SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from .......... to ..........
Commission file number 1-9916
Freeport-McMoRan Copper & Gold Inc.
(Exact name of registrant as specified in its charter)
Delaware 74-2480931
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1615 Poydras Street
New Orleans, Louisiana 70112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504)582-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- ------------------------------------------
Class A Common Stock New York Stock Exchange
par value $0.10 per share
Class B Common Stock New York Stock Exchange
par value $0.10 per share
Depositary Shares representing New York Stock Exchange
0.05 shares of Step-Up Convertible
Preferred Stock,
par value $0.10 per share
Depositary Shares representing New York Stock Exchange
0.05 shares of Gold-Denominated
Preferred Stock,
par value $0.10 per share
Depositary Shares, Series II, New York Stock Exchange
representing 0.05 shares of Gold-
Denominated Preferred Stock,
Series II, par value $0.10 per share
Depositary Shares representing New York Stock Exchange
0.025 shares of Silver-
Denominated Preferred Stock,
par value $0.10 per share
9-3/4% Senior Notes due 2001 of New York Stock Exchange
P.T. ALatieF Freeport Finance
Company B.V., guaranteed by
the registrant
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of classes of common stock held
by non-affiliates of the registrant on March 8, 1999 was
approximately $1,211,000,000.
On March 8, 1999, there were issued and outstanding
64,809,423 shares of Class A Common Stock and 98,759,277 shares
of Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to stockholders
for the year ended December 31, 1998 are incorporated by reference
into Parts II and IV of this report and portions of the Proxy
Statement submitted to the registrant's stockholders in connection
with its 1999 Annual Meeting to be held on May 6, 1999 are
incorporated by reference into Part III of this report.
TABLE OF CONTENTS
Page
Part I
Items 1. and 2. Business and Properties..........................1
Item 3. Legal Proceedings.......................................13
Item 4. Submission of Matters to a Vote of Security Holders.....13
Executive Officers of the Registrant ...................14
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters........................15
Item 6. Selected Financial Data.................................15
Items 7. and 7A. Management's Discussion and Analysis of
Financial Condition and Results of Operations
and Quantitative and Qualitative Disclosures
About Market Risk......................................16
Item 8. Financial Statements and Supplementary Data.............16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................16
Part III
Item 10. Directors and Executive Officers of the Registrant.....16
Item 11. Executive Compensation.................................16
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................16
Item 13. Certain Relationships and Related Transactions.........16
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K...............................17
Signatures.....................................................S-1
Index to Financial Statements..................................F-1
Report of Independent Public Accountants.......................F-1
Exhibit Index..................................................E-1
<PAGE> i
PART I
Items 1. and 2. Business and Properties.
General
Freeport-McMoRan Copper & Gold Inc., a Delaware corporation (FCX
or the Company), is one of the world's largest copper and gold
companies in terms of reserves and production, and believes that
it has the lowest cost copper producing operations in the world,
taking into account customary credits for related gold and silver
production.
FCX's principal operating subsidiary is P.T. Freeport Indonesia
Company (PT-FI), a limited liability company organized under the
laws of the Republic of Indonesia and domesticated in Delaware.
PT-FI's operations involve the exploration for and development,
mining and processing of ore containing copper, gold and silver
in Irian Jaya, Indonesia pursuant to an agreement (a Contract of
Work or COW) with the government of the Republic of Indonesia
(the Indonesian Government) and in the worldwide marketing of
concentrates containing those metals. FCX owns directly an 81.28
percent interest in PT-FI. Of the remaining 18.72 percent, 9.36
percent is owned by each of the Indonesian Government and P.T.
Indocopper Investama Corporation, an Indonesian limited liability
company (PT-II). FCX owns a 49 percent interest in PT-II, giving
FCX an aggregate 85.87 percent ownership interest in PT-FI. PT-
FI's operations are located in the remote rugged highlands of the
Sudirman Mountain Range in the province of Irian Jaya, Indonesia,
located on the western half of the island of New Guinea. The PT-
FI COW permits extensive exploration, mining and production
activities in a 24,700-acre area, referred to as "Block A," and
an exploration area currently consisting of approximately 1.6
million acres referred to as "Block B." PT-FI's largest mine,
Grasberg, was discovered in Block A in 1988 and contains the
largest single gold reserve and one of the three largest open-pit
copper reserves of any mine in the world.
Through P.T. IRJA Eastern Minerals Corporation (Eastern Mining),
FCX holds an additional COW in Irian Jaya covering an approximate
1.25 million-acre exploration area. Eastern Mining was formed in
1994 to explore for copper, gold and silver in the Eastern Mining
COW area. FCX owns 90 percent of the outstanding common stock of
Eastern Mining through a wholly owned subsidiary, and PT-II owns
the remaining 10 percent, giving FCX an aggregate 94.9 percent
ownership interest in Eastern Mining.
In 1996, FCX and Rio Tinto plc (Rio Tinto) established
exploration and expansion joint ventures. Pursuant to the
exploration joint ventures, Rio Tinto has a 40 percent interest
in future development projects under the PT-FI COW and the
Eastern Mining COW. Rio Tinto also has a 40 percent interest in
certain assets and production exceeding specified annual amounts
of copper, gold and silver through 2021 and 40 percent of all
production thereafter through a joint venture covering expanded
operations in Block A.
FCX has an option through June 1999 to acquire a 90 percent
ownership interest in an entity that holds a COW covering an area
of approximately 1.2 million acres in central Irian Jaya.
Additionally, in June 1998 FCX entered into an exploration joint
venture agreement through which it 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. See "Exploration."
FCX's operations also involve the smelting and refining of copper
concentrates in Spain and marketing refined copper products
through its indirect, wholly owned subsidiary, Atlantic Copper,
S.A. (Atlantic). PT-FI has a 25 percent interest in P.T.
Smelting Co. (PT-SC), an Indonesian company that completed
construction of a copper smelter/refinery in Gresik, East Java,
Indonesia during the third quarter of 1998. See "Atlantic Copper,
S.A." and "P.T. Smelting Co."
Republic of Indonesia
The Republic of Indonesia consists of more than 17,000 islands
stretching 3,000 miles along the equator from Malaysia to
Australia and is the fourth most populous nation in the world
with over 200 million people. Following many years of Dutch
colonial rule, Indonesia gained independence in 1945 and now has
a presidential republic system of government.
<PAGE> 1
Maintaining a good working relationship with the Indonesian
Government is of particular importance to the Company because all
of its mining operations are located in Indonesia. PT-FI's mining
complex was Indonesia's first copper mining project and was the
first major foreign investment in Indonesia following the
economic development program instituted by the Indonesian
Government in 1967. PT-FI works closely with the central,
provincial and local governments in development efforts in the
vicinity of its operations. The Company's current exploration and
mining operations in Indonesia are conducted through PT-FI by
virtue of the PT-FI COW and through Eastern Mining by virtue of
the Eastern Mining COW, both of which have 30-year terms, provide
for two 10-year extensions under certain conditions, and govern
PT-FI's and Eastern Mining's rights and obligations relating to
taxes, exchange controls, royalties, repatriation and other
matters. Both COWs were concluded pursuant to the 1967 Foreign
Capital Investment Law, which expresses Indonesia's foreign
investment policy and provides basic guarantees of remittance
rights and protection against nationalization, a framework for
economic incentives and basic rules regarding other rights and
obligations of foreign investors. Any disputes regarding the
provisions of the COWs are subject to international arbitration.
The area surrounding PT-FI's mining development is sparsely
populated by local tribes and former residents of more populous
areas of Indonesia, some of whom have resettled in Irian Jaya
under the Indonesian Government's transmigration program. A small
segment of the local population has in the past opposed
Indonesian rule over Irian Jaya, and several small separatist
groups have sought political independence for the province.
Public discussion of the degree of political and economic
autonomy that may be allowed individual provinces, including
Irian Jaya, have been held and likely will continue throughout
the 1999 parliamentary and presidential elections. Sporadic
attacks on civilians by the separatists and sporadic but highly
publicized conflicts between separatists and the Indonesian
military have led to previous allegations of human rights
violations. PT-FI personnel have not been involved in those
conflicts. The Indonesian military occasionally has exercised
its right to appropriate transportation and other equipment of
PT-FI to use in its security operations.
Unfavorable economic conditions continue to affect Southeast
Asia, including Indonesia. Since early 1997, Indonesia's economy
has contracted, inflation increased dramatically, and the
Indonesia rupiah severely weakened initially and then partly
recovered and continues to be unpredictable. Financial
assistance to Indonesia is being provided by the International
Monetary Fund, and various political, financial and regulatory
changes are being implemented, including national parliamentary
elections scheduled for June 1999 followed by a presidential
election currently scheduled for September 1999. International
copper and gold markets have been adversely affected by the
developments in Southeast Asia.
Contracts of Work
The PT-FI COW covers both Block A, which was originally the
subject of a 1967 COW between PT-FI's predecessor and the
Indonesian Government, and Block B, to which PT-FI gained rights
in 1991. The initial term of the PT-FI COW expires in December
2021 with provisions for two 10-year extensions under certain
conditions. Pursuant to the PT-FI COW, PT-FI to date has
relinquished its rights to 4.9 million acres in Block B,
including 1.6 million acres in December 1998. PT-FI retains the
rights to 1.6 million acres in Block B, which it believes contain
the most promising exploration opportunities following extensive
geological assessment.
In August 1994, the Indonesian Government granted Eastern Mining
a COW originally covering approximately 2.5 million acres in
three separate blocks. The Eastern Mining COW provides for a
four-to-seven year exploratory term and a 30-year term for mining
operations, with provisions for two 10-year extensions under
certain conditions. Like the PT-FI COW, the Eastern Mining COW
requires Eastern Mining to relinquish its right to portions of
the COW area determined by Eastern Mining in amounts equal to 25
percent of the original approximately 2.5 million acres at the
end of each of three specified periods. Eastern Mining to date
has relinquished approximately 1.25 million acres and must
relinquish approximately 0.6 million additional acres by August
2001.
Ore Reserves
All of PT-FI's proved and probable reserves, including the
Grasberg deposit, lie within Block A. In 1998, PT-FI increased
its aggregate proved and probable reserves by approximately 381
million metric tons of ore representing 6.0 billion recoverable
pounds of copper, 4.3 million recoverable ounces of gold and 18.7
million recoverable ounces of silver. December 31, 1998 aggregate
proved and probable recoverable reserves, net of 1998 production,
totaled 2.48
<PAGE> 2
billion metric tons of ore averaging 1.13 percent
copper, 1.05 grams of gold per metric ton and 3.83 grams of
silver per metric ton, representing 51.3 billion pounds of
copper, 64.2 million ounces of gold and 153.1 million ounces of
silver. Pursuant to joint venture arrangements, Rio Tinto has a
40 percent interest in production exceeding specified annual
amounts of copper, gold and silver through 2021, calculated by
reference to PT-FI's proved and probable reserves as of December
31, 1994, and 40 percent of all production thereafter. Net of Rio
Tinto's share, PT-FI's share of proved and probable recoverable
copper, gold and silver reserves was 40.0 billion pounds of
copper, 51.6 million ounces of gold and 119.1 million ounces of
silver as of December 31, 1998. Net of Rio Tinto's share, 1998
additions and revisions to PT-FI's proved and probable copper,
gold and silver reserves replaced approximately 250 percent of
PT-FI's 1998 copper production, 120 percent of gold production
and 330 percent of silver production. Estimated recoverable
reserves were assessed using a copper price of $0.90 per pound
and a gold price of $325 per ounce. Using prices of $0.75 per
pound of copper and $280 per ounce of gold would reduce estimated
recoverable reserves by approximately 9 percent for copper, 7
percent for gold and 9 percent for silver.
The Grasberg deposit contains the largest single gold reserve and
is one of the three largest open-pit copper reserves of any mine
in the world. The Grasberg deposit contained combined open pit
and underground proved and probable ore reserves as of December
31, 1998 of 1.88 billion metric tons at an average grade of 1.04
percent copper, 1.03 grams of gold per metric ton and 3.05 grams
of silver per metric ton. As of December 31, 1998, Kucing Liar
contained proved and probable ore reserves of 320.5 million
metric tons at an average grade of 1.41 percent copper, 1.41
grams of gold per metric ton and 5.30 grams of silver per metric
ton.
The Company's reserves as of December 31, 1997 and 1998 included
in this report have been verified by Independent Mining
Consultants, Inc., and this reserve information has been included
in this report in reliance upon the authority of Independent
Mining Consultants, Inc. as experts in mining, geology and
reserve determination. See "Cautionary Statements."
Mining Operations
Mines in Production. PT-FI currently has two mines in operation:
the Grasberg and the Intermediate Ore Zone (IOZ), both within
Block A. Open pit mining of the Grasberg ore body commenced in
January 1990, and in 1998 the Grasberg mine output totaled
approximately 67.0 million metric tons of ore, providing 93
percent of PT-FI's total ore production in 1998. The IOZ is an
underground block cave operation that was placed in production in
the first half of 1994. Production is at the 3,550 meter
elevation level, approximately 300 meters below the Ertsberg East
deposit, which was depleted in the second half of 1994. In 1998,
output from the IOZ mine totaled 4.9 million metric tons of ore.
Mines in Development. Four other significant ore bodies, referred
to as the Deep Ore Zone (DOZ), the DOM, the Big Gossan and Kucing
Liar are located in Block A. These ore bodies are currently at
various stages of development, and are carried as proved and
probable reserves. See "Cautionary Statements."
The DOZ ore body lies vertically below the IOZ. Initial
production from the DOZ ore body commenced in 1989 but was
suspended in favor of production from the Grasberg deposit. DOZ
production is anticipated to recommence in approximately 2000 as
the overlying IOZ reserve nears depletion.
The DOM ore body lies approximately 1,200 meters southeast of the
depleted Ertsberg East deposit. Pre-production development was
completed as the Grasberg ore body began open pit production in
1990, and all maintenance, warehouse and service facilities are
in place. Production at the DOM ore body was deferred until after
completion of open pit mining as a result of the increasing
reserves and production capabilities of the Grasberg ore body.
The Big Gossan ore body is located approximately 1,000 meters
southwest of the original Ertsberg East deposit. Initial
underground development of the ore body began in 1993 when
tunnels were driven from the mill area into the ore zone at the
2,900 meter elevation level. A variety of stoping methods will be
used to mine the deposit, with production expected to commence
within the next ten years as other underground mines are
depleted.
The Kucing Liar ore body lies on the southern flank of and
underneath the southern portion of the Grasberg open pit at the
2,500-2,900 meter elevation level. Two rigs are now drilling in
the Kucing Liar ore body. Recent drilling to the west indicates
a possible thinning or fault offsets to the mineralization, but
continuity of mineralization extends beyond the
<PAGE> 3
1998 reserve additions and along favorable horizons toward the Grasberg
deposit. Further delineation of this ore body is scheduled for
1999, upon completion of which potential development plans will
be assessed.
For a detail of PT-FI's proved and probable reserves as of
December 31, 1998, see FCX's Annual Report incorporated herein by
reference as part of "Item 8. Financial Statements and
Supplementary Data."
Exploration
Block A delineation drilling continues at Kucing Liar (as
discussed above), Grasberg Underground and the DOZ underground
ore bodies. Drilling at Grasberg Underground is ongoing with two
drills working from the Amole drift to delineate the Grasberg
Underground deposit below the 1998 reserve additions. Copper-
gold mineralization is decreasing with depth where additional
drilling is planned for 1999 to fully define the ultimate
geometry of the mineralized zone, which extends for over 1,500
meters vertically from the original ore intercepts at the 4,200
meter elevation. Drilling at DOZ continues to return positive
results, indicating the potential for additional reserve
increases. Other targets in Block A yet to be evaluated include
the DOM Deep, fault systems parallel to the Kucing Liar/Idenberg
#1 fault system and other intrusive centers and fault
intersections.
Exploration activities continue in Block B, which includes the
Wabu Ridge gold prospect as well as in other COW areas.
Activities are primarily focused on prospects that potentially
could lead to the discovery of significant porphyry and/or skarn-
type copper-gold deposits. Presently, exploration drilling is
ongoing with three rigs on several identified geological
anomalies. Rio Tinto has elected to participate in 40 percent of
FCX's interest and costs in exploration drilling activities now
in progress.
Pursuant to the exploration joint ventures, Rio Tinto has a 40
percent interest in development projects under the PT-FI COW and
the Eastern Mining COW. Under these arrangements, Rio Tinto
funded $100 million in 1996 for approved exploration costs in the
areas covered by the PT-FI COW and the Eastern Mining COW. As of
December 31, 1998, $1.2 million in PT-FI's Block A remained to be
applied to the $100 million Rio Tinto exploration funding.
Mutually agreed upon exploration costs in PT-FI's Block B and
Eastern Mining's COW areas are now being shared 60 percent by FCX
and 40 percent by Rio Tinto.
In December 1997, FCX signed a letter of intent to acquire an
ownership interest in P.T. Iriana Mutiara Mining (PT-IMM). PT-
IMM holds a COW covering an area of approximately 1.2 million
acres in central Irian Jaya, in part contiguous to Eastern
Mining's COW area. Pursuant to the Rio Tinto joint venture
arrangements, Rio Tinto has elected not to participate with
respect to 40 percent of FCX's interest in this COW area. If FCX
elects to continue participation beyond June 30, 1999, it would
acquire for $7.0 million a 90 percent ownership interest and
would fund all exploration costs up to and including a
feasibility study. FCX would also be responsible for arranging
construction financing for PT-IMM for any economically feasible
projects in the PT-IMM COW area.
In June 1998, FCX entered into an exploration joint venture
agreement through which it 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 one of Eastern
Mining's blocks in Irian Jaya. Rio Tinto has elected to
participate in 40 percent of FCX's interest and costs in this
exploration joint venture. To earn up to a 54 percent interest,
FCX and Rio Tinto must spend a total of up to $21 million on
exploration and other activities in the joint venture areas ($3.0
million of which was incurred through December 31, 1998).
Exploration drilling is ongoing on several identified geological
anomalies.
Milling and Production
The ore from PT-FI's mines moves by a conveyor system to a series
of ore passes through which it drops to the mill complex located
approximately 2,900 meters above sea level. At the mill, the ore
is crushed and ground and mixed in tanks with water and small
amounts of chemical reagents where it is continuously agitated
with air. During this physical separation process, copper-, gold-
and silver-bearing particles rise to the top of the tanks and are
collected and thickened. The concentrate leaves the mill complex
as a thickened concentrate slurry, consisting of approximately 65
percent solids by weight, and is pumped through three 115
kilometer pipelines to the port site facility at Amamapare where
it is filtered, dried and stored for shipping. Ships are loaded
at dock facilities at the port until they draw their maximum
water, then move to deeper water, where loading is completed from
shuttling barges.
<PAGE> 4
In early 1998, PT-FI and Rio Tinto completed construction on the
"fourth concentrator mill expansion" of PT-FI's facilities.
Pursuant to the expansion joint venture agreement, Rio Tinto
provided a $450 million nonrecourse loan to PT-FI for PT-FI's
share of the cost of the expansion. PT-FI and Rio Tinto began
sharing incremental cash flow attributable to the expansion
effective January 1, 1998 on the basis of 60 percent to PT-FI and
40 percent to Rio Tinto. PT-FI has assigned its share of
incremental cash flow to Rio Tinto until Rio Tinto receives an
amount equal to the funds loaned to PT-FI plus interest based on
Rio Tinto's cost of borrowing. Through December 31, 1998, PT-
FI's share of incremental cash flow totaled $236.4 million of
which $188.6 million was paid to Rio Tinto in 1998 and $47.8
million was paid in 1999. The incremental production from the
expansion, as well as production from PT-FI's existing
operations, share 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 and 60
percent of all cash flow thereafter.
PT-FI's copper royalty rate under the COW varies from 1.5
percent, at a copper price of $0.90 or less, to 3.5 percent, at a
copper price of $1.10 or more, of copper net revenue. The
related rate for gold and silver sales is 1.0 percent. In light
of its substantially expanded production capabilities, PT-FI is
discussing with the Indonesian Government the payment of
voluntary additional royalties on metal from production above
200,000 metric tons of ore per day (MTPD) in amounts for copper
equal to the COW royalty and for gold and silver equal to twice
the COW royalties. Therefore, including the payment of COW
royalties, the total of royalties paid on copper net revenues
from production above 200,000 MTPD would be double the amount of
the COW royalty; and the total of royalties paid on gold and
silver sales from production above 200,000 MTPD would be triple
the amount of the COW royalties. The additional royalties would
be effective January 1, 1999. Because in large part mineral
royalties under Indonesian Government regulations are remitted to
the provinces from which the minerals are extracted, PT-FI
offered the voluntary additional royalties to provide additional
support to the local governments and the people of Irian Jaya.
In 1998, PT-FI's production, net of RioTinto's interest, totaled
1.43 billion pounds of copper, approximately 22 percent more than
in 1997, and 2,227,700 ounces of gold, approximately 24 percent
more than in 1997, resulting from record average ore throughput
of 196,400 MTPD, as compared to an average of 128,600 MTPD for
1997. Average cash production costs in 1998, net of customary
gold and silver credits, were $0.12 per pound of copper, which
were 47 percent lower than the comparable 1997 average 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. For more information regarding FCX's
operating and financial results, see "Item 6. Selected Financial
Data" and "Items 7. and 7A. Management's Discussion and Analysis
of Financial Condition and Results of Operations and Quantitative
and Qualitative Disclosures About Market Risk."
Infrastructure Improvements
The location of PT-FI's current operations in a remote area
requires that its operations be virtually self-sufficient. In
addition to the mining facilities described above, the facilities
originally constructed by or with the participation of PT-FI
include an airport, a port, a 119 kilometer road, an aerial
tramway, a hospital and related medical facilities, two town
sites with housing, schools and other facilities sufficient to
support more than 17,000 persons.
In 1996, PT-FI completed the first phase of the Enhanced
Infrastructure Program (EIP), which includes various residential,
community and commercial facilities. The EIP is designed to
provide the infrastructure needed for PT-FI's operations, to
enhance the living conditions of PT-FI's employees, and to
develop and promote the growth of local and other third party
activities and enterprises in Irian Jaya. The full EIP includes
plans for various commercial, residential, educational, retail,
medical, recreational, environmental and other infrastructure
facilities to be constructed over a ten-to-twenty year period.
The facilities constructed through the EIP have been and are
expected to continue to be developed by PT-FI through joint
ventures or direct ownership involving local Indonesian interests
and other investors.
In March 1997, PT-FI completed the final $75.0 million sale of
infrastructure assets to joint ventures then owned one-third by
PT-FI and two-thirds by P.T. AlatieF Nusakarya Corporation
(AlatieF), an Indonesian investor. The sales to the AlatieF
joint ventures totaled $270.0 million during the period from
December 1993 to March 1997. PT-FI subsequently sold its one-
third interest in the joint ventures to AlatieF in March 1997.
In September 1998, PT-FI reacquired for $30.0
<PAGE> 5
million an aggregate one-third interest in the joint ventures and continues
to lease the infrastructure assets under infrastructure asset
financing arrangements. PT-FI guarantees the AlatieF loan
associated with the purchases and is consolidating the joint
ventures for financial reporting purposes because the financing
arrangements provide the joint venture partners with a guaranteed
15 percent after-tax minimum annual return on their investment.
In December 1997, PT-FI completed a $366.4 million sale of the
new power plant facilities to the joint venture that owns the
assets that already provide electricity to PT-FI. The purchase
price included $123.2 million for Rio Tinto's share of the new
power plant facilities. Asset sales to the power joint venture
totaled $581.4 million through 1997 including $458.2 million of
PT-FI owned assets. PT-FI subsequently sold its 30 percent
interest in the joint venture to the other partners and is
purchasing power under infrastructure asset financing
arrangements pursuant to a power sales agreement.
Marketing
PT-FI's copper concentrates, which contain significant quantities
of gold and silver, are sold under United States dollar-
denominated sales agreements, mostly to companies in Asia and
Europe and international trading companies. Substantially all of
PT-FI's budgeted production of copper concentrates is sold under
long-term contracts, pursuant to which the selling price is based
on world metals prices (generally the London Metal Exchange (LME)
settlement prices for Grade A copper) less certain allowances.
Under these contracts, initial billing occurs at the time of
shipment and final settlement on the copper portion generally
occurs three months after arrival based on average LME prices for
that month. Gold generally is sold at the London Bullion Market
Association average price for the month of shipment. Revenues
from concentrate sales are recorded net of royalties, treatment
and refining costs and the impact of derivative financial
instruments, if any, used to hedge against risks from copper and
gold price fluctuations. Treatment and refining costs represent
payments to smelters and refiners and are either fixed or in
certain cases vary with the price of copper. A small portion of
PT-FI's forecasted production of copper concentrates, and any
production in excess of these amounts, is sold in the spot
market. See "Cautionary Statements."
PT-FI has obtained commitments, including commitments from
Atlantic and PT-SC, for essentially all of its estimated 1999
production at market prices. PT-FI's share of sales for 1999 is
expected to approximate 1.4 billion pounds of copper and 2.1
million ounces of gold. PT-FI's estimated 1999 copper and gold
sales reflect management's expectation of producing at higher
mill throughput rates than in 1998 because of the fourth
concentrator mill expansion, offset by expected lower average ore
grades and recoveries compared to 1998. See "Cautionary
Statements." The lower projected ore grades for 1999 reflect the
capability of the expanded mill facilities to process large
volumes of lower grade ore material. PT-FI has a long-term
contract to provide Atlantic with approximately 60 percent of its
copper concentrate requirements at market prices. PT-FI is
providing 100 percent of PT-SC's copper concentrate requirements
at market prices; however, for the first 15 years of operations
the treatment and refining charges will not fall below a
specified minimum rate. After PT-SC's operations reach design
capacity, FCX anticipates that PT-FI will sell at least 50
percent of its annual concentrate production to Atlantic and PT-
SC.
Atlantic Copper, S.A.
Atlantic's smelter has a design capacity of 290,000 metric tons
of metal per year. Atlantic purchased approximately 70 percent
of its 1998 concentrate requirements from PT-FI at market prices.
Atlantic has a long-term contract through December 2004 to
purchase approximately 60 percent of its concentrate requirements
from PT-FI at market prices. During 1998, Atlantic treated
973,900 metric tons of concentrate, 5 percent more than the
929,700 metric tons treated in 1997.
P.T. Smelting Co.
During the third quarter of 1998, PT-SC completed construction of
its smelter/refinery in Gresik, East Java, Indonesia, which is
designed to produce 200,000 metric tons of metal per year. The
smelter furnace was ignited on October 12, 1998 with first
production of copper cathode in December 1998. Production is
expected to gradually increase to design capacity over an
approximate two-year period. PT-SC is a joint venture between
PT-FI, Mitsubishi Materials Corporation (Mitsubishi Materials),
Mitsubishi Corporation (Mitsubishi) and Nippon Mining & Metals
Co., Ltd. (Nippon), which own 25 percent, 60.5 percent, 9.5
percent and 5 percent, respectively, of the outstanding PT-SC
stock. PT-FI is providing 100 percent of PT-SC's copper
concentrate requirements at market rates; however, for the
<PAGE> 6
first 15 years of operations the treatment and refining charges will
not fall below a specified minimum rate. PT-FI has also agreed
to assign, if necessary, its earnings in PT-SC to support a 13
percent cumulative annual return to Mitsubishi Materials,
Mitsubishi and Nippon for the first 20 years of commercial
operations.
Competition
FCX competes with other mining companies in the sale of its
mineral concentrates and the recruitment and retention of
qualified personnel. Some competing companies possess financial
resources equal to or greater than those of FCX. Management
believes, however, that FCX is the lowest cost copper producer in
the world, taking into account customary credits for related gold
and silver production, which serves as a significant competitive
advantage.
Social Development
FCX has a social and human rights policy to ensure it operates in
Irian Jaya in compliance with Indonesian laws, in a manner that
respects basic human rights and the culture of the people who are
indigenous to the area. PT-FI continues to incur significant
costs associated with its social and cultural activities. These
activities include comprehensive job training programs, basic
education programs, extensive malaria control and several public
health programs, agricultural assistance programs, a business
incubator program to encourage the local people to establish
their own small scale businesses, cultural preservation programs,
and charitable donations. In April 1996, PT-FI agreed to
commit at least one percent of its revenues for the following 10
years to support village-based, bottom-up health, education,
economic and social development programs in its area of
operations through the Freeport Fund for Irian Jaya Development
(FFIJD). This commitment replaced community development programs
undertaken by the company that spent a similar amount of money
each year. In 1998, PT-FI contributed $13.5 million to the
FFIJD.
In early 1996, the international consulting firm of LABAT-
Anderson undertook a comprehensive independent audit of social
programs at PT-FI's operations in Irian Jaya. In July 1997, the
LABAT-Anderson team submitted its final report to the Indonesian
Government and PT-FI, which noted that PT-FI had gone beyond the
usual role and responsibilities of a private company in providing
assistance for the development of the local people. The report
also made a number of recommendations designed to make PT-FI's
programs more effective, including restructuring PT-FI's
participation in the Indonesian Government's development plan for
the area to provide for more direct input by local people through
their leaders. At the end of 1998, discussions with local and
church leaders, government representatives and members of
interested non-governmental organizations successfully culminated
with the restructuring of the FFIJD. The new umbrella structure
is called the Lembaga Pengembangan Masyarakat-Irian Jaya (LPM-
IRJA), or the People's Development Foundation-Irian Jaya. The
LPM-IRJA Board of Directors is made up of the head of the local
government, currently a Kamoro, a leader of the Amungme people, a
leader of the Kamoro people, leaders of the three local churches
and a representative of PT-FI. The Board of Directors makes
grants from the FFIJD and has oversight for implementation of
local developmental programs, through the implementation Board,
which is headed by an Amungme leader and is composed of
representatives of all local indigenous groups.
The LPM-IRJA Board of Directors has approved a 1999/2000
operational plan and has selected a number of yayasans, or
foundations, to implement funded projects. The operational plan
provides some type of assistance for all 71 villages in the
Mimika district, with the greatest support going to the 29
villages defined by the Amungme and Kamoro as most critically
impacted by PT-FI's operations. Another important project will
be a new primary care hospital in Timika. Ground has been
broken for the 75-bed facility. The team which accomplished the
restructuring took care to socialize and communicate the results
in all Mimika villages before the implementation of any new
programs or projects.
While management believes that its efforts to be responsive to
the issues relating to the impact of its operations on the local
villages and tribes should serve to avoid disruptions of mining
operations, social and political instability in the area may, in
the future, have an adverse impact on PT-FI's mining operations.
Environmental Matters
FCX has an environmental policy committing it not only to
compliance with federal, state and local environmental statutes
and regulations, but also to continuous improvement of its
environmental performance at every operational site. Management
believes that PT-FI's operations are being conducted pursuant to
applicable permits and are in
<PAGE> 7
compliance in all material respects
with applicable Indonesian environmental laws, rules and
regulations. Mining operations on the scale of PT-FI's operations
in Irian Jaya involve significant environmental challenges,
primarily related to the disposition of tailings, which are the
crushed and ground rock material resulting from the physical
separation of commercially valuable minerals from the ore. The
Company has an extensive, ongoing management system for the
disposal of tailings resulting from its milling operations. In
January 1997, PT-FI completed an engineered levee system, as part
of its Indonesian Government-approved Tailings Management Plan,
to minimize the impact of the tailings on the environment through
a controlled deposition area that ultimately will be reclaimed
and revegetated.
In 1995, PT-FI participated in a voluntary independent
environmental audit of its Irian Jaya operations under a program
monitored by the Indonesian Government. The environmental audit
report was completed and released in 1996 and included a total of
33 principal recommendations, all of which have been implemented.
The audit team identified the disposal of tailings as the most
critical environmental issue facing PT-FI, requiring significant
study, engineering and monitoring over the life of the mine. The
audit concluded PT-FI's Tailings Management Plan represented the
most suitable option for tailings disposal considering the
engineering and environmental challenges in Irian Jaya. The
audit also confirmed that: the tailings from PT-FI's mining
operations are non-toxic; the mining operations do not pose any
significant risk to Irian Jaya's biodiversity; and, PT-FI's
operations are being conducted in compliance in all material
respects with applicable Indonesian environmental laws, rules and
regulations. PT-FI has committed to independent external
environmental audits by qualified experts every three years, with
the results to be made public. The second such audit will be
conducted and made public in the second half of 1999. PT-FI is
also continuing its annual internal audits, through the life of
its mining operations, so that PT-FI's environmental management
and monitoring programs will remain sound and the operations will
remain in material compliance.
In December 1997, PT-FI received environmental approval from the
Minister of Environment for its Regional AMDAL (comprehensive
Environmental Assessment, Monitoring Plan and Management Plan)
study, which was necessary to allow PT-FI to expand its milling
rate up to a maximum of 300,000 MTPD. PT-FI's environmental
programs were developed, expanded and/or enhanced in accordance
with the approved 300,000 MTPD Regional AMDAL study.
The ultimate amount of PT-FI's reclamation and closure costs to
be incurred cannot currently be projected with precision.
Estimates involving environmental matters, such as closure some
thirty or more years in the future, are by their nature imprecise
and can be expected to be revised over time because of changes in
government regulations, operations, technology and inflation.
Ultimate reclamation and closure costs may require as much as
$100 million but are not expected to exceed $150 million. These
estimates are subject to revision over time as more complete
studies are performed and more definitive plans are formulated.
Some reclamation costs will be incurred throughout the remaining
life of the mine while most closure costs and the remaining
reclamation costs will be incurred at the end of the mine's life,
which is currently estimated to exceed 30 years. PT-FI had $9.2
million accrued on a unit-of-production basis as of December 31,
1998 for mine closure and reclamation costs. In 1996, PT-FI began
contributing to a cash fund ($0.9 million balance at December 31,
1998) designed to accumulate at least $100 million by the end of
its Indonesian mine's life. Proceeds from this fund, including
accrued interest, will be used to fund costs incurred for mine
closure and reclamation. An increasing emphasis on environmental
issues and future changes in regulations could require FCX to
incur additional costs that would be charged against future
operations.
Management believes that Atlantic's facilities and operations are
in compliance in all material respects with all applicable
Spanish environmental laws, rules and regulations. In 1996 and
1997, Atlantic successfully completed the environmental
improvement project started in 1994 in conjunction with expansion
activities at its copper smelter in Huelva. New technology
substantially reduced atmospheric emissions from its operations
even with an approximate doubling of production capacity. In
addition, dust emissions have decreased as a result of the
installation of new facilities for handling ore concentrates and
the addition of new bag filters in the concentrate drying and
furnace tapping areas. New gas scrubbers have significantly
reduced acid mist and particulate emissions.
The Indonesian and Spanish governments may periodically revise
their environmental laws and regulations or adopt new ones, and
the effects on the Company's operations of new or revised
regulations cannot be predicted. The Company has expended
significant resources, both financial and managerial, to comply
with environmental regulations and permitting and approval
requirements, and anticipates that it will continue to do so in
the future. There can be no assurance that additional
significant costs and liabilities will not be incurred to comply
with such current and future regulations or that such regulations
will not have a material effect on the Company's operations. See
"Cautionary Statements."
<PAGE> 8
Guarantee of Loan for Purchase of PT-II Stock
In March 1997, P.T. Nusamba Mineral Industri (NMI), a subsidiary
of P.T. Nusantara Ampera Bakti, acquired from a third party
approximately 51 percent of the capital stock of PT-II. NMI
financed $254 million of the $315 million purchase price with a
variable-rate commercial loan maturing in March 2002. FCX has
agreed that if NMI defaults on the loan, FCX will purchase the
PT-II stock or the lenders' interest in the commercial loan for
the amount then due by NMI under the loan. FCX also agreed to
lend to NMI any amounts to cover any shortfalls between the
interest payments due on the commercial loan and the dividends
received by NMI from PT-II. At December 31, 1998, $25.4 million
was due in March 2002 from NMI because of interest payment
shortfalls. The amount of any future shortfalls will depend
primarily on the level of PT-FI's dividends to PT-II.
Employees and Relationship with FM Services Company
As of December 31, 1998, PT-FI had 6,349 employees (approximately
97 percent Indonesian). In addition, as of December 31, 1998,
PT-FI had approximately 2,252 contract workers, the vast majority
of whom were Indonesian. Approximately 57 percent of PT-FI's
Indonesian employees are members of the All Indonesia Workers'
Union, which operates under Indonesian Government supervision and
is party to a labor agreement covering PT-FI's hourly-paid
Indonesian employees that expires on September 30, 1999. PT-FI's
relations with the workers' union have generally been positive.
