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, 1999
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:
Name of each exchange
Title of each class on which registered
------------------- -----------------------
Class A Common Stock par value $0.10 per share New York Stock Exchange
Class B Common Stock par value $0.10 per share New York Stock Exchange
Depositary Shares representing 0.05 shares of
Step-Up Convertible Preferred Stock,
par value $0.10 per share New York Stock Exchange
Depositary Shares representing 0.05 shares of
Gold-Denominated Preferred Stock,
par value $0.10 per share New York Stock Exchange
Depositary Shares, Series II, representing
0.05 shares of Gold-Denominated Preferred
Stock, Series II, par value $0.10 per share New York Stock Exchange
Depositary Shares representing 0.021875 shares of
Silver-Denominated Preferred Stock,
par value $0.10 per share New York Stock Exchange
9-3/4% Senior Notes due 2001 of
P.T. ALatieF Freeport Finance
Company B.V., guaranteed by the registrant New York Stock Exchange
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. X
The aggregate market value of classes of common stock held
by non-affiliates of the registrant on March 13, 2000 was
approximately $1,689,000,000.
On March 13, 2000, there were issued and outstanding
62,300,723 shares of Class A Common Stock and 97,701,174 shares
of Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Annual Report for the year ended December
31, 1999 are incorporated by reference into Parts II and IV of
this report and portions of the Proxy Statement for our 2000
Annual Meeting to be held on May 4, 2000 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 13
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 15
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 15
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 16
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
We are one of the world's largest copper and gold companies
in terms of reserves and production. We believe we are the
lowest cost copper producer in the world, after taking into
account customary credits for related gold and silver production.
Our principal operating subsidiary is PT Freeport Indonesia
Company, a limited liability company organized under the laws of
the Republic of Indonesia and domesticated in Delaware. PT
Freeport Indonesia explores for, develops, mines and processes
ore containing copper, gold and silver. Our operations are
located in the remote rugged highlands of the Sudirman Mountain
Range in the province of Irian Jaya (recently proposed to be
renamed Papua), Indonesia, which is located on the western half
of the island of New Guinea. PT Freeport Indonesia markets its
concentrates containing copper, gold and silver worldwide. We
have an 85.86 percent ownership interest in this subsidiary and
the Government of Indonesia has a 9.36 percent interest. P.T.
Nusamba Mineral Industri (Nusamba), an Indonesian company, has
most of the remaining ownership interest in PT Freeport
Indonesia. See the discussion under "Cautionary Statements"
about our guarantee of certain Nusamba debt.
PT Freeport Indonesia's operations are conducted pursuant
to an agreement, called a Contract of Work, with the Government
of Indonesia. The Contract of Work allows us to conduct extensive
exploration, mining and production activities in a 24,700-acre
area that we call Block A. In 1988 we discovered our largest
mine, Grasberg, in Block A. Grasberg contains the largest single
gold reserve and one of the largest copper reserves of any mine
in the world. The Contract of Work also allows us to explore for
minerals in a 0.5 million-acre area that we call Block B. All of
our current reserves are located in Block A.
Another of our operating subsidiaries, P.T. Irja Eastern
Minerals, which we refer to as Eastern Minerals, holds an
additional Contract of Work in Irian Jaya (Papua) covering
approximately 1.25 million acres and is conducting exploration
activities under this Contract of Work. We have a 94.9 percent
ownership interest in Eastern Minerals.
In 1996, we established joint ventures with Rio Tinto plc,
an international mining company with headquarters in England.
One joint venture covers PT Freeport Indonesia's mining
operations in Block A. This joint venture gives Rio Tinto,
through 2021, a 40 percent interest in certain assets and in
production above specified levels from operations in Block A and,
after 2021, a 40 percent interest in all production in Block A.
Under our joint venture arrangements, Rio Tinto also has a 40
percent interest in future development and exploration projects
under PT Freeport Indonesia's Contract of Work and Eastern
Minerals' Contract of Work. In addition, Rio Tinto has the
option to participate in 40 percent of any of our other future
exploration projects in Irian Jaya (Papua).
Under another joint venture agreement through PT Nabire
Bakti Mining, we conduct exploration activities in an area
covering approximately 1.0 million acres in five parcels
contiguous to PT Freeport Indonesia's Block B and one of Eastern
Minerals' blocks. Rio Tinto has elected to participate in 40
percent of our interest and cost in the venture.
We also smelt and refine copper concentrates in Spain and
market the refined copper products, through our wholly owned
subsidiary, Atlantic Copper, S.A. In addition, PT Freeport
Indonesia has a 25 percent interest in P.T. Smelting, an
Indonesian company that operates a copper smelter and refinery in
Gresik, Indonesia.
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 Government
of Indonesia is of particular importance to us because all of our
mining operations are located in Indonesia. Our 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 Government of Indonesia in
1967. We work closely with the central, provincial and local
governments in development efforts in the area surrounding our
operations.
In May 1998, President Suharto, Indonesia's political
leader for more than 30 years, resigned in the wake of an
economic crisis in Indonesia and other parts of Southeast Asia
and in the face of growing social unrest. Vice President B.J.
Habibie succeeded Suharto. In June 1999, Indonesia held a new
parliamentary election on a generally peaceful basis as the first
step in the process of electing a new president. In October 1999,
in accordance with the Indonesian constitution, the country's
highest political body composed of the newly elected national
parliament along with additional provincial and other
representatives elected Abdurraham Wahid as president and
Megawati Sukarnoputri as vice president.
The selection of a new president in an election that was
widely regarded as free and fair was an important milestone in
restoring political and economic stability, but Indonesia
continues to face political and economic uncertainties, including
separatist movements and civil and religious strife in a number
of provinces. Religious and ethnic differences among people in
the outlying provinces has led to violence in some areas over the
past two years, most notably in the province of East Timor
following a pro-independence vote. Subsequent United Nations
peacekeeping efforts have restored order in East Timor. Pro-
independence movements in certain areas also have become more
prominent, especially in the province of Aceh, and to a lessor
extent in Irian Jaya (Papua). The area surrounding our mining
development is sparsely populated by local tribespeople and
former residents of more populous areas of Indonesia, some of
whom have resettled in Irian Jaya (Papua) under the Government of
Indonesia's transmigration program. A segment of the local
population is opposing Indonesian rule over Irian Jaya (Papua),
and several separatist groups have sought political independence
for the province. The degree of political and economic autonomy
that might be provided to individual provinces, including Irian
Jaya (Papua), is a current issue in Indonesian politics. In
Irian Jaya (Papua), there have been sporadic attacks on civilians
by separatists and sporadic but highly publicized conflicts
between separatists and the Indonesian military. We have a
board-approved policy statement on social and human rights, and
have comprehensive and extensive social, cultural and community
development programs, to which we have committed significant
financial and managerial resources. These policies and programs
are designed to address the impact of our operations on the local
villages and tribes and to provide assistance for the development
of the local people. While we believe these efforts should serve
to avoid damage to and disruptions of our mining operations, our
operations could be damaged or disrupted by social, economic and
political forces beyond our control.
Economic conditions in Indonesia improved during 1999,
reflecting international financial assistance, positive reactions
to political developments, movements to reform financial systems,
a stronger Indonesian currency and lower interest and inflation
rates. The economy is expected to generate positive economic
growth in 2000 following a large decline in 1998.
Contracts of Work
PT Freeport Indonesia and Eastern Minerals conduct their
current exploration operations and PT Freeport Indonesia conducts
its mining operations in Indonesia by virtue of their Contracts
of Work. Both Contracts of Work govern our rights and
obligations relating to taxes, exchange controls, royalties,
repatriation and other matters. Both Contracts of Work 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
Contracts of Work are subject to international arbitration.
PT Freeport Indonesia's Contract of Work covers both Block
A, which was first included in a 1967 Contract of Work that was
replaced by a new Contract of Work in 1991, and Block B, to which
we gained rights in 1991. The initial term of our Contract of
Work expires in December 2021 but we can extend it for two 10-
year periods under certain conditions. We originally had the
rights to explore 6.5 million acres in Block B, but pursuant to
the Contract of Work we have only retained the rights to 0.5
million acres in Block B, which we believe contain the most
promising exploration opportunities following extensive
geological assessment.
<PAGE> 2
Eastern Minerals signed its Contract of Work in August
1994. The Contract of Work originally covered approximately 2.5
million acres. The Eastern Minerals Contract of Work provides
for a four-to-seven year exploratory term and a 30-year term for
mining operations, which we can extend for two 10-year periods
under certain conditions. Like the PT Freeport Indonesia
contract, the Eastern Minerals Contract of Work requires us to
relinquish our right to 25 percent of the original 2.5 million-
acre Contract of Work area at the end of each of three specified
periods. As of December 31, 1999, we had relinquished
approximately 1.25 million acres, and we must relinquish an
approximate 0.6 million additional acres by August 2001.
PT Freeport Indonesia pays a copper royalty under its
Contact of Work that varies from 1.5 percent of copper net
revenue at a copper price of $0.90 or lesss per pound to 3.5
percent at a copper price of $1.10 or more per pound. The
Contract of Work royalty rate for gold and silver sales is 1.0
percent. Because a large part of the mineral royalties under
Government of Indonesia regulations are due to the provinces from
which the minerals are extracted, in connection with our "fourth
concentrator mill expansion," PT Freeport Indonesia agreed to pay
the Government of Indonesia voluntary additional royalties to
provide further support to the local governments and the people
of Irian Jaya (Papua). The additional royalties are paid on
metal from production above 200,000 metric tons of ore per day.
The additional royalty for copper equals the Contract of Work
royalty rate and for gold and silver equals twice the Contract of
Work royalty rates. Therefore, our royalty rate on copper net
revenues from production above 200,000 metric tons of ore per day
is double the Contract of Work royalty rate, and our royalty
rates on gold and silver sales from production above 200,000
metric tons of ore per day are triple the Contract of Work
royalty rates.
The additional royalties became effective January 1, 1999.
The combined royalties totaled $23.0 million in 1999, $16.2
million in 1998 and $31.4 million in 1997.
Ore Reserves
All of our proved and probable reserves lie within Block A.
Our joint venture with Rio Tinto gives them a 40 percent
interest in production above specified levels from operations in
Block A and, after 2021, a 40 percent interest in all production
from Block A. Net of Rio Tinto's share, PT Freeport Indonesia's
share of proved and probable recoverable copper, gold and silver
reserves was 38.7 billion pounds of copper, 49.5 million ounces
of gold and 115.3 million ounces of silver as of December 31,
1999. We estimated recoverable reserves 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 largest copper reserves of any mine in
the world. Aggregate Grasberg open pit and underground proved and
probable ore reserves as of December 31, 1999 are shown below
along with those of our other deposits.
<TABLE>
<CAPTION>
Average Ore Grade per Ton Recoverable Reserves
Metric tons --------------------- -----------------------------
of ore Copper Gold Silver Copper Gold Silver
----------- ------ ------- ------- --------- --------- ---------
(%) (Ounce) (Ounce) (Billions (Millions (Millions
of Lbs.) of Ozs.) of Ozs.)
<S> <C> <C> <C> <C> <C> <C> <C>
Grasberg 1,800,500,000 1.04 .033 .098 34.5 45.9 89.7
Kucing Liar 320,457,000 1.41 .045 .170 8.2 10.3 25.5
Deep Ore Zone 185,250,000 1.16 .027 .168 4.1 4.0 16.4
Big Gossan 37,349,000 2.69 .033 .528 1.8 0.9 9.9
DOM 30,892,000 1.67 .014 .310 0.9 0.3 4.7
Intermediate
Ore Zone 20,727,000 1.05 .013 .245 0.4 0.2 2.6
------------- ---- ---- ---- ---- ---- -----
Total 2,395,175,000 1.13 .034 .124 49.9 61.6 148.8
</TABLE>
Independent Mining Consultants, Inc., experts in mining,
geology and reserve determination, has verified our reserve
information as of December 31, 1998 and 1999, which is included
elsewhere in this report. See "Cautionary Statements."
<PAGE> 3
Mining Operations
Mines in Production. We currently have two mines in
operation: the Grasberg and the Intermediate Ore Zone. We began
open-pit mining of the Grasberg ore body in January 1990 and
increased mine output to 75.8 million metric tons of ore in 1999,
which provided 92 percent of our mill feed. The underground
Grasberg reserves will be mined once open-pit mining is completed
in approximately 2014. The Intermediate Ore Zone is an
underground block cave operation that began production in the
first half of 1994. Production is at the 3,475 meter elevation
level and totaled 6.5 million metric tons of ore in 1999.
Mines in Development. Four other significant ore bodies,
referred to as the Deep Ore Zone, the DOM, Big Gossan and Kucing
Liar are located in Block A. These ore bodies are at various
stages of development, and are included in our proved and
probable reserves. See "Cautionary Statements."
The Deep Ore Zone ore body lies vertically below the
Intermediate Ore Zone. We began production from the Deep Ore Zone
ore body in 1989 but we suspended production in 1991 in favor of
production from the Grasberg deposit. We anticipate restarting
Deep Ore Zone production in mid-2000 as the overlying
Intermediate Ore Zone reserve declines toward depletion. The
Deep Ore Zone will ramp up to a full production rate of 25,000
metric tons of ore per day by 2004.
The DOM ore body lies approximately 1,500 meters southeast
of the depleted Ertsberg open-pit deposit. We completed pre-
production development at the DOM including all maintenance,
warehouse and service facilities just as Grasberg began open-pit
production in 1990. We have deferred production at the DOM ore
body 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 open-pit deposit. We
began the initial underground development of the ore body in 1993
when we drove tunnels from the mill area into the ore zone at the
2,900 meter elevation level. We will use a variety of stoping
methods to mmiinne 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. Recent drilling to the west
indicates that we may be reaching the end of the mineralization
in that direction, but additional reserves are possible,
especially toward the Grasberg deposit. We are reviewing
development plans for Kucing Liar as we continue drilling to
define the ore body.
Exploration
We continue drilling in Block A to better define the ore
bodies continues at Kucing Liar (as discussed above), Grasberg
Underground and the Deep Ore Zone. Drilling from the Amole drift
is designed to delineate the Grasberg Underground deposit below
our current block cave reserves. The extent of the copper and
gold mineralization is decreasing in size at the lower
elevations. Drilling in 1999 and 2000 is designed 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 the Deep
Ore Zone continues to return positive results, indicating the
potential for reserve increases. Other targets yet to be
evaluated in Block A 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 the other Contract of
Work areas of Eastern Minerals and PT Nabire Bakti Mining
discussed below. Activities are primarily focused on prospects
that potentially could lead to the discovery of significant
copper and gold deposits. Presently, exploration including
drilling is ongoing at several sites. As a result of our joint
venture arrangements with Rio Tinto, they are paying for 40
percent of our exploration and drilling costs in Irian Jaya
(Papua).
In June 1998, we entered into an exploration joint venture
agreement to conduct exploration activities in PT Nabire Bakti
Mining's Contract of Work area covering approximately 1.0 million
acres in several blocks contiguous to PT Freeport Indonesia's
Block B and one of Eastern Minerals' blocks in Irian Jaya
(Papua). Rio Tinto is sharing in 40
<PAGE> 4
percent of our interest and
costs in this exploration joint venture. To earn up to a 62
percent interest in the Contract of Work, we and Rio Tinto must
spend a total of up to $21 million on exploration and other
activities in the joint venture areas by June 2003 ($11.6 million
of which had been incurred through December 31, 1999).
Exploration including drilling is ongoing on a number of
identified geological anomalies within this acreage including
Komopa where we have encountered copper and gold mineralization
which may or may not be commercially recoverable.
Milling and Production
The ore from our mines moves by a conveyor system to a
series of ore passes through which it drops to our milling and
concentrating 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 flotation 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 into
a concentrate. The concentrate leaves the mill complex as a
slurry, consisting of approximately 65 percent solids by weight,
and is pumped through three parallel 115 kilometer pipelines to
our coastal 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.
In early 1998, PT Freeport Indonesia completed construction
on the fourth concentrator mill expansion. Pursuant to the
expansion joint venture agreement, in addition to funding its 40
percent share of all expansion costs including the fourth
concentrator mill expansion, Rio Tinto provided a $450 million
nonrecourse loan to PT Freeport Indonesia for PT Freeport
Indonesia's share of the cost of the expansion. PT Freeport
Indonesia began sharing incremental cash flow attributable to the
expansion effective January 1, 1998 on the basis of 60 percent to
PT Freeport Indonesia and 40 percent to Rio Tinto. PT Freeport
Indonesia assigned its share of incremental cash flow to Rio
Tinto until PT Freeport Indonesia repays the amount loaned to it,
plus interest based on Rio Tinto's cost of borrowing. Through
December 31, 1999, PT Freeport Indonesia's share of incremental
cash flow totaled $471.8 million. PT Freeport Indonesia paid
$440.9 million to Rio Tinto in 1998 and 1999, and paid $30.9
million in 2000 through February. Operating, nonexpansion capital
and administrative costs are shared proportionately between
incremental revenues from production from the expansion and total
revenues from production from Block A, including production from
PT Freeport Indonesia's previously existing operations. PT
Freeport Indonesia will continue to receive 100 percent of the
cash flow from specified annual amounts of copper, gold and
silver production through 2021 and 60 percent of all remaining
cash flow.
Our production results for 1998 and 1999 follow:
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------- Percentage
1999 1998 Change
--------- -------- ----------
<S> <C> <C> <C>
Mill throughput (metric tons
of ore per day) 220,700 196,400 12%
Copper production, net to
PT Freeport Indonesia (000 pounds) 1,428,100 1,427,300 *
Gold production, net to
PT Freeport Indonesia (ounces) 2,379,100 2,227,700 7%
Average net cash production costs
per pound of copper $0.09 $0.11 (18)%
* Less than 1 percent.
</TABLE>
For more information regarding our operating and financial
results, see our Annual Report incorporated herein by reference
as part of "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 our mining operations in a remote area
requires that our operations be virtually self-sufficient. In
addition to the mining facilities described above, in the course
of the development of our project we have constructed ourselves
or participated with others in the construction of an airport, a
port, a 119 kilometer road, an aerial tramway, a hospital and
related medical facilities, and two town sites with housing,
schools and other facilities sufficient to support more than
17,000 persons.
<PAGE> 5
In 1996, we completed a significant infrastructure program,
which includes various residential, community and commercial
facilities. We designed the program to provide the
infrastructure needed for our operations, to enhance the living
conditions of our employees, and to develop and promote the
growth of local and other third party activities and enterprises
in Irian Jaya (Papua). We have developed the facilities through
joint ventures or direct ownership involving local Indonesian
interests and other investors.
In September 1998, PT Freeport Indonesia reacquired for $30
million an aggregate one-third interest in certain infrastructure
asset joint ventures owned by P.T. ALatieF Nusakarya Corporation,
an Indonesian investor. The joint ventures had purchased $270.0
million of infrastructure assets from PT Freeport Indonesia
during the period from December 1993 to March 1997 and PT
Freeport Indonesia had sold its one-third interest in the joint
ventures in March 1997. We are consolidating the joint ventures
for financial reporting purposes because the financing
arrangements provide the joint venture partners with a guaranteed
15 percent minimum annual return on their investment.
In December 1997, we sold the new power plant facilities
associated with the fourth concentrator mill expansion for $366.4
million to the joint venture that owns the power plants that
already provided electricity to us. 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 assets
we owned. We subsequently sold our 30 percent interest in the
joint venture to the other partners and we purchase power under
infrastructure asset financing arrangements pursuant to a power
sales agreement.
Marketing
PT Freeport Indonesia sells its copper concentrates, which
contain significant quantities of gold and silver, under United
States dollar-denominated sales agreements, mostly to companies
in Asia and Europe and to international trading companies. We
sell substantially all of our budgeted production of copper
concentrates under long-term contracts with the selling price
based on world metals prices (generally the London Metal Exchange
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 is generally
based on average prices for a specified future period. 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. We sell some copper
concentrates in the spot market. See "Cautionary Statements."
We have commitments, including commitments from Atlantic
Copper and PT Smelting, for essentially all of our estimated 2000
production at market prices. We expect our share of sales for
2000 to approximate 1.4 billion pounds of copper and 1.9 million
ounces of gold. Projected 2000 copper and gold sales reflect the
expectation of higher average mill throughput rates than in 1999,
offset by lower average ore grades and the impact of the
specified sharing arrangement with Rio Tinto which will result in
a smaller proportion of production being attributed to PT
Freeport Indonesia. See "Cautionary Statements."
PT Freeport Indonesia has a long-term contract through 2004
to provide Atlantic Copper with approximately 60 percent of its
copper concentrate requirements at market prices. PT Freeport
Indonesia is providing 100 percent of PT Smelting'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, currently $0.23 per
pound, which was the rate for 1999 and is expected to be the rate
for 2000. After PT Smelting's operations reach design capacity,
we anticipate that PT Freeport Indonesia will sell at least 50
percent of its annual concentrate production to Atlantic Copper
and PT Smelting.
Atlantic Copper, S.A.
Atlantic Copper's smelter has a design capacity of 290,000
metric tons of metal per year. During 1999, Atlantic Copper
treated 949,400 metric tons of concentrate and produced a record
293.5 metric tons of new copper
<PAGE> 6
anodes. Atlantic Copper purchased
approximately 63 percent of its 1999 concentrate requirements
from PT Freeport Indonesia at market prices.
In December 1999, we made a $40.0 million equity
contribution to Atlantic Copper and we plan to make at least an
additional $10.0 million equity contribution in 2000. The funds
are intended to strengthen Atlantic Copper's financial structure
during this period of extremely low treatment and refining charge
rates, and to allow them to continue with their growth and
development strategy.
P.T. Smelting
PT Smelting successfully concluded its "first-stage
completion" testing during the third quarter of 1999 and
continues on schedule to operate at a full design capacity of
200,000 metric tons of copper per year in the second half of
2000. PT Smelting operated at an average rate of approximately 94
percent of design capacity during the fourth quarter of 1999, but
production rates are expected to fluctuate in the first half of
2000 during which time PT Smelting plans to tie-in a third anode
furnace. In 1999, its first full year of operations, PT Smelting
treated 436,000 metric tons of concentrate and produced 126.7
metric tons of new copper anodes. PT Smelting is a joint venture
among PT Freeport Indonesia, Mitsubishi Materials Corporation,
Mitsubishi Corporation and Nippon Mining & Metals Co., Ltd.,
which own 25 percent, 60.5 percent, 9.5 percent and 5 percent,
respectively, of the outstanding PT Smelting stock. PT Freeport
Indonesia agreed to assign, if necessary, its earnings in PT
Smelting to support a 13 percent cumulative annual return to the
other owners for the first 20 years of operations.
Competition
We compete with other mining companies in the sale of our
mineral concentrates and the recruitment and retention of
qualified personnel. Some competing companies possess financial
resources equal to or greater than ours. We believe, however,
that we are the lowest cost copper producer in the world, taking
into account customary credits for related gold and silver
production, which we believe gives us a significant competitive
advantage.
Social Development
We have a social and human rights policy to ensure that we
operate in compliance with the laws in the areas of our
operations, and in a manner that respects basic human rights and
the culture of the people who are indigenous to the area. We
continue to incur significant costs on social and cultural
activities, primarily in Irian Jaya (Papua). These activities
include comprehensive job training programs, basic education
programs, several public health programs, including extensive
malaria control, 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 1996, PT Freeport Indonesia agreed
to commit at least one percent of its revenues for the following
10 years to support village-based, "bottom-up" health, education,
and economic and social development programs in the area of our
mining operations through the Freeport Fund for Irian Jaya
Development. This commitment replaced our community development
programs in which we spent a similar amount of money each year.
We contributed $14.4 million in 1999, $13.5 million in 1998 and
$15.1 million in 1997 to the Freeport Fund for Irian Jaya
Development.
In 1996, the international consulting firm of LABAT-
Anderson performed a comprehensive independent audit of our
social programs in Irian Jaya (Papua). In 1997, the LABAT-
Anderson team submitted its final report to the Government of
Indonesia and us, which noted that we 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 our
programs more effective, including restructuring our
participation in the Government of Indonesia'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 Freeport Fund for Irian
Jaya Development. The new umbrella structure is called the
Lembaga Pengembangan Masyarakat-Irian Jaya, or the People's
Development Foundation-Irian Jaya. The foundation's board of
directors is made up of the head of the local government,
currently a Kamoro, a leader of the Amungme tribespeople, a
leader of the Kamoro tribespeople, leaders of the three local
churches and a representative of PT Freeport Indonesia. The
board of directors makes grants from the Freeport Fund for Irian
Jaya Development and oversees implementation of local
developmental programs through an
<PAGE> 7
implementation board, which is headed by an Amungme leader and
is composed of representatives of all local indigenous groups.
The foundation's 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
area of our operations, with the greatest support going to the 29
villages defined by the Amungme and Kamoro as most affected. The
team that accomplished the restructuring took care to socialize
and communicate the results in all affected villages before
implementing any new programs or projects. The foundation's
first major project was the construction of a full-service
hospital in Timika. The hospital was constructed using funds
provided by the Freeport Fund for Irian Jaya Development and is
owned by the foundation, representing the people. The 75-bed
hospital opened in stages beginning in June 1999, and is
considered the premier medical facility in eastern Indonesia and
one of the finest in the country. Emergency cases are still
referred to PT Freeport Indonesia's Tembagapura hospital.
We believe that our social and economic development
programs are responsive to the issues raised by the local
villages and tribes and should help us to avoid disruptions of
mining operations. Nevertheless, social and political
instability in the area may adversely impact our mining
operations.
Environmental Matters
We have an environmental policy that commits us not only to
compliance with applicable federal, state and local environmental
statutes and regulations, but also to continuous improvement of
our environmental performance at every operational site. We
believe that we conduct our Indonesian operations pursuant to all
necessary permits and are in compliance in all material respects
with applicable Indonesian environmental laws, rules and
regulations. Mining operations on the scale of our operations in
Irian Jaya (Papua) 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. We
have an extensive, ongoing management system for the disposal of
tailings resulting from our milling operations. In 1997, we
completed an engineered levee system, as part of our Government
of Indonesia-approved tailings management plan, to minimize the
impact of the tailings on the environment through a controlled
deposition area that ultimately we will reclaim.
In 1995, we participated in a voluntary independent
environmental audit of our Irian Jaya (Papua) operations under a
program monitored by the Government of Indonesia. The
environmental audit report was completed and released in 1996 and
included 33 principal recommendations, all of which we have
implemented. The audit team identified the disposal of tailings
as the most critical environmental issue we face, requiring
significant study, engineering and monitoring over the life of
the mine. The audit concluded that our tailings management plan
represented the most suitable option for tailings disposal
considering the engineering and environmental challenges in Irian
Jaya (Papua). The audit also confirmed that the tailings from
our mining operations are non-toxic; that the mining operations
do not pose any significant risk to Irian Jaya's (Papua)
biodiversity; and that our operations are being conducted in
compliance with applicable Indonesian environmental laws, rules
and regulations in all material respects.
We have committed to independent external environmental
audits by qualified experts every three years, with the results
to be made public. The second such audit was completed in 1999.
The second audit reported that we continue to be in material
compliance with Indonesian environmental laws and regulations and
that we had fulfilled the recommendations in the 1996 audit
report. The 1999 external audit report made some additional
environmental management recommendations that will be
implemented. The report concluded that our environmental
management systems achieve the standard of practice for world-
class mines. The auditors also found our environmental
management systems to be exemplary and a showcase for the mining
industry. We also are continuing our annual internal audits,
through the life of our mining operations, so that our
environmental management and monitoring programs will remain
sound and our operations will remain in material compliance with
local laws.
In December 1997, the Minister of Environment gave us
environmental approval to expand our milling rate up to a maximum
of 300,000 metric tons of ore per day from our previously
approved rate of 160,000 metric tons of ore per day. In 1999 we
averaged 220,700 metric tons of ore per day.
<PAGE> 8
We cannot currently project with precision the ultimate
amount of reclamation and closure costs we will incur. Our best
estimate at this time is that ultimate reclamation and closure
costs may require as much as $100 million but are not expected to
exceed $150 million. However, these estimates are subject to
revision over time as we perform more complete studies and
formulate more definitive plans. We will incur some reclamation
costs throughout the life of the mine, while we will incur most
closure costs and the remaining reclamation costs at the end of
our mining activities, which is currently estimated to exceed 30
years. We had $14.1 million accrued on a unit-of-production basis
at December 31, 1999 for mine closure and reclamation costs,
included in other liabilities.
In 1996, we began contributing to a cash fund ($1.7 million
balance at December 31, 1999) designed to accumulate at least
$100 million by the end of our Indonesian mining activities. We
plan to use this fund, including accrued interest, to pay for
mine closure and reclamation costs. An increasing emphasis on
environmental issues and future changes in regulations could
require us to incur additional costs that would be charged
against future operations. Estimates involving environmental
matters are by their nature imprecise and changes in government
regulations, operations, technology and inflation could require
us to revise them over time.
We believe that Atlantic Copper's facilities and operations
are in compliance in all material respects with all applicable
Spanish environmental laws, rules and regulations. In 1997,
Atlantic Copper successfully completed an environmental
improvement project 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, we
decreased dust emissions as a result of installing new facilities
for handling ore concentrates and adding additional filtering
capacity.
The Indonesian and Spanish governments may periodically
revise their environmental laws and regulations or adopt new
ones, and we cannot predict the effects on our operations of new
or revised regulations. We have expended significant resources,
both financial and managerial, to comply with environmental
regulations and permitting and approval requirements, and we
anticipate that we will continue to do so in the future. There
can be no assurance that we will not incur additional significant
costs and liabilities to comply with such current and future
regulations or that such regulations will not have a material
effect on our operations. See "Cautionary Statements."
For additional information on our environmental and social
efforts, see our annual report incorporated herein by reference
as part of "Items 7. and 7A. Management's Discussion and Analysis
of Financial Condition and Results of Operations and Quantitative
and Qualitative Disclosures About Market Risk."
Employees and Relationship with FM Services Company
As of December 31, 1999, PT Freeport Indonesia had 6,357
employees (approximately 97 percent Indonesian). In addition, as
of December 31, 1999, PT Freeport Indonesia had 1,851 contract
workers, the vast majority of whom were Indonesian.
Approximately 55 percent of our Indonesian employees are members
of the All Indonesia Workers' Union, which operates under
Government of Indonesia supervision. During 1999, PT Freeport
Indonesia and the union agreed to a new labor agreement that
became effective June 1, 1999 and expires September 30, 2001. PT
Freeport Indonesia's relations with the workers' union have
generally been positive.
As of December 31, 1999, Atlantic Copper had 780 employees,
of which approximately 33 percent are covered by union contracts
which expired December 31, 1999. Atlantic Copper expects to
negotiate new contracts during 2000. Atlantic Copper experienced
no work stoppages in 1999 and relations with these unions have
also generally been good.
Since January 1, 1996, FM Services Company, a Delaware
corporation 45 percent owned by us, has furnished executive,
administrative, financial, accounting, legal, tax and similar
services to us. We reimburse FM Services at its cost, including
allocated overhead, for these services on a monthly basis. As of
December 31, 1999, FCX had 32 employees and FM Services had 189
employees. FM Services employees also provide services to two
other publicly traded companies.
<PAGE> 9
Cautionary Statements
This report contains forward-looking statements in which we
discuss factors we believe may affect our performance in the
future. Forward-looking statements are all statements other than
statements of historical facts, such as statements regarding
anticipated production volumes, sales volumes, ore grades,
commodity prices, development and capital expenditures,
environmental reclamation and closure costs, reserve estimates,
political, economic and social conditions in our areas of
operations, treatment charge rates, our financial position and
liquidity, payment of dividends, strategic growth initiatives,
the availability of financing, PT Smelting operating levels and
exploration efforts and results. We caution you that these
statements are not guarantees of future performance, and our
actual results may differ materially from those projected,
anticipated or assumed in the forward-looking statements.
Important factors that can cause our actual results to differ
materially from those anticipated in the forward-looking
statements include the following:
Our net income can vary significantly with fluctuations in the
market prices of copper and gold.
Our revenues are derived primarily from the sale of copper
concentrates, which also contain significant amounts of gold, and
from the sale of copper cathodes, copper wire rod and copper
wire. Most of our copper concentrates are sold under long-term
contracts, but the selling price is based on world metal prices
at or near the time of shipment and delivery. World metal prices
for copper and gold historically have fluctuated widely and are
affected by numerous factors beyond our control.
The volume and grade of the reserves we recover and our rates of
production may be more or less than anticipated.
Our reserve amounts are determined in accordance with
established mining industry practices and standards, but are
estimates only. Our mines may not conform to standard geological
expectations. Because ore bodies do not contain uniform grades
of minerals, our metal recovery rates will vary from time to
time, which will result in variations in the volumes of minerals
that we can sell from period to period. Some of our reserves may
become unprofitable to develop if there are unfavorable long-term
market price fluctuations in copper and gold, or if there are
significant increases in our operating and capital costs. In
addition, our exploration programs may not result in the
discovery of additional mineral deposits that we can mine
profitably.
Because our primary operating assets are located in the Republic
of Indonesia, our business can be adversely affected by
Indonesian political, economic and social events.
Maintaining a good working relationship with the Indonesian
government is important to us because all of our mining
operations are located in Indonesia and are conducted pursuant to
Contracts of Work with the Indonesian government. PT Freeport
Indonesia's and Eastern Minerals' Contracts of Work were entered
into under Indonesia's 1967 Foreign Capital Investment Law, which
provides guarantees of remittance rights and protection against
nationalization. These contracts also specifically provide that
the Indonesian government will not nationalize or expropriate PT
Freeport Indonesia's or Eastern Minerals' mining operations and
that disputes with the Indonesian government must be submitted to
international arbitration.
In May 1998, President Suharto, Indonesia's political
leader for more than 30 years, resigned in the wake of an
economic crisis in Indonesia and other parts of Southeast Asia
and in the face of growing social unrest. Vice President B.J.
Habibie succeeded Suharto. In June 1999 Indonesia held a new
parliamentary election on a generally peaceful basis as the first
step in the process of electing a new president. In October
1999, in accordance with the Indonesian constitution, the
country's highest political body composed of the newly elected
national parliament along with additional provincial and other
representatives elected Abdurrahman Wahid as the new president
and Megawati Sukarnoputri as vice president. A new cabinet was
also announced in October 1999. The selection of a new president
in an election that was widely regarded as free and fair was an
important milestone in restoring political and economic
stability.
Recently, certain government officials and others in
Indonesia have called into question the validity of contracts
entered into by the Government of Indonesia prior to October
1999, including PT Freeport Indonesia's
<PAGE> 10
Contract of Work signed
in December 1991. The president of Indonesia and several cabinet
members have publicly stated that the Government of Indonesia
will honor previously existing contracts and that they have no
intention of revoking or unilaterally amending such contracts,
specifically including PT Freeport Indonesia's Contract of Work.
Indonesian government officials have also raised questions
regarding PT Freeport Indonesia's compliance with Indonesian
environmental laws and regulations and the terms of the Contract
of Work. In order to address these questions, the Government of
Indonesia is forming a _fact-finding_ team to review PT Freeport
Indonesia's compliance with all aspects of its Contract of Work.
We support this initiative as a means for the Government of
Indonesia to verify PT Freeport Indonesia's compliance with its
Contract of Work, including its environmental requirements. We
believe that we are in material compliance with all provisions of
PT Freeport Indonesia's Contract of Work.
Despite the progress towards increased stability, Indonesia
continues to face political and economic uncertainties, including
separatist movements and civil and religious strife in a number
of provinces. In particular, social, economic and political
instability in the province of Irian Jaya (Papua), where our
primary operations are located, could have a material adverse
impact on our mining operations if it results in damage to our
property or interruption of our activities. For example, we
voluntarily suspended our exploration field activities for three
months, from May 15 through August 15, 1999, as a precaution
during the Indonesian national election period. In August 1998,
we suspended operations for three days at our Grasberg mine in
response to a wildcat work stoppage (not authorized by the
workers' union) by a group of workers, a majority of whom were
employees of our contractors. The workers, who voluntarily
returned to work, cited employment issues as the reasons for
their work stoppage. The actions of the workers were peaceful,
there was no personal injury or property damage, and our
concentrate shipments were not interrupted. In March 1996, local
tribespeople engaged in acts of vandalism that caused
approximately $3 million of damages to our property and caused us
to close the Grasberg mine and mill for three days as a
precautionary measure, although our concentrate shipments were
not interrupted.
A segment of the local population is opposing Indonesian
rule over Irian Jaya (Papua), and several separatist groups have
sought political independence for the province. The degree of
political and economic autonomy that might be provided to
individual provinces, including Irian Jaya (Papua), is a current
issue in Indonesian politics. In Irian Jaya (Papua), there have
been sporadic attacks on civilians by separatists and sporadic
but highly publicized conflicts between separatists and the
Indonesian military. We have a board-approved policy statement on
social and human rights, and have comprehensive and extensive
social, cultural and community development programs, to which we
have committed significant financial and managerial resources.
These policies and programs are designed to address the impact of
our operations on the local villages and tribes and to provide
assistance for the development of the local people. While we
believe these efforts should serve to avoid damage to and
disruptions of our mining operations, our operations could be
damaged or disrupted by social, economic and political forces
beyond our control.
In addition to the specific risks described above, we are
also subject to the usual risks associated with conducting
business in a foreign country. These risks include the risk of
war, revolution, civil unrest, expropriation, forced modification
of existing contracts, changes in the country's laws or policies,
including laws or policies relating to taxation, royalties,
imports, exports and currency, and the risk of having to submit
to the jurisdiction of a foreign court or having to enforce the
judgement of a foreign court or arbitration against a sovereign
nation within its own territory.
In addition to the usual risks encountered in the mining
industry, we face additional risks because our operations are
located in difficult terrain in a very remote area of the world.
Our mining operations are located in steeply mountainous
terrain in a very remote area in Indonesia. These conditions
have required us to overcome special engineering difficulties and
to develop extensive infrastructure facilities. In addition, the
area receives considerable rainfall, which has led to periodic
floods and mud slides. The mine site is also in an active
seismic area, and has experienced earth tremors from time to
time. In addition to these special risks, we are also subject to
the usual risks associated with the mining industry, such as the
risk of encountering unexpected geological conditions which may
result in cave-ins and flooding of mine areas. We have insurance
involving amounts and types of coverage we believe are
appropriate for our activities, but our insurance may not be
sufficient to cover an unexpected natural or operating disaster.
<PAGE> 11
Our mining operations create difficult and costly environmental
challenges, and future changes in environmental laws, or
unanticipated environmental impacts from our operations, could
require us to incur increased costs.
Mining operations on the scale of our operations in Irian
Jaya (Papua) involve significant environmental challenges. Our
primary challenge is to dispose of the large amount of crushed
and ground rock material, called tailings, that results from the
process by which we physically separate the copper, gold and
silver from the ore that we mine. Under our tailings management
plan, the river system near our mine transports the tailings to
the lowlands where deposits of the tailings and natural sediments
are controlled through a levee system for future revegetation and
reclamation. This plan has been approved by the Government of
Indonesia. Another of our major environmental challenges is
managing overburden, which is the rock that must be moved aside
in order to reach the ore in the mining process. Some overburden
in the presence of air, water and naturally occurring bacteria
can cause acid rock drainage, or acidic water containing
dissolved metals, which, if not properly managed, can have a
negative impact on the environment. Our overburden management
plan, which has been approved by the Government of Indonesia, is
designed to minimize these impacts, although we cannot assure
that it will do so.
Our environmental management programs, which include
independent external environmental audits, are designed to manage
and minimize the impact on the environment. We have expended
significant financial and managerial resources to comply with
Indonesian environmental regulations and permitting and approval
requirements, and anticipate that we will continue to do so in
the future. If there are changes in Indonesian environmental
laws, or unanticipated environmental impacts from our operations,
we could be required to incur significant additional costs.
We have guaranteed an obligation of an Indonesian entity, and
have lent funds to the entity, and the value of the entity's
assets may not be sufficient to cover the debts.
As discussed in our Securities and Exchange Commission
filings, in 1997 we guaranteed a $254 million loan from a
commercial bank to Nusamba. Nusamba borrowed the funds to
purchase stock in PT Indocopper Investama Corporation (PT
Indocopper Investama), a company whose only significant asset is
9.36 percent of PT Freeport Indonesia's stock, for $315 million.
Nusamba owns approximately 51 percent of PT Indocopper
Investama's stock and we own approximately 49 percent. The loan
is secured by a pledge of the PT Indocopper Investama stock owned
by Nusamba and is due in March 2002. We also agreed to lend
Nusamba any amounts necessary to cover shortfalls between the
interest payments on the loan and the dividends received by
Nusamba on the PT Indocopper Investama stock. At December 31,
1999, we had loaned Nusamba $43.7 million, due March 2002, for
this purpose.
The PT Indocopper Investama stock is the only significant
asset of Nusamba, and the estimated fair market value of the
stock is currently significantly below the $297.7 million
aggregate principal amount of the loans. Our estimate of the
fair market value of PT Indocopper Investama's stock is based on
the current market value of our common stock. If Nusamba does
not pay the loans when due, and we are obligated to pay the loan
to the commercial bank, we will seek to recover the PT Indocopper
Investama stock as provided by the financing documents, which are
governed by Indonesian law.
Movements in foreign currency exchange rates could have a
negative effect on our operating results.
All of our revenues are denominated in United States
dollars. However, some of our costs and some of our asset and
liability accounts are denominated in Indonesian rupiah,
Australian dollars or Spanish pesetas. Generally, our 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 1997, the
Indonesian rupiah exchange rate has been volatile. From time to
time we have in the past and may in the future implement currency
hedges intended to reduce our exposure to changes in foreign
currency exchange rates. Our hedging strategies may, however,
not be successful, and any of our unhedged foreign exchange
payment requirements will continue to be subject to market
fluctuations.
<PAGE> 12
Because we are primarily a holding company, our ability to pay
our debts and to pay dividends on our preferred and common stock
depends upon the ability of our subsidiaries to pay us dividends
and to advance us funds. In addition, our ability to participate
in any distribution of our subsidiaries' assets is generally
subject to the prior claims of the subsidiaries' creditors.
Because we conduct business primarily through our
subsidiaries, our ability to pay our debts and to pay dividends
on our preferred and common stock depends upon the earnings and
cash flow of our subsidiaries and their ability to pay us
dividends and to advance us funds. Contractual and legal
restrictions applicable to our subsidiaries could also limit our
ability to obtain cash from them. Our rights to participate in
any distribution of our subsidiaries' assets upon their
liquidation, reorganization or insolvency would generally be
subject to the prior claims of the subsidiaries' creditors,
including trade creditors and preferred stockholders, if any.
Item 3. Legal Proceedings.
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 environmental, human
rights and social/cultural violations in Indonesia 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 our writ application in which we sought a review
of the Fourth Circuit's earlier ruling. The plaintiff has
amended its complaint. We have additional legal defenses to the
action that we are pursuing. We will continue to defend this
action vigorously.
In addition to the foregoing proceedings, we are involved
from time to time in various legal proceedings of a character
normally incident to the ordinary course of our business. We
believe that potential liability in such proceedings would not
have a material adverse effect on our financial condition or
results of operations. We maintain liability insurance to cover
some, but not all, potential liabilities normally incident to the
ordinary course of our business as well as other insurance
coverage customary in our business, with coverage limits that we
deem prudent.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant.
Certain information as of March 1, 2000 about our executive
officers, including their position or office with FCX, PT
Freeport Indonesia and Atlantic Copper, is set forth in the
following table and accompanying text:
Name Age Position or Office
- ---- --- -------------------
Richard C. Adkerson 53 President and Chief Operating
Officer of FCX. Director and
Executive Vice President of PT
Freeport Indonesia. Chairman of
Atlantic Copper.
Michael J. Arnold 47 Senior Vice President of FCX.
Director and Executive Vice
President of PT Freeport Indonesia.
Stephen M. Jones 41 Senior Vice President, Chief
Financial Officer and Secretary of
FCX. Director and Executive Vice
President of PT Freeport Indonesia.
Director of Atlantic Copper.
W. Russell King 50 Senior Vice President of FCX.
Adrianto Machribie 58 President Director of PT Freeport
Indonesia.
<PAGE> 13
John A. Macken 48 Senior Vice President of FCX.
Executive Vice President of PT
Freeport Indonesia.
James R. Moffett 61 Director, Chairman of the
Board and Chief Executive Officer
of FCX. President Commissioner of
PT Freeport Indonesia.
Paul S. Murphy 56 Senior Vice President of FCX.
Commissioner of PT Freeport Indonesia.
Steven D. Van Nort 59 Senior Vice President of FCX.
Director and Executive Vice
President of PT Freeport Indonesia.
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 Freeport Indonesia,
Chairman of Atlantic Copper, and Co-Chairman of the Board,
President and Chief Executive Officer of McMoRan Exploration Co.
(McMoRan). From April 1994 to November 1998 he was Co-Chairman of
the Board and Chief Executive Officer of McMoRan Oil & Gas Co.
(McMoRan Oil & Gas), and from November 1997 to November 1998 he
was Vice Chairman of the Board of Freeport-McMoRan Sulphur Inc.
(Freeport Sulphur). 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 March 1992 to August 1998, as President
from August 1995 to May 1996 and as Chief Executive Officer from
August 1995 to May 1998. Mr. Adkerson served as Vice Chairman of
the Board of Freeport-McMoRan Inc. until December 1997 and as
Senior Vice President and Chief Financial Officer of Freeport-
McMoRan Inc. 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 Freeport Indonesia, and Senior Vice
President of McMoRan. 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 Freeport-
McMoRan Inc. from November 1996 until December 1997. From
October 1991 to November 1996, he was Vice President of Freeport-
McMoRan Inc., 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 and as Secretary
since February 2000. Mr. Jones has also served as Executive Vice
President and a director of PT Freeport Indonesia since December
1994.
W. Russell King has served as Senior Vice President of FCX since
July 1994. Mr. King served as Senior Vice President of Freeport-
McMoRan Inc. from November 1993 to December 1997.
Adrianto Machribie has served as President Director of PT
Freeport Indonesia since March 1996. From September 1992 to
March 1996, Mr. Machribie was a director and Executive Vice
President of PT Freeport Indonesia.
John A. Macken has served as Senior Vice President of FCX since
December 1997. He is also Executive Vice President of PT
Freeport Indonesia. 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 Freeport Indonesia and from
April 1993 to April 1995, he served as a Vice President of PT
Freeport Indonesia.
James R. Moffett has served as Chairman of the Board and Chief
Executive Officer of FCX since July 1995 and has served as
Chairman of the Board of FCX since May 1992. He is also
President Commissioner of PT Freeport Indonesia and Co-Chairman
of the Board of McMoRan. From November 1994 to November 1998 he
was Co-Chairman of the Board of McMoRan Oil & Gas and from
November 1997 to November 1998 he was Co-Chairman of the Board of
Freeport Sulphur. Mr. Moffett served as Chairman of the Board of
Freeport-McMoRan Inc. from September 1982 to December 1997.
<PAGE> 14
Paul S. Murphy has served as Senior Vice President of FCX since
March 1998. Mr. Murphy has also served as a Commissioner of PT
Freeport Indonesia since May 1998. Mr. Murphy served as a
director and Executive Vice President of PT Freeport Indonesia
from September 1992 to May 1998.
Steven D. Van Nort has served as Senior Vice President of FCX
since December 1997. Mr. Van Nort has served as director since
May 1997 and Executive Vice President of PT Freeport Indonesia
since June 1997. 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 Freeport Indonesia.
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 our 1999 Annual Report is
incorporated herein by reference. As of March 8, 2000, there
were 7,110 and 11,590 holders of record of our 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 pages 18 and 19 of our Annual
Report is incorporated herein by reference.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges 5.9x 4.5x 3.8x 2.5x 2.9x
Ratio of earnings to fixed charges
and preferred stock dividends 3.0x 2.6x 2.8x 1.9x 2.2x
</TABLE>
For the ratio of earnings to fixed charges 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. For the ratio of earnings to fixed
charges and preferred stock dividends calculation, we assumed
that our preferred stock dividend requirements were equal to the
pre-tax earnings that would be required to cover those dividend
requirements. We computed those pre-tax earnings using actual
tax rates for each year.
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 20 through 30, as well as the
"Working Toward Sustainable Development" report on pages 6
through 17, of our 1999 Annual Report, are incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data.
Our financial statements and the notes thereto appearing on
pages 31 through 51, the report thereon of Arthur Andersen LLP
appearing on page 51, and the report of management on page 30 of
our 1999 Annual Report are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not applicable.
<PAGE> 15
PART III
Items 10. Directors and Executive Officers of the Registrant.
The information set forth under the caption "Information
About Nominees and Directors" of our Proxy Statement submitted to
our stockholders in connection with our 2000 Annual Meeting to be
held on May 4, 2000 is incorporated herein by reference.
Items 11. Executive Compensation.
The information set forth under the captions "Director
Compensation" and "Executive Officer Compensation" of our Proxy
Statement submitted to our stockholders in connection with our
2000 Annual Meeting to be held on May 4, 2000 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 our Proxy Statement
submitted to our stockholders in connection with our 2000 Annual
Meeting to be held on May 4, 2000 is incorporated herein by
reference.
Items 13. Certain Relationships and Related Transactions.
The information set forth under the caption "Certain
Transactions" of our Proxy Statement submitted to our
stockholders in connection with our 2000 Annual Meeting to be
held on May 4, 2000 is incorporated herein by reference.
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, we did
not file any Current Reports on Form 8-K.
<PAGE> 16
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 17, 2000.
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 17, 2000.
Signatures
Chairman of the Board, Chief Executive
/s/James R. Moffet Officer and Director (Principal
------------------- Executive Officer)
James R. Moffett
* President and Chief Operating Officer
-------------------
Richard C. Adkerson
Senior Vice President, Chief Financial
Officer and Secretary (Principal Financial
* Officer)
----------------
Stephen M. Jones
Vice President and Controller-Financial
* Reporting (Principal Accounting Officer)
------------------
C. Donald Whitmire
* Director
-------------------
Robert W. Bruce III
* Director
-----------------
R. Leigh Clifford
* Director
-------------
Robert A. Day
* Director
--------------
Gerald J. Ford
<PAGE> S-1
* Director
--------------------
H. Devon Graham, Jr.
* Director
----------------------
Oscar Y. L. Groeneveld
* Director
-------------------
J. Bennett Johnston
* Director
------------------
Henry A. Kissinger
* Director
----------------
Bobby Lee Lackey
* Director
-----------------
Rene L. Latiolais
* Director
---------------------
Gabrielle K. McDonald
* Director
----------------
George A. Mealey
* Director
-----------------
B. M. Rankin, Jr.
* 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
Our financial statements and the notes appearing on pages 35
through 51, and the report of Arthur Andersen LLP appearing on
page 51 of our 1999 Annual Report to stockholders are
incorporated herein by reference.
