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 September 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 September 30, 1998, there were issued and outstanding
65,873,544 shares of the registrant's Class A Common Stock, par
value $0.10 per share, and 99,669,377 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 19
Signature 20
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>
September 30, December 31,
1998 1997
------------ -----------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,891 $ 8,959
Accounts receivable 164,543 129,611
Inventories 287,959 314,800
Prepaid expenses and other 8,853 9,719
---------- ----------
Total current assets 471,246 463,089
Property, plant and equipment, net 3,524,586 3,521,715
Investment in PT Smelting 84,590 83,061
Other assets 93,823 84,344
---------- ----------
Total assets $4,174,245 $4,152,209
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 332,000 $ 363,294
Current portion of long-term debt
and short-term borrowings 146,433 80,852
Accrued income taxes 46,698 31,519
---------- ----------
Total current liabilities 525,131 475,665
Long-term debt, less current portion:
FCX and PT-FI credit facilities 598,000 250,000
Senior notes 570,000 570,000
Infrastructure asset financings, net 535,486 664,506
Rio Tinto loan 346,320 464,360
Atlantic Copper debt 271,988 311,223
Other notes payable 37,706 48,041
Accrued postretirement benefits
and other liabilities 126,875 125,980
Deferred income taxes 442,760 403,047
Minority interests 136,872 60,488
Mandatory redeemable preferred stock 500,007 500,007
Stockholders' equity 83,100 278,892
---------- ----------
Total liabilities and stockholders' equity $4,174,245 $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 Nine Months Ended
September 30, September30,
------------------ ---------------------
1998 1997 1998 1997
-------- -------- ---------- ----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues $442,126 $489,522 $1,272,116 $1,580,252
Cost of sales:
Production and delivery 204,615 262,296 601,388 774,700
Depreciation and amortization 75,145 58,775 197,398 160,640
-------- -------- ---------- ----------
Total cost of sales 279,760 321,071 798,786 935,340
Exploration expenses 2,778 5,085 10,344 14,047
General and administrative
expenses 24,500 26,949 63,156 89,139
-------- -------- ---------- ----------
Total costs and expenses 307,038 353,105 872,286 1,032,526
-------- -------- ---------- ----------
Operating income 135,088 136,417 399,830 547,726
Interest expense, net (51,271) (38,632) (153,113) (112,256)
Other income (expense), net (3,903) 1,366 (5,991) 2,841
-------- -------- ---------- ----------
Income before income taxes
and minority interests 79,914 99,151 240,726 438,311
Provision for income taxes (38,579) (45,140) (114,461) (202,030)
Minority interests in
net income of consolidated
subsidiaries (8,702) (8,394) (23,267) (39,786)
-------- -------- ---------- ----------
Net income 32,633 45,617 102,998 196,495
Preferred dividends (8,791) (9,040) (26,762) (27,615)
-------- -------- ---------- ----------
Net income applicable to
common stock $ 23,842 $ 36,577 $ 76,236 $ 168,880
======== ======== ========== ==========
Net income per share of common stock:
Basic $.14 $.19 $.43 $.85
==== ==== ==== ====
Diluted $.14 $.19 $.43 $.84
==== ==== ==== ====
Average common shares outstanding:
Basic 174,668 195,461 178,826 198,694
======= ======= ======= =======
Diluted 174,668 196,924 178,881 200,211
======= ======= ======= =======
Dividends paid per common share $.05 $ .225 $.15 $.675
==== ====== ==== =====
</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>
Nine Months Ended
September 30,
---------------------
1998 1997
-------- ---------
(In Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income $102,998 $ 196,495
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 197,398 160,640
Deferred income taxes 33,747 47,219
Deferral of unearned income - 30,102
Recognition of unearned income - (76,595)
Minority interests' share
of net income 23,267 39,786
Other 8,075 (28,557)
(Increase) decrease in working capital:
Accounts receivable (43,821) 12,631
Inventories 20,125 22,122
Prepaid expenses and other 867 (2,730)
Accounts payable and
accrued liabilities (1,005) 23,698
Accrued income taxes 16,918 (39,158)
-------- ---------
(Increase) decrease in
working capital (6,916) 16,563
-------- ---------
Net cash provided by
operating activities 358,569 385,653
-------- ---------
Cash flow from investing activities:
Capital expenditures:
PT-FI (255,002) (412,345)
Atlantic Copper (5,849) (9,719)
Investment in PT Smelting (2,660) (24,620)
Sale of assets and other 4,634 170
-------- ---------
Net cash used in investing activities (258,877) (446,514)
-------- ---------
Cash flow from financing activities:
Net proceeds from
(repayment to) Rio Tinto (73,671) 315,760
Proceeds from other debt 499,506 513,134
Repayment of other debt (211,716) (346,640)
Purchase of FCX common shares (237,519) (250,939)
Cash dividends paid:
Common stock (27,118) (134,827)
Preferred stock (29,503) (30,668)
