211.4 $241.9 $ 394.4
Smelting and refining 10.4 5.8 21.8 9.5
Intercompany eliminations
and other a 3.6 (3.5) 1.0 7.4
------ ------ ------ -------
FCX operating income $134.9 $213.7 $264.7 $ 411.3
====== ====== ====== =======
</TABLE>
a. Additional profits recognized on PT-FI's sales to Atlantic
totaled $7.2 million in the second quarter of 1998, $1.6
million in the second quarter of 1997, $8.2 million in the
first six months of 1998 and $16.7 million in the first six
months of 1997. Concentrate sales to Atlantic may cause
fluctuations in FCX's consolidated quarterly earnings
depending on the timing of the shipments and prices.
MINING AND EXPLORATION
A summary of increases (decreases) in PT-FI revenues between the
periods follows (in millions):
<TABLE>
<CAPTION>
Second Six
Quarter Months
------- -------
<S> <C> <C>
Price realizations:
Copper $(127.4) $(247.4)
Gold (41.3) (81.7)
Sales volumes:
Copper 17.9 55.9
Gold 18.0 35.9
Adjustments to prior period open sales (21.7) (30.0)
Treatment charges, royalties and other 13.2 18.3
------- -------
Net decrease in PT-FI revenues
from prior-year period $(141.3) $(249.0)
======= =======
</TABLE>
PT-FI's second-quarter and six-month 1998 revenues declined
compared with the 1997 periods because of significant declines in
price realizations, partially offset by increases in sales
volumes. See "PT-FI Operating Results." The 1997 period
realizations included copper and gold hedging gains discussed
below. PT-FI's 1998 revenues included net upward adjustments on
prior period open concentrate sales of $5.1 million for the
second quarter and $25.5 million for the six-month period,
compared with $26.8 million for the second quarter and $55.5
million for the six-month 1997 periods. Treatment charges were
lower in the 1998 periods because of price participation in PT-
FI's smelter contracts which provides for reduced treatment
charges during periods of lower copper prices, partially offset
by the higher sales volumes. Royalty costs were reduced because
of lower metal prices. Treatment rates for a significant portion
of PT-FI's 1998 projected sales were negotiated in the fourth
quarter of 1997 based on then current market conditions.
PT-FI Outlook and Price Protection Program. PT-FI has commitments
from various parties, including Atlantic, to purchase virtually
all of its expected 1998 production at market prices. PT-FI
had projected its share of sales for the third quarter of 1998
to be approximately 415 million pounds of copper and 540,000
ounces of gold, and its share of sales for 1998 to be approximately
1.4 billion pounds of copper and 2.2 million ounces of gold. PT-
FI's sales projections could be affected by the August 11 to August
14, 1998, work stoppage as discussed further under "Current
Developments." Copper and gold sales for 1998 reflect production
at greater than mine-life grades during the year.
The significant decline in gold prices in early 1997
increased the value of PT-FI's forward gold sales contracts
covering 876,000 ounces of gold at an average price of $376.08
per ounce from February 1997 through August 1997. In February
1997, PT-FI closed these contracts and received $30.1 million
cash. As a result, PT-FI reported gold revenues through August
1997 at a higher price than realized under its contract terms
with customers, but PT-FI no longer has forward gold sales
positions. PT-FI
<PAGE> 10
recognized $17.5 million of gold revenues from
forward sales contracts during the second quarter of 1997 and
$31.6 million during the first six months of 1997. PT-FI has
suspended its program of selling gold forward on a six-month
basis but may reinstate the program in the future. Future gold
sales will be priced at current market prices as long as the
forward sales program is suspended. The closing London Bullion
Market Association spot gold price was $294.85 per ounce on July
20, 1998.
The significant decline in copper prices during 1996
increased the value of put option contracts that PT-FI purchased
under its price protection program to provide a floor price of
$0.90 per pound for essentially all copper sales through the
second quarter of 1997 at an average cost of approximately $0.02
per pound. During the third quarter of 1996, PT-FI sold all of
its put option contracts covering approximately 1.2 billion
pounds of copper for $97.2 million cash. As a result, PT-FI
reported copper revenues through June 30, 1997 at a higher price
than realized under its copper concentrate sales contracts, but
PT-FI no longer has any price protection on its future copper
sales. As conditions warrant, PT-FI may enter into new contracts
for its future copper sales. PT-FI recognized net additional
copper revenues of $17.8 million in the second quarter of 1997
and $35.6 million in the first six months of 1997 from the sale
of its put option contracts. In June 1997, PT-FI entered into
forward sales contracts to fix prices on 56.5 million open pounds
of copper sales at an average of $1.22 per pound. PT-FI recorded
$5.3 million of additional revenues in June 1997 from these
forward sales.
PT-FI's concentrate sales agreements, with regard to copper,
provide for provisional billings at the time of shipment with
final settlement generally based on the average London Metal
Exchange (LME) price for a specified future month. Copper
revenues on provisionally priced open pounds are adjusted monthly
based on then current prices. At June 30, 1998, FCX had
consolidated copper sales totaling 127.2 million pounds recorded
at an average price of $0.74 per pound remaining to be finally
priced. Approximately 75 percent of these open pounds are
expected to be finally priced during the third quarter of 1998
with the remaining pounds to be priced during the fourth quarter
of 1998. A one cent movement in the average price used for these
open pounds will have an approximate $0.6 million impact on FCX's
1998 net income. The volume of copper sales that remains to be
finally priced has decreased in the 1998 second quarter compared
to previous periods because average final pricing periods are
closer to the date of shipment.