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 were employees
of contractors of PT-FI. On August 14, 1998, the workers
voluntarily returned to work and PT-FI began resuming operations.
The workers cited economic and other employment issues as the
reasons for their work stoppage. The employees of certain
contractors 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 workers' union did not
authorize the work stoppage. 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.
As of December 31, 1998, Atlantic had 773 employees, of which
approximately 31 percent are covered by union contracts.
Atlantic experienced no work stoppages in 1998 and relations with
these unions have also generally been good.
Since January 1, 1996, FM Services Company, a Delaware
corporation 45 percent owned by FCX (FMS), has furnished
executive, administrative, financial, accounting, legal, tax,
sales and similar services to FCX, PT-FI, Eastern Mining and
Atlantic. FCX reimburses FMS, at its cost, including allocated
overhead, for these services on a monthly basis. As of December
31, 1998, FCX had 42 employees and FMS had 207 employees. FMS
employees also provide services to two other publicly traded
companies.
Cautionary Statements
This report includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Forward-looking
statements are all statements other than statements of historical
fact included in this report, including, without limitation,
statements under the headings "Business and Properties," "Market
for Registrant's Common Equity and Related Stockholder Matters,"
and "Management's Discussion and Analysis of Financial Condition
and Results of Operations and Quantitative and Qualitative
Disclosures About Market Risk" regarding the Company's financial
position and liquidity, payment of dividends, strategic growth
initiatives, future capital needs, development and capital
expenditures (including the amount and nature thereof),
reclamation and closure costs, exploration efforts, reserve
estimates and additions, production levels, ore grades, commodity
prices, revenues, business strategies, and other plans and
objectives of the Company's management for future operations and
activities.
<PAGE> 9
Forward-looking statements are based on certain assumptions and
analyses made by the Company in light of its experience and its
perception of historical trends, current conditions, expected
future developments and other factors it believes are appropriate
under the circumstances. These statements are subject to a
number of assumptions, risks and uncertainties, including the
risk factors discussed below and in the Company's other filings
with the Securities and Exchange Commission, general economic and
business conditions, the business opportunities that may be
presented to and pursued by the Company, changes in laws or
regulations and other factors, many of which are beyond the
Company's control. Readers are cautioned that these statements
are not guarantees of future performance, and the actual results
or developments may differ materially from those projected,
predicted or assumed in the forward-looking statements. All
subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these cautionary
statements. Important factors that could cause actual results
to differ materially from those projected in the forward-looking
statements include, among others:
Commodity Price Risk. FCX's revenues are derived primarily from
PT-FI's sale of copper concentrates, which also contain
significant amounts of gold, and from Atlantic's sale of copper
cathodes and wire rod. FCX's net income can vary significantly
with fluctuations in the market prices of copper and gold.
Prices for copper and gold historically have fluctuated widely
and are affected by numerous factors beyond FCX's control. In
addition, PT-FI's concentrate sales agreements, with regard to
copper, provide for provisional billings when shipped with final
settlement generally based on the average LME price for a
specified future month. Copper revenues on provisionally priced
open pounds are adjusted monthly based on then current prices.
Movement in the average price used for these open pounds will
have an impact on FCX's net income.
Indonesian Political, Economic and Social Risks. President
Suharto, who assumed power in 1966, was re-elected in March 1998
to a seventh consecutive five-year term. In May 1998, President
Suharto resigned his presidency in the wake of an economic
collapse in Indonesia and in the face of growing social unrest
and demonstrations. Vice-President B.J. Habibie succeeded Suharto
and has since announced new parliamentary elections will be held
in June 1999, followed by a presidential election currently
scheduled for September 1999.
Unfavorable economic conditions continue to affect Southeast
Asia, including Indonesia. Since early 1997, Indonesia's economy
has contracted, inflation increased dramatically, and the
Indonesian rupiah severely weakened initially and then partly
recovered and continues to be unpredictable. Financial
assistance to Indonesia is being provided by the International
Monetary Fund, and various political, financial and regulatory
changes are being implemented, including the scheduled June 1999
national parliamentary elections discussed above. International
copper and gold markets have been adversely affected by the
developments in Southeast Asia.
PT-FI's current mining operations are located in the Indonesian
province of Irian Jaya, which occupies the western half of the
island of New Guinea and became part of Indonesia during the
early 1960s. The area surrounding PT-FI's mining development is
sparsely populated by primitive local tribes and former residents
of more populous areas of Indonesia, some of whom have resettled
in Irian Jaya under the Indonesian Government's transmigration
program. A small segment of the local population has in the past
opposed Indonesian rule over Irian Jaya, and several small
separatist groups have sought political independence for the
province. Public discussion of the degree of political and
economic autonomy that may be allowed individual provinces,
including Irian Jaya, have been held and likely will continue
throughout the 1999 parliamentary and presidential elections.
Sporadic attacks on civilians by the separatists and sporadic but
highly publicized conflicts between separatists and the
Indonesian military have led to previous allegations of human
rights violations. PT-FI personnel have not been involved in
those conflicts. The Indonesian military occasionally has
exercised its right to appropriate transportation and other
equipment of PT-FI.
PT-FI's policy is to operate in Irian Jaya in compliance with
Indonesian laws, in a manner that respects basic human rights and
the culture of the people who are indigenous to the area. PT-FI
continues to incur significant costs associated with its social
and cultural activities. While management believes that its
efforts to be responsive to the issues relating to the impact of
its operations on the local tribes should serve to avoid
disruptions of mining operations, social and political
instability in the area may, in the future, have a material
adverse impact on PT-FI's mining operations.
<PAGE> 10
Location and Industry Risks. PT-FI's mining operations are
located in steeply mountainous terrain in a very remote area of
Indonesia, which makes the conduct of its operations difficult
and has required PT-FI to overcome special engineering
difficulties and develop extensive infrastructure facilities.
The area is subject to considerable rainfall, which has led to
periodic floods and mud slides. The mine site is also in an
active seismic area, and earth tremors have been experienced from
time to time. PT-FI also is subject to the usual risks
encountered in the mining industry, including unexpected
geological conditions resulting in cave-ins, floodings and rock-
bursts and unexpected changes in rock stability conditions. PT-FI
has substantial insurance involving the amounts and types of
coverage as it believes are appropriate for its exploration,
development, mining and processing activities in Indonesia.
Environmental and Government Regulation. The Company's
exploration and mining activities in Irian Jaya involve
significant engineering and environmental challenges that relate
primarily to the location of the mine in remote, rugged highlands
and the disposition of tailings in an engineered, controlled and
managed deposition area near the sea. The Company has expended
significant resources, both financial and managerial, to comply
with environmental regulations and permitting and approval
requirements and anticipates that it will continue to do so in
the future. There can be no assurance that additional
significant costs and liabilities will not be incurred in order
to comply with current and future regulations.
Foreign Currency Exchange Risk. FCX conducts the majority of its
operations in Indonesia and Spain where its functional currency
is the U.S. dollar. All of FCX's revenues are denominated in
U.S. dollars; however, some costs and certain asset and liability
accounts are denominated in Indonesian rupiah, Australian dollars
or Spanish pesetas. Generally, FCX's results are adversely
affected when the U.S. dollar weakens against these foreign
currencies and positively affected when the U.S. dollar
strengthens against these foreign currencies.
Since early 1997, the Indonesian rupiah exchange rate has been
extremely volatile, severely weakening initially and partly
recovering later against the U.S. dollar and continuing to be
unpredictable. Operationally PT-FI has benefited from a weakened
Indonesian rupiah currency, 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 December 31, 1998, these contracts
hedged 120.0 billion of rupiah payments at an average exchange
rate of 19,478 rupiah to one U.S. dollar through August 1999,
approximately 40 percent of projected rupiah payments, and 79.2
million of Australian dollar payments at an average exchange rate
of 1.59 Australian dollars to one U.S. dollar through September
1999, approximately 80 percent of projected Australian dollar
payments.
A portion of Atlantic's operating costs and certain Atlantic
asset and liability accounts are denominated in Spanish pesetas.
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. At December
31, 1998, Atlantic had contracts, with a fair value of $2.0
million, to purchase 10.8 billion Spanish pesetas at an average
exchange rate of 144.7 pesetas to one U.S. dollar through
January 2000. These contracts currently hedge approximately 70
percent of Atlantic's projected net peseta cash outflows through
January 2000.
On January 1, 1999, a new common currency (the Euro) was
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 its currency
for commercial transactions. Atlantic does not expect conversion
to the Euro currency to have a material impact on revenues or
expenses. A single European currency is expected to improve
Atlantic's competitiveness with other European copper 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.
There can be no assurance that future movements in foreign
currency exchange rates will not have a negative effect on
operating results.
<PAGE> 11
Risks Associated with the Year 2000 Issue. 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 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 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. 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.
Expenditures for the necessary Y2K-related modifications will
largely be funded by routine software and hardware maintenance
fees paid by FCX or FMS. Based on current information, FCX
believes that the estimated incremental cost of Y2K Compliance
not covered by routine software and hardware maintenance fees
will total approximately $3 million, most of which is expected to
be incurred in 1999. If the necessary software modifications
and conversions are not made, or are delayed, the Y2K issue could
have a material impact on FCX operations. Additionally, cost
estimates are based on management's best estimates, which are
derived using numerous assumptions of future events 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 their failure to convert will not have
a material adverse effect on FCX.
Based on its Y2K risk assessment work, 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.
FCX believes that these third-party risks will be mitigated
through its contingency plans for critical purchased commodities
and close monitoring of compliance for other third parties that
are important to its operations.
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. Although FCX believes the
likelihood of any or all of the above risks occurring is 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.
Reserves and Exploration Risks. FCX reserve amounts, which are
determined in accordance with established mining industry
practices and standards, are estimates only. PT-FI's mines,
whether in the production or development stages, may not conform
to geological concepts or other expectations, so that the volume
and grade of reserves recovered and the rates of production may
be more or less than anticipated. Because ore bodies do not
contain uniform grades of minerals, ore recovery rates will vary
from time to time, resulting in variations in volumes of minerals
sold from period to period. Further, market price fluctuations
in copper, gold and, to a lesser extent, silver, and changes in
operating and capital costs may render certain existing ore
reserves uneconomic to develop. Further, no assurance can be
given that FCX's exploration programs will result in the
discovery of additional commercially exploitable mineral
deposits.
<PAGE> 12
Holding Company Structure. Because FCX is primarily a holding
company, conducting business through its subsidiaries, its
ability to meet its financial obligations and to pay dividends on
its preferred and common stock will depend on the earnings and
cash flow of its subsidiaries and the ability of its subsidiaries
to pay dividends and to advance funds to the Company. Under
certain circumstances, contractual and legal restrictions, as
well as the financial condition and operating requirements of
PT-FI and the Company's other subsidiaries, could limit the
Company's ability to obtain cash from its subsidiaries for the
purpose of meeting its debt service obligations and to pay
dividends. Any right of the Company to participate in any
distribution of the assets of PT-FI , Atlantic and its other
subsidiaries upon the liquidation, reorganization or insolvency
thereof would, with certain exceptions, be subject to the claims
of creditors (including trade creditors) and preferred
stockholders (if any) of such subsidiaries.
Item 3. 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 FCX. The plaintiff has
appealed the court's decision. The plaintiff alleges
environmental, human rights and social/cultural violations in
Indonesia and seeks $6 billion in monetary damages and other
equitable relief. 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
without comment FCX's writ application in which FCX sought a
review of the Fourth Circuit's earlier ruling. The plaintiff has
amended its complaint. FCX has additional legal defenses to the
action it is pursuing. 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 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
<PAGE> 13
Executive Officers of the Registrant.
Certain information as of March 1, 1999 about the executive
officers of FCX, including their position or office with FCX, PT-
FI and Atlantic, is set forth in the following table and
accompanying text:
Name Age Position or Office
- ---- --- ------------------
Richard C. Adkerson 52 President and Chief Operating
Officer of FCX. Director and
Executive Vice President of PT-FI.
Michael J. Arnold 46 Senior Vice President of FCX.
Director and Executive Vice
President of PT-FI.
Stephen M. Jones 40 Senior Vice President and
Chief Financial Officer of FCX.
Director and Executive Vice
President of PT-FI.
W. Russell King 49 Senior Vice President of FCX.
Adrianto Machribie 57 President Director of PT-FI.
John A. Macken 47 Senior Vice President of FCX.
Executive Vice President of PT-FI.
James R. Moffett 60 Director, Chairman of the
Board and Chief Executive Officer
of FCX. President Commissioner of
PT-FI.
Paul S. Murphy 55 Senior Vice President of FCX.
Commissioner of PT-FI.
Craig E. Saporito 47 Senior Vice President and
Treasurer of FCX. Treasurer of PT-FI.
Steven D. Van Nort 58 Senior Vice President of FCX.
Executive Vice President of PT-FI.
Robert M. Wohleber 48 Senior Vice President of FCX.
Senior Vice President of PT-FI.
Chairman of Atlantic.
Richard C. Adkerson has served as FCX's President and Chief
Operating Officer since April 1997. Mr. Adkerson is also
Executive Vice President and a director of PT-FI, and Co-
Chairman of the Board, President and Chief Executive Officer of
McMoRan Exploration Co. (MMR). From April 1994 to November 1998
he was Co-Chairman of the Board and Chief Executive Officer of
McMoRan Oil & Gas Co. (MOXY), and from November 1997 to November
1998 he was Vice Chairman of the Board of Freeport-McMoRan
Sulphur Inc. (FSC). Mr. Adkerson served as Executive Vice
President of FCX from July 1995 to April 1997, as Senior Vice
President from February 1994 to July 1995 and as Chief Financial
Officer from July 1995 to November 1998. He also served as
Chairman of the Board of Stratus Properties Inc., a real estate
development company, from May 1993 to August 1998, as President
from August 1995 to May 1996 and as Chief Executive Officer from
May 1996 to May 1998. Mr. Adkerson served as Vice Chairman of
the Board of Freeport-McMoRan Inc. (FTX) from August 1995 to
December 1997 and as Senior Vice President and Chief Financial
Officer of FTX from May 1992 to August 1995.
Michael J. Arnold has served as Senior Vice President of FCX
since November 1996. Mr. Arnold is also Executive Vice President
and a director of PT-FI, and Senior Vice President of MMR. From
July 1994 to November 1996, Mr. Arnold was Vice President and
Controller - Operations of FCX. Mr. Arnold also served as a
Senior Vice President of FTX from November 1996 until December
1997. From October 1991 to November 1996, he was Vice President
of FTX, serving as Controller - Operations from May 1993 to
November 1996.
Stephen M. Jones has served as Senior Vice President and Chief
Financial Officer of FCX since November 1998. Mr. Jones is also
Executive Vice President and a director of PT-FI. Mr. Jones
served as Vice President of FCX from July 1992 to December 1994.
He served as Senior Vice President of PT-FI from June 1992 to
December 1994.
<PAGE> 14
W. Russell King has served as Senior Vice President of FCX since
July 1994. Mr. King served as Senior Vice President of FTX from
November 1993 to December 1997.
Adrianto Machribie has served as President Director of PT-FI
since March 1996. From September 1992 to March 1996, Mr.
Machribie was a director and Executive Vice President of PT-FI.
John A. Macken has served as Senior Vice President of FCX since
December 1997. He is also Executive Vice President of PT-FI.
From April 1996 to December 1997, Mr. Macken was a Vice President
of FCX. From April 1995 to March 1996, Mr. Macken served as a
director of PT-FI and from April 1993 to April 1995, he served as
a Vice President of PT-FI.
James R. Moffett has served as Chairman of the Board and Chief
Executive Officer of FCX since July 1995 and has served as a
director of FCX since May 1992. He is also President
Commissioner of PT-FI and Co-Chairman of the Board of MMR. From
November 1994 to November 1998 he was Co-Chairman of the Board of
MOXY and from November 1997 to November 1998 he was Co-Chairman
of the Board of FSC. Mr. Moffett served as Chairman of the Board
of FTX from May 1992 to December 1997.
Paul S. Murphy has served as Senior Vice President of FCX since
March 1998. Mr. Murphy is also a Commissioner of PT-FI. Mr.
Murphy served as Executive Vice President of PT-FI from September
1992 to May 1998.
Craig E. Saporito has served as Senior Vice President and
Treasurer of FCX since November 1997. Mr. Saporito is also
Treasurer of PT-FI and Senior Vice President and Treasurer of
MMR. From July 1994 to November 1997, Mr. Saporito was a Vice
President of FCX and from May 1988 to December 1997, he was a
Vice President of FTX.
Steven D. Van Nort has served as Senior Vice President of FCX
since December 1997. Mr. Van Nort also serves as Executive Vice
President of PT-FI. From March 1995 to December 1997, Mr. Van
Nort was a Vice President of FCX and from June 1992 to June 1997,
he served as a Senior Vice President of PT-FI.
Robert M. Wohleber has served as Senior Vice President of the
Company since November 1997. He is also Senior Vice President of
PT-FI, Chairman of Atlantic, and Executive Vice President, Chief
Financial Officer and a director of MMR. He served as a Vice
President of FCX from July 1994 to November 1997, as Vice
President and Treasurer of FCX from July 1993 to July 1994. Mr.
Wohleber served as President and Chief Executive Officer of FSC
from November 1997 to November 1998 and as a director of FSC from
August 1997 to November 1998. Mr. Wohleber served as Senior Vice
President and Chief Financial Officer of FTX from November 1996
to December 1997. He was Vice President of FTX from June 1994 to
November 1996 and Vice President and Treasurer of FTX from May
1992 to June 1994.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The information set forth under the captions "FCX Class A Common
Shares," "FCX Class B Common Shares" and "Common Share
Dividends," on the inside back cover of the Annual Report is
incorporated herein by reference. As of March 8, 1999, there
were 8,120 and 12,936 holders of record of FCX's Class A and
Class B common stock, respectively.
Item 6. Selected Financial Data.
The information set forth under the caption "Selected Financial
and Operating Data," on page 18 of the Annual Report is
incorporated herein by reference.
FCX's ratio of earnings to fixed charges for each of the years
1994 through 1998, inclusive, was 7.5x, 5.9x, 4.5x, 3.8x, and
2.5x, 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
<PAGE> 15
interest. FCX's ratio of earnings to fixed charges and preferred stock
dividends for each of the years 1994 through 1998, inclusive, was 2.1x,
3.0x, 2.6x, 2.8x and 1.9x, respectively. For this calculation,
the preferred stock dividend requirements were assumed to be
equal to the pre-tax earnings which would be required to cover
such dividend requirements. The amount of such pre-tax earnings
required to cover preferred stock dividends was computed using
tax rates for the applicable years.
Items 7. and 7A. Management's Discussion and Analysis of
Financial Condition and Results of Operations and Quantitative
and Qualitative Disclosures About Market Risk.
The information set forth under the caption "Management's
Discussion and Analysis" on pages 19 through 27, inclusive, 29,
31 and 33, as well as the "Working Toward Sustainable
Development" report on pages 6 through 17 of the Annual Report
are incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The financial statements of FCX appearing on pages 28, 30, 32 and
34, the notes thereto appearing on pages 35 through 50,
inclusive, the report thereon of Arthur Andersen LLP appearing on
page 51, and the report of management on page 51 of the Annual
Report are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not applicable.
PART III
Items 10. Directors and Executive Officers of the Registrant.
The information set forth under the caption "Information About
Nominees and Directors" of the Proxy Statement submitted to the
stockholders of the registrant in connection with its 1999 Annual
Meeting to be held on May 6, 1999 is incorporated herein by
reference.
Items 11. Executive Compensation.
The information set forth under the captions "Director
Compensation" and "Executive Officer Compensation" of the Proxy
Statement submitted to the stockholders of the registrant in
connection with its 1999 Annual Meeting to be held on May 6, 1999
is incorporated herein by reference.
Items 12. Security Ownership of Certain Beneficial Owners and
Management.
The information set forth under the captions "Stock Ownership of
Directors and Executive Officers" and "Stock Ownership of Certain
Beneficial Owners" of the Proxy Statement submitted to the
stockholders of the registrant in connection with its 1999 Annual
Meeting to be held on May 6, 1999 is incorporated herein by
reference.
Items 13. Certain Relationships and Related Transactions.
The information set forth under the caption "Certain
Transactions" of the Proxy Statement submitted to the
stockholders of the registrant in connection with its 1999 Annual
Meeting to be held on May 6, 1999 is incorporated herein by
reference.
<PAGE> 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a)(1). Financial Statements.
Reference is made to the Index to Financial Statements appearing
on page F-1 hereof.
(a)(2). Financial Statement Schedules.
Reference is made to the Index to Financial Statements appearing
on page F-1 hereof.
(a)(3). Exhibits.
Reference is made to the Exhibit Index beginning on page E-1
hereof.
(b). Reports on Form 8-K.
During the last quarter of the period covered by this report, FCX
filed one Current Report on Form 8-K dated December 9, 1998
reporting information under Item 5.
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized, on March 19, 1999.
Freeport-McMoRan Copper & Gold Inc.
By: /s/ James R. Moffett
-------------------------
James R. Moffett
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
indicated on March 19, 1999.
Signatures
- ----------
Chairman of the Board, Chief
Executive Officer and
/s/ James R. Moffett Director (Principal Executive Officer)
- --------------------
James R. Moffett
* President and Chief Operating Officer
- ----------------------
Richard C. Adkerson
Senior Vice President and
Chief Financial Officer
* (Principal Financial Officer)
- ---------------------
Stephen M. Jones
Vice President and Controller
- Financial Reporting
* (Principal Accounting Officer)
- ----------------------
C. Donald Whitmire
* Director
- ----------------------
Robert W. Bruce III
* Director
- ---------------------
Leon A. Davis
* Director
- --------------------
Robert A. Day
* Director
- ------------------------
William B. Harrison, Jr.
<PAGE> S-1
* Director
- ------------------------
J. Bennett Johnston
* Director
- ------------------------
Henry A. Kissinger
* Director
- -----------------------
Bobby Lee Lackey
* Director
- -----------------------
Rene L. Latiolais
* Director
- -----------------------
Jonathan C. A. Leslie
* Director
- -----------------------
Gabrielle K. McDonald
* Director
- ----------------------
George A. Mealey
* Director
- ----------------------
George Putnam
* Director
- ----------------------
B. M. Rankin
* Director
- ----------------------
J. Taylor Wharton
*By: /s/ James R. Moffett
---------------------
James R. Moffett
Attorney-in-Fact
<PAGE> S-2
FREEPORT-McMoRan COPPER & GOLD INC.
INDEX TO FINANCIAL STATEMENTS
The financial statements of FCX appearing on pages 28, 30,
32, and 34, the notes thereto appearing on pages 35 through 50,
inclusive, and the report thereon of Arthur Andersen LLP
appearing on page 51 of FCX's 1998 Annual Report to stockholders
are incorporated herein by reference.
The financial statements in schedule I listed below should
be read in conjunction with such financial statements contained
in FCX's 1998 Annual Report to stockholders.
Page
Report of Independent Public Accountants F-1
Schedule I-Condensed Financial Information of Registrant F-2
Schedule II-Valuation and Qualifying Accounts F-4
Schedules other than the ones listed above have been omitted
since they are either not required, not applicable or the
required information is included in the financial statements or
notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with generally accepted
auditing standards, the financial statements as of December 31,
1998 and 1997 and for each of the three years in the period ended
December 31, 1998 included in Freeport-McMoRan Copper & Gold
Inc.'s Annual Report to stockholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated January
19, 1999. Our audits were made for the purpose of forming an
opinion on those statements taken as a whole. The schedules
listed in the index above are the responsibility of the Company's
management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of
the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
New Orleans, Louisiana,
January 19, 1999
<PAGE> F-1
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
---------- ----------
(In Thousands)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 802 $ 1,501
Interest receivable 7,996 12,597
Due from affiliates 41,766 88,098
Notes receivable from PT-FI 832,492 982,492
Note receivable from NMI 25,438 7,614
Investment in PT-FI and PT-II 610,234 455,610
Investment in Atlantic Copper 51,418 46,744
Other assets 43,118 40,497
---------- ----------
Total assets $1,613,264 $1,635,153
========== ==========
Liabilities and Stockholders' Equity:
Accounts payable and accrued liabilities $ 17,300 $ 18,999
Long-term debt 967,251 825,250
Other liabilities and deferred credits 2,457 5,785
Deferred income taxes 22,833 6,220
Redeemable preferred stock 500,007 500,007
Stockholders' equity 103,416 278,892
---------- ----------
Total liabilities and
stockholders' equity $1,613,264 $1,635,153
========== ==========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Income from investment in PT-FI
and PT-II, net of
PT-FI tax provision $211,232 $218,752 $253,895
Net income (loss) from
investment in Atlantic Copper 4,674 3,391 (24,258)
Intercompany charges and eliminations (7,700) 53,117a 7,244
Exploration expenses (8,958) (11,198) -
General and administrative expenses (7,082) (8,855) (9,141)
Depreciation and amortization (4,384) (3,873) (3,590)
Interest expense, net (66,141) (59,626) (21,191)
Interest income on PT-FI notes receivable:
Promissory notes 29,273 47,219 29,150
8.235% debenture 8,101 11,723 12,353
Step-up debenture - 3,083 6,327
Gold and silver production
payment loans 19,212 20,451 23,696
Other income (expense), net 1,326 878 (1,698)
Provision for income taxes (25,705) (29,954) (46,538)
-------- -------- --------
Net income 153,848 245,108 226,249
Preferred dividends (35,531) (36,567) (51,569)
-------- -------- --------
$118,317 $208,541 $174,680
======== ======== ========
</TABLE>
(a)Includes amounts for elimination of intercompany profit
totaling $(7.7) million in 1998, $9.3 million in 1997 and
$7.2 million in 1996 as well as intercompany charges for
stock-based incentive compensation totaling $43.8 million in
1997.
The footnotes to the consolidated financial statements of FCX
contained in FCX's 1998 Annual Report to stockholders are an
integral part of these statements.
<PAGE> F-2
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $153,848 $245,108 $226,249
Adjustments to reconcile net income
to net cash provided by
operating activities:
Income from investment
in PT-FI and PT-II (211,232) (218,293) (253,895)
Deferred income taxes 16,613 1,400 4,820
Net (income) loss from
investment in Atlantic Copper (4,674) (3,391) 24,258
Elimination of intercompany profit 7,700 (9,271) (7,244)
Dividends received from PT-FI and PT-II 48,832 205,092 220,916
Depreciation and amortization 4,384 3,873 3,590
Decrease (increase) in interest
receivable and due from affiliates 50,933 (44,358) (5,214)
Increase (decrease) in accounts
payable and accrued liabilities (1,699) (1,898) 4,501
Other 3,208 7,536 (1,087)
-------- -------- --------
Net cash provided by
operating activities 67,913 185,798 216,894
-------- -------- --------
Cash flow from investing activities:
Other (9,583) (11,895) (11,138)
-------- -------- --------
Net cash used in investing activities (9,583) (11,895) (11,138)
-------- -------- --------
Cash flow from financing activities:
Cash dividends paid:
Class A common stock (14,157) (73,309) (69,425)
Class B common stock (21,225) (105,032) (106,341)
Convertible exchangeable
preferred stock - - (15,498)
Step-up convertible preferred stock (24,500) (24,642) (19,250)
Mandatory redeemable preferred stock (14,657) (15,901) (17,689)
Proceeds from sale of Senior notes - - 445,570
Proceeds from debt 161,506 180,000 31,561
Repayment of debt (19,504) (17,310) (137,000)
Loans to PT-FI - - (244,682)
Repayment from PT-FI 150,000 325,320 147,315
Loans to NMI (17,824) (7,614) -
Purchase of FCX common shares (259,213) (438,388) (220,997)
Other 545 4,232 829
-------- -------- --------
Net cash used in financing activities (59,029) (172,644) (205,607)
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents (699) 1,259 149
Cash and cash equivalents
at beginning of year 1,501 242 93
-------- -------- --------
Cash and cash equivalents
at end of year $ 802 $ 1,501 $ 242
======== ======== ========
Interest paid $ 68,950 $ 59,798 $ 28,249
======== ======== ========
Taxes paid $ 8,629 $ 28,286 $ 41,586
======== ======== ========
</TABLE>
The footnotes to the consolidated financial statements of FCX
contained in FCX's 1998 Annual Report to stockholders are an
integral part of these statements.
<PAGE> F-3
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- ----------------- ---------- ---------------------- ------- ---------
Additions
----------------------
Balance at Charged to Charged to Other Balance at
Beginning Costs and Other Add End of
of Period Expense Accounts (Deduct) Period
--------- ---------- ---------- -------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Reserves and allowances
deducted from asset
accounts:
1998
Materials and supplies
reserves $29,513 $ 3,000 $ - $(7,880) $24,633
Allowance for uncollectible
value-added taxes 3,825 833 833 - 5,491
1997
Materials and supplies
reserves 19,340 12,000 - (1,827) 29,513
Allowance for uncollectible
value-added taxes 5,337 1,809 289 (3,610) 3,825
1996
Materials and supplies
reserves 26,040 3,000 - (9,700) 19,340
Allowance for uncollectible
value-added taxes 3,438 1,813 201 (115) 5,337
Reclamation and mine
shutdown reserves:
1998
PT-FI $ 5,466 $3,763 $ - $ - $9,229
1997
PT-FI 500 4,966 - - 5,466
1996
PT-FI - 500 - - 500
</TABLE>
<PAGE> F-4
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 Amended By-Laws of FCX dated as of March 12, 1999.
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 reference 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.
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.
<PAGE> E-3
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 10.30)
10.11 Annual Incentive Plan of FCX as amended effective
February 2, 1999.
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 as amended
effective February 2, 1999.
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 as amended effective February 2, 1999.
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.
10.26 Supplemental Agreement between FMS and B.M. Rankin Jr.
dated December 7, 1998.
10.27 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.
10.28 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.
10.29 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.
<PAGE> E-4
10.30 Letter Agreement dated January 25, 1999 between FMS and
Rene L. Latiolais.
12.1 FCX Computation of Ratio of Earnings to Fixed Charges.
13.1 Those portions of the 1998 Annual Report to stockholders of
FCX that are incorporated herein by reference.
21.1 Subsidiaries of FCX.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Independent Mining Consultants, Inc.
24.1 Certified resolution of the Board of Directors of FCX
authorizing this report to be signed on behalf of any
officer or director pursuant to a Power of Attorney.
24.2 Powers of Attorney pursuant to which this report has been
signed on behalf of certain officers and directors of FCX.
27.1 FCX Financial Data Schedule.
<PAGE> E-5
Exhibit 3.2
Freeport-McMoRan Copper & Gold Inc.
By-Laws
ARTICLE I
Name
The name of the corporation is Freeport-McMoRan Copper & Gold Inc.
ARTICLE II
Offices
1. The location of the registered office of the corporation in
the State of Delaware is 1209 Orange Street, in the City of Wilmington,
County of New Castle, and the name of its registered agent at such address
is The Corporation Trust Company.
2. The corporation shall in addition to its registered office in
the State of Delaware establish and maintain an office or offices at such
place or places as the Board of Directors may from time to time find
necessary or desirable.
ARTICLE III
Corporate Seal
The corporate seal of the corporation shall have inscribed
thereon the name of the corporation and the year of its creation (1987)
and the words "Corporate Seal Delaware". Such seal may be used by causing
it or a facsimile thereof to be impressed, affixed, printed or otherwise
reproduced.
ARTICLE IV
Meeting of Stockholders
1. Meetings of the stockholders shall be held at the registered
office of the corporation in the State of Delaware, or at such other place
as shall be determined, from time to time, by the Board of Directors.
2. The annual meeting of stockholders shall be held on the
Monday immediately preceding the third Tuesday of April at one o'clock
in the afternoon, or on such other day or at such other time as may be
determined from time to time by resolution of the Board of Directors.
At each annual meeting of the stockholders they shall elect by plurality
vote, by written ballot, and subject to the voting powers set forth in
the Certificate of Incorporation, the successors of the class of directors
whose term expires at such meeting, to hold office until the annual meeting
of the stockholders held in the third year following the year of their
election and their successors are respectively elected and qualified or
until their earlier resignation or removal. Any other proper business may
be transacted at the annual meeting.
3. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy,
shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute, by the
Certificate of Incorporation or by these By-Laws. If, however, such
majority shall not be present or represented at any meeting of the stock-
holders, the stockholders entitled to vote thereat, present in person or
by proxy, shall have power to adjourn the meeting from time to time without
notice other than announcement at the meeting (except as otherwise provided
by statute), until the requisite amount of voting stock shall be present.
At such adjourned meeting at which the requisite amount of voting stock
shall be represented any business may be transacted which might have been
transacted at the meeting as originally notified.
4. At all meetings of the stockholders, each stockholder having
the right to vote shall be entitled to vote in person, or by proxy
appointed by an instrument in writing subscribed by such stockholder and
bearing a date not more than six months prior to said meeting, unless such
instrument provides for a longer period. All proxies shall be filed with
the secretary of the meeting before being voted.
5. At each meeting of the stockholders each stockholder shall
have one vote for each share of stock having voting power, registered in
his name on the books of the corporation at the record date fixed in
accordance with these By-Laws, or otherwise determined, with respect to
such meeting. Except as otherwise expressly provided by statute, by the
Certificate of Incorporation or by these By-Laws, all matters coming before
any meeting of the stockholders shall be decided by the vote of a majority
of the number of shares of stock present in person or represented by proxy
at such meeting and entitled to vote thereat, a quorum being present.
6. Notice of each meeting of the stockholders shall be given to
each stockholder entitled to vote thereat not less than 10 nor more than 60
days before the date of the meeting. Such notice shall state the place,
date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
7. Subject to such rights to call special meetings of stock-
holders under specified circumstances as may be granted to holders of any
shares of Preferred Stock of the corporation pursuant to the provisions
of Section (c) of Article FOURTH of the Certificate of Incorporation,
special meetings of the stockholders may be called only by the Chairman
of the Board, the Vice Chairman of the Board or the President of the
corporation, or at the request in writing or by a vote of a majority of
the Board of Directors, and not by any other persons. Any request for a
special meeting made by the Board of Directors shall state the purpose or
purposes of the proposed meeting.
8. Business transacted at each special meeting shall be confined
to the purpose or purposes stated in the notice of such meeting.
9. The order of business at each meeting of the stockholders
shall be determined by the chairman of such meeting.
10. At an annual meeting of the stockholders, only business
shall be conducted as shall have been brought before the meeting (a) by or
at the direction of the Board of Directors or (b) by any stockholder of
the corporation who complies with the notice procedures set forth in this
Section 10. For business to be properly brought before an annual meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation. To be timely, a stockholder's
notice must be delivered to the Secretary at the principal executive offices
of the corporation not later than the close of business on the 120th day nor
earlier than the close of business on the 210th day prior to the first
anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than 30 days
before or more than 90 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close
of business on the 120th day prior to such annual meeting and not later
than the close of business on the later of the 90th day prior to such
annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. In no event shall
the public announcement of an adjournment of an annual meeting commence a
new time period for the giving of a stockholder's notice as described above.
A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (c) the class and number of shares
of the corporation which are beneficially owned by the stockholder and (d)
any material interest of the stockholder in such business. Notwithstanding
anything in the By-Laws to the contrary, no business shall be conducted at
an annual meeting except in accordance with the procedures set forth in
this Section 10. The chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the provisions
of the By-Laws, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting
shall not be transacted. Notwithstanding the foregoing provisions of this
Section 10, a stockholder seeking to have a proposal included in the
corporation's proxy statement shall comply with the requirements of
Regulation 14A under the Securities Exchange Act of 1934, as amended
(including, but not limited to, Rule 14a-8 or its successor provision).
11. Only persons who are nominated in accordance with the
procedures set forth in the By-Laws shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors
of the corporation may be made at a meeting of stockholders (a) by or at the
direction of the Board of Directors or (b) by any stockholder of the
corporation entitled to vote for the election of directors at the meeting
who complies with the notice procedures set forth in this Section 11.
Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the corporation. To be timely, a stockholder's notice
must be delivered to the Secretary at the principal executive offices
of the corporation not later than the close of business on the 120th day
nor earlier than the close of business on the 210th day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that
in the event that the date of the annual meeting is more than 30 days before
or more than 90 days after such anniversary date, notice by the stockholder
to be timely must be so delivered not earlier than the close of business on
the 120th day prior to such annual meeting and not later than the close of
business on the later of the 90th day prior to such annual meeting or the
10th day following the day on which public announcement of the date of
such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the
giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes
to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations
of proxies for election of directors, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); and
(b) as to the stockholder giving the notice (i) the name and address, as
they appear on the corporation's books, of such stockholder and (ii) the
class and number of shares of the corporation which are beneficially owned
by such stockholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a director shall
furnish to the Secretary of the corporation that information required to
be set forth in a stockholder's notice of nomination which pertains to
the nominee. No person shall be eligible for election as a director of
the corporation unless nominated in accordance with the procedures set
forth in the By-Laws. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not
made in accordance with the procedures prescribed by the By-Laws, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
12. Any action required or permitted to be taken at any annual
or special meeting of stockholders may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by stockholders having not less than a
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
ARTICLE V
Directors
1. The business and affairs of the corporation shall be managed
by or under the direction of a Board of Directors which may exercise all
such powers and authority for and on behalf of the corporation as shall
be permitted by law, the Certificate of Incorporation or these By-Laws.
2. The directors may hold their meeting and have one or more
offices, and, subject to the laws of the State of Delaware, keep the stock
ledger and other books and records of the corporation outside of said
State, at such place or places as they may from time to time determine.
3. Any director may resign at any time by giving written notice
of his resignation to the Board of Directors, to the Chairman of the Board,
the Vice Chairman of the Board or the President. Any such resignation
shall take effect upon receipt thereof by the Board, the Chairman of the
Board, the Vice Chairman of the Board or the President, as the case may be,
or at such later date as may be specified therein. Any such notice to the
Board shall be addressed to it in care of the Secretary.
ARTICLE VI
Committees of Directors
1. By resolutions adopted by a majority of the whole Board of
Directors, the Board may designate an Executive Committee, an Audit
Committee, a Corporate Personnel Committee, a Nominating Committee and a
Public Policy Committee, and may designate one or more other committees,
each such committee to consist of one or more directors of the corporation.
The Executive Committee shall have and may exercise all the powers of the
Board in the management of the business and affairs of the corporation
(except as otherwise expressly limited by statute), including the power
and authority to declare dividends and to authorize the issuance of
stock, and may authorize the seal of the corporation to be affixed to
all papers which may require it. The Audit Committee, the Corporate
Personnel Committee, the Nominating Committee, the Public Policy Committee
and each such other committee shall have such of the powers and authority
of the Board as may be provided from time to time in resolutions adopted
by a majority of the whole Board. Each committee shall report its
proceedings to the Board when required.
2. The requirements with respect to the manner in which the
Executive Committee and each such other committee shall hold meetings and
take actions shall be set forth in the resolutions of the Board of
Directors designating the Executive Committee or such other committee.
ARTICLE VII
Compensation of Directors
The directors shall receive such compensation for their services
as may be authorized by resolution of the Board of Directors, which
compensation may include an annual fee and a fixed sum and expenses for
attendance at regular or special meetings of the Board or any committee
thereof. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
ARTICLE VIII
Meetings of Directors; Action Without a Meeting
1. Regular meetings of the Board of Directors may be held
without notice at such time and place, either within or without the State
of Delaware, as may be determined from time to time by resolution of the
Board.
2. Special meetings of the Board of Directors may be called by
the Chairman of the Board, by the Vice Chairman of the Board or by the
President on at least 24 hours' notice to each director, and shall be
called by the President or the Secretary on like notice on the request in
writing of any director. Except as may be otherwise specifically provided
by statute, by the Certificate of Incorporation or by these By-Laws, the
purpose or purposes of any such special meeting need not be stated in such
notice.
3. At all meetings of the Board of Directors the presence in
person of a majority of the total number of directors shall be necessary
and sufficient to constitute a quorum for the transaction of business and,
except as may be otherwise specifically provided by statute, by the
Certificate of Incorporation or by these By-Laws, if a quorum shall be
present the act of a majority of the directors present at any meeting
shall be the act of the Board.
4. Any action required or permitted to be taken at any meeting
of the Board of Directors or any committee thereof may be taken without a
meeting if all the members of the Board or such committee, as the case may
be, consent thereto in writing and the writing or writings are filed
with the minutes of proceedings of the Board or committee. Any director
may participate in a meeting of the Board, or of any committee designated
by the Board, by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other, and participation in a meeting pursuant to this sentence
shall constitute presence in person at such meeting.
ARTICLE IX
Officers
1. The officers of the corporation shall be chosen by the Board
of Directors and shall be a Chairman of the Board, a President, one or more
Vice Presidents, a Secretary, and a Treasurer. The Board of Directors may
also choose a Vice Chairman of the Board, one or more Executive Vice
Presidents, one or more Senior Vice Presidents, a General Counsel, one or
more Assistant Vice Presidents, a Controller and one or more Assistant
Secretaries, Assistant Treasurers or Assistant Controllers, and such other
officers as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
prescribed from time to time by the Board or by the Chairman of the Board.
Any number of offices may be held by the same person.
2. Annually, the Board of Directors shall choose a Chairman of
the Board from among the directors, and shall choose the remaining officers
who need not be members of the Board except in the event they choose a
Vice Chairman of the Board.
3. The salaries of all officers of the corporation shall be
fixed by the Board of Directors, or in such manner as the Board may
prescribe.
4. The officers of the corporation shall hold office until
their successors are respectively chosen and qualified, except that any
officer may at any time resign or be removed by the Board of Directors.
If the office of any officer becomes vacant for any reason, the vacancy may
be filled by the Board.
5. Any officer may resign at any time by giving written notice
of his resignation to the Board of Directors, the Chairman of the Board,
the Vice Chairman of the Board or the President. Any such resignation
shall take effect upon receipt thereof by the Board, the Chairman of the
Board, the Vice Chairman of the Board or the President, as the case may be,
or at such later date as may be specified therein. Any such notice to the
Board shall be addressed to it in care of the Secretary.
ARTICLE X
Chairman of the Board
The Chairman of the Board shall be the Chief Executive Officer of
the corporation and shall preside at meetings of the stockholders and of
the Board of Directors. Subject to the supervision and direction of the
Board of Directors, he shall be responsible for managing the affairs
of the corporation. He shall have general supervision and direction of
all of the other officers of the corporation and shall have powers and
duties usually and customarily associated with the office of Chairman of
the Board and the position of Chief Executive Officer.
ARTICLE XI
President
The President shall be the Chief Operating Officer of the
corporation, and he shall have the powers and duties usually and
customarily associated with the Office of the President and the position
of Chief Operating Officer. He shall have such other powers and duties as
may be delegated to him by the Chairman of the Board. The President shall,
in the absence of the Chairman of the Board, preside at meetings of the
stockholders.
ARTICLE XII
Vice Chairman of the Board,
Executive Vice Presidents,
Senior Vice Presidents,
Vice Presidents and
Assistant Vice Presidents
The Vice Chairman of the Board, Executive Vice Presidents, Senior
Vice Presidents, Vice Presidents and Assistant Vice Presidents shall have
such powers and duties as may be delegated to them by the Board of
Directors or the Chairman of the Board. The Vice Chairman of the Board
shall, in the absence of the Chairman of the Board, preside at meetings of
the stockholders and of the Board of Directors.
ARTICLE XIII
General Counsel, Secretary and Assistant Secretaries
1. The General Counsel shall have the powers and duties
usually and customarily associated with the position of General Counsel.
He shall have such other powers and duties as may be delegated to him by
the Board of Directors or the Chairman of the Board.
2. The Secretary shall attend all meetings of the Board of
Directors and of the stockholders, and shall record the minutes of all
proceedings in a book to be kept for that purpose. He shall perform
like duties for the committees of the Board when required.
3. The Secretary shall give, or cause to be given, notice of
meetings of the stockholders and of the Board of Directors and of
committees of the Board. He shall keep in safe custody the seal of the
corporation, and when authorized by the Chairman of the Board, the Vice
Chairman of the Board, the President, an Executive Vice President, a Senior
Vice President, a Vice President or the General Counsel, shall affix the
same to any instrument requiring it, and when so affixed it shall be
attested by his signature or by the signature of an Assistant Secretary.
He shall have such other powers and duties as may be delegated to him by
the Board of Directors or the Chairman of the Board.
4. The Assistant Secretaries shall, in case of the absence or
disability of the Secretary, perform the duties and exercise the powers of
the Secretary, and shall have such other powers and duties as may be
delegated to them by the Board of Directors or the Chairman of the Board.
ARTICLE XIV
Treasurer and Assistant Treasurers
1. The Treasurer shall have the custody of the corporate funds
and securities, and shall deposit or cause to be deposited under his
direction all moneys and other valuable effects in the name and to the
credit of the corporation in such depositories as may be designated by
the Board of Directors or pursuant to authority granted by it. He shall
render to the Chairman of the Board and the Board of Directors, whenever
they may require it, an account of all his transactions as Treasurer
and of the financial condition of the corporation. He shall have such
other powers and duties as may be delegated to him by the Board of
Directors or the Chairman of the Board.
2. The Assistant Treasurers shall, in case of the absence or
disability of the Treasurer, perform the duties and exercise the powers of
the Treasurer, and shall have such other powers and duties as may be
delegated to them by the Board of Directors or the Chairman of the Board.
ARTICLE XV
Controller and Assistant Controllers
1. The Controller shall maintain adequate records of all
assets, liabilities and transactions of the corporation, and shall see
that adequate audits thereof are currently and regularly made. He shall
disburse the funds of the corporation in payment of the just obligations
of the corporation, or as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements. He shall have such other powers
and duties as may be delegated to him by the Board of Directors or the
Chairman of the Board.
2. The Assistant Controllers shall, in case of the absence of
the Controller, perform the duties and exercise the powers of the
Controller, and shall have such other powers and duties as may be
delegated to them by the Board of Directors or the Chairman of the Board.
ARTICLE XVI
Agents and Representatives
The Chairman of the Board, the Vice Chairman of the Board, the
President, any Executive Vice President, any Senior Vice President or any
Vice President, the General Counsel, together with the Secretary or any
Assistant Secretary, are authorized and empowered in the name of and as
the act and deed of the corporation, to name and appoint general and
special agents, representatives, and attorneys to represent the corporation
in the United States or in any foreign country, and to prescribe, limit and
define the powers and duties of such agents, representatives and attorneys,
and to grant, substitute, revoke, or cancel, in whole or in part, any power
of attorney or other authority conferred on any such agent, representative,
or attorney. All powers of attorney or other instruments which may be
executed pursuant to this provision shall be signed by the Chairman of the
Board, the Vice Chairman of the Board, the President, any Executive Vice
President, any Senior Vice President, or any Vice President, the General
Counsel, and by the Secretary or an Assistant Secretary and the seal of the
corporation shall be affixed thereto. No further authorization by the
Board of Directors shall be necessary in connection with the foregoing, it
being intended that this By-Law shall constitute full and complete
authority by which the officers above mentioned may act for the purposes
aforesaid.
ARTICLE XVII
Certificates of Stock
The certificates for shares of stock of the corporation shall be
numbered and shall be entered on the books of the corporation as they are
issued. They shall exhibit the holder's name and number of shares and
shall be signed by the Chairman of the Board, the Vice Chairman of the
Board, the President, an Executive Vice President, a Senior Vice President
or a Vice President and by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary. The signature of any such officers
may be facsimile if such certificate is countersigned by a transfer agent
other than the corporation or its employee or by a registrar other than the
corporation or its employee. In case any officer who has signed or whose
facsimile signature has been placed on any such certificate shall have
ceased to be such officer before such certificate is issued, then, unless
the Board of Directors shall otherwise determine and cause notification
thereof to be given to such transfer agent and registrar, such certificate
may be issued by the corporation (and by its transfer agent) and registered
by its registrar with the same effect as if he were such officer at the
date of issue.
ARTICLE XVIII
Transfers of Stock
1. All transfers of shares of the stock of the corporation
shall be made on the books of the corporation by the registered holders
of such shares in person or by their attorneys lawfully constituted in
writing, or by their legal representatives.
2. Certificates for shares of stock shall be surrendered and
cancelled at the time of transfer.
ARTICLE XIX
Fixing Record Date
In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for the purpose
of any other lawful action, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors and which
record date: (1) in the case of determination of stockholders entitled to
vote on any meeting of stockholders or adjournment thereof, shall, unless
otherwise required by law, not be more than 60 nor less than 10 days before
the date of such meeting; (2) in the case of determination of stockholders
entitled to express consent to corporate action in writing without a
meeting, shall not be more than 10 days from the date upon which the
resolution fixing the record date is adopted by the Board of Directors;
and (3) in the case of any other action, shall not be more than 60 days
prior to such other action. If no record date is fixed: (1) the record
date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day
preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting when no prior
action of the Board of Directors is required by law, shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation in accordance with
applicable law, or, if prior action by the Board of Directors is required
by law, shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action; and (3) the record
date for determining stockholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
ARTICLE XX
Registered Stockholders
The corporation shall be entitled to treat the holder of record of
any share or shares of stock as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest
in such share on the part of any other person, whether or not it shall have
express or other notice thereof, save as expressly provided by the laws of
the State of Delaware.
ARTICLE XXI
Checks
All checks, drafts and other orders for the payment of money, and
all promissory notes and other evidences of the corporation shall be signed
by such officer or officers or such other person or persons as may be
designated by the Board of Directors or pursuant to authority granted by it.
ARTICLE XXII
Fiscal Year
The fiscal year shall begin the first day of January in each year.
ARTICLE XXIII
Notices and Waivers
1. Whenever by statute or by the Certificate of Incorporation or
by these By-Laws it is provided that notice shall be given to any director
or stockholder, such provision shall not be construed to require personal
notice, but such notice may also be given in writing, by mail, by depositing
the same in the United States mail, postage prepaid, directed to such
stockholder or director at his address as it appears on the records of
the corporation, or in default of such address, to such director or
stockholder at the General Post Office in the City of Wilmington, Delaware,
and such notice shall be deemed to be given at the time when the same shall
be thus deposited. Notice of special meetings of the Board of Directors
may also be given to any director by (i) telephone, (ii) telecopier, (iii)
telex or (iv) telegraph or cable, and in the latter event the notice shall
be deemed to be given at the time such notice, addressed to such director
at the address hereinbefore provided, shall be transmitted or delivered to
and accepted by an authorized telegraph or cable office.
2. Whenever by statute or by the Certificate of Incorporation
or by these By-Laws a notice is required to be given, a written waiver
thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance
of any stockholder or director at any meeting thereof shall constitute a
waiver of notice of such meeting by such stockholder or director, as the
case may be, except as otherwise provided by statute.
ARTICLE XXIV
Alteration of By-Laws
These By-Laws may be altered, amended, changed or repealed by
vote of the stockholders or at any meeting of the Board of Directors by
the vote of a majority of the directors present or as otherwise provided
by statute.
ARTICLE XXV
Indemnification of Corporate Personnel
The corporation shall indemnify any person who is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise as provided in the Certificate of Incorporation. Expenses
incurred by such a director, officer, employee or agent in defending a
civil or criminal action, suit or proceeding shall be paid by the
corporation as provided in the Certificate of Incorporation. The
corporation shall have power to purchase and maintain insurance on behalf
of any such persons against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of the
Certificate of Incorporation. The indemnification provisions of this
Article XXV and the Certificate of Incorporation shall not be deemed
exclusive of any other rights to which those seeking indemnification may
be entitled under any applicable law, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
The provisions of this Article XXV and Article EIGHTH of the
Certificate of Incorporation shall be deemed to be a contract between the
corporation and each person who serves as such director, officer, employee
or agent of the corporation in any such capacity at any time while this
Article XXV and Article EIGHTH of the Certificate of Incorporation are in
effect. No repeal or modification of the provisions of this Article XXV
and Article EIGHTH of the Certificate of Incorporation nor, to the fullest
extent permitted by law, any modification of law shall adversely affect
any right or protection of a director, officer, employee or agent of the
corporation then existing at the time of such repeal or modification.
Exhibit 10.11
ANNUAL INCENTIVE PLAN
OF FREEPORT-McMoRan COPPER & GOLD INC.
ARTICLE I
PURPOSE OF PLAN
SECTION 1.1. The purpose of the Annual Incentive Plan of
Freeport-McMoRan Copper & Gold Inc. (the "Plan") is to provide incentives
for senior executives whose performance in fulfilling the responsibilities
of their positions can have a major impact on the profitability and
future growth of Freeport-McMoRan Copper & Gold Inc. (the "Company") and
its subsidiaries.
ARTICLE II
ADMINISTRATION OF THE PLAN
SECTION 2.1. Subject to the authority and powers of the Board
of Directors in relation to the Plan as hereinafter provided, the Plan
shall be administered by a Committee designated by the Board of Directors
consisting of two or more members of the Board each of whom is a "non-
employee director" within the meaning of Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of
1934. The Committee shall have full authority to interpret the Plan and
from time to time to adopt such rules and regulations for carrying out the
Plan as it may deem best; provided, however, that the Committee may not
exercise any authority otherwise granted to it hereunder if such action
would have the effect of increasing the amount of an Award to any Covered
Officer. All determinations by the Committee shall be made by the
affirmative vote of a majority of its members, but any determination
reduced to writing and signed by a majority of the members shall be fully
as effective as if it had been made by a majority vote at a meeting duly
called and held. All decisions by the Committee pursuant to the provisions
of the Plan and all orders or resolutions of the Board of Directors pursuant
thereto shall be final, conclusive and binding on all persons, including
the Participants, the Company and its subsidiaries and their respective
equity holders.
ARTICLE III
ELIGIBILITY FOR AND PAYMENT OF AWARDS
SECTION 3.1. Subject to the provisions of the Plan, in each
calendar year the Committee may select any of the following to receive
Awards under the Plan with respect to such year and determine the amounts
of such Awards: (a) any person providing services as an officer of the
Company or a Subsidiary, whether or not employed by such entity, including
any person who is also a director of the Company, (b) any salaried employee
of the Company or a Subsidiary, including any director who is also an
employee of the Company or a Subsidiary, (c) any officer or salaried
employee of an entity with which the Company has contracted to receive
executive, management or legal services who provides services to the
Company or a Subsidiary through such arrangement and (d) any person who
has agreed in writing to become a person described in clauses (a), (b) or (c)
within not more than 30 days following the date of grant of such person's
first Award under the Plan.
SECTION 3.2. Subject to the provisions of the Plan, Awards with
respect to any year shall be paid to each Participant at such time
established by the Committee following the determination of the amounts of
such Awards, which payment shall in no event be later than February 28 of
the year following such Award Year.
SECTION 3.3. Notwithstanding the provisions of Section 3.2, if,
prior to the date established by the Committee for any Award Year, a
Participant shall so elect, in accordance with procedures established by
the Committee, all or any part of an Award to such Participant with respect
to such Award Year shall be deferred and paid in one or more periodic
installments, not in excess of ten, at such time or times before or after
the date of such Participant's Termination of Employment, but not later
than ten years after such date of Termination of Employment, as shall be
specified in such election. If and only if any Award or portion thereof
is so deferred for payment after December 31 of the year following such
Award Year, such Award or portion thereof, as the case may be, shall,
commencing with January 1 of the year following such Award Year, accrue
interest at a rate equal to the prime commercial lending rate announced
from time to time by The Chase Manhattan Bank, N.A. (compounded quarterly)
or by another major national bank headquartered in New York, New York and
designated by the Committee. If such Participant's Termination of
Employment occurs for any reason other than death, retirement under the
Company's retirement plan, or retirement with the consent of the Company
outside the Company's retirement plan and if, on the date of such
Termination of Employment, there remain unpaid any installments of Awards
which have been deferred as provided in this Section 3.3, the Committee
may, in its sole discretion, authorize payment to the Participant of the
aggregate amount of such unpaid installments in a lump sum, notwithstanding
such election. Subject to the terms of the Plan and applicable law, the
Committee may delegate to one or more officers or assistant officers of
the Company its authority set forth in the immediately preceding sentence,
subject to such terms and limitations as the Committee shall determine.
SECTION 3.4. (a) Notwithstanding the provisions of Sections 3.1,
3.2, 3.3, 4.2(a), and 4.2(b) hereof, any Award to any Covered Officer shall
be granted in accordance with the provisions of this Section 3.4.
(b) All Awards to Covered Officers under the Plan will be made
and administered by two or more members of the Committee who are also
"outside directors" within the meaning of Section 162(m).
(c) The Committee shall assign Participant Shares of the Plan
Funding Amount to those Covered Officers whom the Committee designates as
Participants for that Award Year (which Participant Shares in the aggregate
may not exceed 100% of the Plan Funding Amount). The maximum annual Award
that may be made to any Covered Officer for an Award Year is 60% of the
Plan Funding Amount.
(d) If the Plan Funding Amount with respect to an Award Year is
to be adjusted to exclude the effect of material changes in accounting
policies or practices, material acquisitions or dispositions of property
or other unusual items on the Plan Funding Amount, the Committee must
so provide at the time that the Participant Shares of the Plan Funding
Amount for that Award Year are assigned or within the first 90 days of
the Award Year, if permitted under Section 162(m).
(e) Any provision of the Plan to the contrary notwithstanding,
no Covered Officer shall be entitled to any payment of an Award with respect
to a calendar year unless the members of the Committee referred to in
Section 3.4(b) hereof shall have certified the Participant Share for each
Covered Officer, the Plan Funding Amount for such year and that the
condition of Section 4.1 hereof has been met for such year.
ARTICLE IV
GENERAL PROVISIONS
SECTION 4.1. Any provision of the Plan to the contrary
notwithstanding, no Award shall be made pursuant to Section 3.1 or 3.4
with respect to any calendar year if the average of the Return on Investment
for such calendar year and each of the four preceding calendar years, after
giving effect to the aggregate amount (if any) that was awarded or credited
with respect to such prior years and the aggregate amount that would
otherwise have been so awarded or credited with respect to such calendar
year, would be less than 6%.
SECTION 4.2. (a) In determining the aggregate amount awarded
to Participants under the Plan for any calendar year, the Committee shall
consider as a guideline that the aggregate amount of all Awards granted
with respect to any calendar year should not exceed two and one-half
percent of Net Cash Provided by Operating Activities for such year.
(b) If Managed Net Income or Total Investment of Capital for any
year shall have been affected by special factors (including material changes
in accounting policies or practices, material acquisitions or dispositions
of property, or other unusual items) which in the Committee's judgment
should or should not be taken into account, in whole or in part, in the
equitable administration of the Plan, the Committee may, for any purpose
of the Plan, adjust Managed Net Income or Total Investment of Capital and
make payments and reductions accordingly under the Plan; provided that,
except as provided in Section 3.4(d) hereof, the Committee shall not take
any such adjustment into account in calculating Awards to Covered Officers
if the effect of such adjustment would be to increase the Plan Funding
Amount.
(c) Notwithstanding the provisions of subparagraphs (a) and
(b) above, the amount available for the grant of Awards under the Plan to
Covered Officers with respect to a calendar year shall be equal to the
Plan Funding Amount for such year and, except as specified under Section
3.4(c), any adjustments made in accordance with or for the purposes of
subparagraphs (a) or (b) that would have the effect of increasing the Plan
Funding Amount shall be disregarded for purposes of calculating Awards to
Covered Officers. The Committee may, in the exercise of its discretion,
determine that the aggregate amount of all Awards granted to Covered
Officers with respect to a calendar year shall be less than the Plan
Funding Amount for such year, but the excess of such Plan Funding Amount
over such aggregate amount of Awards granted to Covered Officers shall not
be available for any Awards to Covered Officers with respect to future
years. In addition, the Committee may, in the exercise of its discretion,
reduce or eliminate the amount of an Award to a Covered Officer otherwise
calculated in accordance with the provisions of Section 3.4 prior to
payment thereof. Any reduction of an Award shall not accrue to the benefit
of any other Covered Officer.
SECTION 4.3. A Participant may designate in writing a beneficiary
(including the trustee or trustees of a trust) who shall upon the death of
such Participant be entitled to receive all amounts which would have been
payable hereunder to such Participant. A Participant may rescind or change
any such designation at any time. Except as provided in this Section 4.3,
none of the amounts which may be payable under the Plan may be assigned or
transferred otherwise than by will or by the laws of descent and
distribution.
SECTION 4.4. All payments made pursuant to the Plan shall be
subject to withholding in respect of income and other taxes required by
law to be withheld, in accordance with procedures to be established by the
Committee.
SECTION 4.5. The selection of an individual for participation in
the Plan shall not give such Participant any right to be retained in the
employ of the Company or any of its subsidiaries, and the right of the
Company or any such subsidiary to dismiss or discharge any such Participant,
or to terminate any arrangement pursuant to which any such Participant
provides services to the Company, is specifically reserved. The benefits
provided for Participants under the Plan shall be in addition to, and shall
in no way preclude, other forms of compensation to or in respect of such
Participants.
SECTION 4.6. The Board of Directors and the Committee shall be
entitled to rely on the advice of counsel and other experts, including the
independent public accountants for the Company. No member of the Board of
Directors or of the Committee or any officers of the Company or its
subsidiaries shall be liable for any act or failure to act under the Plan,
except in circumstances involving bad faith on the part of such member or
officer.
SECTION 4.7. Nothing contained in the Plan shall prevent the
Company or any subsidiary or affiliate of the Company from adopting or
continuing in effect other compensation arrangements, which arrangements
may be either generally applicable or applicable only in specific cases.
ARTICLE V
AMENDMENT OR TERMINATION OF THE PLAN
SECTION 5.1. The Board of Directors may at any time terminate,
in whole or in part, or from time to time amend the Plan, provided that,
except as otherwise provided in the Plan, no such amendment or termination
shall adversely affect any Awards previously made to a Participant and
deferred by such Participant pursuant to Section 3.3. In the event of
such termination, in whole or in part, of the Plan, the Committee may in
its sole discretion direct the payment to Participants of any Awards not
theretofore paid out prior to the respective dates upon which payments would
otherwise be made hereunder to such Participants, and in a lump sum or
installments as the Committee shall prescribe with respect to each such
Participant. The Board may at any time and from time to time delegate to
the Committee any or all of its authority under this Section 5.1.
ARTICLE VI
DEFINITIONS
SECTION 6.1. For the purposes of the Plan, the following terms
shall have the meanings indicated:
(a) Award: The grant of an award of cash by the Committee to a
Participant pursuant to Section 3.1 or 3.4.
(b) Award Year: Any calendar year or portion thereof with
respect to which an Award may be granted.
(c) Board of Directors: The Board of Directors of the Company.
(d) Committee: The Committee designated pursuant to Section 2.1.
Until otherwise determined by the Board of Directors, the Corporate
Personnel Committee designated by such Board shall be the Committee under
the Plan.
(e) Covered Officer: At any date, (i) any individual who, with
respect to the previous taxable year of the Company, was a "covered
employee" of the Company within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended, and the rules promulgated
thereunder by the Internal Revenue Service of the Department of the
Treasury, provided, however, the term "Covered Officer" shall not include
any such individual who is designated by the Committee, in its discretion,
at the time of any grant or at any subsequent time, as reasonably expected
not to be such a "covered employee" with respect to the current taxable year
of the Company and (ii) any individual who is designated by the Committee,
in its discretion, at the time of any grant or at any subsequent time, as
reasonably expected to be such a "covered employee" with respect to the
current taxable year of the Company or with respect to the taxable year
of the Company in which any Award will be paid to such individual.
(f) Managed Net Income: With respect to any year, the sum of
(i) the net income (or net loss) of the Company and its consolidated
subsidiaries for such year as reviewed by the Company's independent
auditors and released by the Company to the public; plus (or minus) (ii) the
minority interests' share in the net income (or net loss) of the Company's
consolidated subsidiaries for such year as reviewed by the Company's
independent auditors and released by the Company to the public; plus (or
minus) (iii) the effect of changes in accounting principles of the Company
and its consolidated subsidiaries for such year plus (or minus) the minority
interests' share in such changes in accounting principles as reviewed by
the Company's independent auditors and released by the Company to the public.
(g) Net Cash Provided by Operating Activities: With respect to
any year, the net cash provided by operating activities of the Company and
its consolidated subsidiaries for such year as reviewed by the Company's
independent auditors and released by the Company to the public.
(h) Net Interest Expense: With respect to any year, the net
interest expense of the Company and its consolidated subsidiaries for such
year as reviewed by the Company's independent auditors and released by the
Company to the public.
(i) Participant: An individual who has been selected by the
Committee to receive an Award.
(j) Participant Share: The percentage of the Plan Funding
Amount assigned to a Covered Employee by the Committee.
(k) Plan Funding Amount: With respect to any year, two and
one-half percent of Net Cash Provided by Operating Activities for such year.
(l) Return on Investment: With respect to any year, the result
(expressed as a percentage) calculated according to the following formula:
a + (b - c)
-----------
d
in which "a" equals Managed Net Income for such year, "b" equals Net
Interest Expense for such year, "c" equals Tax on Net Interest Expense
for such year, and "d" equals Total Investment of Capital for such year.
(m) Section 162(m): Section 162(m) of the Internal Revenue Code
of 1986, as amended, and rules promulgated by the Internal Revenue Service
thereunder.
(n) Subsidiary: (i) Any corporation or other entity in which
the Company possesses directly or indirectly equity interests representing
at least 50% of the total ordinary voting power or at least 50% of the total
value of all classes of equity interests of such corporation or other entity
and (ii) any other entity in which the Company has a direct or indirect
economic interest that is designated as a Subsidiary by the Committee.
(o) Tax on Net Interest Expense: With respect to any year, the
tax on the net interest expense of the Company and its consolidated
subsidiaries for such year calculated at the appropriate statutory income
tax rate for such year as reviewed by the Company's independent auditors.
(p) Termination of Employment: Solely for purposes of Section
3.3 hereof, the cessation of the rendering of services, whether or not as
an employee, to any and all of the following entities: the Company, any
subsidiary of the Company, Freeport-McMoRan Inc., any subsidiary of
Freeport-McMoRan Inc., McMoRan Oil & Gas Co., any subsidiary of McMoRan Oil
& Gas Co., and any law firm rendering services to any of the foregoing
entities provided such law firm consists of at least two or more members or
associates who are or were officers of the Company or any subsidiary of
the Company.
(q) Total Investment of Capital: With respect to any year, the
sum of (i) the weighted average of the stockholders' equity in the Company
and its consolidated subsidiaries for such year, (ii) the weighted average
of the minority interests in the consolidated subsidiaries of the Company
for such year, (iii) the weighted average of the redeemable preferred stock
of the Company for such year and (iv) the weighted average of the long-term
debt of the Company and its consolidated subsidiaries for such year, all as
shown in the quarterly balance sheets of the Company and its consolidated
subsidiaries for such year.
Exhibit 10.13
FREEPORT-McMoRan COPPER & GOLD INC.
PERFORMANCE INCENTIVE AWARDS PROGRAM
1. Purpose. The purpose of the Performance Incentive Awards Program
(the "Plan") of Freeport-McMoRan Copper & Gold Inc. (the "Company") is to
provide greater incentives for certain key management, professional and
technical employees whose performance in fulfilling the responsibilities
of their positions can significantly affect the performance of the Company
or its operating units. The Plan provides an opportunity to earn additional
compensation in the form of cash incentive payments based on the employee's
individual performance and on the results achieved by the Company and by
the operating or staff unit for which the employee performs services.
2. Administration. The Plan shall be administered by the Chairman of
the Board of the Company who shall have full authority to interpret the
Plan and from time to time adopt rules and regulations for carrying out
the Plan, subject to such directions as the Corporate Personnel Committee
(the "Committee") of the Company's Board of Directors may give, either as
guidelines or in particular cases. In connection with his administration
of the Plan, the Chairman of the Board may seek the views and
recommendations of the Company's Operating Committee.
3. Eligibility for Participation. Each year the Chairman of the Board
shall select the key managerial, professional or technical employees of
the Company or of any of its subsidiaries who shall be eligible for
participation in the Plan during that year. The Chairman of the Board may
in his discretion make such selection, in whole or in part, on the basis
of minimum salary levels, or position-point levels.
The selection of an employee for eligibility in a particular year shall
not constitute entitlement either to an incentive payment under the Plan
for that year or to selection for eligibility in any subsequent year.
Selection of employees for eligibility in a particular year will ordinarily
be made in January of that year, but selection of any employee or employees
may be made at any subsequent time or times in such year.
No officer or employee shall receive any incentive payment under the
Plan for any year during which such officer or employee was a participant
in the Freeport-McMoRan Copper & Gold Inc. Annual Incentive Plan.
4. Determination of Target Incentives. At the time each employee is
selected for eligibility in the Plan for a particular year, the Chairman
of the Board shall determine a target incentive or a target incentive range
for the employee with respect to that year. Such incentive or range shall
be indicative of the incentive payment which the employee might expect to
receive on the basis of strong performance by such employee, by the Company
and by such employee's operating or staff unit, having regard to such
performance standards and objectives as may be established with respect
to that year.
5. Cash Incentive Payments. After the end of each year the Chairman
of the Board shall evaluate, or cause to be evaluated, the performance of
each employee selected for eligibility under the Plan for that year, as
well as the performance of the Company and the employee's operating or
staff unit. Based on such evaluation, the Chairman of the Board shall
determine whether a cash incentive payment shall be made to such employee
for that year and, if so, the amount of such payment. The aggregate
amount of all such incentive payments shall be submitted to the Committee
for its approval. Subject to such approval, each such payment (less
applicable withholding and other taxes) shall be made at such time
established by the Chairman of the Board or the Committee after such
approval, which shall in no event be later than February 28 of the year
following the year for which the incentive payments are made. An individual
who has been awarded an incentive payment for a particular year need not
be employed by the Company or any of its subsidiaries at the time of
payment thereof to be eligible to receive such payment. Notwithstanding
any of the foregoing to the contrary, if an individual selected for
eligibility under the Plan for a particular year should cease to be employed
by the Company and its subsidiaries for any reason prior to the end of such
year, the Chairman of the Board shall evaluate, or cause to be evaluated,
the performance of such employee and the employee's operating or staff unit
for the portion of such year prior to such cessation of employment. Based
on such evaluation, the Chairman of the Board shall determine whether a cash
incentive payment shall be made to such employee for that year and, if so,
the amount of such payment. The aggregate amount of all such incentive
payments shall be submitted to the Committee for its approval. Subject to
such approval, each such payment (less applicable withholding and other
taxes) shall be made at such time established by the Chairman of the Board
or the Committee after such approval, which may be made at any time during
the year for which such incentive payments are made but shall in no event
be later than February 28 of the year following such year.
6. Optional Deferral of Payments. If, prior to the date established by
the Chairman of the Board or the Committee for any year for which incentive
payments are made, an employee selected for participation in the Plan shall
so elect, in accordance with procedures established by the Chairman of the
Board, all or any part of a cash incentive payment to such employee with
respect to such year shall be deferred and paid in one or more periodic
installments, not in excess of ten, at such time or times before or after
the date of such employee's Termination of Employment (as hereinafter
defined), but not later than ten years after such date of Termination of
Employment, as shall be specified in such election. If and only if any
cash incentive payment or portion thereof is so deferred for payment after
December 31 of the year following the year for which the incentive payment
is made, such cash incentive payment or portion thereof, as the case may be,
shall, commencing with January 1 of the year following the year for which
the incentive payment is made, be increased at a rate equal to the prime
commercial lending rate announced from time to time by The Chase Manhattan
Bank, N.A. (compounded quarterly) or at such other rate and in such manner
as shall be determined from time to time by the Committee. If such
employee's Termination of Employment occurs for any reason other than
early or normal retirement under the retirement plan of this corporation
or retirement with the consent of this corporation outside the retirement
plan of this corporation and if, on the date of such Termination of
Employment, there remain unpaid any installments of cash incentive payments
which have been deferred as provided in this Section 6, the Committee or
the Chairman of the Board may, in its or his discretion, direct the payment
to such employee of the aggregate amount of such unpaid installments in a
lump sum, notwithstanding such election. Subject to the terms of the Plan
and applicable law, the Committee may delegate to one or more officers or
assistant officers of the Company its authority set forth in the immediately
preceding sentence, subject to such terms and limitations as the Committee
shall determine. Solely for purposes of this Section 6, the term
"Termination of Employment" shall mean the cessation of the rendering of
services, whether or not as an employee, to any and all of the following
entities: the Company; any subsidiary of the Company; Freeport-McMoRan Inc.;
any subsidiary of Freeport-McMoRan Inc.; McMoRan Oil & Gas Co.; any
subsidiary of McMoRan Oil & Gas Co.; any corporation or other entity in
which any two or more of the aforementioned entities collectively possess,
directly or indirectly, equity interests representing at least 50% of the
total ordinary voting power or at least 50% of the total value of all
classes of equity interests of such corporation or other entity; and any
law firm rendering services to any of the foregoing entities provided such
law firm consists of at least two or more members or associates who are or
were officers of the Company, any subsidiary of the Company, Freeport-
McMoRan Inc., any subsidiary of Freeport-McMoRan Inc., McMoRan Oil & Gas
Co., or any subsidiary of McMoRan Oil & Gas Co.