The financial statements in schedule I listed below should
be read in conjunction with our financial statements in our 1999
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-3
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,
1999 and 1998 and for each of the three years in the period ended
December 31, 1999 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
18, 2000. 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 18, 2000
<PAGE> F-1
<TABLE>
<CAPTION>
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
December 31,
--------------------------
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 832 $ 802
Interest receivable 7,746 7,996
Due from affiliates 16,862 41,766
Notes receivable from PT Freeport Indonesia 779,991 832,492
Note receivable from Nusamba 43,702 25,438
Investment in PT Freeport Indonesia
and PT Indocopper Investama 824,513 610,234
Investment in Atlantic Copper 97,518 51,418
Other assets 41,616 43,118
---------- ----------
Total assets $1,812,780 $1,613,264
========== ==========
Liabilities and Stockholders' Equity:
Accounts payable and accrued liabilities $ 23,173 $ 17,300
Long-term debt 1,060,411 967,251
Other liabilities and deferred credits - 2,457
Deferred income taxes 44,809 22,833
Redeemable preferred stock 487,507 500,007
Stockholders' equity 196,880 103,416
---------- ----------
Total liabilities and
stockholders' equity $1,812,780 $1,613,264
========== ==========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Years Ended December 31,
-----------------------------
1999 1998 1997
--------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Income from investment in PT Freeport
Indonesia and PT Indocopper Investama,
net of PT Freeport Indonesia tax provision $237,630 $211,232 $218,752
Net income from investment in Atlantic Copper 4,066a 4,674 3,391
Intercompany charges and eliminations (27,505)a,b (7,700)b 53,117b
Exploration expenses (7,079) (8,958) (11,198)
General and administrative expenses (8,643) (7,082) (8,855)
Depreciation and amortization (4,468) (4,384) (3,873)
Interest expense, net (76,246) (66,141) (59,626)
Interest income on PT Freeport Indonesia
notes receivable:
Promissory notes 28,461 29,273 47,219
8.235% debenture - 8,101 11,723
Step-up debenture - - 3,083
Gold and silver production payment loans 17,568 19,212 20,451
Other income (expense), net (379) 1,326 878
Provision for income taxes (26,938) (25,705 (29,954)
-------- -------- --------
Net income 136,467 153,848 245,108
Preferred dividends (35,680) (35,531) (36,567)
-------- -------- --------
$100,787 $118,317 $208,541
======== ======== ========
</TABLE>
a. Includes $23.0 million for the forgiveness of an
intercompany receivable from Atlantic Copper.
b. Includes amounts for deferral of intercompany profit
totaling $(4.5) million in 1999, $(7.7) million in
1998 and $9.3 million in 1997. The 1997 amount
includes $43.8 million for intercompany charges related
to stock-based incentive compensation.
The footnotes to the consolidated financial statements of FCX
contained in FCX's 1999 Annual Report to stockholders
incorporated by reference herein are an integral part of
these statements.
<PAGE> F-2
<TABLE>
<CAPTION>
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOW
Years Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $136,467 $153,848 $245,108
Adjustments to reconcile net income
to net cash provided by
operating activities:
Income from investment in PT Freeport
Indonesia and PT Indocopper Investama (237,630) (211,232) (218,293)
Deferred income taxes 21,976 16,613 1,400
Net income from investment in
Atlantic Copper (4,066) (4,674) (3,391)
Elimination of intercompany profit 4,457 7,700 (9,271)
Dividends received from PT Freeport
Indonesia and PT Indocopper Investama 18,361 48,832 205,092
Depreciation and amortization 4,468 4,384 3,873
Decrease (increase) in interest
receivable and due from affiliates 25,936 50,933 (44,358)
Increase (decrease) in accounts
payable and accrued liabilities 2,320 (1,699) (1,898)
Other 776 3,208 7,536
-------- -------- --------
Net cash provided by (used in)
operating activities (26,935) 67,913 185,798
-------- -------- --------
Cash flow from investing activities:
Investment in Atlantic Copper (40,000) - -
Other (2,403) (9,583) (11,895)
-------- -------- --------
Net cash used in investing activities (42,403) (9,583) (11,895)
-------- -------- --------
Cash flow from financing activities:
Cash dividends paid:
Class A common stock - (14,157) (73,309)
Class B common stock - (21,225) (105,032)
Step-up convertible preferred stock (24,500) (24,500) (24,642)
Mandatory redeemable preferred stock (13,520) (14,657) (15,901)
Proceeds from debt 104,673 161,506 180,000
Repayment of debt (11,514) (19,504) (17,310)
Partial redemption of preferred stock (11,946) - -
Repayment from PT Freeport Indonesia 51,946 150,000 325,320
Loans to Nusamba (18,264) (17,824) (7,614)
Purchase of FCX common shares (7,921) (259,213) (438,388)
Other 414 545 4,232
-------- -------- --------
Net cash provided by (used in)
financing activities 69,368 (59,029) (172,644)
Net increase (decrease) in cash and cash
equivalents 30 (699) 1,259
Cash and cash equivalents at beginning
of year 802 1,501 242
-------- -------- --------
Cash and cash equivalents at end of year $ 832 $ 802 $ 1,501
======== ======== ========
Interest paid $ 76,804 $ 68,950 $ 59,798
======== ======== ========
Taxes paid $ 5,281 $ 8,629 $ 28,286
======== ======== ========
</TABLE>
The footnotes to the consolidated financial statements of FCX
contained in FCX's 1999 Annual Report to stockholders
incorporated by reference herein are an integral part of these
statements.
<PAGE> F-3
<TABLE>
<CAPTION>
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
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:
1999
- ----
Materials and supplies
reserves $24,633 $ 1,500 $ - $(7,382)a $ 18,751
Allowance for uncollectible
value-added taxes 5,491 - - - 5,491
1998
- ----
Materials and supplies
reserves 29,513 3,000 - (7,880)a 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)a 29,513
Allowance for uncollectible
value-added taxes 5,337 1,809 289 (3,610)b 3,825
Reclamation and mine
shutdown reserves:
1999
- ----
PT Freeport Indonesia $ 9,229 $ 4,856 $ - $ - $14,085
1998
- ----
PT Freeport Indonesia 5,466 3,763 - - 9,229
1997
- ----
PT Freeport Indonesia 500 4,966 - - 5,466
</TABLE>
a. Primarily represents write-offs of obsolete materials and
supplies inventories.
b. Represents write-offs of uncollectible amounts.
<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.
Incorporated by reference to Exhibit 3.2 to the Annual
Report on Form 10-K of FCX for the fiscal year ended
December 31, 1998 (the 1998 FCX Form 10-K).
4.1 Certificate of Designations of the Step-Up Convertible
Preferred Stock of FCX. Incorporated by reference to
Exhibit 4.2 to the FCX 1995 Second Quarter Form 10-Q.
4.2 Deposit Agreement dated as of July 1, 1993 among FCX,
ChaseMellon Shareholder Services, L.L.C. (ChaseMellon), as
Depositary, and holders of depositary receipts (Step-Up
Depositary Receipts) evidencing certain Depositary Shares,
each of which, in turn, represents 0.05 shares of Step-Up
Convertible Preferred Stock. Incorporated by reference to
Exhibit 4.5 to the Annual Report on Form 10-K of FCX for the
fiscal year ended December 31, 1993 (the FCX 1993 Form 10-
K).
4.3 Form of Step-Up Depositary Receipt. Incorporated by
reference to Exhibit 4.6 to the FCX 1993 Form 10-K.
4.4 Certificate off 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
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
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 Freeport Indonesia Credit Agreement)
among PT Freeport Indonesia, FCX, the several financial
institutions that are parties thereto, First Trust of New
York, National Association, as PT Freeport Indonesia
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 Freeport
Indonesia Credit Agreement among PT Freeport Indonesia, FCX,
the several financial institutions that are parties thereto,
First Trust of New York, National Association, as PT
Freeport Indonesia 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 Freeport
Indonesia Credit Agreement among PT Freeport Indonesia, FCX,
the several financial institutions that are parties thereto,
First Trust of New York, National Association, as PT
Freeport Indonesia 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 Freeport
Indonesia Credit Agreement among PT Freeport Indonesia, FCX,
the several financial institutions that are parties thereto,
First Trust of New York, National Association, as PT
Freeport Indonesia 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 Freeport
Indonesia Credit Agreement among PT Freeport Indonesia, FCX,
the several financial institutions that are parties thereto,
First Trust of New York, National Association, as PT
Freeport Indonesia 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.
<PAGE> E-2
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
4.18 $200 million Credit Agreement dated as of June 30, 1995 (the
CDF) among PT Freeport Indonesia, FCX, the several financial
institutions that are parties thereto, First Trust of New
York, National Association, as PT Freeport Indonesia
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
Freeport Indonesia, FCX, the several financial institutions
that are parties thereto, First Trust of New York, National
Association, as PT Freeport Indonesia 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.
4.20 Amendment dated as of October 9, 1996 to the CDF among PT
Freeport Indonesia, FCX, the several financial institutions
that are parties thereto, First Trust of New York, National
Association, as PTFreeport Indonesia 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
Freeport Indonesia, FCX, the several financial institutions
that are parties thereto, First Trust of New York, National
Association, as PT Freeport Indonesia 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
Freeport Indonesia, FCX, the several financial institutions
that are parties thereto, First Trust of New York, National
Association, as PT Freeport Indonesia 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 Freeport
Indonesia. 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 PT 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 Freeport Indonesia, 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.
<PAGE> E-3
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.4 Credit Agreement dated October 11, 1996 between PT Freeport
Indonesia 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 Freeport Indonesia 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 Freeport Indonesia. 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 Freeport Indonesia and P.T.
Puncakjaya Power. Incorporated by reference to Exhibit 10.9
to the FCX 1997 Form 10-K.
10.10Option, Mandatory Purchase and Right of First Refusal
Agreement dated as of December 19, 1997 among PT Freeport
Indonesia, 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 10.33)
10.11Annual Incentive Plan of FCX as amended effective
February 2, 1999. Incorporated by reference to Exhibit
10.11 to the 1998 FCX Form 10-K.
10.121995 Long-Term Performance Incentive Plan of FCX.
Incorporated by reference to Exhibit 10.9 to the FCX 1996
Form 10-K.
10.13FCX Performance Incentive Awards Program as amended
effective February 2, 1999. Incorporated by reference to
Exhibit 10.13 to the 1998 FCX Form 10-K.
10.14FCX President's Award Program. Incorporated by
reference to Exhibit 10.8 to the FCX 1995 Form 10-K.
10.15FCX Adjusted Stock Award Plan, as amended.
Incorporated by reference to Exhibit 10.15 to the 1997 FCX
Form 10-K.
10.16FCX 1995 Stock Option Plan. Incorporated by reference
to Exhibit 10.13 to the FCX 1996 Form 10-K.
10.17FCX 1995 Stock Option Plan for Non-Employee Directors,
as amended. Incorporated by reference to Exhibit 10.17 to
the FCX 1997 Form 10-K.
10.18FCX 1999 Stock Incentive Plan. Incorporated by reference to
Exhibit 10.18 to the Quarterly Report on Form 10-Q of FCX
for the quarter ended June 30, 1999.
10.19FCX 1999 Long-Term Performance Incentive Plan.
10.20Financial Counseling and Tax Return Preparation and
Certification Program of FCX. Incorporated by reference to
Exhibit 10.12 to the FCX 1995 Form 10-K.
<PAGE> E-4
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.21FM Services Company Performance Incentive Awards
Program as amended effective February 2, 1999. Incorporated
by reference to Exhibit 10.19 to the 1998 FCX Form 10-K.
10.22FM 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.
10.23Consulting 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.
10.24Letter 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.
10.25Letter 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.
10.26Agreement 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.
10.27Supplemental 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.
10.28Supplemental Agreement between FMS and B.M. Rankin Jr.
dated December 7, 1998. Incorporated by reference to Exhibit
10.26 to the 1998 FCX Form 10-K.
10.29Letter Agreement effective as of January 7, 1997
between Senator J. Bennett Johnston, Jr. and FMS.
Incorporated by reference to Exhibit 10.25 of the FCX 1996
Form 10-KK.
10.30Supplemental Letter Agreement dated November 30, 1999
between J. Bennett Johnston, Jr. and FMS.
10.31Letter Agreement dated January 25, 1999 between FMS and
Rene L. Latiolais. Incorporated by reference to Exhibit
10.30 to the 1998 FCX Form 10-K.
10.32Supplemental Letter Agreement dated August 4, 1999
between FMS and Rene L. Latiolais.
10.33Letter Agreement dated November 1, 1999 between FMS and
Gabrielle K. McDonald.
10.34Concentrate Purchase and Sales Agreement dated effective
December 11, 1996 between PT Freeport Indonesia and P T
Smelting.
12.1 FCX Computation of Ratio of Earnings to Fixed Charges.
13.1 Those portions of the 1999 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.
<PAGE> E-5
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
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 signed on behalf of certain officers and directors of
FCX.
27.1 FCX Financial Data Schedule.
<PAGE> E-6
Exhibit 10.19
1999 LONG-TERM PERFORMANCE INCENTIVE PLAN
OF FREEPORT-McMoRan COPPER & GOLD INC.
ARTICLE I
PURPOSE OF PLAN
SECTION 1.1. The purpose of the 1999 Long-Term
Performance Incentive Plan of Freeport-McMoRan Copper & Gold Inc.
(the "Plan") is to provide incentives for senior executives and
other service providers whose performance in fulfilling their
responsibilities 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.
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 any credit to or payment from the Performance Award
Account of 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 but not limited to the Participants, the Company
and its subsidiaries and their respective equity holders.
ARTICLE III
ELIGIBILITY FOR AND GRANT OF PERFORMANCE AWARDS
SECTION 3.1. Subject to the provisions of the Plan, the
Committee may from time to time select any of the following to be
granted Performance Awards under the Plan, and determine the number
of Performance Units covered by each such Performance Award: (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 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
employee of an entity with which the Company or a Subsidiary has
contracted to receive executive, management or legal services who
provides services to the Company or a Subsidiary through such
arrangement, (d) any consultant or adviser to the Company, a
Subsidiary or to an entity described in clause (c) hereof who
provides services to the Company or a Subsidiary through such
arrangement and (e) any person who has agreed in writing to become
a person described in clauses (a), (b), (c) or (d) within not more
than 30 days following the date of grant of such person's first
Performance Award under the Plan. Performance Awards may be
granted at different times to the same individual.
SECTION 3.2. Upon the grant of a Performance Award to a
Participant, the Company shall establish a Performance Award
Account for such Participant and shall credit to such Performance
Award Account the number of Performance Units covered by such
Performance Award.
SECTION 3.3. Subject to adjustment as provided in
Section 5.2 the number of Performance Units outstanding at any time
shall not exceed 4,000,000. Performance Units that shall have been
forfeited or with respect to which payment has been made pursuant
to Section 4.2 or deferred pursuant to Section 4.4 shall not
thereafter be deemed to be credited or outstanding for any purpose
of the Plan and may again be the subject of Performance Awards.
SECTION 3.4. (a) Notwithstanding the provisions of
Section 3.1, 3.2 and 3.3, all Performance Awards granted to Covered
Officers must be granted no later than 90 days following the
beginning of the calendar year. No Covered Officer may be granted
more than 250,000 Performance Units in any calendar year.
(b) All Performance 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).
ARTICLE IV
CREDITS TO AND PAYMENTS FROM PARTICIPANTS'
PERFORMANCE AWARD ACCOUNTS
SECTION 4.1. Subject to the provisions of the Plan, each
Performance Unit in any Performance Award Account of each
Participant at December 31 of any year shall be credited, as of
such December 31 of each year in the Performance Period for such
Performance Unit, with an amount equal to the Annual Earnings Per
Share (or Net Loss Per Share) for such year; provided that, if in
any year there shall be any outstanding Net Loss Carryforward
applicable to such Performance Unit, such Net Loss Carryforward
shall be applied to reduce any amount which would otherwise be
credited to or in respect of such Performance Unit pursuant to this
Section 4.1 in such year until such Net Loss Carryforward has been
fully so applied.
SECTION 4.2. (a) Subject to the provisions of the Plan,
amounts credited to a Participant's Performance Award Account in
respect of Performance Units shall be paid to such Participant as
soon as practicable on or after the Award Valuation Date with
respect to such Performance Units.
(b) Payments pursuant to Section 4.2(a) shall be in
cash.
(c) Notwithstanding any other provision of the Plan to
the contrary, no Covered Officer shall be entitled to any payment
with respect to any Performance Units unless the members of the
Committee referred to in Section 3.4(b) hereof shall have certified
the amount of the Annual Earnings Per Share (or Net Loss Per Share)
for each year or portion thereof in the Performance Period
applicable to such Performance Units.
SECTION 4.3. In addition to any amounts payable pursuant
to Section 4.2, the Committee may in its sole discretion determine
that there shall be payable to a former Participant, other than a
Participant who is at the time of any payment a Covered Officer, a
supplemental amount not exceeding the excess, if any, of (i) the
amount determined in accordance with Section 4.1 which would have
been payable to such former Participant if the Award Valuation Date
with respect to any Performance Units granted to such Participant
had been December 31 of the first, second or third calendar year
next following the year in which such Participant's Termination of
Employment occurred (the selection of such first, second or third
calendar year to be in the sole discretion of the Committee subject
only to the last sentence of this Section 4.3) over (ii) the amount
determined in accordance with said Section 4.1 as of December 31 of
the calendar year in which such Termination of Employment actually
occurred. Any such supplemental amount so payable shall be paid in
a lump sum as promptly as practicable on or after December 31 of
the calendar year so selected by the Committee or in one or more
installments ending not later than five years after such December
31, as the Committee may in its discretion direct. In no event
shall any payment under this Section 4.3 be made with respect to
any calendar year after the year in which such former Participant
reaches his normal retirement date under the Company's retirement
plan.
SECTION 4.4. (a) Prior to January 1 of any calendar
year in which it is anticipated that an Award Valuation Date with
respect to any Performance Units may occur, a Participant may
elect, in accordance with procedures established by the Committee,
to defer, as and to the extent hereinafter provided, the payment of
the amount, if any, which shall be paid pursuant to Section 4.2.
(b) All payments deferred pursuant to Section 4.4(a)
shall be paid in one or more periodic installments, not in excess
of ten, at such time or times after the applicable Award Valuation
Date, but not later than ten years after such Award Valuation Date,
as shall be specified in such Participant's election pursuant to
Section 4.4(a).
(c) In the case of payments deferred as provided in
Section 4.4(a), the unpaid amounts shall, commencing with the
applicable Award Valuation Date, 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 subsequent to such Participant's
election pursuant to Section 4.4(a) such Participant's Termination
of Employment occurs for any reason other than death, Disability,
retirement under the Company's retirement plan, or retirement with
the consent of the Company outside the Company's retirement plan,
the Committee may, in its sole discretion, pay to such Participant
in a lump sum the aggregate amount of any payments so deferred,
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 4.5. Anything contained in the Plan to the
contrary notwithstanding:
(a) The Committee may, in its sole discretion, suspend,
permanently or for a specified period of time or until further
determination by the Committee, the making of any part or all of
the credits which would otherwise have been made to the
Performance Award Accounts of all the Participants or to such
Accounts of one or more Participants as shall be designated by the
Committee.
(b) Each Performance Unit and all other amounts credited
to a Participant's Performance Award Account in respect of such
Performance Unit shall be forfeited in the event of the Discharge
for Cause of such Participant prior to the end of the Performance
Period applicable to such Performance Unit.
(c) Each Performance Unit and all other amounts credited
to a Participant's Performance Award Account in respect of such
Performance Unit shall, unless and to the extent that the Committee
shall in its absolute discretion otherwise determine by reason of
special mitigating circumstances, be forfeited in the event that
such Participant's Termination of Employment shall occur for any
reason other than death, Disability, retirement under the Company's
retirement plan, or retirement with the consent of the Company
outside the Company's retirement plan, at any time (except within
two years after the date on which a Change in Control shall have
occurred) prior to the end of the Performance Period applicable to
such Performance Unit.
(d) If any suspension is in effect pursuant to Section
4.5(a) on a date when a credit would otherwise have been made
pursuant to Section 4.1, the amount which would have been credited
but for such suspension shall be forfeited and no credits shall
thereafter be made in lieu thereof. If the Committee shall so
determine in its sole discretion, the amounts theretofore credited
to any Performance Award Account or Accounts, other than any
Performance Award Account of a Covered Officer, shall accrue
interest, during the suspension period, 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.
ARTICLE V
GENERAL INFORMATION
SECTION 5.1. If Net Income, Annual Earnings Per Share or
Net Loss Per Share for any year shall have been affected by special
factors (including 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 Net Income, Annual Earnings Per
Share or Net Loss Per Share, as the case may be, for such year (and
subsequent years as appropriate), or any combination of them, and
make credits, payments and reductions accordingly under the Plan;
provided, however, the Committee shall not have the authority to
make any such adjustments to payments with respect to the
Performance Awards of, or credits to the Performance Award Accounts
of, any Participant who is at such time a Covered Officer if the
effect of any such action would be to increase the amount that
would be credited to or paid from such Performance Award Accounts.
SECTION 5.2. The Committee shall for purposes of
Articles III and IV make appropriate adjustments in the number of
Performance Units which may be granted pursuant to Performance
Awards and in the number of Performance Units which shall have been
credited to Participants' accounts, in order to reflect any merger
or consolidation to which the Company is a party or any stock
dividend, split-up, combination or reclassification of the
outstanding shares of Company Common Stock or any other relevant
change in the capitalization of the Company.
SECTION 5.3. 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 5.3,
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 5.4. 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 5.5. 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 Subsidiary, 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 5.6. 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 any Subsidiary 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 5.7. 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 VI
AMENDMENT OR TERMINATION OF THE PLAN
SECTION 6.1. The Board of Directors may at any time
terminate the Plan, in whole or in part, or from time to time,
subject to the stockholder approval requirements of Section 162(m),
amend the Plan, provided that, except as otherwise provided in the
Plan, no such amendment or termination shall adversely affect the
amounts credited to the Performance Award Account of a Participant
with respect to Performance Awards previously made to such
Participant. 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 amounts specified in Article IV
and 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.
Notwithstanding the foregoing, any such payment to a Covered
Officer must be discounted to reflect the present value of such
payment using the rate specified in Section 4.4(c). The Board may
at any time and from time to time delegate to the Committee any or
all of its authority under this Article VI.
ARTICLE VII
DEFINITIONS
SECTION 7.1. For the purposes of the Plan, the following
terms shall have the meanings indicated:
(a) Annual Earnings Per Share: With respect to any
year, the result obtained by dividing (i) Net Income for such year
by (ii) the average number of issued and outstanding shares
(excluding treasury shares and shares held by any subsidiaries) of
Class A Common Stock, par value $.10 per share, of the Company and
Class B Common Stock, par value $.10 per share, of the Company
during such year as reviewed by the Company's independent auditors.
(b) Award Valuation Date: December 31 of the year in
which the third anniversary of the grant of such Performance Award
to a Participant shall occur or, if earlier, December 31 of the
year in which such Participant's Termination of Employment shall
occur, if such Termination of Employment occurs (i) within two
years after a Change in Control or (ii) as a result of death,
Disability, retirement under the Company's retirement plan or
retirement with the consent of the Company outside the Company's
retirement plan.
(c) Board of Directors: The Board of Directors of the
Company.
(d) Change in Control: A Change in Control shall be
deemed to have occurred if either (i) any person, or any two or
more persons acting as a group, and all affiliates of such person
or persons, shall acquire beneficial ownership of more than 20% of
all classes and series of the Company's stock outstanding, taken as
a whole, that has voting rights with respect to the election of
directors of the Company (not including any series of preferred
stock of the Company that has the right to elect directors only
upon the failure of the Company to pay dividends) pursuant to a
tender offer, exchange offer or series of purchases or other
acquisitions, or any combination of those transactions, or (ii)
there shall be a change in the composition of the Board of
Directors of the Company at any time within two years after any
tender offer, exchange offer, merger, consolidation, sale of assets
or contested election, or any combination of those transactions (a
"Transaction"), so that (A) the persons who were directors of the
Company immediately before the first such Transaction cease to
constitute a majority of the Board of Directors of the corporation
which shall thereafter be in control of the companies that were
parties to or otherwise involved in such first Transaction, or (B)
the number of persons who shall thereafter be directors of such
corporation shall be fewer than two-thirds of the number of
directors of the Company immediately prior to such first
Transaction. A Change in Control shall be deemed to take place
upon the first to occur of the events specified in the foregoing
clauses (i) and (ii).
(e) 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.
(f) Company Common Stock: Class B Common Stock, par
value $0.10 per share, of the Company and such other Company or
subsidiary securities as may be designated from time to time by the
Committee.
(g) 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); 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 payment from any Performance Award
Account of such individual will be made.
(h) Disability: In the case of any Participant,
disability which after the expiration of more than 26 weeks after
its commencement is determined to be total and permanent by a
physician selected by the Company and acceptable to such
Participant or his legal representatives.
(i) Discharge for Cause: Involuntary Termination of
Employment as a result of dishonesty or similar misconduct directly
related to the performance of duties for the Company or a
Subsidiary.
(j) 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.
(k) Net Loss Carryforward: With respect to any
Performance Units, (i) an amount equal to the Net Loss Per Share
for any year in the applicable Performance Period times the number
of such Performance Units then outstanding, reduced by (ii) any
portion thereof which has been applied in any prior year as
provided in Section 4.1.
(l) Net Loss Per Share: The amount obtained when the
calculation of Annual Earnings Per Share results in a number that
is less than zero.
(m) Participant: An individual who has been selected by
the Committee to receive a Performance Award and in respect of
whose Performance Award Account any amounts remain payable.
(n) Performance Award: The grant of Performance Units
by the Committee to a Participant pursuant to Section 3.1 or 3.4.
(o) Performance Award Account: An account established
for a Participant pursuant to Section 3.2.
(p) Performance Period: With respect to any Performance
Unit, the period beginning on January 1 of the year in which such
Performance Unit was granted and ending on the Award Valuation Date
for such Performance Unit.
(q) Performance Unit: A unit covered by Performance
Awards granted or subject to grant pursuant to Article III.
(r) Section 162(m): Section 162(m) of the Internal
Revenue Code of 1986, as amended, and the rules promulgated
thereunder by the Internal Revenue Service.
(s) 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.
(t) Termination of Employment: The cessation of the
rendering of services, such that a person would no longer be
eligible to receive a Performance Award under Section 3.1 hereof,
or a termination of employment or termination of officer position
with the Company or a Subsidiary where the person continues to
provide services under Section 3.1 (c) or (d) hereof.
As approved by the stockholders on May 6, 1999
November 30, 1999
Mr. J. Bennett Johnston, Jr.
1317 Merrie Ridge Road
McLean, VA 22101
Dear Mr. Johnston:
The purpose of this letter is to confirm the automatic renewal of your
Consulting Agreement dated January 7, 1997.
Your contract will renew for an additional one year period beginning
January 1, 2000, and ending December 31, 2000. All other terms and
conditions of the Agreement between you and FM Services shall remain the same.
Please confirm that the foregoing correctly sets forth your understanding
with respect to this matter by signing both originals of this letter and
returning one to me.
Very truly yours,
Michael J. Arnold
President
AGREED TO AND ACCEPTED
BY: ________________________________________
J. Bennett Johnston, Jr.
DATE: ______________________________________
Exhibit 10.32
August 4, 1999
Mr. Rene L. Latiolais
2305 Barton Creek Boulevard
Villa 42, Box 3
Austin, TX 78735
Supplemental Agreement to Consulting Agreement
Of January 25, 1999
Dear Rene:
This Supplemental Agreement refers to the Consulting Agreement (The
"Agreement") dated January 25, 1999, between you and FM Services Company
(The "Company") with respect to consulting services you are to provide
the Company and its subsidiaries and corporate affiliates.
By way of this Supplemental Agreement, the Company would like to increase
the consulting fee that the Company will pay to you to $530,000 per year,
payable monthly in arrears in $44,166.66 amounts, effective August 1, 1999.
All other terms and conditions of the Consulting Agreement shall remain
unchanged.
Please confirm that the foregoing correctly sets forth your understanding
with respect to this matter by signing both originals of this Supplemental
Agreement and returning one to me.
Very truly yours,
/s/Richard C. Adkerson
AGREED TO AND ACCEPTED
By: /s/ Rene L. Latiolais
___________________________________
Rene L. Latiolais
Date: 8-5-99
__________________________________
November 1, 1999
The Honorable Gabrielle K. McDonald
425 East 58th Street #31D
New York, NY 10022-2300
Dear Judge McDonald:
This letter will confirm the terms of your agreement (the "Agreement") with the
undersigned FM Services Company ("FM Services"), with respect to your role as
Special Counsel to the Chairman for Human Rights and to your performance of
consulting services for FM Services and its subsidiaries and affiliates
(collectively with FM Services, the "Freeport Entities"). The other Freeport
Entities include, but are not limited to Freeport McMoRan Copper & Gold Inc.
and P. T. Freeport Indonesia.
1. Term. The initial term of this Agreement shall commence effective November
1, 1999, and shall end on December 31, 2002; provided, however, that the term
of this Agreement shall be automatically extended for additional terms of one
calendar year each unless and until FM Services or you provides a written
notice of termination to the other party ninety (90) or more days prior to
December 31st of any calendar year. All references in this Agreement to its
"term" shall be deemed to include this Agreement's initial term and any
renewal terms. Termination of this Agreement shall not affect any obligations
or liabilities which accrue prior to the effective date of the termination.
2. Scope of Consulting Services. During the term of this Agreement, you will
render consulting services to FM Services and the other Freeport Entities,
upon request, with respect to human rights and related matters and other
matters in which you have expertise. You will personally perform all of the
consulting services required under this Agreement, and you will not delegate
to others the performance of such consulting services without FM Services'
prior written consent. The executive officers of any Freeport Entity seeking
your advice will, insofar as 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
your 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 of your consulting services under this Agreement.
The consulting services under this Agreement shall not exceed 20% of your time
on an annual basis.
3. Consulting Fee. In consideration for your consulting services, FM Services
shall pay to you Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00)
per annum during this agreement's term, payable in quarterly installments of
Sixty-Two Thousand Five Hundred and No/100 Dollars ($62,500.00) and a
pro-rata amount for periods less than a calendar quarter. The first such
installment shall be paid as soon as practicable after the execution of this
agreement, and all subsequent installments shall be due and payable on or
about the first day of each calendar quarter thereafter during the term of
this Agreement.
In the event that the services you provide to the Freeport Entities exceed
20% of your time within a given calendar quarter, the Company will compensate
you for this time on a pro-rata basis.
FM Services shall also reimburse you for, or advance to you, all reasonable
out-of-pocket travel and other expenses incurred by you at the request of a
Freeport Entity in connection with your performance of consulting services
hereunder. Such expenses shall be reimbursed or advanced promptly after your
submission to FM Services of expense statements in such reasonable detail as
FM Services may require.
The consulting fee due and paid under this Agreement shall include the annual
director fee payable to all directors of Freeport-McMoRan Copper & Gold Inc.
In addition to the previously referenced fee, Freeport-McMoRan Copper &
Gold Inc. will separately pay you for attendance fees for board and committee
meetings and provide you with stock options, travel expenses associated with
board activities, and all other benefits offered to directors of
Freeport-McMoRan Copper & Gold Inc. on the same terms and conditions as are
offered to the other directors.
4. Nature of the Consulting Relationship. You will perform the consulting
services required under this Agreement as an independent contractor to, and
not as an agent or employee of, FM Services or any other Freeport Entity.
Except as and to the extent that FM Services or another Freeport Entity, as
the case may be, may otherwise prescribe in writing, you shall not have any
authority to negotiate or to conclude any contracts on behalf of, or
otherwise bind, FM Services or any other Freeport Entity.
5. Assisting Competitors. During the term of this Agreement, you will not,
without the prior written consent of FM Services (a) render any services,
whether or not for compensation, to other individuals, firms, corporations
or entities in connection with any matter that you reasonably believe may
involve material interests adverse to any Freeport Entity or (b) engage in
any business or activity that you reasonably believe to be materially
detrimental to the business or interests of any Freeport Entity.
6. Confidential Information. You shall hold in fiduciary capacity for the
benefit of Freeport Entities all secret or confidential information,
knowledge, or data (collectively, the "Confidential Information") relating
to any Freeport Entity which you obtain during the term of this Agreement
from a Freeport Entity or from a third party who obtained such Confidential
Information from a Freeport Entity. Unless disclosure is required by law,
you shall not, without the prior written consent of FM Services, at
any time, whether or during or after the term of this Agreement, communicate
or divulge any Confidential Information to anyone other than a Freeport
Entity or those other persons or entities designated by FM Services. All
records, files, drawings, documents, notes, and the like relating to the
business or activities of any Freeport Entity which you shall prepare, use,
or receive shall be and remain the sole property of FM Services, or such
other Freeport Entity, as the case may be, and shall be returned upon FM
Services' request. "Confidential Information" shall exclude information (a)
known to you prior to your association with the Freeport Entities, (b)
readily available in the public domain or (c) obtained from third parties
who did not in turn, directly or indirectly, obtain such information from
a Freeport Entity.
7. Miscellaneous. This Agreement is personal to you, and you shall not
assign this Agreement without FM Services' prior written consent. 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 FM Services and yourself with respect to the subject matter
hereof. This Agreement may not be amended, modified or extended other than
by a written agreement executed by the parties hereto.
Please confirm that the foregoing Agreement correctly sets forth the
agreement between FM Services and yourself by signing and returning to
FM Services one of the enclosed copies of this letter.
Very truly yours,
FM SERVICES COMPANY
By:/s/Michael J. Arnold
---------------------
I hereby confirm that the foregoing Agreement correctly sets forth the
agreement between FM Services Company and myself.
/s/Gabrielle K. McDonald
- -----------------------------------
THE HONORABLE GABRIELLE K. MCDONALD Dated: November 5, 1999
EXECUTION COPY
________________________________________________
CONCENTRATE PURCHASE AND SALES AGREEMENT
BETWEEN
P.T. FREEPORT INDONESIA COMPANY
AND
P.T. SMELTING CO.
________________________________________________
CONTRACT NO. 98-1
TABLE OF CONTENTS
Page
ARTICLE 1 3
Definitions and Interpretation 3
1.1 Definitions 3
1.2 Interpretation 3
ARTICLE 2 3
Product 3
2.1 Expected Analysis 3
2.2 Product Review 5
2.3 Non-Conforming Concentrates 6
(a) Excess Impurities 6
(1) First Ten Contract Years 6
(2) Subsequent Contract Years 7
(b) Adjustments to Smelting and Refining Charges Due
to Copper, Gold and Silver Outside Specified Range 10
(c) Deviation of the Copper Content of the
Concentrates 10
2.4 Shipping Code 12
2.5 Moisture 12
2.6 Title 12
2.7 Implied Warranty Disclaimer 12
ARTICLE 3 12
Quantity 12
3.1 Obligations to Purchase and Sell Contractual Tonnage
and Initial Inventory Period Tonnage 12
3.2 Process for Determination of Contractual Tonnage Figure 13
A. The Rolling Five Year Concentrates Requirements
Forecast and the One Year in Advance Forecasted
Quantity Requirement 13
B. Annual Shipping Schedule Quantity 16
C. Contractual Tonnage Declarations 16
D. Contractual Tonnage Cap 17
3.3 Inventory Allowance 18
3.4 Buyer's Inability to Receive Concentrates 18
3.5 Seller's Inability to Deliver Concentrates 22
3.6 Additional Quantities 23
3.7 Contract Year to Contract Year Adjustments 23
(a) Advance Shipment 23
(b) Delayed Shipment 24
3.8 Seller's Qualified Right to Vary Quantity for Remainder
of Year 24
3.9 Reduction of Contractual Tonnage due to Reduction of
Seller's Ability to Produce 24
3.10 Adjustments Resulting From Quality-Related Reductions
of the Contractual Tonnage Figure 25
3.11 Simplification of Determination of Contractual Tonnage
Figure in the Event of Reduction of Contractual Tonnage 26
ARTICLE 4 26
Term and Termination 26
4.1 Term of Agreement; Conditions Precedent 26
4.2 Termination Prior to Mechanical Completion Due to Delay
or Inactivity 27
ARTICLE 5 28
Delivery of Concentrates 28
5.1 Delivery CIF Port of Discharge 28
5.2 Discharging Berth 28
5.3 Rate of Discharge 28
5.4 Notice of Readiness 29
5.5 Lay Time 29
5.6 Demurrage and Dispatch 30
(a) Bulk Carriers 30
(b) Hopper Barges 30
(c) Payment 31
5.7 Vessel Characteristics 31
(a) Bulk Carriers 31
(b) Hopper Barges and SPV's 32
(c) Vessel Requirements of General Applicability 32
5.8 Overtime 32
5.9 Port Charges 33
5.10 Title and Risk of Loss 33
5.11 Alternate Port 33
5.12 Stevedore Damages 33
5.13 Jetty Damages 34
5.14 Use of Bulk Carrier's Discharging Gear 34
ARTICLE 6 34
Scheduling and Shipments 34
6.1 Initial Inventory Period 34
6.2 First Contract Year 34
6.3 Second Contract Year 35
6.4 Third Contract Year 36
6.5 Fourth and Subsequent Contract Years 37
6.6 General 38
6.7 Buyer's Shipping Instructions and Documentation, Vessel
Information and Further Shipment Confirmation 38
ARTICLE 7 38
Insurance 38
7.1 Insured Value 39
7.2 Insurance Coverage 39
7.3 Claims 39
7.4 Insolvency Exclusion Clause 39
7.5 Seller's Assistance 39
7.6 War Risk Premiums 40
ARTICLE 8 40
Price 40
8.1 Payable Copper 40
8.2 Payable Gold 40
8.3 Payable Silver 40
8.4 Quotational Period 41
8.5 Determination of Price 41
8.6 Copper Price 41
8.7 Gold Price 41
8.8 Silver Price 41
8.9 Conversion to Dollars 41
8.10 Alternate Pricing 42
(a) Pricing Basis No Longer Published or No Longer
Representative 42
(b) Interim Invoicing 42
(c) Referral to Referees 42
ARTICLE 9 43
Deductions for Smelting and Refining Charges and for Impurities 43
9.1 Smelting and Refining Charges for Part A Tonnage 43
(i) Initial Negotiation 43
(ii) Subsequent Negotiations 46
(iii) Agreements Required if Permanent Holiday
Reduction Effected 48
9.2 Smelting and Refining Charges for Part B Tonnage 49
(i) Smelting Charge, Payable Copper Refining Charge
and Price Participation Terms for Part B Tonnage 49
(a) Determination on Basis of Weighted Average of
Eligible Reference Contracts 49
(b) Selection of Auditor 50
(c) Determination of Eligibility for Designated
Reference Contracts 50
(d) Calculation of Weighted Average Figures for
Each Party's Eligible Reference Contracts 53
(e) Calculation of Weighted Average Figures for
the Ertsberg Concentrate Agreement and MMC
Concentrate Agreement. 54
(f) The Auditor's Preliminary and Final
Determinations 55
(g) Effect of Final Report and Retroactive
Adjustment 56
(h) Interim Terms Governing the Period Prior to
Final Report Issuance 56
(ii) Payable Gold and Payable Silver Refining
Charges for Part B Tonnage 56
9.3 Minimum Smelting and Refining Charges; Possible
Recoupment of Lost Revenues 57
9.4 Deductions for Impurities 58
9.5 Exclusive Remedy 59
9.6 General Provisions Applicable to Smelting and Refining
Charges 59
9.7 Special Provisions Applicable to Concentrates with
Copper, Gold and/or Silver Outside the Five-Year
Expected Analysis 60
ARTICLE 10 61
Periodic Review of Commercial Terms 61
10.1 Provision Governing Part A Tonnage Smelting and
Refining Charges and Minimum Smelting and Refining
Charges 61
10.2 Periodic Review of Certain Commercial Terms 61
ARTICLE 11 62
Payments 62
11.1 Manner of Payment 62
11.2 Provisional Price 63
11.3 Provisional Payment 63
11.4 Final Payment 64
11.5 Final Price Determination in the Event of Loss 64
11.6 Interest 65
ARTICLE 12 65
Weighing, Sampling and Determination of Moisture 65
12.1 General Procedures 65
12.2 Determination of Dry Weight 66
12.3 Sample Lots 66
12.4 Number and Handling of Samples 66
12.5 Composite Samples 66
ARTICLE 13 66
Assay 66
13.1 Method for Determining Final Analysis. 66
13.2 Determination of Final Analysis if Shipment Diverted 67
13.3 Designation of Umpire 67
13.4 Determination of Final Analysis Using Umpire's Assay 67
13.5 Analysis of Composite Samples for Impurities 67
ARTICLE 14 68
Taxes 68
14.1 Value Added Tax 68
14.2 Payment of Value Added Tax 68
ARTICLE 15 68
Exemption from Liability and Obligation 68
ARTICLE 16 70
Relief from Economic Hardship 70
16.1 Consultation in the Event of Hardship 70
16.2 Limitations on Right to Request Consultation 70
ARTICLE 17 70
Notices 70
ARTICLE 18 71
Assignment 71
18.1 Binding Effect 71
18.2 Seller's Assignment to the Trustee 71
18.3 Buyer's Assignment to a Trustee 72
18.4 Other Assignments 72
ARTICLE 19 73
Referees 73
19.1 General 73
19.2 Selection of Referees 73
19.3 Proceedings 73
19.4 The Decision 74
ARTICLE 20 74
Arbitration 74
20.1 Amicable Settlement 74
20.2 Arbitration Rules 74
20.3 Arbitrators 75
20.4 Arbitration Award 75
20.5 Award to be Final and Conclusive 76
20.6 Performance of Obligations Pending Decision 76
20.7 Waiver of Right to Terminate Board of Arbitration 76
ARTICLE 21 76
Governing Law 76
ARTICLE 22 77
Force Majeure 77
22.1 Definition 77
22.2 Effect of Force Majeure 77
22.3 Parties to Use Reasonable Efforts 78
ARTICLE 23 79
Default 79
23.1 Events of Default 79
23.2 Notice of Default 79
23.3 Liability for Default 79
ARTICLE 24 79
Non-Waiver of Defaults 79
ARTICLE 25 80
Miscellaneous 80
25.1 Opinion of Buyer's Counsel 80
25.2 Opinion of Seller's Counsel 80
25.3 Entire Agreement 81
25.4 Counterparts 81
25.5 Headings 81
25.6 Publication of Articles 81
LIST OF APPENDICES
Appendix "A" Definitions
Appendix "B" Sample Calculation of MMC's
Receipt of 13% Simple Return
Appendix "C" Price Participation Weighted
Average Calculation - Example
Appendix "D" Price Participation - Weighted
Average Base - Part B
CONCENTRATE PURCHASE AND SALES AGREEMENT
AGREEMENT, effective as of December 11, 1996 between P.T.
FREEPORT INDONESIA COMPANY, an Indonesian limited liability company
which is also domesticated in Delaware, U.S.A. ("Seller"), and P.T.
SMELTING CO., an Indonesian limited liability company ("Buyer").
WHEREAS, Seller operates copper mines in Indonesia pursuant to
the December 30, 1991 Contract of Work between Seller and the
Government, and any subsequent modifications, supplements or
amendments thereto (the "COW") which grants mining rights in a
specified geographic area within the Province of Irian Jaya (the
"Contract Area") to Seller until the year 2021 with two ten-year
extension periods permitted under certain circumstances;
WHEREAS, in furtherance of Seller's obligation under the COW
to build, or cause to be built, a copper smelter and refinery in
Indonesia under certain circumstances, Seller has, in concert with
others and independently, studied the feasibility of the
development, construction, ownership and operation of a 200,000
metric ton per annum copper smelter and refinery to be located at
Gresik, East Java, Indonesia (the "Project");
WHEREAS, at a meeting between Freeport-McMoRan Copper & Gold
Inc., a company organized and existing under the laws of Delaware,
U.S.A. and the parent company of Seller ("FCX") and Mitsubishi
Materials Corporation, a company organized and existing under the
laws of Japan ("MMC") on September 19, 1994, FCX solicited MMC to
construct, own and operate the Project with Seller and Fluor Daniel
Wright Ltd., a company organized and existing under the laws of
British Columbia, Canada ("FLUOR"), and thereafter FCX, Seller and
MMC had several meetings to discuss the concept of a joint venture
to proceed with the Project;
WHEREAS, MMC, FCX and FLUOR, each having decided to
participate in the Project subject to certain terms and conditions,
executed an Agreement in Principle, dated as of January 6, 1995
(the "AIP");
WHEREAS, following execution of the AIP FCX assigned its
interest thereunder to Seller and FLUOR assigned its interest
thereunder to Fluor Daniel Engineers & Constructors, Ltd., a
company organized and existing under the laws of the State of
California ("FDEC");
WHEREAS, following execution of the AIP Seller, MMC and FDEC
have executed a Project Planning Agreement, dated as of May 12,
1995 (the "Project Planning Agreement") which supersedes and
replaces the AIP as to the subject matter of such Project Planning
Agreement;
WHEREAS, among other things, the Project Planning Agreement
provides that the Project will be operated using only Concentrates
as feed material and in this connection:
(a) Seller is agreeable to selling a quantity of
Concentrates equal to one hundred percent (100%) of the copper
concentrates required by Buyer for the Project for so long as
Seller's mining and milling activities shall be operating at an
annual rate sufficient to produce such quantity of Concentrates, in
respect of which Seller shall grant the first and exclusive
priority to Buyer for the delivery of Concentrates produced by
Seller; and
(b) Subject to the required approval by the Government of
Indonesia (which approval Seller shall seek to procure), Seller is
agreeable to selling Concentrates to Buyer and Buyer is agreeable
to buying Concentrates from Seller, on a basis which is fair,
reasonable and reflective of then current market conditions, and
which incorporates the terms and conditions specified in the
Project Planning Agreement for this Agreement;
WHEREAS, following execution of the Project Planning Agreement
FDEC assigned its interest thereunder to Fluor Daniel Asia, Inc.,
a company organized and existing under the laws of the State of
California ("FDA");
WHEREAS, in furtherance of the objectives set forth and agreed
in the AIP and the Project Planning Agreement, MMC, Seller and FDA
entered into a Joint Venture and Shareholders Agreement dated as of
October 25, 1995 as amended by instrument dated May 24, 1996 (the
"Shareholders Agreement"), which Shareholders Agreement provides,
among other things, for the incorporation and management of P.T.
Smelting Co. as an Indonesian limited liability company for the
development, construction, ownership and operation of the Project,
and which amendment provides, among other things, for the
withdrawal of FDA from the Project; and
WHEREAS, under the Project Planning Agreement and the
Shareholders Agreement, the execution by Seller and Buyer of this
Agreement is a condition precedent to the implementation and
operation of the Project in accordance with those agreements; and
Seller and Buyer desire to enter into this Agreement in order to
satisfy that condition and proceed to implement the Project.
NOW, THEREFORE, Seller agrees to sell and deliver, and Buyer
agrees to purchase, pay for and accept delivery of, copper
concentrates on the terms and conditions hereinafter set forth.
ARTICLE 1
Definitions and Interpretation
1.1 Definitions. Unless the context otherwise requires,
all capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned thereto in Appendix "A" hereto.
1.2 Interpretation. Unless the context otherwise requires,
words importing the singular number shall include the plural and
vice versa; the headings are for convenience only and shall not
affect the construction hereof, and references herein to any
enactment shall be deemed to include such enactment as reenacted,
amended or extended.
ARTICLE 2
Product
2.1 Expected Analysis. Seller expects that for the first
five (5) Contract Years of the term of this Agreement the
Concentrates will assay, as an average for each calendar month and
Contract Year, on a dry basis, within the following ranges:
Cu - 26% to 38%
Au - 15 grams to 38 grams per DMT
Ag - 35 grams to 90 grams per DMT
Al - 0.5% to 1.7%
As - 0.01% - 0.15%
Bi - 0.002% - 0.02%
Ca - 0.12855%-0.85%
Co - less than 0.02%
Cd - 0.002% - 0.01%
Cl - 0.005% - 0.02%
F - 0.005% - 0.035%
Fe - 18% - 26%
Hg - 0.1 - 0.6 g/t
Mg - 0.1% - .3%
Mo - 0.01% - 0.03%
Ni - less than 0.005%
Pb - 0.01% - 0.1%
S - 26% - 36%
Sb - 0.001% - 0.008%
Se - .01% - 0.03%
SiO2 - 3.0% - 10.0%
Te - 0.001% - 0.02%
Zn - 0.15% - 0.8%
Seller expects that for the second five (5) Contract Years of
the term of this Agreement the Concentrates will assay, as an
average for each calendar month and Contract Year, on a dry basis,
within the following ranges:
Cu - 26% to 46%
Au - 9 grams to 38 grams per DMT
Ag - 35 grams to 200 grams per DMT
Al - 0.3% to 1.7%
As - 0.01% - 0.15%
Bi - 0.002% - 0.05%
Ca - 0.15%-4%
Co - less than 0.020%
Cd - 0.001% - 0.01%
Cl - less than 0.02%
F - 0.005% - 0.04%
Fe - 13% - 27%
Hg - not more than 1 ppm
Mg - 0.1% - 1%
Mo - 0.01% - 0.04%
Ni - less than 0.008%
Pb - 0.01% - 0.3%
S - 25% - 36%
Sb - 0.001% - 0.005%
Se - .02% - 0.05%
SiO2 - 2.0% - 12.0%
Te - 0.001% - 0.02%
Zn - 0.15% - 2.0%
Seller expects that the Concentrates will be free from
deleterious impurities that would prevent the Concentrates from
being treated with processes normally and customarily employed by
major copper smelters. As Seller acquires additional knowledge or
information regarding the chemical and physical characteristics of
(or expected for) the Concentrates, Seller shall make such
knowledge available to Buyer as soon as possible.
2.2 Product Review. Seller shall inform Buyer by October
1 of each year (commencing with October 1 of the second calendar
year preceding the estimated commencement of the first Contract
Year) of the expected approximate analysis of copper (which
expected approximate analysis of copper shall constitute the Annual
Budgeted Copper Grade), gold, silver, alumina (Al x 1.8889), iron,
sulphur, arsenic, bismuth, antimony, chlorine, lead, zinc, nickel
plus cobalt, fluorine and mercury for the Concentrates to be
delivered in the first succeeding Contract Year, plus a preliminary
estimated analysis of such elements or compounds for the succeeding
four (4) Contract Years (the "Preliminary Estimated Analysis").