Minority interests (6,133) (25,442)
Other (12,606) (4,870)
-------- ---------
Net cash provided by (used in)
financing activities (98,760) 35,508
-------- ---------
Net increase (decrease) in cash
and cash equivalents 932 (25,353)
Cash and cash equivalents at
beginning of year 8,959 37,118
-------- ---------
Cash and cash equivalents at
end of period $ 9,891 $ 11,765
======== =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 5
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO FINANCIAL STATEMENTS
1. EARNINGS PER SHARE
Freeport-McMoRan Copper & Gold Inc. (FCX) adopted Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share," in the fourth quarter of 1997 and has restated prior
periods' earnings per share 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 0.1 million shares in the nine-month 1998 period and
1.5 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 11.4 million and 10.2 million shares in the
third quarter and first nine months of 1998, respectively, at
average exercise prices of approximately $22 per share and $23
per share, respectively. Options for 2.3 million shares at an
average exercise price of approximately $33 per share were not
included in the third-quarter and nine-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 third quarters of
1998 and 1997 and $15.7 million in the nine-month periods of 1998
and 1997.
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.
At September 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.
In June 1998, the Financial Accounting Standards Board
(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
<PAGE> 6
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. FCX is currently assessing the impact that adoption of
SFAS 133 would have on its current accounting for its financial
contracts and on its financial position, and has not yet
determined the timing or method of adoption of SFAS 133.
3. INTEREST COST
Interest expense excludes capitalized interest of $4.0 million in
the third quarter of 1998, $7.5 million in the third quarter of
1997, $18.9 million in the first nine months of 1998 and $14.3
million in the first nine months of 1997.
4. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first nine months
of 1998 and 1997 was 2.3 to 1 and 4.3 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 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 September 30, 1998, and the related statements of income for
the three and nine-month periods ended September 30, 1998 and
1997, and the statements of cash flow for the nine-month periods
ended September 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.
Acoordingly, 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
October 20, 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 third-quarter and
nine-month periods follow (in millions, except per share
amounts):
<TABLE>
<CAPTION>
Third Quarter Nine Months
-------------- ------------------
1998 1997 1998 1997
------ ------ -------- --------
<S> <C> <C> <C> <C>
Revenues $442.1 $489.5 $1,272.1 $1,580.3
Operating income 135.1 136.4 399.8 547.7
Net income applicable
to common stock 23.8 36.6 76.2 168.9
Diluted net income per
share of common stock 0.14 0.19 0.43 0.84
</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 $21 million
impact on revenues and an approximate $10 million impact on net
income.
Lower third-quarter and nine-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.
Third-quarter 1998 revenues benefited by $5.6 million ($2.7
million to net income or $0.02 per share) from adjustments to
June 30, 1998 "open" concentrate sales and the nine-month 1998
period benefited by $24.4 million ($11.9 million to net income or
$0.07 per share) from adjustments to December 31, 1997 open
sales. Third-quarter 1997 revenues were reduced by $16.9 million
($8.2 million to net income or $0.04 per share) for adjustments
to prior period open concentrate sales and nine-month 1997
revenues benefited from adjustments to prior period open
concentrate sales totaling $46.6 million ($22.7 million to net
income or $0.11 per share). The previous sale of copper put
option contracts and the impact of forward copper and gold sales
contracts collectively provided $7.7 million to third-quarter
1997 revenues ($3.8 million to net income or $0.02 per share) and
$80.2 million to nine-month 1997 revenues ($39.1 million to net
income or $0.20 per share).
Cost of sales decreased by $41.3 million for the 1998 third
quarter when compared with the 1997 quarter and by $136.6 million
for the 1998 nine-month period when compared with the 1997 nine-
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) pursuant to joint venture
agreements. 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 in the 1998 periods and lower minority
interest charges in the nine-month 1998 period compared with the
1997 periods primarily reflect reduced net income levels at PT-
FI. Minority interest charges in the third quarter of 1998 were
higher when compared with the 1997 quarter primarily because of
PT-FI's consolidation of certain infrastructure joint ventures.