PT-FI Operating Results
<TABLE>
<CAPTION>
Second Quarter Six Months
----------------- -----------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Ore milled (metric tons
per day, MTPD) 201,200 130,800 183,700 127,400
Copper grade (%) 1.13 1.35 1.19 1.30
Gold grade (grams per
metric ton) 1.18 1.31 1.28 1.32
Recovery rate (%)
Copper 85.7 85.9 86.3 85.2
Gold 83.0 79.2 83.1 77.8
Copper
Production (000s of
recoverable pounds) 314,900a 292,800 603,800a 545,300
Sales (000s of
recoverable pounds) 321,400b 305,900 609,600b 562,000
Average realized price $.76 $1.16c $.77 $1.17c
Gold
Production (recoverable
ounces) 447,700a 386,900 880,700a 737,500
Sales (recoverable
ounces) 478,800b 431,700 898,600b 805,200
Average realized price $295.81 $382.16d $293.96 384.86d
Gross profit per pound of copper (cents):
Average realized price 76.1 115.8c 76.9 117.5c
---- ----- ---- -----
Production costs:
Site production and
delivery 35.7 53.8 35.7 56.3
Gold and silver credits (43.9) (54.0) (43.1) (55.0)
Treatment charges 23.5 25.8 24.0 25.7
Royalty on metals 1.3 3.4 1.2 3.3
----- ----- ----- -----
Cash production costs 16.6 29.0 17.8 30.3
Depreciation and
amortization 17.0 15.0 17.0 15.0
---- ---- ---- -----
Total production costs 33.6 44.0 34.8 45.3
---- ---- ---- -----
Revenue adjustments e 1.5 7.2 4.0 8.0
---- ---- ---- -----
Gross profit per pound
of copper 44.0 79.0 46.1 80.2
==== ==== ==== =====
</TABLE>
<PAGE> 11
a. Amounts are PT-FI's share of aggregate production, which
totaled 378.7 million pounds of copper and 561,900 ounces of
gold for the second quarter and 726.1 million pounds of
copper and 1,105,300 ounces of gold for the six-month
period.
b. Amounts are PT-FI's share of aggregate sales, which totaled
386.4 million pounds of copper and 596,100 ounces of gold
for the second quarter and 727.9 million pounds of copper
and 1,112,600 ounces of gold for the six-month period.
c. Amounts were $1.06 for the second quarter and $1.08 for the
six-month period before hedging adjustments.
d. Amounts were $340.70 for the second quarter and $344.86 for
the six-month period before hedging adjustments.
e. Reflects adjustments to PT-FI revenues for prior period
concentrate sales, and amortization of the price protection
program cost in the 1997 periods.
Unit site production and delivery costs in the 1998 periods
averaged $0.36 per pound of copper for the second quarter and
first six months of 1998, 34 percent below the $0.54 per pound
reported in the second quarter of 1997 and 37 percent below the
$0.56 per pound reported in the first six months of 1997. The
decrease in unit costs is primarily because of lower labor costs
reflecting the devaluation of the Indonesian rupiah, lower diesel
fuel and power costs, economies of scale from the fourth
concentrator mill expansion and cost reduction efforts. Primarily
because of the lower gold realizations, gold credits were lower
in the 1998 periods when compared with the 1997 periods. Unit
treatment charges were lower in the 1998 periods primarily
because of lower price participation, which varies with the price
of copper.
On metal sales from mill throughput up to 200,000 MTPD, PT-
FI's copper royalty rate varies from 1.5 percent, at a copper
price of $0.90 or less, to 3.5 percent, at a copper price over
$1.10, on copper net revenue. The gold and silver royalty rate
is 1.0 percent. On metal sales from mill throughput in excess of
200,000 MTPD, PT-FI's copper royalty rate varies from 3.0
percent, at a copper price of $0.90 or less, to 7.0 percent, at a
copper price over $1.10, on copper net revenue. The gold and
silver royalty rate is 2.0 percent. At the current gold price
($294.85 per ounce on July 20, 1998), PT-FI's 1998 average unit
cash production costs, including gold and silver credits, are
expected to be less than $0.20 per pound of copper. PT-FI's
depreciation rate of 17.0 cents per pound for 1998 reflects an
increase over the 1997 rate for a half year of depreciation on
the fourth concentrator mill expansion and other capital
additions.
FCX conducts the majority of its operations in Indonesia and
Spain where its functional currencies are U.S. dollars. All of
FCX's revenues are denominated in U.S. dollars; however, some
costs and certain asset and liability accounts are denominated in
either Indonesian rupiah, Australian dollars or Spanish pesetas.
Generally, FCX's results are positively affected when the U.S.
dollar strengthens against these foreign currencies and adversely
affected when the U.S. dollar weakens against these foreign
currencies.
Over the past several years, and more dramatically in the
second half of 1997 and in 1998, the Indonesian rupiah weakened
against the U.S. dollar. During the second quarter and first six
months of 1998 PT-FI recorded losses totaling $4.0 million and
$9.4 million, respectively, related to its rupiah denominated net
assets. Operationally PT-FI has benefited from this weakening,
primarily through lower labor costs. During the first quarter of
1998, PT-FI began a currency hedging program to reduce its
exposure to changes in the Indonesian rupiah and Australian
dollar by entering into foreign currency forward contracts to
hedge a portion of its anticipated payments in these currencies.
At June 30, 1998, these contracts hedged 187.5 billion of rupiah
payments and 114.8 million of Australian dollar payments through
August 1999. PT-FI recorded net losses to production costs
totaling $7.2 million in the second quarter of 1998 and $5.9
million in the first six months of 1998 related to these
contracts under current accounting which requires that these
contracts be marked-to-market on each reporting date and any
gains or losses to be recognized currently in earnings. In June
1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activity," which may impact
FCX's accounting for its currency hedges. FCX is currently
assessing the impact this Statement will have on its financial
statements, if any.
Assuming estimated 1998 rupiah payments of 500 billion and a
June 30, 1998 exchange rate of 14,700 rupiah to one U.S. dollar,
a one thousand rupiah increase in the exchange rate could result
in an approximate $2.2 million decrease in annual production
costs and a one thousand rupiah decrease in the
<PAGE> 12
exchange rate could result in an approximate $2.5 million
increase in annual production costs before any hedging effects.