Seller shall also inform Buyer at least 30 days prior
to the date of the meeting which is held every five (5) years in
accordance with the provisions of Article 10 to review certain
commercial terms, of the chemical analysis of the Concentrates
(including all of the same elements listed in the analysis recited
in Section 2.1) which Seller expects the Concentrates will assay on
a dry basis for the ensuing five (5) Contract Years of the term of
this Agreement (each such analysis, as well as the analysis for the
first five (5) Contract Years set forth in Section 2.01, is
hereinafter referred to as a "Five-Year Expected Analysis").
Such estimates shall be based on the geological and
engineering information and data available to Seller at the time of
the production of such estimates, and shall be as accurate as is
reasonably practicable.
In the event Buyer desires additional information to
clarify or better understand the annual estimate which has been
produced (or any other estimate provided under Sections 2.1 or
2.2), upon request by Buyer, Seller will make available to Buyer's
technical representatives in Seller's offices on a strictly
confidential basis all data and information reasonably requested by
Buyer and shall meet with Buyer's representatives to provide such
explanations or clarifications as Buyer's representatives may
desire (again, on a strictly confidential basis). Due to the
proprietary or confidential nature of such data and information,
Buyer may copy and retain such data or information only with
Seller's prior approval, and Buyer shall not disclose it to third
parties except as required by law or for purposes of evaluation by
Buyer's consultants or by a representative of any lenders to Buyer
in connection with the financing of the Project, who have a need to
have access to such information and who shall agree in writing to
maintain the confidentiality of such data and information.
If during the period following Seller's production of
its annual estimate for one year and prior to its production of its
estimate for the following year Seller develops or obtains
knowledge or information which significantly differs from Seller's
current estimate for the current year, Seller shall furnish Buyer
as soon as practicable with its revised estimate.
2.3 Non-Conforming Concentrates.
(a) Excess Impurities.
(1) First Ten Contract Years. In the event
that the Concentrates delivered hereunder shall at any time during
the first ten (10) Contract Years: (i) have levels of impurities in
excess of the applicable range specified in Section 2.1 (i.e.
either the specified range applicable to the first five (5)
Contract Years or the specified range applicable to the second five
(5) Contract Years) for which the deductions specified in Section
9.4 do not appropriately compensate Buyer, and (ii) such
Concentrates cannot be economically or practically treated at the
then existing Facilities because of the presence of deleterious
elements in harmful quantities (it being understood that condition
(ii) may result from impurities which have a material adverse
effect on the quality of copper cathodes or by-products produced by
the Facilities or from other physical and/or chemical
characteristics of the Concentrates that materially adversely
affect processing by the Facilities), then Buyer shall specify such
objections with particularity to Seller and Buyer and Seller shall
seek in good faith to negotiate an appropriate remedy for any
significant Financial Disadvantage and technical disadvantage which
Buyer may suffer, it being understood that Buyer has a duty to
mitigate its damages. If Buyer and Seller cannot agree on a way to
resolve Buyer's objections within 45 days after Buyer shall have
specified its objections to Seller pursuant to this Section 2.3,
Buyer or Seller may, at its option, exercisable by written notice
to the other party, refer the matter to the referee(s) as provided
in Article 19 for the following purposes: (a) if in dispute, a
determination of whether the conditions specified in clause (i) and
clause (ii) of this Section exist, and, if both of such conditions
exist or are determined to exist, (b) a determination of the
appropriate remedy to compensate Buyer for the Financial
Disadvantage resulting from such conditions, which have not been
and will not be compensated to Buyer pursuant to the other
provisions of this Agreement (including the penalties to which
Seller may be subject), and taking into account the mitigating
measures which Buyer may implement at a reasonable cost and without
undue interruption of its smelter operations (the costs of
mitigating measures to be calculated as part of Buyer's Financial
Disadvantage to the extent that such costs are necessary and
appropriate). Such appropriate remedy may include (i) that Seller
can substitute concentrates originating from other mines (whether
Seller's or a third party's) for Concentrates produced by Seller,
or (ii) the revision of the penalty schedule for impurities, or
(iii) a revision to the smelting and refining charges then in
effect, or (iv) any other appropriate remedy. Any adjustments or
remedies which have been mutually agreed (or determined by
referee(s)) shall be taken into account when the Commercial Terms
for the following Contract Years are determined at the time of each
five year review of Commercial Terms so that the price to be paid
to Seller will not be reduced twice (first, in reaching a remedy
for non-conforming Concentrates, and second, when the Commercial
Terms for subsequent Contract Years are determined).
(2) Subsequent Contract Years. Following the
tenth Contract Year Seller will deliver to Buyer hereunder whatever
quality of Concentrates Seller produces from its then existing
mining and concentration facilities, subject to the condition that
Seller will not ship to Buyer any worse quality Concentrates (with
normal, reasonable variations permitted) than it ships to Seller's
other significant customers (i.e. customers purchasing from Seller
a quantity of 30,000 DMT's or more per year of copper concentrates)
during the year in question. Upon the request of Buyer, which
shall not be made more frequently than once per calendar year
commencing with the year in which the eleventh Contract Year
commences, Buyer and Seller shall select a mutually agreed upon
independent accounting firm, whose costs shall be paid by Buyer,
and Seller shall disclose to such independent accounting firm on
Seller's premises on a confidential basis appropriate data and
information to enable such firm to verify to Buyer whether or not
Seller is in compliance with the above condition. If Seller is
determined to not be in compliance with this obligation at any
time, Seller shall take such measures as are necessary to correct
such situation and reimburse Buyer for all of the relevant costs of
the accounting firm which have been paid by Buyer.
Notwithstanding anything to the contrary
recited in the foregoing language of this Section 2.3(a)(2), if at
any time during this period Buyer is of the good faith belief that
the Concentrates delivered by Seller hereunder cannot be
economically or practically treated at the then existing Facilities
because of the presence of deleterious elements in harmful
quantities Buyer shall so notify Seller. The above described
condition may result from impurities which have a material adverse
effect on the quality of copper cathodes or by-products produced by
the Facilities or from other physical and/or chemical
characteristics that materially adversely affect processing by the
Facilities.
In the event of such notification by Buyer,
Buyer and Seller shall immediately consider and discuss possible
solutions to such condition, and each of Buyer and Seller shall
promptly take such actions as it determines to be appropriate to
help alleviate the condition, and notify the other party of the
actions, if any, which it is taking. If following the timely
implementation of the measures which each party has decided to take
to help alleviate such condition, Buyer remains of the good faith
belief that the condition which Buyer has provided notice of to
Seller is continuing to exist and that such condition constitutes
the condition which is described above, namely that the
Concentrates delivered by Seller hereunder cannot be economically
or practically treated at the then existing Facilities because of
the presence of deleterious elements in harmful quantities, then
Buyer may either continue to purchase, pay for and accept delivery
of the Contractual Tonnage of Concentrates but with no Financial
Disadvantage payment by Seller, or exercise a right and option
which Buyer may exercise at any time during the continuance of such
condition to reduce the Contractual Tonnage hereunder up to a
maximum Contractual Tonnage reduction equal to the quantity of
copper concentrates which is reasonably necessary for Buyer to
purchase from other sources in order for Buyer to be able to treat
in an economical or practical manner Seller's Concentrates together
with the copper concentrates which Buyer shall purchase from third
parties. In order to exercise such right and option, Buyer shall
provide written notice to Seller of its good faith determination
that the above specified condition exists together with a statement
of the quantity reduction of the Contractual Tonnage which Buyer
has elected to put into effect. Such written notice shall also be
accompanied by written evidence which reasonably demonstrates: (x)
the basis for Buyer's determination that Seller's Concentrates
cannot be economically or practically treated and (y) the basis for
Buyer's determination that the amount of the reduction does not
exceed the maximum allowable reduction as described above.
Buyer shall consult with Seller with respect to
the timing of any such reduction and use all reasonable efforts to
implement such reduction in a manner which minimizes the disruption
of Buyer's and Seller's operations. Any such reduction shall cease
at such time as is mutually agreed or, absent mutual agreement, at
such time as all of the following have occurred: (i) the condition
which gave rise to the reduction no longer exists and Seller has
notified Buyer of such fact, (ii) Seller or Buyer has provided
notice to the other party hereto of the effective date for the
resumption of delivery of the previously reduced quantities which
date must be at least three years following the notice date, (iii)
the period recited in such notice has expired, and (iv) at the
expiration of such period, the condition which gave rise to the
reduction no longer exists. Subject to the four (4) foregoing
conditions (particularly the minimum three year advance notice), if
both Buyer and Seller provide a notice in accordance with condition
(ii) having different effective dates, an earlier effective
resumption date shall take precedence over a later effective
resumption date. Neither Seller nor Buyer shall have any
obligation to retroactively make-up any such portion of the
quantities of reduced Contractual Tonnage.
Seller reserves the right to contest the basis
for and/or the amount of the reduction of Contractual Tonnage
pursuant to this subsection on the grounds that such reduction does
not conform to the provisions of this subsection of this Agreement.
If Seller objects to any such reduction on this basis, Seller
shall promptly notify Buyer of Seller's objection(s) and the
basis(es) for such objection(s), and Buyer and Seller shall then
use their best efforts to resolve any such differences amicably.
If such an amicable resolution is not agreed upon within thirty
(30) days following notice by Seller of its objection, the dispute
shall be conclusively settled by the referee(s) under Article 19 of
this Agreement. Pending such settlement by the referee(s), Buyer
may request, and Seller will not unreasonably deny suspension of
shipments of Concentrates hereunder.
(b) Adjustments to Smelting and Refining Charges Due
to Copper, Gold and Silver Outside Specified Range. In addition to
the foregoing language regarding the consequences of excess levels
of impurities in the Concentrates, Section 9.7 of this Agreement
sets forth certain adjustments to the smelting and refining charges
which will be made in the event the content of copper, gold or
silver in delivered Concentrates is outside the range of the then
current Five-Year Expected Analysis.
(c) Deviation of the Copper Content of the
Concentrates. If the average analysis of copper contained in the
total quantity of Concentrates delivered hereunder with respect to
any calendar month is not within a 5.0% variance of 31.0% (i.e.
29.45% to 32.55%) at any time during the first five (5) Contract
Years, is not within a 7.5% variance of 31.0% (i.e. 28.675% to
33.325%) at any time during the second five (5) Contract Years, or
is not within a mutually agreed upon percentage variance of 31.0%
at any time thereafter during the term of this Agreement (which
percentage figure shall be mutually agreed upon by Buyer and Seller
prior to the end of the tenth Contract Year to directly reflect the
percentage copper grade variance from 31.0% within which the
Facilities are capable of producing 200,000 metric tons per annum
of copper cathodes or, failing mutual agreement, such percentage
variation shall be decided by the referee(s) under Article 19),
then Buyer shall have the right and option but not the obligation
to change the Port of Discharge from Gresik to one or more of the
Approved Japanese Ports for the quantity of Concentrates specified
below which exceed the applicable above specified copper content
variance (i.e. above the upper limit or below the lower limit), and
any additional freight costs for delivery of such Concentrates to
any such Approved Japanese Port shall be for Seller's account. For
any such shipments which are shipped to an Approved Japanese Port
in accordance with the provisions of this paragraph, such Approved
Japanese Port to which such Concentrates are shipped shall be
considered to be the Port of Discharge for all purposes hereunder
and Seller shall invoice Buyer for the same amount and in the same
manner as if such shipment had been made to Gresik, with the
exception that Buyer will take all such actions as are necessary to
assure that: (i) the purchaser or recipient of the Concentrates in
Japan will not obtain any economic benefits of the Floor TC's and
RC's provided for in Section 9.3 of this Agreement, and (ii) the
Floor TC's and RC's will be accounted for in such a manner so as to
preserve the economic benefits thereof exclusively to Buyer and
Seller as provided for in Section 9.3 of this Agreement.
Buyer shall assure that all switched sales or product
exchanges of Concentrates to Approved Japanese Ports shall be in
accordance with generally accepted international business practices
and on competitive world market terms and conditions at the time of
sale or contract, and Buyer shall provide to Seller either a
summary of all significant commercial terms and conditions
governing such sales or a copy of the concentrate sales agreement
governing each such sale, to evidence its compliance with such
obligation to Seller. In the event the Government of Indonesia
requests additional information regarding any such switched sale,
Buyer shall provide such information with a copy to Seller. Seller
shall have the right, which right may not be exercised more
frequently than once per calendar year, to retain a mutually
acceptable independent accounting firm to be compensated solely by
Seller, to audit Buyer's records of such switched sales or product
exchanges to verify to Seller whether or not Buyer is in compliance
with its undertakings hereunder with respect to such sales or
exchanges.
The maximum quantity of Concentrates which Buyer may
switch from Gresik to an Approved Japanese Port shall not exceed
the quantity of Concentrates which are necessary to enable Buyer
through purchases of copper concentrates from third parties to
bring the percentage copper content of the average feed stock of
copper concentrates at the Facilities within the then applicable
above specified percentage variance of 31.0%, except that the
switched quantities may be rounded to the nearest shipping size
configuration.
Prior to implementing the switching of the delivery of
any shipment(s) of Concentrates from Gresik to an Approved Japanese
Port, Buyer and Seller shall consult with each other in good faith
and mutually agree upon a shipping schedule for such switched
shipment(s) which takes into account the operational requirements
of both Seller and Buyer. The minimum cargo size for any cargo
delivered to an Approved Japanese Port shall be approximately
10,000 DMT's and Seller reserves the right to combine switched
shipments with Seller's other shipments to Japan.
In the event that the conditions which permit Buyer to
switch Concentrates from Gresik to an Approved Japanese Port exist
or are threatened, Seller reserves the right to ship to Buyer
hereunder Concentrates produced from Seller's mines and processing
facilities which exceed the permissible percentage variance at the
opposite end of the range from the analysis of the Concentrates
which are creating or threatening to create such conditions, in
order that Seller may reduce or eliminate the quantity of
Concentrates which need to be switched under this Section 2.3(c).
In the event the copper content of the Concentrates
exceeds the variances specified above and Buyer is unable to switch
such Concentrates to an Approved Japanese Port, Buyer shall take
deliveries of such Concentrates at Gresik.
2.4 Shipping Code. The Concentrates will be suitable for
ocean transportation in bulk in accordance with the International
Maritime Organization (IMO) Code and the relevant regulation
applicable to Concentrates in Indonesia (if any).
2.5 Moisture. The moisture content of the Concentrates at
the Port of Loading shall be equal to or more than 6% and less than
9%.
2.6 Title. Seller warrants that it will convey to Buyer
good and marketable title to the Concentrates sold hereunder.
Seller warrants that the Concentrates will be free of all liens,
security interests and other encumbrances at the time title passes
to Buyer.
2.7 Implied Warranty Disclaimer. IMPLIED WARRANTIES OF
FITNESS FOR A PARTICULAR PURPOSE AND OF MERCHANTABILITY ARE HEREBY
DISCLAIMED.
ARTICLE 3
Quantity
3.1 Obligations to Purchase and Sell Contractual Tonnage
and Initial Inventory Period Tonnage. Except as otherwise
specifically provided in this Agreement, Seller agrees to sell and
deliver on a first and exclusive priority basis (which basis shall
not imply any additional obligations of Seller other than as
expressly set out in this Agreement), and Buyer agrees to purchase,
pay for and accept delivery of, the Contractual Tonnage of
Concentrates in each Contract Year. Except as otherwise provided in
this Agreement, the Contractual Tonnage shall be produced from
Seller's mines in the Contract Area from time to time.
For purposes of determining the Contractual Tonnage for
each Contract Year of the term of this Agreement, Seller and Buyer
recognize that certain preliminary steps must be taken to
facilitate such determination and, accordingly, each of Buyer and
Seller shall fully cooperate to assure that such steps are properly
taken and shall provide all notices, information and documents
called for in this Agreement (including but not limited to the
provision of the information necessary to give meaning to the
relevant defined terms including Annual Budgeted Copper Grade,
Rolling Five Year Concentrates Requirements Forecast, One Year in
Advance Forecasted Quantity Requirement, Annual Shipping Schedule
Quantity and Contractual Tonnage).
Seller also agrees to sell and deliver, and Buyer
agrees to purchase, pay for and accept delivery of, during the
Initial Inventory Period, a certain quantity of Concentrates which
Buyer shall specify to Seller in writing on or before January 1,
1997. Unless otherwise mutually agreed, such quantity shall not
exceed 30,000 DMT's.
3.2 Process for Determination of Contractual Tonnage
Figure. The steps which Buyer and Seller shall comply with in
order to determine the number of tons of Concentrates which shall
constitute the Contractual Tonnage for each Contract Year are as
follows:
A. The Rolling Five Year Concentrates Requirements Forecast
and the One Year in Advance Forecasted Quantity Requirement.
Utilizing the Annual Budgeted Copper Grade and the Preliminary
Estimated Analysis for copper which are furnished by Seller to
Buyer on or before October 1 of each year in accordance with the
provisions of Section 2.2, Buyer shall prepare and furnish to
Seller on or before November 1 of each year (commencing with
November 1 of the second calendar year preceding the expected
commencement of the first Contract Year) with a Rolling Five Year
Concentrates Requirements Forecast reflecting Buyer's forecast of
the Concentrates requirements of the Project for the production of
copper anode for the five (5) ensuing 12 month periods starting
from the estimated commencement of the first Contract Year (which
shall be changed to five (5) Contract Years immediately following
the occurrence of the Mechanical Completion date). Because the
first twelve month period of the first such Forecast covers a
period of time prior to the commencement of production, no figures
are necessary for such 12 month period.
Based on the information available to Buyer as of the date of
execution of this Agreement, Buyer's preliminary first Rolling Five
Year Concentrates Requirements Forecast is as follows:
ROLLING FIVE YEAR CONCENTRATES REQUIREMENTS FORECAST
MAJOR ASSUMPTIONS:
Assumed Date of Commencement of First Contract Year: December 1, 1998
% Cu in conc/(1) 31.0% Production Rate
% Cu in anode 99.4% 1st year 75.0% of nominal year (2)
Smelter Cu
recovery rate 98.5% 2nd year 90.0% of nominal year
3rd+ year 100.0%
FORECAST:
Projected Smelter Concen-
12 Month Furnace Copper Ope. Smelter trates Smelter Cu
Periods Repair Grade Days On-Line Smelted(5) Output(3)
- -------- ------------ --------- ------- ------- ---------- ----------
1 Boiler
inspection 31.0%(1) 350 69.0% 498,858 152,326
2 Boiler
inspection 31.0%(4) 350 82.8% 598,629 182,791
3 Minor repair 31.0%(4) 345 92% 655,642 200,200
4 Boiler
inspection 31.0%(4) 350 92% 665,144 203,102
5 Boiler
inspection 31.0%(4) 350 92% 665,144 203,102
(1) Means estimated Annual Budgeted Copper Grade
(2) 65% 1st half and 85% 2nd half
(3) Means contained copper in anode, and shall not exceed 205,000 metric tons
(4) Means projected copper grade
(5) For clarification this figure is derived as follows: Smelter Cu output
+ Projected Cu Grade + Smelter Cu Recovery Rate
Each Rolling Five Year Concentrates Requirements Forecast
provided by Buyer shall contain all of the assumptions and
forecasted items recited above, and each such item shall reflect
Buyer's diligent, good faith estimate based on the information
which is available to it at the time such Forecast is issued.
The figure recited in each such Forecast (excluding the above
preliminary Forecast) under the "Concentrates Smelted" column for
the 2nd twelve month period (or Contract Year, whichever is
applicable) shall represent Buyer's best estimate of the quantity
of Concentrates which the Facilities will require during such 12
month period (or Contract Year, whichever is applicable), and shall
constitute and be referred to herein as the "One Year in Advance
Forecasted Quantity Requirement".
B. Annual Shipping Schedule Quantity. On or before November
1 of the calendar year preceding the year in which each Contract
Year begins Buyer shall furnish to Seller written notice of the
Annual Shipping Schedule Quantity which shall be its best estimate
of the total quantity of Concentrates which Buyer requires for the
production of copper anodes during such Contract Year. However,
such Annual Shipping Schedule Quantity may not exceed 105% nor be
less than 90% of the DMT quantity of Concentrates which constituted
the One Year in Advance Forecasted Quantity Requirement for such
Contract Year.
Notwithstanding the above recited limitations on the maximum
percentage variances from the One Year in Advance Forecasted
Quantity Requirement, if the Annual Budgeted Copper Grade provided
by Seller on or before October 1 one month prior to the due date of
Buyer's notice to Seller of the Annual Shipping Schedule Quantity
varies by more than one percent (1%) contained copper from the
projected copper grade which was utilized by Buyer in preparing the
Rolling Five Year Concentrates Requirements Forecast containing the
One Year in Advance Forecasted Quantity Requirement for such
Contract Year (e.g. 31% versus 29.9%), then Buyer may in
calculating such Annual Shipping Schedule Quantity exceed such
maximum percentage variations in order to offset such change in the
estimated copper grade.
C. Contractual Tonnage Declarations. The Contractual Tonnage
quantity for each Contract Year shall be that certain quantity of
Concentrates declared by Buyer in accordance with the provisions of
this Section 3.2 which must be a quantity which is between 90% and
100% of the Annual Shipping Schedule Quantity, except that: (i)
with respect to the first six months of the first Contract Year
Buyer shall be obligated to purchase a quantity of Concentrates
which is between 85% and 110% of the total quantity designated by
Buyer for delivery during the first six months of the first
Contract Year in Buyer's preliminary monthly shipping schedule
under Section 6.2, (ii) with respect to the second six months of
the first Contract Year Buyer shall be obligated to purchase a
quantity of Concentrates which is between 90% and 110% of the total
quantity designated by Buyer for delivery during the second six
months of the first Contract Year in Buyer's preliminary monthly
shipping schedule under Section 6.2, and (iii) with respect to the
second Contract Year the Contractual Tonnage quantity must be a
quantity which is between 90% and 105% of the Annual Shipping
Schedule Quantity. The Annual Shipping Schedule Quantity shall be
subject to adjustment as provided in Section 3.3 to take into
account the Inventory Allowance which Buyer may elect to utilize.
With respect to the first Contract Year, such Contractual
Tonnage shall be declared by Buyer not later than 30 days prior to
the beginning of the 12th month of the first Contract Year. With
respect to the second Contract Year such Contractual Tonnage shall
be declared by Buyer no later than 30 days prior to the beginning
of the 10th month of the second Contract Year. With respect to the
third Contract Year such Contractual Tonnage shall be declared by
Buyer no later than the mid-point day of the third Contract Year.
With respect to the fourth Contract Year and each succeeding
Contract Year such Contractual Tonnage shall be declared by Buyer
no later than July 1 within and for the fourth Contract Year and
within and for each succeeding Contract Year.
Notwithstanding anything to the contrary recited in this
Agreement, the Contractual Tonnage for each Contract Year shall be
modified to the extent that the provisions of Section 3.9
(Reduction of Contractual Tonnage due to Reduction in Seller's
Ability to Produce), Section 7.6 (War Risk Premiums) and Articles
15 (Exemption from Liability and Obligation) and 22 (Force Majeure)
become applicable.
D. Contractual Tonnage Cap. Notwithstanding anything to the
contrary recited in this Agreement (except Section 3.7), in no
event shall the Contractual Tonnage of Concentrates for any
Contract Year exceed the quantity of Concentrates required for the
Facilities to produce 205,000 metric tons of copper anodes during
such Contract Year or such proportionately lesser amount in the
case of the third Contract Year, unless otherwise mutually agreed,
and no notice, declaration or forecast provided under this Article
3 (including the Rolling Five Year Concentrates Requirements
Forecast, the One Year in Advance Forecasted Quantity Requirement,
the Annual Shipping Schedule Quantity and the Contractual Tonnage
declaration figures) shall reflect any quantities exceeding such
tonnage cap, unless otherwise mutually agreed.
3.3 Inventory Allowance. In order to assist Buyer in
controlling the levels of supplies of Concentrates in inventory
beginning with the second Contract Year and continuing each
Contract Year thereafter, an Inventory Allowance is established.
Within 30 days following the beginning of the third Contract Year
and within 30 days following the beginning of each Contract Year
thereafter Buyer shall have the right to declare any quantity of
Concentrates between -20,000 DMT's and +30,000 DMT's as the
Inventory Allowance quantity; provided, however, such Inventory
Allowance quantity figure shall be reduced for the third Contract
Year by a fraction thereof the numerator of which is 365 minus the
number of days in such third Contract Year and the denominator of
which is 365. The effect of declaring an Inventory Allowance
quantity is that the Annual Shipping Schedule Quantity for each
year in which such declaration is made shall be automatically
increased or reduced by the quantity of the positive or negative
Inventory Allowance, respectively. Buyer shall submit to Seller at
the time that it submits its Inventory Allowance declaration to
Seller an adjusted annual shipping schedule. The changes to the
shipping schedule resulting from such declaration shall be
allowable notwithstanding any other shipping schedule limitations.
3.4 Buyer's Inability to Receive Concentrates. Buyer shall
use its best efforts to consume or hold in inventory at the
Facilities all quantities of Concentrates which Buyer is obligated
to purchase from Seller hereunder. If, notwithstanding such
efforts, Buyer determines that it will not be able to use or store
at the Facilities the full quantity of Concentrates which it is
obligated to purchase pursuant to this Agreement during a Contract
Year, Buyer shall so notify Seller as early as possible and furnish
Seller with Buyer's best estimate of the quantity of Concentrates
which it will be unable to receive. In such event Buyer and Seller
shall discuss alternative solutions which will minimize adverse
impacts on both parties to the extent feasible. Without in any way
eliminating the possibility of alternative solutions which may be
mutually agreed upon by Buyer and Seller, Buyer and Seller agree to
discuss and implement the following solutions as expeditiously as
possible:
(i) Seller shall temporarily store such Concentrates in its
inventory in Irian Jaya until other measures can be
arranged to the extent such storage is technically and
economically feasible in the good faith opinion of
Seller;
(ii) Seller shall utilize all reasonable efforts to
rearrange its existing shipping schedules with Buyer
and with Seller's other customers (including MMC)
pursuant to the then existing concentrate sales
agreements with such customers, and to reach mutual
agreement with Buyer on an alternative shipping
schedule with respect to such tonnage;
(iii) Buyer shall cause MMC to use its best efforts to
purchase such Concentrates for processing only at its
smelting facilities at Naoshima and/or Onahama through
one or more concentrate sales agreement(s) entered into
between MMC and Buyer, in accordance with terms
mutually agreed upon between Seller and MMC at the time
the sale is made, but which terms shall in any event
generally conform to the terms and conditions then
currently prevailing in the spot market for the sale of
copper concentrates, with Seller making shipping
arrangements and, to the extent that Floor TC's and
RC's would be applicable if such Concentrates were
delivered to the Facilities, such Floor TC's and RC's
will remain payable to Buyer on such quantities of
Concentrates sold to MMC by Buyer. Except as expressly
provided in this subparagraph (iii) and in Section
2.3(c), Buyer shall not, without Seller's prior written
consent, sell or export any Concentrates covered by
this Agreement. Any quantities of Concentrates sold to
MMC in accordance with the provisions of this
subparagraph (iii) shall be credited toward
satisfaction of Buyer's Contractual Tonnage purchase
obligation; and
(iv) Seller shall use its best efforts to sell such
Concentrates to third parties on the most favorable
terms and conditions for Buyer reasonably obtainable by
Seller at the time such sale is entered into. In this
situation Seller and Buyer shall consult with each
other on a continuous basis regarding concentrate sales
opportunities which are available, and Seller shall
provide to Buyer such facts as may be reasonably
requested by Buyer with respect to the terms and
conditions of any contemplated sale which may result in
Buyer making a reimbursement payment to Seller in
accordance with the following language of this
subparagraph (iv), including any offers, counteroffers
and/or rejections Seller obtains with respect to such
contemplated sales, and shall provide Buyer with a
reasonable opportunity to make comments and suggestions
on such proposed terms and conditions before concluding
any such sale. Seller shall be fully reimbursed by
Buyer within 15 days following receipt of Seller's
invoice (including appropriate supporting
documentation) for any additional costs of such sales
on a netback to the discharge port basis (limited to
differences in smelting and refining charges,
differences in penalty deducts, differences in price
participation and differences in payable metals
percentages) compared with the sale of Concentrates
hereunder had they been delivered to Buyer at the
Facilities. Any profits from such sale, calculated on
a netback to the discharge port basis, shall be for
Seller's account. The Floor TC's and RC's applicable
hereunder shall not be applicable to any such sales to
third parties. Any quantities of Concentrates sold by
Seller to third parties in accordance with the
provisions of this subparagraph (iv) shall be credited
toward satisfaction of Buyer's Contractual Tonnage
purchase obligation.
If such Concentrates have not been taken by Buyer at the
Facilities or at an approved Japanese Port if authorized in
accordance with Section 2.3(c), or sold by Buyer to MMC or by
Seller to a third party following efforts to implement the above
measures (i) through (iv) and Seller requires that such quantity be
shipped, Seller will relocate such Concentrates to a mutually
agreed upon alternative storage site and Buyer will fully reimburse
Seller for all costs and expenses and hold harmless and indemnify
Seller for all liabilities associated with such relocation and
storage of such Concentrates (including but not limited to freight,
insurance and warehousing costs). In addition, Buyer shall pay
Seller interest on the fair market value of such Concentrates
(which shall, for purposes of calculating interest under this
paragraph, be determined on a per ton basis using the purchase
price paid by Buyer hereunder for the shipment to Gresik which
immediately preceded the shipment to alternative storage) beginning
90 days following the end of the Contract Year in which Buyer was
obligated to purchase such Concentrates and ending on the date of
re-shipment from storage in the case of the sale of such
Concentrates to a third party or the date payment is due by Buyer
in all other cases. The rate of interest shall be as set forth in
the following paragraph of this Section 3.4. In the event of such
alternative storage, Seller will continue to use its best efforts
to sell such Concentrates to third parties on the most favorable
terms and conditions reasonably obtainable consistent with
subparagraph (iv) above.
Except for interest on the quantities of Concentrates shipped
to alternative storage which shall be governed by the immediately
preceding paragraph of this Section 3.4, Buyer shall pay Seller
interest on the amount due for any quantity of Concentrates
constituting the Contractual Tonnage which is not shipped to Buyer
or to a third party by December 31 of a Contract Year due to
Buyer's inability to receive Concentrates. Such interest shall be
paid by Buyer when payment is made to Seller for such quantity,
either by Buyer or by a third party purchaser of such Concentrates.
Such interest shall be calculated on a per ton basis for the total
number of tons involved using the purchase price per ton paid by
Buyer hereunder for the final shipment of Concentrates to the
Gresik smelter during the immediately preceding Contract Year.
Such interest shall accrue beginning 90 days from the end of the
Contract Year in which Buyer was obligated to purchase such
Concentrates and ending on the date payment is due. The rate of
interest shall be the published prime commercial lending rate of
The Chase Manhattan Bank (National Association) or its successor
for loans in New York in effect from time to time (such rate to be
adjusted simultaneously with each change in such prime commercial
lending rate) and calculated on the basis of a 365-day year.
Notwithstanding anything to the contrary recited in this
Section 3.4, any quantity of Concentrates which Buyer is obligated
to purchase during any Contract Year which is not shipped to Buyer
at Gresik or contractually committed for shipment to a third party
purchaser in accordance with the provisions of this Section 3.4 by
the end of the third month following the end of such Contract Year
shall be paid for by Buyer in accordance with the payment
provisions of this Agreement and including the interest provided
for in this Article 3, except that (i) the Quotational Period for
Payable Copper, Payable Gold and Payable Silver shall be the fourth
month following the end of such Contract Year, (ii) the provisional
invoice for such quantity may be issued by Seller at any time after
the end of such third month following the end of such Contract Year
with provisional payment due on the fifth Business Day following
receipt, and (iii) the final invoice for such quantity may be
issued by Seller at any time after the end of the fourth month
following the end of such Contract Year with final payment due on
the second Business Day following receipt. Passage of title and
risk of loss with respect to such quantity of Concentrates shall
occur upon payment by Buyer of Seller's provisional invoice. To
evidence that title has passed to Buyer Seller shall furnish to
Buyer at the same time that it submits its provisional invoice a
holding certificate in a form which is mutually agreed upon by the
parties. Such holding certificate shall be in lieu of a bill of
lading.
3.5 Seller's Inability to Deliver Concentrates. In the
event Seller is unable to deliver Concentrates in a timely manner
in accordance with Buyer's shipping schedule, Seller shall so
notify Buyer as early as possible and furnish Buyer with Seller's
best estimate of the quantity of which it will be unable to deliver
in a timely manner. In such event Buyer and Seller shall discuss
alternative solutions which will minimize adverse impacts on both
parties to the extent feasible. Without in any way eliminating the
possibility of alternative solutions which may be mutually agreed
upon by Buyer and Seller, if Seller is unable to deliver the
Contractual Tonnage in a timely manner for any Contract Year and a
mutually agreeable solution is not timely found to alleviate such
failure by Seller, Buyer shall have the right to purchase from
third parties on the most favorable terms and conditions for Buyer
reasonably obtainable at the time such sale is entered into a
quantity of Concentrates as close as practicable to the quantity
which Seller is unable to deliver in a timely manner in accordance
with Buyer's shipping schedule established under Article 6. In
this situation Seller and Buyer shall consult with each other on a
continuous basis regarding concentrate purchase opportunities which
are available, and Buyer shall provide to Seller such facts as may
be reasonably requested by Seller with respect to the terms and
conditions of any contemplated purchase and the offers,
counteroffers and/or rejections Buyer obtains, and shall provide
Seller with a reasonable opportunity to make comments and
suggestions on the proposed terms and conditions before concluding
such purchase. Buyer shall be fully reimbursed by Seller within 15
days following receipt of Buyer's invoice (including appropriate
supporting documentation) for any additional costs of such
purchases on a netback to the Port of Discharge basis (limited to
differences in smelting and refining charges, differences in
penalty deducts, differences in price participation and differences
in payable metals percentages) compared with the purchase of
Concentrates hereunder had they been delivered at the Facilities.
Any profits from such purchase, calculated on a netback to the
discharge port basis, shall be for Buyer's account. Subject to
Section 3.9 or unless Seller has failed to act in good faith in the
discharge of its obligation to comply with Buyer's shipping
schedule established under Article 6, Buyer's rights as described
above in this Section 3.5 shall be Buyer's exclusive remedy (but
without limiting Buyer's rights under Section 22.2(c)) for any
failure by Seller to deliver the Contractual Tonnage. Any
quantities of copper concentrates purchased by Buyer from third
parties in accordance with the provisions of this Section 3.5 shall
be credited toward satisfaction of Seller's Contractual Tonnage
sales obligation.
3.6 Additional Quantities. Upon mutual agreement of Buyer
and Seller, Seller may sell and deliver, and Buyer may purchase,
pay for and accept delivery of quantities of Concentrates in excess
of the Contractual Tonnage during any Contract Year(s) on terms and
conditions to be established at the time of such agreement.
3.7 Contract Year to Contract Year Adjustments.
Notwithstanding Section 3.2.D, Seller shall have the right to ship
quantities of Concentrates in excess of or less than the
Contractual Tonnage in order to avoid shipments of less than a full
cargo or because of vessel availability at the end of each Contract
Year.
(a) Advance Shipment. Each Contract Year Seller may
request, and Buyer shall not unreasonably deny Seller's request, to
ship up to 25,000 DMT's in excess of the Contractual Tonnage during
the final month of such Contract Year, in which event the price for
such tonnage in excess of the Contractual Tonnage shall be
determined based on the commercial terms in effect for the
subsequent Contract Year as if shipped out from the Port of Loading
on the first working day of the subsequent Contract Year and
assuming a Date of Arrival six days thereafter for payment and
Quotational Period purposes. Such excess tonnage shall be regarded
as part of the Contractual Tonnage for the subsequent Contract Year
(if there is no succeeding Contract Year, all payment and other
terms and conditions applicable to shipments in such Contract Year
shall be applicable to such excess tonnage); provided, however, if
the weight of the final shipment of Concentrates in any Contract
Year causes the total delivery weight of Concentrates in such
Contract Year to be in excess of the Contractual Tonnage for such
Contract Year by less than 10% of the weight of such final
shipment, such excess tonnage shall be regarded as Contractual
Tonnage for such Contract Year and all payment and other terms and
conditions applicable to shipments in such Contract Year shall be
applicable to such excess tonnage.
(b) Delayed Shipment. If the Contractual Tonnage
for a Contract Year is not delivered by the end of such Contract
Year, Seller may request, and Buyer shall not unreasonably deny
such request (provided that any such denial shall be deemed to be
reasonable if Buyer has made arrangements to purchase substitute
concentrates from a third party or third parties in accordance with
Section 3.5), to ship such delayed tonnage to Buyer in the first
shipment of the succeeding Contract Year or as soon thereafter as
is practicable. Such delayed tonnage shall be regarded as part of
the Contractual Tonnage of the preceding Contract Year and all
terms and conditions of the preceding Contract Year shall apply to
such tonnage. In no event shall such delayed tonnage in respect of
any Contract Year be more than 25,000 DMT's.
3.8 Seller's Qualified Right to Vary Quantity for Remainder
of Year. If due to unexpected operational or production problems or
conditions which arise during the course of any Contract Year and
which do not constitute an event of Force Majeure, Seller
determines that it requires relief from Buyer as to the delivery of
up to 10% of the remaining undelivered balance of the Contractual
Tonnage for such Contract Year, Seller may reduce the Contractual
Tonnage for such Contract Year by up to 10% of the then undelivered
balance subject to obtaining the prior written approval of Buyer.
3.9 Reduction of Contractual Tonnage due to Reduction of
Seller's Ability to Produce. If at any time during the term of
this Agreement, Seller shall be unable after having used all
reasonable efforts, to produce from its mines and processing
facilities in the Contract Area, the full Contractual Tonnage of
Concentrates provided for in this Agreement as the result of the
depletion of ore reserves, either Seller or Buyer may, after
providing notice to the other party, reduce the annual Contractual
Tonnage of Concentrates to be purchased and sold under this
Agreement to 100% of the annual quantity of Concentrates which
Seller is capable of producing from such mines and processing
facilities, in respect of which Seller grants the first and
exclusive priority to Buyer for the production and delivery of such
Concentrates produced by Seller. The party providing the above
notice shall use its best efforts to provide such notice at least
twenty-four (24) months in advance of the effective date of the
reduction, but in no event may such notice be given less than
twelve (12) months in advance of such effective reduction date.
In the event that the Contractual Tonnage quantity is
reduced pursuant to this Section 3.9 and Seller's capability to
produce a larger quantity hereunder is thereafter restored, Seller
shall notify Buyer in writing of such occurrence, and Buyer and
Seller shall discuss in good faith and shall use all reasonable
efforts to mutually agree on an increase of the then existing
Contractual Tonnage of Concentrates to be sold hereunder. No
retroactive make-up of the quantities of reduced Contractual
Tonnage is implied or intended.
3.10 Adjustments Resulting From Quality-Related Reductions
of the Contractual Tonnage Figure. In the event of any reduction
by Buyer of the Contractual Tonnage in accordance with the
provisions of Section 2.3, unless otherwise mutually agreed
pursuant to Section 3.11, Buyer and Seller will continue to provide
the notices and implement the procedures provided for in this
Article 3 to determine the Rolling Five Year Concentrates
Requirements Forecast, the One Year in Advance Forecasted Quantity
Requirement, the Annual Shipping Schedule Quantity, the Contractual
Tonnage and any other relevant terms. Such figures shall be
provided during each Contract Year when such reductions are in
effect in a form which reflects the quantity information without
any reduction and also with the reduction. The difference between
the two quantities shall constitute Buyer's best, good faith
estimate of the quantity of Concentrates which Buyer will attempt
in good faith to purchase from third parties for such Contract Year
as a result of the reduction instituted by Buyer pursuant to
Section 2.3.
A reduction (or subsequent increase) in the Contractual
Tonnage pursuant to Section 2.3 shall automatically result in a
corresponding proportionate reduction (or increase) of the
Contractual Tonnage cap provided for in Section 3.2 D.
3.11 Simplification of Determination of Contractual Tonnage
Figure in the Event of Reduction of Contractual Tonnage. Buyer and
Seller acknowledge that the determination of the Contractual
Tonnage figure for each Contract Year under this Agreement is
complex due to the nature of the agreement which was originally
contemplated between Buyer and Seller, namely a full requirements-
type of concentrate purchase and sales agreement with respect to
the Project. In the event of a reduction in the Contractual
Tonnage in accordance with the provisions of Section 2.3 or Section
3.9, upon the written request of either party, Buyer and Seller
will use their best efforts to agree upon a simplified procedure to
determine the Contractual Tonnage figure which is fair and
reasonable to both parties for each Contract Year following the
institution of such reduction. In the event of a reduction of the
Part A Tonnage under Section 9.1, the provisions of Section
9.1(iii) shall govern.
ARTICLE 4
Term and Termination
4.1 Term of Agreement; Conditions Precedent. Except as
otherwise provided herein, this Agreement shall be valid and
effective as of the Effective Date and shall continue in full force
and effect so long thereafter as Seller's mining and milling
facilities are producing at an annual rate sufficient to produce
one hundred percent (100%) of the copper concentrates required for
the Project in respect of which Seller has granted the first and
exclusive priority to Buyer for the delivery of such Concentrates
produced by Seller; provided, however, that at such time as
Seller's mining and milling facilities are no longer producing one
hundred percent (100%) of the copper concentrates required for the
Project, this Agreement shall nevertheless remain in full force and
effect for the duration of Seller's Contract of Work (including any
extensions or renewals thereof) as to such lesser quantities of
Concentrates which Seller does produce and which Buyer requires for
the operation of the Project in respect of which Seller has granted
the first and exclusive priority to Buyer for the delivery of such
lesser quantities of Concentrates produced by Seller. Seller
agrees to provide Buyer with as much advance notice of the date of
termination or reduced quantity as is reasonably practicable
(without diminishing the applicable notice requirements expressly
provided in this Agreement).
Notwithstanding the passage of the Effective Date,
Buyer's duty to purchase and Seller's obligation to sell the
Concentrates as set forth herein shall not accrue and become
binding until each of the following conditions precedent are
fulfilled:
(a) The occurrence of Mechanical Completion of the
Facilities;
(b) Signature by all parties to all Major Contracts;
and
(c) Receipt by each of Buyer and Seller of all
Government licenses and authorizations necessary to perform its
respective material obligations hereunder.
Notwithstanding the foregoing, lack of satisfaction of
all of the foregoing conditions shall not relieve either Buyer or
Seller of any of their respective obligations set forth in this
Agreement which are to be performed prior to the date when such
conditions are satisfied.
4.2 Termination Prior to Mechanical Completion Due to Delay
or Inactivity. Either party may terminate this Agreement on 90
days prior written notice, if construction of the Facilities is not
commenced prior to December 31, 1996, or thereafter if the
Facilities are no longer under active construction for any period
of 90 consecutive days unless extended by mutual agreement of Buyer
and Seller; it being understood that such extensions will be
provided to the extent reasonably necessary to permit Buyer's
lenders to exercise any cure rights they may have under the Major
Contracts, provided that, without Seller's approval, such
extensions shall not delay termination for more than six (6)
months. In the event this Agreement is terminated pursuant to this
Section 4.2, neither party shall have any liability or obligation
whatsoever to the other party arising out of such termination,
except that if Buyer terminates this Agreement pursuant to this
Section 4.2 after Buyer has committed to purchase certain
quantities of Concentrates hereunder, then Seller shall be
authorized to sell such Concentrates in accordance with the same
terms and conditions as set forth in subparagraph (iv) of Section
3.4.
ARTICLE 5
Delivery of Concentrates
5.1 Delivery CIF Port of Discharge. Seller shall deliver
each shipment of Concentrates CIF Port of Discharge in lots of
approximately 5,000 - 25,000 WMT's as determined by Seller, unless
otherwise mutually agreed, by vessels which are either bulk
carriers or hopper barges carried aboard special purpose vessels
(SPV's) (collectively "vessels").
5.2 Discharging Berth. Buyer's dedicated discharging berth
shall be capable of discharging vessels with a maximum LOA of 193
meters, a maximum beam of 30 meters, a maximum draft of 9.7 meters
and a maximum air draft of 15 meters. Seller shall ship
Concentrates to Buyer in vessels which are within the
characteristics of Buyer's dedicated berth as described above.
Buyer shall designate one (1) safe discharging berth which is
suitable for vessels to discharge always afloat and Buyer shall be
responsible for all arrangements (including, without limitation,
the nomination of stevedores) and expenses (including without
limitation, stevedoring expenses) for discharging each cargo
shipped hereunder. Vessels which either discharge or load their
cargo at their berth shall be discharged in turn with Buyer having
the sole discretion to determine which of such vessels shall be
given preference, provided that Buyer will cooperate with Seller in
its efforts to comply with Buyer's shipping schedule.
5.3 Rate of Discharge.
(a) Buyer shall discharge each cargo from bulk carriers at
an average rate of 3,500 WMT's per weather working day of 24
consecutive hours, excluding Sundays, legal holidays, and customary
local and smelter holidays unless: (i) the bulk carrier is worked
on such days in which event actual time used shall count as lay
time used, or (ii) the bulk carrier is already on demurrage.
(b) Buyer shall discharge the total cargo contained in four
(4) hopper barges in a period not to exceed six (6) days from the
time the SPV tenders Notice of Readiness. Seller shall be
responsible to shift the hopper barges from the fleeting area to
Buyer's berth. Time lost in moving hopper barges from fleeting
area to berth and from berth to fleeting area shall not count as
lay time used. The above recited rate of discharge for hopper
barges may be reviewed upon the request of either party after one
(1) year from the first shipment and, if such a review is conducted
and the actual discharging rate differs substantially from 350
WMT's per hour, Buyer and Seller shall discuss and agree on an
appropriate increase or decrease in the discharging rate.
5.4 Notice of Readiness. Notice of Readiness to discharge
("Notice of Readiness") shall be tendered to Buyer or Buyer's
nominated agent at the Port of Discharge at any time during Normal
Office Hours, whether in berth or not, provided the vessel is in
free pratique and is in all respects ready to discharge. In the
case of hopper barges aboard the SPV's, Notice of Readiness shall
be tendered at any time during Normal Office Hours, provided the
hopper barges have been unloaded from the SPV's and are in the
fleeting area.
5.5 Lay Time. Lay time for vessels at Port of Discharge or
alternate port shall commence:
(i) at 1:00 p.m. the same working day if Notice of
Readiness is tendered during Normal Office
Hours before 12:00 noon, unless discharge of
cargo is sooner commenced, in which event the
time actually used shall count as lay time
used; and
(ii) at 8:00 a.m. the next working day, if Notice of
Readiness is tendered during Normal Office
Hours at or after 12:00 noon, unless discharge
of cargo is sooner commenced, in which event
the time actually used shall count as lay time used.
The bill of lading weight in wet metric tons shall be
used when calculating time allowable for discharge of vessels.
Time lost in waiting for a berth or at the request of
the relevant port authority, moving on or off a berth or from one
berth to another shall count as lay time used. However, if such
request is due to any reason whatsoever attributable to the vessel,
time lost in moving on or off a berth or from one berth to another
shall not count as lay time used.
Any time lost in discharging due to repairing a
vessel's equipment or by the fault of the vessel, its owner, master
or their agents shall not count as lay time used.
Each bulk carrier shall have all necessary onboard
lights for night discharging and the bulk carrier's crews shall
open and close hatches and remove and replace beams at the bulk
carrier's risk and expense, and the time used for such purpose
shall not count as lay time used at the Port of Discharge;
provided, however, if the custom of the port does not permit the
bulk carrier's crew to open and close hatches and remove and
replace any beams, then such activities shall be performed by shore
labor for Buyer's account, and time used for such purpose shall not
count as lay time used. Buyer shall open and close hatches on each
hopper barge at Buyer's risk and expense and the time used for such
purpose shall count as lay time used at the Port of Discharge.
To alleviate any additional costs which Buyer may incur
in opening and closing hatches and performing any other services
related to the handling of hopper barges including tugs needed to
move the barges (after the first movement) to and from the fleeting
area, Seller shall pay Buyer a "Hopper Barge Service Fee" of $0.25
per WMT. The amount of this Service Fee may be reviewed at the
request of either party after one (1) year from the first shipment.
If the documented actual cost of opening and closing hatches and
performing any other services specifically related to the normal
handling of hopper barges including tugs needed to move the barges
to and from the fleeting area varies substantially from $0.25 per
WMT, Buyer and Seller shall discuss and agree on an appropriate
increase or decrease in the Hopper Barge Service Fee.
5.6 Demurrage and Dispatch.
(a) Bulk Carriers. With respect to any cargo which
is not discharged from a bulk carrier within the allowed lay time,
demurrage shall be payable by Buyer to Seller as per the applicable
charter party or other ocean shipping arrangement, subject to a
maximum of $7,500, calculated per running day of 24 hours
(fractions pro rata). Seller shall pay Buyer dispatch money for
lay time saved at the Port of Discharge as per the applicable
charter party or other ocean shipping arrangement, subject to a
maximum of $3,750, calculated per running day of 24 hours
(fractions pro rata).
(b) Hopper Barges. With respect to any cargo which
is not discharged from the hopper barges within the allowed lay
time, demurrage shall be payable by Buyer to Seller calculated per
running day of 24 hours (fractions pro rata) at $0.50 per WMT based
on the total bill of lading weight for each four barge shipment for
the seventh and eighth day after tender of the Notice of Readiness.
If the delay extends beyond the eighth day, then beginning on the
ninth day demurrage shall be payable by Buyer to Seller calculated
per running day of 24 hours (fractions pro rata) at $1.00 per WMT
based on the total bill of lading weight for each four barge
shipment. In the event that Buyer discharges the four barge cargo
in less than six days after the Notice of Readiness, Seller shall
pay Buyer dispatch money for lay time saved at the Port of
Discharge calculated per running day of 24 hours (fractions pro
rata) at $0.25 per WMT based on the total bill of lading weight for
each four barge shipment. The amount of demurrage and dispatch on
hopper barges as recited above may be reviewed at the request of
either party after one (1) year from the first shipment.
(c) Payment. Any payments in respect of demurrage
or dispatch to be made by Buyer or Seller, as the case may be,
pursuant to this Section shall be made promptly after the
presentation of demurrage or dispatch calculations and supporting
shipping documents, such as time sheets and statements of fact.