<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 FCX's Indonesian exploration activities. 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 third-quarter and nine-month periods follow (in
millions):
<TABLE>
<CAPTION>
Third Quarter Nine Months
--------------- ---------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Mining and exploration $136.6a $150.6 $378.5a $545.0
Smelting and refining 9.3 9.4 31.1 19.0
Intercompany eliminations
and other b (10.8) (23.6) (9.8) (16.3)
------ ------ ------ ------
FCX operating income $135.1 $136.4 $399.8 $547.7
====== ====== ====== ======
</TABLE>
a. Includes a $1.6 million gain in production costs and net
charges of $6.1 million to general and administrative expenses
associated with the sale of corporate aircraft. Production
costs also include charges totaling $6.0 million for damages
caused by flooding and mudslides in July 1998.
b. Eliminations on PT-FI's sales to Atlantic totaled $(8.0)
million in the third quarter of 1998, $(20.1) million in the
third quarter of 1997, $0.2 million in the first nine months
of 1998 and $(3.4) million in the first nine months of 1997.
PT-FI's 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>
Third Nine
Quarter Months
------ -------
<S> <C> <C>
Price realizations:
Copper $(81.1) $(308.4)
Gold (24.9) (103.7)
Sales volumes:
Copper 53.1 110.4
Gold (4.3) 29.4
Adjustments to prior period open sales 27.2 (28.3)
Treatment charges, royalties and other (11.1) 10.5
------ -------
Net decrease in PT-FI revenues
from prior-year period $(41.1) $(290.1)
====== =======
</TABLE>
PT-FI's third-quarter and nine-month 1998 revenues declined
compared with the 1997 periods primarily 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 adjustments on prior
period open concentrate sales of $5.8 million for the third
quarter and $26.6 million for the nine-month period, compared
with ($21.4) million for the third quarter and $54.9 million for
the nine-month 1997 periods. Treatment charges were higher in the
1998 periods because of higher sales volumes, partially offset
by price participation in PT-FI's smelter contracts which
provides for reduced treatment charges during periods of lower
copper prices. Royalty costs were reduced because of lower metal
prices.
PT-FI Outlook and Price Protection Program. PT-FI has commitments
from various parties, including Atlantic and PT Smelting, to
purchase virtually all of its expected fourth-quarter 1998 and
1999 production at market prices. PT-FI projects its share of
sales for the fourth quarter of 1998 will be approximately 415
million pounds of copper and 720,000 ounces of gold. Copper and
gold sales for 1998 reflect production at greater than mine-life
grades during the year.
Treatment rates for a significant portion of PT-FI's 1999
projected sales will be negotiated in the fourth quarter of 1998
based on current market conditions and are expected to decline.
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 $6.0 million of gold revenues from
forward sales contracts during the third quarter of 1997 and
$37.6 million during the first nine 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 $298.55 per ounce on
October 19, 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 $35.6 million during the six-month period
ended June 30, 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 $1.7 million of additional
revenues in the third quarter of 1997 and $7.0 million in the
first nine months of 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 September 30, 1998, FCX had
consolidated copper sales totaling 177.2 million pounds recorded
at an average price of $0.73 per pound remaining to be finally
priced. Approximately 95 percent of these open pounds are
expected to be finally priced during the fourth quarter of 1998
with the remaining pounds to be priced during the first quarter
of 1999. A one cent movement in the average price used for these
open pounds will have an approximate $0.9 million impact on FCX's
1998 net income.
PT-FI Operating Results.