Rio Tinto Joint Venture
Pursuant to the Rio Tinto joint venture, Rio Tinto has a 40
percent interest in certain assets and future production
exceeding specified annual amounts of copper, gold, and silver
through 2021 from the fourth concentrator mill expansion. Rio
Tinto provided a $450 million nonrecourse loan to PT-FI for PT-
FI's share of the cost of the expansion. Incremental cash flow
attributable to such expansion project is now being shared on the
basis of 60 percent to PT-FI and 40 percent Rio Tinto. PT-FI has
assigned its interest in its share of incremental cash flow to
Rio Tinto until Rio Tinto receives an amount of funds equal to
the funds loaned to PT-FI plus interest based on Rio Tinto's cost
of borrowing. Through June 30, 1998, PT-FI's share of
incremental cash flow has totaled $76.4 million. The incremental
production from the expansion, as well as production from PT-FI's
existing operations, are sharing proportionately in operating,
nonexpansion capital and administrative costs. PT-FI will
continue to receive 100 percent of the cash flow from specified
annual amounts of copper, gold and silver through 2021 calculated
by reference to its proved and probable reserves as of December
31, 1994.
Exploration Activities
FCX continues its exploration program in Irian Jaya, in the Block
A and Block B areas of PT-FI's Contract of Work (COW), and in the
Eastern Mining COW. In Block A, which contains PT-FI's mining
and milling operations, delineation drilling continues at Kucing
Liar and Grasberg Underground. Three rigs are now drilling the
Kucing Liar ore body and two rigs continue to probe
mineralization at depth below the presently outlined Grasberg
Underground block cave reserve. In the Block B and Eastern
Mining areas, FCX has reduced drilling activities and is focusing
on analyzing results of past drilling. At the Wabu Ridge Gold
Project in Block B, a pre-feasibility study is complete and at
current gold prices the existing known resource at Wabu is not
believed to be economically feasible to develop at this time.
In June 1998, FCX entered into an exploration joint venture
agreement under which FCX can earn an indirect interest in a COW
area covering a total of approximately one million acres in
several blocks contiguous to FCX's PT-FI Block B and Eastern
Mining Block I areas in Irian Jaya. To earn up to a 54 percent
interest, FCX must spend up to $21 million on exploration and
other activities in the joint venture areas. The acreage
includes several identified geological anomalies which are
prospective exploration targets. In accordance with the FCX/Rio
Tinto strategic alliance, Rio Tinto has elected to participate in
40 percent of FCX's interest and costs in this exploration joint
venture.
SMELTING AND REFINING
Atlantic Operating Results
<TABLE>
<CAPTION>
Second Quarter Six Months
---------------- ---------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues (in millions) $199.5 $211.7 $388.0 $433.8
Operating income (in millions) $10.6 $5.8 $22.5 $9.5
Concentrate treated
(metric tons) 255,800 209,100 505,700 441,500
Anode production
(000s of pounds) 169,000 146,400 333,000 302,100
Cathode and wire rod sales
(000s of pounds) 133,400 121,300 264,500 242,900
Gold sales in anodes
and slimes (ounces) 175,000 118,800 348,900 241,800
</TABLE>
Atlantic reported lower revenues and cost of sales in the
1998 periods primarily because of lower copper and gold prices.
Higher operating income in the 1998 periods reflects higher
quarterly volumes of concentrate treated, higher cathode and wire
rod sales volumes and lower unit costs compared with the 1997
periods. Atlantic completed a $13.0 million "debottlenecking"
project in June 1997 which increased annual production capacity
by 20,000 metric tons to 290,000 metric tons. Atlantic treated 22
percent more concentrate in the second quarter of 1998 compared
with the second quarter of 1997 and 15 percent more concentrate
in the first six months of 1998 compared with the first six
months of 1997. Treatment and refining rates were slightly lower
in the 1998 quarter ($0.25 per pound in second-quarter 1998
compared with $0.26 per pound in second-quarter 1997) and
unchanged for the six-month periods ($0.26 per pound). Cathode
cash production costs of $0.12 per pound in the 1998 periods were
14 percent lower than the $0.14 per pound reported in the 1997
periods. Higher treatment charges, which negatively affect PT-FI,
benefit Atlantic and vice versa. The effect of an equivalent
change in treatment charges on PT-FI and Atlantic largely offset
in FCX's consolidated financial results, after taking into
account income taxes and minority interests.
<PAGE> 13
A portion of Atlantic's operating costs and certain Atlantic
assets and liabilities are denominated in Spanish pesetas. Based
on estimated 1998 peseta payments of 15 billion and a June 30,
1998 exchange rate of 153.4 pesetas to one U.S. dollar, a ten
peseta increase in the exchange rate could result in an
approximate $6 million decrease in costs and a ten peseta
decrease in the exchange rate could result in an approximate $7
million increase in costs before any hedging effects. FCX's
other income included currency translation gains (losses)
totaling $(0.8) million in the second quarter of 1998, $2.5
million in the second quarter of 1997, $1.4 million in the first
six months of 1998 and $12.1 million in the first six months of
1997 related to net peseta-denominated liabilities.
Atlantic has a currency hedging program to reduce its
exposure to changes in the U.S. dollar and Spanish peseta
exchange rate that involves foreign currency forward contracts.
These contracts currently hedge approximately 80 percent of
Atlantic's projected net peseta cash outflows through July 1999.
In addition to the currency translation gains noted above,
Atlantic recorded gains (losses) to other income related to its
foreign currency contracts totaling $1.7 million in the second
quarter of 1998, $(1.3) million in the second quarter of 1997,
$(0.3) million in the first six months of 1998 and $(5.8) million
in the first six months of 1997.
OTHER FINANCIAL RESULTS
The FCX/Rio Tinto joint ventures incurred $8.7 million of
exploration costs in the 1998 second quarter, compared with $11.8
million in the 1997 quarter, as the joint ventures continue to
explore the COW areas. FCX reported $4.9 million of exploration
expense in the second quarter of 1998 primarily for exploration
costs incurred in the Eastern Mining and PT-FI Block B areas.