5.7 Vessel Characteristics.
(a) Bulk Carriers. Bulk carriers will be single
deck ore carriers (no tween deckers), having no shaft tunnels or
center bulkheads in the holds, and with holds sufficiently wide to
be opened for normal grab discharge to avoid abnormal trimming and
Seller shall use all reasonable efforts to assure that Concentrates
are not loaded in spaces which are not accessible for normal grab
discharge; provided that, if Seller uses its best efforts to
charter a bulk carrier having the characteristics described above
but is unable to do so, Seller shall reimburse Buyer for any addi-
tional discharging expense, demurrage incurred, or loss of dispatch
resulting from such bulk carrier having different characteristics.
In no event shall Seller enter into a long term charter party for
a bulk carrier not having the characteristics described above.
Buyer and Seller shall have the right to appoint a mutually
acceptable qualified independent marine surveyor to survey any bulk
carrier at the Port of Discharge in order to determine the extent
to which such bulk carrier may be unsuitable for normal grab
discharging and the amount, if any, of additional discharging
expenses resulting from unsuitability, and such determination shall
be final and binding on the parties hereto. If an independent
marine surveyor is requested to survey any bulk carrier, (i) Seller
shall pay the expenses of the independent marine surveyor if the
independent marine surveyor determines that the bulk carrier is
unsuitable for normal grab discharging and that additional
discharging expenses will be incurred, and (ii) Buyer shall pay the
expenses of the independent marine surveyor if the independent
marine surveyor determines that the bulk carrier is suitable for
normal grab discharging.
(b) Hopper Barges and SPV's. Hopper barges will be
single deck (without tween decks) and with holds sufficiently wide
to be open for normal grab discharge to avoid abnormal trimming.
Four hopper barges will be carried aboard the special purpose
vessel and the total so carried will be considered a single
shipment. Each hopper barge will carry between approximately 1,300
DMT's and 1,500 DMT's of Concentrates for a total shipment of
between approximately 5,200 DMT's and 6,000 DMT's each voyage.
(c) Vessel Requirements of General Applicability.
Such bulk carriers, SPV's and hopper barges shall (i) carry all
necessary certificates which are required to trade within
Indonesian waters, and (ii) comply with all Government regulations,
and, unless otherwise agreed, be classed +100A1 at Lloyds or
equivalent, and shall be no more than 20 years of age (subject to
Seller's compliance with the provisions of Section 7.1 setting
forth Seller's responsibility for the payment of any overage
premium for cargo insurance), and be insurable in the New York,
London, or other internationally recognized insurance market.
Such vessels shall have specifications which conform to
the berth conditions set forth in Section 5.2 of this Agreement,
unless otherwise mutually agreed. Such specifications shall be
automatically updated during the term of this Agreement if Buyer's
dedicated berth at the Port of Discharge is improved so as to be
able to accept larger vessels.
Seller shall not charter or load Concentrates into
vessels from any shipping company as to which, because of its
financial condition, there exists reasonable grounds for insecurity
about the ability of such shipping company to carry out the normal
execution of its shipping obligations.
5.8 Overtime. Any overtime payable for discharging outside
normal working hours shall be paid by the party ordering such
overtime, except that officer's and crew's overtime shall always be
for Seller's account.
5.9 Port Charges. Seller shall hold Buyer free and
harmless from all port charges, harbor dues, pilotage, crew's
expense, light dues, the first movement of hopper barges to and
from the fleeting area, and all other charges and dues customarily
paid by a vessel at any Port of Discharge or alternate port as
provided in Section 5.11.
Port charges associated with second and any subsequent
movement of hopper barges to and from Buyer's dedicated berth shall
be for Buyer's account.
5.10 Title and Risk of Loss. Title and all risks of loss
shall pass to Buyer as cargo progressively crosses the rail of the
vessel at the Port of Loading. Except as provided in Section 7.4
(Insolvency Exclusion Clause) and except for sales made to MMC or
to third parties as provided in Section 3.4 (Buyer's Inability to
Receive Concentrates), Buyer agrees that throughout the term of
this Agreement Buyer shall be absolutely and unconditionally
committed to purchase, pay for and accept delivery of, all
Concentrates as to which title and risk of loss have passed to
Buyer. This provision is not intended to affect Buyer's
Contractual Tonnage purchase obligation.
5.11 Alternate Port. If the discharge of a cargo of
Concentrates at the Port of Discharge is affected by a strike or
walk-out or by damage, whether from natural or other causes, to
such Port of Discharge and the same has not been settled or
repaired within 48 hours, Buyer shall notify Seller within 12 hours
after the expiration of such 48 hour period, as to whether Buyer
desires that (i) such vessel wait until such strike or walk-out is
at an end or such damage is repaired, or (ii) such vessel proceed
to an alternate safe port where it can safely unload the
Concentrates. Promptly upon receipt of such notice from Buyer,
Seller shall direct the vessel to comply with Buyer's notice
provided that the Master of the vessel judges such port to be safe.
If the vessel proceeds to wait at the Port of Discharge and
discharging is delayed beyond the expiration of lay time, demurrage
shall be payable by Buyer to Seller at one-half the rate specified
in Section 5.6. If the vessel proceeds to an alternate safe port,
there shall be no additional freight charge payable by Buyer unless
the distance between the original Port of Discharge and the
alternate port exceeds 100 nautical miles, in which event the
additional freight in respect of the distance in excess of 100
nautical miles shall be payable by Buyer.
5.12 Stevedore Damages. Damages caused by stevedores
nominated and/or appointed by Buyer shall be settled directly
between the stevedores and the vessel owners; provided, however,
Buyer shall remain financially responsible for such damages in the
event the stevedores and the vessel owners fail to reach an
agreement or the stevedores fail for any other reason to pay the
vessel owner for such damages.
5.13 Jetty Damages. Damages to the jetty caused by vessels
chartered by Seller shall be settled directly between Buyer and the
vessel owner; provided, however, Seller shall remain financially
responsible for such damage in the event Buyer and the vessel owner
fail to reach an agreement or the vessel owner fails for any other
reason to pay Buyer for such damages.
5.14 Use of Bulk Carrier's Discharging Gear. Seller shall
have the right in its discretion to furnish bulk carriers (i)
having discharging gear on board or (ii) having no discharging gear
on board; provided, however, that such bulk carrier's discharging
gear shall not hinder discharging operations by Buyer's shore
cranes. Notwithstanding the above, should the bulk carrier's on
board discharging gear hinder discharging operations, then Section
5.7(a) shall apply. In the event that Buyer desires to utilize the
bulk carrier's discharging gear for discharging any cargo, Seller
shall use its best efforts to obtain the ship owner's consent for
such use. Buyer shall hold Seller harmless from all charges for or
in connection with each cargo or portion thereof of Concentrates so
discharged.
ARTICLE 6
Scheduling and Shipments
6.1 Initial Inventory Period. On or before November 1 of
the calendar year preceding the year in which Mechanical Completion
is expected to occur, Buyer and Seller shall mutually agree upon
the schedule of shipments of the quantities of Concentrates
specified in Section 3.1 which are to be shipped during the Initial
Inventory Period. Revisions to the schedule of shipments for the
Initial Inventory Period shall be as mutually agreed upon by the
parties.
6.2 First Contract Year. Buyer shall provide to Seller on
or before November 1 of the calendar year preceding the year in
which the first Contract Year is expected to begin, a preliminary
monthly shipping schedule for the first Contract Year based on
Buyer's then current projections for such period. The sum of the
quantities reflected for all 12 months in such preliminary monthly
shipping schedule for the first Contract Year shall not exceed the
Annual Shipping Schedule Quantity for such Contract Year.
With respect to the first six months of the first
Contract Year, at least 60 days prior to the beginning of each
month Buyer shall advise Seller in writing of its anticipated
quantity requirements for such month. For the first six month
period of the first Contract Year Buyer may change its monthly
quantity requirements without any limit in the percentage change
from one month to the next; provided, however, at least 30 days
prior to the beginning of each month during the first six months of
the first Contract Year Buyer shall furnish to Seller its final
written declaration of its quantity requirements for such month.
The month identified in such final written declaration for the
shipment of particular cargoes shall be considered to be the Month
of Scheduled Shipment with respect to such cargoes. In addition,
the quantity recited in each such final declaration shall
constitute the quantity of Concentrates which Buyer is obligated to
purchase and which Seller is obligated to deliver during such
monthly period.
With respect to the second six months of the first
Contract Year, at least 90 days prior to the beginning of each
month Buyer shall advise Seller in writing of its anticipated
requirements for such month. In providing such notice of
anticipated requirements, Buyer shall limit the quantity variation
for each such month so that it does not exceed plus 25% or minus
50% of the quantity which is set out with respect to the same month
in the shipping schedule which Buyer furnishes to Seller on or
before November 1 pursuant to the first paragraph of this Section
6.2. At least 60 days prior to the beginning of each month during
the second six months of the first Contract Year Buyer shall
furnish to Seller its final written declaration of its quantity
requirements for such month so long as such declaration is within
the variances specified above. The month identified in such final
written declaration for the shipment of particular cargoes shall be
considered to be the Month of Scheduled Shipment with respect to
such cargoes. In addition, the quantity recited in each such final
declaration shall constitute the quantity of Concentrates which
Buyer is obligated to purchase and which Seller is obligated to
deliver during such monthly period.
6.3 Second Contract Year. Buyer shall provide to Seller on
or before November 1 of the calendar year preceding the year in
which the second Contract Year begins, a preliminary monthly
shipping schedule for the second Contract Year based on Buyer's
then current projections for such period. The sum of the quantities
reflected for all 12 months in such preliminary monthly shipping
schedule for the second Contract Year shall not exceed the Annual
Shipping Schedule Quantity for such Contract Year.
At least 30 days prior to the beginning of each
consecutive three month period of the second Contract Year, Buyer
shall furnish to Seller in writing the final declaration of its
quantity requirements for each of such three calendar months. In
providing such final declaration, Buyer shall limit the quantity
variation for each such month so that it does not exceed plus 25%
or minus 50% of the quantity which is set out with respect to the
same month in the shipping schedule which Buyer furnishes to Seller
on or before November 1 pursuant to the first paragraph of this
Section 6.3, and Buyer shall limit the quantity variation for each
three month period so that it does not exceed plus 10% or minus 25%
of the quantity which is set out with respect to the same three-
month period in the shipping schedule which Buyer furnishes to
Seller on or before November 1 pursuant to the first paragraph of
this Section 6.3. The month identified in such final written
declaration for the shipment of particular cargoes shall be
considered to be the Month of Scheduled Shipment with respect to
such cargoes. In addition, the quantity recited in each such final
declaration shall constitute the quantity of Concentrates which
Buyer is obligated to purchase and which Seller is obligated to
deliver during such three month period.
6.4 Third Contract Year. Buyer shall, if requested by
Seller, provide to Seller on or before November 1 of the calendar
year preceding the year in which the third Contract Year begins, a
preliminary monthly shipping schedule for the third Contract Year
based on Buyer's then current projections for such period. The sum
of the quantities reflected for all months in such preliminary
monthly shipping schedule for the third Contract Year shall not
exceed the Annual Shipping Schedule Quantity for such Contract
Year; provided, however, Buyer will issue an adjusted monthly
shipping schedule in such Contract Year if it elects to exercise
its rights to an Inventory Allowance in accordance with the
provisions of Section 3.3.
At least 30 days prior to the beginning of each
consecutive three-month period (except in the case of the final
period which may be less than three months) of the third Contract
Year, Buyer shall furnish to Seller in writing the final
declaration of its quantity requirements for each of such three
calendar months (which in the case of the final period shall be
reduced to whatever lesser period remains in the third Contract
Year). In providing such final declaration, Buyer shall limit the
quantity variation for each such month so that it does not exceed
plus 25% or minus 25% of the quantity which is set out with respect
to the same month in the shipping schedule which Buyer furnishes to
Seller on or before November 1 pursuant to the first paragraph of
this Section 6.4, and Buyer shall limit the quantity variation for
each three-month period so that it does not exceed plus 10% or
minus 25% of the quantity which is set out with respect to the same
three-month or lesser period in such shipping schedule which Buyer
furnishes to Seller on or before November 1 pursuant to the first
paragraph of this Section 6.4. The month identified in such final
written declaration for the shipment of particular cargoes shall be
considered to be the Month of Scheduled Shipment with respect to
such cargoes. In addition, the quantity recited in each such final
declaration shall constitute the quantity of Concentrates which
Buyer is obligated to purchase and which Seller is obligated to
deliver during such three-month (or lesser) period.
6.5 Fourth and Subsequent Contract Years. Buyer shall, if
requested by Seller, provide to Seller on or before November 1 of
the calendar year preceding the commencement of the fourth and each
subsequent Contract Year a preliminary monthly shipping schedule
for the fourth (or subsequent) Contract Year based on Buyer's then
current projections for such year. The sum of the quantities
reflected for all months in such preliminary monthly shipping
schedule for such Contract Year shall not exceed the Annual
Shipping Schedule Quantity for such Contract Year; provided,
however Buyer may issue an adjusted monthly shipping schedule in
any such Contract Year in which it elects to exercise its rights to
an Inventory Allowance in accordance with the provisions of Section
3.3.
At least 30 days prior to the beginning of each
calendar quarter of such Contract Year, Buyer shall furnish to
Seller in writing the final declaration of its quantity
requirements for each calendar month in such calendar quarter. In
providing such final declaration, Buyer shall limit the quantity
variation for each such month so that it does not exceed plus 25%
or minus 25% of the quantity which is set out with respect to the
same month in the shipping schedule which Buyer furnishes to Seller
on or before November 1 pursuant to the first paragraph of this
Section 6.5, and Buyer shall limit the quantity variation for each
three-month period so that it does not exceed plus 10% or minus 25%
of the quantity which is set out with respect to the same three-
month period in such shipping schedule which Buyer furnishes to
Seller on or before November 1 pursuant to the first paragraph of
this Section 6.5. The month identified in such final written
declaration for the shipment of particular cargoes shall be
considered to be the Month of Scheduled Shipment with respect to
such cargoes. In addition, the quantity recited in each such final
declaration shall constitute the quantity of Concentrates which
Buyer is obligated to purchase and which Seller is obligated to
deliver during such three-month period.
6.6 General. Seller shall deliver each shipment of
Concentrates reflected in the latest shipping schedule provided by
Buyer in accordance with the provisions of this Article 6 during
the month identified in such schedule, provided that Buyer uses all
reasonable efforts to reflect in its shipping schedules the
spreading of shipments as evenly as practicable throughout each
Contract Year of the term of this Agreement taking into account
Buyer's operational requirements. Any failure by Seller to comply
with such schedule shall be governed by the provisions of Section
3.5. Any modifications of shipping schedules not provided for
herein shall be in accordance with the mutual agreement of Buyer
and Seller.
6.7 Buyer's Shipping Instructions and Documentation, Vessel
Information and Further Shipment Confirmation. Each party hereto
shall provide to the other party hereto all shipping instructions
and information, documentation, vessel information, arrival and
departure information, tonnage figures, stowage plans and other
information and papers reasonably requested by such other party to
assure the orderly delivery of all Concentrates which are to be
sold and delivered under this Agreement.
ARTICLE 7
Insurance
Seller shall effect cargo insurance with an internationally
reputed insurance company(ies) on the following conditions:
7.1 Insured Value. The insured value shall be 110% (one
hundred ten percent) of the value of the Concentrates as per the
invoice for the provisional payment, subject to adjustment to the
final value, as determined in accordance with this Agreement.
In the event that Seller's insurance company shall at
any time charge an overage premium on vessels which are over 15
years of age, Seller shall bear and pay the full amount of such
overage premium without any obligation on the part of Buyer to
reimburse Seller for any portion of such premium.
7.2 Insurance Coverage. The insurance shall designate
Buyer or the collateral trustee or agent acting for the Project
lenders who is designated by Buyer, as the loss payee(s). Such
coverage shall be valid from the time when the Concentrates pass
the ship's rail of the carrying vessel at the Port of Loading until
final destination at the receiving smelter's warehouse and shall be
effective under the terms of the Institute Cargo Clause (A) or its
equivalent, average irrespective of percentage, including the risk
of all fire or heating even when caused by inherent vice or
spontaneous combustion, and Institute War Clause and Institute
Strike, Riots and Civil Commotion Clauses or their equivalents.
7.3 Claims. Claims for total or partial loss and/or damage
shall be payable based on the value as per the invoice for the
provisional payment subject to later adjustment to the final value.
Such claims shall also include expenditure directly associated with
the loss (including but not limited to surveyor's fees and salvage
and removal costs), if any, arising from such loss and/or damages.
Any claim shall be payable in Dollars.
7.4 Insolvency Exclusion Clause. The price of any cargo
shipped hereunder shall be reduced to the extent of any loss
reasonably suffered by Buyer in any situation where all or any
portion of a cargo insurance claim submitted by Buyer is denied for
the reason that a shipment has been seized and the cargo sold or
damaged due to the insolvency of the ship owner or carrier and
Seller either knew or should have known that such insolvency might
prevent the normal prosecution of the voyage.
7.5 Seller's Assistance. If any Concentrates are lost or
damaged, Seller shall, upon the request of Buyer, assist in the
recovery of the insurance from the insurers.
7.6 War Risk Premiums. Seller shall bear the full cost of
the premiums for war risk insurance up to one percent (1%) of the
estimated value of the Concentrates in any shipment. In the event
such premiums exceed one percent (1%), Buyer and Seller will each
pay one-half (1/2) of the excess cost over one percent (1%), with
Seller including the charge for Buyer's one-half (1/2) of such excess
premiums on its invoice to Buyer for the affected shipment(s).
Notwithstanding the foregoing, Buyer and Seller may discuss and
mutually agree on other alternatives such as not carrying war risk
on any particular shipment(s) if they mutually agree in writing
that the cost of such insurance is excessive.
ARTICLE 8
Price
8.1 Payable Copper. Payable Copper shall mean 96.55% of
the full copper content (as ascertained by assay in accordance with
Article 13) of each DMT of Concentrates, subject to a minimum
deduction of 1.05 units for the first five Contract Years. The
definition of this term shall be reviewed prior to the end of the
fifth Contract Year hereunder, and every five years thereafter in
accordance with the provisions of Article 10.
8.2 Payable Gold. Payable Gold shall mean 97.0% of the
full gold content (as ascertained by assay in accordance with
Article 13) of each DMT of Concentrates. The definition of this
term shall be reviewed prior to the end of the fifth Contract Year
hereunder, and every five years thereafter in accordance with the
provisions of Article 10.
8.3 Payable Silver. Payable Silver shall mean (i) 90% of
the full silver content (as ascertained by assay in accordance with
the provisions of Article 13) of each DMT of Concentrates if the
full silver content is greater than or equal to 30 grams per DMT of
Concentrates, subject to a minimum deduction of 15 grams; and (ii)
zero percentage (i.e. no payment) if such full silver content of
each DMT of Concentrates is less than 30 grams. The definition of
this term shall be reviewed prior to the end of the fifth Contract
Year hereunder, and every five years thereafter in accordance with
the provisions of Article 10.
8.4 Quotational Period. Quotational Period shall mean,
with respect to Payable Copper in any portion of any shipment, the
third calendar month following the month in which the Date of
Arrival occurs, and with respect to Payable Gold and Payable Silver
in any portion of any shipment, the Month of Scheduled Shipment.
8.5 Determination of Price. The price of each shipment of
Concentrates sold hereunder shall be an amount equal to the sum of
the following payments less the sum of the deductions set forth in
Article 9.
8.6 Copper Price. Buyer shall pay for the Payable Copper
in Concentrates sold hereunder at a price equal to the daily
official London Metal Exchange Grade A Settlement price (the "LME
Copper - Grade A Settlement Price") quoted in Dollars, as published
in "Platt's Metals Week" and averaged over the applicable
Quotational Period.
8.7 Gold Price. Buyer shall pay for the Payable Gold in
Concentrates sold hereunder at a price equal to the daily average
of the London free bullion market "Initial" and "Final" quotations
for gold (the "London Gold Price") quoted in Dollars, as published
in "Platt's Metals Week" and averaged over the applicable
Quotational Period.
8.8 Silver Price. Buyer shall pay for the Payable Silver
in Concentrates sold hereunder at a price equal to the daily London
bullion brokers spot price for silver quoted in Dollars, as
published in "Platt's Metals Week" and averaged over the applicable
Quotational Period.
8.9 Conversion to Dollars. The prices of copper, gold and
silver, if quoted in any currency other than Dollars by "Platt's
Metals Week" (or any other publication substituted for "Platt's
Metals Week" by mutual agreement of Seller and Buyer), shall be
converted daily during any applicable Quotational Period into
Dollars by using the noon buying rate for the applicable currency
for cable transfers as certified by the Federal Reserve Bank of New
York for customs purposes. The average price for any such
Quotational Period shall be calculated by totaling the Dollar
equivalence of the daily prices during such period and dividing
such total by the number of pricing days in such period.
8.10 Alternate Pricing.
(a) Pricing Basis No Longer Published or No Longer
Representative. In the event that (i) "Platt's Metals Week" ceases
to be published, or ceases to publish any quotation specified in
this Article 8 for determining the prices for copper, gold or
silver, or publishes and does not later correct an erroneous
quotation for copper, gold or silver, of a value then being
obtained for copper, gold or silver (as applicable), or (ii) it is
the reasonable belief of Buyer or Seller that the quotations are no
longer representative of the fair market values then being obtained
by non-integrated mines for copper, gold and silver contained in
copper concentrates, then, upon written notice by Seller or Buyer
to the other, the parties shall promptly confer and agree on a new
pricing basis for the Payable Copper, Payable Gold or Payable
Silver in the Concentrates to be sold hereunder.
(b) Interim Invoicing. If Seller or Buyer shall
give notice as provided in Section 8.10(a), Seller shall have the
right by written notice to Buyer to invoice provisionally at the
"Interim Price" (as hereinafter determined) and Buyer shall
thereafter pay, on the basis of the Interim Price until (i) Seller
and Buyer shall reach agreement with respect to a new pricing basis
for the metal concerned or (ii) a referee's decision shall have
been made as hereinafter provided, whichever shall first occur.
The Interim Price shall be the applicable price(s) applied to the
last previous shipment sold hereunder prior to such written notice.
(c) Referral to Referees. In the event that
within 60 days after the date of any notice pursuant to this
Section 8.10, Seller and Buyer shall not reach agreement regarding
an appropriate basis for the fair market value of the copper, gold
and/or silver content of the Concentrates to be sold hereunder,
either Seller or Buyer shall have the right to refer the matter to
the referee(s) as provided in Article 19 for the sole purpose of
determining such basis or reference method.
ARTICLE 9
Deductions for Smelting and Refining Charges and for Impurities
9.1 Smelting and Refining Charges for Part A Tonnage.
Subject to the provisions of Section 9.3 (Floor TC's and RC's) of
this Agreement, the smelting and refining charge(s) applicable to
Part A Tonnage in each cargo of Concentrates delivered hereunder
shall be determined as follows:
(i) Initial Negotiation. During the period January
1, 1998 through March 31, 1998 (or earlier with the approval of
both parties) Seller and Buyer shall conduct negotiations in good
faith for the purpose of reaching agreement by no later than March
31, 1998 on the following matters:
(a) A percentage of the Payable Copper price
determined pursuant to Article 8, the applicable price range for
such percentage and the associated (price participation) formula
for smelting and refining charges for the Payable Copper price
which is outside of such designated price range (or alternatively
two or more different percentages of such Payable Copper price with
a corresponding range of prices which are applicable to each such
percentage) for each cargo of Concentrate sold hereunder during the
period commencing with the first delivery of Concentrates hereunder
and continuing through December 31, 2003, which shall constitute a
combined smelting and refining charge for Part A Tonnage for such
period; and
(b) Whether or not gold and silver refining
charges will be applicable to Part A tonnage, and the amount (if
any) of such charges applicable for the same period specified in
(a) above, all based on the generally prevailing market for price
sharing type contracts.
Notwithstanding the above, each of Buyer and Seller
shall have the right and option at any time within the 18 month
period preceding the deadline date for reaching a negotiated
agreement on such Part A Tonnage charges, to obtain from a third
party and submit a copy thereof to the other party hereto a written
competitive offer(s) satisfying the following criteria: (1) in the
case of Buyer, a bona fide offer to sell and deliver copper
concentrates to the Gresik smelter or, in the case of Seller, a
bona fide offer to purchase from Seller copper concentrates
produced from Seller's mines and processing facilities in
Indonesia, (2) having a term or duration of five (5) years or more,
(3) having commercial smelting and refining terms based on a price
sharing formula and not having other commercial terms and
conditions which have the effect of distorting the level of such
smelting and refining charges (such as inadequate price adjustments
and penalties to appropriately reflect variances in concentrate
quality, or exceptionally high or low percentages of payable
metals), and (4) the party tendering such offer may not be an
Affiliate of the party hereto which is receiving the offer or have
any financial linkages to the party hereto receiving such offer
which could affect the commercial terms offered. The sum of the
tonnage represented by the competitive offers shall be a quantity
which is greater than or equal to 100,000 DMT's per year (i.e. the
average annual quantity during the first five years covered by such
offer) with no single offer representing less than 50,000 DMT's per
year (based on the same calculation of the average annual
quantity). Unless the parties otherwise agree, if more than one
offer is submitted by a party hereto and the terms offered in such
offers are not identical to each other, the submitting party must
assure that they are structured in a manner whereby a combined
weighted average of the smelting and refining charge terms can be
readily calculated from the face of such offers.
The party hereto which is the recipient of a
competitive offer(s) submitted to it by the other party hereto in
accordance with the preceding paragraph shall have a period of
three (3) months following its receipt of such offer(s) to decide
whether to accept the smelting and refining charges reflected in
such offer(s) as a whole (which shall be the combined weighted
average thereof if more than one competitive offer has been
submitted) or to reject such charges as a whole. The failure of the
party receiving such offer(s) to agree to the charges contained in
such offer(s) as a whole within such three (3) month period of time
shall constitute a rejection of such charges.
During the period when such offer(s) is (are) under
consideration, Buyer and Seller may by mutual agreement have
discussions to determine whether a compromise is feasible on such
smelting and refining charges for the Part A Tonnage (i.e. whether
a solution other than the acceptance of the offered charges is
feasible), but neither party shall be obligated to compromise. In
the event that the party to whom such third party offer(s) was
submitted submits its own third party offer(s) to the other party
hereto meeting all of the above described criteria and quantity
requirements within the above described three (3) month evaluation
period and the smelting and refining charges contained in such
subsequent offer(s) is (are) more favorable to the party submitting
such subsequent offer(s), then Buyer and Seller shall immediately
conduct good faith negotiations to resolve the differences between
such offers in an effort to reach agreement upon the smelting and
refining charges which will be applicable from the initial delivery
of Concentrates hereunder through December 31, 2003. If agreement
is not reached as a result of such negotiations by the end of a
period of 3 months following the first submittal of a third party
offer in accordance with this Section 9.1(i) or by the end of such
other period as is mutually agreed upon, Buyer and Seller may by
mutual agreement (but shall not be obligated to) submit such third
party offers or sets of offers to a referee(s) for final
determination in accordance with the provisions of Article 19, and
in such event the referee(s) shall take into account the two (2)
offers or sets of offers which have been submitted and decide the
Part A Tonnage smelting and refining charges which shall be
applicable from the initial delivery of Concentrates hereunder
through December 31, 2003. If there is no mutual agreement
following such negotiation regarding the two (2) third party offers
or sets of offers and if the parties do not decide to have a
referee(s) determine such charges, then the same consequences shall
apply as are set forth in the penultimate (next to last) paragraph
of this Section 9.1(i).
If the recipient of a third party offer(s) submitted to
it by the other party hereto agrees to accept such Part A Tonnage
smelting and refining charges as a whole, if mutual agreement is
reached on such smelting and refining charges, or if the referee
resolves the two (2) offers or sets of offers, then such smelting
and refining charges shall be applicable to all of the Part A
Tonnage commencing with the first delivery of Concentrates
hereunder and continuing through December 31, 2003.
If the recipient of such offer(s) rejects such smelting
and refining charges (either expressly or impliedly), or if Buyer
and Seller shall otherwise fail to agree upon the above specified
smelting and refining charges for Part A Tonnage prior to March 31,
1998, then notwithstanding anything contained in this Agreement to
the contrary, provided that offers (i.e. by Buyer or Seller) or
third party offers (i.e. the third party offers which are
specifically described above) have been submitted in good faith by
both parties, Seller shall be relieved from the obligation to sell
and deliver to Buyer and likewise Buyer shall be relieved from the
obligation to purchase, pay for and accept delivery from Seller of
fifty percent (50%) of the Part A Tonnage, in the case of the
failure of the parties to agree or, in the case of the rejection of
a third party offer(s), a quantity of Concentrates selected by the
party rejecting the smelting and refining charges contained in the
third party offer(s) which shall be equal to either (a) fifty
percent (50%) of the Part A Tonnage, or (b) the annual quantity
represented by the competitive third party offer(s). Either of
such quantity reductions shall be hereinafter referred to as the
"Permanent Holiday Tonnage"; and in either situation the reduction
shall commence on January 1, 1999 and continue for the remainder of
the term of this Agreement. If the rejecting party fails to notify
the party which submitted the offer(s) within thirty (30) days of
its rejection, with respect to its selection of the (a) or (b)
quantity, then (a) shall apply. In the event of such a reduction,
the smelting and refining charges which are applicable to the Part
B Tonnage shall apply to one hundred percent (100%) of the Part A
Tonnage during the period from the first shipment hereunder through
December 31, 1998, and to the portion of the Part A Tonnage which
does not constitute the Permanent Holiday Tonnage from January 1,
1999 through December 31, 2003.
If the smelting and refining charges for Part A Tonnage
for the period from the date of the initial shipment hereunder
through December 31, 2003 are not resolved prior to the time of the
initial shipment hereunder, then any shipments of Concentrates
which are delivered prior to such final resolution shall utilize
the Part B Tonnage smelting and refining charges, and as soon as a
resolution is reached a retroactive adjustment payment shall be
made with respect to all shipments on which a payment is made
between the date of the first shipment hereunder and the date of
the final resolution for the amount of the difference between the
pricing based on the Part B Tonnage smelting and refining charges
and the pricing based on the finally resolved Part A Tonnage
smelting and refining charges.
(ii) Subsequent Negotiations. In the event Buyer and
Seller determine or reach agreement on the smelting and refining
charges for the Part A Tonnage in accordance with Section 9.1(i) as
a result of negotiations, as a result of the acceptance of the
smelting and refining charges contained in a third party offer(s)
or with the referee resolving the differences between two (2) third
party offers or sets of offers, then on or before March 31, 2003
and on or before March 31 of each fifth year thereafter, Buyer and
Seller shall comply with the procedures set forth in Section 9.1
(i) including but not limited to the obligations associated with
the right of each party to submit a third party offer(s) in order
to determine the smelting and refining charges which will be
applicable to the Part A Tonnage for the five (5) Contract Years
commencing on January 1, 2004 with respect to the first such
settlement under this Section 9.1(ii), and with the same timing to
apply to each subsequent five (5) Contract Years, mutatis mutandis.
If as a result of the compliance by Buyer and Seller
with the procedures provided for in the immediately preceding
paragraph of this Section 9.1(ii): (i) Buyer and Seller mutually
agree on the smelting and refining charges which shall be
applicable for the ensuing five (5) Contract Years, (ii) Buyer or
Seller agrees to the smelting and refining charges for such period
contained in a third party offer(s) submitted to it by the other
party hereto, or (iii) the referee resolves the differences between
two (2) offers or sets of offers, all in the manner provided in
Section 9.1(i), then upon the occurrence of any of such events the
smelting and refining charges as so determined shall be applicable
to all Part A Tonnage for the ensuing five (5) Contract Years.
In the event the Part A Tonnage has not previously been
reduced due to the failure of the parties to agree on smelting and
refining charges, and in any subsequent five (5) year negotiation
agreement is not reached utilizing the Section 9.1(i) procedures,
then notwithstanding anything to the contrary recited above in this
Section 9.1(ii) Buyer and Seller shall determine the amount of the
Permanent Holiday Tonnage reduction in accordance with the
procedures set forth in Section 9.1(i), and a Part A Tonnage
reduction equal to such Permanent Holiday Tonnage shall be
effective from the commencement of the applicable ensuing five (5)
Contract Years through the end of the term of this Agreement, and
in such event the smelting and refining charges which are
applicable to the Part B Tonnage for each of the ensuing five (5)
Contract Years shall apply during each of the ensuing five (5)
Contract Years to the portion of the Part A Tonnage which does not
constitute the Permanent Holiday Tonnage.
In the event a Permanent Holiday Tonnage reduction of
Part A Tonnage has occurred, either under Section 9.1(i) or Section
9.1(ii), then notwithstanding anything to the contrary recited in
this Section 9.1(ii), Buyer and Seller shall meet at such times as
may be mutually agreed and conduct negotiations in good faith and
conclude such negotiations by March 31 of each fifth year
thereafter (i.e. 2003, 2008 and so on, as applicable) with respect
to: (a) a percentage of the Payable Copper price determined
pursuant to Article 8, the applicable price range for such
percentage and the associated (price participation) formula for
smelting and refining charges for the Payable Copper price which is
outside of such designated price range (or alternatively two or
more percentages of such Payable Copper price with a corresponding
range of prices which are applicable to each such percentage) which
shall constitute a combined smelting and refining charge during the
ensuing five (5) Contract Years for the portion of the Part A
Tonnage which does not constitute the Permanent Holiday Tonnage,
and (b) whether or not gold and silver refining charges will be
applicable during such five (5) Contract Years period to such Part
A Tonnage and, if they are determined to be applicable based on the
generally prevailing market, the amount of such charges. If
agreement is reached in accordance with the foregoing provisions of
this paragraph, the agreed upon charges shall be applicable to the
above specified Part A Tonnage for the ensuing five (5) Contract
Years. If despite such good faith negotiations mutual agreement on
such charges is not reached between Buyer and Seller by March 31 of
such year, then the smelting and refining charges which are
applicable to the Part B Tonnage during each of the ensuing five
(5) Contract Years shall apply to such Part A Tonnage for each of
such ensuing five (5) Contract Years.
(iii) Agreements Required if Permanent Holiday
Reduction Effected. If a reduction in Part A Tonnage is effected as
a result of the application of this Section 9.1, then
notwithstanding anything to the contrary recited in Section 6.6 or
any other provision of this Agreement, from and after the effective
date of such reduction any changes to the shipping schedule
provided by Buyer by November 1 of each year shall be by mutual
agreement. In the event of such reduction, Buyer and Seller shall
also promptly discuss and agree upon an appropriate amendment to
this Agreement reflecting the change which has occurred in the
nature of this Agreement. Such amendment shall consist of the
following items: (1) the adoption of a simplified procedure to
determine the Contractual Tonnage figure, which is fair and
reasonable to both parties, (2) proper revisions to the alumina
penalty due to the possibility of blending of the Concentrates with
copper concentrates supplied by third parties, and (3) the
establishment of audit procedures to verify that Buyer's third
party purchases are and continue to be in accordance with generally
accepted international business practices and on competitive world
market terms and conditions at the time of sale or contract.
9.2 Smelting and Refining Charges for Part B Tonnage.
(i) Smelting Charge, Payable Copper Refining Charge
and Price Participation Terms for Part B Tonnage. Subject to the
provisions of Section 9.3 (Floor TC's and RC's) and Article 10
(review of commercial terms) of this Agreement, the smelting
charge, the Payable Copper refining charge and the price
participation terms applicable to Part B Tonnage in each cargo of
Concentrates delivered hereunder shall be determined as follows:
(a) Determination on Basis of Weighted Average of
Eligible Reference Contracts. The smelting charge, the Payable
Copper refining charge and the price participation terms applicable
to Part B Tonnage for each calendar year shall be determined by
calculating the weighted average of each of such terms as contained
in each of three (3) separate groups of Reference Contracts, the
first group being those eligible designated Reference Contracts
submitted by Seller, the second group being those eligible
designated Reference Contracts submitted by Buyer, and the third
group being the Ertsberg Concentrate Agreement and the MMC
Concentrate Agreement (in each case as referred to in item (viii)
of the definition of "Contracts Criteria" in Appendix "A" hereto)
and then calculating the combined weighted average of such three
(3) groups of Reference Contracts for each such term (with equal
weight being given to each of the three groups), all in accordance
with the procedures described in this Section 9.2(i), and the
weighted average figures for the above identified terms which are
determined every calendar year thereafter shall be applicable to
50% of the Part B Tonnage for the Contract Year in which the
determinations are made and also to 50% of the Part B Tonnage for
the following Contract Year. Notwithstanding the above: (1) as to
shipments made during the portion of a calendar year which is prior
to completion of the annual determination in accordance with the
process set forth in (b) through (f) of this Section, such terms
shall be as provided for in subsection (h) of this Section 9.2; (2)
the weighted average figures for the above identified terms which
are determined preceding the commencement of the first Contract
Year shall be applicable to 100% of the Part B Tonnage for the
calendar year which includes the Initial Inventory Period and the
beginning of the First Contract Year; (3) the weighted average
figures for the above identified terms which are determined
following the commencement of the first Contract Year shall be
applicable to 100% of the Part B Tonnage for the calendar year
which includes both the end of the First Contract Year and the
beginning of Second Contract Year; and (4) the weighted average
figures for the above identified terms which are determined
following the commencement of the second Contract Year and which
shall be applicable to 100% of the Part B Tonnage for the calendar
year which includes both the end of the Second Contract Year and
all of the third Contract Year, shall also be applicable to 50% of
the Part B Tonnage for the fourth Contract Year.
(b) Selection of Auditor. As early as practicable
during the first three months of each calendar year (including but
not limited to any calendar year comprising a Contract Year) Buyer
and Seller shall select by mutual agreement and retain an
internationally recognized auditor to perform the responsibilities
of the auditor as specified in this Section 9.2(i). Such auditor's
fees and expenses shall be borne equally by the parties. At the
time the auditor is retained such auditor shall be provided with a
copy of this Agreement on a strictly confidential basis for use in
its work hereunder.
Prior to such selection of the auditor, and as soon as
practicable following the date of execution of this Agreement,
Seller shall develop guidelines and hypothetical examples for use
by the auditor in order for such auditor to efficiently and
properly perform its duties and responsibilities hereunder, and
Seller shall review with Buyer such guidelines and hypothetical
examples, and obtain Buyer's concurrence which shall not be
unreasonably delayed or withheld, prior to submitting them to the
auditor.
(c) Determination of Eligibility for Designated
Reference Contracts. Within three (3) Business Days following the
commencement of the third month of each calendar year except as
contemplated in item (ix) of the definition of Contracts Criteria
in Appendix "A" hereto, commencing with calendar year 1998 (or such
later calendar year in which the first delivery of Concentrates to
the Facilities is expected to occur), each of Seller and Buyer
shall designate as many concentrate sales and/or purchase
agreements to which it is a party (or, in the case of Buyer, to
which MMC is a party) as exist up to a maximum of three (3) such
agreements which such party believes are eligible Reference
Contracts, meaning Reference Contracts which satisfy all of the
Contracts Criteria. If Buyer or Seller, in its good faith judgment,
believes that it has three (3) or less eligible Reference Contracts
satisfying all of the Contracts Criteria, such party shall
designate all such Reference Contracts that it does have.
Each party's designations shall be in writing and delivered by
express courier service or facsimile to the auditor. Each such
designation shall clearly identify the Reference Contract being
designated. Such identification shall include, at a minimum, the
name of the agreement, the name of the buyer(s) and the seller(s),
the effective date and duration of the agreement and the
contractual tonnage for the annual period which is covered by the
"Current Settlement" (excluding any tonnage which will be shipped
during periods beyond the first annual period following such
settlement). The phrase "Current Settlement" shall mean a
settlement of the commercial terms identified above which is
concluded during the period from October 1 of the immediately
preceding year to March 1 of the current year except as
contemplated in item (ix) of the definition of Contracts Criteria
in Appendix "A" hereto, which applies to tonnage being utilized by
the designating party in its weighted average calculations and
which tonnage is obligated to be shipped under such agreement
during the annual period covered by such settlement.
Each designation shall be accompanied by a written
certification signed by an authorized representative of the
designating party that such designated Reference Contract satisfies
all of the Contracts Criteria including a brief explanation as to
why each Contracts Criteria has been satisfied. A copy of each such
Reference Contract shall be provided to the auditor on a strictly
confidential basis together with the designation, certification and
explanations for such Reference Contract.
Each party shall simultaneously provide to the other party a
copy of the designation, certification and explanations for each
Reference Contract which it designates but not a copy of the
Reference Contract being designated. The party receiving the
designation and accompanying materials shall have seven (7)
Business Days following its receipt of such designation and
accompanying materials to provide to the auditor by express courier
service or facsimile any comments or objections it may have
regarding the eligibility of such designated Reference Contract
(with a copy to the designating party).
Based on the auditor's determination as to whether or not each
designated Reference Contract satisfies all of the Contracts
Criteria, such auditor shall notify both parties of the acceptance
as eligible or rejection as ineligible of each designated Reference
Contract. In order to expedite the completion of the auditor's
work, the auditor may, if it so desires, provide a notice of
acceptance or rejection as soon as it determines that a Reference
Contract is eligible or ineligible without waiting for the
completion of its evaluations of other Reference Contracts. If a
party which has one or more of its designated Reference Contracts
rejected has one or more other Reference Contracts which it has not
previously designated and which it believes to satisfy all of the
Contracts Criteria, then such affected party shall within three (3)
Business Days following its receipt from the auditor of a rejection
notice designate either a single substitute Reference Contract or
two (2) such substitute Reference Contracts (designating one as its
first preference and the other one as its second preference), in
the same manner as the original designation. If a party whose
Reference Contract(s) was (were) rejected has two (2) or more other
concentrate purchase or sale agreements which it believes qualify
as Reference Contracts, it shall be obligated to designate two (2)
substitute Reference Contracts (with its first and second
preferences indicated to the auditor). The auditor shall evaluate
the second preference substitute Reference Contract only if
required for the party who submitted such second substitute
Reference Contract to have the full number of eligible Reference
Contracts. If notwithstanding the submittal of such substitute
Reference Contract(s) the auditor does not rule as eligible the
full number of Reference Contracts for a party, then the remaining
Reference Contracts which were submitted by such party and which
are determined to be eligible shall be used exclusively in such
party's weighted average determinations.
Notwithstanding anything to the contrary recited in this
Section 9.2(i), each calendar year each party shall have the option
of making one but not more than one discretionary change in its
designations of eligible designated Reference Contracts. A
designated Reference Contract which is eligible for one or more
years but which subsequently expires or is terminated, under which
a Current Settlement is not made, or which no longer satisfies all
of the Contracts Criteria, shall be deleted as one of such party's
eligible designated Reference Contracts, but such deletion and any
substitution therefor shall not be considered to be a discretionary
change for purposes of this paragraph.
(d) Calculation of Weighted Average Figures for
Each Party's Eligible Reference Contracts. Upon completion of the
review of all designated Reference Contracts by the auditor, if
Buyer or Seller has received a ruling from the auditor that at
least one of its designated Reference Contracts is eligible, then
such party shall promptly calculate the weighted average figure for
each of the above identified terms taking into account the Current
Settlement which is applicable to all eligible tonnage (i.e. the
tonnage which is being sold by Seller or purchased by Buyer or MMC)
to be delivered under all of its eligible designated Reference
Contracts during the annual period covered by such Current
Settlement. Such calculations, the results thereof and a brief
explanatory report of how each figure was determined shall be
furnished to the auditor (with a copy sent to the other party)
within five (5) Business Days following the completion of the
auditor's rulings on all designated Reference Contracts.
If either Seller or Buyer is unable to designate any Reference
Contracts satisfying all of the Contracts Criteria, or the auditor
does not rule as eligible any of such designated Reference
Contracts, then such party's concentrate sales agreements shall not
be taken into account in making the combined weighted average
determinations under this Section 9.2.
The weighted average figure for the smelting charge shall be
calculated separately from the weighted average figure for the
Payable Copper refining charge. In the event that the smelting
charge and the Payable Copper refining charge is expressed on a
combined smelting and refining charge basis in any eligible
designated Reference Contract, the smelting charge shall be
calculated separately from the Payable Copper refining charge for
such Reference Contract in a manner which allows direct comparison
of the smelting and Payable Copper refining figures on a similar
number basis. In other words, the number of Dollars used for a
smelting charge shall equal the number of tenths of a cent used for
the refining charge. For example, in an eligible designated
Reference Contract which recites a combined smelting and refining
charge of $0.20 per pound of Payable Copper for copper concentrates
with a 44% copper grade and with a Payable Copper figure of 96.5%,
such combined smelting and Payable Copper refining charge shall be
converted to a $97.00 smelting charge and a $0.097 Payable Copper
refining charge, and such latter figures utilized in the weighted
average calculations for the smelting charge and the Payable Copper
refining charge for such Reference Contract.
With respect to calculation of the weighted average figures
for price participation, for each eligible designated Reference
Contract the price participation shall be determined for each price
of copper and averaged together on a weighted average basis. An
illustration of the proper method for each party to use in
calculating its weighted average figure for price participation is
set out on Appendices (C) and (D).
(e) Calculation of Weighted Average Figures for the
Ertsberg Concentrate Agreement and MMC Concentrate Agreement. At
the same time that Seller calculates and furnishes to the auditor
the weighted average figures for its own eligible designated
Reference Contracts, Seller shall separately calculate and furnish
to the auditor (with a copy to Buyer) a weighted average figure for
each of the above identified terms together with a brief
explanatory report, taking into account all quantities covered by
Seller's Current Settlement under (1) the Ertsberg Concentrate
Agreement, plus (2) the MMC Concentrate Agreement. For purposes of
these Section 9.2(i) calculations, both of these contracts
(including their successors as described in the definitions of such
Agreements) shall be deemed to be eligible designated Reference
Contracts. The provisions of subsection (d) governing how such
calculations will be made shall also apply to the calculation of
the weighted average figures for this group of eligible designated
Reference Contracts.
If only one of the two (2) above identified agreements is in
effect for the calendar year under consideration, or if a Current
Settlement has been made under only one of such agreements, then
only the figures reflected in such agreement which has been
currently settled shall be utilized. If neither of such two
agreements is in effect for such calendar year or if no Current
Settlement has been effected under such agreement(s) for such
calendar year, then such concentrate sales agreements shall not be
taken into account in making the weighted average determinations
under this Section 9.2(i).
Each party, within five (5) Business Days following receipt of
the weighted average figures, supporting calculations and
explanatory reports produced by the other party, shall furnish to
the auditor for its consideration any questions, comments or
objections it may have regarding such figures, calculations and
reports produced by the other party.
(f) The Auditor's Preliminary and Final
Determinations. The auditor, promptly after receiving the above
described weighted average figures and supporting calculations and
explanations, and any comments or objections made by the non-
submitting party, shall evaluate such information and then make any
adjustments it deems appropriate to each party's calculations.
Such adjustments may be made by the auditor if the auditor finds
simple mathematical errors, errors resulting from a
misinterpretation of this Section 9.2(i), errors resulting from a
misinterpretation of any eligible designated Reference Contract,
errors due to the failure to take into account factors which
unreasonably distort a figure being utilized by a party in its
calculations or for other reasons deemed appropriate by the
auditor.
The auditor shall then issue to both parties a preliminary
report reciting its determination as to each weighted average
figure (including an explanation of any adjustments which it has
made) for each of the three above described groups of Reference
Contracts. The auditor shall simultaneously calculate and include
in its preliminary report a weighted average figure for each of the
above described terms, giving equal weight to each of the three
separate groups of Reference Contracts without consideration of the
tonnage included in any of the three constituent weighted average
figures [e.g., (Group 1 Weighted Average Smelting Charge Figure x
1/3) + (Group 2 Weighted Average Smelting Charge Figure x 1/3) +
(Group 3 Weighted Average Smelting Charge Figure x 1/3) = Weighted
Average Smelting Charge Figure]; provided, however, if one or more
of the three groups of Reference Contracts is not to be taken into
account in making the weighted average determinations hereunder,
then the weighted average shall be determined by the auditor by
giving equal weight to each of the remaining category(ies) of
Reference Contracts.
Each party shall have five (5) Business Days following receipt
of the auditor's preliminary report of the weighted average figures
for each of the above recited terms to submit to the auditor any
comments or objections which it may have to such figures and
report. The auditor shall promptly consider such comments or
objections and submit its final combined weighted average figures
and final report to the parties.
(g) Effect of Final Report and Retroactive
Adjustment. The combined weighted average figures reflected in the
auditor's final report shall constitute the smelting charge, the
Payable Copper refining charge and the price participation terms
applicable to Part B Tonnage in each cargo of Concentrates
delivered hereunder during the then current calendar year. Such
terms shall be reflected in all invoices for shipments following
issuance of the final report and shall be made retroactive to the
first day of the calendar year. An adjustment statement with
accompanying invoice or payment, as appropriate, shall be issued by
Seller as soon as practicable following Seller's receipt of the
final report, to reflect any differences between the amount of the
payments previously made by Buyer based on the interim terms which
are applicable between the first day of the calendar year and the
date of the adjustment, and the amounts which are applicable to
such periods based on the final report of the auditor.
(h) Interim Terms Governing the Period Prior to
Final Report Issuance. The smelting charge, the Payable Copper
refining charge and the price participation terms applicable to the
Part B Tonnage for any period of any calendar year prior to the
issuance of the auditor's final report for such year with respect
to any portion of the Part B Tonnage as to which the above
identified terms have not yet been determined, shall be: (i) with
respect to the initial annual determination for 1998 (or such later
calendar year in which the first delivery of Concentrates to the
smelter is expected to occur), the weighted average of (a) the
smelting and Payable Copper refining charge and price participation
terms reflected in the most recent Part B settlement under the
Ertsberg Concentrate Agreement, and (b) the smelting and Payable
Copper refining charge and price participation terms reflected in
the most recent settlement under the MMC Concentrate Agreement,
utilizing the quantity which has been settled in the most Current
Settlement for MMC's account under each such agreement, and (ii)
with respect to the annual determinations for all subsequent
calendar years, the smelting and Payable Copper refining charge and
price participation terms applicable hereunder for the immediately
preceding calendar year.
(ii) Payable Gold and Payable Silver Refining
Charges for Part B Tonnage. The Payable Gold refining charge for
all Part B Tonnage shall be $6.00 per ounce of Payable Gold, and
the Payable Silver refining charge for all Part B Tonnage shall be
$0.35 per ounce of Payable Silver.