<TABLE>
<CAPTION>
Third Quarter Nine Months
----------------- ---------------------
1998 1997 1998 1997
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Ore milled (metric
tons per day, MTPD) 207,400 132,400 191,700 129,100
Copper grade (%) 1.33 1.40 1.24 1.34
Gold grade (grams per
metric ton) 1.29 1.56 1.28 1.40
Recovery rate (%)
Copper 88.7 86.4 87.3 85.6
Gold 86.4 82.5 84.3 79.6
Copper
Production (000s of
recoverable pounds) 399,700a 312,800 1,003,500a 858,100
Sales (000s of
recoverable pounds) 388,500b 332,600 998,100b 894,600
Average realized price $.74 $.95 $.76 $1.07c
Gold
Production (recoverable
ounces) 527,500a 487,400 1,408,200a 1,224,900
Sales (recoverable
ounces) 509,600b 522,500 1,408,200b 1,327,700
Average realized price $286.74 $335.63d $290.74 $364.36d
Gross profit per pound of copper (cents):
Average realized price 74.1 95.0 75.8 106.7c
----- ----- ----- -----
Production costs:
Site production and
delivery 29.5 46.6 33.3 52.7
Gold and silver credits (38.3) (53.3) (41.2) (54.4)
Treatment charges 23.7 24.1 23.9 25.1
Royalty on metals 1.2 2.6 1.2 3.1
----- ----- ----- -----
Cash production costs 16.1 20.0 17.2 26.5
Depreciation and
amortization 17.0 15.0 17.0 15.0
----- ----- ----- -----
Total production costs 33.1 35.0 34.2 41.5
----- ----- ----- -----
Revenue adjustments e 0.4 (6.6) 2.7 5.0
----- ----- ----- -----
Gross profit per pound
of copper 41.4 53.4 44.3 70.2
===== ===== ===== =====
</TABLE>
<PAGE> 11
a. Amounts are PT-FI's share of aggregate production, which
totaled 480.8 million pounds of copper and 662,300 ounces of
gold for the third quarter and 1,206.9 million pounds of
copper and 1,767,600 ounces of gold for the nine-month
period.
b. Amounts are PT-FI's share of aggregate sales, which totaled
467.6 million pounds of copper and 639,400 ounces of gold
for the third quarter and 1,195.5 million pounds of copper
and 1,752,000 ounces of gold for the nine-month period.
c. Amount was $1.01 before hedging adjustments.
d. Amounts were $324.15 for the third quarter and $335.72 for
the nine-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 during the nine-month 1997 period.
PT-FI's mill throughput averaged a record 207,400 MTPD
during the third quarter of 1998, as a result of its recently
completed fourth concentrator mill expansion. Compared with a
year ago, PT-FI's share of third-quarter and nine-month 1998
copper and gold sales volumes benefited from higher mill
throughput and recoveries. Ore grades in the 1998 periods were
lower than a year ago reflecting the capability of the expanded
mill facilities to process large volumes of lower grade ore
material.
Unit site production and delivery costs averaged $0.30 per
pound of copper for the third quarter of 1998, 36 percent below
the $0.47 per pound reported in the third quarter of 1997, and
$0.33 per pound of copper for the first nine months of 1998, 38
percent below the $0.53 per pound reported in the first nine
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
($298.55 per ounce on October 19, 1998), PT-FI's 1998 average
unit cash production costs, including gold and silver credits,
are expected to be approximately $0.15 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 third quarter and first nine
months of 1998 PT-FI recorded losses totaling $4.1 million and
$13.5 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 September 30, 1998, these contracts hedged 160.0 billion of
rupiah payments and 105.5 million of Australian dollar payments
through September 1999. PT-FI recorded net gains to production
costs totaling $0.9 million in the third quarter of 1998 and net
losses to production costs totaling $4.9 million in the first
nine 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 position.
<PAGE> 12
Assuming estimated 1998 rupiah payments of 500 billion and a
September 30, 1998 exchange rate of 10,800 rupiah to one U.S.
dollar, a one thousand rupiah increase in the exchange rate could
result in an approximate $3.9 million decrease in annual
production costs and a one thousand rupiah decrease in the
exchange rate could result in an approximate $4.7 million
increase in annual production costs before any hedging effects.
PT-FI's mining and milling operations are located in
steep mountainous terrain in a remote area of Indonesia. Although
this area ordinarily receives significant annual rainfall, much
dryer conditions existed in Southeast Asia during 1997 and the
first half of 1998, which were generally attributed to the "El
Nino" phenomenon. 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, which
resulted in damages to certain equipment and facilities owned by
PT-FI. 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 charged $6.0
million to third-quarter 1998 production costs for this event.
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, the financial impact on PT-FI's operations
and facilities from such events should be limited.
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 disorganized, 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
conducted in an orderly fashion. Shipments of concentrates were
made from inventory and were not disrupted by the work stoppage.
PT-FI does not expect the work stoppage to impact 1998
projected sales volumes significantly.