7. General Provisions. The selection of an employee for participation
in the Plan shall not give such employee any right to be retained in the
employ of the Company or any of its subsidiaries, and the right of the
Company and of such subsidiary to dismiss or discharge any such employee is
specifically reserved. The benefits provided for employees under the Plan
shall be in addition to, and in no way preclude, other forms of compensation
to or in respect of such employee.
8. Amendment or Termination. The Committee may from time to time amend
or at any time terminate the Plan.
Exhibit 10.19
FM SERVICES COMPANY
PERFORMANCE INCENTIVE AWARDS PROGRAM
1. Purpose. The purpose of the Performance Incentive Awards Program
(the "Plan") of FM Services Company (the "Company") is to provide greater
incentives for certain key management, professional and technical employees
whose performance in fulfilling the responsibilities of their positions can
significantly affect the performance of the Company. The Plan provides an
opportunity to earn additional compensation in the form of cash incentive
payments based on the employee's individual performance and on the results
achieved by the Company and by the staff unit for which the employee
performs services.
2. Administration. The Plan shall be administered by the Chairman of
the Board of the Company who shall have full authority to interpret the
Plan and from time to time adopt rules and regulations for carrying out
the Plan, subject to such directions as the Company's Board of Directors
may give, either as guidelines or in particular cases.
3. Eligibility for Participation. Each year the Chairman of the Board
shall select the key managerial, professional or technical employees of
the Company or of any of its subsidiaries who shall be eligible for
participation in the Plan during that year. The Chairman of the Board
may in his discretion make such selection, in whole or in part, on the basis
of minimum salary levels, or position-point levels.
The selection of an employee for eligibility in a particular year shall
not constitute entitlement either to an incentive payment under the Plan for
that year or to selection for eligibility in any subsequent year. Selection
of employees for eligibility in a particular year will ordinarily be made
in January of that year, but selection of any employee or employees may be
made at any subsequent time or times in such year.
4. Determination of Target Incentives. At the time each employee is
selected for eligibility in the Plan for a particular year, the Chairman
of the Board shall determine a target incentive or a target incentive range
for the employee with respect to that year. Such incentive or range shall
be indicative of the incentive payment which the employee might expect to
receive on the basis of strong performance by such employee, by the Company
and by such employee's staff unit, having regard to such performance
standards and objectives as may be established with respect to that year.
5. Cash Incentive Payments. After the end of each year the Chairman of
the Board shall evaluate, or cause to be evaluated, the performance of each
employee selected for eligibility under the Plan for that year, as well as
the performance of the Company and the employee's staff unit. Based on such
evaluation, the Chairman of the Board shall determine whether a cash
incentive payment shall be made to such employee for that year and, if so,
the amount of such payment. Each such payment (less applicable withholding
and other taxes) shall be made at such time established by the Chairman of
the Board, which shall in no event be later than February 28 of the year
following the year for which the incentive payments are made. An individual
who has been awarded an incentive payment for a particular year need not be
employed by the Company or any of its subsidiaries at the time of payment
thereof to be eligible to receive such payment. Notwithstanding any of the
foregoing to the contrary, if an individual selected for eligibility under
the Plan for a particular year should cease to be employed by the Company
and its subsidiaries for any reason prior to the end of such year, the
Chairman of the Board shall evaluate, or cause to be evaluated, the
performance of such employee and the employee's staff unit for the portion
of such year prior to such cessation of employment. Based on such
evaluation, the Chairman of the Board shall determine whether a cash
incentive payment shall be made to such employee for that year and, if so,
the amount of such payment. Each such payment (less applicable withholding
and other taxes) shall be made at such time established by the Chairman of
the Board, which may be made at any time during the year for which such
incentive payments are made but shall in no event be later than February 28
of the year following such year.
6. Optional Deferral of Payments. If, prior to the date established by
the Chairman of the Board for any year for which incentive payments are
made, an employee selected for participation in the Plan shall so elect,
in accordance with procedures established by the Chairman of the Board,
all or any part of a cash incentive payment to such employee with respect to
such year shall be deferred and paid in one or more periodic installments,
not in excess of ten, at such time or times before or after the date of such
employee's Termination of Employment (as hereinafter defined), but not later
than ten years after such date of Termination of Employment, as shall be
specified in such election. If and only if any cash incentive payment or
portion thereof is so deferred for payment after December 31 of the year
following the year for which the incentive payment is made, such cash
incentive payment or portion thereof, as the case may be, shall, commencing
with January 1 of the year following the year for which the incentive
payment is made, be increased at a rate equal to the prime commercial
lending rate announced from time to time by The Chase Manhattan Bank, N.A.
(compounded quarterly) or at such other rate and in such manner as shall
be determined from time to time by the Chairman of the Board. If such
employee's Termination of Employment occurs for any reason other than
early or normal retirement under the retirement plan of this corporation or
retirement with the consent of this corporation outside the retirement plan
of this corporation and if, on the date of such Termination of Employment,
there remain unpaid any installments of cash incentive payments which have
been deferred as provided in this Section 6, the Chairman of the Board may,
in his discretion, direct the payment to such employee of the aggregate
amount of such unpaid installments in a lump sum, notwithstanding such
election. Subject to the terms of the Plan and applicable law, the
Chairman of the Board may delegate to one or more officers or assistant
officers of the Company his authority set forth in the immediately preceding
sentence, subject to such terms and limitations as the Chairman of the Board
shall determine. Solely for purposes of this Section 6, the term
"Termination of Employment" shall mean the cessation of the rendering of
services, whether or not as an employee, to any and all of the following
entities: the Company; any subsidiary of the Company; Freeport-McMoRan Inc.;
any subsidiary of Freeport-McMoRan Inc.; Freeport-McMoRan Copper & Gold Inc.;
any subsidiary of Freeport-McMoRan Copper & Gold Inc.; McMoRan Oil & Gas Co.;
any subsidiary of McMoRan Oil & Gas Co.; and any corporation or other
entity in which any two or more of the aforementioned entities collectively
possess, directly or indirectly, equity interests representing at least 50%
of the total ordinary voting power or at least 50% of the total value of all
classes of equity interests of such corporation or other entity.
7. General Provisions. The selection of an employee for participation
in the Plan shall not give such employee any right to be retained in the
employ of the Company or any of its subsidiaries, and the right of the
Company and of such subsidiary to dismiss or discharge any such employee is
specifically reserved. The benefits provided for employees under the Plan
shall be in addition to, and in no way preclude, other forms of compensation
to or in respect of such employee.
8. Amendment or Termination. The Board of Directors of the Company may
from time to time amend or at any time terminate the Plan.
Exhibit 10.26
December 7, 1998
Mr. B. M. Rankin, Jr.
4500 Roland Avenue
Unit #804
Dallas, TX 75219
Supplemental Agreement Providing an Extentsion to
Consulting Agreement of January 1, 1991
Dear Mr. Rankin:
I am writing in reference to the consulting agreement of January 1, 1991,
(the "Consulting Agreement") between you and Freeport-McMoRan Inc. and to
the Supplemental Agreement between you and FM Serivces Company (the
"Company") dated December 15, 1997.
By way of this Supplemental Agreement, the Company would like to extend
your Consulting Agreement through December 31, 2000, with an increase in
your quarterly consulting fee, effective January 1, 1999, to $60,000.
All other terms and conditions of the Consulting Agreement and Supplemental
Agreement dated December 15, 1997, shall remain unchanged.
Please confirm that the foregoing correctly sets forth our understanding
with respect to this matter by signing both originals of this Supplemental
Agreement and returning one to me.
Very truly yours,
/s/Michael J. Arnold
Michael J. Arnold
Agreed to and accepted this
18th Day of December, 1998
By:/s/ B.M. Rankin, Jr.
---------------------
B.M. Rankin, Jr.
Exhibit 10.30
January 25, 1999
Mr. Rene L. Latioliss
2305 Barton Creek Boulevard
Villa 42
Austin, Teexas 78735
Dear Rene:
This will confirm the agreement between the undersigned, FM
Services Company (the "Company"), and you with respect to
the provision by you of certain consulting services to the
Company and its subsidiaries and corporate affiliates (which
includes client companies for which services are provided).
1. From January 1, 1999 through December 31, 1999 (the
"Consulting Term"), you agree to serve as a consultant
to the Company. In your capacity as a consultant, you
will provide to the Company, subject to the instruction
and direction of its executive officers, consulting
advice related to the businesses, operations and
prospects of the Company and its subsidiaries and
corporate affiliates. You agree to devote such of your
time, skill, labor and attention to the performance of
any consulting services requested by the Company
hereunder as may be necessary for you to render the
prompt and effective performance thereof, provided that
it is generally understood that you shall only be
required to devote yourself to the performance of such
duties to the extent contemplated by paragraph 2(vi) of
this letter.
2. It is understood and agreed with respect to your
undertaking to provide the consulting Services
described herein, that:
(i) you will perform such consulting services as an
independent contractor to, and not as an agent
(except in any capacity as an elected officer
or director) or employee of the Company or any
of its subsidiaries or affiliates, and that, as
an independent contractor, you shall have the
sole and exclusive right to control and direct
details incident to any consulting services
required to be provided hereby;
(ii) this agreement shall not be deemed or construed
to create a partnership, a joint venture, a
Mr. Rene L. Latiolais
January 25, 1999
Page 2
principal and agent relationship, or any other
relationship between you and the Company that
would create liability for the Company for your
actions;
(iii)nothing herein contained shall be construed as
giving you any right to be elected or appointed
an officer or director of the Company or any of
its subsidiaries or corporate affiliates or to
retain any such position during the Consulting
Term or any extension thereof;
(iv) except as otherwise authorized in writing by
the Chairman of the Board of the Company or his
specific designees, you will not (A) represent
or hold yourself out to others that you are an
employee or agent of the Company or any of its
subsidiaries or corporate affiliates, or (B)
have any authority to negotiate or execute any
agreements, contracts and commitments on behalf
of, or otherwise binding upon, the Company or
such subsidiary or corporate affiliate other
than such authority which derives from your
occupying the position of an elected officer or
director of the Company or any of its
subsidiaries or corporate affiliates;
(v) the executive officers of the Company or the
subsidiary or corporate affiliate seeking your
consulting services will, insofar as it is
reasonably practicable, consider your
convenience in the timing of their requests,
and your failure or inability, by reason of
temporary illness or other cause beyond your
control or because of absence for reasonable
periods, to respond to such requests during any
such temporary period shall not be deemed to
constitute a default on your part in the
performance hereunder of such services;
(vi) subject to the provisions of the foregoing
clause (v), during the Consulting Term you will
make yourself available for the performance of
services hereunder for one-third of your time,
it being understood that this shall constitute,
on the average, seven (7) days per month during
the Consulting Term.
3. As an independent contractor of the Company, you
acknowledge and agree that, except as otherwise
specifically provided herein,
Mr. Rene L. Latiolais
January 25, 1999
Page 3
(i) you will not be entitled to any insurance,
pension, vacation or other benefits customarily
afforded to employees of the Company;
(ii) you will not be treated by the Company as an
employee for purposes of any federal or state
law regarding income tax withholding or for
purposes of contributions required by any
unemployment insurance or compensatory program;
and
(iii)you will be solely responsible for the payment
of any taxes or assessments imposed on you on
account of the payment of the consulting fee
to, or performance of consulting services by
you pursuant to this agreement.
4. During the term hereof, you agree that you will not,
without the prior written consent of the Company, (i)
render any services, whether or not for compensation, to
other individuals, firms, corporations or entities in
connection with any matters that may involve interests
adverse to the Company or any of its subsidiaries or
affiliates, or (ii) engage in any business or activity
detrimental to the business or interests of the Company
or any of its subsidiaries or affiliates.
5. You acknowledge and agree that any inventions or
discoveries, whether or not patentable, which you may
make (either alone or in conjunction with others) as a
result of performing services hereunder shall be the sole
and exclusive property of the Company. You agree to
communicate to the Company or its representatives all
facts known to you concerning such matters, and to
execute any documents or instruments necessary to
transfer to the Company any inventions or discoveries to
which the Company may become entitled under this
agreement and should the Company decide to become
entitled under this agreement, and should the Company
decide to patent any such invention or discovery, you
will assist in the preparation of patent applications and
execute and assign such patent applications, and execute
such other documents, as may be necessary.
6. You acknowledge and agree to comply with the
confidentiality and other provisions set forth in
Appendix A to this Agreement, the terms of which are
incorporated by reference into, and made a part of this
Agreement.
7. In the event of a breach or threatened breach by you of
Sections 5 or 6 of this agreement during or after the
Mr. Rene L. Latiolais
January 25, 1999
Page 4
term hereof, the Company shall be entitled to injunctive
relief restraining you from violating such paragraphs.
Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedy at law or inequity
it may have in the event of your breach or threatened
breach of this agreement.
8. For the consulting service provided by you hereunder
during the Consulting Term, the Company agrees:
(i) to pay to you an annual consulting fee of
$330,000, such fee to be payable monthly in
arrears in $27,000.00 amounts. It is understood
by you that the amounts payable to you pursuant
to this Consultint Agreement shall be in full
satisfaction of any compensation to which you
would otherwise b entitled as a director of
the Company or any of its subsidiaries or
affiliates, with you hereby relinquishing any
claim to such amounts;
(ii) that additional compensation potential in the
form of options in McMoRan Exploration Company
stock will be considered by the senior
executives of that company from time to time;
(iii)that the use of corporate aircraft from time to
time will be made available to you for business
purposes subject to availability, urgency, cost
considerations and overall efficiency of
business travel;
(iv) to reimburse you for, or advance to you, all
reasonable out-of-pocket travel and other
expenses incurred by you at the request of the
Company in connection with your performance of
services hereunder. Such expenses will be
reimbursed or advanced promptly after your
submission to the company of expense statements
in such reasonable detail as the Company may
require;
(v) to make available to you secretarial
assistance, the use of a portable phone and
laptop computer, and a suitable office at the
Company's headquarters, for which you will pay
to the Company a monthly amount of $2,500, such
amount to be paid no later than the last day of
each month;
(vi) to make available to you, at no additional
charge, an annual physical, a parking space,
Mr. Rene L. Latiolais
January 25, 1999
Page 5
access to the executive dining room and fitness
center, participation in the Company's
financial tax return preparation and financial
counseling program, and membership privileges
at English Turn Country Club for business
entertainment purposes. Any expenses incurred
at these clubs that are not business related
will be borne by you personally.
9. Nothing in this agreement shall affect in any way any of
your previously accrued and vested pension or other
rights or benefits under any of the plans or agreements
of the Company or any of its subsidiaries of affiliates.
10. (i) The term of this agreement shall be the Consulting
Term, subject to any earlier termination of your status
as a consultant pursuant to the terms of subparagraph
(ii) of this paragraph. This agreement shall be
automatically continued for like Consulting Terms of one
year unless and until canceled by either party upon
thirty (30) days written notice prior to the end of any
Consulting Term. Following the termination of this
agreement, each party shall have the right to enforce all
rights and obligations under the terms of this agreement.
(ii) This agreement may be terminated, upon notice given
in the manner provided in paragraph 12 hereof, prior to
the expiration of the Consulting Term:
(A)by the mutual written consent of the Company and
you;
(B)by the Company, upon your death, or your physical
or mental incapacity;
(C)by the Company in the event of your (1) willful
failure to perform substantially the consulting
services contemplated hereby, (2) breach of any of
the other covenants of this agreement, or (3)
engaging in gross misconduct detrimental to the
Company; or
(D)by the Company for any other reason.
If this agreement is terminated by the Company prior to
the expiration of the Consulting Term for any reason
other than those set forth in subparagraphs 10 (ii)(A),
(B) or (C) above, then the company shall pay in a lump
sum in cash within 30 days of such termination, the
aggregate amount of previously unpaid consulting fees
that you would have earned had you served as a consultant
through the expiration of the Consulting Term.
Mr. Rene L. Latiolais
January 25, 1999
Page 6
11. It is hereby understood and agreed that the Company
shall indemnify you for serving at the request of the
Company as an elected officer or director of any of its
subsidiaries or affiliates to the fullest extent
permitted by applicable law, and the determination as to
whether you have met the standard required for
indemnification shall be made in accordance with the
articles and bylaws of the applicable entity and with
applicable law. It is further understood and agreed that
while serving in such capacity you will be covered by the
Company's directors and officers insurance policy.
12. Any notice or other communication required hereunder
shall be in writing, shall be deemed to have been given
and received when delivered in person, or, if mailed,
shall be deemed to have been given when deposited in the
United States mail, first class, registered or certified,
return receipt required, with proper postage prepaid, and
shall be deemed to have been received on the third
business day hereafter, and shall be addressed as
follows:
If to the Company, addressed to:
Mr. Richard C. Adkerson
Chairman of the Board
FM Services Company
1615 Poydras Street
New Orleans, Louisiana 70112
If to you:
Mr. Rene L. Latiolais
2305 Barton Creek Blvd.
Villa 42
Austin, Texas 78735
or such other address to which either party shall have
notified the other in writing.
13. This agreement is personal to you and the Company and
its subsidiaries and shall not be assignable to either
party without the prior written consent of the other.
This agreement shall be governed by and construed in
accordance with the laws of the State of Louisiana. This
agreement contains the entire understanding between the
Company and you with respect to the subject matter
hereof. Further, Consultant confirms that he has not
relied upon any representations or statements by the
Company as a basis for entering into this agreement that
are not contained herein. This agreement may not be
amended, modified or extended otherwise than by a
written agreement executed by the parties thereto.
Mr. Rene L. Latiolais
January 25, 1999
Page 7
Please confirm that the foregoing correctly sets forth the
agreement between the Company and you by signing and
returning to the Company one of the enclosed copies of this
letter.
Very truly yours,
/s/ Michael J. Arnold
Michael J. Arnold
President
FM Services Company
I hereby confirm that the foregoing correctly sets forth the
agreement between FM Services Company and myself.
/s/ Rene L. Latiolais
_______________________________
Rene L. Latiolais
January 28, 1999
_______________________________
Date
EXHIBIT 12.1
FREEPORT-McMoRan COPPER & GOLD INC.
Computation of Ratio of Earnings to Fixed Charges:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Income from continuing
operations $153,848 $245,108 $226,249 $253,618 $130,241
Add:
Provision for income taxes 170,566 231,315 247,168 234,044 123,412
Minority interests'
share of net income 37,012 40,343 48,529 57,100 25,439
Interest expense 205,588 151,720 117,291 50,080 -
Rental expense factor(a) 323 240 457 1,002 2,333
-------- -------- -------- -------- --------
Earnings available for
fixed charges $567,337 $668,726 $639,694 $598,844 $281,425
======== ======== ======== ======== ========
Interest expense $205,588 $151,720 $117,291 $ 50,080 $ -
Capitalized interest 19,612 23,021 22,979 49,758 35,110
Rental expense factor(a) 323 240 457 1,002 2,333
-------- -------- -------- -------- --------
Fixed charges $225,523 $174,981 $140,727 $100,840 $ 37,443
======== ======== ======== ======== ========
Ratio of earnings to
fixed charges(b) 2.5x 3.8x 4.5x 5.9x 7.5x
==== ==== ==== ==== ====
</TABLE>
Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Income from continuing
operations $153,848 $245,108 $226,249 $253,618 $130,241
Add:
Provision for income taxes 170,566 231,315 247,168 234,044 123,412
Minority interests' share
of net income 37,012 40,343 48,529 57,100 25,439
Interest expense 205,588 151,720 117,291 50,080 -
Rental expense factor(a) 323 240 457 1,002 2,333
-------- -------- -------- -------- --------
Earnings available
for fixed charges $567,337 $668,726 $639,694 $595,844 $281,425
======== ======== ======== ======== ========
Interest expense $205,588 $151,720 $117,291 $ 50,080 $ -
Capitalized interest 19,612 23,021 22,979 49,758 35,110
Rental expense factor(a) 323 240 457 1,002 2,333
Preferred dividends 65,847 65,896 101,083 101,125 94,251
-------- -------- -------- -------- --------
Fixed charges $291,370 $240,877 $241,810 $201,965 $131,694
======== ======== ======== ======== ========
Ratio of earnings to
fixed charges(b) 1.9x 2.8x 2.6x 3.0x 2.1x
==== ==== ==== ==== ====
</TABLE>
a. Portion of rent deemed representative of an interest factor.
b. For purposes of 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.
WORKING TOWARD SUSTAINABLE DEVELOPMENT
1998 ECONOMIC, SOCIAL & ENVIRONMENTAL REPORT
Introduction. Sustainable development balances economic,
social and environmental issues in a way that meets the needs
of the present without compromising the ability of future
generations to meet their own needs. Achieving sustainable
development is perhaps a greater challenge for a mining
company than for other industries and businesses, because, by
its very nature, mining actually depletes a natural resource.
However, we believe the social and economic benefits for the
local people - including education (pictured below), training in
entrepreneurial skills and the transfer of technology - enable
local prosperity to continue even after mine closure through
learned pursuits such as agriculture on reclaimed lands
and new businesses based on using acquired skills
rather than a mining economy.
Mining occurs because its products are
needed for one of the three elements of
sustainable development: the economy.
Copper and gold produced by
Freeport-McMoRan Copper &
Gold Inc. (FCX) through its
principal operating
unit, P.T. Freeport
Indonesia Company [Picture]
(PT-FI), and the copper
refined at our copper
smelting unit in Spain, Atlantic
Copper, S.A. (Atlantic), are essential.
They provide electrical power,
protect drinking water with copper
plumbing and are used for virtually every
aspect of technology, transportation, communication,
business and industry in the developed and
the developing world.
While these metals are among the most recyclable and
recycled materials in use, recycling alone - which provides for
some 38 percent of annual copper consumption - cannot
meet world demand. In helping meet that demand, FCX has
earned a reputation, through operating innovations and
efficiencies, as a low-cost leader in the industry. It is our goal
- - through minimizing negative and maximizing positive economic,
social and environmental impacts - to also earn a reputation as
an industry leader in working toward sustainable development.
We believe we are well on our way, and we are committed to a
continuous search for ways to improve in every aspect of our
operations. Beginning with the first Contract of Work (COW) in
1967 and throughout its history of developing world-class ore
deposits at the Grasberg complex in Irian Jaya, Indonesia, FCX
has found technological solutions to seemingly insurmountable
obstacles in this once-remote part of the world. Yet the goal of
managing our impacts in this difficult environment and among
a complex mosaic of unique peoples while working toward
sustainable development may be among the biggest challenges
we have faced. Nevertheless, we regard this effort to be
our responsibility. The company's view of its duty, responsibilities
and commitments in these areas are clearly stated in the
Environmental Policy and Social and Human Rights Policy, both
of which have been approved by the FCX Board of Directors.
We have committed to constantly assess and report on our
progress and we have done so with the Dames & Moore
Environmental Audit and the LABAT-Anderson Social Audit.
Both audits were carried out by independent, highly
qualified experts whose principal findings and
recommendations were publicized and
implemented in 1996 and 1997. A second
independent environmental audit will
be done in the second half of 1999.
We have also committed to
consult with other stakeholders
and consider their concerns;
and to listen to our critics
and implement their
suggestions where
appropriate.
During the past three years,
we provided significant additional
information in our Annual Report
to shareholders with new Environmental
& Social Responsibility sections. FCX's
Social and Human Rights Policy and
Environmental Policy are available to interested
parties on our Internet web site, "www.fcx.com," along
with the results of the independent audits and up-to-date
information on our environmental and social programs. In
addition, our smelting and refining unit in Spain this year
produced the Atlantic Copper Environmental Report, a
comprehensive publication summarizing all of Atlantic's key
environmental commitments, activities and performance for the
past three years. This is also available on our web site.
This expanded report, "Working Toward Sustainable
Development," is another important step. Besides providing
information on economic, social and environmental issues and
events from 1998, this report creates benchmarks and
provides significant new data that will be useful in tracking
our progress as we work toward sustainable development
throughout our operations.
<PAGE> 6
P. T. FREEPORT INDONESIA COMPANY
I. ECONOMIC IMPACTS
There are many ways in which PT-FI's operations benefit the
economies of Irian Jaya and Indonesia. These financial benefits
(Figure 1) are derived through the payment of taxes, dividends
and royalties; voluntary economic development programs, such
as the Freeport Fund for Irian Jaya Development (FFIJD);
domestic re-investment; infrastructure development; employment;
and the purchase and use of local and national goods.
In three of the last five years, PT-FI has been the largest taxpayer
in the Republic of Indonesia. In addition, it pays royalties on all
payable metals removed from the ground. Since the beginning
of 1992, these direct benefits to Indonesia have totaled over
$1.25 billion. Taxes and royalties have been paid to the central
government in Jakarta and then spent or distributed according
to government policy and priorities. Indonesia's central and
regional governments are currently discussing changing the
policy concerning the distribution of such revenues so that a
greater portion would benefit the regional government and, in
our case, development in Irian Jaya. PT-FI supports this change.
In light of its substantially expanded production capabilities,
PT-FI is discussing with the GOI the payment of voluntary
additional royalties on metal from production above 200,000
MTPD in amounts for copper equal to the COW royalty and for
gold and silver equal to twice the COW royalties. Therefore,
including the payment of COW royalties, the total of the
royalties paid on copper net revenues from production above
200,000 MTPD would be double the amount of the COW
royalty; and the total of the royalties paid on gold and silver
sales from production above 200,000 MTPD would be triple
the amount of the COW royalties. The additional royalties
would be effective January 1, 1999. Because in large part
mineral royalties under GOI regulations are remitted to the
provinces from which the minerals are extracted, PT-FI offered
the voluntary additional royalties to provide additional support
to the local governments and people of Irian Jaya.
Since we began development activities 30 years ago, PT-FI
has made significant investments in infrastructure both for the
use of the company and for the public in southern Irian Jaya.
This includes medical facilities, roads, an airport and heliports,
schools, housing, community buildings and places of worship.
PT-FI is also one of the largest private employers in Indonesia
and by far the largest in Irian Jaya. At the end of 1998, PT-FI
directly employed 6,350 people and another 6,250 workers
were employed by companies that provide services locally and
exclusively to PT-FI in Irian Jaya. Approximately 17 percent of
the employees and other workers referred to above are
Irianese. Finally, PT-FI uses as many locally and nationally
produced goods as possible.
Fig. 1
Financial benefits of PT-FI's operations
to the people and Government of Indonesia
Graph showing the following data:
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Wages, Salaries & Benefits 20 26 38 90 82 98 44
Goods & Services Purchased 80 204 508 425 321 269 241
Domestic Re-Investments 368 486 707 445 438 572 286
Charitable Contributions 8 15 20 22 23 33 32
Dividends, Royalties & Taxes 107 93 117 297 272 237 139
</TABLE>
Besides the $1.25 billion paid in direct benefits to the
Government of Indonesia (GOI) under PT-FI's new COW from
1992-98, Indonesia has realized another $5.9 billion in
indirect benefits in the form of wages and benefits paid to
workers, purchases of goods and services, charitable
contributions and reinvestments in operations. In all,
87 percent of PT-FI's total revenues have remained in and
benefited Indonesia and its people during this period.
II. SOCIAL CHANGE AND DEVELOPMENT
Background. From the beginning of its operations in Irian
Jaya, PT-FI has supported programs to benefit the Amungme
and Kamoro tribal people who were the area's traditional
inhabitants. When PT-FI began development in Irian Jaya after
the signing of its 1967 COW, with a local population
numbering only in the hundreds and a relatively small mine,
the programs were simple and limited. Houses for local leaders
and community infrastructure were built and free medical care
was provided to the local people.
With the discovery of the world-class Grasberg deposit in
1988 and the years of rapid operational expansion that
followed, the needs of the local communities and PT-FI's
efforts to respond to them with an array of social and economic
programs both spiraled in complexity. PT-FI's resident
workforce expanded, particularly during construction, and its
attraction as a source of economic opportunity increased,
drawing thousands of migrants from other indigenous Irianese
tribes over the mountains and into the area.
Significantly, the GOI, pursuing its policy of transmigration,
also moved thousands of people into the area from other parts
of Indonesia. The result was a difficult and at times volatile
<PAGE> 7
mixture of Irianese indigenous peoples, who have their own history
of interethnic hostility, with Indonesians from other islands
who have completely different ethnic and cultural backgrounds.
These diverse groups were all brought together in a population
that rapidly grew to its present size of some 70,000 individuals,
and continues to grow today. Even with PT-FI's assistance, the
GOI and the local peoples' leadership organizations were not
prepared to manage these changes effectively.
Social and Cultural Commitment. PT-FI's history in
Irian Jaya has largely involved technical solutions to physical
challenges, which fostered what can best be described as a
"can-do" approach to tasks, i.e., 1) identify a problem; 2) solve
the problem; 3) move on to the next problem. During the
1990s, the company realized that the same approach would
not work in seeking to resolve complex social issues.
PT-FI is now committed to patiently and carefully building and
maintaining positive relationships with the indigenous peoples
living in the areas where the company operates and to the
continuous improvement of those relationships. Part of this
commitment is to provide opportunities for social and economic
development for the local people, including special efforts to train
and hire people indigenous to each operational area. Another
part is to learn more about the local people, their histories and
their changing circumstances in order to achieve a greater
understanding necessary for building constructive relationships.
But perhaps the most important aspect is the commitment to
treat the local people with respect and to consult them on
important operational issues that impact their communities.
PT-FI has also sought to be sensitive to the need of Irian
Jaya's unique peoples to preserve their cultures at the same
time they are merging with modern development. For this
reason, PT-FI has long supported the annual Asmat Art and
Cultural Festival and in 1998 sponsored the first Kamoro Art
and Cultural Festival, which was highly successful.
Human Rights Commitment. Because of the activities
of a small separatist group in Irian Jaya, the GOI has stationed
armed forces there. There have been a number of clashes
between the Indonesian military and the separatists and there
have been allegations of human rights violations in connection
with some of these incidents. These allegations have been
investigated and the individuals in the military who were
determined to be involved have been punished.
FCX supports and upholds the human rights of all people
and has publicly and strongly condemned all human rights
violations in Irian Jaya. FCX has applauded the government's
arrest, trial, conviction and incarceration of those responsible
for human rights violations in Irian Jaya and also encourages
and fully supports any legitimate investigation of remaining
allegations of human rights violations. There have been
numerous investigations of
human rights violations in Irian [Picture]
Jaya, and none found that any Discussions with local people
PT-FI employee participated in provide a better understanding of
any violation. Equally important is their culture and history and
the company's commitment are necessary for building
constructive relationships.
through its social programs to proactively work to secure
fundamental human rights for all citizens in its area of
operations and, through improved communication and
increased understanding, to seek in the long term to reduce
underlying frictions that are the root cause of situations that
lead to human rights violations.
Freeport Fund for Irian Jaya Development
(FFIJD). In April 1996, PT-FI agreed to commit at least one
percent of its revenues for the next 10 years to support
village-based, bottom-up health, education, economic and
social development programs in its area of operations. This
commitment replaced community development programs
undertaken by the company that spent a similar amount of
money each year. In 1998, PT-FI contributed $13.5 million to
the FFIJD. However, the disbursement mechanism initially
established to administer the funds was flawed, which resulted
in inappropriate funding decisions and expenditures. This
situation added to friction with indigenous groups, rather than
reducing it as intended by the program. At the recommendation
of the LABAT-Anderson auditors and local and church leaders,
disbursements from the fund were suspended in August 1997,
other than for previously approved and essential programs with
ongoing funding commitments, such as malaria control and
public health, job training and scholarships for Irianese. PT-FI
then joined a dialogue with local and church leaders,
<PAGE> 8
government representatives and members of interested
non-governmental organizations on how best to restructure the
fund to provide for village-based development managed locally
from Timika.
As 1998 drew toward a close, these discussions successfully
culminated with the restructuring of the FFIJD. The new
umbrella structure is called the Lembaga Pengembangan
Masyarakat-Irian Jaya (LPM-IRJA), or the People's Development
Foundation-Irian Jaya. The LPM-IRJA Board of Directors is
made up of the head of the local government, currently a
Kamoro, a leader of the Amungme people, a leader of the
Kamoro people, leaders of the three local churches and a
representative of PT-FI. The Board of Directors makes grants
from the FFIJD and has oversight for implementation of local
development programs through the Implementation Board,
which is headed by an Amungme leader and is composed of
representatives of all local indigenous groups.
The LPM-IRJA Board of Directors has approved a 1999/2000
operational plan and has selected a number of yayasans, or
foundations, to implement funded projects. The operational plan
provides some type of assistance for all 71 villages in the Mimika
district, with the greatest support going to the 29 villages defined
by the Amungme and Kamoro as most critically impacted by
PT-FI's operations. Another important project will be a new primary
care hospital in Timika. Ground has been broken for the 75-bed
facility. The team which accomplished the restructuring took care
to socialize and communicate the results in all Mimika villages
before the implementation of any new programs or projects.
Land Rights. FCX and PT-FI acknowledge the special
relationship between indigenous peoples and their traditional
lands and, like mining companies worldwide, must seek fair
compensation for the use of those lands. Under Indonesian law,
natural resources are owned by the state for the benefit of all the
Indonesian people. Mining companies are allowed to operate
and mine these resources as contractors to the government,
operating under a GOI-approved COW. However, Indonesian law
also provides for giving "recognition" in the form of community
benefits to indigenous people for the temporary use of their land.
The 1974 "January Agreement" between PT-FI and the
Amungme people was an agreement to provide "recognition"
for the temporary use of land traditionally used by the
Amungme, and is considered by PT-FI and the GOI to be a
legally binding release of land under Indonesian law. As part of
the 1974 agreement, PT-FI made significant improvements in
the infrastructure of the local Amungme communities. In 1974,
the impact of mining operations on the Kamoro people in the
lowlands was minimal and no recognition was negotiated. By
1997, mine expansion and the construction of the Ajkwa
Deposition Area (ADA) (please see Environmental Management
section for details) had impacted the lowlands area and some
stands of sago palm, as well as some access to traditional
fishing areas. With the assistance of the Sejati Foundation,
land recognition was negotiated with the Kamoro people living
in several villages near the ADA. The recognition plan includes
the involvement of the Kamoro themselves in the building of
substantial infrastructure for the use of the communities, as
well as reclamation and economic development.
PT-FI is currently negotiating with Amungme and Kamoro
leaders voluntary additional recognition as a reflection of the
expanded scope and continuing success of the mining
operations. These discussions are part of an ongoing process to
resolve issues between the company and the local people. The
negotiations are being coordinated by an international group of
mediators agreed upon by both parties.
Medical Care. PT-FI provides medical care for the local
population through free primary medical care in PT-FI hospitals
and clinics, preventive medicine and medical education programs.
In 1998, non-employee local people made over 35,000 patient
visits at PT-FI medical facilities, and 3,750 local people were
admitted to health care facilities for an average stay of five days.
Preventive medicine and primary medical care are also provided
by PT-FI's Malaria Control and Public Health Program. Through
intensive home visitation, testing of
potential malaria parasite carriers
and aggressive treatment, the
incidence of malaria has been
dramatically reduced. The number
of malaria cases in 1998 was down
by 52 percent from 1997, which [Picture]
itself was 41 percent lower than the Free public health care is
previous year. This nearly 70 percent provided in our COW area.
decrease over a two-year period is a
significant accomplishment given
a 12 percent annual population
growth. Health education programs
have been expanded into elementary
schools on the concept of the
Integrated Village Health Post, or
Posyandu. Homework includes
recruitment of mothers and neighbors
to attend Posyandu over the
two-trimester training period. It is hoped
that immunizations and prenatal care offered in these programs
will further reduce infant and maternal morbidity and mortality.
Testing and long-term treatment for tuberculosis are also
undertaken by the Public Health Program. Tuberculosis cases
continue to increase due to better case detection and more
patients migrating to Timika for treatment in PT-FI's
<PAGE> 9
clinic, some of them staying for six months to complete
therapy. Rates are nearly 600 per 100,000 population, which
is extraordinarily high.