9.3 Minimum Smelting and Refining Charges; Possible
Recoupment of Lost Revenues. Notwithstanding anything to the
contrary recited in this Agreement, if at any time during the
period commencing with the first shipment hereunder during the
Initial Inventory Period and ending with the ninth anniversary of
the Commencement of Commercial Operations, the smelting and
refining charges for all payable metals (copper, gold and silver)
and any applicable price participation (on a combined basis) for
the average of the Part A Tonnage and the Part B Tonnage are below
$0.21 per pound of Payable Copper, then the smelting and refining
charges for all such payable metals including any applicable price
participation (on a combined basis) for the average of the Part A
Tonnage and the Part B Tonnage shall be $0.21 per pound of Payable
Copper (the "Floor TC's and RC's"). The applicability and amount
of the Floor TC's and RC's shall be determined on a shipment-by-
shipment basis and reflected on Seller's final invoice for each
shipment of Concentrates hereunder, whenever the Floor TC's and
RC's are applicable.
At least 180 days prior to the ninth anniversary of the
Commencement of Commercial Operations, Seller and Buyer shall meet
for the purpose of negotiating and agreeing upon a new "Floor TC's
and RC's" figure which shall be at a level which is sufficient to
cover all projected costs of debt service, if any, associated with
the Project Loans or any refinancing thereof, and cash operating
costs. Such new Floor TC's and RC's figure shall remain in effect
from the ninth anniversary to the fifteenth anniversary of the
Commencement of Commercial Operations, and so long thereafter as
mutually agreed upon at the time such negotiation takes place, it
being understood that neither party shall propose to extend the
applicability of such Floor TC's and RC's beyond such fifteenth
anniversary any longer than is necessary to fully repay the Project
Loans or any refinancing thereof. If for any reason agreement on
such figure is not reached by 90 days prior to the ninth
anniversary date, such figure shall be determined by arbitration
(and giving effect to the requisite level thereof contemplated by
this paragraph) in accordance with the provisions of Article 20 of
this Agreement. Such Floor TC's and RC's figure shall be subject
to the required approval of the Government, which approval Seller
shall seek to procure on a timely basis in good faith.
If at any time (i) MMC has received an average annual
simple return of 13% on its total capital contribution (which
includes subordinated loans) and Seller has been reimbursed for all
return amounts which it previously assigned to MMC, sample
calculations of which occurrences are set forth on Appendix "B"
hereto, and (ii) the smelting and refining charges for all payable
metals (on a combined basis) for the Part A Tonnage and the Part B
Tonnage shall be more than $0.10 per pound of Payable Copper above
the Floor TC's and RC's, then to the extent necessary to reimburse
Seller for any loss of revenues in prior periods due to the
application of the Floor TC's and RC's in accordance with the
foregoing paragraphs of this Section 9.3, the smelting and refining
charges for all payable metals (on a combined basis) for Part A
Tonnage and Part B Tonnage shall be $0.10 per pound of Payable
Copper above the Floor TC's and RC's. The reference in (i) above
to MMC and Seller shall in each case be inclusive of any successor
to each such entity.
The calculation of such return on equity positions
shall be the responsibility of Buyer. Such calculation shall be
made not less frequently than once per year following the
Commencement of Commercial Operations, and not less frequently than
once per calendar quarter when Buyer determines in good faith that
such return will be realized in less than one year; and a copy
shall be furnished to Seller. Seller shall have the right to
conduct an annual audit of Buyer's calculations, including the
information supporting the figures reflected in such calculation,
and Buyer shall make such information and calculation available to
Seller. The parties shall promptly resolve any disagreements
regarding such calculation.
9.4 Deductions for Impurities. The following amounts, if
applicable pursuant to Section 12.5, shall be deducted from the
Seller's final invoices for each cargo of Concentrates sold
hereunder. The amounts stated below are deductions per DMT of
Concentrates in such cargo.
As: If the arsenic assay exceeds 0.2 unit,
$2.50 for each 0.1 unit of such excess
(fractions pro rata).
Bi: If the bismuth assay exceeds 0.05 unit,
$0.30 for each 0.01 unit of excess
(fractions pro rata).
Sb: If the antimony assay exceeds 0.1 unit,
$0.50 for each 0.01 unit of such excess
(fractions pro rata).
Cl: If the chlorine assay (other than for
possible seawater contamination) exceeds
0.05 unit, $0.50 for each 0.01 unit of
such excess (fractions pro rata).
Pb: If the lead assay exceeds 1 unit, $1.50
for each one unit of such excess
(fractions pro rata).
Zn: If the zinc assay exceeds 3 units, $1.50
for each one unit of such excess
(fractions pro rata).
Ni plus Co: If the nickel plus cobalt assay exceeds
0.5 unit, $0.30 for each 0.1 unit of such
excess (fractions pro rata).
F: If the fluorine assay exceeds 330 ppm,
$0.10 for each 10 ppm of such excess
(fractions pro rata).
Hg: If the mercury assay exceeds 10 ppm, $0.20
for each 1 ppm of such excess (fractions
pro rata).
Alumina: If the alumina assay (A1 x 1.8889) over
three consecutive calendar months averages (on
a weighted average basis) in excess of 3%,
$3.00 for each 1% of such excess (fractions
pro rata). This penalty may be reviewed at
the end of the fifth Contract Year upon the
request of either party upon furnishing a
written request to do so to the other party.
9.5 Exclusive Remedy. The deductions per DMT of
Concentrates set forth in Section 9.4 shall be the Seller's sole
obligation and the Buyer's exclusive remedy for the quality of or
the impurities in the Concentrates, except as otherwise expressly
provided in Sections 2.3, 2.5 and 9.7.
9.6 General Provisions Applicable to Smelting and Refining
Charges. For purposes of computing the smelting and refining
charges applicable to each cargo sold under this Agreement, each of
the different smelting and refining charges shall be applied
proportionately to the total quantity of such cargo. For example,
during all periods of time when agreement is in effect with respect
to the smelting and refining charges applicable to all of the Part
A Tonnage, for each cargo of Concentrates sold, 50% of the smelting
and refining charges shall be computed in accordance with the
provisions of this Article 9 governing Part A Tonnage, 50% of the
smelting and refining charges shall be computed as provided in
accordance with the provisions of this Article 9 governing Part B
Tonnage; and the weighted average of the two calculations shall be
the smelting and refining charges applicable to that cargo (subject
to adjustment in accordance with Section 9.3, if applicable).
All commercial terms and conditions applicable to Concentrates
sold hereunder during the first calendar year portion of the first
Contract Year shall also be applicable to the sale of Concentrates
to Buyer during the Initial Inventory Period except as specifically
provided in Section 9.1.
9.7 Special Provisions Applicable to Concentrates with
Copper, Gold and/or Silver Outside the Five-Year Expected Analysis.
If the average analysis of copper, gold and/or silver contained in
the total quantity of Concentrates delivered hereunder with respect
to any consecutive three (3) calendar months is outside the ranges
of the Five-Year Expected Analysis provided by Seller to Buyer in
accordance with the provisions of Section 2.2 for the then current
five (5) Contract Year period, then upon the written request of
either Seller or Buyer, Buyer and Seller shall promptly meet for
the purpose of mutually agreeing on adjustments to the smelting and
refining charges (including consideration of price participation
terms) and to the definition of the payable metal(s) which is (are)
outside such five (5) year range to a level which is equivalent to
the world market smelting and refining charges and payable metals
definitions for copper concentrates of the same quality. If the
parties cannot agree on such adjustments within 30 days from the
date of the first meeting held for such purpose, then the parties
shall mutually refer the matter to the referee(s) under Article 19.
Pending resolution of such adjustments, the current smelting and
refining charges and payable metals definitions applicable to
Concentrates having copper, gold and silver within the then current
five (5) year specifications shall be utilized in calculating
payments for shipments hereunder, with an appropriate retroactive
adjustment made as soon as the adjustments are determined (with
interest at the 60 day LIBOR rate plus 0.5% per annum). The
provisions of this Section shall not be applicable to those
quantities of Concentrates delivered by Seller and which are within
the Five-Year Expected Analysis ranges provided by Seller to Buyer
in accordance with the provisions of Section 2.2 for the then
current five (5) Contract Year period. Any adjustment to smelting
and refining charges (including price participation terms) under
this Section 9.7 shall in no event increase or diminish the effect
or applicability of Section 9.3 of this Agreement.
ARTICLE 10
Periodic Review of Commercial Terms
10.1 Provision Governing Part A Tonnage Smelting and
Refining Charges and Minimum Smelting and Refining Charges.
Provisions governing the smelting and refining charges applicable
to Part A Tonnage are set forth in Section 9.1, and the provisions
of this Article 10 shall have no application to the Part A Tonnage
smelting and refining charges. The provisions of this Article 10
shall also have no application to Section 9.3.
10.2 Periodic Review of Certain Commercial Terms. Between
January 1, 2003 and March 31, 2003 and between January 1 and March
31 of each fifth year thereafter during the term of this Agreement,
Buyer and Seller shall meet at a neutral location which alternates
between a location selected by Seller and a location selected by
Buyer, in order to review with each other the Commercial Terms of
this Agreement and to agree on such terms on a basis which is fair,
reasonable and reflective of then current market conditions. For
purposes of this Section 10.2 the term "Commercial Terms" shall
mean: (1) the definitions of the terms "Payable Copper", "Payable
Gold" and "Payable Silver" contained in Sections 8.1, 8.2 and 8.3,
(2) the definitions of the term Quotational Period contained in
Section 8.4, (3) the payment terms of Article 11, (4) the penalties
contained in Section 9.4, (5) the discharging rates contained in
Section 5.3, (6) the amount of dispatch and demurrage contained in
Section 5.6, and (7) the definition of Contracts Criteria contained
in Appendix "A" and the number of Reference Contracts recited in
Section 9.2(i)(c) to be included in each of Buyer's and Seller's
group of Reference Contracts used in determining the smelting
charge, the Payable Copper refining charge and the price
participation terms applicable to Part B Tonnage. All agreements
reached as a result of such periodic review shall be reflected in
a written amendment hereto signed by both Buyer and Seller reciting
the settlement of the Commercial Terms which will be applicable for
the ensuing period of five (5) Contract Years. If agreement on any
Commercial Term(s) is (are) not reached by the end of the month of
March of any such fifth year, unless such deadline date is extended
by mutual written agreement, and a party hereto is of the good
faith opinion that a Commercial Term(s) is (are) either no longer
fair, reasonable and reflective of the current market (as to item
numbers 1-6 above), or is no longer functional or within the
original intent of this Agreement (as to item number 7 above), then
such party may refer such Commercial Term(s) to the referee(s) on
or before April 15 of such year by notice in accordance with the
procedure set forth in Article 19. The party referring such
Commercial Term(s) to the referee(s) shall bear and pay all of the
costs and expenses associated with such referee(s) determination,
unless the referee(s) shall determine that the merits of the
arguments submitted by the non-referring party lack significant
merit in which case the referee(s) may require a different sharing
of such costs and expenses. Pending a determination of any such
Commercial Term(s) referred to the referee(s), the Commercial
Term(s) which were in effect for the immediately preceding Contract
Year shall be applicable, and promptly following such determination
a retroactive adjustment to the beginning of such five (5) Contract
Year period shall be made with interest on the amount of the
adjustment equal to the published prime commercial lending rate of
The Chase Manhattan Bank (National Association) or its successor
for loans in New York applicable for each day thereof on the date
of determination, for the period from April 1 to the date the
retroactive adjustment is made. If agreement between Buyer and
Seller is not reached during the course of any such periodic review
as to any Commercial Term(s) and such Commercial Term(s) is (are)
not referred to the referee(s) in accordance with the above
described procedure, then such Commercial Term(s) as to which
mutual agreement is not reached or decided by the referee(s) shall
remain in effect as it existed during the immediately preceding
Contract Year and shall continue in effect for the ensuing five (5)
Contract Year period and until changed in accordance with the
periodic review procedures of this Section 10.2 during a subsequent
review.
ARTICLE 11
Payments
11.1 Manner of Payment.
(a) All payments by Buyer for Concentrates sold
hereunder shall be net cash, in Dollars, and shall be paid in good
and collected funds by wire transfer to "The Chase Manhattan Bank
N.A., New York, New York, ABA No. 021000021, for credit to P.T.
Freeport Indonesia Company Sales Proceeds Account No. 920-1-
073278", unless and until Seller shall otherwise direct. Buyer
shall notify Seller by telex or facsimile at the time it makes a
payment as provided above.
(b) All payments by Seller in connection with the
sale of Concentrates hereunder shall be net cash, in Dollars, and
shall be paid in good and collected funds by wire transfer to an
account specified by Buyer and acceptable to Seller (which
acceptance shall not be unreasonably withheld), unless and until
Buyer shall otherwise direct. Seller shall notify Buyer by telex
or facsimile at the time it makes a payment as provided above.
(c) Bank charges, if any, in respect of payments
hereunder shall be for the account of the party transferring funds.
11.2 Provisional Price. For purposes of provisional
invoicing as provided in Section 11.3, the provisional price of
each cargo of Concentrates shall be determined by Seller by
reference to loaded weights, estimated assays, and except as
provided otherwise in Section 8.10 of this Agreement the respective
prices for (i) Payable Copper determined pursuant to Section 8.6 of
this Agreement as if the applicable Quotational Period for Payable
Copper were the two full calendar weeks prior to the date of
shipment, less applicable smelting and refining charges, and (ii)
Payable Gold and Payable Silver determined pursuant to Sections 8.7
and 8.8 of this Agreement, less applicable refining charges, as if
the applicable Quotational Period for Payable Gold and Payable
Silver were the two full calendar weeks prior to the date of
shipment.
11.3 Provisional Payment. Seller shall present the
following documents to Buyer: (i) Seller's provisional invoice,
(ii) Seller's weight, moisture and assay certificates based on
loaded weights and Seller's provisional assay certificate, (iii) a
full set of clean on-board ocean bills of lading or charter party
bills of lading reflecting that freight is payable by Seller, and
(iv) original insurance policy or certificate upon each shipment.
Buyer shall make a provisional payment equal to 90% of the
provisional price as determined pursuant to Section 11.2 for the
Payable Copper, Payable Gold and Payable Silver in each shipment of
Concentrates sold hereunder, such provisional payment to be made on
the fifth Business Day after the Date of Arrival. The provisional
invoice shall reflect Seller's preliminary calculation of any
applicable penalties based on the best information available to
Seller at the time such invoice is prepared. Seller shall prepare
the documents described above in such number of sets, and otherwise
in accordance with such directions, as Buyer shall reasonably
specify in light of Buyer's own financing and other requirements.
11.4 Final Payment. Seller shall transmit to Buyer its
final invoice for each cargo of Concentrates by telex or facsimile
within two Business Days after dry weights and assays shall have
been agreed and the final price applicable to such cargo shall have
been determined. The final price shall include such adjustments to
the penalties recited in Seller's provisional invoice as are
appropriate to take into account the results of the final assays.
Final payment for each cargo of Concentrates sold hereunder shall
be made by Buyer on the second Business Day after receipt of
Seller's final invoice, or if the final price as shown on Seller's
final invoice is less than the amount of the provisional payment
made by Buyer pursuant to Section 11.3, the amount of the
difference shall be paid by Seller on the second Business Day after
Seller has transmitted its final invoice to Buyer or, at the option
of Buyer, Buyer may deduct such amount from sums thereafter
becoming due and payable to Seller.
11.5 Final Price Determination in the Event of Loss. In
case of (i) total loss or damage of the Concentrates at any time
prior to weighing, sampling and moisture determination at the
Receiving Works, or (ii) a total or partial loss or damage of the
Concentrates in any cargo delivered at an alternate port at any
time, the final invoice shall be based upon full dry weights and
assays as determined at time of loading.
In case of partial loss of the Concentrates in any
cargo delivered at the Receiving Works prior to weighing, sampling
and moisture determination at the Receiving Works, the final
invoice shall be based upon (i) the dry weight as determined at the
time of loading and (ii) the weighted average of the final assays
for copper, gold and silver, (as ascertained by assay in accordance
with Article 13 of this Agreement) as determined from the portion
of such cargo safely delivered to Buyer.
In case of damage to a portion of the Concentrates in
any cargo delivered to the Receiving Works, the final invoice shall
be based upon the dry weight determined at the Receiving Works and
the weighted average of the final assays for copper, gold and
silver, (as ascertained by assay in accordance with Article 13 of
this Agreement) as determined from the portion of such cargo safely
delivered to Buyer without damage.
In case of a total loss prior to delivery at the
Receiving Works, the Date of Arrival will be deemed to have
occurred 10 days after completion of loading at the Port of Loading
for purposes of determining Quotational Periods and payment dates.
In case of total loss prior to delivery at any Port of Discharge
other than Gresik, the Date of Arrival will be deemed to have
occurred 20 days after completion of loading at the Port of Loading
for purposes of determining Quotational Periods and payment dates.
11.6 Interest. In the event that any payment of moneys to
be made by either party to the other pursuant to this Agreement
shall not be made on or before the date such payment is due and
payable in accordance with the provisions of this Agreement, the
party which shall be liable for such payment shall also pay
interest on such late payment calculated from the date such payment
was due and payable through the date such payment is made at the
published prime commercial lending rate of The Chase Manhattan Bank
(National Association) or its successor for loans in New York in
effect from time to time (such rate to be adjusted simultaneously
with each change in such prime commercial lending rate), plus 2%,
and calculated on the basis of a 365-day year. Notwithstanding the
above, the provisions of Section 3.4 shall govern the calculation
of interest and the interest rate applicable to payments for
certain Concentrates which Buyer is unable to take delivery of in
a timely manner hereunder.
ARTICLE 12
Weighing, Sampling and Determination of Moisture
12.1 General Procedures. Weighing, sampling and
determination of moisture for each cargo shall be carried out in
accordance with accepted industry standards and with reliable
modern equipment (i) by Seller at Seller's expense at Seller's Port
of Loading and (ii) by Buyer at Buyer's expense at the Receiving
Works. The methodology of the sampling and moisture determination
shall be as mutually agreed by Seller and Buyer. Unless otherwise
mutually agreed, Seller shall be entitled to have not more than two
of its own representatives present, or at its own expense to be
represented by an independent weigher and sampler, at the Receiving
Works, and Buyer shall be entitled to have not more than two of its
own representatives present, or to be represented at its own
expense by an independent weigher and sampler, at Seller's Port of
Loading.
12.2 Determination of Dry Weight. Subject to Section 11.5,
the dry weight as determined at the Receiving Works shall govern
for the purpose of final settlement of the price for each cargo.
If any shipment is diverted to an alternate port pursuant to
Section 5.11, Seller's dry weight at the Port of Loading shall
govern unless Buyer obtains Seller's prior written consent to
utilize the dry weight at the alternate port, which consent Seller
shall not unreasonably withhold.
12.3 Sample Lots. Each lot shall form a separate and
complete delivery for all purposes of this Agreement. Subject to
the express provisions of this Agreement, the size of each lot
shall be approximately 500 wet metric tons or such other quantity
as may be mutually agreed.
12.4 Number and Handling of Samples. The sample taken from
each lot of Concentrates as specified in this Article 12 shall be
divided into six equal parts, two for Seller, two for Buyer, one
for the umpire and one for reserve. Seller shall cause its agent
promptly after completion of sampling to send via prepaid
airfreight the umpire samples to the umpire appointed pursuant to
Section 13.3. The reserve samples shall be retained by Seller's
agent where taken.
12.5 Composite Samples. For the purpose of conducting
analyses of elements set forth in Section 9.4, four sets of
composite samples shall be taken from each cargo -- one for Seller,
one for Buyer, one for the umpire and one for reserve. The umpire
and reserve samples shall be distributed and/or retained as
provided in Section 12.4.
ARTICLE 13
Assay
13.1 Method for Determining Final Analysis. From the
samples taken in accordance with Article 12 at the Receiving Works,
assays for copper, gold and silver, respectively, shall be made
independently by the respective assayers of Seller and Buyer, and
the results of such assays shall be exchanged simultaneously on a
lot by lot basis within 40 days from time of sampling. The mean of
such results shall be final and binding upon the parties hereto, if
such results show that the differences between Seller's and Buyer's
assays are within the following limits:
Copper 0.3%
Gold 0.5 gram per DMT
Silver 15.0 grams per DMT
13.2 Determination of Final Analysis if Shipment Diverted.
If any shipment is diverted to an alternate port pursuant to
Section 5.11 other than any Port of Discharge, Seller's analysis at
the Port of Loading shall govern unless Buyer obtains Seller's
prior written consent to utilize the analysis at the alternate
port, which consent Seller shall not unreasonably withhold.
13.3 Designation of Umpire. If such results show that the
difference between Seller's and Buyer's assays for the copper, gold
or silver exceeds the applicable limit specified in Section 13.1,
either Seller or Buyer shall have the right, exercisable by notice
to the other, to refer the matter to an umpire mutually acceptable
to the parties, which acceptance shall not be unreasonably refused.
If neither Seller nor Buyer shall so refer the matter to the
umpire within 10 days after the date of exchange of such results,
the mean of such results shall be final and binding upon the
parties hereto.
13.4 Determination of Final Analysis Using Umpire's Assay.
If either Seller or Buyer shall so refer the matter to the umpire,
the umpire's assay shall be made on the basis of the umpire's
samples. The umpire shall be instructed to advise both Seller and
Buyer of the results of the umpire's assay by facsimile and mail.
The mean of the results of the umpire's assay and the results of
the assay of the party whose results are nearer to that of the
umpire's results shall be final and binding on the parties hereto.
If the results of the umpire's assay shall be the mean of the
results of the assays of the respective parties, the results of the
umpire's assay shall govern. The cost of the umpire shall be paid
by the losing party, except that, if the results of the umpire's
assay is the mean of the results of the respective parties, the
cost shall be shared equally by Seller and Buyer.
13.5 Analysis of Composite Samples for Impurities. Buyer
shall have the right, exercisable by notice in writing given not
later than 55 days after the completion of sampling in accordance
with Article 12, to exchange assays with Seller for any one or more
of the impurities referred to in Section 9.4. From the composite
samples held by Seller and Buyer, each party, at its own expense,
shall assay each of the designated impurities. The assay results
shall be exchanged within 10 days after the Buyer's notice to
Seller. If such results show that the mean of Seller's and Buyer's
assays exceeds the limits enumerated for such penalty elements in
Section 9.4, either Seller or Buyer shall have the right,
exercisable by notice to the other, to have any difference or
differences resolved by an umpire assay in accordance with Section
13.4. If neither Seller nor Buyer shall so notify the other in
writing within 10 days after such assay exchange, the mean of the
results of Seller's and Buyer's assays shall be final and binding
upon the parties hereto.
ARTICLE 14
Taxes
14.1 Value Added Tax. If Indonesian Value Added Tax, Sales
Tax or any other similar tax (but excluding tax imposed on net
income), hereinafter collectively, "VAT", is payable in connection
with this Agreement or the concentrate sales made hereunder, Seller
shall, in the manner required by applicable Indonesian tax law and
practice, calculate the amount of VAT payable and submit a proper
Faktur Pajak ("VAT Invoice") to Buyer along with Seller's invoice
prepared in accordance with Article 11 of this Agreement. Any such
VAT Invoice must comply with then applicable Indonesian tax law and
practice. Should Buyer be appointed a collector of VAT, then
Seller will supply to Buyer the required copies of the VAT Invoice
and the tax payment forms (Surat Setoran Pajak, or "SSP").
14.2 Payment of Value Added Tax. Buyer shall discharge the
VAT obligations reflected in the VAT Invoice in a manner consistent
with then applicable Indonesian tax laws and practice and shall
provide Seller with appropriate evidence of Buyer's discharge of
such obligations as required by such law and practice.
ARTICLE 15
Exemption from Liability and Obligation
In no event shall Buyer or Seller be liable, whether arising
under contract, tort (including negligence), strict liability or
otherwise, for loss of anticipated profits or consequential loss or
damage of any nature arising at any time from any cause whatsoever,
incurred or claimed to have been incurred by the other party
hereto. This Article 15 shall apply notwithstanding any other
provision of this Agreement.
The liability and obligation of Seller to deliver Concentrates
to Buyer under this Agreement shall be released and discharged if
Seller closes permanently all of its mining and milling operations
at its presently known deposits and at any new ore body(ies) in the
Contract Area for any reason; provided that Seller has given Buyer
at least 18 months prior written notice before such closure, and
the effect of such permanent closure shall be the automatic
termination of this Agreement for all purposes except for
liabilities which accrued prior to the effective termination date.
Buyer agrees to keep any such notice received from Seller
confidential until such time as the information concerning Seller's
permanent closure of all its mining and milling operations at its
known deposits and at any new ore body(ies) in the Contract Area
becomes public knowledge; provided, however, Buyer shall have the
right to disclose the information to its lenders, collateral
trustee or collateral agent, shareholders, significant customers,
or if required by law or regulation (including, without limitation
the regulations of any securities exchange on which Buyer's
securities are traded). In the event of such disclosure, Buyer
shall use its best efforts to obtain confidential treatment of the
information.
If Buyer decides to withdraw from the copper smelting business
for any reason, the liability and obligation of Buyer to take
delivery of Concentrates under this Agreement shall be released and
discharged; provided that Buyer has given Seller at least 18 months
prior written notice before such withdrawal, and the effect of such
permanent closure shall be the automatic termination of this
Agreement for all purposes except for liabilities which accrued
prior to the effective termination date. Seller agrees to keep any
such notice of withdrawal received from Buyer confidential until
such time as the information concerning Buyer's withdrawal from the
copper smelting business becomes public knowledge; provided,
however, Seller shall have the right to disclose the information to
its lenders, Trustees, shareholders, significant customers, or if
required by law or regulation (including, without limitation, the
regulations of any securities exchange on which Seller's securities
are traded). In the event of such disclosure, Seller shall use its
best efforts to obtain confidential treatment of the information.
ARTICLE 16
Relief from Economic Hardship
16.1 Consultation in the Event of Hardship. The provisions
of this Agreement are intended by Buyer and Seller to operate
fairly over the term of this Agreement. Buyer and Seller recognize
that it is impracticable to make provision for every contingency
which may arise during the term of this Agreement. In the future,
should circumstances arise which were unforeseeable at the time
this Agreement was made and which actually have caused severe
economic hardship to either Buyer or Seller from the continued
operation of this Agreement, then Buyer and Seller agree to
promptly consult together and review the provisions of this
Agreement and, in the spirit of good faith and fair dealing,
consider possible modifications thereof which might lessen such
severe economic hardship. Such economic difficulties shall not be
cause for the termination of this Agreement or relieve any party
from its obligations under this Agreement. No modification of this
Agreement shall be made except by mutual agreement of the parties
hereto in writing.
16.2 Limitations on Right to Request Consultation. It is
not intended that this Article 16 be invoked to deprive a party of
savings or advantages arising from the efficiency of the party
which contributes to the profitability of its operations.
ARTICLE 17
Notices
All notices, requests, directions and other communications
required or permitted by any provision of this Agreement shall be
in writing and in the English language and shall be sufficiently
given or transmitted if delivered by hand, sent by telegraph, telex
or telecopy, by registered mail or by internationally recognized
express courier service, and addressed (1) in the case of Buyer,
Plaza 89, 6th Floor, S-602, J1. H.R. Rasuna Said Kav. X-7, No. 6,
Jakarta 12940, Indonesia, FAX: 21-522-9615, and (ii) in the case of
Seller, 1615 Poydras Street, New Orleans, LA 70112, U.S.A., Telex:
62759930 with answerback - FREESULPH NO, FAX: (504) 582-1835, or at
such other address as may be designated in writing respectively by
Buyer or Seller, as the case may be, as the proper address to which
such communications should be mailed or delivered to it, and shall
become effective on the date of receipt by the party to which it
shall be addressed. If given other than by hand, by registered
mail or by internationally recognized express courier service, such
communication shall be promptly confirmed by letter.
ARTICLE 18
Assignment
18.1 Binding Effect. This Agreement shall inure to the
benefit of and be binding upon the successors of the parties hereto
and, subject to the further provisions of this Article 18, the
respective permitted assigns of such parties.
18.2 Seller's Assignment to the Trustee. Pursuant to the
terms of the Trust Agreement, upon execution hereof, this Agreement
and all rights and interests of Seller and PT-RTZ hereunder shall
automatically be assigned to the Trustee acting under such Trust
Agreement, for the benefit, amongst others, of Seller and PT-RTZ
and certain lenders to Seller or PT-RTZ. Said Trustee may further
assign the rights and interests previously referred to in this
Section 18.2 to an additional trustee or receiver as contemplated
by the Trust Agreement. In the event the Trust Agreement is
terminated, Seller and PT-RTZ may further assign such rights and
interests to any person who has or is entitled to an interest in
the COW or who has the right to participate in the production of
Concentrates to be sold and delivered under this Agreement or to
the Trustee in trust for any such person.
By executing this Agreement Buyer hereby acknowledges and
consents to any and all such assignments and agrees that (i) all
payments made pursuant to this Agreement by Buyer shall be made to
said Trustee (or to an additional trustee, or a receiver, if so
directed by the Trustee) without any deduction, counterclaim or
setoff other than adjustments contemplated by and deductions
specified in this Agreement other than incremental taxes or
liabilities associated with each payment to the Trustee and (ii) in
the event an Allocation Notice or an Enforcement Notice (as defined
in the Trust Agreement) shall have been given to the Trustee or, in
the event the Trust Agreement is terminated and a further
assignment by Seller or PT-RTZ as mentioned above is entered into,
Buyer shall accept performance by or on behalf of said Trustee,
such assignee, an additional trustee, a receiver or a successor
operator appointed to conduct operations contemplated by the COW,
provided that such performance shall in all other respects be in
accordance with the provisions of this Agreement. Buyer shall
execute and deliver such other documents, and do such acts and
things, as may be necessary or appropriate to acknowledge or
accomplish any assignment or assignments contemplated by, and to
effectuate the intent and purpose of, this Section 18.2.
18.3 Buyer's Assignment to a Trustee. Buyer shall have the
right to assign to a collateral trustee or collateral agent under
a trust agreement(s) or other similar agreement, all rights and
interests which Buyer now has or which shall hereafter arise under
this Agreement, as amended or modified from time to time, including
Buyer's right to receive proceeds payable to it in accordance with
this Agreement, for the sole purpose of providing security to one
or more lenders, and, in the event of any such assignment, Seller
agrees that (i) any payments to be made in accordance with the
terms of this Agreement by Seller shall, if and to the extent so
directed by Buyer, be made to the assignee or assignees, or one or
more duly appointed representatives thereof, without any deduction,
counterclaim or setoff other than adjustments contemplated and
deductions specified in this Agreement and (ii) in case of a
default under a security instrument, Seller shall accept
performance by such assignee or assignees or one or more such
representatives, provided that such performance shall in all other
respects be in accordance with the provisions of this Agreement.
Seller shall execute and deliver such other documents, and do such
acts and things, as may be necessary or appropriate to accomplish
any assignment or assignments contemplated by, and to effectuate
the intent and purpose of, this Section 18.3.
18.4 Other Assignments. Except as provided in Sections 18.2
and 18.3, this Agreement shall not be assignable by Buyer or Seller
without the express written consent of the other party, which
consent shall not be unreasonably withheld, and only in accordance
with a written instrument, in form and substance satisfactory to
the non-assigning party, by which the assignee or assignees shall
assume all the obligations hereunder of the assigning party. The
assumption of such obligations by the assignee shall not relieve
the assigning party of such obligations except to the extent that
such assignee or assignees shall in fact perform such obligations.
ARTICLE 19
Referees
19.1 General. In the event that any matter shall be
referred to referees pursuant to Sections 2.3, 8.10(c), 9.1(i)(b),
9.7 or Article 10, the referee mutually selected by the parties or,
failing such mutual selection, a majority of the three referees
appointed in accordance with this Article 19, shall make the
necessary determination. Each of Buyer and Seller shall use all
reasonable efforts to assure that the referee(s) shall be persons
qualified by reason of their experience and knowledge with respect
to both the worldwide marketing of copper concentrates and the
copper smelting business.
19.2 Selection of Referees. The party referring the
decision to the referees shall give notice in writing to the other
party. The parties shall then promptly confer with each other and
use all reasonable efforts to mutually agree upon the appointment
of a single referee to decide the matter involved. If agreement is
reached on such referee, both parties shall engage such referee.
If, notwithstanding such efforts, the parties are unable to
mutually agree upon a single referee within 15 days following the
date of receipt of the notice initiating such dispute resolution
process by the party to whom such notice was addressed, then the
party who sent the initiating notice shall appoint one referee. The
other party shall then appoint the second referee. In the event of
an unreasonable delay by either party in appointing a referee in
accordance with the above procedures, the Singapore International
Arbitration Centre, upon the application of the other party hereto,
shall appoint such referee within 30 days after such application is
made. A third referee shall be appointed by mutual agreement
between the parties. If the parties cannot agree on the third
referee within 45 days after the notice was given, the third
referee will be appointed by application to the Singapore
International Arbitration Centre who shall appoint the third
referee within 30 days after such application is made.
19.3 Proceedings. The referee(s) shall conduct its (their)
proceedings in accordance with rules it (they) shall establish for
itself (themselves) and it (they) shall use its (their) best
efforts to come to a decision within a period of 90 days from the
date on which the last referee was appointed. The parties shall
cooperate in good faith in providing the referee(s) with any
relevant information or necessary assistance it (they) may request.
19.4 The Decision. The referees shall be deemed to be
acting as experts and not as arbitrators, and their decision shall
be binding on the parties to the maximum extent of the law and be
deemed to be incorporated into this Agreement. Each such award
shall be retroactive to the date of the notice referred to in
Section 2.3, 8.10(a), 9.1(i)(b), or 9.7, or Article 10 as
applicable. Except where the referees decide to assess all costs
against the losing party and except as specifically provided to the
contrary elsewhere in this Agreement, each party shall be
responsible for and pay its own costs and expenses in such
negotiations and proceedings, including but not limited to the fees
and expenses of its attorneys, accountants, engineers and other
experts, plus one-half of all costs and expenses of the proceeding
itself including but not limited to the costs of rental or other
payment for the meeting room(s) or other place(s) where the
proceeding occurs, and each party shall bear the cost of the
referee nominated by it or on its behalf and the parties shall each
bear an equal share of the cost of the third referee.
ARTICLE 20
Arbitration
20.1 Amicable Settlement. Any dispute arising out of or in
connection with this Agreement or its performance, including the
validity, scope, meaning, construction, interpretation,
application, breach or termination hereof shall to the extent
possible be settled amicably by negotiation and discussion between
the parties. Either party wishing to invoke the right to conduct
such settlement negotiations shall give written notice to the other
party of the substance of the dispute and propose a schedule of
conferences to resolve the matter.
20.2 Arbitration Rules. Any such dispute not settled by
amicable agreement within 60 days of receipt of the written notice
described in Section 20.1 (or such other period as may be agreed by
both parties in writing in any specific case) shall be finally
settled by arbitration in Singapore as an international arbitration
under the auspices of the Singapore International Arbitration
Centre and applying the UNCITRAL Arbitration Rules, excluding only
those matters which are to be settled by referees or where another
settlement procedure is specifically provided for in this
Agreement. In the event of a conflict between the UNCITRAL
Arbitration Rules and the terms of this Agreement, the terms of
this Agreement shall govern. Documents may be submitted in either
English or Japanese without the need for translation.
20.3 Arbitrators. Any arbitration hereunder shall be
conducted in both the English and Japanese languages before a panel
of three arbitrators. Each arbitrator shall preferably be fluent
in both English and Japanese, but if fluent in only one of such
languages, such arbitrator shall retain an experienced interpreter
paid for by the appointing party (or in the case of the third
arbitrator the interpreter, if needed, shall be retained by such
arbitrator and paid for by the parties equally), and shall be
appointed in accordance with the following provisions:
(a) each of the Buyer and Seller shall appoint one
arbitrator and the two arbitrators so appointed shall
select the third arbitrator (who shall not be a
resident or national of the U.S. or Japan). The third
arbitrator shall act as the presiding arbitrator;
(b) if within a period of 30 days from the date of the
notice of arbitration, a party has failed to appoint an
arbitrator, or, the two appointed arbitrators have
failed to select the third arbitrator within 30 days
after both arbitrators have been appointed, the
Chairman of the Singapore International Arbitration
Centre shall appoint such arbitrator or arbitrators as
have not been appointed.
20.4 Arbitration Award. The award rendered in any
arbitration commenced hereunder shall apportion the costs of the
arbitration. With respect to the period of time from the effective
date of this Agreement up to and including the date on which the
Project Loans have been fully repaid, consistent with the
provisions of Article 631 R.V. (Reglement op de Rechtsvordering),
the parties expressly agree that the arbitrators shall be bound by
the strict rules of law in making their decisions, and shall not
render decisions ex aequo et bono. With respect to the period of
time following the date on which the Project Loans have been fully
repaid, consistent with the provisions of Article 631 R.V., the
arbitrators shall not be bound by strict rules of law where they
consider the application thereof to particular matters to be
inconsistent with the spirit of this Agreement and the underlying
intent of the parties, and as to such matters their conclusions
shall reflect their judgment of the correct interpretation of all
relevant terms hereof and the correct and just enforcement of this
Agreement in accordance with such terms.
20.5 Award to be Final and Conclusive. The award rendered
in any arbitration commenced hereunder shall be final and
conclusive, and judgment thereon may be entered in any court having
jurisdiction for its enforcement. The parties expressly agree to
waive Article 641 of the Indonesian Code of Civil Procedure and
Articles 15 and 108 of Law No. 1 of 1950 (Supreme Court Rules), and
accordingly there shall be no appeal to any court from the decision
of the panel of arbitrators. No party shall be entitled to
commence or maintain any action in a court of law upon any matter
in dispute until such matter shall have been submitted and decided
as herein provided and then only for the enforcement of the board
of arbitration's award.
20.6 Performance of Obligations Pending Decision. Pending
submission to the board of arbitration and thereafter until the
board of arbitration gives its award, the parties hereto agree that
they will continue to perform all their respective obligations
under this Agreement without prejudice to the final judgment in
accordance with the said award.
20.7 Waiver of Right to Terminate Board of Arbitration. The
parties hereto expressly agree to waive the applicability of
Article 650.2 of the Indonesian Commercial Code, so that the
appointment of the board of arbitration shall not terminate as of
the sixth month from the date of its appointment. The mandate of
the board of arbitration reconstituted in accordance with the terms
hereof shall remain in effect until a final arbitral award has been
issued by the board of arbitration.
20.8 The parties hereto agree that any matter which is
expressly subject to final settlement or negotiation pursuant to
Section 2.3, 8.10(c), 9.1(i)(b), 9.7 or Article 10, shall not be
referred to arbitration pursuant to this Article 20.
ARTICLE 21
Governing Law
The provisions of this Agreement shall be governed in all
respects by and construed in accordance with the laws of the State
of New York, U.S.A.
ARTICLE 22
Force Majeure
22.1 Definition. The term "Force Majeure" shall mean any
event beyond the control of the party affected thereby, including
without limitation, acts of God or the public enemy, war, warlike
operations, strikes, labor slowdowns or other work stoppages, labor
shortages, combination of workmen, suspension of labor, lockout or
other labor disturbance, fire, flood, explosion, earthquake, storm,
tidal wave or similar disturbance, drought, breakdown of machinery
or facilities, inability to obtain raw materials, operating
materials, plant equipment or materials required for maintenance or
repairs, sabotage, riot, confiscation, embargo, action of any
government including the passage of new legislation, court orders
and future orders (lawful or otherwise) of any regulatory body
having jurisdiction, accident, lack of truck or railroad
transportation or seaboard freight facilities, or delays in route,
or without limiting the generality of the foregoing, any other
disabling causes beyond the reasonable control of Seller or Buyer.
22.2 Effect of Force Majeure. Either party to this
Agreement shall be excused from making or accepting deliveries of
Concentrates to the extent described in this Article 22 when its
inability to perform is due to Force Majeure. The party claiming
force majeure shall give prompt notice thereof to the other party,
specifying the nature of the Force Majeure in reasonable detail as
well as its estimated duration, upon its occurrence. Notice shall
also be given immediately upon the termination of the Force
Majeure. The notice given on the occurrence of an event of Force
Majeure shall be referred to as a declaration of Force Majeure. If
the party receiving the declaration of Force Majeure disputes that
an event of Force Majeure has occurred, the matter will be resolved
as provided in Article 20, it being understood, however, that such
dispute shall not defeat the effectiveness of such notice pending
the resolution of such dispute. In the event of such dispute, the
parties will expedite the completion of arbitration to the maximum
extent feasible.
(a) As soon as possible following a declaration of
Force Majeure the parties shall discuss all relevant details of the
Force Majeure, including but not limited to all facts which would
assist in evaluating the projected duration of such Force Majeure.
At the end of such meeting or as soon thereafter as practicable the
party which declared such Force Majeure shall notify the non-
declaring party of its updated best estimate of the projected
duration of the Force Majeure.
(b) If the estimated duration of the event of Force
Majeure is no more than 15 consecutive days, the quantity of
Concentrates which cannot be delivered or accepted as a result of
such event of Force Majeure shall be delivered as soon as
practicable following the termination of such event of Force
Majeure.
(c) If the estimated duration of the event of Force
Majeure is more than 15 consecutive days, either party may, by
notice in writing to the other party, cancel in whole or in part
the sale and purchase of the quantity of Concentrates which cannot
be delivered or accepted, as a result of, and during the period of
continuance of the event of Force Majeure in which event the
Contractual Tonnage for such Contract Year shall be automatically
reduced by the quantity of Concentrates which are affected or
reasonably foreseen to be affected by the declaring party. If such
cancellation is made in respect of an event of Force Majeure
declared by Seller, Buyer shall be free to purchase from third
party suppliers of copper concentrates the quantities of
Concentrates which it reasonably requires during the estimated
duration of the Force Majeure event.
If any event of Force Majeure results in a suspension
of Seller's Concentrate production for more than 15 consecutive
days, Seller shall use its best efforts to deliver to Buyer, and
Buyer shall use its best efforts to accept delivery of, that
portion (provided that such portion shall be at least 5,000 DMT) of
the Concentrates allocated to this Agreement which had been
produced prior to the interruption of production by the event of
Force Majeure and Buyer shall accept and pay for all such
Concentrates so delivered.
22.3 Parties to Use Reasonable Efforts. Both parties agree
to use all reasonable efforts from time to time and at all times to
prevent the occurrence of any event of Force Majeure, and to cause
the termination of any event of Force Majeure that has occurred.
Notwithstanding the foregoing, the settlement of labor disputes
shall be entirely in the discretion of the party affected thereby
and there shall be no obligation on the affected party to test or
refrain from testing the validity of any order, regulation or law
relating to such labor disputes.
ARTICLE 23
Default
23.1 Events of Default. A party shall be deemed to be in
default of this Agreement if any of the following occur:
A. The party shall have become voluntarily or
involuntarily the subject of any receivership, bankruptcy or
insolvency proceedings; or
B. the party has committed a material breach of
any provision of this Agreement and such breach is not cured within
ninety (90) days after notice thereof is given to the defaulting
party, or within such longer period of time as may be reasonable
under the circumstances where the cure of the breach cannot be
completed within 90 days notwithstanding the continuous best
efforts of the defaulting party.
23.2 Notice of Default. If either party claims the other
party is in default with respect to the provisions of this
Agreement, the party so claiming shall give notice to the party
alleged to be in default, designating such claimed default and
providing all particulars of which it is aware. Within thirty (30)
days after its receipt of such notice, the party alleged to be in
default may either (a) cure such default, or (b) in good faith give
the other party notice that the party alleged to be in default
denies that such default has occurred. In the event a default is
denied by a party, said party shall not be deemed to be in default
hereof unless and until said party is found by a final, non-
appealable arbitral decision to be in default.
23.3 Liability for Default. In the event that a party's
default is confirmed by arbitration as provided in Article 20, the
arbitrators shall be entitled to grant to the non-defaulting party
such relief as they determine to be appropriate, subject to the
limitation of Article 15 that neither party shall be entitled to
loss of anticipated profits or consequential damages.
ARTICLE 24
Non-Waiver of Defaults
The failure of either party hereto to require in any one or
more instances strict performance of any of the provisions of this
Agreement, or a waiver by either party at any time of its rights
with respect to a default under this Agreement by the other party
hereto, or an election not to take advantage of any of its rights
thereunder shall not be deemed a waiver of any such rights (except
to the extent, and only to the extent, specifically waived in
writing). No delay in asserting or enforcing any right hereunder
shall be deemed a waiver of or limitation on such right; provided,
however, that this Article shall not operate as a waiver of any
applicable statute of limitations.
ARTICLE 25
Miscellaneous
25.1 Opinion of Buyer's Counsel. Buyer shall deliver to
Seller and/or to the Trustee under the Trust Agreement, for the
benefit of each of them, if requested to do so in writing at any
time prior to the Effective Date, an opinion of Buyer's counsel as
to the following:
(a) that the Buyer has been duly created and is
validly existing under the laws where Buyer was incorporated;
(b) that Buyer has full corporate power and
authority to own its properties and conduct the business in which
it is engaged and to make and perform this Agreement; and
(c) that this Agreement has been duly authorized,
executed and delivered by Buyer and constitutes the legal, valid
and binding obligation of Buyer, enforceable in accordance with its
terms.
25.2 Opinion of Seller's Counsel. Seller shall deliver to
Buyer and/or to a collateral lender or collateral agent of Buyer's
Project lenders, for the benefit of each of them, if requested to
do so in writing at any time prior to the Effective Date, an
opinion of Seller's counsel as to the following:
(a) that the Seller has been duly created and is
validly existing under the laws where Seller was incorporated;
(b) that Seller has full corporate power and
authority to own its properties and conduct the business in which
it is engaged and to make and perform this Agreement; and
(c) that this Agreement has been duly authorized,
executed and delivered by Seller and constitutes the legal, valid
and binding obligation of Seller, enforceable in accordance with
its terms.
25.3 Entire Agreement. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter
hereof. Neither this Agreement nor any provision hereof can be
waived, changed, discharged or terminated except by an instrument
in writing signed by the party against which the enforcement of any
waiver, change, discharge or termination is sought.
25.4 Counterparts. This Agreement may be executed in any
number of counterparts and shall become binding when executed by
Seller and by Buyer. Each of such counterparts shall for all
purposes be deemed to be an original, and all such counterparts
shall together constitute but one and the same agreement.
25.5 Headings. The headings of the respective Articles,
Sections and Subsections of this Agreement are inserted for
convenience of reference only and shall not be deemed to be a part
of this Agreement or considered in construing this Agreement.
25.6 Publication of Articles. Seller hereby releases the
Direksi (executive officers) and the Komisaris (commissioners) of
Buyer from any personal liability that such Direksi or Komisaris
may have hereunder solely as a consequence of Buyer having executed
this Agreement prior to the publication of its Articles of
Association in the Official Gazette of the Republic of Indonesia.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year
first above written.
WITNESS: P.T. FREEPORT INDONESIA COMPANY
_______________________ By ___________________________
Louis T. Zawislak
Senior Vice President
WITNESS: P.T. SMELTING CO.
________________________ By _____________________________
APPENDIX "A"
DEFINITIONS
Attached to and made a part of that certain Concentrate Purchase
and Sales Agreement between P.T. Freeport Indonesia Company and
P.T. Smelting Co., dated as of December 11, 1996.
NOTE: ALL REFERENCES IN THIS APPENDIX "A" TO SECTION NOS. ARE TO
THE SECTION NOS. OF THE ABOVE REFERENCED AGREEMENT.
1. "Affiliate" shall mean any entity which directly or
indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with a party to this
Agreement; where control is determined by possession, directly or
indirectly, through one or more intermediaries, of the ability to
direct the management and policies of an entity and control shall
be presumed to exist whenever one person or entity holds,
directly or indirectly, through one or more intermediaries,
twenty-five percent (25%) or more of the outstanding voting
shares or interests in another entity.
2. "AIP" shall have the meaning set forth in the fourth
WHEREAS clause of this Agreement.
3. "Agreement" shall mean the Concentrate Purchase and
Sales Agreement between Buyer and Seller to which this Appendix
"A" is attached.
4. "Annual Budgeted Copper Grade" shall mean with respect
to each Contract Year the percentage of copper contained in
Concentrates to be delivered hereunder as estimated by Seller
pursuant to Section 2.2 as part of the annual product review, and
as furnished to Buyer under the provisions of this Agreement.
5. "Annual Shipping Schedule Quantity" shall have the
meaning set forth in Section 3.2 B.
6. "Approved Japanese Port" shall mean Naoshima and
Onahama and, if and when Nippon Mining and Metals Co., Ltd. is a
shareholder of Buyer, Saganoseki.
7. "Business Day" shall mean any day other than Saturday,
Sunday or a day that is a bank or public holiday in the State of
New York, United States of America or in Jakarta or Gresik,
Indonesia (one of such Indonesian locations to be specified by
Buyer as soon as possible following the date of this Agreement),
as applicable.
8. "CIF" shall have the meaning set forth for such term in
the publication Incoterms (latest edition).
9. "Commencement of Commercial Operations" shall mean the
earlier of (i) the Production Date and (ii) the first anniversary
of the date of Mechanical Completion.
10. "Commercial Terms" shall have the meaning specified in
Section 10.2.
11. "Concentrates" shall mean sulphide flotation copper
concentrates produced at and originating from the Contract Area.
12. "Contract Area" shall have the meaning set forth in the
first WHEREAS clause to this Agreement.