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 September 30, 1998, PT-FI's share of
incremental cash flow has totaled $140.6 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), the
Eastern Mining COW, the PT-Iriana Mutiari Mining (PT-IMM) COW and
in its new acreage acquired through its June 1998 exploration
joint venture agreement discussed below. In Block A, which
contains PT-FI's mining and milling operations, delineation
drilling continues at Kucing Liar, Grasberg Underground and DOZ.
Three rigs are now drilling the Kucing Liar ore body, where
mineralization remains open to the west and toward the lower
parts of the Grasberg deposit. Development of the Kucing Liar
drift has resumed allowing testing of the western extent of the
deposit. Delineation drilling at Grasberg Underground is ongoing
with three to four drills working from the Amole drift and is
scheduled to continue for the remainder of 1998 and into 1999.
The focus is to delineate the Grasberg deposit below the current
block cave reserve. Delineation drilling at DOZ continues to
return positive results on thhe western and
<PAGE> 13
southwestern area of the current block cave reserve, indicating
excellent potentiall for expansion of reserves.
In Block B and the Eastern Mining COW areas, the exploration
emphasis is now geared towards evaluation of the highest
potential prospects. Exploration acreage has been selected which
will be part of Block B's last 25 percent relinquishment,
scheduled to take place at year-end 1998. Approximately 1.6
million acreas will remain within Block B after the
relinquishment. Eastern Mining's last 25 percent relinquishment
is scheduled for August 2001, when exploration acreage will be
reduced from 1.25 million acres to approximately 0.6 million
acreas.
Exploration of PT-IMM's COW area covering 1.2 million acres
continued. FCX has the option of earning a 90 percent interest
in the COW. Rio Tinto has elected not to participate in this
COW. Interpretation of the reconnaissance sampling program
results are under way to determine areas for follow-up geological
mapping and drilling. Test pitting at the Siduarsi nickel
prospect has been completed with assay results pending.
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 1.0 million acres in
several blocks contiguous to PT-FI's Block B and Eastern Mining's
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 that 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>
Third Quarter Nine Months
---------------- ----------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues (in millions) $182.1 $229.5 $570.1 $663.3
Operating income (in millions) $9.8 $9.4 $32.2 $19.0
Concentrate treated (metric tons) 235,200 241,600 740,900 683,100
Anode production (000s of pounds) 157,000 169,000 490,000 471,100
Cathode and wire rod sales
(000s of pounds) 140,900 133,000 405,400 375,900
Gold sales in anodes and slimes
(ounces) 157,700 121,400 506,600 363,200
</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 third quarter of 1998 reflects
higher cathode and wire rod sales volumes, partially offset by
higher unit costs compared with the 1997 quarter. The nine-month
1998 period benefited from higher volumes of concentrate treated
and cathode and wire rod sales compared with the 1997 period.
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 3 percent
less concentrate in the third quarter of 1998 compared with the
third quarter of 1997 and 8 percent more concentrate in the first
nine months of 1998 compared with the first nine months of 1997.
Treatment and refining rates were slightly lower in the 1998
quarter ($0.25 per pound in third-quarter 1998 compared with
$0.26 per pound in third-quarter 1997) and unchanged for the
nine-month periods ($0.26 per pound). Cathode cash production
costs of $0.13 per pound in the 1998 periods were slightly higher
than the $0.12 per pound reported in the 1997 third quarter and
the same as reported in the 1997 nine-month period. Higher
treatment charges, which negatively affect PT-FI, benefit
Atlantic and vice versa.
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 September
30, 1998 exchange rate of 142 pesetas to one U.S. dollar, a ten
peseta increase in the exchange rate could result in an
approximate $7 million decrease in costs and a ten peseta
decrease in the exchange rate could result in an approximate $8
million increase in costs before any hedging effects. FCX's
other income included currency translation gains (losses)
totaling $(5.7) million in the third quarter of 1998, $4.5
million in the third quarter of 1997, $(4.3) million in the first
nine months of 1998 and $16.6 million in the first nine months of
1997 related to net peseta-denominated liabilities.
<PAGE> 14
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 50 percent of
Atlantic's projected net peseta cash outflows through October
1999. In addition to the currency translation gains noted above,
Atlantic recorded gains (losses) to other income related to its
foreign currency contracts totaling $4.1 million in the third
quarter of 1998, $(2.0) million in the third quarter of 1997,
$3.8 million in the first nine months of 1998 and $(7.8) million
in the first nine months of 1997.