Costs in these areas are now being shared 60 percent by FCX and
40 percent by Rio Tinto. Exploration expense in the 1997 quarter
primarily included only exploration costs incurred in the Eastern
Mining area. Approximately $6.4 million of exploration costs in
PT-FI's Block A remains to be applied to the Rio Tinto $100
million exploration funding received in 1996.
Second-quarter 1998 general and administrative expenses
declined 35 percent compared with the prior year period primarily
because of initiatives to reduce costs and the effect of sharing
these costs with Rio Tinto pursuant to joint venture agreements.
Six-month 1998 general and administrative expenses declined 31
percent compared with the six-month 1997 period.
FCX's total interest cost (before capitalization) rose to
$116.8 million for the 1998 six-month period from $80.4 million
in the 1997 six-month period because of an increase in debt
levels associated with the expansions and the FCX share purchase
program. FCX capitalized $14.9 million of interest costs in the
first six months of 1998 and $6.8 million of interest costs in
the first six months of 1997 primarily related to the fourth
concentrator mill expansion project.
FCX's effective tax rate was 47 percent for the first six
months of 1998 and 46 percent for the first six months of 1997.
PT-FI's COW provides a 35 percent income tax rate and a 10
percent withholding on dividends paid to FCX by PT-FI and on
interest for debt incurred after the signing of the COW. The
withholding rate declined from 15 percent to 10 percent beginning
February 1997 because of an amendment to the United
States/Indonesia tax treaty. No income taxes are recorded at
Atlantic, which is subject to taxation in Spain, because it has
not generated taxable income in recent years and it has a
substantial tax loss carryforward.
CAPITAL RESOURCES AND LIQUIDITY
FCX's primary sources of cash are operating cash flows and
borrowings, while its primary cash outflows include capital
expenditures, dividends and purchases of its common stock. Net
cash provided by operating activities was $180.1 million for the
first six months of 1998, compared with $204.6 million for the
1997 period. Net cash used in investing activities totaled $219.4
million in the 1998 period, compared with $269.8 million in the
1997 period, primarily for PT-FI capital expenditures. Net cash
provided by financing activities totaled $35.5 million in 1998,
compared with $51.7 million in 1997.
Operating Activities Lower net income in the first six months of
1998 was the primary reason for a $24.5 million decrease in
operating cash flow, compared with the first six months of 1997.
PT-FI collected $30.1 million from closed gold forward sales
contracts in 1997 and recognized $70.2 million of gains on the
closed gold forward sales contracts and copper put options
contracts sold in 1996. The net increase in working capital for
the first six months of 1998 primarily reflects an increase in
accounts receivable, while
<PAGE> 14
the net increase in working capital for the first six months of
1997 primarily reflects the payment of accrued income taxes.
Investing Activities FCX's 1998 capital expenditures were lower
compared to the 1997 period primarily because of the completion
of PT-FI's fourth concentrator mill expansion. PT-FI's capital
expenditures for the remainder of 1998 are expected to
approximate $125-$150 million, representing primarily mine and
mill sustaining capital and long-term enhancement projects.
Funding is expected to be provided by operating cash flow and PT-
FI's bank credit facilities ($571.0 million commitment available
at July 20, 1998).
Construction of PT Smelting's 200,000 metric tons of metal
per year copper smelter/refinery complex in Gresik, Indonesia is
progressing on schedule and within budget. The estimated
aggregate project cost, before working capital requirements, is
approximately $625 million. This project is being financed by a
$300 million nonrecourse term loan and a $110 million working
capital facility from a group of commercial banks. The remaining
funding is being provided pro rata by PT-FI (25 percent) and the
other owners (75 percent). As of June 30, 1998, PT-FI has paid
all of its funding commitments related to its investment in PT
Smelting. Completion of the facility is expected in the third
quarter of 1998 with first production and sales expected in the
fourth quarter of 1998 followed by a ramp-up to design capacity
over an approximate two-year period. FCX anticipates that after
this ramp-up, PT-FI will sell approximately 50 percent of its
annual concentrate production to Atlantic and PT Smelting at
market prices.
Financing Activities Net proceeds from debt and infrastructure
financing totaled $152.7 million in the first six months of 1998
and $284.8 million in the first six months of 1997, including net
repayments of $27.5 million to Rio Tinto in the 1998 period and
nonrecourse borrowings of $265.3 million from Rio Tinto in the
1997 period. The reduction in cash dividends paid on common
stock during the first six months of 1998 reflects the decrease
in FCX's regular quarterly cash dividend from $0.225 per share to
$0.05 per share effective for 1998. A similar decline in PT-FI's
quarterly cash dividends is the reason for lower cash dividends
paid to minority interests during 1998.
During the first six months of 1998, FCX acquired 4.4 million
of its shares for $66.9 million (an average of $15.09 per share)
under its open market share purchase programs of up to 40 million
shares. From inception of these programs through June 30, 1998,
FCX has purchased a total of 34.6 million shares for $835.6
million (an average of $24.15 per share) and approximately 5.4
million shares remain available under the programs. The timing of
future purchases is dependent upon many factors, including the
price of FCX's common stock, the company's business and financial
position, and general economic and market conditions.
CURRENT DEVELOPMENTS
Unfavorable economic conditions continue to affect Southeast
Asia, especially Indonesia. Indonesia's economy has contracted,
inflation has increased dramatically and the Indonesian rupiah
has further devalued. Financial assistance to Indonesia is being
provided by the International Monetary Fund, and financial and
regulatory changes are being implemented. International copper
and gold markets and prices have been adversely affected by the
recent developments in Southeast Asia. PT-FI continues to be
positively impacted financially as a result of the declining
value of the rupiah on the portion of its expenditures that are
paid in rupiah, net of the effects of its rupiah currency hedging
program.