Education, Training and Employment. PT-FI takes
pride in its record of providing generous wages and benefits
and excellent working conditions for all employees. PT-FI's
employees (staff and hourly) receive base salaries which are at
or above the 75th percentile of comparable employees in the
energy and mining sectors in Indonesia. All salaries are
substantially above national and regional minimum salaries. In
addition, all PT-FI employees working in Irian Jaya receive a
remote location allowance (25 percent of base salary) and
a cost of living allowance. During the period of financial
uncertainty in 1997 and 1998, PT-FI employees received four
separate payroll adjustments to help them deal with inflation in
Indonesia. For employees whose families live at the company's
operations area, PT-FI provides free schooling and medical
care; PT-FI pays education and health care allowances for staff
employees whose families do not live at the company jobsite.
PT-FI's support of employee dependents extends to educational
aid and scholarships for study both in Indonesia and abroad.
Currently, more than 200 employee dependents receive special
scholarships for higher education in Indonesia and overseas.
In April 1996, PT-FI agreed to implement training and
educational programs sufficient to quadruple the number of
Irianese in its work force over the next 10 years and to greatly
increase the number of Irianese in management and
supervisory positions. At [Picture]
the end of 1998, this Training and the transfer of
recruitment program was technological skills are two of
ahead of schedule. Over our most important sustainable
97 percent of PT-FI development activities.
employees are Indonesians and approximately 17 percent of
the Indonesian employees are indigenous to Irian Jaya. In April
1996, PT-FI had just over 600 Irianese employees; at the end
of December 1998, there were more than 1,100 Irianese
employees. To facilitate preparation of local people for
employment, PT-FI established a Basic Skills Development
Center. Since 1996, more than 280 local residents have received
training there. Of those participants, 246 graduated from the
program and 186 are already employed. The remaining 60 will
be employed by the middle of 1999. The training session that
began in January of this year is solely dedicated to training of
underground miners. Sixty candidates entered that training
class. Viable educational opportunities for Irianese children are
perhaps most important for the local people in the long term.
PT-FI has supported the government in this effort by opening
the company's schools to Amungme children living in the Banti
area and by educational aid and scholarship programs for
Irianese students from the elementary school level through
college. The Tuarek Educational Foundation, named for the
recently deceased traditional leader of the Amungme tribe in
PT-FI's area, uses funds from the FFIJD to provide school
uniforms, tuition, room and board for students seeking to
continue their education. PT-FI provided educational assistance
to over 4,000 Irianese students in 1998.
Utikini Relocation. Over the past decade, thousands of
Western Dani, traditional enemies of the Amungme, moved into an
area called Utikini below Tembagapura and above the Amungme
villages of the Waa Valley - Waa, Banti and Opitawak. The population
of Utikini peaked at 2,500, which meant that the Amungme
were outnumbered in their own traditional land, a situation that led
to tribal battles causing numerous injuries and nine deaths.
To relieve tensions, the GOI and PT-FI, in consultation with
indigenous leaders and non-governmental organization
representatives, created and financed a plan in which the residents
of Utikini were given an option. In a series of meetings
with affected families, Utikini residents were offered the choice
of moving to an area in the lowlands outside Timika or moving
back to their home areas. In either case, the residents were
given a new home and other benefits as compensation for
dismantling their houses in Utikini. Those who moved to the
lowlands were also given training and work opportunities,
special medical care and educational facilities for their
children. The area in which the Utikini settlement was located
is undergoing a two-year reclamation project by professional
agricultural workers and the local Amungme population.
In addition, because it is at the confluence of several river
systems, the lower part of the village of Banti has constant
danger of flooding. PT-FI, working with the people of Banti, is
in the process of moving the residents of the lower part of
Banti to new houses built by PT-FI in upper Banti.
Social Studies and Cultural Support. In 1997,
PT-FI formed a relationship with anthropologists and
demographers from the Australian National University and
<PAGE> 10
Cenderawasih University in Jayapura
to prepare a baseline study
documenting the history and
contemporary social, economic and
cultural situation of the Amungme
and Kamoro peoples in PT-FI's
operations area. In August 1998, the
team presented its first report, which
included a number of recommenda-tions
to improve communications
and understanding between PT-FI
and the local people and to
strengthen the company's community
affairs programs by providing
additional financial, development and
training resources and by providing
for on-site management. Steps are
being taken to implement these
recommendations. The team also
recommended further research, and PT-FI supports this
recommendation.
III. ENVIRONMENTAL MANAGEMENT
Environmental Commitments. FCX and PT-FI are
fully committed to minimizing the impact of their mining
operations on the surrounding environment and to reclaiming
and/or revegetating land that is disturbed by operations. As part
of its comprehensive Environmental Policy, FCX is a signatory to
the International Council on Metals and the Environment (ICME)
Environmental Charter. Through this policy, FCX commits to
giving its highest priority to sound environmental management
and practices, to providing adequate resources to fulfill that
responsibility and to continuous improvement of its environmental
performance at every operational site. FCX also commits
strongly to supporting scientific research to find the best applicable
environmental technologies; to comprehensive monitoring
to ensure that its practices are working; and to both internal
and external environmental audits to measure performance.
PT-FI made a series of specific commitments as part of
its AMDAL, which is the Indonesian acronym for the
environmental impact assessment process, all of which have
been implemented or are being implemented. These
commitments, which were approved by the GOI in 1997 and
are related to PT-FI's operational expansion, are detailed in the
AMDAL approval, issued as a Decree of the State Minister for
Environment. They are also listed on the FCX web site.
Management and Monitoring. Significant new
environmental activities at PT-FI in 1998 centered around the
implementation of comprehensive and expanded Environmental
Management and Monitoring Plans approved by the GOI in
December 1997 as part of the AMDAL. New plans have been
developed and implemented [Picture]
for the expansion of operations The state-of-the-art environmental
and support activities. lab plays a key role in providing
Existing plans have been data to PT-FI's environmental
enhanced and revised to scientists.
reflect changes in current operations. A specific management
and monitoring plan now exists for all major aspects of the
PT-FI operation and privatized infrastructure.
Auditing. FCX's Environmental Policy requires the
performance of annual internal environmental audits. The 1998
internal audit concluded that PT-FI's Irian Jaya operations are
in material compliance with GOI laws and regulations.
In addition, PT-FI has made a commitment to independent
external environmental audits by qualified experts every three
years, with the results to be made public. The first such audit
was in 1996, when PT-FI was the first company in Indonesia to
undergo a voluntary external environmental audit of its operations
under a new program of the Indonesian government. An
independent, internationally qualified environmental consulting firm
conducted the audit. The results of that audit were made public
and its 33 principal recommendations have been implemented.
The second external triennial environmental audit is scheduled
for 1999 and its results will also be made public. In addition,
the independent consultants conducting this audit will make
recommendations for various programs, monitoring data, or
other measures to serve as benchmarks against which PT-FI
can measure its future environmental progress.
ISO 14001 Environmental Management
Systems. ISO 14001 is a voluntary international standard
that provides a systematic approach to continual improvement
by companies in their environmental management systems
(EMS). An EMS consists of organizational policies and
<PAGE> 11
procedures enacted to ensure that all environmental issues are
handled in a quality manner. The system works to minimize
the operations impact on the environment and to ensure
compliance with regulations. PT-FI is developing a comprehensive
EMS, including protocols and program descriptions, for
ISO 14001 certification of its Irian Jaya operations in the year
2000. The implementation of an ISO 14001 program is part of
PT-FI's 300,000 MTPD expansion AMDAL commitment to the GOI.
Tailings Management Plan. Monitoring and
refinement of the Tailings Management Program continued in
1998. (Tailings are the finely ground natural rock left over from
the processing of copper ore by physical grinding and flotation
methods.) The construction of the Ajkwa Deposition Area (ADA),
essentially the flood plain of the Ajkwa River encompassing some
13,000 hectares, has been completed and the ADA is operating
as designed as an engineered, managed system for the
deposition and control of tailings.
Programs have been instituted to monitor the development and
effectiveness of the ADA system. Tailings reclamation studies
show that the ADA can be readily revegetated with native and
agricultural plant species once mining is completed. As part of
its AMDAL commitment to further study its operations and
search for ways to improve, PT-FI is conducting an Ecological
Risk Assessment (ERA) of the Tailings Management Program.
The ERA will involve stakeholders, will be carried out by
world-class experts and the results will be made public.
Tailings have an alkaline pH when released from the mill and
data show that the pH in the Ajkwa River system is alkaline,
meaning the tailings are not producing an acidic condition. (The
pH is a measure of acidity or its opposite, alkalinity. Neutral is
7.0, meaning any pH greater than that is alkaline.) The annual
average pH in the Ajkwa River for 1994 to 1998 ranged from
7.5 to 8.1. Additionally, Figure 2 shows that the tailings do not
have an acid forming potential.
Fig. 2
Tests on tailings show a
non-acid forming potential
Graph showing the following data:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
(Average Annual Value)
<S> <C> <C> <C> <C> <C>
Potential kilograms of
acid per metric ton
of tailings (32.93) (30.06) (34.97) (24.22) (35.79)
</TABLE>
PT-FI does not use cyanide in its operational processes;
therefore, cyanide in the river water systems is not an issue.
Comprehensive water quality sampling of the tailings
management system shows that the water in the Ajkwa River
and ADA meets U.S. Environmental Protection Agency (U.S.
EPA) and World Health Organization (WHO) drinking water
standards for metals, including copper (Figure 3a). In addition,
when the data are compared to U.S. EPA Water Quality Criteria
(1997), and other scientific information on copper impacts on
aquatic organisms, the values for dissolved copper in the Ajkwa
River system are within and/or below the range of these values.
Fig. 3a
Copper concentrations from comprehensive water quality
sampling in the Ajkwa River meet drinking water
standards and criteria
Graph showing the following data:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
(Annual Average Concentration)
<S> <C> <C> <C> <C> <C>
U.S. EPA Drinking Water
Standard for Copper 1.300 1.300 1.300 1.300 1.300
WHO Drinking Water
Criteria for Copper 1.000 1.000 1.000 1.000 1.000
Dissolved copper in
parts-per-million (ppm) .048 .043 .050 .018 .015
</TABLE>
Fig. 3b
Comparisons of mercury in edible flesh
of fish and shrimp-annual averages
Graph showing the following data:
<TABLE>
<CAPTION>
1996 1997 1998
(Mercury in mg/kg (ppm) net weight)
<S> <C> <C> <C>
U.S. FDA criteria
for mercury in
edible flesh of fish 1.00 1.00 1.00
Rivers with tailings:
Ajkwa .05 .05 .04
Minajerwi .04 .03 *
Rivers without tailings:
Kamora .08 .08 .09
Otokwa .08 .10 .10
*1998 data not available.
</TABLE>
Mercury is also not used in PT-FI's mill processes but does
occur in trace amounts in the Ajkwa River with tailings, as well
as in similar river systems in the area without tailings. Water
quality data for dissolved mercury in the Ajkwa River show
amounts lower than detection limits using modern analytical
techniques. Figure 3b shows that mercury is found in edible
flesh of fish and shrimp only in small amounts, and well below
U.S. Food and Drug Administration (U.S. FDA) criteria for
human consumption. The data also show that mercury in
both fish flesh and fish organs - such as the liver, which
concentrates metals - are lower in the river system with
tailings than in reference rivers in the area without tailings.
Extensive biological sampling shows that comparable numbers
of species and aquatic organisms were collected in the Ajkwa
and Minajerwi estuaries downstream of the tailings ADA as
<PAGE> 12
Fig. 4
Tailings estuaries (Ajkwa and Minajerwi rivers) have comparable numbers of
aquatic species and organisms as reference estuaries without tailings
(Kamora and Otokwa rivers) based on per unit catch by trawl-net sampling.
Two graphs showing the following data:
<TABLE>
<CAPTION>
Number of Number of
species organisms
(1996 to 1998 Quarterly Average)
<S> <C> <C>
Rivers with tailings
Ajkwa 21 989
Minajerwi 25 1,145
Rivers without tailings
Kamora 29 875
Otokwa 24 497
</TABLE>
were found in baseline or reference estuaries without tailings
(Kamora and Otokwa) based on per unit catch by trawl-net
sampling (Figure 4).
Overburden Management Plan. Overburden is the
rock which has to be moved aside in order to reach the ore in
the mining process. Metals can occur in nature as minerals
called sulphides. If they are mined, and rock or tailings
containing sulphides are left exposed to the elements, the
action of water, oxygen and natural bacteria can create
sulphuric acid. This acidic water will dissolve metals contained
in rock and, if not collected or treated, the contaminated water
can be harmful to many aquatic organisms and plants. This
condition is called Acid Rock Drainage (ARD).
PT-FI continually monitors and manages ARD. PT-FI's current
Overburden Management Plan, which was approved by the
GOI, includes three types of control: minimization - cover of
the overburden to minimize production of ARD; remediation -
treatment of runoff from the overburden piles for neutralization
of ARD with capture/recovery of copper; and/or prevention -
blending potentially acid-forming overburden with
acid-consuming materials.
Monitoring of the overburden stockpiles, which at the end of
1998 encompassed an estimated 575 hectares of surface
area, continues as part of the program to optimize placement
of overburden to minimize the generation of ARD. It should also
be noted that with the recent mine and mill expansion, cutoff
grades for ores to be processed have been lowered so that
material that otherwise would have been overburden will now
be processed, reducing the total amount of overburden.
However, there will be a net increase in tailings as a result of
the lower cutoff grade.
A Molecular Recognition Technology (MRT) pilot-test unit has
been constructed and placed into operation to capture and
recover copper from acidic drainage. Drainage from the mine
area is captured and routed to the MRT unit, which utilizes
molecular recognition and electro-winning to capture and
recover copper. The "Wanagon Lake" water catchment basin is
used as a capture point for West Grasberg overburden ARD to
prevent its release to the environment. This ARD is directed to
the catchment basin where it is neutralized with lime. The metal
precipitates from the neutralization process are captured in the
catchment basin. As the stockpiles advance, the Wanagon
catchment basin will eventually be filled with overburden, but
will still serve as a natural collection point for ARD from the
overburden stockpiles. The ARD will be drained from the basin
through underground drainage drifts and drill holes. It will then
be directed to the mill area MRT plant for treatment and
copper recovery.
FCX is a member of the International Network for Acid
Prevention (INAP), an organization of 16 of the world's mining
and minerals companies, established to undertake research
and development to control ARD from mine materials. INAP will
bring together engineers and scientists from over 23 countries
to undertake research and develop technologies to reduce the
impact of ARD. The member companies of INAP, which
represent around 40 percent of the world's mining activity, will
share their knowledge and participate in joint research projects.
Wanagon Lake Incident. On June 20, 1998, after a
period of heavy rainfall, a sudden discharge of water occurred
from the Wanagon Lake water catchment basin into the
Wanagon River. Geotechnical experts have concluded that it was
caused by a slough of rock from mine stockpiles, which in turn
triggered several landslips along the steep river banks recently
saturated by heavy rains after 18 months of record drought. The
ensuing mudslide reached the downstream village of Banti. No
people were hurt, but some pigs and gardens belonging to local
residents were lost and PT-FI has compensated those affected.
Floods and mudslides are common in this part of Irian Jaya
and similar incidents have occurred recently having no
connection to mining. However, steps have been taken to reduce
the potential for sloughing and to lower the level of the Wanagon
catchment basin. An alarm system was in place to warn of
<PAGE> 13
sloughing from the top of the mine stockpiles, but the June 20
sloughing took place at the base of the stockpiles and was not
detected. In response to this incident, additional alarm systems
have been installed to warn of sloughing at the base of the
stockpiles, as well as any basin overflow. The basin water level
has also been lowered to reduce the likelihood of any outflow.
Long Term Environmental Monitoring Plan.
PT-FI continues to conduct the Long Term Environmental
Monitoring Plan (LTEMP) to evaluate the potential impact of
operations on water quality, biology, hydrology, sediments and
air quality. This comprehensive program ensures that PT-FI has
all of the necessary scientific information available for all
environmental aspects of its operations in order to minimize,
mitigate and properly manage environmental effects. Figure 5
shows the number of samples and analyses conducted in
1998 as part of this extensive program.
Fig. 5
Comprehensive LTEMP program encompases a large number
of samples and analyses every year; data shown
are for 1998
Two graphs showing the following data:
<TABLE>
<CAPTION>
Number Number
of samples of analyses
<S> <C> <C>
Type of Sample
Aquatic Biology 474 1,896
Aquatic Tissue 611 3,932
Mine Water 120 1,743
Surface Water 1,095 8,676
Tailings 2,349 11,745
</TABLE>
Waste Management and Recycling Plan. PT-FI
has continued in 1998 to incorporate a comprehensive waste
management program into its daily operations. The concepts of
waste reduction, reuse and recycling have been implemented
as a practical means to manage all wastes in an environmentally
acceptable manner. Those materials that can be reused or
recycled are separated from the waste stream at the point of
origin. Steel is stockpiled at several strategic locations for reuse
by construction and operations. Copper, aluminum and other
recyclable metals are currently being held pending permission
from the government for resale or trade. Combustible waste
materials are segregated from the waste stream and sent to
several air curtain incinerators to reduce the amount of wastes
placed in the onsite landfills. Biodegradable wastes are collected
and transported to an engineered landfill at Mile 38, which is
lined and which also provides for the collection and treatment
of water leaching from the waste. PT-FI also utilizes a state-of-the-
art medical waste incinerator. Indicative of PT-FI's recycle/
reuse programs, Figure 6 shows the amount of waste oil reused
annually as fuel compared to the amount of new oil consumed.
Fig. 6
Waste oil reused as fuel vs. new oil consumption
Graph showing the following data:
<TABLE>
<CAPTION>
Waste Oil New Oil
Reused as Fuel Consumption
(Millions of liters per year)
<S> <C> <C>
1994 2.07 8.34
1995 3.99 7.36
1996 4.84 7.26
1997 5.91 8.51
1998 8.81 7.94
</TABLE>
Reclamation and Revegetation. PT-FI's comprehensive
reclamation testing and revegetation program continued in
1998. Revegetation and reclamation programs for the ADA
have been in place for several years. Demonstration projects
have been developed to show that numerous species of native
plants, agricultural crops and fruit trees grow well on the
tailings deposited in the ADA. PT-FI has also developed other
successful revegetation and reclamation projects involving the
development of lakes, wetlands, forests and agriculture in
areas disturbed by construction. A large hydro-mulcher
machine is a centerpiece of this aggressive revegetation
program to quickly reclaim land disturbed by construction.
Mining activities are ongoing and the placement of overburden
in the West Grasberg and Carstensz valleys and the deposition
of tailings in the ADA will continue for many more years.
Because of this, the reclamation of the majority of the
overburden and the tailings deposits will not be feasible until
mining operations cease. PT-FI has established a fund to
accumulate at least $100 million by the end of the mine life to
help fund mine closure and reclamation. The fund will be
used to restore properties and related facilities to meet the
<PAGE> 14
requirements of Indonesian environmental and other
regulations, as well as PT-FI's own commitments outlined
earlier in this report.
Figure 7 depicts the number of species tested on overburden
and tailings. Numerous species of native and agricultural plants
have been successfully grown on tailings in the lowlands.
Several native species have also been successfully grown on
overburden, and research continues in this challenging,
high-altitude environment to find additional adaptive species.
Fig. 7
Reclamation tests show success for many species
on tailings; overburden testing to date reflects
challenges of high-altitude reclamation
Graph showing the following:
<TABLE>
<CAPTION>
Species Species
Tested Successful
(Number of plant species)
<S> <C> <C>
Tailings 79 74
Overburden 20 5
</TABLE>
[Picture]
Pineapple is one of the many
plants successfully tested in
tailings reclamation areas.
<PAGE> 15
[Picture]
Research continues to show
encouraging results in challenging,
high-altitude overburden
reclamation testing.
Training and Technology Transfer. An important
element of PT-FI's sustainable development program is the
training of employees and local people in environmental
management issues, programs and procedures at the company's
operations. Included in this training is technology transfer for
modern pollution control equipment, environmental sampling
and monitoring methodologies. Figure 8 shows the number of
personnel involved and manhours spent in environmental
training in 1997 and 1998.
Fig. 8
Environmental training of PT-FI
and contractor personnel
Graph showing the following:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Personnel Trained 1,918 2,951
Man hours of Training 5,171 7,506
</TABLE>
ATLANTIC COPPER, S.A.
Environmental Programs Update. IS0 14001 is the
world's first series of internationally accepted standards for
environmental management. Implementing an ISO 14001
environmental management system provides the framework for
a high level of environmental performance. In April 1998,
Atlantic's environmental management system at its Huelva,
Spain copper smelter was certified under 14001 by AENOR, the
Spanish Certification Agency. Later in the year, the metal cable
facility at Cordoba, Spain was also certified under ISO 14001.
Atlantic is committed to conducting periodic environmental,
safety and industrial health audits to ensure that its facilities
and operations comply with applicable legal requirements,
company policies and protocols, and generally accepted
standards. The 1998 audit confirmed that Atlantic is in
material compliance with all current applicable environmental
and safety regulations, as well as all requirements established
by the company. The audit recognized the improvements that
have been made in these areas during the last few years and
Atlantic has incorporated as part of its objectives additional
management practice recommendations made by the auditors.
In 1996 and 1997, Atlantic successfully completed the
environmental improvement project started in 1994 in
conjunction with expansion activities at its copper smelter
in Huelva. New technology substantially reduced atmospheric
emissions from its operations even with an approximate
doubling of production capacity (Figure 9). In addition, dust
emissions have decreased as a result of the installation of
new facilities for handling ore concentrates and the addition of
<PAGE> 16
new bag filters in the concentrate drying and furnace tapping
areas. New gas scrubbers have significantly reduced acid
mist and particulate emissions.
Fig. 9
Sulphur dioxide (SO2) air emission rates
from Atlantic's three acid plants
Graph showing the following:
<TABLE>
<CAPTION>
1994 1995 1996 1997
(SO2 emissions (mg/Nm3))
<S> <C> <C> <C> <C>
SO2 Plant Limit** 2,850 2,850 2,850 2,850
Atlantic Acid Plant #1 4,373 2,081 760 668
Atlantic Acid Plant #2 773 840 685 784
Atlantic Acid Plant #3 * * 551 531
</TABLE>
*Acid plant #3 was built in 1996
**Maximum regulatory limit for SO2 emissions for post 1975-constructed
acid plants (does not apply to acid plant #1, because it was
constructed prior to 1975)
<PAGE> 17
FREEPORT-McMoRan COPPER & GOLD INC.
SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
Years Ended December 31: 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------
(Financial Data In Thousands,
Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
FCX FINANCIAL DATA
Revenues $1,757,132 $2,000,904 $1,905,036 $1,834,335 $1,212,284
Operating income 574,281a 664,215b 638,261c 596,432d 280,134e
Net income applicable
to common stock 118,317a 208,541b 174,680c 199,465d 78,403e
Basic net income per
common share .67a 1.06b .90c .98d .38e
Diluted net income
per common share .67a 1.06b .89c .98d .38e
Dividends paid per
common share .20 .90 .90 .675 .60
Basic average shares
outstanding 175,353 196,392 194,910 203,536 205,755
Diluted average shares
outstanding 175,354 197,653 196,682 204,406 205,755
At December 31:
Property, plant and
equipment, net 3,474,451 3,521,715 3,088,644 2,845,625 2,360,489
Total assets 4,192,634 4,152,209 3,865,534 3,581,746 3,040,197
Long-term debt,
including current
portion and
short-term borrowings 2,456,793 2,388,982 1,562,916 1,167,232 549,710
Redeemable preferred
stock 500,007 500,007 500,007 500,007 500,007
Stockholders' equity 103,416 278,892 675,379 881,674 994,975
PT-FI OPERATING DATA
Ore milled (metric
tons per day) 196,400 128,600 127,400 111,900 72,500
Average ore grade
Copper (percent) 1.30 1.37 1.35 1.32 1.51
Gold (grams per
metric ton) 1.49 1.51 1.52 1.39 1.31
Gold (ounce per
metric ton) .048 .049 .049 .045 .042
Silver (grams per
metric ton) 3.17 3.11 3.10 3.17 3.02
Silver (ounce per
metric ton) .102 .100 .100 .102 .097
Recovery rates (percent)
Copper 86.9 85.4 83.8 85.0 83.7
Gold 85.3 81.4 77.1 74.3 72.8
Silver 71.8 65.6 64.6 63.2 64.7
Copper
Production (000s of
recoverable pounds) 1,427,300f 1,166,500 1,118,800 978,000 710,300
Sales (000s of
recoverable pounds) 1,419,500g 1,188,600 1,097,000 985,100 700,800
Average realized price $.73 $.94h 1.02h $1.22h $1.02h
Gold
Production
(recoverable ounces)2,227,700f 1,798,300 1,695,200 1,310,400 784,000
Sales
(recoverable ounces)2,190,300g 1,888,100 1,698,900 1,353,400 794,700
Average realized price $290.57 $346.14i $390.96i $383.73i $381.13
Silver
Production
(recoverable ounces)3,421,200f 2,568,700 2,360,600 2,303,000 1,305,400
Sales
(recoverable ounces)3,412,300g 2,724,300 2,532,000 2,349,400 1,335,400
Average realized price $5.29 $4.68 $4.95 $4.99 $5.08
ATLANTIC COPPER OPERATING DATA
Concentrate treated
(metric tons) 973,900 929,700 804,500 434,400j 485,300
Anodes (000s of pounds)
Production 642,400 639,800 547,900 296,000 347,500
Sales 96,900 133,500 77,300 44,600 38,300
Cathodes (000s of pounds)
Production 544,800 505,600 462,900 258,200 312,100
Sales (including
wire rod) 544,300 505,300 461,100 280,200 309,400
Gold sales in anodes
and slimes (ounces) 678,700 532,900 421,300 118,200 166,300
Cathode cash production
cost per pound $.13 $.12 $.15 $.18 $.17
</TABLE>
NOTES
a. Includes net charges totaling $9.1 million ($4.4 million to net
income or $0.03 per share), $11.1 million charged to general and
administrative expenses less a $2.0 million gain included in
production and delivery costs, associated with the sale of
corporate aircraft.
b. Includes a $25.3 million gain ($12.3 million to net income or $0.06
per share) for the reversal of stock appreciation rights and
related costs caused by the decline in FCX's common stock price in
1997.
c. Includes charges totaling $17.4 million ($8.0 million to net income
or $0.04 per share) consisting of $12.7 million for costs of stock
appreciation rights caused by the increase in FCX's common stock
price, $3.0 million for costs related to a civil disturbance and
$1.7 million for an early retirement program.
d. Includes charges totaling $49.6 million ($26.9 million to net
income or $0.13 per share) consisting of $29.8 million for costs of
stock appreciation rights caused by the increase in FCX's common
stock price, $12.5 million for a materials and supplies inventory
reserve adjustment in connection with the completion of an
expansion program and $7.3 million for an early retirement program.
e. Includes a $32.6 million insurance settlement gain ($17.4 million
to net income or $0.08 per share).
f. Amounts are PT-FI's share, net of Rio Tinto's interest, of
aggregate production totaling 1,721.3 million pounds of copper,
2,839,700 ounces of gold and 4,040,600 ounces of silver.
g. Amounts are PT-FI's share, net of Rio Tinto's interest, of
aggregate sales totaling 1,706.7 million pounds of copper,
2,774,700 ounces of gold and 4,008,000 ounces of silver.
h. Amounts were $0.90 in 1997, $0.97 in 1996, $1.28 in 1995 and $1.15
in 1994 before hedging adjustments.
i. Amounts were $326.08 in 1997, $382.62 in 1996 and $380.85 in 1995
before hedging adjustments.
j. Reflects shutdowns caused by a strike at an adjacent plant,
expansion equipment tie-ins and normal maintenance turnarounds.
<PAGE> 18
FREEPORT-McMoRan COPPER & GOLD INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
To enhance understanding of Freeport-McMoRan Copper & Gold Inc.'s
(FCX) financial results, the components of Management's Discussion and
Analysis are presented adjacent to the pertinent financial data.
Accordingly, in addition to the discussion that begins on this page
and continues through page 27, further analyses of consolidated
results of operations can be found on page 29, cash flows and
liquidity on page 31, and capital resources and financial condition on
page 33, as well as the Working Toward Sustainable Development report
on pages 6 through 17. The results of operations reported and
summarized throughout are not necessarily indicative of future
operating results and should be read in conjunction with the financial
statements and related notes.
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-SC), 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's operations involve
the smelting and refining of copper concentrates in Spain and
marketing refined copper products. In addition to the PT-FI and
Eastern Mining exploration activities, FCX conducts other mineral
exploration activities in Irian Jaya pursuant to joint venture and
other arrangements.
Rio Tinto Joint Ventures. In 1996, FCX and Rio Tinto plc (Rio Tinto)
established exploration and expansion joint ventures. Pursuant to the
exploration joint ventures, Rio Tinto has a 40 percent interest in
future development projects under PT-FI's Contract of Work (COW) and
Eastern Mining's COW. In addition, Rio Tinto has the option to elect
to participate in 40 percent of any future FCX exploration projects.
The FCX/Rio Tinto exploration joint ventures are continuing their
exploration activities within the original 24,700-acre PT-FI Block A
area, the adjacent 1.6 million-acre PT-FI Block B area, the 1.25
million-acre Eastern Mining area and in several blocks contiguous to
PT-FI's Block B and Eastern Mining's Block I areas totaling
approximately 1.0 million acres.
As required by its COW, PT-FI relinquished its rights to 4.9
million acres in Block B, including 1.6 million acres in December
1998. Eastern Mining relinquished a 1.25 million-acre area and must
relinquish an additional 0.6 million acres by August 2001. For a
discussion of exploration cost sharing arrangements with Rio Tinto,
see "Exploration Expenses" on page 29.
FCX and Rio Tinto completed the "fourth concentrator mill
expansion" of PT-FI's milling facilities in early 1998. Pursuant to
the joint venture agreement, Rio Tinto has a 40 percent interest in
certain assets and future production exceeding specified annual
amounts of copper, gold and silver through 2021. FCX and Rio Tinto
began sharing incremental cash flow attributable to the expansion
effective January 1, 1998. For a discussion of the joint venture
arrangements, see Note 2 of "Notes to Financial Statements." The
expanded milling facilities have allowed PT-FI to increase throughput
beyond 200,000 metric tons of ore per day (MTPD) and improve
profitability by optimizing the ore available from PT-FI's mines. Mill
throughput averaged 210,600 MTPD during the fourth quarter of 1998.
Reserves. During 1998, additions and revisions to the aggregate
proved and probable reserves of the Grasberg and other Block A ore
bodies totaled approximately 381 million metric tons of ore
representing 6.0 billion recoverable pounds of copper, 4.3 million
recoverable ounces of gold and 18.7 million recoverable ounces of
silver. Net of Rio Tinto's share, PT-FI's share of proved and probable
recoverable reserves was 40.0 billion pounds of copper, 51.6 million
ounces of gold and 119.1 million ounces of silver as of December 31,
1998 (Note 14). Net of Rio Tinto's share, these additions and
revisions to reserves replaced approximately 250 percent of PT-FI's
1998 copper production, 120 percent of gold production and 330 percent
of silver production. Estimated recoverable reserves were assessed
using a copper price of $0.90 per pound and a gold price of $325 per
ounce. Using prices of $0.75 per pound of copper and $280 per ounce
of gold would reduce estimated recoverable reserves by approximately 9
percent for copper, 7 percent for gold and 9 percent for silver.
<PAGE> 19
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 25 percent equity
investment in PT-SC. Summary operating income by segment follows (in
millions):
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Mining and exploration $566.7 $630.8 $648.0
Smelting and refining 35.4 30.6 6.4
Intercompany eliminations
and other a (27.8) 2.8 (16.1)
------ ------ ------
Operating income $574.3 $664.2 $638.3
====== ====== ======
</TABLE>
a. PT-FI sales to Atlantic impacted operating income by $(15.8)
million in 1998, $19.0 million in 1997 and $2.7 million in 1996.
FCX's consolidated earnings fluctuate depending on the timing and
prices of these sales.
MINING AND EXPLORATION
A summary of changes in PT-FI revenues (in millions) and gross profit
per pound of copper follow:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------
<S> <C> <C>
Revenues - prior year $1,505.3 $1,485.8
Increases (decreases):
Sales volumes:
Copper 218.0 93.4
Gold 104.6 74.0
Price realizations:
Copper (306.5) (88.8)
Gold (121.7) (84.6)
Adjustments to prior year
open sales (28.3) 59.0
Treatment charges,
royalties and other (20.3) (33.5)
-------- --------
Revenues - current year $1,351.1 $1,505.3
======== ========
</TABLE>
Gross Profit Per Pound of Copper (cents).
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------
<S> <C> <C> <C>
Average realized price 72.8 94.4a 101.9a
---- ---- -----
Production costs:
Site production and delivery 32.2 50.6 52.4
Gold and silver credits (45.3) (55.5) (61.3)
Treatment charges 23.5 24.4 22.9
Royalty on metals 1.3 2.6 2.8
---- ---- -----
Cash production costs 11.7 22.1 16.8
Depreciation and amortization 17.0 15.0 13.0
---- ---- -----
Total production costs 28.7 37.1 29.8
---- ---- -----
Revenue adjustments b 1.9 3.7 (2.0)
---- ---- -----
Gross profit per pound of copper 46.0 61.0 70.1
==== ==== =====
</TABLE>
a. Amounts were $0.90 in 1997 and $0.97 in 1996 before hedging
adjustments.
b. Reflects adjustments for prior year concentrate sales and
amortization of the price protection program cost in 1996 and 1997.
<PAGE> 20
PT-FI Operating Results - 1998 Compared with 1997. PT-FI's 1998
revenues declined compared with 1997 revenues as record sales volumes
were more than offset by significant declines in price realizations
(see Selected Financial and Operating Data). Copper sales volumes
rose 19 percent and gold sales volumes rose 16 percent primarily as a
result of increased production from the fourth concentrator mill
expansion and improved mill recoveries. Average copper realizations
declined 22 percent from $0.94 per pound in 1997 to $0.73 per pound in
1998. PT-FI's 1997 revenues include net additions totaling $42.6
million recognized under PT-FI's copper price protection program.
Average 1998 gold realizations declined 16 percent or nearly $56 per
ounce compared to 1997. PT-FI's 1997 revenues include additions
totaling $37.6 million recognized on gold forward sales contracts.
Adjustments to prior year open sales totaled $26.6 million in 1998
compared with $54.9 million in 1997. 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's mill throughput averaged a record 196,400 MTPD during
1998, as a result of its fourth concentrator mill expansion that was
completed in early 1998. Average copper and gold ore grades for 1998
were slightly lower than a year ago, but recovery rates improved
compared with 1997. Unit site production and delivery costs averaged
32.2 cents per pound of copper for 1998, 36 percent below the 50.6
cents per pound reported in 1997, 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. Gold credits
were lower in 1998 when compared with 1997, primarily because of the
lower gold realizations. Unit treatment charges were lower in 1998
primarily because of contractual price participation, whereby the
charge varies with the price of copper. Treatment charge rates for a
significant portion of PT-FI's 1999 projected sales were negotiated in
the fourth quarter of 1998 based on then-current market conditions and
are expected to decline for 1999.
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 of $1.10 or
more, of copper net revenue. The related rate for gold and silver
sales is 1.0 percent. 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. The 1999 depreciation rate is expected to increase
to 18.0 cents per pound to reflect a full year of depreciation on the
fourth concentrator mill expansion assets and other capital additions.
In light of its substantially expanded production capabilities,
PT-FI is discussing with the GOI the payment of voluntary additional
royalties on metal from production above 200,000 MTPD in amounts for
copper equal to the COW royalty and for gold and silver equal to twice
the COW royalties. Therefore, including the payment of COW royalties,
the total of royalties paid on copper net revenues from production
above 200,000 MTPD would be double the amount of the COW royalty; and
the total of royalties paid on gold and silver sales from production
above 200,000 MTPD would be triple the amount of the COW royalties.
The additional royalties would be effective January 1, 1999. Because
in large part mineral royalties under GOI regulations are remitted to
the provinces from which the minerals are extracted, PT-FI offered the
voluntary additional royalties to provide additional support to the
local governments and people of Irian Jaya.
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.
Subsequent 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 and 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 $6.3 million to 1998 production costs for
this event. Future 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. The financial impact on PT-FI's operations and
facilities from any such events should be limited because PT-FI has
insurance coverage for such events with a deductible of $20 million
per occurrence for physical damage and business interruption combined.
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 were employees of contractors
of PT-FI. On August 14, 1998, the workers voluntarily returned to
work and PT-FI began resuming operations. The workers cited economic
and other employment issues as the reasons for their work stoppage.
The employees of certain contractors 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 workers' union did not
authorize the work stoppage. 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.