13. "Contracts Criteria" shall mean and include the
following characteristics of a Reference Contract:
(i) The party designating the Reference Contract must be a
signatory party to such Contract. For purposes of this criteria
as it applies to the Reference Contracts designated by Buyer, MMC
must be a signatory party;
(ii) The Reference Contract must have a term of at least two
(2) years;
(iii) The Reference Contract must be for the sale of 30,000
DMT's or more for the account of the designating party's account
for the year under consideration. However, a 30,000 DMT per year
concentrate sales agreement which quantity consists of two (2)
15,000 DMT per year bricks is acceptable provided the terms used
in the designating party's calculations of its weighted average
figures are in the first year of the brick (terms in later years
of a brick shall not be used because it is deemed that they do
not represent the current market). Buyer and Seller will
designate larger annual tonnage concentrate sales agreements in
preference to smaller annual tonnage concentrate sales agreements
unless special circumstances exist which cause the designating
party to believe in good faith that the larger annual tonnage
agreements are less representative of the then current world
market terms and conditions;
(iv) The quantity which a party may use from any particular
Reference Contract for purposes of making its weighted average
calculation shall be limited to the quantity which such party is
purchasing or selling under such Contract (i.e. a party cannot
use quantities intended for another party);
(v) The Reference Contract must be between the owner of a
smelter and the owner of a mine;
(vi) The Reference Contract must be between parties who are
not Affiliates;
(vii) A Reference Contract must not be between a party to
this Agreement and a third party (or such third party's
Affiliate) with whom the designating party has given or received
special financial or other consideration (such as a loan or other
contractual arrangement) which may affect the commercial terms of
such Reference Contract. Notwithstanding the foregoing, if a
party designates such a Contract and the other party raises this
criteria as an issue, then if the submitting party presents
arguments to the auditor which satisfy such auditor that the
terms were negotiated on a strictly arms length basis and were
not affected by such special financial or other consideration,
such Contract will be deemed to satisfy this criteria;
(viii) Neither the Ertsberg Concentrate Agreement nor the
MMC Concentrate Agreement shall be designated by either party as
these agreements are utilized in accordance with the provisions
of Section 9.2(i);
(ix) All commercial terms of the Reference Contracts which
are used in the weighted average calculations must have been
settled during the period from October 1 of the immediately
preceding year to March 1 of the current year and be applicable
to the immediately succeeding annual period following such
settlement. If a party is unable to settle a Reference Contract
by March 1 which was scheduled for settlement on or before March
1 according to the terms of such Contract, but gives notice to
the auditor that it believes in good faith that such settlement
will be concluded prior to March 31, and such party then
concludes such settlement during the month of March and provides
all of such terms as settled to the auditor by March 31, then
such Contract will be deemed to satisfy this criteria;
(x) The Reference Contract must be for copper concentrates
which are generally considered within the market as "clean
concentrates" and which have a current average annual copper
grade of 26% to 46%. "Clean concentrates" shall mean copper
concentrates not containing impurities or other characteristics
which cause the smelting and refining charges for such
concentrates to be inflated relative to the generally applicable
market level of such charges; and
(xi) A Reference Contract shall not be designated by a party
to replace a Reference Contract which has previously been ruled
eligible by the auditor, unless it: (a) is the replacement for an
eligible Reference Contract as a result of a party's exercise of
its discretionary right to replace one eligible Reference
Contract per calendar year, or (b) is a replacement for a
previously eligible Reference Contract which has terminated or
does not satisfy all of the Contracts Criteria for the current
annual period.
14. "Contractual Tonnage" with respect to each Contract
Year shall mean the quantity of Concentrates measured in DMTs
which Buyer is obligated to purchase, pay for and accept delivery
of and which Seller is obligated to sell and deliver during such
Contract Year, which quantity is determined in accordance with
the provisions of Section 3.2, it being understood that the term
"Contractual Tonnage" as set out in Section 3.2 may be modified
in accordance with the express written provisions of other
sections of this Agreement.
15. "Contract Year" shall mean, with respect to the first
Contract Year, the period of time commencing three (3) months
following the date of Mechanical Completion and ending twelve
(12) months following such date; with respect to the second
Contract Year, the period of time commencing at the end of the
first Contract Year and ending twelve (12) months following such
date; with respect to the third Contract Year, the period of time
commencing at the end of the second Contract Year and ending at
midnight on December 31 (at the Port of Loading) of the calendar
year in which such third Contract Year began; and with respect to
the fourth Contract Year and each succeeding Contract Year during
the term of this Agreement, each calendar year thereafter at the
Port of Loading.
16. "COW" shall have the meaning set forth in the first
WHEREAS clause of this Agreement.
17. "Current Settlement" shall have the meaning set forth
in subsection (c) of Section 9.2(i) of this Agreement.
18. "Date of Arrival" shall mean, with respect to shipments
to a Port of Discharge or alternate port within Indonesia, the
date on which the carrying vessel tenders Notice of Readiness at
such port, and with respect to shipments to a Port of Discharge
or alternate port outside Indonesia, the date on which the vessel
carrying such quantity first reports officially to customs,
quarantine or such other location at which vessels customarily
report for discharging cargos at such port.
19. "Effective Date" shall mean the date first written
above (subject to approval of this Agreement by the Government).
20. "Ertsberg Concentrate Agreement" shall mean that
certain Concentrate Sales Agreement between Seller and certain
Japanese corporations, dated December 31, 1990, as amended, and
any concentrate sales agreement between Seller and any one or
more of such Japanese corporations (but which must in any event
include MMC) entered into upon or following expiration of such
December 31, 1990 Agreement, as amended.
21. "Facilities" shall mean the copper smelter, refinery,
jetty and other facilities of the Project.
22. "Financial Disadvantage" shall mean the net impact to
the affected party resulting from the failure of the other party
to comply with the terms of this Agreement and consisting of (i)
documented actual lower revenues from sales, plus (ii) any costs
and expenses incurred which are in excess of those costs which
would otherwise have been incurred (including increased general
and administrative expenses and the increased costs of purchasing
concentrates), and minus (iii) any costs and expenses avoided
thereby or reduced as a result of each party's duty to mitigate
losses; but Financial Disadvantage shall not include any losses
or costs arising out of third party liabilities.
23. "Five-Year Expected Analysis" shall have the meaning
set forth in Section 2.2.
24. "Floor TC's and RC's" shall have the meaning set forth
in Section 9.3 of this Agreement.
25. "FLUOR", "FDEC" and "FDA" shall have the meanings set
forth in the WHEREAS clauses of this Agreement.
26. "Government" shall mean the Government of the Republic
of Indonesia and its Ministries, agencies and political
subdivisions.
27. "Initial Inventory Period" shall mean the three month
period following Mechanical Completion.
28. "Inventory Allowance" shall have the meaning set forth
in Section 3.3 of this Agreement.
29. "Major Contracts" shall mean those contracts as
described in subparagraphs (a) through (g) (inclusive) of Section
4.3 of the Project Planning Agreement.
30. "Mechanical Completion" of the Facility means when,
except for minor items of work that would not affect the
performance or operation of the Facility such as painting,
landscaping and so forth, (a) all materials and equipment for the
Facility have been installed by the Contractor or Subcontractors
in accordance with the plans and the Scope Book, and checked and
tested for alignment, lubrication, rotation and hydrostatic or
pneumatic pressure integrity; (b) the Facility has been flushed
and cleaned out as necessary; (c) all systems are ready to
commence start-up, testing and operations; and (d) a Punchlist of
the uncompleted items shall be established and mutually agreed
upon by Owners, Independent Engineer and Contractor, provided
that Owner and Independent Engineer may waive, in writing,
completion of Punchlist items. It is understood that Mechanical
Completion can be accomplished in incremental steps, the sum
total of which, after Notice in accordance with Section 8.2 of
the Construction Contract described below, shall constitute
Mechanical Completion of the Facility. All capitalized words in
this definition shall have the meaning ascribed to them in the
Construction Contract between P.T. Chiyoda International
Indonesia and Buyer, effective as of May 31, 1996.
31. "MMC" shall have the meaning set forth in the third
WHEREAS clause of this Agreement.
32. "MMC Concentrate Agreement" shall mean that certain
Concentrate Sales Agreement between Seller and MMC, dated as of
January 1, 1995, as amended, and any concentrate sales agreement
between Seller and MMC entered into upon or following expiration
of such January 1, 1995 Agreement, as amended.
33. "Month of Arrival" with reference to each cargo of
Concentrates shall mean the calendar month the Date of Arrival
falls in.
34. "Month of Scheduled Shipment" with reference to each
cargo of Concentrates shall mean the calendar month set forth in
the shipping schedule provided by Buyer to Seller pursuant to
Article 6, as it is finally revised or amended in accordance with
the provisions of such Article.
35. "Normal Office Hours" shall mean (i) on Monday through
Friday, from _____:00 to _____:00, and (ii) on Saturday, from
_____:00 to _____:00; provided, however, Normal Office Hours
shall not include (unless such days are worked) national
holidays, customary local and smelter holidays, and Saturdays
customarily not worked by the office personnel at the Receiving
Works. The times to be inserted in the blank spaces above shall
be mutually agreed upon by Buyer and Seller as soon as possible
following the date of this Agreement.
36. "Notice of Readiness" shall have the meaning set forth
in Section 5.4.
37. "One Year in Advance Forecasted Quantity Requirement"
shall have the meaning set forth in Section 3.2 A.
38. "Part A Tonnage" shall mean fifty percent (50%) of the
Concentrates delivered in each cargo during each Contract Year of
the term of this Agreement. The smelting and refining charge
deduction for Part A Tonnage shall be determined as provided for
in Section 9.1.
39. "Part B Tonnage" shall mean fifty percent (50%) of the
Concentrates delivered in each cargo during each Contract Year of
the term of this Agreement. The smelting and refining charge
deduction for Part B Tonnage shall be determined as provided for
in Section 9.2.
40. "Payable Copper" shall have the meaning set forth in
Section 8.1 of this Agreement.
41. "Payable Gold" shall have the meaning set forth in
Section 8.2 of this Agreement.
42. "Payable Silver" shall have the meaning set forth in
Section 8.3 of this Agreement.
43. "Permanent Holiday Tonnage" shall have the meaning set
forth in Section 9.1(i).
44. "Port of Discharge" shall mean Buyer's dedicated berth
at Gresik, Java, Indonesia or such other port(s) as may be
mutually agreed upon. The term "Port of Discharge" shall also
mean an Approved Japanese Port with respect to shipments of
Concentrates to such Approved Japanese Port in accordance with
the provisions of Section 2.3(c).
45. "Port of Loading" shall mean Amamapare, Irian Jaya,
Indonesia or such other port at which Concentrates are loaded for
shipment to the Port of Discharge.
46. "Preliminary Estimated Analysis" shall have the meaning
specified in Section 2.2.
47. "Production Date" shall mean the date when the first
1,200 metric tons of anodes of a quality acceptable by Buyer for
refining by Buyer's refinery have been produced over a period of
four consecutive days by Buyer's smelter.
48. "Project" shall have the meaning set forth in the
second WHEREAS clause of this Agreement.
49. "Project Loans" shall mean the total committed amount
of the term and working capital loans to be provided pursuant to
the initial financing documents to be entered into by Buyer and
certain lenders for the financing of the Project (other than
loans to Buyer from its shareholders).
50. "Project Planning Agreement" shall have the meaning set
out in the sixth WHEREAS clause of this Agreement including any
subsequent modifications, supplements or amendments thereto.
51. "Quotational Period" shall have the meaning set forth
in Section 8.4 of this Agreement.
52. "Receiving Works" shall mean the Port of Discharge or
the Facilities, whichever is applicable.
53. "Reference Contract" shall mean a concentrate purchase
or sales agreement which is or may be designated by Buyer or
Seller in accordance with and for the purposes set out in Section
9.2.
54. "Rolling Five Year Concentrates Requirements Forecast"
shall have the meaning set forth in Section 3.2 A.
55. "Shareholders Agreement" shall have the meaning
specified in the ninth WHEREAS clause of this Agreement.
56. "Trust Agreement" shall mean the Restated Trust
Agreement dated as of October 11, 1996, among Seller, P.T. RTZ-
CRA Indonesia ("PT-RTZ"), The Chase Manhattan Bank (National
Association), as Depository, and First Trust of New York,
National Association, as Trustee, as such Restated Trust
Agreement may be amended, modified and/or restated from time to
time, or any successor agreement pursuant to which Seller and/or
PT-RTZ, as participants holding certain undivided interests in
the COW and in the agreements pursuant to which Concentrates are
sold, shall assign or has assigned any rights and interests which
Seller and PT-RTZ now have or may hereafter have under this
Agreement (as this Agreement may be amended and modified from
time to time) including but not limited to the right to receive
sales proceeds, for the purposes, inter alia, of facilitating the
administration of the respective interests of Seller and PT-RTZ
and of providing security to one or more lenders to Seller or PT-
RTZ from time to time.
57. "Trustee" shall have the meaning specified in the
definition of Trust Agreement.
58. "Weights, Measures and Currencies" shall mean:
A metric ton = 2,204.62 pounds (avoirdupois)
A ton = a metric ton
A DMT = a dry metric ton
A WMT = a wet metric ton
A unit = a hundredth part
An ounce = a troy ounce of 31.1035 grams
A pound = 453.593 grams (avoirdupois)
Dollars = currency of the United States
of America (represented by the sign "$")
EXHIBIT 12
<TABLE>
FREEPORT-McMoRan COPPER & GOLD INC.
Computation of Ratio of Earnings to Fixed Charges:
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Income from continuing
operations $ 253,618 $ 226,249 $ 245,108 $ 153,848 $ 136,467
Add:
Provision for income taxes 234,044 247,168 231,315 170,566 195,653
Minority interests' share
of net income 57,100 48,529 40,343 37,012 48,714
Interest expense 50,080 117,291 151,720 205,588 194,069
Rental expense factor(a) 1,002 457 240 323 188
--------- --------- --------- --------- ---------
Earnings available for
fixed charges $ 595,844 $ 639,694 $ 668,726 $ 567,337 $ 575,091
========= ========= ========= ========= =========
Interest expense $ 50,080 $ 117,291 $ 151,720 $ 205,588 $ 194,069
Capitalized interest 49,758 22,979 23,021 19,612 3,768
Rental expense factor(a) 1,002 457 240 323 188
--------- --------- --------- --------- ---------
Fixed charges $ 100,840 $ 140,727 $ 174,981 $ 225,523 $ 198,025
========= ========= ========= ========= =========
Ratio of earnings to
fixed charges(b) 5.9x 4.5x 3.8x 2.5x 2.9x
==== ==== ==== ==== ====
</TABLE>
<TABLE>
Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends:
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Income from continuing
operations $ 253,618 $ 226,249 $ 245,108 $ 153,848 $ 136,467
Add:
Provision for income taxes 234,044 247,168 231,315 170,566 195,653
Minority interests' share
of net income 57,100 48,529 40,343 37,012 48,714
Interest expense 50,080 117,291 151,720 205,588 194,069
Rental expense factor(a) 1,002 457 240 323 188
--------- --------- --------- --------- ---------
Earnings available for
fixed charges $ 595,844 $ 639,694 $ 668,726 $ 567,337 $ 575,091
========= ========= ========= ========= =========
Interest expense $ 50,080 $ 117,291 $ 151,720 $ 205,588 $ 194,069
Capitalized interest 49,758 22,979 23,021 19,612 3,768
Rental expense factor(a) 1,002 457 240 323 188
Preferred dividends 101,125 101,083 65,896 65,847 68,697
--------- --------- --------- --------- ---------
Fixed charges $ 201,965 $ 241,810 $ 240,877 $ 291,370 $ 266,722
========= ========= ========= ========= =========
Ratio of earnings to
fixed charges(b) 3.0x 2.6x 2.8x 1.9x 2.2x
==== ==== ==== ==== ====
</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.
Exhibit 13.1
WORKING TOWARD SUSTAINABLE DEVELOPMENT
1999 ECONOMIC, SOCIAL & ENVIRONMENTAL REPORT
Introduction
International television provided its viewers worldwide with an
unforgettable spectacle New Year's Eve, December 31, 1999. As the
new millennium arrived - first in the Pacific and then marching
westward around the globe, time zone by time zone - live cameras
recorded the event in a prolonged panorama. In nation after
nation, through a beautiful mosaic of cultures, the event was
commemorated in remarkably similar fashion. It was a uniformly
joyous and peaceful celebration. As we watched one another
through the magical eye of television, however, we could not help
noticing that our once seemingly boundless planet and its
wonderful variety of peoples have truly become a global
community. No place seems so remote anymore; no resource seems so
limitless.
As we stand at the threshold of the new millennium, it appears
more important than ever to meet the challenge of global
sustainability: learning how to meet the development needs of the
world's growing population without depriving future generations
of the means to meet their own needs. For Freeport-McMoRan Copper
& Gold Inc. (FCX) and the rest of the mining industry, this is
indeed a challenge. Consider just the past century: Virtually all
the major advances of the last one hundred years, including those
that have seemed to shrink our planet - flight, space
exploration, telecommunications - have depended on mining
products.
The importance of mining will continue in the 21st century
because metals and minerals are essential to economic
development. The direct benefits of that development are clear.
It is equally clear that responsible mining has environmental and
social impacts that must be managed carefully. The indirect
benefits of mining, including facilitating educational, health
care and community development advances in the areas of mining
operations, are a part of these considerations. The dramatic
improvements from past practices must be continued as the role of
responsible mining in the transition to sustainable patterns of
development is defined.
Throughout our history of developing world-class ore deposits at
the Grasberg complex in the province of Irian Jaya (Papua),
Indonesia, we and our Indonesian mining affiliate, PT Freeport
Indonesia, have been known for finding technological solutions to
seemingly insurmountable obstacles in this once-remote part of
the world. Moreover, FCX and PT Freeport Indonesia have been
recognized, through operating innovations and efficiencies, as
the low-cost leader in the industry. It is our goal - by taking a
strong position at the forefront of the international mining
industry - to also be a leader in working toward sustainability.
We regard this as a key responsibility.
<PAGE 6>
To accomplish this, we have joined the Global Mining Initiative.
This 18-month project, which is being conducted independently by
the International Institute for Environment and Development under
the auspices of the World Business Council for Sustainable
Development, will assess the many issues related to mining and
sustainable development. These include the economic contribution
of mining, the use of the industry's products, the environmental
impacts of extraction, and impacts on communities, indigenous
peoples and human rights. In part, the project will seek ways to
better explain mining's importance to sustainable patterns of
economic development; but it will also identify further changes
needed within the mining industry to enable it to take its place
in a sustainable economy. The project involves broad
participation by people and groups with whom the industry must
engage and is designed to build a new foundation for these
relationships based on mutual trust and understanding.
We view this project as another way for our company to fulfill
its duties, responsibilities and commitments, which are clearly
stated in the Environmental Policy and the Social and Human
Rights Policy, both of which have been approved by the FCX Board
of Directors. Perhaps the most important aspect of these policies
is the commitment we have made to continuous improvement of our
performance in these two areas. We have also promised to
constantly assess and report on our progress in meeting our
commitments, and we .have done so with the Dames & Moore
environmental audit in 1996, the LABAT-Anderson social audit in
1996 and 1997, and the Montgomery Watson environmental audit in
1999. Independent, highly qualified experts performed all of
these audits. We have publicized their findings and have
implemented or are in the process of implementing the audit
recommendations.
In recent years, we have provided significant additional
information in our Annual Report to shareholders with sections
concerning environmental and social issues. This is the second
expanded report, "Working Toward Sustainable Development."
Besides providing information on economic, social and
environmental issues and events from 1999, 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. Our Social and Human
Rights Policy and Environmental Policy are available to
interested parties on our internet web site (www.fcx.com). The
web site also has the results of the independent environmental
and social audits and up-to-date information on our environmental
and social programs, as well as the latest financial results.
PT FREEPORT INDONESIA
I. ECONOMIC IMPACTS
PT Freeport Indonesia impacts the economies of the province of
Irian Jaya (Papua) and Indonesia through the payment of taxes,
dividends and royalties; voluntary economic development programs,
such as the Freeport Fund for Irian Jaya Development;
infrastructure development; employment; and the purchase and use
of local and national goods (Figure 1).
Fig. 1
Financial benefits of PT Freeport Indonesia's operations
to the people and Government of Indonesia
Graph showing the following data:
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wages, Salaries & Benefits 20 26 38 90 82 98 45 48
Goods & Services Purchased 80 204 508 422 261 200 150 139
Domestic Reinvestments 368 486 707 447 498 641 367 215
Charitable Contributions 8 15 20 22 23 33 27 35
Dividends, Royalties & Taxes 107 94 117 297 273 237 150 144
</TABLE>
PT Freeport Indonesia has frequently been the largest corporate
taxpayer in the Republic of Indonesia. In addition, it pays the
government royalties on production and dividends related to the
government's direct ownership. Since 1991, these direct payments
to Indonesia have totaled $1.42 billion. Taxes and royalties are
paid to the central government in Jakarta and then used or
distributed according to government policy and priorities.
Indonesia's central and regional governments are currently
modifying the distribution of such revenues so that a greater
portion will benefit the regional government. PT Freeport
Indonesia supports this change.
Since we began development activities thirty years ago, PT
Freeport Indonesia has made significant investments in
infrastructure both for the use of the company and for the public
in southern Irian Jaya (Papua). This includes medical facilities,
roads, an airport and heliports, schools, housing, community
buildings and places of worship. PT Freeport Indonesia is also
one of the largest private employers in Indonesia and by far the
largest in Irian Jaya (Papua). At the end of 1999, PT Freeport
Indonesia directly employed 6,357 people, including 1,244
Papuans, and another 1,851 contract workers who were employed by
companies which provide services locally and exclusively to PT
Freeport Indonesia. In addition, approximately 5,000 persons
worked for privatized companies providing services within PT
Freeport Indonesia's operations area. Finally, PT Freeport
Indonesia uses as many locally and nationally produced goods as
possible.
<PAGE> 7
Besides the $1.42 billion paid in direct benefits to the
Government of Indonesia under PT Freeport Indonesia's new
Contract of Work from 1992 through 1999, PT Freeport Indonesia
has provided another $6.32 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, approximately 80 percent of PT Freeport
Indonesia's total revenues since 1992 have remained in and
benefited Indonesia and its people.
II. SOCIAL CHANGE AND DEVELOPMENT
Background
From the beginning of its operations in Irian Jaya (Papua), PT
Freeport Indonesia has supported programs to benefit the Amungme
and Kamoro people who were the area's traditional inhabitants.
When it began operations in 1972, with a local population
numbering only in the hundreds and a relatively small mine, PT
Freeport Indonesia's initial 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, both
the needs of the local communities and PT Freeport Indonesia's
efforts to respond to them with an array of social and economic
programs spiraled in complexity. PT Freeport Indonesia's resident
workforce expanded, particularly during construction, and its
attraction as a source of economic opportunity increased, drawing
thousands of migrants from other indigenous Papuan tribes over
the mountains and into the area of PT Freeport Indonesia's
operations. The Indonesian government, 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 mixture of Papuan indigenous peoples, which have their
own history of interethnic tensions, 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 nearly
100,000 individuals, and continues to grow today.
Social and Cultural Commitment
We are committed to building and maintaining positive
relationships with the indigenous peoples living in the areas
where we operate and to the continuous improvement of those
relationships. Part of our 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 under- standing necessary for building
constructive relationships. But perhaps the most important aspect
is our commitment to treat the local people with respect and to
consult them on important operational issues that impact their
communities.
PT Freeport Indonesia has also sought to be sensitive to the need
of the unique peoples .of Irian Jaya (Papua) to preserve their
cultures at the same time they are merging with modern
development. For this reason, PT Freeport Indonesia has long
supported the annual Asmat Art and Cultural Festival and
sponsored the new annual Kamoro Art and Cultural Festival, which
was highly successful its first two years.
PT Freeport Indonesia formed a relationship with anthropologists
and demographers from the Australian National University and
Cenderawasih University in Jayapura to prepare baseline studies
documenting the history and contemporary social, economic and
cultural situation of the Amungme and Kamoro peoples in PT
Freeport Indonesia's operations area. This work has resulted in
improvements in communications and understanding between PT
Freeport Indonesia and the local people and strengthened the
company's community affairs programs by leading to additional
financial, development and training resources. PT Freeport
Indonesia has also funded research by Cenderawasih University on
Amungme and Kamoro traditional law as well as a Kamoro language
program, which has produced the first Kamoro conversation book,
similar to work previously done on the Amungme language.
Human Rights Background
Because of the activities of a separatist group in Irian Jaya
(Papua), the Government of Indonesia 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
<PAGE> 8
rights violations in connection with some of these
incidents. Certain of these allegations have been investigated,
and the individuals in the military who were determined to be
involved have been punished.
We support and uphold the human rights of all people and have
publicly and strongly condemned all human rights violations in
Irian Jaya (Papua). We have applauded the government's arrest,
trial, conviction and incarceration of those responsible for
human rights violations in Irian Jaya (Papua) and also encourage
and fully support any legitimate investigation of remaining
allegations of human rights violations. There have been numerous
investigations of human rights violations in Irian Jaya (Papua),
and none found that any PT Freeport Indonesia employee
participated in any violation.
Human Rights Commitment and Initiative
We have taken a clear position promoting basic human rights and
have communicated that position to our employees through our
Social and Human Rights Policy adopted by the Board of Directors
in February 1999. In November 1999, we engaged Judge Gabrielle
Kirk McDonald as Special Counsel on Human Rights to the Chairman
of FCX. A former U.S. District Court Judge and noted civil rights
attorney and professor of jurisprudence, Judge McDonald has
served for the past six years as a Judge of the International
Criminal Tribunal for the Former Yugoslavia and was elected
President of the Tribunal in 1997. She stepped down from this
distinguished position upon the expiration of her term November
16, 1999. Judge McDonald will continue to serve as a member of
the FCX Board of Directors.
Our Human Rights Policy requires education of all employees on
human rights. This training began in 1999 with the PT Freeport
Indonesia Community Affairs and Security Department employees and
continues. In addition, the policy requires all employees to
report to designated human rights compliance officers any
suspected human rights violations whether done by company
employees or by others. All security personnel and all staff
employees are required to annually certify to the company that
they have neither been part of nor do they know of any human
rights violations.
The first test of the policy came in December, 1999 when a number
of incidents in the company's area of operations were reported as
possibly being violations of human rights in the wake of an
incident in Timika involving a separatist flag-raising and the
government's response to it. Once investigated, it was determined
that those being accused of human rights violations were not
company employees. The matter was referred promptly to the
appropriate Government of Indonesia officials, including the
Indonesian Human Rights Commission and the State Minister for
Human Rights.
Equally important to these initiatives is the company's
commitment through its social programs to proactively work to
secure fundamental human rights for all citizens in its area of
operations. The company also seeks, through improved
communication and increased understanding, to reduce underlying
frictions that are the root cause of situations that lead to
human rights violations.
Land Rights
We acknowledge the special relationship between indigenous
peoples and their traditional lands and, like mining companies
worldwide, provide 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 government-approved Contract of
Work. Indonesian law also provides for giving "recognition" in
the form of community benefits to indigenous people for the
temporary use of land.
The 1974 "January Agreement" between PT Freeport Indonesia 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 Freeport Indonesia and the Government of
Indonesia to be a legally binding release of land under
Indonesian law. As part of the 1974 Agreement, PT Freeport
Indonesia 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 (please see the Environmental Management section for
details) had impacted the lowlands area and some
<PAGE> 9
stands of sago
palm as well as certain 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 Ajkwa Deposition Area. 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 Freeport Indonesia 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.
Representation on PT Freeport Indonesia Board of Commissioners
In order to give the Papuan people a greater voice in the
governance of the company, PT Freeport Indonesia's shareholders
in 1999 asked three additional local area leaders to join the PT
Freeport Indonesia Board, and they have accepted. The new Board
members include Tom Beanal, a local Amungme leader and a founder
of LEMASA, the Amungme people's organization; Issac Hindom, who
is from Biak and served as Governor of Irian Jaya (Papua) from
1984 through 1989; and Titus O. Potereyauw, a local Kamoro leader
who serves as the Bupati of Mimika (the top executive of the
regional government where PT Freeport Indonesia's principal
operations are located). The present Governor of Irian Jaya
(Papua), Freddy Numberi, already serves as a Board member of PT
Freeport Indonesia.
Freeport Fund for Irian Jaya Development (FFIJD)
In April, 1996, PT Freeport Indonesia agreed to commit at least
one percent of its revenues for the next ten years to support
village-based 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 1999, PT Freeport
Indonesia contributed $14.4 million to the FFIJD and has
contributed a total of $54.8 million to the fund since the
commitment was made in 1996. In addition, PT Freeport Indonesia's
joint venture partner, Rio Tinto plc, has contributed another
$6.5 million to date to the fund.
The Lembaga Pengembangan Masyarakat-Irian Jaya (LPM), or the
People's Development Foundation-Irian Jaya, oversees disbursement
of FFIJD funds. The LPM 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 Freeport
Indonesia. The LPM Board of Directors makes grants from the FFIJD
and oversees 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 Board of Directors had its first full year of operations
in 1999, approving a 1999/2000 operational plan and selecting a
number of yayasans, or foundations, to implement funded projects.
The operational plan provides 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 Freeport Indonesia's operations. Satellite LPM
offices now operate in Mapurujaya, serving 16 coastal Kamoro
villages; Tembagapura, serving seven highland Amungme villages;
and Timika, serving Kwamki Lama, Kwamki Baru and nearby areas.
A flagship project for the LPM has been the Rumah Sakit Mitra
Masyarakat, or Mimika Hospital, a new 75-bed facility built and
furnished near Timika during 1999 at a cost of $3.5 million. The
Mimika Hospital now provides a full range of medical diagnostic
and treatment services to the lowlands portion of PT Freeport
Indonesia's project area for the first time. Medical facilities
for outpatient and inpatient services include a polyclinic, X-ray
facility, operating unit, obstetrics-gynecology wards, intensive
care wards and standard wards. In the past, many of these
services were only provided at the hospital in Tembagapura in the
highlands. The Mimika Hospital also offers special training and
education programs to increase health consciousness among the
local people. The hospital is owned by the LPM, and operated by
Yayasan Caritas Timika, a Catholic medical foundation.
The next major project envisioned by the LPM is a "school of
excellence" for local children, from elementary school through
high school.
Medical Care, Public Health and Malaria Control
Medical care is provided free of charge to all Papuans residing
in the area and at a reasonable charge for others. These services
are provided in LPM and PT Freeport Indonesia hospitals and
clinics, preventive medicine and medical education programs. A
primary focus for educational programs is on women and children,
and the programs are carried out through the village health
office and elementary schools.
Malaria and tuberculosis are two of the primary public health
threats in Irian Jaya (Papua). For the past decade, PT Freeport
Indonesia has undertaken a major public health program that
serves the entire community in and around PT Freeport Indonesia's
operations area. The core of the Public Health and Malaria
Control Program is health care education and early detection of
disease through village-by-village canvassing, testing and
treatment. Between 1997 and 1998, there was a 70 percent decrease
in the number of malaria cases in the area. In 1999, however, the
number of reported cases increased by 16 percent. We believe this
increase was caused in part by the
<PAGE> 10
return to more normal rainfall
levels after two drier than normal years, causing an increase in
mosquito-breeding habitat. Also, there was a significant influx
of new residents, many of whom came from areas that do not have
malaria and have not developed a normal resistance to the malaria
parasite. In spite of the recent increase in reported cases, the
Mimika region remains by far the safest coastal region in Irian
Jaya (Papua) for the incidence of malaria.
In addition to intensive testing and treatment of those who may
have contracted malaria, various activities are used to control
the mosquitoes in the area as well as to monitor their presence.
A team of 125 workers maintains more than 300 kilometers of
drainage ditches to minimize mosquito breeding. Other workers
undertake night-time mosquito collection. On average more than
3,000 man-hours per month of such collections are undertaken in
12 major areas and 90 individual locations. Through these
studies, the prevalence and movement of disease-carrying
mosquitoes are tracked in order to identify potential problems.
Tuberculosis is an increasing problem throughout Irian Jaya
(Papua). Because PT Freeport Indonesia's Public Health and
Malaria Control Department offers one of the few tuberculosis
programs in Irian Jaya (Papua), many people who suffer from
tuberculosis come to the Mimika area for treatment. Since the
movement of people over long distances to receive treatment for
tuberculosis is dangerous and inefficient, the department is
beginning a pilot treatment program in the Paniai highlands
region, where most of the tuberculosis cases originate. The long-
term cure rate for tuberculosis through the program is 75
percent. Although most people who suffer from tuberculosis are
adults, an increase of cases among children has been noted.
The Public Health and Malaria Control Department maintains five
community clinics. In 1999, these clinics made almost 70,000
patient contacts and administered over 3,000 vaccinations for
Hepatitis B. A more detailed report on the Public Health and
Malaria Control Program may be found on the FCX web site
(www.fcx.com).
Education, Training and Employment
In 1996, PT Freeport Indonesia embarked on an aggressive program
to increase the number of Papuan employees throughout the
workforce and especially among management. The goal was to double
the total number of Papuan employees by 2001 and the total number
of Papuan staff (managerial and professional) employees by 2006.
Both goals have already been surpassed (Figure 2). At December
31, 1999, PT Freeport Indonesia had 1,244 Papuan employees,
compared to 600 in 1996; and 102 Papuan staff employees, compared
to 48 in 1996.
However, in both categories the trend has slowed. This is partly
because PT Freeport Indonesia's expansion projects have been
completed and the total number of employees has decreased. Thus,
the percentage of Papuan employees has continued to increase even
as the total number has increased more slowly. Another factor is
that PT Freeport Indonesia has already employed a large portion
of the available educated and trained Papuans in the area. PT
Freeport Indonesia is currently working to establish a Mine
Training Institute to accelerate training for many Indonesians,
especially Papuans, in mining industry skills.
Fig. 2
PT Freeport Indonesia has consistantly exceeded its targets for
Papuan employees and Papuan staff since 1996.
Graph showing the following information:
<TABLE>
<CAPTION>
Papuan Employees Papuan Staff
Target Actual Target Actual
<S> <C> <C> <C> <C>
3/96 592 592 48 48
9/96 655 666 50 53
3/97 717 702 53 66
9/97 780 863 55 87
3/98 843 1,106 58 92
9/98 905 1,033 60 111
3/99 968 1,057 63 95
9/99 1,031 1,112 66 96
</TABLE>
<PAGE> 11
Viable educational opportunities for Papuan children are perhaps
most important for the local people in the long term. PT Freeport
Indonesia has supported the Government of Indonesia in this
effort by opening the company's schools to Amungme children
living in the Banti area, a highland community near the mine, and
by educational aid and scholarship programs for Papuan students
from the elementary school level through college. Over 4,000
students received aid in 1999, ranging from uniforms and supplies
for students in government schools to full scholarships for
college and university students, including students in Australia
and the United States. Several college and university students
from Irian Jaya (Papua) completed their studies in the United
States this year.
Business Incubator Program
In response to continued interest from local residents wishing to
start their own business enterprises, either in the form of
cooperatives or as individual entrepreneurs, PT Freeport
Indonesia has restructured its business incubator program to help
these new ventures get started and succeed. With training and
start-up loans from this program, Papuans have been able to begin
small business ventures that provide services to PT Freeport
Indonesia and its contractors while opening new employment
opportunities for Papuans. These business start-up programs are
limited to Papuan entrepreneurs and their business partners.
Community Liaison Program
To improve communication and understanding with the local people,
PT Freeport Indonesia has created the Community Liaison Program,
which puts PT Freeport Indonesia employees who are specially
trained in community relations into local villages to work with
the people of the village as liaison officers. Their task, in
addition to seeking ways to improve life in the local villages,
is to make certain the company knows of community problems and to
serve as a first point of contact for local people if they have a
concern about what the company is doing.
Forming Partnerships for Progress
PT Freeport Indonesia's community relations staff members have
formed partnerships with private groups and non-governmental
organizations with social development expertise to expand the
reach and effectiveness of the company's social programs. Two
such partnerships particularly successful in 1999 were with the
Village Heartbeat Foundation and Yayasan Sejati.
The Village Heartbeat Foundation undertakes programs in the
Paniai and Puncak Jaya areas, focusing on village leadership and
small village developmental programs (See inset next page). Their
efforts are supported by the Winrock Foundation, which advises on
small agricultural programs. PT Freeport Indonesia is supporting
this work in order to spread the benefits of the company's
operations to a wider area of Irian Jaya (Papua).
Inside PT Freeport Indonesia's operations area, non-governmental
agencies increasingly support developmental programs for the
benefit of the local people. One such group whose work has been
particularly beneficial is Yayasan Sejati, which has been active
in the lowlands area of Mimika on land issues and the
implementation of wide-ranging land compensation programs (See
inset page 9).
III. ENVIRONMENTAL MANAGEMENT
Environmental Commitments
We are fully committed to minimizing the impact of our operations
on the surrounding environment and to reclaiming and/or
revegetating land that is disturbed. As part of our comprehensive
Environmental Policy, we are a signatory to the International
Council on Metals and the Environment Environmental Charter.
Through this policy, we commit to giving our highest priority to
sound environmental management and practices, to providing
adequate resources to fulfill that responsibility and to
continuous improvement of our environmental performance at every
operational site. We also commit strongly to supporting
scientific research to find the best applicable environmental
technologies; to comprehensive monitoring to ensure that our
practices are working; and to both internal and external
environmental audits to measure performance.
<PAGE> 12
Management and Monitoring
PT Freeport Indonesia made a series of specific commitments as
part of its most recent production expansion environmental impact
assessment, the AMDAL (Indonesian acronym for the environmental
impact assessment process). The AMDAL, approved by the Government
of Indonesia in December 1997, included comprehensive and
expanded Environmental Management and Monitoring Plans. Such
plans are now in place for all major aspects of PT Freeport
Indonesia's operations and infrastructure.
Auditing
Our Environmental Policy requires the performance of annual
internal environmental audits. The 1999 internal audit concluded
that PT Freeport Indonesia's Irian Jaya (Papua) operations are in
material compliance with Government of Indonesia laws and
regulations. In addition, PT Freeport Indonesia 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 Freeport Indonesia was the first
company in Indonesia to undergo an independent external
environmental audit of its operations under a new voluntary audit
program encouraged by the Government of Indonesia. The
international environmental consulting firm of Dames & Moore
conducted the first audit, the results were made public and the
audit's 33 primary recommendations have been implemented.
The second external triennial environmental audit of PT Freeport
Indonesia was completed in 1999 and its results have also been
made public. The audit was conducted by the internationally
recognized environmental consulting and auditing firm of
Montgomery Watson. The auditors found "the Environmental
Management System (EMS) developed and implemented by PT Freeport
Indonesia to be exemplary and a showcase for the mining
industry." The auditors concluded that PT Freeport Indonesia
"...incorporates environmental management systems supported by
environmental programs and resources that achieve the standard of
practice for world-scale mines."
The Montgomery Watson audit team was accompanied by three
representatives of the Government of Indonesia's Department of
Mines and Energy and two representatives of the World Wildlife
Fund, who participated in the audit site visit as formal
observers. Approximately 70 interested stakeholders, academicians
and non-governmental organizations, including many environmental
groups, were invited to comment on the scope of work and the
selection process of the independent audit firm for the audit.
Additional Montgomery Watson audit results were as follows:
> "The PT Freeport Indonesia mining operation is in material
compliance with current Indonesian government environmental laws
and regulations and has fulfilled the recommendations specified
in the previous 1996 External Environmental Audit, as well as
commitments made in governmental approved monitoring and
management plans."
> "PT Freeport Indonesia tailings management practices
represent the best alternative when considering important
geotechnical, topographic, climatologic, seismic and water
quality criteria. Moreover, PT Freeport Indonesia has completed
comprehensive technical evaluations of alternative tailings
disposal options and has selected the most appropriate management
system for the site conditions. The ongoing Ecological Risk
Assessment will allow additional evaluation of the impacts of
tailings disposal on the estuarine and marine ecosystem."
> "The techniques and methods used at the Grasberg Mine for
characterization and management of overburden stockpiles, as well
as managing Acid Rock Drainage, are consistent with international
practice."
> "PT Freeport Indonesia has implemented environmental
programs for solid and hazardous waste management, water and
wastewater control, and air quality that meet international
standards for the mining and industrial sectors."
> "PT Freeport Indonesia has a comprehensive environmental
monitoring program including a state-of-the-science environmental
analytical laboratory."
<PAGE> 13
Montgomery Watson estimated that PT Freeport Indonesia's
environmental management and monitoring commitments will
total $1.6 billion in current dollars over the life of the mine,
which "...shows a strong long-term commitment on PT Freeport
Indonesia's part." While Montgomery Watson found that PT Freeport
Indonesia has fulfilled its environmental commitments and
requirements, the auditors commented that PT Freeport Indonesia
"...must remain diligent and proactive in implementing their
environmental plan." Montgomery Watson also provided specific
recommendations, including, among others, that PT Freeport
Indonesia conduct a comprehensive groundwater study and
additional groundwater monitoring, increase biological monitoring
in estuaries downstream of the tailings deposition area to better
estimate the impact on mollusks, modify the closure plan for the
project area to include the tailings deposition area and port
site, and continue development of effective and innovative
technology for the treatment of acid rock drainage.
The Executive Summary as well as the complete 126-page audit
report are available in printed form upon request. In addition,
the Executive Summary is available in both Bahasa Indonesia and
English on our internet web site (www.fcx.com).
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). PT Freeport
Indonesia completed development in 1999 of a newly restructured
comprehensive EMS, including protocols and program descriptions,
for ISO 14001 certification of its Irian Jaya (Papua) operations
in the year 2000. Training of personnel in the newly organized
EMS is well under way.
Tailings Management Plan
Tailings are the finely ground natural rock left over from the
processing of copper ore by physical grinding and flotation
methods. The Ajkwa Deposition Area, essentially a portion of the
flood plain of the Ajkwa River encompassing some 13,000 hectares,
is operating as designed as an engineered, managed system for the
deposition and control of tailings. Tailings reclamation studies
show that the Ajkwa Deposition Area can be readily revegetated
with native and agricultural plant species once mining is
completed.
As discussed earlier, the Montgomery Watson environmental audit
concluded that PT Freeport Indonesia's "...tailings management
practices represent the best alternative" under PT Freeport
Indonesia's circumstances. The audit further concluded that "PT
Freeport Indonesia has completed comprehensive technical
evaluations of alternative tailings disposal options and has
selected the most appropriate management system for the site
conditions."
Tailings from PT Freeport Indonesia's operations have an alkaline
pH (measure of acidity) 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 (Figure 3). A pH
value of 7.0 is neutral, with a higher pH being alkaline and a
lower pH being acid. The annual average pH in the Ajkwa River for
1994 to 1999 ranged from 7.5 to 8.1.
Fig. 3
Tests on tailings show a
non-acid forming potential.
Graph showing the following data:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
(Average Annual Value)
<S> <C> <C> <C> <C> <C>
Potential kilograms of
acid per metric ton
of tailings (30) (35) (24) (36) (22)
</TABLE>
Fig. 4
Comprehensive sampling of water in the Ajkwa River shows
that copper concentrations are minimal.
Graph showing the following data:
<TABLE>
<CAPTION>
Dissolved Copper in parts-per-million (ppm)
1995 1996 1997 1998 1999
(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
Ajkwa River and Ajkwa
Deposition Area .043 .050 .018 .015 .011
</TABLE>
Comprehensive water quality sampling of the tailings management
system shows that the water in the Ajkwa River and Ajkwa
Deposition Area meets drinking water standards for metals set by
the U.S. Environmental Protection Agency (EPA) and World Health
Organization (WHO) (Figure 4). 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 an acceptable range.
<PAGE> 14
Extensive biological sampling shows that comparable numbers of
species and aquatic organisms were collected in the Ajkwa and
Minajerwi estuaries downstream of the tailings Ajkwa Deposition
Area as were found in baseline or reference estuaries, the Kamora
and Otokwa rivers, without tailings based on per unit catch for
trawl-net sampling (Figure 5).
Fig. 5
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 1999 Quarterly Average)
<S> <C> <C>
Rivers with tailings
Ajkwa 22 945
Minajerwi 26 1,269
Rivers without tailings
Kamora 29 1,055
Otokwa 24 636
</TABLE>
Ecological Risk Assessment
PT Freeport Indonesia is conducting an ecological risk assessment
of its tailings management plan. This ongoing study, which
includes all stakeholders, is estimating impacts and risks of the
tailings management plan on human health and the environment,
both in and around the Ajkwa Deposition Area as well as in
estuaries and the Arafura Sea. The study is examining potential
copper uptake by aquatic organisms and potential human health and
dietary implications, if any, and its results will guide future
tailings management decisions. The independent environmental
consultants with Montgomery Watson examined this important
ongoing research and concluded in their 1999 audit that the scope
of the ecological risk assessment and the resources committed to
it are adequate to achieve the goals.
Overburden Management Plan
Overburden is the rock with no economic value which has to be
moved aside in order to reach the ore in the mining process. Most
metals occur in nature as minerals called sulphides. When ore is
mined and overburden 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 overburden 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. PT Freeport Indonesia continuously monitors and
manages acid ro The independent auditors with
Montgomery Watson concluded in their 1999 analysis that PT
Freeport Indonesia's overburden management programs are
"...consistent with international practice."
A molecular recognition technology pilot-test unit has been
operated and studied to determine its effectiveness in capturing
and recovering copper from acidic drainage. With rapidly
advancing technology in this field, PT Freeport Indonesia will
continue to investigate this process and other technologies as a
part of its acid rock drainage management program. The Montgomery
Watson auditors recommended PT Freeport Indonesia continue this
work.
<PAGE> 15
Long Term Environmental Monitoring Plan
The Long Term Environmental Monitoring Plan evaluates the
potential impact of operations on water quality, biology,
hydrology, sediments and air quality. This comprehensive program
ensures that PT Freeport Indonesia 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 6 shows the number of samples and
analyses conducted in 1998 and 1999 as part of this program.
Fig. 6
Comprehensive Long Term Environmental Montioring Plan program
encompases a large number of samples and analyses every year.
Two graphs showing the following data:
<TABLE>
<CAPTION>
Number Number
of samples of analyses
1998 1999 1998 1999
<S> <C> <C> <C> <C>
Type of Sample
Aquatic Biology 474 408 1,896 1,224
Aquatic Tissue 611 850 3,932 4,250
Mine Water 120 258 1,743 6,709
Surface Water 1,095 766 8,676 22,984
Tailings 2,349 2,451 11,745 12,258
</TABLE>
Waste Management and Recycling Plan
At PT Freeport Indonesia, 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 for
reuse by construction and operations as well as recycling when
possible. Copper, aluminum and other recyclable metals are
stockpiled pending permission from the government for resale or
trade. Indicative of PT Freeport Indonesia's recycle/reuse
programs, Figure 7 shows the amount of waste oil reused annually
as fuel compared to the amount purchased.
Fig. 7
Waste oil reused as fuel versus 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>
1995 3.99 7.36
1996 4.84 7.26
1997 5.91 8.51
1998 8.81 7.94
1999 7.39 7.91
</TABLE>
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, which is
lined, and also provides for the collection and treatment of
water leaching from the waste. PT Freeport Indonesia also
utilizes a state-of-the-art medical waste incinerator.
Reclamation and Revegetation
Revegetation and reclamation programs for the Ajkwa Deposition
Area have been in place for several years. Demonstration projects
show that numerous species of native plants, agricultural crops
and fruit trees grow well on the tailings deposited in the
deposition area (Figure 8). PT Freeport Indonesia has also
developed other successful revegetation and reclamation projects
involving the development of lakes, wetlands, forests and
agriculture in areas disturbed by PT Freeport Indonesia's
operations. A large hydro-mulcher machine is a centerpiece of
this aggressive revegetation program to quickly reclaim land
disturbed by construction.
Fig. 8
Reclamation tests (1995-1999) 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 112 104
Overburden 56 28
</TABLE>
<PAGE> 16
Training and Technology Transfer
An important element of PT Freeport Indonesia'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 9 shows the number
of personnel involved and manhours spent in environmental
training in 1997, 1998 and 1999.
Fig. 9
Environmental training of PT-FI
and contractor personnel
Graph showing the following:
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Personnel Trained 1,918 2,951 7,008
Man-hours of Training 5,171 7,506 9,785
</TABLE>
ATLANTIC COPPER, S.A.
Environmental Programs Update
During 1999, Atlantic Copper achieved ISO 14001 certification for
its two remaining uncertified facilities, the copper cable/wire
plants. In addition, environmental management systems at all of
Atlantic Copper's facilities have been validated as being in
compliance with the European Union Regulation on Environmental
Eco-Management and Eco-Auditing. Atlantic Copper is the first
Spanish company in the metallurgy sector, and the first copper
smelter in the European Union, to have its facilities certified
in accordance with both ISO 14001 and the European Union
Regulation on Environmental Eco-Management and Eco-Auditing.
Huelva Weak Acid Disposal
A recent Spanish court ruling has challenged Atlantic Copper's
past practices for the reuse of weak acid from its smelter in a
copper recovcopper recovery/ore leach process. Atlantic disputes the ruling
and continues to appeal it. In its ruling, the court found that
there has been no damage to the environment or human health.
Atlantic Copper is currently preparing to construct a weak acid
neutralization facility that will produce commercial grade
gypsum, salable as a building material.
<PAGE> 17
<TABLE>
<CAPTION>
FREEPORT-McMoRan COPPER & GOLD INC.
SELECTED FINANCIAL AND OPERATING DATA
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(Financial Data in Thousands,
Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
FCX FINANCIAL DATA
Years Ended December 31:
Revenues $1,887,328 $1,757,132 $2,000,904 $1,905,036 $1,834,335
Operating income 583,170a 574,281b 664,215c 638,261d 596,432e
Net income applicable
to common stock 100,787a 118,317b 208,541c 174,680d 199,465e
Basic net income per
common share .62a .67b 1.06c .90d .98e
Diluted net income per
common share .61a .67b 1.06c .89d .98e
Dividends paid per
common share - .20 .90 .90 .675
Basic average shares
outstanding 163,613 175,353 196,392 194,910 203,536
Diluted average shares
outstanding 164,567 175,354 197,653 196,682 204,406
At December 31:
Property, plant and
equipment, net 3,363,291 3,474,451 3,521,715 3,088,644 2,845,625
Total assets 4,082,916 4,192,634 4,152,209 3,865,534 3,581,746
Long-term debt, including
current portion and
short-term borrowings 2,148,259 2,456,793 2,388,982 1,562,916 1,167,232
Redeemable preferred stock 487,507 500,007 500,007 500,007 500,007
Stockholders' equity 196,880 103,416 278,892 675,379 881,674
PT FREEPORT INDONESIA
OPERATING DATA, Net of
Rio Tinto's Interest
Copper
Production (000s of
recoverable pounds) 1,428,100 1,427,300 1,166,500 1,118,800 978,000
Sales (000s of
recoverable pounds) 1,441,000 1,419,500 1,188,600 1,097,000 985,100
Average realized price $.75 $.73 $.94f $1.02f $1.22f
Gold
Production
(recoverable ounces) 2,379,100 2,227,700 1,798,300 1,695,200 1,310,400
Sales
(recoverable ounces) 2,423,900 2,190,300 1,888,100 1,698,900 1,353,400
Average realized price $276.53 $290.57 $ 346.14g $390.96g $383.73g
Silver
Production
(recoverable ounces) 3,444,500 3,421,200 2,568,700 2,360,600 2,303,000
Sales
(recoverable ounces) 3,479,600 3,412,300 2,724,300 2,532,000 2,349,400
Average realized price $5.21 $5.29 $4.68 $4.95 $4.99
ATLANTIC COPPER OPERATING DATA
Concentrate treated
(metric tons) 949,400 973,900 929,700 804,500 434,400h
Anodes (000s of pounds)
Production 647,100 642,400 639,800 547,900 296,000
Sales 84,300 96,900 133,500 77,300 44,600
Cathodes (000s of pounds)
Production 556,600 544,800 505,600 462,900 258,200
Sales (including wire
rod and wire) 558,500 544,300 505,300 461,100 280,200
Gold sales in anodes
and slimes (ounces) 792,700 678,700 532,900 421,300 118,200
Cathode cash production
cost per pound $.13 $.13 $.12 $.15 $.18
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
FREEPORT-McMoRan COPPER & GOLD INC.