Beginning January 1, 1999, a new common currency (the Euro)
is being introduced to member states of the European Union,
including Spain. A transition period will extend until January
1, 2002. Only a few of Atlantic's customers and none of its
suppliers have notified Atlantic of their intent to use the Euro
as the currency for commercial transactions beginning January 1,
1999. Atlantic has not yet decided when it will adopt the Euro
as the currency for its commercial transactions. Atlantic does
not expect conversion to the Euro currency to have a material
impact on its revenues or expenses. A single European currency is
expected to improve Atlantic's competitiveness with other European
smelters and refiners by eliminating exchange rate differences.
Atlantic's current management information systems are designed to
accommodate multiple currencies and would not require major
modifications to process transactions involving the Euro.
Atlantic's peseta hedging contracts will be set at a fixed
exchange rate to the Euro and would continue to achieve their
objectives.
PT Smelting.
Construction of PT Smelting's copper smelter/refinery complex in
Gresik, Indonesia was completed during the third quarter of 1998
on schedule and on budget and the smelter furnace was ignited on
October 12, 1998. First productioon of copper cathode is expected
in the fourth quarter of 1998 followed by a gradual increase in
production to design capacity of 200,000 metric tons of copper
metal per year over an approximate two-year period. FCX
anticipates that after PT Smelting's facilities reach design
capacity, PT-FI will sell approximately 50 percent of its annual
concentrate production to Atlantic and PT Smelting at market
prices. PT-FI recorded charges to production costs totaling $0.4
million in the third quarter of 1998 and $1.1 million in the
nine-month 1998 period for its share of PT Smelting's pre-
operating costs.
OTHER FINANCIAL RESULTS
FCX's share of exploration costs totaled $2.8 million in the 1998
third quarter, $5.1 million in the 1997 third quarter, $10.3
million in the first nine months of 1998 and $14.0 million in the
first nine months of 1997. Most exploration costs are now being
shared 60 percent by FCX and 40 percent by Rio Tinto.
Approximately $4.1 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.
Third-quarter 1998 general and administrative expenses
include net charges totaling $6.1 million associated with the
sale of corporate aircraft. Excluding these charges, general and
administrative expenses declined 32 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. Nine-month 1998 general
and administrative expenses, excluding the above charges,
declined 31 percent compared with the nine-month 1997 period.
FCX's total interest cost (before capitalization) rose to
$172.0 million for the 1998 nine-month period from $126.5 million
in the 1997 nine-month period because of an increase in debt
levels associated with the expansions and the FCX share purchase
program. FCX capitalized $18.9 million of interest costs in the
first nine months of 1998 and $14.3 million of interest costs in
the first nine months of 1997 primarily related to the fourth
concentrator mill expansion project.
FCX's effective tax rate was 48 percent for the first nine
months of 1998 and 46 percent for the first nine 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 substantial tax loss carryforward for
which no financial statement benefit has been provided.
<PAGE> 15
CAPITAL RESOURCES AND LIQUIDITY
FCX's primary sources of cash are operating cash flows and
borrowings, while its primary cash outflows include capital
expenditures, purchases of its common stock and dividends. Net
cash provided by operating activities was $358.6 million for the
first nine months of 1998, compared with $385.7 million for the
1997 period. Net cash used in investing activities totaled $258.9
million in the 1998 period, compared with $446.5 million in the
1997 period, primarily for PT-FI capital expenditures. Net cash
used in financing activities totaled $98.8 million in 1998,
compared with $35.5 million provided by financing activities in
1997.
Operating Activities. Lower net income in the first nine months
of 1998 was the primary reason for a $27.1 million decrease in
operating cash flow, compared with the first nine months of 1997.
PT-FI collected $30.1 million from closed gold forward sales
contracts in 1997 and recognized $76.6 million of gains on the
closed gold forward sales contracts and copper put options
contracts sold in 1996.
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 fourth quarter of 1998 are expected to
approximate $60 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 ($393.0 million commitment available at
October 19, 1998).
Financing Activities. Net proceeds from debt totaled $214.1
million in the first nine months of 1998 and $482.3 million in
the first nine months of 1997, including net repayments of $73.7
million to Rio Tinto in the 1998 period and nonrecourse
borrowings of $315.8 million from Rio Tinto in the 1997 period.