<PAGE> 21
PT-FI has a labor agreement covering its hourly-paid Indonesian
employees, the key provisions of which are renegotiated biannually.
The current labor agreement expires on September 30, 1999. PT-FI's
relations with the workers' union have generally been positive.
PT-FI Sales Outlook. PT-FI's copper concentrates are sold under
dollar-denominated, primarily long-term sales agreements, mostly to
companies in Asia and Europe. PT-FI has commitments from various
parties, including Atlantic and PT-SC, to purchase virtually all of
its estimated 1999 production at market prices. Net of Rio Tinto's
interest, PT-FI's share of sales for 1999 is expected to approximate
1.4 billion pounds of copper and 2.1 million ounces of gold.
Projected 1999 copper and gold sales reflect the expectation of
producing at higher average mill throughput rates than in 1998 because
of the fourth concentrator mill expansion, offset by expected lower
average ore grades and recoveries compared to 1998. The lower
projected ore grades for 1999 reflect the capability of the expanded
mill facilities to process large volumes of lower grade ore material.
PT-FI will continue to concentrate its efforts on optimizing metal
production from its expanded operations during 1999. PT-FI has a
long-term contract to provide approximately 60 percent of Atlantic's
copper concentrate requirements at market prices. PT-FI is providing
100 percent of PT-SC's copper concentrate requirements at market
prices; however, for the first 15 years of operations the treatment
and refining charges will not fall below a specified minimum rate.
After PT-SC's operations reach design capacity, FCX anticipates that
PT-FI will sell at least 50 percent of its annual concentrate
production to Atlantic and PT-SC.
Exploration. FCX continues its exploration program in Irian Jaya, in
the Block A and Block B areas of PT-FI's 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. Two rigs are now drilling in the Kucing Liar ore body.
Recent drilling to the west indicates a possible thinning or fault
offsets to the mineralization, but continuity of mineralization
extends beyond the 1998 reserve additions and along favorable
horizons toward the Grasberg deposit. Drilling at Grasberg
Underground is ongoing with two drills working from the Amole drift to
delineate the Grasberg deposit below the 1998 reserve additions.
Copper-gold mineralization is decreasing below the level of the 1998
reserve additions, but additional drilling is required to fully define
the ultimate geometry of the mineralized zone. Drilling at DOZ
continues to return positive results, indicating the potential for
additional reserve increases. FCX's exploration activities in the
Block B area, Eastern Mining area and other areas continue and are
focused on prospects that potentially could lead to the discovery of
significant porphyry and/or skarn-type copper-gold deposits.
Exploration of PT-IMM's COW area covering 1.2 million acres
continues. FCX has the option through June 1999 to purchase for $7.0
million a 90 percent interest in the COW. Rio Tinto has elected not
to participate in this COW. Interpretation of the reconnaissance
sampling program results is 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 through which it 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. Rio Tinto has elected to participate in 40 percent of
FCX's interest and costs in this exploration joint venture. To earn
up to a 54 percent interest, FCX and Rio Tinto must spend a total of
up to $21 million on exploration and other activities in the joint
venture areas ($3.0 million of which was incurred through December 31,
1998). Exploration drilling is ongoing with three rigs on several
identified geological anomalies.
PT-FI Operating Results - 1997 Compared with 1996. PT-FI's 1997
revenues were slightly higher than 1996 revenues as higher sales
volumes were substantially offset by lower price realizations. Copper
sales volumes rose 8 percent and gold sales volumes rose 11 percent
primarily as a result of improvements in recovery rates. Average
copper realizations declined 8 percent from $1.02 per pound in 1996 to
$0.94 per pound in 1997. PT-FI's revenues include net additions
totaling $42.6 million in 1997 and $38.2 million in 1996 recognized
under PT-FI's copper price protection program. Average 1997 gold
realizations declined 11 percent or nearly $45 per ounce compared to
1996. PT-FI's revenues also include $37.6 million in 1997 and $14.1
million in 1996 recognized on gold forward sales contracts.
Adjustments to prior year open sales totaled $54.9 million in 1997
compared with $(4.1) million in 1996. Treatment charges increased in
1997 because of higher sales volumes and tighter smelter market
conditions.
Average cash production costs in 1997 of 22.1 cents per pound of
copper were higher than the comparable 1996 average primarily because
of lower gold credits. Lower gold realizations offset record gold
sales and reduced unit gold credits by 9 percent. Site production and
delivery costs per pound declined primarily because of lower labor
costs offset by higher treatment charges that reflected tightened
smelter capacity.
<PAGE> 22
PT-FI's 1997 depreciation rate of 15.0 cents per pound of copper
reflects an increase over the 1996 rate because of the first phase of
the enhanced infrastructure program (EIP) and other 1997 capital
additions. The EIP is designed to provide the infrastructure needed
for PT-FI's growing operations and expected future growth, to enhance
the living conditions of PT-FI's employees, and to develop and promote
the growth of local and third party activities and enterprises in
Irian Jaya. The first phase of the EIP was completed in 1996;
therefore, the 1996 rate of 13.0 cents per pound did not include the
EIP for a full year.
SMELTING AND REFINING
Atlantic Operating Results - 1998 Compared with 1997. Atlantic
reported lower revenues ($754.0 million compared with $874.5 million
in 1997) and cost of sales ($703.3 million compared with $831.2
million in 1997) primarily because of lower copper and gold prices.
Higher operating income in 1998 ($40.3 million compared with $32.2
million in 1997) reflects higher volumes of concentrate treated (5
percent more) and higher cathode and wire rod sales volumes (8 percent
more), partially offset by lower treatment and refining rates and
higher unit costs compared with 1997. 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 of
copper metal. Treatment and refining rates of $0.25 per pound for 1998
were slightly lower compared with $0.26 per pound for 1997. Lower
treatment charges, which negatively affect Atlantic, benefit PT-FI and
vice versa. Cathode cash production costs of $0.13 per pound in 1998
were slightly higher than the $0.12 per pound reported in 1997 because
of unscheduled repair work.
PT-SC Operating Results - 1998 Compared with 1997. PT-FI accounts
for its 25 percent interest in PT-SC under the equity method (Note 9).
PT-SC completed construction of its copper smelter/refinery complex
in Gresik, Indonesia during the third quarter of 1998 on schedule and
on budget. The smelter furnace was ignited on October 12, 1998 with
first production of copper cathode in December 1998. Production is
expected to gradually increase to design capacity of 200,000 metric
tons of copper metal per year over an approximate two-year period. PT-
FI's share of PT-SC's net operating results and the elimination of
intercompany profit on 25 percent of PT-FI sales to PT-SC, for which
the final sale has not occurred, are recorded in operating income and
totaled net charges of $4.9 million in 1998 and $1.5 million in 1997.
Atlantic Operating Results - 1997 Compared with 1996. Atlantic
reported higher revenues ($874.5 million compared to $778.1 million in
1996) and cost of sales ($831.2 million compared to $759.4 million in
1996) because of increases in production from its newly expanded
facilities. Atlantic reached a production capacity of 270,000 metric
tons of metal per year in June 1996. Atlantic also benefited from
higher treatment and refining rates in 1997 ($0.26 per pound compared
with $0.23 per pound in 1996). Cathode cash production costs ($0.12
per pound) in 1997 were 20 percent lower than in 1996 primarily
because of favorable exchange rates and higher production in 1997.
DISCLOSURES ABOUT MARKET RISKS
Commodity Price Risk. 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. FCX
currently has no copper or gold price protection contracts relating to
its mine production. Based on PT-FI's projected 1999 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 $6 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.
The significant decline in gold prices in early 1997 increased
the value of certain forward gold sales contracts formerly owned by
PT-FI covering 876,000 ounces of gold sales 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 any forward gold sales positions. PT-FI
recognized $37.6 million of gold revenues from forward sales contracts
in 1997 and $14.1 million in 1996. PT-FI has suspended its program of
selling gold forward on a six-month basis but, as conditions warrant,
may reinstate the program in the future. Future gold sales will be
priced under contractual terms at then-current market prices as long
as the forward sales program is suspended.
The significant decline in copper prices during 1996 increased
the value of put option contracts that PT-FI purchased under a
previous price protection program to provide a floor price of $0.90
per pound for essentially all copper sales through the second quarter of
<PAGE> 23
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. PT-FI recognized net additional copper revenues of
$35.6 million in 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 $7.0 million of additional revenues in 1997
from these forward sales. PT-FI no longer has any price protection on
its future copper sales but, as conditions warrant, PT-FI may enter
into new contracts for its future copper sales.
PT-FI's concentrate sales agreements, with regard to copper,
provide for provisional billings at the time of shipment with final
pricing 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 December 31, 1998, FCX had consolidated copper
sales totaling 191.5 million pounds recorded at an average price of
$0.66 per pound remaining to be finally priced. Approximately 84
percent of these open pounds are expected to be finally priced during
the first quarter of 1999 with the remaining pounds to be priced
during the second 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 1999 net income.
FCX has redeemable preferred stock indexed to gold and silver
prices that hedge future production and are carried at their original
issue value. As redemption payments occur, differences between the
carrying value and the redemption payment, which is based on commodity
prices at the time of redemption, will be recorded as an adjustment to
revenues (see Notes 1, 5 and 11 of Notes to Financial Statements).
Future redemption payments in ounces and equivalent value in dollars,
as well as dollar-equivalent dividend payments based on December 31,
1998 gold and silver prices, follow (dollars in millions):
<TABLE>
<CAPTION>
Gold Silver
- ----------------------------------------------------------------------------
Redemption Redemption Dividend Redemption Redemption Dividend
Ounces Amount Amount Ounces Amount Amount
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 - $ - $10.1 2,380,000 $11.9 $3.8
2000 - - 10.1 2,380,000 11.9 3.3
2001 - - 10.1 2,380,000 11.9 2.8
2002 - - 10.1 2,380,000 11.9 2.3
2003 600,000 172.5 8.5 2,380,000 11.9 1.8
Thereafter 430,000 123.6 9.1 7,140,000 35.7 2.6
At December 31, 1998:
Fair value based on
quoted market prices $142.0 $ 55.9
====== ======
Carrying value $400.0 $100.0
====== ======
</TABLE>
Atlantic's purchases of copper concentrate are priced at
approximately the same time as its sales of the refined copper,
thereby protecting Atlantic from most copper price risk. Atlantic
enters into futures contracts to hedge its price risk whenever its
physical purchases and sales pricing periods do not match. At December
31, 1998, Atlantic's contracts to hedge its price risk were not
significant. Atlantic has also extended copper pricing terms that
allow certain of its customers to purchase specified quantities of
copper at a future date and a fixed price through December 1999.
Atlantic has entered into copper futures contracts to eliminate any
price risk associated with these extended pricing terms. At December
31, 1998, Atlantic had contracts, with a fair value of $(1.6) million,
to purchase 15.6 million pounds of copper at an average price of $0.76
per pound through December 1999.
Foreign Currency Exchange Risk. FCX conducts the majority of its
operations in Indonesia and Spain where its functional currency is the
U.S. dollar. All of FCX's revenues are denominated in U.S. dollars;
however, some costs and certain asset and liability accounts are
denominated in 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.
Since early 1997, the Indonesian rupiah exchange rate has been
extremely volatile, severely weakening initially and partly recovering
later against the U.S. dollar and continuing to be unpredictable. PT-
FI recorded gains (losses) to production costs totaling $0.9 million
in 1998 and $(6.3) million in 1997 related to its rupiah- denominated
net monetary assets, which totaled $25.6 million recorded at an
exchange rate of 7,725 rupiah to one U.S. dollar at December 31, 1998.
Operationally PT-FI has benefited from a weakened Indonesian rupiah
currency, primarily through lower labor costs. During the first
quarter of 1998, PT-FI began a currency hedging
<PAGE> 24
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 December 31, 1998,
these contracts hedged 120.0 billion of rupiah payments at an average
exchange rate of 19,478 rupiah to one U.S. dollar through August 1999,
approximately 40 percent of projected rupiah payments, and 79.2
million of Australian dollar payments at an average exchange rate of
1.59 Australian dollars to one U.S. dollar through September 1999,
approximately 80 percent of projected Australian dollar payments. PT-
FI recorded net gains to production costs totaling $4.3 million in
1998 related to these contracts under its current accounting for such
contracts.
Assuming estimated 1999 rupiah payments of 470 billion and a
December 31, 1998 exchange rate of 7,725 rupiah to one U.S. dollar, a
one-thousand-rupiah increase in the exchange rate could result in an
approximate $7 million decrease in annual production costs, before any
hedging effects. A one-thousand-rupiah decrease in the exchange rate
could result in an approximate $9 million increase in annual
production costs, before any hedging effects.
A portion of Atlantic's operating costs and certain Atlantic asset
and liability accounts are denominated in Spanish pesetas. Based on
estimated 1999 peseta payments of 15 billion and a December 31, 1998
exchange rate of 142.7 pesetas to one U.S. dollar, a ten-peseta
increase in the exchange rate could result in an approximate $7
million decrease in costs, before any hedging effects. A ten-peseta
decrease in the exchange rate could result in an approximate $8
million increase in costs, before any hedging effects. Atlantic had
peseta-denominated net monetary liabilities at December 31, 1998
totaling $79.1 million recorded at an exchange rate of 142.7 pesetas
to one U.S. dollar. Adjustments to these net liabilities to reflect
changes in the exchange rate are recorded as currency transaction
gains (losses) in other income and totaled $(2.2) million in 1998,
$16.6 million in 1997 and $10.3 million in 1996.
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. At December 31, 1998,
Atlantic had contracts, with a fair value of $2.0 million, to purchase
10.8 billion Spanish pesetas at an average exchange rate of 144.7
pesetas to one U.S. dollar through January 2000. These contracts
currently hedge approximately 70 percent of Atlantic's projected net
peseta cash outflows through January 2000. In addition to the
currency transaction gains (losses) noted above, Atlantic recorded
gains (losses) to other income related to its forward currency
contracts under its current accounting policy, totaling $3.7 million
in 1998, $(6.5) million in 1997 and $(1.0) million in 1996.
On January 1, 1999, a new common currency (the Euro) was
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 its currency for commercial
transactions. Atlantic does not expect conversion to the Euro
currency to have a material impact on revenues or expenses. A single
European currency is expected to improve Atlantic's competitiveness
with other European copper 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.
See Notes 1 and 11 of Notes to Financial Statements for
additional information.
Interest Rate Risk. FCX has interest rate swap contracts to fix
interest rates on a portion of its variable-rate debt. The costs
associated with these contracts are amortized to interest expense over
the terms of the agreements. The table below presents scheduled
maturities of principal (or notional amount) for outstanding debt and
interest rate swaps at December 31, 1998 and fair value at December
31, 1998 (dollars in millions):
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Fair Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term debt (Note 6):
Fixed rate $7.0 $7.0 $148.0 $- $250.0 $200.0 $434.1
Average interest
rate 8.1% 8.1% 9.4% -% 7.2% 7.5% 7.9%
Variable rate $120.8 $116.7 $79.3 $782.3 $64.4 $681.3 $1,844.8
Average interest
rate 7.7% 8.3% 9.5% 7.7% 9.4% 8.6% 8.2%
Interest rate swaps (Note 11):
Amount $32.1 $179.9 $74.4 $- $- $- $(1.7)
Average interest
rate 7.0% 5.4% 5.3% -% -% -% 5.6%
</TABLE>
<PAGE> 25
DEVELOPMENTS IN INDONESIA
Unfavorable economic conditions continue to affect Southeast Asia,
including Indonesia. Since early 1997, Indonesia's economy has
contracted, inflation increased dramatically, and the Indonesian
rupiah severely weakened initially and then partly recovered.
Financial assistance to Indonesia is being provided by the
International Monetary Fund, and various political, financial and
regulatory changes are being implemented, including national
parlimentary elections scheduled for June 1999. International copper
and gold markets have been adversely affected by the developments in
Southeast Asia.
PT-FI's and Eastern Mining's operations, all of which are in
Indonesia, are conducted through the PT-FI and Eastern Mining COWs.
Both COWs have 30-year terms, provide for two 10-year extensions under
certain conditions, and govern PT-FI's and Eastern Mining's rights and
obligations relating to taxes, exchange controls, repatriation and
other matters. Both COWs were concluded pursuant to the 1967 Foreign
Capital Investment Law, which expresses Indonesia's foreign investment
policy and provides basic guarantees of remittance rights and
protection against nationalization, a framework for economic
incentives and basic rules regarding other rights and obligations of
foreign investors. Specifically, the COWs provide that the Government
of Indonesia (GOI) will not nationalize or expropriate PT-FI's or
Eastern Mining's mining operations. Any disputes regarding the
provisions of the COWs are subject to international arbitration.
FCX has had positive relations with the GOI since it commenced
business activities in Indonesia in 1967 and contributes significantly
to the economy of Irian Jaya and Indonesia. PT-FI is one of the
largest taxpayers in Indonesia and is a significant employer in a
remote and undeveloped area of the country. PT-FI intends to continue
to maintain positive working relationships with the central,
provincial and local branches of the GOI regarding its operations and
development efforts.
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. 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. Implementation of the Y2K Compliant version
of its enterprise asset management and accounting software package was
completed in the fourth quarter of 1998. Modification of other
critical FCX business systems is scheduled for completion in the first
half 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.
<PAGE> 26
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 potentially date-aware components were completed in
the third quarter of 1998. To verify the accuracy and completeness of
PT-FI's inventory, a third party engineering firm assisted in an on-
site audit of the inventory process at its operation in Irian Jaya.
During the fourth quarter, inventory compliance was assessed using
vendor provided Y2K Compliance information. This work is
substantially complete, with the exception of certain vendors who have
not yet provided definitive compliance information regarding their
products. During the first quarter of 1999, compliance testing will
begin for critical systems and operations regardless of their
compliance status. At the same time, remediation work will begin for
noncompliant items. Compliance testing and remediation work for
critical items is scheduled for completion in the second quarter of
1999.
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 identified contingency needs 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 1998, Y2K Compliance requirements have been included
in all FCX purchasing contracts.
The Costs to Address FCX's Y2K Issues. Expenditures for the necessary
Y2K-related modifications will largely be funded by routine software
and hardware maintenance fees paid by FCX or FMS. Based on current
information, FCX believes that the estimated incremental cost of Y2K
Compliance not covered by routine software and hardware maintenance
fees will total approximately $3 million, most of which is expected to
be incurred in 1999. 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, cost estimates
are based on management's best estimates, which are derived using
numerous assumptions of future events 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 their
failure to convert will not have a material adverse effect on FCX.
The Risks of FCX's Y2K Issues. Based on its Y2K risk assessment work,
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. FCX
believes that these third-party risks will be mitigated through its
contingency plans for critical purchased commodities and close
monitoring of compliance for other third parties that are important to
its operations.
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. Although FCX believes the likelihood of any or
all of the above risks occurring is 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 contains forward-looking
statements regarding market risks, mineral reserves, treatment charge
rates, depreciation rates, copper and gold grades and sales volumes,
exploration activities, capital expenditures, introduction of the
Euro, the availability of financing, future environmental costs, the
impact of weather conditions, Y2K Compliance, interest expense and
relations with workers and the indigenous population of Irian Jaya.
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, 1998.
<PAGE> 27
<TABLE>
<CAPTION>
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF INCOME
Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------
(In Thousands, Except
Per Share Amounts)
<S> <C> <C> <C>
Revenues $1,757,132 $2,000,904 $1,905,036
Cost of sales:
Production and delivery 804,631 1,008,604 951,863
Depreciation and amortization 277,407 213,855 173,978
---------- ---------- ----------
Total cost of sales 1,082,038 1,222,459 1,125,841
---------- ---------- ----------
Exploration expenses 13,033 17,629 -
General and administrative
expenses 87,780 96,601 140,934
---------- ---------- ----------
Total costs and expenses 1,182,851 1,336,689 1,266,775
---------- ---------- ----------
Operating income 574,281 664,215 638,261
Interest expense, net (205,588) (151,720) (117,291)
Other income (expense), net (7,267) 4,271 976
---------- ---------- ----------
Income before income taxes
and minority interests 361,426 516,766 521,946
Provision for income taxes (170,566) (231,315) (247,168)
Minority interests in net
income of consolidated
subsidiaries (37,012) (40,343) (48,529)
---------- ---------- ----------
Net income 153,848 245,108 226,249
Preferred dividends (35,531) (36,567) (51,569)
---------- ---------- ----------
Net income applicable
to common stock $ 118,317 $ 208,541 $ 174,680
========== ========== ==========
Net income per share of common stock:
Basic $.67 $1.06 $.90
==== ===== ====
Diluted $.67 $1.06 $.89
==== ===== ====
Average common shares outstanding:
Basic 175,353 196,392 194,910
======= ======= =======
Diluted 175,354 197,653 196,682
======= ======= =======
Dividends paid per common share $.20 $.90 $.90
==== ===== ====
</TABLE>
The accompanying Notes to Financial Statements are an integral part of
these financial statements.
<PAGE> 28
FREEPORT-McMoRan COPPER & GOLD INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
CONSOLIDATED RESULTS OF OPERATIONS
Revenues. Increased production from expansions resulted in higher
sales volumes in each of the past three years. Lower copper and gold
realizations in 1998 more than offset the higher sales volumes when
compared with 1997, while the lower realizations in 1997 partially
offset the impact of higher sales volumes when compared with 1996.
Cost of Sales. Production and delivery costs decreased in 1998 when
compared with 1997 because of 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. Higher costs
in 1997 compared with 1996 reflect increased production volumes;
however, cost reduction efforts partially offset some of those
increases. Increases in depreciation and amortization were caused by
additional capital assets becoming subject to depreciation and by
increased production as certain assets are depreciated on the unit-of-
production method.
Exploration Expenses. The FCX/Rio Tinto joint ventures incurred
exploration costs of $29.4 million in 1998, $44.6 million in 1997 and
$39.2 million in 1996 as they explore the COW areas. FCX's exploration
expense in 1998 and 1997 primarily related to costs incurred in the
Eastern Mining and PT-FI Block B areas. All 1996 exploration costs and
PT-FI Block A exploration costs in 1997 and 1998 were reimbursed by
Rio Tinto's $100 million exploration funding received in 1996 ($1.2
million remaining at December 31, 1998). Substantially all costs in
the joint venture areas are now being shared 60 percent by FCX and 40
percent by Rio Tinto. The FCX/Rio Tinto joint ventures' 1999
exploration budgets total approximately $17 million. FCX also has
budgeted approximately $1 million for exploration activities outside
of the joint ventures.
General and Administrative Expenses. General and administrative
expenses declined 9 percent from 1997 to 1998 primarily because of
initiatives to reduce costs and the effect of sharing these costs with
Rio Tinto pursuant to joint venture agreements. The 1998 amount
includes net charges totaling $11.1 million associated with the sale
of corporate aircraft. General and administrative expenses declined
31 percent from 1996 to 1997 primarily because of the reversal of
$25.3 million of costs of stock appreciation rights caused by the
decline in FCX's common stock price during 1997. General and
administrative expenses for 1996 included $12.7 million for costs of
stock appreciation rights when FCX's stock price rose. As a
percentage of revenues, general and administrative expenses were 5
percent in 1998, 5 percent in 1997 and 7 percent in 1996.
Interest Expense, Net. FCX's total interest cost (before
capitalization) rose to $225.2 million in 1998, compared to $174.7
million in 1997 and $140.3 million in 1996, because of an overall
increase in debt levels associated with the expansions and the FCX
share purchase programs. Capitalized interest, relating primarily to
the fourth concentrator mill expansion totaled $19.6 million in 1998
and $23.0 million in 1997, while capitalized interest relating
primarily to the first phase of the PT-FI EIP and Atlantic's expansion
to 270,000 metric tons totaled $23.0 million in 1996. Total interest
cost and net interest expense for 1999 are expected to be lower
compared with 1998 because of lower debt levels. Reduced capitalized
interest should partially offset the benefits of lower debt levels.
Provision for Income Taxes. FCX's effective tax rate was 47 percent
in 1998, 45 percent in 1997 and 47 percent in 1996 (Note 8). PT-FI's
COW provides a 35 percent corporate income tax rate for PT-FI 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 significant taxable income in recent
years and has a substantial tax loss carryforward for which no
financial statement benefit has been provided. PT-FI's 1994 and 1997
Indonesian income tax returns are currently under examination. In
January 1998, PT-FI settled and paid assessments from the Indonesian
tax authorities for the years 1989-1993 with no material adverse
effect on FCX's financial condition or results of operations.
Minority Interests and Preferred Dividends. Minority interests in net
income of consolidated subsidiaries is primarily related to net income
levels at PT-FI. Preferred dividends declined in 1997 primarily
because in December 1996 FCX's Convertible Exchangeable Preferred
Stock was converted to FCX common stock or redeemed for cash (Note 7).
<PAGE> 29
<TABLE>
<CAPTION>
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF CASH FLOW
Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $153,848 $ 245,108 $226,249
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 277,407 213,855 173,978
Deferred income taxes 62,165 61,717 54,194
Deferral of unearned income - 30,102 97,173
Recognition of unearned income - (76,595) (51,066)
Minority interests'
share of net income 37,012 40,343 48,529
Deferred stock appreciation
rights costs, mining
costs and other 13,756 (53,131) (9,625)
(Increase) decrease in working capital:
Accounts receivable (103,976) 80,611 6,860
Inventories 6,323 51,957 (6,474)
Prepaid expenses and other (455) 32 3,906
Accounts payable and
accrued liabilities 16,713 (8,963) 42,155
Accrued income taxes 16,034 (71,484) 14,645
-------- ---------- --------
(Increase) decrease in
working capital (65,361) 52,153 61,092
-------- ---------- --------
Net cash provided by operating
activities 478,827 513,552 600,524
-------- ---------- --------
Cash flow from investing activities:
Capital expenditures:
PT-FI (280,952) (530,191) (401,538)
Investment in PT-SC (2,709) (36,243) (38,845)
Atlantic Copper (8,422) (18,478) (51,855)
Other 4,977 (7,705) 3,535
-------- ---------- --------
Net cash used in investing activities(287,106) (592,617) (488,703)
-------- ---------- --------
Cash flow from financing activities:
Net borrowings from
(repayments to) Rio Tinto (144,760) 371,040 75,360
Proceeds from other debt 549,230 1,097,770 241,640
Repayment of other debt (239,495) (723,398) (372,633)
Purchase of FCX common shares (259,213 (438,388) (220,997)
Cash dividends paid:
Common stock (35,382) (178,341) (175,766)
Preferred stock (39,157) (40,543) (52,437)
Minority interests (9,069) (33,773) (44,045)
Proceeds from sale of:
7.50% Senior notes - - 197,525
7.20% Senior notes - - 248,045
Other (16,957) (3,461) 1,722
-------- ---------- --------
Net cash provided by
(used in) financing activities (194,803) 50,906 (101,586)
-------- ---------- --------
Net increase (decrease)
in cash and cash equivalents (3,082) (28,159) 10,235
Cash and cash equivalents
at beginning of year 8,959 37,118 26,883
-------- ---------- --------
Cash and cash equivalents
at end of year $ 5,877 $ 8,959 $ 37,118
======== ========== ========
Interest paid $251,999 $155,658 $142,170
======== ======== ========
Income taxes paid $ 91,567 $259,434 $178,328
======== ======== ========
</TABLE>
The accompanying Notes to Financial Statements, which include
information in Notes 1 and 7 regarding noncash transactions, are an
integral part of these financial statements.
<PAGE> 30
FREEPORT-McMoRan COPPER & GOLD INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
CASH FLOWS AND LIQUIDITY
FCX's primary sources of cash are operating cash flows and borrowings,
while its primary cash outflows over the last three years have been
capital expenditures, dividends and purchases of its common stock. FCX
believes that its expected operating cash flows and available
borrowings provide the necessary liquidity to fund its anticipated
1999 operating needs.
Operating Activities. Operating cash flow declined 7 percent or $34.7
million in 1998 compared with 1997, mostly because of lower net income
and an increase in working capital, and declined 14 percent or $87.0
million in 1997 compared with 1996 when FCX received exploration
advances from Rio Tinto. FCX received $97.2 million of cash proceeds
from the sale of copper put option contracts in 1996 and recognized
$46.1 million in 1997 revenues and $51.1 million in 1996 revenues.
Working capital, excluding cash, increased $65.4 million in 1998
primarily because of increases in accounts receivable, and decreased
$52.2 million in 1997 primarily because decreases in accounts
receivable and inventories offset decreases in taxes payable. The
$61.1 million decrease in working capital during 1996 primarily
relates to exploration advances from Rio Tinto and an increase in
accrued income taxes payable because of higher taxable income.
Investing Activities. PT-FI's capital expenditures have varied with
the level of activity on its expansions and EIP. In early 1998 PT-FI
completed construction of the fourth concentrator mill expansion,
which was funded almost entirely with nonrecourse borrowings from Rio
Tinto. FCX's capital expenditures for 1999 are expected to
approximate $185 million, primarily to maintain current production
levels. Funding is expected to be provided by operating cash flow and
PT-FI's bank credit facilities ($342.0 million commitment available at
December 31, 1998). PT-FI funded most of its share of costs to
construct PT-SC's smelter/refinery in 1996 and 1997.
Atlantic completed its $225 million expansion to 270,000 metric
tons of copper metal per year in 1996 and its $13.0 million
debottlenecking project in June 1997. Atlantic received grants from
the Spanish government of $7.5 million in 1997, $29.5 million in 1996
and a total of $52.8 million through December 31, 1997. These grants
are recorded as a reduction of capital expenditures and are contingent
on Atlantic meeting specified conditions through December 2001.
Financing Activities. Net repayments to Rio Tinto totaled $144.8
million in 1998 from PT-FI's share of incremental cash flow
attributable to the fourth concentrator mill expansion. Nonrecourse
borrowings from Rio Tinto for the expansion totaled $371.0 million in
1997 and $75.4 million in 1996. Net proceeds from other debt totaled
$309.7 million in 1998 and $374.4 million in 1997. Net repayments of
other debt totaled $131.0 million in 1996. 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
1998, FCX acquired 20.0 million of its shares for $259.4 million (an
average of $12.97 per share) under its open market share purchase
programs. From inception of these programs through December 31, 1998,
FCX has purchased a total of 50.2 million shares for $1.03 billion (an
average of $20.49 per share), with 9.8 million shares remaining
available under the programs. The timing of any 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. During 1997, FCX acquired 18.3
million of its shares for $439.8 million (an average of $24.07 per
share). During 1996, FCX acquired 7.6 million of its shares for
$221.6 million (an average of $29.24 per share). In December 1997, the
FCX Board of Directors authorized a reduction in FCX's regular
quarterly cash dividend on its common stock to $0.05 per share or
$0.20 per share annually, from the 1997 annual dividend of $0.90 per
share. In 1996, FCX sold publicly its 7.50% and 7.20% Senior Notes for
net proceeds of $445.6 million.
FCX remains focused on effectively managing its operations in the
current environment of low copper and gold prices. Through its cost
reduction and production enhancement efforts commenced in early 1998,
PT-FI has directed its efforts toward optimizing performance of its
expanded milling facilities to achieve higher sales levels at the low
cost levels. In addition to the favorable effects of foreign currency
movements, PT-FI realized significantly lower operating costs, capital
and exploration expenditures and general and administrative expenses
in 1998. These savings are expected to continue in 1999. With these
savings and the prospective elimination of the regular quarterly cash
dividend announced in December 1998, FCX believes it will be able to
reduce its 1998 year-end debt significantly during 1999 at year-end
1998 commodity price levels. As a result, FCX believes it will have
the overall financial flexibility to continue to invest in operations
and maintain its exploration program. Because of the economic and
political issues affecting Indonesia and the low current prices for
copper and gold, the availability of any capital which may be required
for FCX and its subsidiaries is limited and the cost of new capital,
if available, would be high.
<PAGE> 31
<TABLE>
<CAPTION>
FREEPORT-McMoRan COPPER & GOLD INC.
BALANCE SHEETS
December 31, 1998 1997
- -------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,877 $ 8,959
Accounts receivable:
Customers 180,978 89,599
Other 47,524 40,012
Inventories:
Product 118,440 120,794
Materials and supplies 182,964 194,006
Prepaid expenses and other 10,111 9,719
---------- ----------
Total current assets 545,894 463,089
Property, plant and equipment, net 3,474,451 3,521,715
Investment in PT-SC 80,822 83,061
Other assets 91,467 84,344
---------- ----------
Total assets $4,192,634 $4,152,209
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 289,342 $ 261,866
Current portion of long-term debt
and short-term borrowings 127,804 80,852
Unearned customer receipts 55,564 101,428
Accrued income taxes 45,777 31,519
---------- ----------
Total current liabilities 518,487 475,665
Long-term debt, less current portion 2,073,669 1,843,770
Note payable to Rio Tinto 255,320 464,360
Accrued postretirement benefits
and other liabilities 124,073 125,980
Deferred income taxes 471,178 403,047
Minority interests 146,484 60,488
Redeemable preferred stock 500,007 500,007
Stockholders' equity:
Step-up convertible preferred stock 349,990 349,990
Class A common stock, par value $0.10,
97,071,944 shares issued and outstanding 9,707 9,707
Class B common stock, par value $0.10,
121,453,497 shares and 121,404,858
shares issued and outstanding, respectively 12,145 12,140
Capital in excess of par value of common stock 650,746 649,792
Retained earnings 190,614 107,679
Accumulated other comprehensive income 10,244 10,244
Common stock held in treasury -
54,217,541 shares and 34,221,720
shares, at cost, respectively (1,120,030) (860,660)
---------- ----------
Total stockholders' equity 103,416 278,892
---------- ----------
Total liabilities and stockholders' equity $4,192,634 $4,152,209
========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of
these financial statements.
<PAGE> 32
FREEPORT-McMoRan COPPER & GOLD INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
CAPITAL RESOURCES AND FINANCIAL CONDITION
Assets. FCX's total assets increased by $40.4 million over 1997
primarily because of capital expenditures and an increase in accounts
receivable from customers because of higher sales volumes, partially
offset by depreciation on property, plant and equipment.
In March 1997, P.T. Nusamba Mineral Industri (NMI), a subsidiary
of P.T. Nusantara Ampera Bakti, acquired from a third party
approximately 51 percent of the capital stock of P.T. Indocopper
Investama Corporation (PT-II). FCX owns the remaining 49 percent of
PT-II, which is a 9.4 percent owner of PT-FI. NMI financed $254.0
million of the $315.0 million purchase price with a variable-rate
commercial loan maturing in March 2002. The purchase price was
negotiated based primarily on FCX's market value using its publicly
traded common stock price at the time of the transaction. FCX has
agreed that if NMI defaults on the loan, FCX will purchase the PT-II
stock or the lenders' interest in the commercial loan for the amount
then due by NMI under the loan. FCX also agreed to lend to NMI any
amounts to cover any shortfalls between the interest payments due on
the commercial loan and the dividends received by NMI from PT-II. At
December 31, 1998, $25.4 million was due in March 2002 from NMI
because of interest payment shortfalls and is included in other
assets. The amount of any future shortfalls will depend primarily on
the level of PT-FI's dividends to PT-II.
Infrastructure Asset Sales. In September 1998, PT-FI reacquired for
$30 million an aggregate one-third interest in certain infrastructure
asset joint ventures owned by P.T. ALatieF Nusakarya Corporation
(ALatieF), an Indonesian investor. The joint ventures had purchased
$270.0 million of infrastructure assets from PT-FI during the period
from December 1993 to March 1997 and PT-FI had sold its one-third
interest in the joint ventures in March 1997. PT-FI is now
consolidating the joint ventures because the financing arrangements
provide the joint venture partners with a guaranteed annual return on
their investment, and PT-FI's results reflect lower interest expense
and higher minority interest charges as a result (Note 6). In
December 1997, PT-FI sold the new power plant facilities associated
with the fourth concentrator mill expansion for $366.4 million to the
joint venture that owns the assets which already provide electricity
to PT-FI. The purchase price included $123.2 million for Rio Tinto's
share of the new power plant facilities. Asset sales to the power
joint venture totaled $581.4 million through 1997 including $458.2
million of PT-FI owned assets. PT-FI subsequently sold its 30 percent
interest in the joint venture to the other partners and is purchasing
power under infrastructure asset financing arrangements pursuant to a
power sales agreement (Note 6).