PT-FI's mining and milling operations are located in steeply
mountainous terrain in a very remote area of Indonesia. Although
this area ordinarily receives considerable annual rainfall, much
dryer conditions existed in Southeast Asia during the first half
of this year, which were generally attributed to the recent el
Nino' phenomenon. More recent patterns of heavy rainfall on the
dryer than usual terrain caused localized flooding and mudslides
at the town of Tembagapura near PT-FI's mine and mill facilities
on July 30-31, 1998. Mining and milling operations, as well as
PT-FI's administrative headquarters in Kuala Kencana, were
unaffected and there were no injuries or fatalities. PT-FI's
share of costs resulting from this event are currently estimated
to be no more than $15 million, which will not represent a
significant effect on operating results. Continuation of
abnormal weather patterns in general, and heavy rainfall in
particular, could cause additional flooding and mudslides which
could affect both PT-FI's operations and facilities as well as
the surrounding area. Because PT-FI has insurance coverage for
such events with a deductible of $20 million per occurrence for
physical damage and business interruption combined, any future
effect on PT-FI's operations and facilities should be limited.
<PAGE> 15
On August 11, 1998, PT-FI's mining and milling operations at
its Grasberg mine were suspended as a result of a wildcat work
stoppage by a group of workers, a majority of whom are employees
of contractors of PT-FI. On August 14, 1998, the workers
voluntarily returned to work and PT-FI began resuming operations.
Although unorganized, the workers cited economic and other
employment issues as the reasons for their work stoppage. The
employees of certain contractors have expressed a desire to
become PT-FI employees, who generally have higher wages and more
attractive benefits. PT-FI indicated that it would continue its
practice of reviewing its package of wages and benefits to ensure
that PT-FI remains competitive with other companies. The work
stoppage was not authorized by the workers' union. The actions of
the workers were peaceful, there were no injuries or property
damage and the suspension and resumption of operations were done
in an orderly fashion. Although shipments of concentrates are
currently being made from inventory, PT-FI has notified its
customers that the shutdown will affect deliveries of copper
concentrates. PT-FI has begun a review of its operating plans in
response to the work stoppage and at present is unable to
ascertain the impact on 1998 projected sales volumes.
CAUTIONARY STATEMENT
Management's discussion and analysis of financial condition and
results of operations contains forward-looking statements
regarding copper and gold sales volumes, exploration activities,
capital expenditures, PT Smelting's smelter/refinery costs and
the availability of financing. Important factors that may cause
future results to differ from FCX's expectations include
unanticipated declines in the average grades of ore mined,
unanticipated milling and other processing problems, labor
relations, weather conditions, the speculative nature of mineral
exploration, fluctuations in interest rates and other adverse
financial market conditions, and other factors described in more
detail under the heading "Cautionary Statements" in FCX's Form
10-K for the year ended December 31, 1997.
--------------------
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
<PAGE> 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Tom Beanal v. Freeport-McMoRan Inc. and Freeport-McMoRan
Copper & Gold Inc., Civ. No. 96-1474 (E.D. La. filed Apr. 29,
1996). In March 1998, the U.S. District Court for the Eastern
District of Louisiana dismissed with prejudice the plaintiff's
third amended complaint. The court held that the plaintiff
failed to plead facts underlying his claims against Freeport-
McMoRan Copper & Gold Inc. (FCX). The plaintiff alleged
environmental, human rights and social/cultural violations in
Indonesia and sought $6 billion in monetary damages and other
equitable relief. The plaintiff appealed the court's decision to
the U.S. Fifth Circuit Court of Appeals. FCX will continue to
defend this action vigorously.
Yosefa Alomang v. Freeport-McMoRan Inc. and Freeport-McMoRan
Copper & Gold Inc., Civ. No. 96-9962 (Orleans Civ. Dist. Ct. La.
filed June 19, 1996). The plaintiff alleges substantially
similar violations as those alleged in the Beanal suit and seeks
unspecified monetary damages and other equitable relief. In
February 1997, the Civil District Court of the Parish of Orleans,
State of Louisiana dismissed this purported class action for lack
of subject matter jurisdiction because the alleged conduct and
damages occurred in Indonesia. In March 1998, the Louisiana
Fourth Circuit Court of Appeal reversed the trial court's
dismissal and found that subject matter jurisdiction existed over
some claims. In July 1998, the Louisiana Supreme Court denied
FCX's writ application in which FCX had sought a review of the
Fourth Circuit's earlier ruling. FCX has filed exceptions with
the trial court seeking dismisssal of all claims on various legal
grounds. FCX will continue to defend this action vigorously.
In addition to the foregoing proceedings, FCX may be from
time to time involved in various legal proceedings of a character
normally incident to the ordinary course of its business.
Management believes that potential liability in any proceedings
would not have a material adverse effect on the financial
condition or results of operations of FCX. FCX 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 coverage customary in its
business, with coverage limits as management deems prudent.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits to this report are listed in the
Exhibit Index beginning on Page E-1 hereof.
(b) During the quarter for which this report is filed,
the registrant filed no current Reports on Form 8-
K.
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
FREEPORT-McMoRan COPPER & GOLD INC.
By: /s/C. Donald Whitmire, Jr.
-------------------------------
C. Donald Whitmire, Jr.
Vice President and
Controller-Financial Reporting
(authorized signatory and
Principal Accounting Officer)
Date: August 14, 1998
<PAGE> 18
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
2.1 Agreement, dated as of May 2, 1995 by and between Freeport-
McMoRan Inc. (FTX) and FCX and The RTZ Corporation PLC, RTZ
Indonesia Limited, and RTZ America, Inc. (the Rio Tinto
Agreement). Incorporated by reference to Exhibit 2.1 to the
Current Report on Form 8-K of FTX dated as of May 26, 1995.
2.2 Amendment dated May 31, 1995 to the Rio Tinto Agreement.
Incorporated by reference to Exhibit 2.1 to the Quarterly
Report on Form 10-Q of FTX for the quarter ended June 30,
1995.