During the nine-month 1998 period FCX paid $237.5 million for
purchases of its common shares, compared with $250.9 million in
the 1997 period under its share purchase programs discussed
below. The reduction in cash dividends paid on common stock
during the first nine 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.
In August 1998, PT-FI entered into a purchase agreement to
reacquire for $30 million a one-third interest in certain
infrastructure asset joint ventures owned by Indonesian
investors. The joint ventures had purchased $270.0 million of
infrastructure assets from PT-FI during the period from December
1993 to March 1997. PT-FI is now consolidating the joint
ventures, resulting in lower interest expense and higher minority
interest charges.
In August 1998, FCX announced a new open market share
purchase program for an additional 20 million shares bringing the
total shares approved for purchase under the open market share
purchase programs to 60 million. During the first nine months of
1998, FCX acquired 18.8 million of its shares for $245.9 million
(an average of $13.11 per share) under its open market share
purchase programs, of which $8.4 million was paid in October
1998. From inception of these programs through October 19, 1998,
FCX has purchased a total of 49.5 million shares for $1.0 billion
(an average of $20.63 per share) and approximately 10.5 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 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 change in the 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. As a result of the economic and political issues
affecting Indonesia and the currently low prices for copper and
gold, the availability of capital for FCX and its subsidiaries
is limited and the cost of new capital, if available, would be
high.
<PAGE> 16
IMPACT OF YEAR 2000 COMPLIANCE
The Year 2000 (Y2K) issue is the result of computerized systems
being written to store and process the year portion of dates
using two digits rather than four. Date-aware systems (i.e., any
system or component that performs calculations, comparisons,
sequencing, or other operations involving dates) may fail or
produce erroneous results on or before January 1, 2000 because
the year 2000 will be interpreted as the year 1900.
FCX's State of Readiness. FCX has been pursuing a strategy to
ensure all its significant computer systems will be able to
process dates from and after January 1, 2000, including leap
years, without critical systems failure (Y2K Compliant or Y2K
Compliance). Computerized systems are integral to the operations
of FCX, particularly for plant and equipment process control at
its mining, milling and smelting production facilities. Certain
services are provided to FCX and its subsidiaries by FM Services
Company (FMS), which is responsible for ensuring Y2K Compliance
for the systems it manages. FMS has separately prepared a plan
for its Y2K Compliance. Certain PT-FI infrastructure assets
within PT-FI's area of operations are operated by third parties.
Each respective third party is responsible for its own Y2K
Compliance, although PT-FI is coordinating their activities and
providing oversight and is responsible for their ultimate Y2K
Compliance. Progress of the Y2K plan is being monitored by FCX
executive management and reported to the Audit Committee of the
FCX Board of Directors. In addition, the independent accounting
firm functioning as FCX's internal auditors is assisting
management in monitoring the progress of the Y2K plan. FCX
believes all critical components of the plan are on schedule for
completion by the end of the second quarter of 1999.
The majority of computerized date-sensitive hardware and
software components used by FCX or FMS are covered by maintenance
contracts with the vendors who originally implemented them.
Almost all of these vendors have already been contacted regarding
Y2K Compliance of their products. Where necessary, software
modifications to ensure compliance will be provided by the
appropriate vendors under their maintenance contracts.
Information Technology (IT) Systems - The bulk of FCX
computerized business systems processing is provided through
commercial third party software licensed by FCX. The Y2K
Compliant version of its enterprise asset management and
accounting software package is being tested by FCX with
implementation work scheduled for completion in the fourth
quarter of 1998. Modification of other critical FCX business
systems is scheduled for completion in the first quarter of 1999.
FMS is responsible for making changes to the systems it manages,
and modification work is scheduled for completion in the second
quarter of 1999.
Non-IT Systems - FCX is heavily dependent upon computerized
systems in its mining, milling and smelting production
facilities. In addition, computerized systems are used
extensively for exploration, reserve and production modeling
functions. A detailed inventory and a preliminary risk analysis
of date-aware components were completed in the third quarter of
1998. Third party engineering firms will help verify the results
of the inventory and assist FCX in a comprehensive risk
assessment that is scheduled for completion in the fourth quarter
of 1998.