Liabilities and Stockholders' Equity. FCX's liabilities rose by
$215.9 million over 1997, primarily reflecting an increase in total
debt and minority interests. Increases in debt relate to the
expansions and the FCX stock purchase programs. Minority interests
were higher because PT-FI is now consolidating the AlatieF joint
ventures discussed above. The current portion of long-term debt
includes $46.3 million and accrued liabilities include $1.5 million of
accrued interest payable to Rio Tinto from PT-FI's share of December
1998 incremental cash flow. Deferred income taxes increased $68.1
million because of timing differences related to tax and book
depreciation of property, plant and equipment. Equity declined by
$175.5 million from 1997 primarily because an $82.9 million increase
in retained earnings was offset by $259.4 million of FCX common stock
purchases.
FCX believes that PT-FI's operations are being conducted pursuant
to applicable permits and are in compliance in all material respects
with applicable Indonesian environmental laws, rules and regulations.
The ultimate amount of reclamation and closure costs to be incurred
cannot currently be projected with precision. Ultimate reclamation
and closure costs may require as much as $100 million but are not
expected to exceed $150 million. These estimates are subject to
revision over time as more complete studies are performed and more
definitive plans are formulated. Some reclamation costs will be
incurred throughout the remaining life of the mine, while most closure
costs and the remaining reclamation costs will be incurred at the end
of the mine's life, which is currently estimated to exceed 30 years.
PT-FI had $9.2 million accrued on a unit-of-production basis at
December 31, 1998 for mine closure and reclamation costs, included in
other liabilities. In 1996, FCX began contributing to a cash fund
($0.9 million balance at December 31, 1998) designed to accumulate at
least $100 million by the end of its Indonesian mine's life. Proceeds
from this fund, including accrued interest, will be used to fund costs
incurred for mine closure and reclamation. An increasing emphasis on
environmental issues and future changes in regulations could require
FCX to incur additional costs that would be charged against future
operations. Estimates involving environmental matters are by their
nature imprecise and can be expected to be revised over time because
of changes in government regulations, operations, technology and
inflation. See FCX's Working Toward Sustainable Development report
beginning on page 6 for information about FCX's environmental
programs.
<PAGE> 33
<TABLE>
<CAPTION>
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Convertible Exchangeable Preferred Stock:
Balance at beginning of year $ - $ - $223,900
Conversions to Class A common stock - - (221,093)
Redemptions - - (2,807)
---------- -------- --------
Balance at end of year - - -
---------- -------- --------
Step-Up Convertible Preferred Stock:
Balance at beginning of year 349,990 349,990 350,000
Conversions to Class A common stock - - (10)
---------- -------- --------
Balance at end of year 349,990 349,990 349,990
---------- -------- --------
Class A common stock:
Balance at beginning of year 9,707 9,707 8,804
Conversions of preferred stock - - 903
---------- -------- --------
Balance at end of year 9,707 9,707 9,707
---------- -------- --------
Class B common stock:
Balance at beginning of year 12,140 12,098 11,862
Exercised stock options 5 42 236
---------- -------- --------
Balance at end of year 12,145 12,140 12,098
---------- -------- --------
Capital in excess of par value of common stock:
Balance at beginning of year 649,792 636,100 376,054
Conversions of preferred stock - - 220,073
Exercised stock options 954 13,692 39,973
---------- -------- --------
Balance at end of year 650,746 649,792 636,100
---------- -------- --------
Retained earnings:
Balance at beginning of year 107,679 77,479 78,565
Net income 153,848 245,108 226,249
Cash dividends on common stock (35,382) (178,341) (175,766)
Dividends on preferred stock (35,531) (36,567) (51,569)
---------- -------- --------
Balance at end of year 190,614 107,679 77,479
---------- -------- --------
Accumulated other comprehensive income 10,244 10,244 10,244
---------- -------- --------
Common stock held in treasury:
Balance at beginning of year (860,660) (420,239) (177,755)
Purchase of 19,995,821,
18,270,500 and 7,576,500 shares,
respectively (259,370) (439,827) (221,565)
Tender of 20,527 and 669,093
shares, respectively, to FCX to
exercise stock options - (594) (20,919)
---------- -------- --------
Balance at end of year (1,120,030) (860,660) (420,239)
---------- -------- --------
Total stockholders' equity $ 103,416 $278,892 $675,379
========== ======== ========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of
these financial statements.
<PAGE> 34
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The consolidated financial statements of
Freeport-McMoRan Copper & Gold Inc. (FCX) include its majority-owned
subsidiaries, P.T. Freeport Indonesia Company (PT-FI), including
certain joint ventures involving PT-FI (Note 6), and P.T. IRJA Eastern
Minerals Corporation (Eastern Mining), as well as its wholly owned
subsidiary, Atlantic Copper, S.A. (Atlantic). FCX's unincorporated
joint ventures with Rio Tinto plc (Rio Tinto) are reflected using the
proportionate consolidation method in accordance with standard
industry practice (Note 2). PT-FI's investment in P.T. Smelting Co.
(PT-SC) is accounted for under the equity method (Note 9) with PT-FI's
share of operating results recorded in operating income. All
significant intercompany transactions have been eliminated. Certain
prior year amounts have been reclassified to conform to the 1998
presentation.
Use of Estimates. The preparation of FCX's financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in these financial statements and accompanying notes. The
more significant areas requiring the use of management estimates
include the pricing of open concentrate sales, useful lives for
depreciation and amortization, allowances for obsolete inventory,
reclamation and environmental obligations, postretirement and other
employee benefits, valuation allowances for deferred tax assets,
future cash flow associated with assets and proved and probable
reserves. Actual results could differ from those estimates.
Cash and Cash Equivalents. Highly liquid investments purchased with a
maturity of three months or less are considered cash equivalents.
Accounts Receivable. Accounts receivable from customers include $20.8
million from PT-SC at December 31, 1998. Other accounts receivable
include refundable value-added taxes, net of the allowance for
uncollectible amounts, totaling $24.9 million at December 31, 1998 and
$18.9 million at December 31, 1997. The allowance for uncollectible
amounts totaled $5.5 million at December 31, 1998 and $3.8 million at
December 31, 1997.
Inventories. Inventories are stated at the lower of cost or market.
PT-FI uses the average cost method and Atlantic uses the first-in,
first-out (FIFO) cost method.
Property, Plant and Equipment. Property, plant and equipment are
carried at cost. Mineral exploration costs are expensed as incurred,
except in the year a property is deemed to contain a viable mineral
deposit, in which case they are capitalized. Development costs,
including interest incurred during the construction and development
period, are capitalized. Expenditures for replacements and
improvements are capitalized. Depreciation for mining and milling
life-of-mine assets is determined using the unit-of-production method
based on estimated recoverable copper reserves. Other assets are
depreciated on a straight-line basis over estimated useful lives of 15
to 20 years for buildings and 3 to 25 years for machinery and
equipment.
Income Taxes. FCX accounts for income taxes pursuant to Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes." Deferred income taxes are provided to reflect the
future tax consequences of differences between the tax bases of assets
and liabilities and their reported amounts in the financial
statements.
Reclamation and Mine Closure. Estimated reclamation and mine closure
costs for PT-FI's current mining operations in Indonesia are accrued
and charged to income over the estimated life of the mine by the unit-
of-production method based on estimated recoverable copper reserves.
Expenditures resulting from the remediation of conditions caused by
past operations, which do not contribute to future revenue generation,
are expensed.
Financial Contracts. At 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 market
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 December 31, 1998, FCX had redeemable preferred stock indexed
to commodities, open foreign currency forward contracts, open forward
copper purchase contracts, and interest rate swap contracts (Note 11).
Redeemable preferred stock indexed to commodities is treated as a
hedge of future production and is carried at its original issue value.
As redemption payments occur, differences between the carrying value
and the payment will be recorded as an adjustment to revenues.
<PAGE> 35
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 enters into futures
contracts to hedge its copper price risk whenever its physical
purchases and sales pricing periods do not match, and whenever
Atlantic extends the pricing terms on its copper sales. 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 variable-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 document, designate and assess the effectiveness of
transactions that receive hedge accounting treatment. SFAS 133 is
effective for fiscal years beginning after June 15, 1999 with earlier
application permitted. FCX has not determined when it will adopt SFAS
133; however, adoption is not expected to have a material impact on
its financial position.
Concentrate Sales. Revenues from PT-FI's concentrate sales are
recorded net of royalties, treatment costs and the impact of the price
protection program (Note 11). PT-FI's concentrate sales agreements,
including its sales to Atlantic and PT-SC, provide for provisional
billings based on world metals prices when shipped, primarily using
then-current prices on the London Metal Exchange (LME). Actual
settlement on the copper portion is generally based on the average LME
price for a specified future month (quotational period). Copper
revenues on provisionally priced open pounds are adjusted monthly
based on then-current prices. At December 31, 1998, FCX had
consolidated provisionally priced copper sales totaling 191.5 million
pounds recorded at an average price of $0.66 per pound. Approximately
84 percent of these open pounds are expected to be finally priced
during the first quarter of 1999 with the remaining pounds to be
priced during the second 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 1999 net income. Gold sales are priced
according to individual contract terms, generally the average London
Bullion Market Association price for the month of shipment.
PT-FI pays royalties under a Contract of Work (COW), with a 30-
year term and two 10-year extensions permitted, entered into in
December 1991 with the Government of Indonesia (GOI). 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 of $1.10 or more, of copper
net revenue. The related rate for gold and silver sales is 1.0
percent. The royalties totaled $18.7 million in 1998, $31.4 million in
1997 and $30.4 million in 1996.
In light of its substantially expanded production capabilities,
PT-FI is discussing with the GOI the payment of voluntary additional
royalties on metal from production above 200,000 metric tons of ore
per day (MTPD) in amounts for copper equal to the COW royalty and
for gold and silver equal to twice the COW royalties. Therefore,
including the payment of COW royalties, the total of royalties paid on
copper net revenues from production above 200,000 MTPD would be double
the amount of the COW royalty; and the total of royalties paid on gold
and silver sales from production above 200,000 MTPD would be triple
the amount of the COW royalties. The additional royalties would be
effective January 1, 1999. Because in large part mineral royalties
under GOI regulations are remitted to the provinces from which the
minerals are extracted, PT-FI offered the voluntary additional
royalties to provide additional support to the local governments and
people of Irian Jaya.
Foreign Currencies. Effective January 1, 1996, Atlantic changed its
functional currency from the Spanish peseta to the U.S. dollar. This
resulted from the significant changes in Atlantic's operations related
to its expansion and the sale of its mining operations in Spain.
Previously, Atlantic's assets and liabilities that were denominated in
pesetas were translated to U.S. dollars using the exchange rate in
effect at the balance sheet date, with translation adjustments
recorded as a component of stockholders' equity.
Transaction gains and losses associated with Atlantic's peseta-
denominated and PT-FI's rupiah-denominated monetary assets and
liabilities are included in net income. Excluding hedging amounts,
net Atlantic transaction gains (losses) totaled $(2.2) million in
1998, $16.6 million in 1997 and $10.3 million in 1996. Atlantic's
peseta-denominated net monetary liabilities totaled $79.1 million at
December 31, 1998 based on an exchange rate of 142.7 pesetas to one
U.S. dollar. PT-FI's rupiah-denominated net monetary assets totaled
$25.6 million at December 31, 1998 based on an exchange rate of 7,725
rupiah to one U.S. dollar. Excluding hedging amounts, net PT-FI
transaction gains (losses) related to these rupiah-denominated net
monetary assets totaled $0.9 million in 1998, $(6.3) million in 1997
and were not material in 1996.
<PAGE> 36
Comprehensive Income. In 1998, FCX adopted SFAS 130, "Reporting
Comprehensive Income," which establishes new rules for the reporting
and display of comprehensive income (net income plus other
comprehensive income, or all other changes in net assets from nonowner
sources) and its components. FCX has no items of other comprehensive
income for the years presented in the financial statements.
Accumulated other comprehensive income reported in the Statements of
Stockholders' Equity consists solely of the cumulative foreign
currency translation adjustment at Atlantic as of December 31, 1995,
for which there is no tax effect.
Earnings Per Share. 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 year.
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 year plus the net
effect of dilutive stock options. Dilutive stock options represented
one thousand shares in 1998, 1.3 million shares in 1997 and 1.8
million shares in 1996.
Options excluded from the computation of diluted net income per
share of common stock because their exercise prices were greater than
the average market price of the common stock during the year totaled
options for 10.5 million shares (average exercise price of $23 per
share) in 1998, options for 2.3 million shares (average exercise price
of $33 per share) in 1997 and options for 1.8 million shares (average
exercise price of $35 per share) in 1996. The FCX Step-Up 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 and accrued dividends totaled $21.0
million for each year presented.
NOTE 2. OWNERSHIP IN SUBSIDIARIES AND JOINT VENTURES WITH RIO TINTO
FCX's direct ownership in PT-FI totaled 81.3 percent at December 31,
1998 and 1997. FCX also owns 49 percent of P.T. Indocopper Investama
Corporation (PT-II), a 9.4 percent owner of PT-FI, bringing FCX's
total ownership in PT-FI to 85.9 percent at December 31, 1998 and
1997. At December 31, 1998, PT-FI's net assets totaled $678.9
million, including $475.3 million of retained earnings. FCX has
various intercompany loans to PT-FI totaling $832.5 million at
December 31, 1998.
Substantially all of PT-FI's assets are located in Indonesia.
Unfavorable economic conditions continue to affect Southeast Asia,
including Indonesia. Since early 1997, Indonesia's economy has
contracted, inflation increased dramatically and the Indonesian rupiah
severely weakened initially and then partly recovered. The economic
situation has also created political and social instability in
Indonesia. PT-FI's COW provides that the GOI will not nationalize or
expropriate PT-FI's mining operations.
In March 1997, PT Nusamba Mineral Industri (NMI), a subsidiary of
P.T. Nusantara Ampera Bakti, acquired from a third party approximately
51 percent of the capital stock of PT-II. NMI financed $254.0 million
of the $315.0 million purchase price with a variable-rate commercial
loan maturing in March 2002. The purchase price was negotiated based
primarily on FCX's market value using its publicly traded common stock
price at the time of the transaction. FCX has agreed that if NMI
defaults on the loan, FCX will purchase the PT-II stock or the
lenders' interest in the commercial loan for the amount then due by
NMI under the loan. FCX also agreed to lend to NMI any amounts to
cover any shortfalls between the interest payments due on the
commercial loan and the dividends received by NMI from PT-II. At
December 31, 1998, $25.4 million was due in March 2002 from NMI
because of interest payment shortfalls and is included in other
assets. The amount of any future shortfalls will depend primarily on
the level of PT-FI's dividends to PT-II.
FCX's direct ownership in Eastern Mining totaled 90 percent at
December 31, 1998 and 1997. PT-II owns the remaining 10 percent of
Eastern Mining, bringing FCX's total ownership in Eastern Mining to
94.9 percent at December 31, 1998 and 1997.
FCX owns 100 percent of the outstanding Atlantic stock. At
December 31, 1998, Atlantic's net assets totaled $52.3 million and FCX
had outstanding advances to Atlantic totaling $25.2 million. Atlantic
is not expected to pay dividends in the near future.
Joint Ventures With Rio Tinto. Rio Tinto owns 23.9 million shares of
FCX Class A common stock (approximately 15 percent of the December 31,
1998 outstanding common stock of FCX). In addition, FCX and Rio Tinto
established exploration and expansion joint ventures. Pursuant to the
exploration joint ventures, Rio Tinto has a 40 percent interest in
future development projects under PT-FI's COW and Eastern Mining's
COW, and may elect to participate in future exploration projects.
Under the arrangements, Rio Tinto funded $100 million in 1996 ($1.2
million remaining at December 31, 1998) for approved exploration costs
in the areas covered by the PT-FI and Eastern Mining COWs.
Substantially all exploration costs in the joint venture areas are now
being shared 60 percent by FCX and 40 percent by Rio Tinto.
<PAGE> 37
FCX and Rio Tinto completed the "fourth concentrator mill
expansion" of PT-FI's facilities in early 1998. Pursuant to the joint
venture agreement, Rio Tinto has a 40 percent interest in certain
assets and future production exceeding specified annual amounts of
copper, gold and silver through 2021. Rio Tinto provided a $450
million nonrecourse loan to PT-FI for PT-FI's share of the cost of the
expansion. FCX and Rio Tinto began sharing incremental cash flow
attributable to the expansion effective January 1, 1998 on the basis
of 60 percent to PT-FI and 40 percent to Rio Tinto. PT-FI is paying
its share of incremental cash flow to Rio Tinto until Rio Tinto
receives an amount equal to the funds loaned to PT-FI plus interest
based on Rio Tinto's cost of borrowing. Through December 31, 1998,
PT-FI's share of incremental cash flow totaled $236.4 million, of
which $188.6 million was paid to Rio Tinto in 1998 and $47.8 million
was paid in 1999. The incremental production from the expansion, as
well as production from PT-FI's existing operations, share
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 (Note 14).
NOTE 3. INVENTORIES
The components of product inventories follow (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 1997
- -----------------------------------------------------------
<S> <C> <C>
PT-FI: Concentrates - Average Cost $ 15,630 $ 16,118
Atlantic: Concentrates - FIFO 58,597 72,088
Work in process - FIFO 41,725 26,501
Finished goods - FIFO 2,488 6,087
-------- --------
Total product inventories $118,440 $120,794
======== ========
</TABLE>
The average cost method was used to determine the cost of
essentially all materials and supplies inventory at December 31, 1998
and 1997. Materials and supplies inventory is net of obsolescence
reserves totaling $24.6 million at December 31, 1998 and $29.5 million
at December 31, 1997.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT, NET
The components of net property, plant and equipment follow (in
thousands):
<TABLE>
<CAPTION>
December 31, 1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Exploration, development and other $ 975,218 $ 929,844
Buildings and infrastructure 1,103,753 717,518
Machinery and equipment 1,566,674 1,281,903
Mobile equipment 444,474 355,802
Infrastructure assets 619,631 930,399
Construction in progress 104,076 397,272
---------- ----------
Property, plant and equipment 4,813,826 4,612,738
Accumulated depreciation
and amortization (1,339,375) (1,091,023)
---------- ----------
Property, plant and equipment, net $3,474,451 $3,521,715
========== ==========
</TABLE>
Exploration, development and other include $124.8 million of
excess costs related to investments in consolidated subsidiaries which
are being amortized over the lives of the related assets. Property,
plant and equipment are net of grants from the Spanish government
totaling $52.8 million. The grants are contingent on Atlantic meeting
specified conditions through December 2001.
NOTE 5. REDEEMABLE PREFERRED STOCK
FCX has outstanding 6.0 million depositary shares representing 300,000
shares of its Gold-Denominated Preferred Stock totaling $232.6
million. Each depositary share has a cumulative quarterly cash
dividend equal to the value of 0.000875 ounce of gold and will be
redeemed in August 2003 for the cash value of 0.1 ounce of gold.
<PAGE> 38
FCX has outstanding 4.3 million depositary shares representing
215,279 shares of its Gold-Denominated Preferred Stock, Series II
totaling $167.4 million. Each depositary share has a cumulative
quarterly cash dividend equal to the value of 0.0008125 ounce of gold
and will be redeemed in February 2006 for the cash value of 0.1 ounce
of gold.
FCX has outstanding 4.8 million depositary shares representing
119,000 shares of its Silver-Denominated Preferred Stock totaling
$100.0 million. Each depositary share has a cumulative quarterly cash
dividend equal to the value of 0.04125 ounce of silver. Beginning in
August 1999, FCX will redeem the underlying Silver-Denominated
Preferred Stock in eight equal annual installments.
NOTE 6. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31, 1998 1997
- -------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
Notes payable:
FCX and PT-FI credit facilities, average
rate 7.4% in 1998 and 6.4% in 1997 $ 658,000 $ 250,000
Rio Tinto loan, including accrued
interest at December 31, 1997,
average rate 5.6% in 1998 and 5.8%
in 1997 (Note 2) 301,640 464,360
Atlantic facility, average rate
6.5% in 1998 and 7.2% in 1997 275,785 291,276
Equipment loan 42,000 49,000
ALatieF loan, average rate 6.6% in 1998 43,563 -
Other, primarily Atlantic borrowings 43,438 78,273
9 /% Senior Notes due 2001 120,000 120,000
7.50% Senior Notes due 2006 200,000 200,000
7.20% Senior Notes due 2026 250,000 250,000
Infrastructure asset financings 522,367 686,073
---------- ----------
2,456,793 2,388,982
Less current portion and short-term borrowings 127,804 80,852
---------- ----------
$2,328,989 $2,308,130
========== ==========
</TABLE>
Notes Payable. The FCX and PT-FI credit facilities provide total
availability of $1.0 billion. PT-FI has a $550 million facility
($234.0 million of additional borrowings available at December 31,
1998) and FCX and PT-FI have a separate $450 million facility ($108.0
million of additional borrowings available at December 31, 1998).
These credit facilities are also subject to a borrowing base,
redetermined annually during the second quarter by the banks, which
had $766.5 million available at December 31, 1998. These variable-rate
revolving facilities are available until December 2002, contain
provisions requiring minimum working capital requirements, specified
cash flow to interest coverage and restrictions on other borrowings.
PT-FI assigned its existing and future sales contracts and pledged its
rights under the COW and most of its assets as security for its
borrowings.
Atlantic has a variable-rate project loan, nonrecourse to FCX,
consisting of a term loan ($210.8 million) and a fully drawn working
capital revolver ($65.0 million) as of December 31, 1998 (the Atlantic
Facility). The term loan is being repaid in equal quarterly
installments through June 2005. The working capital facility matures
in June 2005. The Atlantic Facility requires certain hedging
arrangements, restricts other borrowings and specifies certain minimum
coverage ratios. Borrowings under the Atlantic Facility are secured
by 100 percent of Atlantic's capital stock, the smelter and refinery
assets, and certain receivables and inventory. In addition to the
Atlantic Facility, Atlantic has a $40 million working capital revolver
that is secured by certain shipments of copper concentrate, and has
access to additional lines of credit, which are generally unsecured,
with various financial institutions.
FCX has an equipment loan secured by certain PT-FI assets.
Interest accrues at 8.1 percent and principal payments total $7.0
million annually with a final payment of $21.0 million in December
2001.
Senior Notes. In 1996, FCX sold publicly its 7.50% Senior Notes Due
2006 (the 2006 Notes) for net proceeds of $197.5 million and its 7.20%
Senior Notes Due 2026 (the 2026 Notes) for net proceeds of $248.0
million. Interest is payable semiannually in May and November of each
year. The holder of each 2026 Note may elect early repayment in
November 2003. The Notes are redeemable at the option of FCX at the
greater of (a) their principal amount or (b) the remaining scheduled
payments of principal and interest discounted to the date of
redemption on a semiannual basis at the applicable treasury rate plus
30 basis points, together with, in either case, accrued interest to
the date of redemption.
<PAGE> 39
Infrastructure Asset Financings. In March 1997, PT-FI completed the
final $75.0 million sale of infrastructure assets to joint ventures
then owned one-third by PT-FI and two-thirds by P.T. ALatieF Nusakarya
Corporation (ALatieF), an Indonesian investor. The sales to the
ALatieF joint ventures totaled $270.0 million during the period from
December 1993 to March 1997. Funding for the purchases consisted of
$90.0 million in equity contributions by the joint venture partners, a
$60.0 million bank loan (the AlatieF loan) and the 9 /% Senior Notes
due 2001. PT-FI subsequently sold its one-third interest in the joint
ventures to ALatieF in March 1997. In September 1998, PT-FI
reacquired for $30 million an aggregate one-third interest in the
joint ventures and continues to lease the infrastructure assets under
infrastructure asset financing arrangements. PT-FI guarantees the
ALatieF loan associated with the purchases and is consolidating the
joint ventures because the financing arrangements provide the joint
venture partners with a guaranteed 15 percent after-tax minimum annual
return on their investment.
In December 1997, PT-FI sold the new power plant facilities
associated with the fourth concentrator mill expansion for $366.4
million to the joint venture that owns the assets which already
provide electricity to PT-FI. The purchase price included $123.2
million for Rio Tinto's share of the new power plant facilities.
Asset sales to the power joint venture totaled $581.4 million through
1997 including $458.2 million of PT-FI owned assets. PT-FI
subsequently sold its 30 percent interest in the joint venture to the
other partners and is purchasing power under infrastructure asset
financing arrangements. At December 31, 1998, the infrastructure
asset financing obligations pursuant to the power sales agreement
totaled $431.7 million.
In 1995, PT-FI sold certain of its port, marine, logistics and
construction equipment and facilities for $100.0 million to an
unrelated joint venture and sold $48.0 million of its aviation assets
to a joint venture, 25 percent owned by PT-FI. PT-FI guarantees
certain of the bank loans totaling $69.9 million at December 31, 1998
associated with these sales. PT-FI is leasing these assets under
infrastructure asset financing arrangements. At December 31, 1998,
the obligations under these infrastructure asset financings totaled
$88.7 million.
Maturities and Capitalized Interest. Maturities of debt instruments
and infrastructure asset financings based on the amounts and terms
outstanding at December 31, 1998 totaled $127.8 million in 1999,
$123.7 million in 2000, $227.3 million in 2001, $782.3 million in
2002, $314.4 million in 2003 and $881.3 million thereafter.
Capitalized interest totaled $19.6 million in 1998, $23.0 million in
1997 and $23.0 million in 1996.
NOTE 7. STOCKHOLDERS' EQUITY
Common Stock. FCX has 473.6 million authorized shares of capital
stock consisting of 423.6 million shares of common stock and 50.0
million shares of preferred stock. FCX has two classes of common
stock which differ only as to their voting rights for the directors of
FCX. Holders of Class B common stock elect 80 percent of the FCX
directors while holders of Class A common stock and preferred stock
elect 20 percent.
Preferred Stock. FCX has outstanding 14.0 million depositary shares
representing 700,000 shares of its Step-Up Convertible Preferred
Stock. Each depositary share has a cumulative $1.75 annual cash
dividend (payable quarterly) and a $25 liquidation preference, and is
convertible at the option of the holder into 0.835 shares of FCX Class
A common stock. Through August 1999, FCX may redeem these depositary
shares for 0.835 shares of FCX Class A common stock per depositary
share if the market price of FCX Class A common stock exceeds $37.43
per share for 20 trading days within any period of 30 consecutive
trading days. Thereafter, FCX may redeem these depositary shares at
$25 per share (payable in FCX Class A common stock, cash or a
combination of both, at FCX's option) plus accrued and unpaid
dividends.
In 1996, FCX called for redemption its depositary shares
representing Convertible Exchangeable Preferred Stock. Prior to the
redemption date, holders of 8.8 million depositary shares converted
their shares into 9.0 million FCX Class A common shares. FCX paid
$2.9 million in January 1997 to redeem the remaining 0.1 million
depositary shares.
Stock Options. In 1995, FCX's shareholders adopted the Adjusted Stock
Award Plan to provide for the issuance of certain stock awards to
employees, officers and directors of Freeport-McMoRan Inc. (FTX), the
former parent of FCX, in connection with FTX's distribution of FCX
shares. Under this plan, FCX made a one time grant of awards to
purchase up to 10.7 million Class B common shares, including stock
appreciation rights (SARs), at prices equivalent to the original FTX
price at date of grant as adjusted for the proportionate market value
of FCX shares at the time of the distribution. All options granted
under this plan expire 10 years from the original FTX date of grant.
FCX's shareholders adopted the 1995 Stock Option Plan (the 1995
Plan) to provide for the issuance of stock options and other stock-
based awards (including SARs) at no less than market value at the time
of grant. During 1998, FCX converted 1.3 million SARs to stock
options when FCX's stock price was below the SARs' exercise prices.
Under the 1995 Plan, FCX can grant options to
<PAGE> 40
eligible participants to
purchase up to 10 million Class B common shares. Options granted
under the 1995 Plan generally expire 10 years after the date of grant.
FCX's shareholders also adopted the 1995 Stock Option Plan for Non-
Employee Directors (the Director Plan) authorizing FCX to grant
options to purchase up to 2 million shares. Options granted under the
Director Plan are exercisable in 25 percent annual increments
beginning one year from the date of grant and expire 10 years after
the date of grant. For options granted under the Director Plan, FCX
will pay cash to the option holder equal to an amount based on the
maximum individual federal income tax rate in effect at the time of
exercise. Options for 3.1 million shares under the 1995 Plan and 1.5
million shares under the Director Plan were available for new grants
as of December 31, 1998. A summary of stock options outstanding,
including 0.1 million SARs, follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Number Option Number Option Number Option
of Options Price of Options Price of Options Price
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1 8,065,837 $23.84 7,990,083 $23.04 9,770,040 $18.59
Granted 3,691,200 17.77 856,900 29.18 1,909,200 34.71
Exercised (51,749) 14.74 (579,612) 18.47 (3,538,945) 17.07
Expired/Forfeited (274,706) 21.29 (201,534) 30.45 (150,212) 22.66
---------- --------- ---------
Balance at
December 31 11,430,582 21.98 8,065,837 23.84 7,990,083 23.04
========== ========= =========
</TABLE>
In March 1998, two FCX executive officers were granted stock
options under the 1995 Plan to purchase 2.6 million shares of FCX
stock at $19.03 per share. The options may be exercised at any time
through March 2006 and were granted in return for a five-year cap on
their cash incentive compensation. Summary information of stock
options outstanding at December 31, 1998, excluding SARs, follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Number Remaining Option Number Option
Range of Exercise Prices of Options Life Price of Options Price
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$14.63 to $21.27 8,710,853 5.2 years $18.73 7,687,358 $19.26
$22.63 to $32.81 1,226,244 7.7 years 29.56 472,069 29.39
$35.50 1,416,667 7.4 years 35.50 566,666 35.50
---------- ---------
11,353,764 8,726,093
========== =========
</TABLE>
FCX has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" and continues to apply APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for its stock-based compensation
plans. FCX recognized a $25.3 million gain in 1997 and charges
totaling $12.7 million in 1996 for the cost of SARs and grants under
the Director Plan, which have the same accounting treatment as SARs,
caused by the fluctuations in FCX's common stock price. Had
compensation cost for FCX's stock option grants, excluding SARs, been
determined based on the value at the grant dates for awards under
those plans pursuant to the requirements of SFAS 123, FCX's stock-
based compensation costs would have increased by $34.3 million ($16.7
million to net income or $0.10 per share) in 1998, $6.3 million ($3.4
million to net income or $0.02 per share) in 1997 and $2.4 million
($1.3 million to net income or $0.01 per share) in 1996.
For the pro forma computations, the values of the option grants
were calculated on the dates of grant using the Black-Scholes option-
pricing model. The weighted average fair value for stock option
grants, including the 1.3 million SARs converted to stock options in
1998, was $6.75 per option in 1998, $10.24 per option in 1997 and
$12.09 per option in 1996. The weighted average assumptions used
include a risk-free interest rate of 5.8 percent in 1998, 6.9 percent
in 1997 and 6.6 percent in 1996; expected volatility of 34 percent in
1998, 30 percent in 1997 and 26 percent in 1996; an annual dividend of
$0.20 per share in 1998 and $0.90 per share in 1997 and 1996; and
expected lives of 8 years in 1998 and 10 years in 1997 and 1996. The
pro forma effects on net income for 1998, 1997 and 1996 are not
representative of future years. No other discounts or restrictions
related to vesting or the likelihood of vesting of stock options were
applied.
<PAGE> 41
NOTE 8. INCOME TAXES
The components of FCX's deferred taxes follow (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Deferred tax asset:
Foreign tax credits $ 181,749 $ 137,784
U.S. alternative minimum
tax credits 55,583 49,946
Atlantic net operating
loss carryforwards 91,653 97,400
Deferred compensation 4,658 5,898
Intercompany profit elimination 14,850 8,141
Obsolescence reserve 4,282 8,095
Valuation allowance (328,985) (285,130)
--------- ---------
Total deferred tax asset 23,790 22,134
--------- ---------
Deferred tax liability:
Property, plant and equipment (463,312) (423,515)
Undistributed earnings in PT-FI (22,832) (6,219)
Other (8,824) 4,553
--------- ---------
Total deferred tax liability (494,968) (425,181)
--------- ---------
Net deferred tax liability $(471,178) $(403,047)
========= =========
</TABLE>
FCX has provided a valuation allowance equal to its tax credit
carryforwards ($237.3 million at December 31, 1998 and $187.7 million
at December 31, 1997) as these would only be used should FCX be
required to pay regular U.S. tax, which is considered unlikely for the
foreseeable future. Atlantic is subject to taxation in Spain and has
not generated significant taxable income in recent years. FCX has
provided a valuation allowance equal to the future tax benefits
resulting from $261.9 million of Atlantic net operating losses at
December 31, 1998 and $278.3 million of net operating losses at
December 31, 1997 which expire through the year 2007.
PT-FI's 1994 and 1997 Indonesian income tax returns are
currently under examination. In January 1998, PT-FI settled and paid
assessments from the Indonesian tax authorities for the years 1989-
1993 with no material adverse effect on the consolidated financial
condition or results of operations of FCX. The provision for income
taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------
<S> <C> <C> <C>
Current income taxes:
Indonesian $100,336 $159,713 $182,354
United States and other 8,065 9,885 10,620
-------- -------- --------
108,401 169,598 192,974
Deferred Indonesian taxes 62,165 61,717 54,194
-------- -------- --------
$170,566 $231,315 $247,168
======== ======== ========
</TABLE>
<PAGE> 42
Differences between income taxes computed at the contractual
Indonesian tax rate and income taxes recorded follow (dollars in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income taxes computed at the
contractual Indonesian
tax rate $126,499 35% $180,868 35% $182,681 35%
Indonesian withholding tax on:
Earnings/dividends 21,490 6 21,886 4 37,097 7
Interest 3,765 1 6,818 1 7,590 1
Increase (decrease)
attributable to:
Intercompany interest
expense (15,103) (4) (24,192) (5) (21,260) (4)
Parent company costs 26,504 7 24,926 5 11,498 2
Indonesian presidential
decree - - 9,643 2 - -
U.S. alternative
minimum tax 7,500 2 8,500 2 9,500 2
Atlantic net loss (income) (1,733) - (1,187) - 8,378 2
Other, net 1,644 - 4,053 1 11,684 2
-------- -- -------- -- -------- --
Provision for income taxes $170,566 47% $231,315 45% $247,168 47%
======== == ======== == ======== ==
</TABLE>
NOTE 9. TRANSACTIONS WITH AFFILIATES AND EMPLOYEE BENEFITS
Management Services Agreement. FM Services Company (FMS), owned 45
percent by FCX, provides certain administrative, financial and other
services on a cost-reimbursement basis under a management services
agreement. These costs, which include related overhead, totaled $40.3
million in 1998, $44.7 million in 1997 and $45.2 million in 1996.
Management believes these costs do not differ materially from the
costs that would have been incurred had the relevant personnel
providing these services been employed directly by FCX.
PT-SC. PT-SC, an Indonesian company, completed construction of its
200,000 metric tons of copper metal per year smelter/refinery in
Gresik, Indonesia during the third quarter of 1998. PT-FI, Mitsubishi
Materials Corporation (Mitsubishi Materials), Mitsubishi Corporation
(Mitsubishi) and Nippon Mining & Metals Co., Ltd. (Nippon) own 25
percent, 60.5 percent, 9.5 percent and 5 percent, respectively, of the
outstanding PT-SC stock. PT-FI is providing all of PT-SC's copper
concentrate requirements at market rates; however, for the first 15
years of operations the treatment and refining charges will not fall
below a specified minimum rate. PT-FI has also agreed to assign, if
necessary, its earnings in PT-SC to support a 13 percent cumulative
annual return to Mitsubishi Materials, Mitsubishi and Nippon for the
first 20 years of commercial operations.
Pension Plans and Other Benefits. FCX has a defined benefit pension
plan to cover substantially all U.S. and certain overseas employees.
In 1996, FCX changed the pension benefit formula to a cash balance
formula from the prior benefit calculation based on years of service
and final average pay. Under the amended plan, FCX credits each
participant's account annually with at least 4 percent of the
participant's qualifying compensation. Additionally, interest is
credited annually to each participant's account balance. FCX funds its
pension liability in accordance with Internal Revenue Service
guidelines. Additionally, for those employees in the qualified
defined benefit plan whose benefits are limited under federal income
tax laws, FCX sponsors an unfunded, nonqualified plan. FCX also
provides certain health care and life insurance benefits (Other
Benefits) for retired employees. FCX has the right to modify or
terminate these benefits.