2.3 Distribution Agreement dated as of July 5, 1995 between FTX
and FCX. Incorporated by reference to Exhibit 2.1 to the
Quarterly Report on Form 10-Q of FTX for the quarter ended
September 30, 1995 (the FTX 1995 Third Quarter Form 10-Q).
3.1 Composite copy of the Certificate of Incorporation of FCX.
Incorporated by reference to Exhibit 3.1 to the Quarterly
Report on Form 10-Q of FCX for the quarter ended June 30,
1995 (the FCX 1995 Second Quarter Form 10-Q).
3.2 By-Laws of FCX. Incorporated by reference to Exhibit 3.2 to
the Annual Report on Form 10-K of FCX for the fiscal year
ended December 31, 1996 (the FCX 1996 Form 10-K).
4.1 Certificate of Designations of the Step-Up Convertible
Preferred Stock of FCX. Incorporated by reference to
Exhibit 4.2 to the FCX 1995 Second Quarter Form 10-Q.
4.2 Deposit Agreement dated as of July 1, 1993 among FCX,
ChaseMellon Shareholder Services, L.L.C. (ChaseMellon), as
Depositary, and holders of depositary receipts (Step-Up
Depositary Receipts) evidencing certain Depositary Shares,
each of which, in turn, represents 0.05 shares of Step-Up
Convertible Preferred Stock. Incorporated by reference to
Exhibit 4.5 to the Annual Report on Form 10-K of FCX for the
fiscal year ended December 31, 1993 (the FCX 1993 Form 10-
K).
4.3 Form of Step-Up Depositary Receipt. Incorporated by
reference to Exhibit 4.6 to the FCX 1993 Form 10-K.
4.4 Certificate of Designations of the Gold-Denominated
Preferred Stock of FCX. Incorporated by reference to
Exhibit 4.3 to the FCX 1995 Second Quarter Form 10-Q.
4.5 Deposit Agreement dated as of August 12, 1993 among FCX,
ChaseMellon, as Depositary, and holders of depositary
receipts (Gold-Denominated Depositary Receipts) evidencing
certain Depositary Shares, each of which, in turn,
represents 0.05 shares of Gold-Denominated Preferred Stock.
Incorporated by reference to Exhibit 4.8 to the FCX 1993
Form 10-K.
4.6 Form of Gold-Denominated Depositary Receipt. Incorporated
by reference to Exhibit 4.9 to the FCX 1993 Form 10-K.
4.7 Certificate of Designations of the Gold-Denominated
Preferred Stock, Series II (the Gold-Denominated Preferred
Stock II) of FCX. Incorporated by reference to Exhibit 4.4
to the FCX 1995 Second Quarter Form 10-Q.
4.8 Deposit Agreement dated as of January 15, 1994, among FCX,
ChaseMellon, as Depositary, and holders of depositary
receipts (Gold-Denominated II Depositary Receipts)
evidencing certain Depositary Shares, each of which, in
turn, represents 0.05 shares of Gold-Denominated Preferred
Stock II. Incorporated by reference to Exhibit 4.2 to the
Quarterly Report on Form 10-Q of FCX for the quarter ended
March 31, 1994 (the FCX 1994 First Quarter Form 10-Q).
<PAGE> E-1
4.9 Form of Gold-Denominated II Depositary Receipt.
Incorporated by reference to Exhibit 4.3 to the FCX 1994
First Quarter Form 10-Q.
4.10 Certificate of Designations of the Silver-Denominated
Preferred Stock of FCX. Incorporated by reference to
Exhibit 4.5 to the FCX 1995 Second Quarter Form 10-Q.
4.11 Deposit Agreement dated as of July 25, 1994 among FCX,
ChaseMellon, as Depositary, and holders of depositary
receipts (Silver-Denominated Depositary Receipts) evidencing
certain Depositary Shares, each of which, in turn, initially
represents 0.025 shares of Silver-Denominated Preferred
Stock. Incorporated by reference to Exhibit 4.2 to the July
15, 1994 Form 8-A.
4.12 Form of Silver-Denominated Depositary Receipt. Incorporated
by reference to Exhibit 4.1 to the July 15, 1994, Form 8-A.
4.13 $550 million Composite Restated Credit Agreement dated as of
July 17, 1995 (the PT-FI Credit Agreement) among PT-FI, FCX,
the several financial institutions that are parties thereto,
First Trust of New York, National Association, as PT-FI
Trustee, Chemical Bank, as administrative agent and FCX
collateral agent, and The Chase Manhattan Bank (National
Association), as documentary agent. Incorporated by
reference to Exhibit 4.16 to the Annual Report of FCX on
Form 10-K for the year ended December 31, 1995 (the FCX 1995
Form 10-K).
4.14 Amendment dated as of July 15, 1996 to the PT-FI Credit
Agreement among PT-FI, FCX, the several financial
institutions that are parties thereto, First Trust of New
York, National Association, as PT-FI Trustee, Chemical Bank,
as administrative agent and FCX collateral agent, and The
Chase Manhattan Bank (National Association), as documentary
agent. Incorporated by reference to Exhibit 4.2 to the
Quarterly Report of FCX on Form 10-Q for the quarter ended
September 30, 1996 (the FCX 1996 Third Quarter Form 10-Q).
4.15 Amendment dated as of October 9, 1996 to the PT-FI Credit
Agreement among PT-FI, FCX, the several financial
institutions that are parties thereto, First Trust of New
York, National Association, as PT-FI Trustee, The Chase
Manhattan Bank (formerly Chemical Bank), as administrative
agent, security agent and JAA security agent, and The Chase
Manhattan Bank (as successor to The Chase Manhattan Bank
(National Association)), as documentary agent. Incorporated
by reference to Exhibit 10.2 to the Current Report on Form
8-K of FCX dated and filed November 13, 1996 (the FCX
November 13, 1996 Form 8-K).