SELECTED FINANCIAL AND OPERATING DATA, Continued
1999 1998 1997 1996 1995
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PT SMELTING OPERATING
DATAi
Concentrate treated
(metric tons) 436,000 -
Anodes (000s of pounds)
Production 279,400 -
Sales 50,300 -
Cathodes (000s of pounds)
Production 200,100 -
Sales 193,800 -
PT FREEPORT INDONESIA,
100% OPERATING DATA
Ore milled (metric
tons per day) 220,700 196,400 128,600 127,400 111,900
Average ore grade
Copper (percent) 1.12 1.30 1.37 1.35 1.32
Gold (grams per
metric ton) 1.37 1.49 1.51 1.52 1.39
Gold (ounce per
metric ton) .044 .048 .049 .049 .045
Silver (grams per
metric ton) 2.78 3.17 3.11 3.10 3.17
Silver (ounce per
metric ton) .089 .102 .100 .100 .102
Recovery rates (percent)
Copper 84.6 86.9 85.4 83.8 85.0
Gold 83.7 85.3 81.4 77.1 74.3
Silver 63.4 71.8 65.6 64.6 63.2
Copper (000s of recoverable
pounds)
Production 1,630,700 1,721,300 1,166,500 1,118,800 978,000
Sales 1,647,800 1,706,700 1,188,601 1,097,000 985,100
Gold (recoverable ounces)
Production 2,993,100 2,839,700 1,798,300 1,695,200 1,310,400
Sales 3,047,100 2,774,700 1,888,100 1,698,900 1,353,400
Silver (recoverable ounces)
Production 3,781,300 4,040,600 2,568,700 2,360,600 2,303,000
Sales 3,829,400 4,008,000 2,724,300 2,532,000 2,349,400
</TABLE>
NOTES
a. Includes charges totaling $8.8 million ($5.7 million to net
income or $0.03 per share) consisting of $3.6 million for an
early retirement program, $1.4 million for costs of stock
appreciation rights caused by the increase in FCX's common
stock price and $3.8 million for certain nonrecurring costs.
b. Includes net charges totaling $9.1 million ($4.4 million to
net income or $0.03 per share) associated with the sale of
corporate aircraft.
c. 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.
d. 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.
e. 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.
f. Amounts were $0.90 in 1997, $0.97 in 1996 and $1.28 in 1995
before hedging adjustments.
g. Amounts were $326.08 in 1997, $382.62 in 1996 and $380.85 in
1995 before hedging adjustments.
h. Reflects shutdowns caused by a strike at an adjacent plant,
expansion equipment tie-ins and normal maintena turnarounds.
i. PT Smelting began operations in the fourth quarter of 1998.
Amounts were insignificant for 1998.
<PAGE> 19
FREEPORT-McMoRan COPPER & GOLD INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
Our "Working Toward Sustainable Development" report on pages
6 through 17 is part of Management's Discussion and Analysis and
is incorporated herein by reference. The results of operations
we are reporting do not necessarily represent what our future
results may be and should be read together with our financial
statements and the related notes.
We operate through our majority-owned subsidiaries, PT
Freeport Indonesia Company and PT Irja Eastern Minerals and
through Atlantic Copper, S.A., our wholly owned subsidiary. PT
Freeport Indonesia's operations involve mineral exploration and
development, mining and milling of ore containing copper, gold
and silver in Irian Jaya (recently proposed to be renamed
"Papua"), Indonesia, and the worldwide marketing of concentrates
containing those metals. PT Freeport Indonesia also has a 25
percent interest in PT Smelting, an Indonesian company which
operates a copper smelter and refinery in Gresik, Indonesia.
Eastern Minerals conducts mineral exploration activities in Irian
Jaya (Papua). Atlantic Copper's operations are located in Spain
and involve the smelting and refining of copper concentrates, and
the marketing of refined copper products and precious metals in
slimes.
PT Freeport Indonesia operates under an agreement, called a
Contract of Work, with the Government of Indonesia. The Contract
of Work allows us to conduct extensive exploration, mining and
production activities in a 24,700-acre area called Block A. The
Contract of Work also allows us to explore for minerals in a 0.5
million-acre area called Block B. We relinquished exploration
rights on 1.1 million acres in Block B in December 1999. All of
our proved and probable mineral reserves and current mining
operations are located in Block A. Eastern Minerals holds an
additional Contract of Work covering a 1.25 million-acre area and
is conducting exploration activities in this area. We have
relinquished 1.25 million acres under this Contract of Work and
must relinquish an additional 0.6 million acres by August 2001.
In addition to the PT Freeport Indonesia and Eastern Minerals
exploration activities, we conduct other mineral exploration
activities in Irian Jaya (Papua) pursuant to a joint venture
through PT Nabire Bakti Mining.
Joint Ventures with Rio Tinto
In 1996, we established joint ventures with Rio Tinto plc.
One joint venture covers PT Freeport Indonesia's mining
operations in Block A and gives Rio Tinto, through 2021, a 40
percent interest in certain assets and in production above
specified levels from operations in Block A and, after 2021, a 40
percent interest in all production from Block A. In addition to
funding its 40 percent share of all expansion capital, including
the "fourth concentrator mill expansion," Rio Tinto provided a
$450 million nonrecourse loan to PT Freeport Indonesia for PT
Freeport Indonesia's share of the cost of the expansion. PT
Freeport Indonesia began sharing incremental cash flow
attributable to the expansion effective January 1, 1998 on the
basis of 60 percent to PT Freeport Indonesia and 40 percent to
Rio Tinto. PT Freeport Indonesia assigned its share of
incremental cash flow to Rio Tinto until PT Freeport Indonesia
repays the loan, plus interest based on Rio Tinto's cost of
borrowing. Through December 31, 1999, PT Freeport Indonesia's
share of incremental cash flow totaled $471.8 million, of which
PT Freeport Indonesia paid $440.9 million to Rio Tinto through
1999 and will pay $30.9 million in 2000. The balance on the Rio
Tinto loan was $60.6 million at December 31, 1999, which PT
Freeport Indonesia expects to repay in the first half of 2000.
Operating, nonexpansion capital and administrative costs are
shared proportionately between the incremental revenues from
production from the expansion and total revenues from production
from Block A, including production from PT Freeport Indonesia's
previously existing reserves. PT Freeport Indonesia 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 remaining cash flow.
Under our joint venture arrangements, Rio Tinto has a 40
percent interest in future development and exploration projects
under PT Freeport Indonesia's Contract of Work and Eastern
Minerals' Contract of Work. Rio Tinto also has the option to
participate in 40 percent of any of our other future exploration
projects in Irian Jaya (Papua). Rio Tinto has elected to
participate in 40 percent of our interest and cost in the PT
Nabire Bakti exploration joint venture covering approximately 1
million acres contiguous to Block B and one of Eastern Mineral's
blocks.
CONSOLIDATED RESULTS OF OPERATIONS
Our consolidated revenues reflect higher copper and gold
sales volumes in 1998 and 1999 as a result of increased
production from our fourth concentrator mill expansion, which we
completed in early 1998. Revenues in 1999 benefited from higher
sales volumes and copper realizations, partly offset by lower
gold realizations when compared with 1998 revenues. Lower copper
and gold realizations in 1998 more than offset the higher sales
volumes when comparing 1998 revenues to 1997 revenues.
Our production and delivery costs increased in 1999 when
compared with 1998 primarily because of higher production rates
and a strengthening of the Indonesian rupiah. 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. Depreciation and
amortization increased because of completion of the fourth
concentrator mill expansion and increased production as certain
assets are depreciated on the unit-of-production method.
<PAGE> 20
Our joint ventures with Rio Tinto incurred exploration costs
of $17.7 million in 1999, $29.4 million in 1998 and $44.6
million in 1997. The reduction in exploration costs reflects a
change in focus in 1999 primarily to those areas with near-term
exploitation opportunities. Substantially all exploration costs
in the joint venture areas with Rio Tinto are now shared 60
percent by us and 40 percent by Rio Tinto. Our exploration
expenses in 1997 and 1998 primarily related to costs incurred in
the Eastern Minerals and PT Freeport Indonesia Block B areas. All
of our Block A exploration costs in 1997 and 1998 and certain of
the Block B exploration costs in 1997 were reimbursed by Rio
Tinto's $100 million exploration funding received in 1996. The
FCX/Rio Tinto joint ventures' 2000 exploration budgets total
approximately $14 million. We have also budgeted approximately
$3 million for exploration activities outside of the joint
ventures.
We account for our interest in PT Smelting using the equity
method. The charges reported in 1999 include our share of PT
Smelting's operating losses ($10.1 million) plus the deferral of
profits on 25 percent of PT Freeport Indonesia's sales to PT
Smelting that are still in PT Smelting's inventory at December
31, 1999 ($8.0 million). The 1998 charges include $1.6 million
for operating losses and $3.3 million for deferred intercompany
profits. The charges in 1997 are for our share of PT Smelting's
pre-operating costs.
We reduced 1999 general and administrative expenses by $17.2
million compared with 1998 and by $26.0 million compared with
1997. These reductions are primarily because of initiatives to
reduce costs and the effect of sharing these costs with Rio Tinto
pursuant to joint venture agreements. The 1999 amount includes
charges totaling $5.5 million for costs of stock appreciation
rights caused by the increase in FCX's stock price and for
certain nonrecurring costs. The 1998 amount includes net charges
totaling $11.1 million associated with the sale of corporate
aircraft. As a percentage of revenues, general and
administrative expenses were less than 4 percent in 1999 and
approximately 5 percent in 1998 and 1997.
We were able to reduce our interest cost (before
capitalization) from $225.2 million in 1998 to $197.9 million in
1999 primarily because we used cash flows from operations to
reduce total debt by $305.7 million from December 31, 1998 to
December 31, 1999. Our total interest cost rose to $225.2
million in 1998, compared to $174.7 million in 1997, because of
an overall increase in debt levels associated with the fourth
concentrator mill expansion and our share repurchase program.
Capitalized interest totaled $3.8 million in 1999, $19.6 million
in 1998 and $23.0 million in 1997. Capitalized interest in 1997
and 1998 related primarily to the expansion.
FCX's effective tax rate was 51 percent in 1999, 47 percent
in 1998 and 45 percent in 1997 (Note 8). PT Freeport Indonesia's
Contract of Work provides a 35 percent corporate income tax rate
for PT Freeport Indonesia and a 10 percent withholding on
dividends paid to FCX by PT Freeport Indonesia and on interest
paid by PT Freeport Indonesia on debt incurred after the signing
of the Contract of Work in 1991. No income taxes are recorded at
Atlantic Copper, which is subject to taxation in Spain, because
it has not generated significant taxable income in recent years
and has substantial tax loss carryforwards for which no financial
statement benefit has been provided. Additionally, we only get a
small U.S. tax benefit on our parent company costs because our
parent company has no U.S. sourced income. PT Freeport
Indonesia's Indonesian income tax returns have been audited
through 1994, and the 1997 return is currently under examination.
The increase in minority interest charges in 1999 primarily
reflects the consolidation of certain PT Freeport Indonesia
infrastructure joint ventures.
We have two operating segments: "mining and exploration"
and "smelting and refining." Our mining and exploration segment
includes PT Freeport Indonesia's copper and gold mining
operations in Indonesia and our Indonesian exploration
activities. Our smelting and refining segment includes Atlantic
Copper's operations in Spain and PT Freeport Indonesia's 25
percent equity investment in PT Smelting. Summary operating
income (loss) data by segment follows (in millions):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Mining and exploration $609.6 $566.7 $630.8
Smelting and refining (1.7) 35.4 30.6
Intercompany eliminations and other (24.7) (27.8) 2.8
------ ------ ------
Operating incomea $583.2 $574.3 $664.2
====== ====== ======
a.PT Freeport Indonesia's sales to Atlantic Copper and PT
Smelting impacted operating income by $(17.2) million in 1999,
$(19.1) million in 1998 and $19.0 million in 1997. Our
consolidated earnings fluctuate depending on the timing and
prices of these sales.
<PAGE> 21
MINING AND EXPLORATION OPERATIONS
A summary of changes in PT Freeport Indonesia revenues
follows (in millions):
</TABLE>
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Revenues - prior year $1,351.1 $1,505.3
Increases (decreases):
Sales volumes:
Copper 15.7 218.0
Gold 67.9 104.6
Price realizations:
Copper 27.4 (306.5)
Gold (34.0) (121.7)
Adjustments, primarily for
copper pricing on prior year
open sales (20.8) (33.7)
Treatment charges, royalties
and other 57.5 (14.9)
-------- --------
Revenues - current year $1,464.8 $1,351.1
======== ========
</TABLE>
Gross Profit Per Pound of Copper (cents)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Average realized price 74.7 72.8 94.4a
---- ---- ----
Production costs:
Site production and delivery 36.5 32.2 50.6
Gold and silver credits (47.8) (46.0) (55.9)
Treatment charges 18.9 23.5 24.7
Royalty on metals 1.6 1.3 2.6
---- ---- ----
Cash production costs 9.2 11.0 22.0
Depreciation and amortization 18.0 17.0 15.0
---- ---- ----
Total production costs 27.2 28.0 37.0
---- ---- ----
Adjustments, primarily for copper pricing
on prior year open sales (0.5) 1.2 3.6b
---- ---- ----
Gross profit per pound of copper 47.0 46.0 61.0
==== ==== ====
a. Amount was $0.90 before hedging adjustments.
b. Includes amortization of the cost of a price protection
program.
</TABLE>
PT Freeport Indonesia Operating Results - 1999 Compared with 1998
PT Freeport Indonesia's 1999 revenues benefited from record
annual sales volumes with a 2 percent increase in copper sales
volumes and an 11 percent increase in gold sales volumes plus
slightly higher copper realizations, partly offset by a 5 percent
decline in gold realizations. (See "Selected Financial and
Operating Data.") A portion of PT Freeport Indonesia's copper
sales are provisionally priced at the time of shipment and
finally priced in subsequent periods based on prices in effect in
those periods. (See "PT Freeport Indonesia Sales Outlook.") As a
result of repricing prior year open sales, 1999 revenues were
$20.8 million lower compared with 1998 revenues. Treatment
charges in total were lower in 1999 because of a significant
loosening of the concentrate market throughout 1998. A portion
of treatment charges varies with the price of copper and
royalties vary with volumes and prices of copper and gold.
Our average mill throughput rate increased to a record
220,700 metric tons of ore per day for 1999, compared with
196,400 metric tons of ore per day for 1998. Higher throughput,
partially offset by lower ore grades and recovery rates, resulted
in record production to PT Freeport Indonesia, net of Rio Tinto's
interest, in 1999. Mill throughput rates vary based on the
characteristics of the ore being processed as we manage our
operations to optimize metal production.
Site production and delivery costs averaged 36.5 cents per
pound of copper in 1999. The 1999 average costs were higher than
the 32.2 cents per pound reported in 1998 primarily because we
mined lower grade ore and because of a stronger Indonesian
rupiah. (See "Disclosures about Market Risks.") Site production
and delivery costs for 2000 are expected to be slightly higher
than in 1999 in the aggregate and on a per pound basis, primarily
because of projected mining of lower grade ore and certain higher
costs including the
<PAGE> 22
effect of a stronger rupiah. An 11 percent
increase in gold sales volumes partly offset by lower gold
realizations helped to improve gold credits to 47.8 cents per
pound in 1999, compared with 46.0 cents per pound in 1998. The
significant loosening of the concentrate market resulted in an
average treatment charge rate of 18.9 cents per pound in 1999,
compared with 23.5 cents per pound in 1998. We expect treatment
charge rates per pound to decline slightly in 2000, based on the
results of our fourth-quarter 1999 negotiations and the projected
copper price.
The copper royalty rate that PT Freeport Indonesia pays
under its Contract of Work varies from 1.5 percent of copper net
revenue at a copper price of $0.90 or less per pound to 3.5
percent at a copper price of $1.10 or more per pound. The
Contract of Work royalty rate for gold and silver sales is 1.0
percent. Because a large part of the mineral royalties under
Government of Indonesia regulations are due to the provinces from
which the minerals are extracted, in connection with our fourth
concentrator mill expansion, PT Freeport Indonesia agreed to pay
the Government of Indonesia voluntary additional royalties to
provide further support to the local governments and the people
of Irian Jaya (Papua). The additional royalties are paid on
metal from production above 200,000 metric tons of ore per day.
The additional royalty for copper equals the Contract of Work
royalty rate and for gold and silver equals twice the Contract of
Work royalty rates. Therefore, our royalty rate on copper net
revenues from production above 200,000 metric tons of ore per day
is double the Contract of Work royalty rate, and our royalty
rates on gold and silver sales from production above 200,000
metric tons of ore per day are triple the Contract of Work
royalty rates. The additional royalties became effective January
1, 1999. The combined royalties totaled $23.0 million in 1999,
$16.2 million in 1998 and $31.4 million in 1997.
PT Freeport Indonesia's depreciation rate of 18.0 cents per
pound for 1999 represents an increase over the 1998 rate and
reflects a full year of depreciation on the assets from the
fourth concentrator mill expansion and other capital additions.
The rate for the year 2000 is expected to remain at 18.0 cents
per pound.
PT Freeport Indonesia Operating Results - 1998 Compared with 1997
PT Freeport Indonesia's 1998 revenues declined compared with
1997 revenues as higher sales volumes were more than offset by
significant declines in price realizations. 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 Freeport Indonesia's 1997 revenues
include net additions totaling $42.6 million recognized under PT
Freeport Indonesia's copper price protection program. Average
1998 gold realizations declined 16 percent or nearly $56 per
ounce compared to 1997. PT Freeport Indonesia's 1997 revenues
include additions totaling $37.6 million recognized on gold
forward sales contracts. Adjustments to prior year open sales
resulted in a $33.7 million decrease in 1998 revenues compared
with 1997. Treatment charges were higher in the 1998 period
because of higher sales volumes, partially offset by price
participation in PT Freeport Indonesia's smelter contracts, which
provide for reduced treatment charges during periods of lower
copper prices. Royalty costs were reduced because of lower metal
prices.
As a result of completing the fourth concentrator mill
expansion in early 1998, PT Freeport Indonesia's mill throughput
averaged 196,400 metric tons of ore per day during 1998. Average
copper and gold ore grades for 1998 were slightly lower than for
1997, but recovery rates improved compared with 1997. 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. Treatment charges per
pound of copper were lower in 1998 primarily because of
contractual price participation.
PT Freeport Indonesia'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 assets and other capital additions.
PT Freeport Indonesia Sales Outlook
PT Freeport Indonesia's copper concentrates are sold
primarily under long-term sales agreements that are denominated
in U.S. dollars, mostly to companies in Asia and Europe and to
international trading companies. PT Freeport Indonesia has
commitments from various parties, including Atlantic Copper and
PT Smelting, to purchase virtually all of its estimated 2000
production at market prices. Net of Rio Tinto's interest, PT
Freeport Indonesia's share of sales for 2000 is expected to
approximate 1.4 billion pounds of copper and 1.9 million ounces
of gold. Projected 2000 copper and gold sales reflect the
expectation of higher average mill throughput rates than in
1999, offset by lower average ore grades and the impact of the
specified sharing arrangement with Rio Tinto, which will result
in a smaller proportion of production to PT Freeport Indonesia.
PT Freeport Indonesia will continue to concentrate its efforts on
optimizing metal production from its operations during 2000.
<PAGE> 23
PT Freeport Indonesia has a long-term contract to provide
approximately 60 percent of Atlantic Copper's copper concentrate
requirements at market prices. PT Freeport Indonesia is providing
100 percent of PT Smelting's copper concentrate requirements at
market prices; however, for the first 15 years of operations PT
Freeport Indonesia has guaranteed that the treatment and refining
charges will not fall below a specified minimum rate, currently
$0.23 per pound, which was the rate for 1999 and is expected to
be the rate for 2000. After PT Smelting's operations reach
design capacity, we anticipate that PT Freeport Indonesia will
sell at least 50 percent of its annual concentrate production to
Atlantic Copper and PT Smelting.
Exploration
We are continuing our exploration program in Irian Jaya
(Papua), in the Block A and Block B areas of PT Freeport
Indonesia's Contract of Work, the Eastern Minerals Contract of
Work area and in the PT Nabire Bakti Mining Contract of Work
area. We had voluntarily suspended our activities in most areas
for a three-month period from May 15th through August 15th as a
precaution during the Indonesian national election period, but
have since resumed most field operations. (See "Developments in
Indonesia.")
In Block A our exploration efforts are concentrated on
potential expansion of reserves at Kucing Liar, Grasberg
Underground and the Deep Ore Zone. Delineation drilling is
ongoing at Kucing Liar, focusing on testing indicated extensions
of the known deposit. At Grasberg Underground, drilling is
directed at defining the deeper levels of mineralization.
Drilling at the Deep Ore Zone continues to indicate excellent
potential for significant additions to the existing Deep Ore Zone
block cave reserve.
Results of our exploration activities in 1999 were positive
and increased our confidence in our large resource base. While
sufficient data were not available to categorize new reserves as
proved and probable during 1999, we expect to be in a position to
evaluate the addition of reserves during 2000.
Our exploration activities in the Block B and Eastern
Minerals areas continue and are focused on mapping and evaluating
prospects that potentially could lead to the discovery of
significant copper and gold deposits.
Exploration is ongoing in PT Nabirie Bakti Mining's Contract
of Work area which is contiguous to PT Freeport Indonesia's Block
B and Eastern Minerals' Block I areas. 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 62 percent interest,
FCX and Rio Tinto must spend at least $21 million on exploration
and other activities in the joint venture areas by June 2003
($11.6 million of which had been incurred through December 31,
1999). Exploration, including drilling is ongoing on a number of
identified geological anomalies within this acreage including
Komopa where widespread copper and gold mineralization has been
encountered.
SMELTING AND REFINING OPERATIONS
Atlantic Copper Operating Results
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Revenues (in millions) $764.5 $754.0 $874.5
Operating income (in millions) $16.5 $40.3 $32.2
Concentrate treated (metric tons) 949,400 973,900 929,700
Anode production (000s of pounds) 647,100 642,400 639,800
Cathode, wire rod and wire sales (000s of pounds) 558,500 544,300 505,300
Gold sales in anodes and slimes (ounces) 792,700 678,700 532,900
</TABLE>
Atlantic Copper Operating Results - 1999 Compared with 1998
Atlantic Copper reported slightly higher revenues in 1999
primarily because of increased gold sales. Operating income
decreased from $40.3 million in 1998 to $16.5 million in 1999,
because of significantly lower treatment and refining rates for
1999 ($0.20 per pound) compared with those of 1998 ($0.25 per
pound). Excess smelter capacity, combined with limited copper
concentrate availability, caused long-term treatment and refining
rates to decline since early 1998. Spot rates were sharply lower
throughout 1999, and soft long-term rates are expected to
continue for 2000. Lower treatment charges, which negatively
affect Atlantic Copper, benefit PT Freeport Indonesia and vice
versa. Atlantic Copper's cathode cash production costs of $0.13
per pound for 1999 benefited from a weaker Spanish peseta. Cash
production costs were also $0.13 per pound for 1998. The higher
gold sales volumes in 1999 reflect the higher gold content in PT
Freeport Indonesia concentrate treated by Atlantic Copper.
<PAGE> 24
Atlantic Copper Operating Results - 1998 Compared with 1997
Atlantic Copper reported lower revenues and cost of sales in
1998 ($703.3 million compared with $831.2 million in 1997)
primarily because of lower copper and gold prices. Higher
operating income in 1998 compared with 1997 reflects a 5 percent
increase in concentrate treated and an 8 percent increase in
cathode, wire rod and wire sales volumes, partially offset by
lower treatment and refining rates and higher unit costs compared
with 1997. Treatment and refining rates were $0.25 per pound for
1998 compared with $0.26 per pound for 1997. Cathode cash
production costs of $0.13 per pound in 1998 were only slightly
higher than the $0.12 per pound reported in 1997.
PT Smelting Operating Results - 1999 Compared with 1998
PT Freeport Indonesia accounts for its 25 percent interest
in PT Smelting under the equity method (Note 9). PT Smelting
successfully concluded its "first-stage completion" testing
during the third quarter of 1999 and continues on schedule to
operate at a full design capacity of 200,000 metric tons of
copper per year in the second half of 2000. PT Smelting operated
at an average rate of approximately 94 percent of design capacity
during the fourth quarter of 1999, but production rates are
expected to fluctuate in the first half of 2000 during which time
PT Smelting plans to tie-in a third anode furnace. PT Smelting
treated 436,000 metric tons of concentrate in 1999, its first
full year of operations.
Our revenues include sales to PT Smelting totaling $252.6
million in 1999 and $25.6 million in 1998. PT Freeport
Indonesia's share of PT Smelting's net losses totaled $10.1
million in 1999 and $1.6 million in 1998. We also deferred
recognizing profits on 25 percent of PT Freeport Indonesia sales
to PT Smelting, for which the final sale has not occurred,
totaling $8.0 million in 1999 and $3.3 million in 1998. The
deferral of profits is also recorded as part of Loss in PT
Smelting in the Statements of Income.
PT Smelting Operating Results - 1998 Compared with 1997
PT Smelting completed construction of its copper
smelter/refinery complex 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.
CAPITAL RESOURCES AND LIQUIDITY
Our primary sources of cash are operating cash flows and
borrowings, while our primary uses of cash are repayments of
debt, capital expenditures, dividends and purchases of our common
stock. In 1999, we generated enough operating cash to fund our
capital expenditures and reduce total debt by $305.7 million. We
believe that our expected operating cash flows and available
borrowings will provide the necessary liquidity to fund our
anticipated 2000 operating and capital needs and to reduce debt
further.
Operating Activities
Our consolidated operating cash flow increased 19 percent or
$90.0 million in 1999 compared with 1998, primarily because of
working capital changes. 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. We
recognized $46.5 million of unearned revenues in 1997 from the
1996 sale of copper put option contracts and from gold forward
contracts. Working capital, excluding cash, increased $11.3
million in 1999 primarily because of an increase in inventories
partly offset by a reduction in accounts receivable, and
increased $65.4 million in 1998 primarily because of increases in
accounts receivable. Higher materials and supplies inventory at
December 31, 1999 supports our expanded operations in Indonesia,
and the reduction in accounts receivable in 1999 reflects
collections from our record fourth-quarter 1998 sales. Working
capital decreased $52.2 million in 1997 primarily because
decreases in accounts receivable and inventories exceeded
increases from accrued income taxes.
Investing Activities
In early 1998, PT Freeport Indonesia completed construction
of the fourth concentrator mill expansion, which was funded
almost entirely with nonrecourse borrowings from Rio Tinto. Our
capital expenditures for 2000 are expected to approximate $190
million, including approximately $30 million for development of
the Deep Ore Zone underground mine, which is expected to start
production in 2000 and ramp up to full production of 25,000
metric tons of ore per day by 2004. We expect to generate enough
operating cash flow to pay for our capital expenditures in 2000.
Additionally, we have bank credit facilities available ($352.0
million commitment available at December 31, 1999). We funded
most of our share of costs to construct PT Smelting's
smelter/refinery in 1996 and 1997.
Financing Activities
Net repayments of debt totaled $318.2 million in 1999,
including a final $12.5 million payment for an interest in the PT
ALatieF Nusakarya joint ventures discussed below. Net proceeds
from debt totaled $165.0 million in 1998 and $745.4 million in
1997. Included in these amounts were net repayments to Rio Tinto
totaling $241.1 million in 1999 and $144.8 million in 1998 from
PT Freeport Indonesia's share of incremental cash flow
attributable to the fourth concentrator mill expansion. We
expect to repay the remaining $60.6 million balance on the Rio
Tinto loan in the first half of 2000. Nonrecourse borrowings
from Rio Tinto for the expansion totaled $371.0 million in 1997.
<PAGE> 25
In 1998, we announced a new open market share purchase
program for an additional 20 million shares, bringing the total
shares approved for purchase under our open market share purchase
programs to 60 million. During 1999, we purchased 0.8 million of
our shares for $7.8 million (an average of $9.20 per share), and
from January 1 through February 18, 2000 we purchased 3.5 million
of our shares for $60.6 million (an average of $17.17 per share)
under our open market share purchase programs. From inception of
these programs through February 18, 2000, we have purchased a
total of 54.5 million shares for $1.1 billion (an average of
$20.10 per share), with 5.5 million shares remaining available
under the programs. The timing of any future purchases is
dependent upon many factors, including the price of our common
stock, our business and financial position, and general economic
and market conditions. During 1998, we purchased 20.0 million
shares for $259.4 million (an average of $12.97 per share).
During 1997, we purchased 18.3 million shares for $439.8 million
(an average of $24.07 per share).
In 1998, PT Freeport Indonesia reacquired for $30 million an
aggregate one-third interest in certain infrastructure asset
joint ventures owned by PT ALatieF Nusakarya Corporation, an
Indonesian investor. The joint ventures had purchased $270.0
million of infrastructure assets from PT Freeport Indonesia
during the period from December 1993 to March 1997, and PT
Freeport Indonesia had sold its one-third interest in the joint
ventures to PT ALatieF in March 1997. We are consolidating the
joint ventures because the agreements provide the joint venture
partners with a guaranteed annual return on their investment
(Note 5).
In December 1998, we eliminated our quarterly cash dividends
on common stock after having reduced them in December 1997 to
$0.05 per share or $0.20 per share annually, from the 1997 annual
dividend of $0.90 per share.
In 1997, we guaranteed a $254.0 million loan from a
commercial bank to PT Nusamba Mineral Industri, an Indonesian
company. Nusamba used the funds to purchase from a third party
for $315 million approximately 51 percent of the capital stock of
PT Indocopper Investama Corporation, a company whose only
significant asset is 9.4 percent of PT Freeport Indonesia's
stock. We own the remaining 49 percent of PT Indocopper
Investama. The loan is secured by a pledge of the PT Indocopper
Investama stock owned by Nusamba and is due March 2002. The
purchase price was negotiated based primarily on FCX's market
value at the time of the transaction. We also agreed to lend to
Nusamba any amounts necessary to cover shortfalls between the
interest payments on the loan and the dividends received by
Nusamba on the PT Indocopper Investama stock. At December 31,
1999, we had loaned $43.7 million to Nusamba for this purpose.
The amount of any future shortfalls will depend primarily on the
level of PT Freeport Indonesia's dividends to PT Indocopper
Investama. Once the total of the guaranteed loan and the amounts
we have subsequently loaned to Nusamba reach the original
purchase price ($315 million), we expect to begin expensing any
additional amounts we loan to Nusamba.
In 1997, PT Freeport Indonesia sold the new power plant
facilities associated with the fourth concentrator mill expansion
for $366.4 million to the joint venture that owns the power
plants that previously provided electricity to PT Freeport
Indonesia. 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 assets PT Freeport Indonesia owned.
PT Freeport Indonesia subsequently sold its 30 percent interest
in the joint venture to the other partners and continues to
purchase power under infrastructure asset financing arrangements
pursuant to a power sales agreement (Note 5).
In response to volatile copper and gold markets, in early
1998 we began an effort to reduce our costs and enhance our
production. Our overall strategy remains focused on optimizing
the performance of our expanded milling facilities so that we can
achieve higher sales levels at low costs. We realized
significantly lower operating costs, capital and exploration
expenditures and general and administrative expenses in 1998 and
1999. With these savings and the elimination of the regular
quarterly cash dividend, we believe we have the overall financial
flexibility to continue to invest in operations and maintain our
exploration program while still reducing our overall debt levels.
However, because of the economic and political issues affecting
Indonesia and the volatility of copper and gold prices, our
ability to obtain capital is limited at this time, and the cost
of new capital, if available, would be high.
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. To date, all of our
systems have continued to operate without any disruption related
to Y2K. We will continue to closely monitor areas of particular
risk including our business partners' ability to continue to meet
their commitments throughout the year. The incremental cost
associated with our Y2K efforts totaled less than $3 million
through 1999. We do not expect to incur any additional costs.
Environmental Matters
We believe that our Indonesian operations are being
conducted pursuant to applicable permits and are in compliance in
all material respects with applicable Indonesian environmental
laws, rules and regulations. An independent environmental audit
completed in 1999 by Montgomery Watson, an internationally
recognized environmental consulting and auditing firm, verified
our compliance. (See the
<PAGE> 26
"Working Toward Sustainable Development"
report beginning on page 6.) We cannot currently project with
precision the ultimate amount of reclamation and closure costs we
will incur. Our best estimate at this time is that ultimate
reclamation and closure costs may require as much as $100 million
but are not expected to exceed $150 million. However, these
estimates are subject to revision over time as we perform more
complete studies and formulate more definitive plans. Some
reclamation costs will be incurred throughout the 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. We had $14.1 million
accrued on a unit-of-production basis at December 31, 1999 for
mine closure and reclamation costs, included in other
liabilities.
In 1996, we began contributing to a cash fund ($1.7 million
balance at December 31, 1999) designed to accumulate at least
$100 million by the end of our Indonesian mining activities. We
plan to use this fund, including accrued interest, to pay for
mine closure and reclamation. An increasing emphasis on
environmental issues and future changes in regulations could
require us 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 our "Working Toward
Sustainable Development" report beginning on page 6 for
information about our environmental programs.)
DISCLOSURES ABOUT MARKET RISKS
Commodity Price Risk
Our revenues include PT Freeport Indonesia's sale of copper
concentrates, which also contain significant amounts of gold, and
Atlantic Copper's sale of copper anodes, cathodes, wire rod, wire
and precious metals in slimes. Our revenues and net income vary
significantly with fluctuations in the market prices of copper
and gold and other factors. A change of $0.01 in the average
price per pound of copper would have an approximate $14 million
impact on our revenues and an approximate $7 million impact on
our net income, assuming approximately 1.4 billion pounds of
annual sales. A change of $10 in the average price per ounce of
gold would have an approximate $20 million impact on our revenues
and an approximate $10 million impact on our net income, assuming
approximately 2 million ounces of annual sales.
At times, in response to market conditions, we have entered
into copper and gold price protection contracts for some portion
of our expected future mine production to mitigate the risk of
adverse price fluctuations. In 1997, we recognized net
additional revenues of $35.6 million from copper put option
contracts that provided a floor price of $0.90 per pound for the
first half of 1997, and $37.6 million from selling gold forward
on a six-month basis through August 1997. We currently have no
copper or gold price protection contracts relating to our future
mine production other than our gold-denominated preferred stock
discussed below.
PT Freeport Indonesia'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 price for a specified future
period. Copper revenues on provisionally priced open pounds are
adjusted monthly based on then-current prices. At December 31,
1999, we had consolidated copper sales totaling 161.3 million
pounds recorded at an average price of $0.83 per pound remaining
to be finally priced. Approximately 90 percent of these open
pounds are expected to be finally priced during the first quarter
of 2000 with the remaining pounds to be priced during the second
quarter of 2000. A one-cent movement in the average price used
for these open pounds will have an approximate $0.8 million
impact on our 2000 net income. In 1999, we began a program using
forward contracts to fix the prices of a portion of our open
pounds when market conditions are favorable. In January 2000, we
entered into forward copper sales contracts to fix the price at
$0.85 per pound on approximately 50 percent of our December 31,
1999 open pounds.
In the fourth quarter of 1999, we entered into forward sales
contracts to fix prices at $0.80 per pound on approximately 60
percent of our open pounds at September 30, 1999, which we had
recorded at $0.74 per pound. In June 1997 we had 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. We recorded
$0.8 million of additional revenues in 1999 and $7.0 million of
additional revenues in 1997 from these forward sales.
<PAGE> 27
We have outstanding redeemable preferred stock indexed to
gold and silver prices. We account for this stock as a hedge of
future production and carry it on our balance sheets at its
original issue value less redemptions. As redemption payments
occur, differences between the carrying value and the redemption
payment, which is based on commodity prices at the time of
redemption, are recorded as an adjustment to revenues (see Notes
1, 6 and 11). Future redemption payments in ounces and equivalent
value in dollars, as well as dollar-equivalent dividend payments
based on December 31, 1999 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>
2000 - $ - $ 10.2 2,380,000 $12.7 $3.5
2001 - - 10.2 2,380,000 12.7 3.0
2002 - - 10.2 2,380,000 12.7 2.5
2003 600,000 174.5 8.7 2,380,000 12.7 2.0
2004 - - 4.1 2,380,000 12.7 1.4
Thereafter 430,000 125.1 5.1 4,760,000 25.4 1.3
At December 31, 1999:
Fair value
based on
quoted
market
prices $185.8 $59.8
====== =====
Carrying value $400.0 $87.5
====== =====
</TABLE>
Atlantic Copper's purchases of copper concentrate are priced
at approximately the same time as its sales of the refined
copper, thereby protecting Atlantic Copper from most copper price
risk. Atlantic Copper enters into futures contracts to hedge its
price risk whenever its physical purchases and sales pricing
periods do not match. At December 31, 1999, Atlantic Copper had
contracts, with a fair value of $(1.1) million, to sell 19.6
million pounds at an average price of $0.79 per pound through
February 2000. Atlantic Copper 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 2000. Atlantic Copper has entered into copper futures
contracts to eliminate any price risk associated with these
extended pricing terms. At December 31, 1999, Atlantic Copper
had contracts, with a fair value of $0.3 million, to purchase 3.7
million pounds of copper at an average price of $0.76 per pound
through December 2000.
Foreign Currency Exchange Risk
The majority of our operations are in Indonesia and Spain,
where our functional currency is the U.S. dollar. All of our
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, our 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 1997, the Indonesian rupiah exchange rate has been
extremely volatile, severely weakening initially and partly
recovering later against the U.S. dollar. We recorded gains
(losses) to production costs totaling $(1.4) million in 1999,
$0.9 million in 1998 and $(6.3) million in 1997 related to our
rupiah-denominated net monetary assets. At December 31, 1999,
these net assets totaled $18.1 million at an exchange rate of
6,970 rupiah to one U.S. dollar.
Operationally we have benefited from a weakened Indonesian
rupiah, primarily through lower labor costs. Assuming estimated
annual aggregate rupiah payments of 800 billion and a December
31, 1999 exchange rate of 6,970 rupiah to one U.S. dollar, a one-
thousand-rupiah increase in the exchange rate would result in an
approximate $14 million decrease in annual operating costs. A
one-thousand-rupiah decrease in the exchange rate would result in
an approximate $19 million increase in annual operating costs.
During the first quarter of 1998, we began a currency
hedging program to reduce our exposure to changes in the
Indonesian rupiah and Australian dollar by entering into foreign
currency forward contracts to hedge a portion of our anticipated
payments in these currencies. The last of these contracts
expired in September 1999. We recorded net gains to production
costs totaling $3.7 million in 1999 and $4.3 million in 1998
related to these contracts.
A portion of Atlantic Copper's operating costs and certain
of its asset and liability accounts are denominated in Spanish
pesetas. Atlantic Copper had peseta-denominated net monetary
liabilities at December 31, 1999 totaling $73.9 million recorded
at an exchange rate of 165.6 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 $10.9 million in 1999, $(3.8) million
in 1998 and $16.8 million in 1997.
<PAGE> 28
Assuming estimated annual peseta payments of 15 billion and
a December 31, 1999 exchange rate of 165.6 pesetas to one U.S.
dollar, a ten-peseta increase in the exchange rate would result
in an approximate $5 million decrease in costs, before any
hedging effects. A ten-peseta decrease in the exchange rate would
result in an approximate $6 million increase in costs, before any
hedging effects.
We have a currency hedging program using foreign currency
forward contracts to reduce our exposure to changes in the U.S.
dollar and Spanish peseta exchange rate. At December 31, 1999,
we had contracts to purchase 19.7 billion Spanish pesetas at an
average exchange rate of 151.9 pesetas to one U.S. dollar through
November 2001, with a fair value of $(8.1) million. These
contracts currently hedge approximately 80 percent of our
projected 2000 net peseta cash outflows and approximately 50
percent of our projected 2001 net peseta cash outflows. We
recorded gains (losses) to other income related to our forward
peseta currency contracts, totaling $(14.9) million in 1999, $3.7
million in 1998 and $(6.5) million in 1997.
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 our customers in Europe and none of our suppliers
are using the euro as their currency for commercial transactions.
Atlantic Copper has not yet decided when it will adopt the euro
as its currency for commercial transactions. We do not expect
conversion to the euro to have a material impact on revenues or
expenses. A single European currency is expected to improve our
competitiveness with other European copper smelters and refiners
by eliminating exchange rate differences. Our current management
information systems are designed to accommodate multiple
currencies and would not require major modifications to process
transactions involving the euro. Our peseta hedging contracts
will be set at a fixed exchange rate to the euro and would
continue to achieve their objectives.
Interest Rate Risk
We have interest rate swap contracts to fix interest rates
on a portion of our 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, 1999 and fair value at
December 31, 1999 (dollars in millions):
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Fair Value
- --------------------------------------------------------------------------------
Long-term debt
(Note 5): <C> <C> <C> <C> <C> <C> <C>
Fixed rate $ 7.0 $148.0 $ - $250.0 $ - $200.0 $ 531.4
Average interest
rate 8.1% 9.4% - 7.2% - 7.5% 7.9%
Variable rate $107.8 $ 73.2 $812.6 $ 58.3 $ 61.3 $430.1 $1,543.3
Average interest
rate 8.5% 9.9% 8.4% 10.5% 10.6% 10.3% 9.1%
Interest rate swaps
(Note 11):
Amount $499.9 $274.4 $ - $ - $ - $ - $ 1.4
Average interest
rate 6.0% 6.1% - - - - -
</TABLE>
DEVELOPMENTS IN INDONESIA
Indonesia continues to face economic and political
uncertainties. Economic conditions in Indonesia improved during
1999, reflecting international financial assistance, positive
reactions to political developments, movements to reform
financial systems, a stronger Indonesian rupiah and lower
interest and inflation rates. The economy is expected to
generate positive economic growth in 2000 following a large
decline in 1998. However, religious and ethnic differences among
people in the outlying provinces led to violence in some areas,
most notably in the province of East Timor following a pro-
independence vote. Subsequent United Nations peacekeeping
efforts have restored order in East Timor. Pro-independence
movements in certain areas also have become more prominent,
especially in the province of Aceh, and to a lesser extent in
Irian Jaya (Papua). The Government of Indonesia is responding by
considering steps to provide more political and economic autonomy
to the provincial governments.
In June 1999, Indonesia conducted parliamentary elections at
the national, provincial and local levels, in a process that was
widely viewed by Indonesian and international observers as free
and fair. In October 1999, in accordance with the Indonesian
constitution, the country's highest political body composed of
the newly elected national parliament, along with additional
provincial and other representatives, elected
Abdurrahman Wahid as the new president and Megawati Sukarnoputri
as vice president. The political uncertainties in Indonesia
continue to have a negative impact on our access to capital. (See
"Cautionary Statement".)
<PAGE> 29
PT Freeport Indonesia's and Eastern Minerals' operations,
all of which are in Indonesia, are conducted through the PT
Freeport Indonesia and Eastern Minerals Contracts of Work. Both
Contracts of Work have 30-year terms, provide for two 10-year
extensions under certain conditions, and govern PT Freeport
Indonesia's and Eastern Minerals' rights and obligations relating
to taxes, exchange controls, repatriation and other matters. Both
Contracts of Work 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 Contracts of
Work provide that the Government of Indonesia will not
nationalize or expropriate PT Freeport Indonesia's or Eastern
Minerals' mining operations. Any disputes regarding the
provisions of the Contracts of Work are subject to international
arbitration.
We have had positive relations with the Government of
Indonesia since we commenced business activities in Indonesia in
1967, and we contribute significantly to the economies of Irian
Jaya (Papua) and Indonesia. We are one of the largest taxpayers
in Indonesia and are a significant employer in a remote and
undeveloped area of the country. We intend to continue to
maintain positive working relationships with the central,
provincial and local branches of the Government of Indonesia,
including newly elected publliiccooffffiiccials, regarding our
operations and development efforts.
CAUTIONARY STATEMENT
Our discussion and analysis contains forward-looking
statements in which we discuss factors we believe may affect our
performance in the future. Forward-looking statements are all
statements other than historical facts, such as those regarding
anticipated sales volumes, ore grades, commodity prices, capital
expenditures, future environmental costs, debt repayments,
political, economic and social conditions in our areas of
operations, treatment charge rates, depreciation rates,
exploration efforts and results, introduction of the euro, the
availability of financing and PT Smelting operating levels. We
caution you that these statements are not guarantees of future
performance, and our actual results may differ materially from
those projected, anticipated or assumed in the forward-looking
statements. Important factors that can cause our actual results
to differ materially from those anticipated in the forward-
looking statements 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 our Form 10-K for the year ended December 31,
1999.
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 Moffett /s/ Richard C. Adkerson /s/ Stephen M. Jones
James R. Moffett Richard C. Adkerson Stephen M. Jones
Chairman of Board and President and Senior Vice President
Chief Executive Officer Chief Operating Officer Chief Financial Officer
and Secretary
<PAGE> 30
<TABLE>
<CAPTION>
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF INCOME
Years Ended December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(In Thousands, Except
Per Share Amounts)
<S> <C> <C> <C>
Revenues $1,887,328 $1,757,132 $2,000,904
Cost of sales:
Production and delivery 911,559 799,683 1,007,080
Depreciation and amortization 293,213 277,407 213,855
--------- ---------- ----------
Total cost of sales 1,204,772 1,077,090 1,220,935
Exploration expenses 10,626 13,033 17,629
Loss in PT Smelting 18,136 4,948 1,524
General and administrative expenses 70,624 87,780 96,601
---------- ---------- ----------
Total costs and expenses 1,304,158 1,182,851 1,336,689
---------- ---------- ----------
Operating income 583,170 574,281 664,215
Interest expense, net (194,069) (205,588) (151,720)
Other income (expense), net (8,267) (7,267) 4,271
---------- ---------- ----------
Income before income taxes and
minority interests 380,834 361,426 516,766
Provision for income taxes (195,653) (170,566) (231,315)
Minority interests in net income of
consolidated subsidiaries (48,714) (37,012) (40,343)
---------- ---------- ----------
Net income 136,467 153,848 245,108
Preferred dividends (35,680) (35,531) (36,567)
---------- ---------- ----------
Net income applicable to common stock $ 100,787 $ 118,317 $ 208,541
========== ========== ==========
Net income per share of common stock:
Basic $.62 $.67 $1.06
==== ==== =====
Diluted $.61 $.67 $1.06
==== ==== =====
Average common shares outstanding:
Basic 163,613 175,353 196,392
======= ======= =======
Diluted 164,567 175,354 197,653
======= ======= =======
Dividends paid per common share $ - $.20 $.90
===== ==== ====
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
<PAGE> 31
<TABLE>
<CAPTION>
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF CASH FLOW
Years Ended December 31,
-------------------------------
1999 1998 1997
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $136,467 $153,848 $245,108
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 293,213 277,407 213,855
Deferred income taxes 60,104 62,165 61,717
Minority interests' share of net income 48,714 37,012 40,343
Deferred stock appreciation rights costs,
mining costs and other 23,422 8,808 (54,655)
Loss in PT Smelting 18,136 4,948 1,524
Recognition of unearned income - - (46,493)
(Increases) decreases in working capital:
Accounts receivable 42,062 (103,976) 80,611
Inventories (52,854) 6,323 51,957
Prepaid expenses and other (6,757) (455) 32
Accounts payable and accrued liabilities (15,468) 16,713 (8,963)
Accrued income taxes 21,745 16,034 (71,484)
-------- -------- --------
(Increase) decrease in working capital (11,272) (65,361) 52,153
-------- -------- --------
Net cash provided by operating activities 568,784 478,827 513,552
-------- -------- --------
Cash flow from investing activities:
Capital expenditures:
PT Freeport Indonesia (151,015) (280,952) (530,191)
Atlantic Copper (6,423) (8,422) (18,478)
Investment in PT Smelting (3,384) (2,709) (36,243)
Other 796 4,977 (7,705)
-------- -------- --------
Net cash used in investing activities (160,026) (287,106) (592,617)
-------- -------- --------
Cash flow from financing activities:
Net borrowings from (repayments to) Rio Tinto (241,076) (144,760) 371,040
Proceeds from other debt 513,241 549,230 1,097,770
Repayment of other debt (590,377) (239,495) (723,398)
Partial redemption of preferred stock (11,946) - -
Purchase of FCX common shares (7,921) (259,213) (438,388)
Cash dividends paid:
Common stock - (35,382) (178,341)
Preferred stock (38,019) (39,157) (40,543)
Minority interests (13,674) (9,069) (33,773)
Other (18,165) (16,957) (3,461)
-------- -------- --------
Net cash provided by (used in) financing
activities (407,937) (194,803) 50,906
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 821 (3,082) (28,159)
Cash and cash equivalents at beginning of year 5,877 8,959 37,118
-------- -------- --------
Cash and cash equivalents at end of year $ 6,698 $ 5,877 $ 8,959
======== ======== ========
Interest paid $194,546 $251,999 $155,658
======== ======== ========
Income taxes paid $113,804 $91,567 $259,434
======== ======== ========
</TABLE>
The accompanying Notes to Financial Statements, which include
information in Note 11 regarding noncash transactions, are an
integral part of these financial statements.
<PAGE> 32
<TABLE>
<CAPTION>
FREEPORT-McMoRan COPPER & GOLD INC.