Third Party Risks - FCX computer systems are not widely
integrated with the systems of its suppliers or customers. The
primary potential Y2K risk attributable to third parties would be
from a temporary disruption in certain materials and services
provided by third parties. The mining operations of PT-FI, the
largest FCX subsidiary, are located in Irian Jaya, a province of
Indonesia. Because of its remote operating location, PT-FI has
implemented contingency plans for critical operating supplies and
materials to help mitigate the impact of a disruption in its
supply and logistics chain. In addition, every FCX supplier has
been contacted regarding Y2K Compliance, and effective August 1,
1998, Y2K Compliance requirements have been included in all FCX
purchasing contracts. An assessment of Y2K third-party risk is
under way and scheduled for completion in the fourth quarter of
1998.
The Costs to Address FCX's Y2K Issues. Expenditures for the
necessary modifications required during 1998 and 1999 will
largely be funded by routine software and hardware maintenance
fees paid by FCX or FMS to the related software providers. Based
on current information, FCX believes that the cost of Y2K
Compliance will not be significant and will be provided for
through its normal operating and capital budgets. If the software
modifications and conversions referred to above are not made, or
are delayed, the Y2K issue could have a material impact on FCX
operations. Additionally, the above cost estimates are based on
management's best estimates, which are derived using numerous
assumptions of future events
<PAGE> 17
including the continued availability
of certain resources, third party modification plans and other
factors. There also can be no assurance that the systems of
other companies will be converted on a timely basis or that
failure to convert will not have a material adverse effect on
FCX.
The Risks of FCX's Y2K Issues. Based on preliminary risk
assessment work conducted thus far, FCX believes the most likely
Y2K related failures would probably be temporary disruption in
certain materials and services provided by third parties, which
would not be expected to have a material adverse effect on FCX's
financial condition or results of operations. A more definitive
assessment of this risk will be available at the conclusion of
the assessment phase of the Y2K project, which is scheduled for
completion in the fourth quarter of 1998.
FCX's Contingency Plans Companies, including FCX, cannot make
Y2K Compliance certifications because the ability of any
organization's systems to operate reliably after midnight on
December 31, 1999 is dependent upon factors that may be outside
the control of, or unknown to, the organization. In Securities
and Exchange Commission (SEC) Staff Legal Bulletin No. 5, the SEC
stated that "it is not, and will not, be possible for any single
entity or collective enterprise to represent that it has achieved
complete Year 2000 compliance and thus to guarantee its
remediation efforts. The problem is simply too complex for such
a claim to have legitimacy. Efforts to solve Year 2000 problems
are best described as 'risk mitigation'."
Although FCX believes the likelihood of any or all of the
above risks occurring to be low, specific contingency plans to
address certain risk areas will be developed, if needed,
beginning in the first quarter of 1999. While there can be no
assurance that FCX will not be materially adversely affected by
Y2K problems, it is committed to ensuring that it is fully Y2K
ready and believes its plans adequately address the above-
mentioned risks.
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,
cash production costs, capital expenditures, introduction of the
Euro, the availability of financing and Y2K Compliance.
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> 18
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 trial court 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.
In October 1998, the trial court dismissed most of the
plaintiff's claims but granted the plaintiff the right to file an
amended complaint, which the plaintiff filed in November 1998.
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 two current Reports on Form
8-K dated August 27, 1998 and September 22, 1998
reporting information under Item 5.
<PAGE> 19
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
Date: November 12, 1998
<PAGE> 20
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-Domminated 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 October 20, 1998 from Arthur Andersen LLP
regarding unaudited interim financial statements.
27.1 FCX Financial Data Schedule.
<PAGE> E-5
Exhibit 15.1
October 20, 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 September 30,
1998, which includes our report dated October 20, 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
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 September
30, 1998 and for the nine months then ended, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,891
<SECURITIES> 0
<RECEIVABLES> 138,211
<ALLOWANCES> 0
<INVENTORY> 287,959
<CURRENT-ASSETS> 471,246
<PP&E> 4,795,452
<DEPRECIATION> 1,270,866
<TOTAL-ASSETS> 4,174,245
<CURRENT-LIABILITIES> 525,131
<BONDS> 2,359,500
500,007
349,990
<COMMON> 21,852
<OTHER-SE> (288,742)
<TOTAL-LIABILITY-AND-EQUITY> 4,174,245
<SALES> 1,272,116
<TOTAL-REVENUES> 1,272,116
<CGS> 798,786
<TOTAL-COSTS> 798,786
<OTHER-EXPENSES> 10,344
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153,113
<INCOME-PRETAX> 240,726
<INCOME-TAX> 114,461
<INCOME-CONTINUING> 102,998
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,998
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