<PAGE> 43
PT-FI has a defined benefit plan denominated in Indonesian rupiah
covering substantially all of its Indonesian national employees. PT-FI
funds the plan in accordance with Indonesian pension guidelines. The
pension obligation was valued at an exchange rate of 7,725 rupiah to
one U.S. dollar on December 31, 1998 and 7,450 rupiah to one U.S.
dollar on December 31, 1997. Information on the FCX and PT-FI plans
follows (dollars in thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
- -----------------------------------------------------------------------------
FCX Plan PT-FI Plan FCX
1998 1997 1998 1997 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Change in benefit
obligation:
Benefit obligation at
beginning of year $(13,652) $(12,292) $(7,208) $(17,975) $(1,043) $(1,135)
Service cost (1,089) (1,410) (704) (1,827) (42) (62)
Interest cost (926) (864) (728) (1,928) (50) (72)
Plan amendments - - (729) - 301 251
Curtailment gain - - 781 - - -
Special termination
benefit - - (5,873) - - -
Actuarial gains (losses)1,721 741 (287) (1,301) 63 (44)
Foreign exchange gain - - 42 15,502 - -
Benefits paid 324 173 6,641 321 8 19
-------- -------- ------- -------- ------- -------
Benefit obligation
at end of year (13,622) (13,652) (8,065) (7,208) (763) (1,043)
-------- -------- ------- -------- ------- -------
Change in plan assets:
Fair value of plan
assets at beginning
of year 7,660 6,639 2,030 1,695 - -
Actual return on
plan assets 1,045 1,194 594 479 - -
Employer contributions - - 6,720 3,984 8 19
Foreign exchange
gain (loss) - - 289 (3,807) - -
Benefits paid (324) (173) (6,641) (321) (8) (19)
-------- -------- ------- -------- ------- -------
Fair value of
plan assets at
end of year 8,381 7,660 2,992 2,030 - -
-------- -------- ------- -------- ------- -------
Funded status (5,241) (5,992) (5,073) (5,178) (763) (1,043)
Unrecognized net
actuarial (gain)loss (1,650) 328 - 306 (1,311) (1,342)
Unrecognized
transition (asset)
liability (344) (402) 2,228 2,642 - -
Unrecognized prior
service cost (780) (927) 710 - (473) (224)
-------- -------- ------- -------- ------- -------
Accrued benefit cost $ (8,015) $ (6,993) $(2,135) $ (2,230) $(2,547) $(2,609)
======== ======== ======= ======== ======= =======
Weighted-average assumptions (percent):
Discount rate 6.75 7.25 a 11.00 6.75 7.25
Expected return
on plan assets 9.00 9.50 a 12.00 - -
Rate of
compensation
increase 4.25 5.00 a 9.00 - -
</TABLE>
a. Given the economic uncertainty in Indonesia, PT-FI used annual
discount rates and expected return on plan assets of 35 percent in
1999 and 30 percent in 2000. For 2001 and thereafter, PT-FI used
an 11 percent discount rate and a 12 percent expected return on
plan assets. The annual rates of compensation increase used were
20 percent in 1999 and 2000, and 9 percent thereafter.
The initial health care cost trend rate used for the other
benefits was 8.5 percent for 1996, decreasing 0.5 percent per year
until reaching 5.0 percent. A one-percentage-point increase or
decrease in assumed health care cost trend rates would not have a
significant impact on total service or interest cost.
<PAGE> 44
The components of net periodic benefit cost for FCX's plans
follow (in thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $1,089 $1,410 $1,318 $ 42 $ 62 $ 70
Interest cost 926 864 1,019 50 72 87
Expected return
on plan assets (652) (560) (512) - - -
Amortization of
prior service cost (147) (147) (28) (52) (26) -
Amortization of net
actuarial loss (gain) (135) (89) 376 (93) (94) (77)
Amortization of
transition asset (58) (58) (58) - - -
------ ------ ------ ---- ---- ----
Net periodic
benefit cost $1,023 $1,420 $2,115 $(53) $ 14 $ 80
====== ====== ====== ==== ==== ====
</TABLE>
The components of net periodic benefit cost for PT-FI's plan
follow (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 704 $1,827 $1,732
Interest cost 728 1,928 1,787
Expected return on
plan assets (285) (412) (139)
Amortization of
transition liability 217 857 884
Amortization of net
actuarial losses 280 - -
Curtailment gain (781) - -
Special termination benefits 5,873 - -
------ ------ ------
Net periodic benefit cost $6,736 $4,200 $4,264
====== ====== ======
</TABLE>
During 1998, PT-FI offered special termination benefits to
certain employees as part of a restructuring program following the
completion of its latest expansion. The special termination benefits
included separation and service allowances based on years of service,
a lump sum pension payment and other cash incentives. PT-FI
recognized a curtailment gain in accordance with SFAS 88 because the
program significantly reduced the expected years of future service of
employees. The PT-FI plan was also amended in 1998 to reflect changes
in Indonesian laws eliminating the limits on pensionable pay.
Atlantic has an unfunded contractual obligation denominated in
Spanish pesetas to supplement amounts paid to retired employees. The
accrued liability was based on corresponding exchange rates of 142.7
pesetas to one U.S. dollar and 150.7 pesetas to one U.S. dollar at
December 31, 1998 and 1997, respectively. Pending Spanish legislation
will require Atlantic to begin funding this obligation in December
2000. The discount rate used was 8 percent at December 31, 1998 and
1997. The interest cost for this obligation was $6.8 million in 1996.
The actuarial valuation of this obligation was $96.4 million at
December 31, 1998 and $87.9 million at December 31, 1997, based on
discount rates of 5 percent and 6 percent, respectively. Other
information on the Atlantic plan follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $69,373 $80,372
Interest cost 6,658 6,809
Foreign exchange loss (gain) 3,429 (10,261)
Benefits paid (7,160) (7,547)
------- -------
Benefit obligation at end of year $72,300 $69,373
======= =======
</TABLE>
FCX has a savings plan under Section 401(k) of the Internal
Revenue Code that allows eligible employees to contribute up to 20
percent of their pre-tax compensation. FCX matches 100 percent of the
first 5 percent of the employees' contribution with such matching
amounts vesting after 5 years. The costs charged to operations for
FCX's plan totaled $0.8 million in 1998, $0.8 million in 1997 and $0.7
million in 1996. FCX has other employee benefit plans, certain of
which are related to FCX's performance, which costs are recognized
currently in general and administrative expense.
<PAGE> 45
NOTE 10. COMMITMENTS AND CONTINGENCIES
Environmental, Reclamation and Mine Closure. FCX has an environmental
policy committing it not only to compliance with federal, state and
local environmental statutes and regulations, but also to continuous
improvement of its environmental performance at every operational
site. FCX believes that its operations are being conducted pursuant
to applicable permits and are in compliance in all material respects
with applicable environmental laws, rules and regulations. FCX incurs
significant costs for environmental programs and projects.
The ultimate amount of reclamation and closure costs to be incurred
at PT-FI's operations cannot currently be projected with precision.
Ultimate reclamation and closure costs may require as much as $100
million but are not expected to exceed $150 million. These estimates
are subject to revision over time as more complete studies are
performed and more definitive plans are formulated. Some reclamation
costs will be incurred throughout the remaining life of the mine,
while most closure costs and the remaining reclamation costs will be
incurred at the end of the mine's life, which is currently estimated
to exceed 30 years. PT-FI had $9.2 million accrued on a unit-of-
production basis at December 31, 1998 for mine closure and reclamation
costs, included in other liabilities. In 1996, PT-FI began
contributing to a cash fund ($0.9 million balance at December 31,
1998) designed to accumulate at least $100 million by the end of its
Indonesian mine's life. Proceeds from this fund, including accrued
interest, will be used to fund costs incurred for mine closure and
reclamation. An increasing emphasis on environmental issues and
future changes in regulations could require FCX to incur additional
costs that would be charged against future operations. Estimates
involving environmental matters are by their nature imprecise and can
be expected to be revised over time because of changes in government
regulations, operations, technology and inflation.
Social and Economic Development Programs. FCX has a social and human
rights policy to ensure that its operations are conducted in a manner
respecting basic human rights, the laws and regulations of the host
country, and the culture of the people who are indigenous to the areas
in which FCX operates. In 1996, PT-FI established the Freeport Fund
for Irian Jaya Development (FFIJD), through which PT-FI has made
available funding and expertise to support the economic and social
development of the area. PT-FI has committed to provide one percent
of its annual revenue for ten years beginning in mid-1996 for the
development of the local people through the FFIJD. PT-FI charged
$13.5 million in 1998, $15.1 million in 1997 and $9.0 million in 1996
to production costs for this commitment.
Long-Term Contracts and Operating Leases. Atlantic has commitments
with parties other than PT-FI to purchase concentrate totaling 386,000
metric tons in 1999, 371,000 metric tons in 2000, 373,000 metric tons
in 2001, 340,000 metric tons in 2002, 220,000 metric tons in 2003 and
a total of 120,000 metric tons thereafter, at market prices.
FCX's minimum annual contractual charges under noncancelable
long-term contracts and operating leases which extend to 2002 total
$1.5 million in 1999, $1.4 million in 2000, $1.3 million in 2001 and
$0.2 million in 2002. Total rental expense under long-term contracts
and operating leases amounted to $1.9 million in 1998, $2.2 million in
1997 and $3.8 million in 1996.
PT-FI has a labor agreement covering its hourly-paid Indonesian
employees, the key provisions of which are renegotiated biannually.
The current labor agreement expires on September 30, 1999.
<PAGE> 46
NOTE 11. FINANCIAL INSTRUMENTS
Summarized below are financial instruments whose carrying amounts are
not equal to their fair value and foreign exchange contracts at
December 31, 1998 and 1997. Fair values are based on quoted market
prices and other available market information.
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ----------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Price protection program:
Open contracts in
liability position $ - $ (1,575)$ - $ (1,494)
Debt:
Long-term debt (Note 6) (2,456,793) (2,278,857) (2,388,982) (2,402,862)
Interest rate swaps - (1,749) - (1,210)
Foreign exchange contracts:
$U.S./Indonesian rupiah 7,800 7,800 - -
$U.S./Australian dollar (1,215) (1,215) - -
$U.S./Spanish peseta 2,005 2,005 1,148 471
Redeemable preferred
stock (Note 5) (500,007) (197,923) (500,007) (334,177)
</TABLE>
Price Protection Program. From time to time, PT-FI enters into
forward and option contracts to hedge the market risk associated with
fluctuations in the prices of commodities it sells. As of and during
the year ended December 31, 1998, PT-FI had no outstanding forward or
option contracts. FCX's revenues include net additions totaling $42.6
million in 1997 and $38.2 million in 1996 related to PT-FI's copper
price protection program. Revenues also include net additions totaling
$37.6 million in 1997 and $14.1 million in 1996 from gold forward
contracts.
At December 31, 1998, Atlantic's contracts to hedge its price
risk on concentrate inventory were not significant. Atlantic had
purchased forward 15.6 million pounds of copper at an average price of
$0.76 per pound to eliminate the price risk on trade receivables with
terms that allow certain of its customers to purchase specified
quantities of copper at a future date and at fixed prices.
Debt. PT-FI and Atlantic entered into interest rate swaps to manage
exposure to interest rate changes on a portion of their variable-rate
debt. PT-FI pays 8.3 percent on $14.3 million of financing at
December 31, 1998 through December 1999. Atlantic pays an average of
6.1 percent on $115.6 million of financing at December 31, 1998,
reducing annually through June 2000. From July 2000 through December
2000, Atlantic will pay 4.7 percent on $82.1 million of financing and
from January 2001 through March 2001, Atlantic will pay 5.3 percent on
$74.4 million of financing. Interest on comparable floating rate debt
averaged 5.7 percent in 1998, 5.7 percent in 1997 and 5.6 percent in
1996, resulting in additional interest costs of $1.1 million, $1.5
million and $2.2 million, respectively.
Atlantic is a party to letters of credit totaling $8.6 million at
December 31, 1998. Fair value of these letters of credit is not
material at December 31, 1998.
Foreign Exchange Contracts. During 1998, PT-FI implemented a currency
hedging program to reduce its exposure to changes in the U.S.
dollar/Indonesian rupiah and U.S. dollar/Australian dollar exchange
rates. As of December 31, 1998, PT-FI has foreign exchange currency
contracts through August 1999 totaling $6.2 million on 120.0 billion
Indonesian rupiah (an average exchange rate of 19,478 rupiah to 1 U.S.
dollar) and contracts through September 1999 totaling $49.8 million
on 79.2 million Australian dollars (an average exchange rate of 1.59
Australian dollars to 1 U.S. dollar).
Atlantic has a currency hedging program to reduce its exposure to
changes in the U.S. dollar and Spanish peseta exchange rate. As of
December 31, 1998, Atlantic has foreign exchange currency contracts
through January 2000 totaling $74.9 million on 10.8 billion Spanish
pesetas (an average exchange rate of 144.7 pesetas to 1 U.S. dollar).
<PAGE> 47
NOTE 12. BUSINESS SEGMENTS
FCX follows SFAS 131, "Disclosures About Segments of an Enterprise and
Related Information" which requires that companies disclose segment
data based on how management makes decisions about allocating
resources to segments and measuring their performance. 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-SC
in Gresik, Indonesia. The segment data presented below were prepared
on the same basis as the consolidated FCX financial statements.
<TABLE>
<CAPTION>
Mining Smelting
and and Eliminations FCX
Exploration Refining and Other Total
- ----------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
1998
Revenues $1,351,123a $753,957 $(347,948) $1,757,132
Production and delivery 461,244 676,518b (333,131) 804,631
Depreciation and
amortization 241,312 31,711 4,384 277,407
Exploration expense 11,542 - 1,491 13,033
General and
administrative expenses 70,361 10,337 7,082 87,780
---------- -------- --------- ----------
Operating income $ 566,664 $ 35,391 $ (27,774) $ 574,281
========== ======== ========= ==========
Capital expenditures $ 280,026 $ 11,131 $ 926 $ 292,083
========== ======== ========= ==========
Total assets $3,487,527 $722,767b $ (17,660) $4,192,634
========== ======== ========= ==========
1997
Revenues $1,505,295 $874,514 $(378,905) $2,000,904
Production and delivery 604,851 800,997b (397,244) 1,008,604
Depreciation and
amortization 178,289 31,693 3,873 213,855
Exploration expense 14,758 - 2,871 17,629
General and
administrative expenses 76,549 11,197 8,855 96,601
---------- -------- --------- ----------
Operating income $ 630,848 $ 30,627 $ 2,740 $ 664,215
========== ======== ========= ==========
Capital expenditures $ 529,731 $ 54,721 $ 10,035 $ 594,487
========== ======== ========= ==========
Total assets $3,406,539 $742,184b $ 3,486 $4,152,209
========== ======== ========= ==========
1996
Revenues $1,485,848 $778,120 $(358,932) $1,905,036
Production and delivery 575,781 731,651 (355,569) 951,863
Depreciation and
amortization 142,605 27,783 3,590 173,978
General and
administrative expenses 119,492 12,301 9,141 140,934
---------- -------- --------- ----------
Operating income $ 647,970 $ 6,385 $ (16,094) $ 638,261
========== ======== ========= ==========
Capital expenditures $ 398,986 $ 90,086 $ 3,166 $ 492,238
========== ======== ========= ==========
Total assets $3,168,837 $775,336b $ (78,639) $3,865,534
========== ======== ========= ==========
</TABLE>
a. Includes $25.6 million of PT-FI sales to PT-SC.
b. PT-FI recorded losses related to PT-SC totaling $4.9 million in
1998 and $1.5 million in 1997. Total assets include PT-FI's
equity investment in PT-SC totaling $80.8 million at December 31,
1998, $83.1 million at December 31, 1997 and $46.8 million at
December 31, 1996.
FCX markets its products worldwide primarily pursuant to the
terms of long-term contracts. As a percentage of consolidated
revenues, revenues under long-term contracts totaled 91 percent in
1998, 92 percent in 1997 and 94 percent in 1996. Customers with over
ten percent of revenues under long-term contracts in at least one of
the past three years include Japanese companies with 12 percent in
1998, 16 percent in 1997 and 17 percent in 1996, and a Swiss firm with
8 percent in 1998, 8 percent in 1997 and 10 percent in 1996. PT-FI's
contracts with the group of Japanese companies and the Swiss firm
extend through 2000 and 2003, respectively. There are several other
long-term agreements in place, each representing less than ten percent
of FCX consolidated sales. Certain terms of these long-term contracts
are negotiated annually.
<PAGE> 48
FCX revenues attributable to various countries based on the
location of the customer follow:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Japan $ 382,721 $ 470,373 $ 474,443
Spain 324,202 402,276 342,373
United States 250,922 131,042 116,770
Switzerland 269,355 297,821 353,776
Others 529,932 699,392 617,674
---------- ---------- ----------
Total $1,757,132 $2,000,904 $1,905,036
========== ========== ==========
</TABLE>
NOTE 13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Net Income Net Income
Applicable Per Share
Operating to Common --------------
Revenues Income Stock Basic Diluted
- ------------------------------------------------------------------------
(In Thousands, Except
Per Share Amounts)
<S> <C> <C> <C> <C> <C>
1998
1st Quarter $ 396,132 $129,804 $ 26,592 $ .15 $ .15
2nd Quarter 433,858 134,938 25,802 .14 .14
3rd Quarter a 442,126 135,088 23,842 .14 .14
4th Quarter a 485,016 174,451 42,081 .26 .26
---------- -------- --------
$1,757,132 $574,281 $118,317 .67 .67
========== ======== ========
1997
1st Quarter $ 523,780 $197,608 $ 62,451 $ .31 $ .31
2nd Quarter 566,950 213,701 69,852 .35 .35
3rd Quarter 489,522 136,417 36,577 .19 .19
4th Quarter b 420,652 116,489 39,661 .21 .21
---------- -------- --------
$2,000,904 $664,215 $208,541 1.06 1.06
========== ======== ========
</TABLE>
a. Includes net charges to operating income totaling $4.5 million
($2.2 million to net income or $0.01 per share) in the third
quarter and $4.6 million ($2.2 million to net income or $0.01 per
share) in the fourth quarter associated with the sale of corporate
aircraft.
b. Includes a $25.3 million gain to operating income ($12.3 million to
net income or $0.06 per share) for the reversal of SAR and related
costs caused by the decline in FCX's common stock price.
<PAGE> 49
NOTE 14. SUPPLEMENTARY MINERAL RESERVE INFORMATION (UNAUDITED)
Total estimated proved and probable mineral reserves at the Grasberg
and other Block A ore bodies in Indonesia follow:
<TABLE>
<CAPTION>
Average Ore Grade Per Ton Recoverable Reserves
- ----------------------------------------------------------------------------
Year- Ore Copper Gold Silver Copper Gold Silver
End
- ----------------------------------------------------------------------------
(Metric Tons) (%) (Grams)(Ounce)(Grams)(Ounce)(Billions (Millions
of Lbs.) of Ozs.)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1,125,640,000 1.30 1.42 .046 4.06 .131 28.0 39.6 80.8
1995 1,899,244,000 1.17 1.18 .038 3.78 .121 40.3 52.1 111.1
1996 2,008,285,000 1.19 1.18 .038 3.80 .122 43.2 55.3 118.7
1997 2,166,212,000 1.20 1.20 .039 3.95 .127 47.1 62.7 138.4
1998 2,475,478,000 1.13 1.05 .034 3.83 .123 51.3 64.2 153.1
By Deposit at December 31, 1998
Grasberg:
Open
pit 1,185,770,000 1.02 1.19 .038 2.99 .096 21.9 34.8 57.1
Under-
ground 691,094,000 1.08 0.77 .025 3.15 .101 14.0 13.6 36.3
Kucing
Liar 320,457,000 1.41 1.41 .045 5.30 .170 8.1 10.3 25.5
DOZ 181,195,000 1.15 0.83 .027 5.17 .166 4.0 3.9 15.9
Big
Gossan 37,349,000 2.69 1.02 .033 16.42 .528 1.8 0.9 9.9
DOM 30,892,000 1.67 0.42 .014 9.63 .310 0.9 0.3 4.7
IOZ 28,721,000 1.06 0.45 .014 7.63 .245 0.6 0.4 3.7
------------- ---- ---- ---- ----- ---- ---- ---- -----
Total 2,475,478,000 1.13 1.05 .034 3.83 .123 51.3 64.2 153.1
</TABLE>
Estimated recoverable reserves were assessed using a copper price
of $0.90 per pound and a gold price of $325 per ounce. Using prices
of $0.75 per pound of copper and $280 per ounce of gold would reduce
estimated recoverable reserves by approximately 9 percent for copper,
7 percent for gold and 9 percent for silver.
In PT-FI's Block A, Rio Tinto provided a $450 million nonrecourse
loan to PT-FI for PT-FI's share of cost of the fourth concentrator
mill expansion (Note 2). Incremental cash flow attributable to the
expansion is now being shared 60 percent PT-FI and 40 percent Rio
Tinto. PT-FI has assigned its interest in such incremental cash flow
to Rio Tinto until Rio Tinto has received an amount equal to the funds
lent to PT-FI plus interest based on Rio Tinto's cost of borrowing.
Incremental cash flow consists of amounts generated from production in
excess of specified annual amounts based on the December 31, 1994
reserves and mine plan. The incremental production from the expansion,
as well as production from PT-FI's existing operations, share
proportionately in operating and administrative costs. FCX receives
100 percent of cash flow from its existing production facilities as
specified by the contractual arrangements. PT-FI's estimated net share
of recoverable reserves follows:
<TABLE>
<CAPTION>
Year-End Copper Gold Silver
-----------------------------------------------
(Billions (Millions (Millions
Of Lbs.) Of Ozs.) Of Ozs.)
<S> <C> <C> <C>
1994 28.0 39.6 80.8
1995 34.6 46.0 96.7
1996 35.9 47.4 100.4
1997 37.8 51.3 111.3
1998 40.0 51.6 119.1
</TABLE>
<PAGE> 50
REPORT OF MANAGEMENT
Freeport-McMoRan Copper & Gold Inc. (the Company) is responsible
for the preparation of the financial statements and all other
information contained in this Annual Report. The financial statements
have been prepared in conformity with generally accepted accounting
principles and include amounts that are based on management's informed
judgments and estimates.
The Company maintains a system of internal accounting controls
designed to provide reasonable assurance at reasonable costs that
assets are safeguarded against loss or unauthorized use, that
transactions are executed in accordance with management's
authorization and that transactions are recorded and summarized
properly. The system is tested and evaluated on a regular basis by
the Company's internal auditors, PricewaterhouseCoopers LLP. In
accordance with generally accepted auditing standards, the Company's
independent public accountants, Arthur Andersen LLP, have developed an
overall understanding of our accounting and financial controls and
have conducted other tests as they consider necessary to support their
opinion on the financial statements.
The Board of Directors, through its Audit Committee composed
solely of non-employee directors, is responsible for overseeing the
integrity and reliability of the Company's accounting and financial
reporting practices and the effectiveness of its system of internal
controls. Arthur Andersen LLP and PricewaterhouseCoopers LLP meet
regularly with, and have access to, this committee, with and without
management present, to discuss the results of their audit work.
/s/James R. Moffett /s/Richard C. Adkerson /s/ Stephen M. Jones
James R. Moffett Richard C. Adkerson Stephen M. Jones
Chairman of the Board and President and Senior Vice President and
Chief Executive Officer Chief Operating Officer Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
FREEPORT-McMoRan COPPER & GOLD INC.:
We have audited the accompanying balance sheets of Freeport-
McMoRan Copper & Gold Inc. (the Company), a Delaware Corporation, as
of December 31, 1998 and 1997, and the related statements of income,
cash flow and stockholders' equity for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
the Company as of December 31, 1998 and 1997 and the results of its
operations and its cash flow for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
New Orleans, Louisiana,
January 19, 1999
<PAGE> 51
FCX Class A Common Shares. Our Class A common shares trade on the New York
Stock Exchange (NYSE) under the symbol "FCX.A." The FCX.A share price is
reported daily in the financial press under "FMCGA" in most listing of
NYSE securities. At year-end 1998, the number of holders of record of our
Class A common share was 8,373.
NYSE composite tape Class A common share price ranges during 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------
High Low High Low
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $19.375 $12.938 $33.500 $25.375
Second Quarter 20.313 14.063 30.375 25.875
Third Quarter 15.875 10.938 28.750 25.750
Fourth Quarter 14.000 9.188 28.875 14.625
</TABLE>
FCX Class B Common Shares. Our Class B common share began trading in July
1995 on the New York Stock Exchange (NYSE) under the symbol "FCX." The
FCX share price is reported daily in the financial press under "FMCG" in
most listings of NYSE securities. At year-end 1998, the number of holders
of record of our Class B common shares was 13,206.
NYSE composite tape Class B commons share price ranges during 1998 and
1997 were:
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------
High Low High Low
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $20.875 $13.063 $34.875 $27.500
Second Quarter 21.438 14.813 31.875 26.500
Third Quarter 16.625 11.250 30.750 27.188
Fourth Quarter 15.125 9.813 29.938 14.938
</TABLE>
Common Share Dividends. FCX Class A and Class B common share cash
dividends declared and paid for the quarterly periods of 1998 and 1997 were:
<TABLE>
<CAPTION>
1998
- ------------------------------------------------------------------
Amount Per Share Record Date Payment Date
- ------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $.05 Apr. 15, 1998 May 1, 1998
Second Quarter .05 Jul. 15, 1998 Aug. 1, 1998
Third Quarter .05 Oct. 15, 1998 Nov. 1, 1998
Fourth Quarter * n/a n/a
</TABLE>
*In December 1998, in response to low commodity market prices for copper
and gold, FCX's Board of Directors authorized elimination of the regular
quarterly cash dividend on common stocks as part of FCX's cash flow
enhancement efforts.
<TABLE>
<CAPTION>
1997
- ----------------------------------------------------------------
Amount Per Share Record Date Payment Date
- ----------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $.225 Apr. 15, 1997 May 1, 1997
Second Quarter .225 Jul. 15, 1997 Aug. 1, 1997
Third Quarter .225 Oct. 15, 1997 Nov. 1, 1997
Fourth Quarter .05 Jan. 16, 1998 Feb. 1, 1998
</TABLE>
Exhibit 21.1
List of Subsidiaries of
FREEPORT-McMoRan COPPER & GOLD INC.
Name Under Which
Entity Organized It Does Business
- ---------------------------------- -------------- ------------------
P.T. Freeport Indonesia Company Indonesia and Same
Delaware
P.T. IRJA Eastern Minerals Indonesia Same
Corporation
Atlantic Copper, S.A. Spain Same
FM Services Company Delaware Same
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our reports included herein or incorporated by reference
in this Form 10-K, into Freeport-McMoRan Copper & Gold Inc.'s previously
filed Registration Statements on Form S-3 (File Nos. 33-45787, 33-63376,
33-52503 and 333-02699) and on Form S-8 (File Nos. 33-63267, 33-63269 and
33-63271).
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
New Orleans, Louisiana,
March 19, 1999
Exhibit 23.2
CONSENT OF INDEPENDENT MINING CONSULTANTS, INC.
We hereby consent to the incorporation by reference of our reports
included herein or incorporated by reference in this Form 10-K, into
Freeport-McMoRan Copper & Gold Inc.'s previously filed Registration
Statements on Form S-3 (File Nos. 33-45787, 33-63376, 33-52503 and
333-02699) and on Form S-8 (File Nos. 33-63267, 33-63269, and 33-63271).
/s/ John M. Marek
John M. Marek P.E.
President
Tucson, Arizona
March 19, 1999
Exhibit 24.1
FREEPORT-McMoRan COPPER & GOLD INC.
SECRETARY'S CERTIFICATE
I, Michael C. Kilanowski, Jr., Secretary of Freeport-McMoRan Copper
& Gold Inc. (the "Corporation"), a Delaware corporation, do hereby certify
that the following resolution was duly adopted by the Board of Directors
of the Corporation at a meeting held on December 13, 1988, and that such
resolution has not been amended, modified or rescinded and is in full
force and effect:
RESOLVED, that any report, registration statement or other form
filed on behalf of this corporation pursuant to the Securities
Exchange Act of 1934, or any amendment to such report,
registration statement or other form, may be signed on behalf
of any director or officer of this corporation pursuant to a
power of attorney executed by such director or officer.
IN WITNESS WHEREOF, I have hereunto signed my name and affixed the
seal of the Company on this the 19th day of March, 1999.
(Seal)
/s/ Michael C. Kilanowski, Jr.
Michael C. Kilanowski, Jr.
Secretary
Exhibit 24.2
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT and
STEPHEN M. JONES, and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with
full power of substitution, to execute, deliver and file, for and on
behalf of him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended December 31,
1998, and any amendment or amendments thereto and any other document in
support thereof or supplemental thereto, and the undersigned hereby grants
to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever that said attorney or
attorneys may deem necessary or advisable to carry out fully the intent
of the foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/ Richard C. Adkerson
Richard C. Adkerson
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and
STEPHEN M. JONES, and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with
full power of substitution, to execute, deliver and file, for and on
behalf of him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended December 31,
1998, and any amendment or amendments thereto and any other document in
support thereof or supplemental thereto, and the undersigned hereby grants
to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever that said attorney or
attorneys may deem necessary or advisable to carry out fully the intent
of the foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/ Robert W. Bruce III
Robert W. Bruce III
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and
STEPHEN M. JONES, and each of them acting individually, his true and lawful
attorney-in-fact with power to act without the others and with full power of
substitution, to execute, deliver and file, for and on behalf of him, in
his name and in his capacity or capacities as aforesaid, an Annual Report
of the Company on Form 10-K for the year ended December 31, 1998, and any
amendment or amendments thereto and any other document in support thereof
or supplemental thereto, and the undersigned hereby grants to said
attorneys, and each of them, full power and authority to do and perform
each and every act and thing whatsoever that said attorney or attorneys
may deem necessary or advisable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/Leon A. Davis
Leon A. Davis
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and
STEPHEN M. JONES, and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with
full power of substitution, to execute, deliver and file, for and on behalf
of him, in his name and in his capacity or capacities as aforesaid, an
Annual Report of the Company on Form 10-K for the year ended December 31,
1998, and any amendment or amendments thereto and any other document in
support thereof or supplemental thereto, and the undersigned hereby grants
to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever that said attorney or
attorneys may deem necessary or advisable to carry out fully the intent of
the foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/Jonathan C. A. Leslie
Jonathan C.A. Leslie
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and
STEPHEN M. JONES, and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with full
power of substitution, to execute, deliver and file, for and on behalf of
him, in his name and in his capacity or capacities as aforesaid, an Annual
Report of the Company on Form 10-K for the year ended December 31, 1998,
and any amendment or amendments thereto and any other document in support
thereof or supplemental thereto, and the undersigned hereby grants to said
attorneys, and each of them, full power and authority to do and perform
each and every act and thing whatsoever that said attorney or attorneys
may deem necessary or advisable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/B.M. Rankin, Jr.
B.M. Rankin, Jr.
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and
STEPHEN M. JONES, and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with full
power of substitution, to execute, deliver and file, for and on behalf of
him, in his name and in his capacity or capacities as aforesaid, an Annual
Report of the Company on Form 10-K for the year ended December 31, 1998 and
any amendment or amendments thereto and any other document in support
thereof or supplemental thereto, and the undersigned hereby grants to said
attorneys, and each of them, full power and authority to do and perform
each and every act and thing whatsoever that said attorney or attorneys
may deem necessary or adviseable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/Robert A. Day
Robert A. Day
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and
STEPHEN M. JONES, and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with
full power of substitution, to execute, deliver and file, for and on
behalf of him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended December
31, 1998 and any amendment or amendments thereto and any other document
in support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do
and perform each and every act and thing whatsoever that said attorney or
attorneys may deem necessary or advisable to carry out fully the intent of
the foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/J. Bennett Johnston
J. Bennett Johnston
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and
STEPHEN M. JONES, and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with full
power of substitution, to execute, deliver and file, for and on behalf of
him, in his name and in his capacity or capacities as aforesaid, an Annual
Report of the Company on Form 10-K for the year ended December 31, 1998
and any amendment or amendments thereto and any other document in support
thereof or supplemental thereto, and the undersigned hereby grants to said
attorneys, and each of them, full power and authority to do and perform
each and every act and thing whatsoever that said attorney or attorneys
may deem necessary or advisable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/William B. Harrison, Jr.
William B. Harrison, Jr.
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and
STEPHEN M. JONES, and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with full
power of substitution, to execute, deliver and file, for and on behalf of
him, in his name and in his capacity or capacities as aforesaid, an Annual
Report of the Company on Form 10-K for the year ended December 31, 1998
and any amendment or amendments thereto and any other document in support
thereof or supplemental thereto, and the undersigned hereby grants to said
attorneys, and each of them, full power and authority to do and perform
each and every act and thing whatsoever that said attorney or attorneys
may deem necessary or advisable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/Henry A. Kissinger
Henry A. Kissinger
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and
STEPHEN M. JONES, and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with
full power of substitution, to execute, deliver and file, for and on
behalf of him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended December
31, 1998 and any amendment or amendments thereto and any other document in
support thereof or supplemental thereto, and the undersigned hereby grants
to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever that said attorney or
attorneys may deem necessary or advisable to carry out fully the intent of
the foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/Bobby Lee Lackey
Bobby Lee Lackey
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and
STEPHEN M. JONES, and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with
full power of substitution, to execute, deliver and file, for and on
behalf of him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended December
31, 1998, and any amendment or amendments thereto and any other document
in support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do
and perform each and every act and thing whatsoever that said attorney or
attorneys may deem necessary or advisable to carry out fully the intent of
the foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/Rene L. Latiolais
Rene L. Latiolais
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and
STEPHEN M. JONES, and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with
full power of substitution, to execute, deliver and file, for and on
behalf of him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended December
31, 1998, and any amendment or amendments thereto and any other document
in support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do
and perform each and every act and thing whatsoever that said attorney or
attorneys may deem necessary or advisable to carry out fully the intent of
the foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/Gabrielle K. McDonald
Gabrielle K. McDonald
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and
STEPHEN M. JONES, and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with
full power of substitution, to execute, deliver and file, for and on
behalf of him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended December
31, 1998, and any amendment or amendments thereto and any other document
in support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do
and perform each and every act and thing whatsoever that said attorney or
attorneys may deem necessary or advisable to carry out fully the intent of
the foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/George A. Mealey
George A. Mealey
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and
STEPHEN M. JONES, and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with
full power of substitution, to execute, deliver and file, for and on
behalf of him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended December
31, 1998, and any amendment or amendments thereto and any other document
in support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do
and perform each and every act and thing whatsoever that said attorney or
attorneys may deem necessary or advisable to carry out fully the intent of
the foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/George Putnam
George Putnam
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT and RICHARD C. ADKERSON,
and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with
full power of substitution, to execute, deliver and file, for and on
behalf of him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended December
31, 1998, and any amendment or amendments thereto and any other document
in support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do
and perform each and every act and thing whatsoever that said attorney or
attorneys may deem necessary or advisable to carry out fully the intent of
the foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/Stephen M. Jones
Stephen M. Jones
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint RICHARD C. ADKERSON and STEPHEN M. JONES,
and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with
full power of substitution, to execute, deliver and file, for and on
behalf of him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended December
31, 1998, and any amendment or amendments thereto and any other document
in support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do
and perform each and every act and thing whatsoever that said attorney or
attorneys may deem necessary or advisable to carry out fully the intent of
the foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/James R. Moffett
James R. Moffett
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and
STEPHEN M. JONES, and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with
full power of substitution, to execute, deliver and file, for and on
behalf of him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended December
31, 1998, and any amendment or amendments thereto and any other document
in support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do
and perform each and every act and thing whatsoever that said attorney or
attorneys may deem necessary or advisable to carry out fully the intent of
the foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/J. Taylor Wharton
J. Taylor Wharton
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Freeport-McMoRan
Copper & Gold Inc., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint JAMES R. MOFFETT, RICHARD C. ADKERSON and
STEPHEN M. JONES, and each of them acting individually, his true and
lawful attorney-in-fact with power to act without the others and with
full power of substitution, to execute, deliver and file, for and on
behalf of him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended December
31, 1998, and any amendment or amendments thereto and any other document
in support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do
and perform each and every act and thing whatsoever that said attorney or
attorneys may deem necessary or advisable to carry out fully the intent of
the foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1999.
/s/C. Donald Whitmire, Jr.
C. Donald Whitmire, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Freeport-McMoRan Copper & Gold Inc. financial statements at December 31, 1998
and for the 12 months then ended, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000831259
<NAME> FREEPORT-MCMORAN COPPER & GOLD INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,877
<SECURITIES> 0
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500,007
349,990
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<EPS-PRIMARY> .67
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</TABLE>