BALANCE SHEETS
December 31,
-----------------------
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,698 $ 5,877
Accounts receivable:
Customers 141,325 180,978
Other 31,437 47,524
Inventories:
Product 134,735 118,440
Materials and supplies 233,390 182,964
Prepaid expenses and other 16,869 10,111
---------- ----------
Total current assets 564,454 545,894
Property, plant and equipment, net 3,363,291 3,474,451
Investment in PT Smelting 66,070 80,822
Other assets 89,101 91,467
---------- ----------
Total assets $4,082,916 $4,192,634
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 317,339 $ 289,342
Current portion of long-term debt and
short-term borrowings 114,789 127,804
Unearned customer receipts 40,235 55,564
Accrued income taxes 42,704 45,777
---------- ----------
Total current liabilities 515,067 518,487
Long-term debt, less current portion 2,003,347 2,073,669
Note payable to Rio Tinto, less
current portion 30,123 255,320
Accrued postretirement benefits
and other liabilities 114,677 124,073
Deferred income taxes 553,394 471,178
Minority interests 181,921 146,484
Redeemable preferred stock 487,507 500,007
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,
121,540,842 shares and 121,453,497 shares
issued and outstanding, respectively 12,154 12,145
Capital in excess of par value of
Retained earnings 291,401 190,614
Accumulated other comprehensive income 10,244 10,244
Common stock held in treasury - 55,115,819
shares and 54,217,541 shares, at cost,
respectively (1,128,716) (1,120,030)
---------- ----------
Total stockholders' equity 196,880 103,416
---------- ----------
Total liabilities and stockholders' equity $4,082,916 $4,192,634
========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
<PAGE> 33
<TABLE>
<CAPTION>
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Step-Up Convertible Preferred Stock $ 349,990 $ 349,990 $ 349,990
---------- ---------- ----------
Class A common stock 9,707 9,707 9,707
---------- ---------- ----------
Class B common stock:
Balance at beginning of year 12,145 12,140 12,098
Exercised stock options 9 5 42
---------- ---------- ----------
Balance at end of year 12,154 12,145 12,140
---------- ---------- ----------
Capital in excess of par value of
common stock:
Balance at beginning of year 650,746 649,792 636,100
Exercised stock options 1,354 954 13,692
---------- ---------- ----------
Balance at end of year 652,100 650,746 649,792
---------- ---------- ----------
Retained earnings:
Balance at beginning of year 190,614 107,679 77,479
Net income 136,467 153,848 245,108
Cash dividends on common stock - (35,382) (178,341)
Dividends on preferred stock (35,680) (35,531) (36,567)
---------- ---------- ----------
Balance at end of year 291,401 190,614 107,679
---------- ---------- ----------
Accumulated other comprehensive income 10,244 10,244 10,244
---------- ---------- ----------
Common stock held in treasury:
Balance at beginning of year (1,120,030) (860,660) (420,239)
Purchase of 844,200, 19,995,821, and
18,270,500 shares, respectively (7,765) (259,370) (439,827)
Tender of 54,078 shares in 1999 and
20,527 shares in 1997 to FCX to
exercise stock options (921) - (594)
---------- ---------- ----------
Balance at end of year (1,128,716) (1,120,030) (860,660)
---------- ---------- ----------
Total stockholders' equity $ 196,880 $ 103,416 $ 278,892
========== ========== ==========
</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
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, including
certain joint ventures involving PT Freeport Indonesia (Note 5),
and P.T. Irja Eastern Minerals, as well as its wholly owned
subsidiary, Atlantic Copper, S.A. FCX's unincorporated joint
ventures with Rio Tinto plc are reflected using the proportionate
consolidation method in accordance with standard industry practice
(Note 2). PT Freeport Indonesia's investment in P.T. Smelting is
accounted for under the equity method (Note 9) with PT Freeport
Indonesia'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 1999 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, deferred taxes and
valuation allowances, 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. Customer accounts receivable include amounts
due from PT Smelting totaling $27.6 million at December 31, 1999
and $20.8 million at December 31, 1998. Other accounts receivable
include refundable value-added taxes, net of the allowance for
uncollectible amounts, totaling $19.5 million at December 31, 1999
and $24.9 million at December 31, 1998. The allowance for
uncollectible amounts totaled $5.5 million at December 31, 1999
and 1998.
Inventories. Inventories are stated at the lower of cost or
market. PT Freeport Indonesia uses the average cost method and
Atlantic Copper 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 future reclamation and
mine closure costs for PT Freeport Indonesia'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.
<PAGE> 35
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, 1999, FCX had redeemable preferred stock
indexed to commodities, open foreign currency forward contracts,
open forward copper purchase and sales 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 are
recorded as an adjustment to revenues.
Atlantic Copper hedges a portion of its anticipated Spanish
peseta cash outflows with foreign currency forward contracts.
Changes in market value of foreign currency forward contracts
which protect anticipated transactions are recognized in the
period incurred. Atlantic Copper enters into contracts to hedge
its copper price risk whenever its physical purchases and sales
pricing periods do not match, and whenever Atlantic Copper extends
the pricing terms on its copper sales. Gains and losses on these
contracts are recognized with the hedged transaction. FCX and
Atlantic Copper have 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. In June 1999, the FASB delayed SFAS
133's effective date by one year to fiscal years beginning after
June 15, 2000 with earlier application permitted. FCX expects to
adopt SFAS 133 effective January 1, 2001. Adoption is expected to
require FCX to report other comprehensive income or loss items for
changes in fair value of financial instruments that qualify as
hedges. FCX expects to be able to continue its current accounting
for its redeemable preferred stock indexed to commodities under
the provisions of SFAS 133 that allow these instruments issued
before January 1, 1998 to be excluded from those instruments
required to be adjusted for changes in their fair values.
Concentrate Sales. Revenues from PT Freeport Indonesia's
concentrate sales are recorded net of royalties, treatment costs
and the impact of the price protection program (Note 11). PT
Freeport Indonesia's concentrate sales agreements, including its
sales to Atlantic Copper and PT Smelting, 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 period. Copper revenues
on provisionally priced open pounds are adjusted monthly based on
then-current prices. At December 31, 1999, FCX had consolidated
provisionally priced copper sales totaling 161.3 million pounds
recorded at an average price of $0.83 per pound. Approximately 90
percent of these open pounds are expected to be finally priced
during the first quarter of 2000 with the remaining pounds to be
priced during the second quarter of 2000. A one-cent movement in
the average price used for these open pounds will have an
approximate $0.8 million impact on FCX's 2000 net income. In
January 2000, PT Freeport Indonesia entered into forward copper
sales contracts to fix the price at $0.85 per pound on
approximately 50 percent of the December 31, 1999 open pounds.
Gold sales are priced according to individual contract terms,
generally the average London Bullion Market Association price for
the month of shipment.
PT Freeport Indonesia pays royalties under a Contract of
Work, with a 30-year term and two 10-year extensions permitted,
entered into in December 1991 with the Government of Indonesia.
The copper royalty rate payable by PT Freeport Indonesia under its
Contract of Work varies from 1.5 percent of copper net revenue at
a copper price of $0.90 or less per pound to 3.5 percent at a
copper price of $1.10 or more per pound. The Contract of Work
royalty rate for gold and silver sales is 1.0 percent.
Because a large part of the mineral royalties under
Government of Indonesia regulations are due to the provinces from
which the minerals are extracted, in connection with the fourth
concentrator mill expansion, PT Freeport Indonesia agreed to pay
the Government of Indonesia voluntary additional royalties to
provide further support to the local governments and the people of
Irian Jaya (Papua). The additional royalties are paid on metal
from production above 200,000 metric tons of ore per day. The
additional royalty for copper equals the Contract of Work royalty
rate, and for gold and silver equals twice the Contract of Work
royalty rates. Therefore, PT Freeport Indonesia's royalty rate on
copper net revenues from production above 200,000 metric tons of
ore per day is double the Contract of Work royalty rate, and the
royalty rates on gold and silver sales from production above
200,000 metric tons of ore per day are triple the Contract of Work
royalty rates. The additional royalties became effective January
1, 1999. The combined royalties totaled $23.0 million in 1999,
$16.2 million in 1998 and $31.4 million in 1997.
<PAGE> 36
Foreign Currencies. Transaction gains and losses associated with
Atlantic Copper's peseta-denominated and PT Freeport Indonesia's
rupiah-denominated monetary assets and liabilities are included in
net income. Atlantic Copper's peseta-denominated net monetary
liabilities totaled $73.9 million at December 31, 1999 based on an
exchange rate of 165.6 pesetas to one U.S. dollar. Excluding
hedging amounts, net Atlantic Copper transaction gains (losses)
totaled $10.9 million in 1999, $(3.8) million in 1998 and $16.8
million in 1997. PT Freeport Indonesia's rupiah-denominated net
monetary assets totaled $18.1 million at December 31, 1999 based
on an exchange rate of 6,970 rupiah to one U.S. dollar. Excluding
hedging amounts, net PT Freeport Indonesia transaction gains
(losses) related to these rupiah-denominated net monetary assets
totaled $(1.4) million in 1999, $0.9 million in 1998 and $(6.3)
million in 1997.
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 Copper 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 1.0 million shares in 1999, one thousand
shares in 1998 and 1.3 million shares in 1997.
Options with exercise prices greater than the average market
price of the common stock during the year were excluded from the
computation of diluted net income per share of common stock. This
amounted to options for 11.0 million shares (average exercise
price of $22 per share) in 1999, options for 10.5 million shares
(average exercise price of $23 per share) in 1998 and options for
2.3 million shares (average exercise price of $33 per share) in
1997. 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 $22.2 million in 1999 and
$21.0 million in 1998 and 1997.
2. OWNERSHIP IN SUBSIDIARIES AND JOINT VENTURES WITH RIO TINTO
FCX's direct ownership in PT Freeport Indonesia totaled 81.3
percent at December 31, 1999 and 1998. FCX also owns 49 percent
of P.T. Indocopper Investama Corporation (PT Indocopper
Investama), a 9.4 percent owner of PT Freeport Indonesia, bringing
FCX's total ownership in PT Freeport Indonesia to 85.9 percent at
December 31, 1999 and 1998. At December 31, 1999, PT Freeport
Indonesia's net assets totaled $935.7 million, including $732.0
million of retained earnings. FCX has various intercompany loans
to PT Freeport Indonesia totaling $780.0 million at December 31,
1999.
Substantially all of PT Freeport Indonesia's assets are
located in Indonesia. Indonesia continues to face economic and
political uncertainties. Economic conditions in Indonesia
improved during 1999, reflecting international financial
assistance, positive reactions to political developments,
movements to reform financial systems, a stronger Indonesian
rupiah and lower interest and inflation rates. The economy is
expected to generate positive economic growth in 2000 following a
large decline in 1998. However, religious and ethnic differences
among people in the outlying provinces led to violence in some
areas, most notably in the province of East Timor following a pro-
independence vote. Subsequent United Nations peacekeeping efforts
have restored order in East Timor. Pro-independence movements in
certain areas also have become more prominent, especially in the
province of Aceh, and to a lesser extent in Irian Jaya (Papua).
The Government of Indonesia is responding by considering steps to
provide more political and economic autonomy to the provincial
governments. PT Freeport Indonesia's Contract of Work provides
that the Government of Indonesia will not nationalize or
expropriate PT Freeport Indonesia's mining operations.
In 1997, PT Nusamba Mineral Industri (Nusamba), a subsidiary
of P.T. Nusantara Ampera Bakti, acquired from a third party
approximately 51 percent of the capital stock of PT Indocopper
Investama. Nusamba 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 at the time of the transaction. FCX has agreed
that if Nusamba defaults on the loan, FCX will purchase the PT
Indocopper Investama stock or the lenders' interest in the
commercial loan for the amount then due by Nusamba under the loan.
FCX also agreed to lend to Nusamba
<PAGE> 37
any amounts to cover any
shortfalls between the interest payments due on the commercial
loan and the dividends received by Nusamba from PT Indocopper
Investama. At December 31, 1999, $43.7 million was due in March
2002 from Nusamba 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 Freeport Indonesia's
dividends to PT Indocopper Investama. Once the total of the
guaranteed loan and the amounts FCX has subsequently loaned to
Nusamba reach the original purchase price ($315 million), FCX
expects to begin expensing any additional amounts loaned to
Nusamba.
FCX's direct ownership in Eastern Minerals totaled 90 percent
at December 31, 1999 and 1998. PT Indocopper Investama owns the
remaining 10 percent of Eastern Minerals, bringing FCX's total
ownership in Eastern Minerals to 94.9 percent at December 31, 1999
and 1998.
FCX owns 100 percent of the outstanding Atlantic Copper
stock. At December 31, 1999, Atlantic Copper's net assets totaled
$97.5 million and FCX had no outstanding advances to Atlantic
Copper. Atlantic Copper is not expected to pay dividends in the
near future. In December 1999, FCX made a $40.0 million equity
contribution to Atlantic Copper and forgave $24.2 million of
outstanding advances, which had no impact on FCX's consolidated
financial statements.
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, 1999 outstanding common stock of FCX). In addition,
FCX and Rio Tinto established joint ventures. Under the joint
venture arrangements, Rio Tinto has a 40 percent interest in
future development and exploration projects under PT Freeport
Indonesia's Contract of Work and Eastern Minerals' Contract of
Work, and the option to participate in 40 percent of any other
future exploration projects in Irian Jaya (Papua). Under the
arrangements, Rio Tinto funded $100 million in 1996 for approved
exploration costs in the areas covered by the PT Freeport
Indonesia and Eastern Minerals Contracts of Work. Substantially
all exploration costs in the joint venture areas are now being
shared 60 percent by FCX and 40 percent by Rio Tinto.
PT Freeport Indonesia completed the "fourth concentrator mill
expansion" of its 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 in Block A of PT Freeport
Indonesia's Contract of Work, and, after 2021, a 40 percent
interest in all production from Block A. In addition to funding
its 40 percent share of all expansion capital, including the
fourth concentrator mill expansion, Rio Tinto provided a $450
million nonrecourse loan to PT Freeport Indonesia for PT Freeport
Indonesia's share of the cost of the expansion. PT Freeport
Indonesia and Rio Tinto began sharing incremental cash flow
attributable to the expansion effective January 1, 1998 on the
basis of 60 percent to PT Freeport Indonesia and 40 percent to Rio
Tinto. PT Freeport Indonesia is paying its share of incremental
cash flow to Rio Tinto until Rio Tinto receives an amount equal to
the funds loaned to PT Freeport Indonesia, plus interest based on
Rio Tinto's cost of borrowing. Through December 31, 1999, PT
Freeport Indonesia's share of incremental cash flow totaled $471.8
million, of which $30.9 million will be paid to RioTinto in 2000,
$252.3 million was paid in 1999 and $188.6 million was paid in
1998. The incremental revenues from production from the expansion
and total revenues from production from Block A, including
production from PT Freeport Indonesia's previously existing
reserves, share proportionately in operating, nonexpansion capital
and administrative costs. PT Freeport Indonesia 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 remaining cash flow.
3. INVENTORIES
The components of product inventories follow (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
PT Freeport Indonesia: Concentrates- Average Cost $ 13,424 $ 15,630
Atlantic Copper: Concentrates - FIFO 69,590 58,597
Work in process - FIFO 50,173 41,725
Finished goods - FIFO 1,548 2,488
-------- --------
Total product inventories $134,735 $118,440
======== ========
</TABLE>
The average cost method was used to determine the cost of
essentially all materials and supplies inventory. Materials and
supplies inventory is net of obsolescence reserves totaling $18.8
million at December 31, 1999 and $24.6 million at December 31,
1998. The increase in materials and supplies inventory supports
PT Freeport Indonesia's expanded operations in Indonesia.
<PAGE> 38
4. PROPERTY, PLANT AND EQUIPMENT, NET
The components of net property, plant and equipment follow (in
thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Exploration, development and other $1,019,164 $ 975,218
Buildings and infrastructure 1,148,027 1,103,753
Machinery and equipment 1,658,116 1,566,674
Mobile equipment 494,583 444,474
Infrastructure assets 615,412 619,631
Construction in progress 33,809 104,076
---------- ----------
Property, plant and equipment 4,969,111 4,813,826
Accumulated depreciation and amortization (1,605,820) (1,339,375)
---------- ----------
Property, plant and equipment, net $3,363,291 $3,474,451
========== ==========
</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 Copper meeting specified conditions through December
2001.
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
Notes payable:
FCX and PT Freeport Indonesia credit facilities,
average rate 7.1% in 1999 and 7.4% in 1998 $ 648,000 $ 658,000
Atlantic Copper facility, average rate 7.5% in
1999 and 6.5% in 1998 204,529 275,785
Atlantic Copper working capital revolver,
average rate 6.3% in 1999 and 6.0% in 1998 39,593 38,093
Rio Tinto loan, average rate 5.2% in 1999 and
5.6% in 1998 (Note 2) 60,563 301,640
Equipment loans 76,840 42,000
ALatieF loan, average rate 6.4% in 1999
and 6.6% in 1998 39,312 43,563
Other notes payable 24,818 5,345
9 3/4% 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, average rate
11.6% in 1999 and 12.0% in 1998 484,604 522,367
---------- ----------
2,148,259 2,456,793
Less current portion and short-term borrowings 114,789 127,804
---------- ----------
$2,033,470 $2,328,989
========== ==========
</TABLE>
Notes Payable. The FCX and PT Freeport Indonesia credit
facilities provide total availability of $1.0 billion. PT Freeport
Indonesia has a $550 million facility ($337.0 million of
additional borrowings available at December 31, 1999), and FCX and
PT Freeport Indonesia have a separate $450 million facility ($15.0
million of additional borrowings available at December 31, 1999).
These credit facilities are also subject to a borrowing base,
redetermined annually during the second quarter by the banks,
which had approximately $724 million available at December 31,
1999. These variable-rate revolving facilities are available until
December 2002 and contain provisions for minimum working capital
requirements, specified cash flow to interest coverage and
restrictions on other borrowings. PT Freeport Indonesia assigned
its existing and future sales contracts and pledged its rights
under the Contract of Work and most of its assets as security for
its borrowings.
<PAGE> 39
In December 1999, Atlantic Copper restructured its variable-
rate project loan (the Atlantic Copper Facility) after reducing
the term portion using a $40.0 million equity contribution from
FCX. As of December 31, 1999, the variable-rate project loan,
nonrecourse to FCX, consists of a $140.0 million term loan being
repaid in 32 equal quarterly payments beginning March 2000
through December 2007 and a $65.0 million working capital
revolver that matures December 2007. The Atlantic Copper
Facility requires certain hedging arrangements, restricts other
borrowings and specifies certain minimum coverage ratios.
Borrowings under the Atlantic Copper Facility are secured by 100
percent of Atlantic Copper's capital stock, the smelter and
refinery assets, and certain receivables and inventory. The bank
providing the Atlantic Copper Facility has also made available a
$30.0 million facility for Atlantic Copper to use primarily in
support of scheduled term loan repayments. Amounts drawn on this
facility must be matched with additional FCX equity contributions
to Atlantic Copper. No amounts were outstanding under this
facility as of December 31, 1999.
In addition to the Atlantic Copper Facility, Atlantic Copper
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 and PT Freeport Indonesia each have an equipment loan
secured by certain PT Freeport Indonesia assets with a vendor.
The FCX loan had a $35.0 million balance at December 31,1999 and
interest accrues at 8.1 percent. Principal payments total $7.0
million annually with a final payment of $21.0 million in December
2001. In November 1999, PT Freeport Indonesia entered into a
$41.8 million variable-rate equipment loan with the same vendor.
The average interest rate for the period the loan was outstanding
in 1999 was 8.6 percent. Principal payments total $4.2 million
annually with a final payment of $12.5 million in December 2006.
In March 1997, PT Freeport Indonesia completed the final
$75.0 million sale of infrastructure assets to joint ventures then
owned one-third by PT Freeport Indonesia 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 FCX's 9 3/4% Senior Notes. PT Freeport Indonesia
subsequently sold its one-third interest in the joint ventures to
ALatieF in March 1997. In September 1998, PT Freeport Indonesia
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 Freeport
Indonesia guarantees the ALatieF loan associated with the
purchases and is consolidating the joint ventures because the
agreements provide the joint venture partners with a guaranteed 15
percent after-tax minimum annual return on their investment.
Senior Notes. The 9 3/4% Senior Notes are due April 15, 2001. Each
holder of the 7.20% Senior Notes may elect early repayment in
November 2003. The 7.50% and 7.20% Senior 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.
Infrastructure Asset Financings. Through 1997 PT Freeport
Indonesia sold assets for $458.2 million to a power joint venture,
in which it previously had a 30 percent interest, and is
purchasing power under infrastructure asset financing
arrangements. The infrastructure asset financing obligations
pursuant to the power sales agreement totaled $412.2 million at
December 31, 1999 and $431.7 million at December 31, 1998.
In 1995, PT Freeport Indonesia 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 Freeport Indonesia. PT Freeport Indonesia guarantees
certain of the bank loans totaling $56.9 million at December 31,
1999 associated with these sales. PT Freeport Indonesia is
leasing these assets under infrastructure asset financing
arrangements. The obligations under these infrastructure asset
financings totaled $72.4 million at December 31, 1999 and $88.7
million at December 31, 1998.
Maturities and Capitalized Interest. Maturities of debt
instruments and infrastructure asset financings based on the
amounts and terms outstanding at December 31, 1999 totaled $114.8
million in 2000, $221.2 million in 2001, $812.6 million in 2002,
$308.3 million in 2003, $61.3 million in 2004 and $630.1 million
thereafter. Capitalized interest totaled $3.8 million in 1999,
$19.6 million in 1998 and $23.0 million in 1997.
<PAGE> 40
6. 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.
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 104,125 shares of its Silver-Denominated Preferred
Stock totaling $87.5 million at December 31, 1999 and 119,000
shares totaling $100.0 million at December 31, 1998. As of
December 31, 1999, each depositary share has a cumulative
quarterly cash dividend equal to the value of 0.03609375 ounce of
silver, which declines after each redemption payment. In August
1999, FCX made the first of eight annual redemption payments on
the underlying Silver-Denominated Preferred Stock.
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. 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.
Stock Award Plans. FCX's Adjusted Stock Award Plan provided 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 in 1995.
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 1995 Stock Option Plan (the 1995 Plan) provides for the
issuance of stock options and other stock-based awards (including
SARs) for up to 10 million Class B common shares 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.
FCX's 1995 Stock Option Plan for Non-Employee Directors (the
Director Plan) authorizes 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. 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.
In May 1999, FCX's shareholders approved the 1999 Stock
Incentive Plan (the 1999 Plan) to provide for the issuance of
stock options, restricted stock and other stock-based awards. The
1999 Plan allows FCX to grant awards for up to 8 million common
shares (3.2 million Class A common shares and 4.8 million Class B
common shares) to eligible participants.
<PAGE> 41
Awards granted under all of the plans generally expire 10
years after the date of grant. Awards for 7.2 million shares
under the 1999 Plan, 1.5 million shares under the Director Plan
and 0.5 million shares under the 1995 Plan were available for new
grants as of December 31, 1999. A summary of stock options
outstanding, including 43,955 SARs, follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ----------------- -----------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Option of Options of Options
Options Price Options Price Options Price
---------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 11,430,582 $21.98 8,065,837 $23.84 7,990,083 $23.04
Granted 3,965,500 11.48 3,691,200 17.77 856,900 29.18
Exercised (87,345) 15.28 (51,749) 14.74 (579,612) 18.47
Expired/Forfeited (1,248,513) 20.08 (274,706) 21.29 (201,534) 30.45
---------- --------- ---------
Balance at December 31 14,060,224 19.23 1,430,582 21.98 8,065,837 23.84
========== ========= =========
</TABLE>
In 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, 1999, excluding SARs,
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------- -------------------
Weighted Weighted Weighted
Number Average Average Number Average
of Remaining Option of Option
Range of Exercise Prices Options Life Price Options Price
- ------------------------ ---------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
$9.94 to $14.63 3,791,500 9 years $10.90 230,250 $14.28
$14.94 to $21.27 7,778,975 4 years 18.98 6,835,975 19.27
$22.63 to $32.81 1,065,794 7 years 29.57 693,494 29.53
$35.50 1,380,000 6 years 35.50 828,000 35.50
---------- ---------
14,016,269 8,587,719
========== =========
</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 $1.4 million
charge in 1999 and a $25.3 million gain in 1997 for its SARs and
grants under the Director Plan, which have the same accounting
treatment as SARs, because of 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 compensaion costs would have
increased by $12.4 million ($6.0 million to net income or $0.04
per share) in 1999, $34.3 million ($16.7 million to net income or
$0.10 per share) in 1998 and $6.3 million ($3.4 million to net
income or $0.02 per share) in 1997.
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 was $5.96 per option in 1999, $6.75 per option
in 1998 (including the 1.3 million SARs converted to stock
options) and $10.24 per option in 1997. The weighted average
assumptions used include a risk-free interest rate of 5.1 percent
in 1999, 5.8 percent in 1998 and 6.9 percent in 1997; expected
volatility of 41 percent in 1999, 34 percent in 1998 and 30
percent in 1997; no annual dividend in 1999, $0.20 per share in
1998 and $0.90 per share in 1997; and expected lives of 7 years in
1999, 8 years in 1998 and 10 years in 1997. The pro forma effects
on net income 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> 42
8. INCOME TAXES
The components of FCX's deferred taxes follow (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax asset:
Foreign tax credits $ 245,787 $ 181,749
U.S. alternative minimum tax credits 62,559 55,583
Atlantic Copper net operating loss carryforwards 82,789 91,653
Deferred compensation 5,496 4,658
Intercompany profit elimination 18,733 14,850
Obsolescence reserve 2,223 4,282
Valuation allowance (391,135) (328,985)
--------- ---------
Total deferred tax asset 26,452 23,790
--------- ---------
Deferred tax liability:
Property, plant and equipment (509,611) (463,312)
Undistributed earnings in PT Freeport Indonesia (44,808) (22,832)
Other (25,427) (8,824)
--------- ---------
Total deferred tax liability (579,846) (494,968)
--------- ---------
Net deferred tax liability $(553,394) $(471,178)
========= =========
</TABLE>
FCX has provided a valuation allowance equal to its tax
credit carryforwards ($308.3 million at December 31, 1999 and
$237.3 million at December 31, 1998) 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 Copper
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 $236.5
million of Atlantic Copper net operating losses at December 31,
1999 and $261.9 million of net operating losses at December 31,
1998, which expire through the year 2009.
PT Freeport Indonesia's Indonesian income tax returns have
been audited through 1994 and the 1997 return is currently under
examination. FCX's provision for income taxes consists of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current income taxes:
Indonesian $127,828 $100,336 $159,713
United States and other 7,721 8,065 9,885
-------- -------- --------
135,549 108,401 169,598
Deferred Indonesian taxes 60,104 62,165 61,717
-------- -------- --------
$195,653 $170,566 $231,315
======== ======== ========
</TABLE>
<PAGE> 43
Differences between income taxes computed at the contractual
Indonesian tax rate and income taxes recorded follow (dollars in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------------- --------------- --------------
Amount Percent Amount Percent Amount Percent
-------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Income taxes computed at the
contractual Indonesian
tax rate $133,292 35% $126,499 35% $180,868 35%
Indonesian withholding tax on:
Earnings/dividends 23,878 6 21,490 6 21,886 4
Interest 2,829 - 3,765 1 6,818 1
Increase (decrease)
attributable to:
Intercompany interest expense (11,444) (3) (15,103) (4) (24,192) (5)
Parent company costs 37,568 10 26,504 7 24,926 5
Indonesian presidential decree - - - - 9,643 2
U.S. alternative minimum tax 7,400 2 7,500 2 8,500 2
Atlantic Copper net income (1,836) - (1,733) - (1,187) -
Other, net 3,966 - 1,644 - 4,053 1
-------- -- -------- -- -------- --
Provision for income taxes $195,653 51% $170,566 47% $231,315 45%
======== == ======== == ======== ==
</TABLE>
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 $25.8 million in 1999, $40.3 million in 1998 and $44.7
million in 1997. 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 Smelting. PT Smelting, 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 Freeport Indonesia, 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 Smelting stock. PT Freeport Indonesia is providing
all of PT Smelting'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,
currently $0.23 per pound, which was the rate for 1999 and is
expected to be the rate for 2000. PT Freeport Indonesia has also
agreed to assign, if necessary, its earnings in PT Smelting 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.
PT Freeport Indonesia has a defined benefit plan denominated
in Indonesian rupiah covering substantially all of its Indonesian
national employees. PT Freeport Indonesia funds the plan in
accordance with Indonesian pension guidelines. The pension
obligation was valued at an exchange rate of 6,970 rupiah to one
U.S. dollar on December 31, 1999 and 7,725 rupiah to one U.S.
dollar on December 31, 1998. Information on the FCX and PT
Freeport Indonesia plans follows (dollars in thousands):
<PAGE> 44
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------------------------- -----------------
PT Freeport
FCX Plan Indonesia Plan FCX
------------------ ----------------- -----------------
1999 1998 1999 1998 1999 1998
-------- -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Change in benefit
obligation:
Benefit obligation at
beginning of year $(13,622) $(13,652) $(8,065) $(7,208) $(763) $(1,043)
Service cost (852) (1,089) (1,061) (704) (42) (42)
Interest cost (905) (926) (2,688) (728) (60) (50)
Plan amendments - - - (729) (92) 301
Curtailment gain - - - 781 - -
Special termination
benefits - - - (5,873) - -
Actuarial gains (losses) 876 1,721 (1,159) (287) 83 63
Foreign exchange gain
(loss) - - (1,354) 42 - -
Benefits paid 922 324 271 6,641 14 8
-------- -------- ------- ------- ------ -------
Benefit obligation at
end of year (13,581) (13,622) (14,056) (8,065) (860) (763)
-------- -------- ------- ------- ------ -------
Change in plan assets:
Fair value of plan
assets at beginning of
year 8,381 7,660 2,992 2,030 - -
Actual return on plan
assets 1,167 1,045 1,185 594 - -
Employer contributions 2,078 - 2,351 6,720 14 8
Foreign exchange gain - - 663 289 - -
Benefits paid (922) (324) (271) (6,641) (14) (8)
-------- ------- ------- ------- ------ ------
Fair value of plan assets
at end of year 10,704 8,381 6,920 2,992 - -
-------- ------- ------- ------- ------ ------
Funded status (2,877) (5,241) (7,136) (5,073) (860) (763)
Unrecognized net actuarial
(gain) loss (2,794) (1,650) 1,295 - (1,248) (1,311)
Unrecognized transition
asset (286) (344) - - - -
Unrecognized prior service
cost (633) (780) 2,908 2,938 (333) (473)
-------- ------- ------- ------- ------- --------
Accrued benefit cost $ (6,590) $(8,015) $(2,933) $(2,135)$(2,441) $ (2,547)
======== ======= ======= ======= ======= ========
Weighted-average assumptions
(percent):
Discount rate 8.00 6.75 11.00 a 8.00 6.75
Expected return on plan
assets 9.00 9.00 12.00 a - -
Rate of compensation
increase 4.25 4.25 9.00 a - -
</TABLE>
a. Given the economic uncertainty in Indonesia, PT Freeport
Indonesia 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 Freeport Indonesia 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 7.0 percent for 1999, decreasing ratably each year
until reaching 4.75 percent in 2004. 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.
The components of net periodic benefit cost for FCX's plans follow
(in thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------- -------------------
1999 1998 1997 1999 1998 1997
----- ------ ------ ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 852 $1,089 $1,410 $ 42 $ 42 $ 62
Interest cost 905 926 864 60 50 72
Expected return on plan assets (672) (652) (560) - - -
Amortization of prior service cost (147) (147) (147) (47) (52) (26)
Amortization of net actuarial gain (227) (135) (89) (147) (93) (94)
Amortization of transition asset (58) (58) (58) - - -
----- ------ ------ ----- ---- -----
Net periodic benefit cost $ 653 $1,023 $1,420 $ (92) $(53) $ 14
===== ====== ====== ===== ==== =====
</TABLE>
<PAGE> 45
The components of net periodic benefit cost for PT Freeport
Indonesia's plan follow (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Service cost $1,061 $ 704 $1,827
Interest cost 2,688 728 1,928
Expected return on plan assets (1,199) (285) (412)
Amortization of prior service cost 315 217 857
Amortization of net actuarial loss - 280 -
Curtailment gain - (781) -
Special termination benefits - 5,873 -
------ ------ ------
Net periodic benefit cost $2,865 $6,736 $4,200
====== ====== ======
</TABLE>
During 1998, PT Freeport Indonesia 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 Freeport Indonesia
recognized a curtailment gain in accordance with SFAS 88 because
the program significantly reduced the expected years of future
service of employees. The PT Freeport Indonesia plan was also
amended in 1998 to reflect changes in Indonesian laws eliminating
the limits on pensionable pay.
Atlantic Copper 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 165.6 pesetas to one U.S. dollar
at December 31, 1999 and 142.7 pesetas to one U.S. dollar at
December 31, 1998. Spanish legislation requires that Atlantic
Copper begin funding this obligation in 2001. The discount rate
used was 8 percent at December 31, 1999 and 1998. The interest
cost for this obligation was $6.8 million in 1997. The actuarial
valuation of this obligation was $80.9 million at December 31,
1999 and $96.4 million at December 31, 1998, based on a discount
rate of 5 percent. Other information on the Atlantic Copper plan
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $72,300 $69,373
Interest cost 7,102 6,658
Foreign exchange loss (gain) (8,840) 3,429
Benefits paid (6,774) (7,160)
------- -------
Benefit obligation at end of year $63,788 $72,300
======= =======
</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 $0.7 million in 1999 and $0.8
million in 1998 and 1997. 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.
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 Freeport Indonesia's operations cannot currently
be projected with precision. PT Freeport Indonesia's best
estimate at this time is that ultimate reclamation and closure
costs may require as much as $100 million but are not expected to
exceed $150 million. However, these estimates are subject to
revision over time as more complete
<PAGE> 46
studies are performed and
more definitive plans are formulated. Some reclamation costs
will be incurred throughout the 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 Freeport Indonesia had $14.1
million accrued on a unit-of-production basis at December 31,
1999 for mine closure and reclamation costs, included in other
liabilities. In 1996, PT Freeport Indonesia began contributing to
a cash fund ($1.7 million balance at December 31, 1999) designed
to accumulate at least $100 million by the end of its Indonesian
mining activities. PT Freeport Indonesia plans to use this fund,
including accrued interest, to pay for 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
Freeport Indonesia established the Freeport Fund for Irian Jaya
Development (FFIJD), through which PT Freeport Indonesia has made
available funding and expertise to support the economic and social
development of the area. PT Freeport Indonesia 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 Freeport Indonesia charged $14.7 million in 1999,
$13.5 million in 1998 and $15.1 million in 1997 to production
costs for this commitment.
Long-Term Contracts and Operating Leases. Atlantic Copper has
commitments with parties other than PT Freeport Indonesia to
purchase concentrate totaling 332,000 metric tons in 2000, 373,000
metric tons in 2001, 340,000 metric tons in 2002, 220,000 metric
tons in 2003 and 120,000 metric tons in 2004, at market prices.
FCX's minimum annual contractual charges under noncancelable
long-term contracts and operating leases which extend to 2002
total $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 $1.3 million in 1999, $1.9 million in
1998 and $2.2 million in 1997.
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, 1999 and 1998. Fair values are based on quoted
market prices and other available market information.
<TABLE>
<CAPTION>
1999 1998
---------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Price protection program:
Open contracts in liability
position $ - $ (1,093) $ - $ (1,575)
Open contracts in asset
position - 308 - -
Debt:
Long-term debt (Note 5) (2,148,259) (2,074,722) (2,456,793) (2,278,857)
Interest rate swaps - 1,387 - (1,749)
Foreign exchange contracts:
$U.S./Indonesian rupiah - - 7,800 7,800
$U.S./Australian dollar - - (1,215) (1,215)
$U.S./Spanish peseta (8,138) (8,138) 2,005 2,005
Redeemable preferred stock
(Note 6) (487,507) (245,570) (500,007) (197,923)
</TABLE>
Price Protection Program. From time to time, PT Freeport
Indonesia enters into forward and option contracts to hedge the
market risk associated with fluctuations in the prices of
commodities it sells. As of December 31, 1999, FCX had no price
protection contracts relating to its mine production other than
its gold and silver-denominated redeemable preferred stock. FCX's
revenues include net additions totaling $0.8 million in 1999 and
$42.6 million in 1997 related to PT Freeport Indonesia's copper
price protection program. Revenues also include net additions
totaling
<PAGE> 47
$0.6 million in 1999 from the initial annual redemption
of FCX's Silver-Denominated Preferred Stock and $37.6 million in
1997 from gold forward contracts. In January 2000, PT Freeport
Indonesia entered into forward copper sales contracts to fix the
price at $0.85 per pound on approximately 50 percent of its
December 31, 1999 open pounds.
At December 31, 1999, Atlantic Copper had contracts to sell
19.6 million pounds at an average price of $0.79 per pound though
February 2000. Atlantic Copper had purchased forward 3.7 million
pounds of copper at an average price of $0.76 per pound through
December 2000 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. FCX, PT Freeport Indonesia and Atlantic Copper entered into
interest rate swaps to manage exposure to interest rate changes on
a portion of their variable-rate debt. Under the terms of these
swaps, FCX pays an average of 6.3 percent on $320.0 million of
financing at December 31, 1999 through January 2000. PT Freeport
Indonesia's interest rate swaps matured December 30, 1999.
Atlantic Copper pays an average of 6.1 percent on $97.8 million of
financing at December 31, 1999, reducing quarterly through June
2000. From July 2000 through December 2000, Atlantic Copper will
pay 4.7 percent on $82.1 million of financing. For the year
2001, Atlantic Copper will pay an average of 6.1 percent on an
average of $68.6 million of financing. Interest on comparable
floating rate debt averaged 5.4 percent in 1999, 5.7 percent in
1998 and 5.7 percent in 1997, resulting in additional interest
costs of $1.1 million in 1999, $1.1 million in 1998 and $1.5
million in 1997.
Atlantic Copper is a party to letters of credit totaling $7.5
million at December 31, 1999. Fair value of these letters of
credit is not material at December 31, 1999.
Foreign Exchange Contracts. Atlantic Copper 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, 1999,
Atlantic Copper has foreign exchange currency contracts through
November 2001 totaling $129.9 million on 19.7 billion Spanish
pesetas (an average exchange rate of 151.9 pesetas to 1 U.S.
dollar). Atlantic Copper recorded gains (losses) to other income
related to its forward currency contracts, totaling $(14.9)
million in 1999, $3.7 million in 1998 and $(6.5) million in 1997.
PT Freeport Indonesia had a currency hedging program for the
Indonesian rupiah and Australian dollar that expired in September
1999. PT Freeport Indonesia recorded net gains to production
costs totaling $3.7 million in 1999 and $4.3 million in 1998 related
to these contracts.
12. SEGMENT INFORMATION
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 89 percent in
1999, 91 percent in 1998 and 92 percent in 1997. The only
customers under long-term contracts with over ten percent of
revenues in at least one of the past three years are a group of
Japanese companies with 11 percent in 1999, 12 percent in 1998 and
16 percent in 1997, and PT Smelting with 13 percent in 1999 and 1
percent in 1998. PT Freeport Indonesia's contract with the group
of Japanese companies extends through 2000. There are several
other long-term agreements in place, each representing less than
10 percent of FCX consolidated sales. Certain terms of these
long-term contracts are negotiated annually.
FCX revenues attributable to various countries based on the
location of the customer follow:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Japan $ 358,556 $ 382,721 $ 470,373
Spain 328,720 324,202 402,276
Indonesia (PT Smelting) 252,586 25,610 -
Switzerland 219,250 269,355 297,821
United States 187,731 250,922 131,042
Others 540,485 504,322 699,392
---------- ---------- ----------
Total $1,887,328 $1,757,132 $2,000,904
========== ========== ==========
</TABLE>
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
<PAGE> 48
PT Freeport Indonesia's copper and
gold mining operations in Indonesia and FCX's Indonesian
exploration activities. The smelting and refining segment
includes Atlantic Copper's operations in Spain and PT Freeport
Indonesia's equity investment in PT Smelting 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>
1999
Revenues $1,464,811a $764,466 $(341,949) $1,887,328
Production and delivery 534,119 709,038 (331,598) 911,559
Depreciation and amortization 259,372 29,373 4,468 293,213
Exploration expense 9,330 - 1,296 10,626
Loss in PT Smelting - 18,136b - 18,136
General and administrative
expenses 52,410 9,572 8,642 70,624
---------- -------- --------- ----------
Operating income (loss) $ 609,580 $ (1,653) $ (24,757) $ 583,170
========== ======== ========= ==========
Interest expense, net $ 137,787 $ 27,020 $ 29,262 $ 194,069
========== ======== ========= ==========
Provision (benefit) for
income taxes $ 175,581 $ (2,983) $ 23,055 $ 195,653
========== ======== ========= ==========
Capital expenditures $ 150,596 $ 9,807 $ 419 $ 160,822
========== ======== ========= ==========
Total assets $3,432,068 $709,432c $ (58,584) $4,082,916
========== ======== ========= ==========
1998
Revenues $1,351,123a $753,957 $(347,948) $1,757,132
Production and delivery 461,244 671,570 (333,131) 799,683
Depreciation and amortization 241,312 31,711 4,384 277,407
Exploration expense 11,542 - 1,491 13,033
Loss in PT Smelting - 4,948b - 4,948
General and administrative
expenses 70,361 10,337 7,082 87,780
---------- -------- --------- ----------
Operating income $ 566,664 $ 35,391 $ (27,774) $ 574,281
========== ======== ========= ==========
Interest expense, net $ 164,734 $ 27,953 $ 12,901 $ 205,588
========== ======== ========= ==========
Provision (benefit) for
income taxes $ 152,795 $ (1,225) $ 18,996 $ 170,566
========== ======== ========= ==========
Capital expenditures $ 280,026 $ 11,131 $ 926 $ 292,083
========== ======== ========= ==========
Total assets $3,487,527 $722,767c $ (17,660) $4,192,634
========== ======== ========= ==========
1997
Revenues $1,505,295 $874,514 $(378,905) $2,000,904
Production and delivery 604,851 799,473 (397,244) 1,007,080
Depreciation and amortization 178,289 31,693 3,873 213,855
Exploration expense 14,758 - 2,871 17,629
Loss in PT Smelting - 1,524 - 1,524
General and administrative
expenses 76,549 11,197 8,855 96,601
---------- -------- --------- ----------
Operating income $ 630,848 $ 30,627 $ 2,740 $ 664,215
========== ======== ========= ==========
Interest expense, net $ 141,595 $ 32,560 $ (22,435) $ 151,720
========== ======== ========= ==========
Provision for income taxes $ 193,284 $ - $ 38,031 $ 231,315
========== ======== ========= ==========
Capital expenditures $ 529,731 $ 54,721 $ 10,035 $ 594,487
========== ======== ========= ==========
Total assets $3,406,539 $742,184c $ 3,486 $4,152,209
========== ======== ========= ==========
</TABLE>
a. Includes PT Freeport Indonesia sales to PT Smelting totaling
$252.6 million in 1999 and $25.6 million in 1998.
b. Includes deferrals of intercompany profits on 25 percent of
PT Freeport Indonesia's sales to PT Smelting, for which the
final sale has not occurred, totaling $8.0 million in 1999
and $3.3 million in 1998.
c. Includes PT Freeport Indonesia's equity investment in PT
Smelting totaling $66.1 million at December 31, 1999, $80.8
million at December 31, 1998 and $83.1 million at December
31, 1997.
<PAGE> 49
13. 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 -------------------------------- ----------------------------
- -End Ore Copper Gold Silver Copper Gold Silver
- --------------------------------------------------------------------------------
(Metric Tons) (%) (Grams)(Ounce)(Grams)(Ounce)(Billions (Millions(Millions
of Lbs.) of Ozs.) of Ozs.)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1999 2,395,175,000 1.13 1.05 .034 3.85 .124 49.9 61.6 148.8
By Deposit at December 31, 1999
Grasberg:
Open
pit 1,109,406,000 1.02 1.18 .038 2.99 .096 20.5 32.3 53.4
Under-
groun 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 8.2 10.3 25.5
DOZ 185,250,000 1.16 0.83 .027 5.21 .168 4.1 4.0 16.4
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 20,727,000 1.05 0.39 .013 7.63 .245 0.4 0.2 2.6
------------- ---- ---- ----- ----- ---- ---- ---- ------
Total 2,395,175,000 1.13 1.05 .034 3.85 .124 49.9 61.6 148.8
</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 Freeport Indonesia's Block A, Rio Tinto provided a $450
million nonrecourse loan to PT Freeport Indonesia for PT Freeport
Indonesia'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 Freeport Indonesia and
40 percent Rio Tinto. PT Freeport Indonesia 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
Freeport Indonesia, 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 revenues
from production from the expansion and total revenues from
production from Block A, including production from PT Freeport
Indonesia's previously existing operations, share proportionately
in operating, nonexpansion capital and administrative costs. PT
Freeport Indonesia receives 100 percent of cash flow from its
existing pre-expansion production facilities as specified by the
contractual arrangements. PT Freeport Indonesia'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>
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
1999 38.7 49.5 115.3
</TABLE>
<PAGE> 50
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Net Income
Applicable Net Income Per Share
Operating to Common ------------------
Revenues Income Stock Basic Diluted
---------- --------- --------- -------- -------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
1999
1st Quarter $ 415,836 $ 129,080 $ 17,710 $.11 $.11
2nd Quarter 470,335 130,189 18,961 .12 .12
3rd Quarter 473,658 152,796 26,809 .16 .16
4th Quarter a 527,499 171,105 37,307 .23 .23
---------- --------- ---------
$1,887,328 $ 583,170 $ 100,787 .62 .61
========== ========= =========
1998
1st Quarter $ 396,132 $ 129,804 $ 26,592 $.15 $.15
2nd Quarter 433,858 134,938 25,802 .14 .14
3rd Quarter b 442,126 135,088 23,842 .14 .14
4th Quarter b 485,016 174,451 42,081 .26 .26
---------- --------- ---------
$1,757,132 $ 574,281 $ 118,317 .67 .67
========== ========= =========
</TABLE>
a. Includes charges to operating income totaling $8.8 million
($5.7 million to net income or $0.03 per share) consisting of
$3.6 million for an early retirement program, $1.4 million
for costs of stock appreciation rights and $3.8 million for
certain nonrecurring costs.
b. 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.
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, 1999 and 1998, and the related statements of
income, cash flow and stockholders' equity for each of the three
years in the period ended December 31, 1999. 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, 1999 and 1998 and the results
of its operations and its cash flow for each of the three years
in the period ended December 31, 1999 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
New Orleans, Louisiana,
January 18, 2000
<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 listings of NYSE securities. At year end 1999,
the number of holders of record of our Class A common shares was 7,150.
NYSE composite tape Class A common share price ranges during 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
High Low High Low
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter $11.875 $ 9.000 $19.375 $12.938
Second Quarter 16.938 9.375 20.313 14.063
Third Quarter 17.438 12.750 15.875 10.938
Fourth Quarter 18.750 13.375 14.000 9.188
</TABLE>
FCX Class B Common Shares
Our Class B Common shares trade on the 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 1999, the number of holders of
record of our Class B common shares was 11,652.
NYSE composite tape Class B common share price ranges during 1999 and 1998
were:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
High Low High Low
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter $12.750 $ 9.125 $20.875 $13.063
Second Quarter 18.000 10.063 21.438 14.813
Third Quarter 18.688 14.000 16.625 11.250
Fourth Quarter 21.375 15.563 15.125 9.813
</TABLE>
Common Shares Dividends
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.
FCX Class A and Class B common share cash dividends declared and paid for the
quarterly periods of 1998 were:
<TABLE>
<CAPTION>
Amount Record Payment
Per Share Date 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>
<PAGE> Inside Back Cover
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
Atlantic Coper, S.A. Spain Same
FM Services Company Delaware Same
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hearby 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 No. 333-31584) and on
Forms S-8 (File Nos. 33-63267, 33-63269, 33-63271 and 333-85803).
/s/Arthur Andersen LLP
New Orleans, Louisiana,
March 17, 2000
Exhibit 23.2
INDEPENDENT
MINING CONSULTANTS, INC.
Pat Prejean
Manager of Financial Reporting
Freeport-McMoRan Copper & Gold Inc.
1615 Poydras Street
New Orleans, LA 70112
Dear Mr. Prejean,
We hearby 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 Statement on Form S-3 (File
No. 333-31584) and on Form S-8 (File Nos. 33-63267, 33-63269, 33-63271 and
333-85803).
/s/John M. Marek
John M. Marek
President
Tucson, Arizona
March 17, 2000
Exhibit 24.1
FREEPORT-McMoRan COPPER & GOLD INC.
SECRETARY'S CERTIFICATE
I, Douglas N. Currault II, Assistant 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 ____ day of March, 2000.
(Seal) /s/ Douglas N. Currault II
------------------------
Douglas N. Currault II
Assistant 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, 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, 1999, 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 1st day of February, 2000.
/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, 1999, 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 1st day of February, 2000.
/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, 1999, 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 1st day of February, 2000.
/s/ Oscar Y. L. Groeneveld
--------------------------
Oscar Y. L. Groeneveld
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, 1999, 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 1st day of February, 2000.
/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, 1999 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 1st day of February, 2000.
/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, 1999 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 1st day of February, 2000.
/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, 1999, 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 1st day of February, 2000.
/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, 1999, 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 1st day of February, 2000.
/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, 1999, 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 1st day of February, 2000.
/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 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, 1999, 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 1st day of February, 2000.
/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, 1999, 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 1st day of February, 2000.
/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, 1999, 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 1st day of February, 2000.
/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 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, 1999, 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 1st day of February, 2000.
/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 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, 1999, 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 1st day of February, 2000.
/s/ C. Donald Whitmire, Jr.
---------------------------
C. Donald Whitmire, 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, 1999, 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 1st day of February, 2000.
/s/ H. Devon Graham, Jr.
------------------------
H. Devon Graham, 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, 1999, 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 1st day of February, 2000.
/s/ R. Leigh Clifford
---------------------
R. Leigh Clifford
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, 1999, 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 1st day of February, 2000.
/s/ Gerald J. Ford
------------------
Gerald J. Ford
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Freeport-McMoRan Copper & Gold Inc.'s financial statements at December
31, 1999 and for the 12 months then ended, and is qualified in its
entirety by reference to such financial statments.
</LEGEND>
<CIK> 0000831259
<NAME> FREEPORT-MCMORAN COPPER & GOLD INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,698
<SECURITIES> 0
<RECEIVABLES> 141,325
<ALLOWANCES> 0
<INVENTORY> 368,125
<CURRENT-ASSETS> 564,454
<PP&E> 4,969,111
<DEPRECIATION> 1,605,820
<TOTAL-ASSETS> 4,082,916
<CURRENT-LIABILITIES> 515,067
<BONDS> 2,033,470
487,507
349,990
<COMMON> 21,861
<OTHER-SE> (174,971)
<TOTAL-LIABILITY-AND-EQUITY> 4,082,916
<SALES> 1,887,328
<TOTAL-REVENUES> 1,887,328
<CGS> 1,204,772
<TOTAL-COSTS> 1,204,772
<OTHER-EXPENSES> 10,626
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 194,069
<INCOME-PRETAX> 380,834
<INCOME-TAX> 195,653
<INCOME-CONTINUING> 136,467
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,467
<EPS-BASIC> .62
<EPS-DILUTED> .61
</TABLE>