4.16 Amendment dated as of March 7, 1997 to the PT-FI Credit
Agreement among PT-FI, FCX, the several financial
institutions that are parties thereto, First Trust of New
York, National Association, as PT-FI Trustee, The Chase
Manhattan Bank, as administrative agent, security agent and
JAA security agent, and The Chase Manhattan Bank, as
documentary agent. Incorporated by reference to Exhibit
4.16 to the Annual Report of FCX on Form 10-K for the year
ended December 31, 1997 (the FCX 1997 Form 10-K).
4.17 Amendment dated as of July 24, 1997 to the PT-FI Credit
Agreement among PT-FI, FCX, the several financial
institutions that are parties thereto, First Trust of New
York, National Association, as PT-FI Trustee, The Chase
Manhattan Bank, as administrative agent, security agent and
JAA security agent, and The Chase Manhattan Bank, as
documentary agent. Incorporated by referene to Exhibit 4.17
to the FCX 1997 Form 10-K.
4.18 $200 million Credit Agreement dated as of June 30, 1995 (the
CDF) among PT-FI, FCX, the several financial institutions
that are parties thereto, First Trust of New York, National
Association, as PT-FI Trustee, Chemical Bank, as
administrative agent and FCX collateral agent, The Chase
Manhattan Bank (National Association), as documentary agent.
Incorporated by reference to Exhibit 4.2 to the FCX 1995
Third Quarter Form 10-Q.
4.19 Amendment dated as of July 15, 1996 to the CDF among PT-FI,
FCX, the several financial institutions that are parties
thereto, First Trust of New York, National Association, as
PT-FI Trustee, Chemical Bank, as administrative agent and
FCX collateral agent, and The Chase Manhattan Bank (National
Association), as documentary agent. Incorporated by
reference to Exhibit 4.1 to the FCX 1996 Third Quarter Form
10-Q.
<PAGE> E-2
4.20 Amendment dated as of October 9, 1996 to the CDF among PT-
FI, FCX, the several financial institutions that are parties
thereto, First Trust of New York, National Association, as
PT-FI Trustee, The Chase Manhattan Bank (formerly Chemical
Bank), as administrative agent, security agent and JAA
security agent, and The Chase Manhattan Bank (as successor
to The Chase Manhattan Bank (National Association)), as
documentary agent. Incorporated by reference to Exhibit
10.1 to the FCX November 13, 1996 Form 8-K.
4.21 Amendment dated as of March 7, 1997 to the CDF among PT-FI,
FCX, the several financial institutions that are parties
thereto, First Trust of New York, National Association, as
PT-FI Trustee, The Chase Manhattan Bank, as administrative
agent, security agent and JAA security agent, and The Chase
Manhattan Bank, as documentary agent. Incorporated by
reference to Exhibit 4.21 to the FCX 1997 Form 10-K.
4.22 Amendment dated as of July 24, 1997 to the CDF among PT-FI,
FCX, the several financial institutions that are parties
thereto, First Trust of New York, National Association, as
PT-FI Trustee, The Chase Manhattan Bank, as administrative
agent, security agent and JAA security agent, and The Chase
Manhattan Bank, as documentary agent. Incorporated by
reference to Exhibit 4.22 to the FCX 1997 Form 10-K.
4.23 Senior Indenture dated as of November 15, 1996 from FCX to
The Chase Manhattan Bank, as Trustee. Incorporated by
reference to Exhibit 4.1 to the Current Report on Form 8-K
of FCX dated November 13, 1996 and filed November 15, 1996.
4.24 First Supplemental Indenture dated as of November 18, 1996
from FCX to The Chase Manhattan Bank, as Trustee, providing
for the issuance of the Senior Notes and supplementing the
Senior Indenture dated November 15, 1996 from FCX to such
Trustee, providing for the issuance of Debt Securities.
Incorporated by reference to Exhibit 4.20 to the FCX 1996
Form 10-K.
10.1 Contract of Work dated December 30, 1991 between The
Government of the Republic of Indonesia and PT-FI.
Incorporated by reference to Exhibit 10.2 to the FCX 1995
Form 10-K.
10.2 Contract of Work dated August 15, 1994 between The
Government of the Republic of Indonesia and P.T. Irja
Eastern Minerals Corporation. Incorporated by reference to
Exhibit 10.2 to the FCX 1995 Form 10-K.
10.3 Agreement dated as of October 11, 1996 to Amend and Restate
Trust Agreement among PT-FI, FCX, the RTZ Corporation PLC,
P.T. RTZ-CRA Indonesia, RTZ Indonesian Finance Limited and
First Trust of New York, National Association, and The Chase
Manhattan Bank, as Administrative Agent, JAA Security Agent
and Security Agent. Incorporated by reference to Exhibit
10.3 to the FCX November 13, 1996 Form 8-K.
10.4 Credit Agreement dated October 11, 1996 between PT-FI and
RTZ Indonesian Finance Limited. Incorporated by reference
to Exhibit 10.4 to the FCX November 13, 1996 Form 8-K.
10.5 Participation Agreement dated as of October 11, 1996 between
PT-FI and P.T. RTZ-CRA Indonesia with respect to a certain
contract of work. Incorporated by reference to Exhibit 10.5
to the FCX November 13, 1996 Form 8-K.
10.6 Second Amended and Restated Joint Venture and Shareholders'
Agreement dated as of December 11, 1996 among Mitsubishi
Materials Corporation, Nippon Mining and Metals Company,
Limited and PT-FI. Incorporated by reference to Exhibit
10.3 of the FCX 1996 Form 10-K.
10.7 Put and Guaranty Agreement dated as of March 21, 1997
between FCX and The Chase Manhattan Bank. Incorporated by
reference to Exhibit 10.7 to the FCX 1997 Form 10-K.
10.8 Subordinated Loan Agreement dated as of March 21, 1997
between FCX and PT Nusamba Mineral Industri. Incorporated
by reference to Exhibit 10.8 to the FCX 1997 Form 10-K.
<PAGE> E-3
10.9 Amended and Restated Power Sales Agreement dated as of
December 18, 1997 between PT-FI and P.T. Puncakjaya Power.
Incorporated by reference to Exhibit 10.9 to the FCX 1997
Form 10-K.
10.10 Option, Mandatory Purchase and Right of First Refusal
Agreement dated as of December 19, 1997 among PT-FI, P.T.
Puncakjaya Power, Duke Irian Jaya, Inc., Westcoast Power,
Inc. and P.T. Prasarana Nusantara Jaya. Incorporated by
reference to Exhibit 10.10 to the FCX 1997 Form 10-K.
Executive Compensation Plans and Arrangements (Exhibits
10.11 through 10.28)
10.11 Annual Incentive Plan of FCX. Incorporated by reference
to Exhibit 10.8 to the FCX 1996 Form 10-K.
10.12 1995 Long-Term Performance Incentive Plan of FCX.
Incorporated by reference to Exhibit 10.9 to the FCX 1996
Form 10-K.
10.13 FCX Performance Incentive Awards Program. Incorporated
by reference to Exhibit 10.7 to the FCX 1995 Form 10-K.
10.14 FCX President's Award Program. Incorporated by
reference to Exhibit 10.8 to the FCX 1995 Form 10-K.
10.15 FCX Adjusted Stock Award Plan, as amended.
Incorporated by reference to Exhibit 10.15 to the
1997 FCX Form 10-K.
10.16 FCX 1995 Stock Option Plan. Incorporated by reference
to Exhibit 10.13 to the FCX 1996 Form 10-K.
10.17 FCX 1995 Stock Option Plan for Non-Employee Directors,
as amended. Incorporated by reference to Exhibit
10.17 to the FCX 1997 Form 10-K.
10.18 Financial Counseling and Tax Return Preparation and
Certification Program of FCX. Incorporated by reference to
Exhibit 10.12 to the FCX 1995 Form 10-K.
10.19 FM Services Company Performance Incentive Awards
Program. Incorporated by reference to Exhibit 10.13 to the
FCX 1995 Form 10-K.
10.20 FM Services Company Financial Counseling and Tax Return
Preparation and Certification Program. Incorporated by
reference to Exhibit 10.14 to the FCX 1995 Form 10-K.
10.21 Consulting Agreement dated as of December 22, 1988
between FTX and Kissinger Associates, Inc. (Kissinger
Associates). Incorporated by reference to Exhibit 10.21 to
the FCX 1997 Form 10-K.
10.22 Letter Agreement dated May 1, 1989 between FTX and Kent
Associates, Inc. (Kent Associates, predecessor in interest
to Kissinger Associates). Incorporated by reference to
Exhibit 10.22 to the FCX 1997 Form 10-K.
10.23 Letter Agreement dated January 27, 1997 among Kissinger
Associates, Kent Associates, FTX, FCX and FMS. Incorporated
by reference to Exhibit 10.20 to the FCX 1996 Form 10-K.
10.24 Agreement for Consulting Services between FTX and B. M.
Rankin, Jr. effective as of January 1, 1991 (assigned to FMS
as of January 1, 1996). Incorporated by reference to Exhibit
10.24 to the FCX 1997 Form 10-K.
10.25 Supplemental Agreement between FMS and B. M. Rankin Jr.
dated December 15, 1997. Incorporated by reference to
Exhibit 10.25 to the FCX 1997 Form 10-K.
<PAGE> E-4
10.26 Letter Agreement dated March 8, 1996 between George A.
Mealey and FCX. Incorporated by reference to Exhibit 10.22
of the FCX 1996 Form 10-K.
10.27 Letter Agreement effective as of January 4, 1997
between Senator J. Bennett Johnston, Jr. and FCX.
Incorporated by reference to Exhibit 10.25 of the FCX 1996
Form 10-K.
10.28 Letter Agreement dated December 22, 1997 between FMS
and Rene L. Latiolais. Incorporated by reference to Exhibit
10.28 to the FCX 1997 Form 10-K.
15.1 Letter dated July 21, 1998 from Arthur Andersen LLP
regarding unaudited interim financial statements.
27.1 FCX Financial Data Schedule.
<PAGE> E-5
Exhibit 15.1
July 21, 1998
Freeport-McMoRan Copper & Gold Inc.
1615 Poydras St.
New Orleans, LA 70112
Gentlemen,
We are aware that Freeport-McMoRan Copper & Gold Inc. has
incorporated by reference in its Registration Statements
(File Nos. 33-63271, 33-63269, 33-63267, 33-45787, 33-52503,
33-63376, and 333-02699) its Form 10-Q for the quarter ended
June 30, 1998, which includes our report dated July 21, 1998
covering the unaudited interim financial information
contained therein. Pursuant to Regulation C of the
Securities Act of 1933 (the Act), this report is not
considered a part of the registration statements prepared or
certified by our firm or a report prepared or certified by
our firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Freeport-McMoRan Copper & Gold Inc. unaudited financial statements at
June 30, 1998 and for the six months then ended, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,223
<SECURITIES> 0
<RECEIVABLES> 147,901
<ALLOWANCES> 0
<INVENTORY> 289,032
<CURRENT-ASSETS> 469,197
<PP&E> 4,774,310
<DEPRECIATION> 1,208,576
<TOTAL-ASSETS> 4,218,157
<CURRENT-LIABILITIES> 418,636
<BONDS> 2,426,488
500,007
349,990
<COMMON> 21,852
<OTHER-SE> (124,615)
<TOTAL-LIABILITY-AND-EQUITY> 4,218,157
<SALES> 829,990
<TOTAL-REVENUES> 829,990
<CGS> 519,026
<TOTAL-COSTS> 519,026
<OTHER-EXPENSES> 7,566
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,842
<INCOME-PRETAX> 160,812
<INCOME-TAX> 75,882
<INCOME-CONTINUING> 70,365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,365
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
