SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2001
Commission File Number: 1-9916
Freeport-McMoRan Copper & Gold Inc.
Incorporated in Delaware 74-2480931
(IRS Employer Identification No.)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code: (504) 582-4000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
On June 30, 2001, there were issued and outstanding 55,459,026
shares of the registrant's Class A Common Stock, par value $0.10
per share, and 88,514,099 shares of its Class B Common Stock, par
value $0.10 per share.
FREEPORT-McMoRan COPPER & GOLD INC.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Remarks 10
Report of Independent Public Accountants 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. Other Information 24
Signature 24
Exhibit Index E-1
2
FREEPORT-McMoRan COPPER & GOLD INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED BALANCE SHEETS (Unaudited)
June 30, December 31,
2001 2000
---------- ----------
(In Thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 14,946 $ 7,968
Accounts receivable 174,070 149,085
Inventories 383,984 400,607
Prepaid expenses and other 4,550 11,462
---------- ----------
Total current assets 577,550 569,122
Property, plant and equipment, net 3,215,909 3,248,710
Investment in PT Smelting 53,334 56,154
Other assets 81,186 76,755
---------- ----------
Total assets $3,927,979 $3,950,741
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 307,749 $ 313,208
Current portion of long-term debt and
short-term borrowings 113,359 202,294
Unearned customer receipts 72,649 28,688
Rio Tinto share of joint venture cash flows 39,079 78,706
Accrued income taxes 33,729 11,016
---------- ----------
Total current liabilities 566,565 633,912
Long-term debt, less current portion:
FCX and PT Freeport Indonesia credit facilities 754,000 760,000
Senior notes 450,000 450,000
Infrastructure asset financings 400,723 457,673
Atlantic Copper debt 225,355 246,727
Equipment and other loans 69,534 73,331
Accrued postretirement benefits
and other liabilities 120,274 112,831
Deferred income taxes 641,477 599,536
Minority interests 131,536 103,795
Redeemable preferred stock 475,005 475,005
Stockholders' equity 93,510 37,931
---------- ----------
Total liabilities and stockholders' equity $3,927,979 $3,950,741
========== ==========
The accompanying notes are an integral part of these financial
statements.
3
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2001 2000 2001 2000
-------- -------- -------- --------
(In Thousands, Except Per Share Amounts)
Revenues $538,259 $397,348 $985,346 $864,940
Cost of sales:
Production and delivery 266,744 253,284 461,194 519,348
Depreciation and amortization 78,319 54,328 146,448 117,687
-------- -------- -------- --------
Total cost of sales 345,063 307,612 607,642 637,035
Exploration expenses 2,420 1,841 4,471 3,809
Equity in PT Smelting losses 352 5,878 2,820 3,637
General and administrative
expenses 16,142 16,518 30,551 37,267
-------- -------- -------- --------
Total costs and expenses 363,977 331,849 645,484 681,748
-------- -------- -------- --------
Operating income 174,282 65,499 339,862 183,192
Interest expense, net (41,393) (49,813) (89,830) (99,748)
Other income (expense), net (57) (1,802) 3,120 (584)
-------- -------- -------- --------
Income before income taxes and
minority interests 132,832 13,884 253,152 82,860
Provision for income taxes (72,408) (18,252) (133,023) (58,725)
Minority interests in net income
of consolidated subsidiaries (15,007) (4,808) (27,608) (14,580)
-------- -------- -------- --------
Net income (loss) 45,417 (9,176) 92,521 9,555
Preferred dividends (9,125) (9,437) (18,190) (18,927)
-------- -------- -------- --------
Net income (loss) applicable to
common stock $ 36,292 $(18,613) $ 74,331 $ (9,372)
======== ======== ======== ========
Net income (loss) per share of common stock:
Basic $0.25 $(.12) $0.52 $(.06)
===== ===== ===== =====
Diluted $0.25 $(.12) $0.51 $(.06)
===== ===== ===== =====
Average common shares outstanding:
Basic 143,954 158,379 143,930 159,851
======= ======= ======= =======
Diluted 145,232 158,379 144,977 159,851
======= ======= ======= =======
The accompanying notes are an integral part of these financial
statements.
4
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30,
-------------------------
2001 2000
-------- --------
(In Thousands)
Cash flow from operating activities:
Net income $ 92,521 $ 9,555
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 146,448 117,687
Deferred income taxes 42,086 13,575
Equity in PT Smelting losses 2,820 3,637
Minority interests' share of net income 27,608 14,580
Other, including deferred mining costs (14,760) 14,795
(Increases) decreases in working capital:
Accounts receivable (28,255) 59,542
Inventories 15,371 (16,295)
Prepaid expenses and other 6,861 (878)
Accounts payable and accrued liabilities 12,214 80,522
Rio Tinto share of joint venture cash flows (35,796) (12,264)
Accrued income taxes 23,706 (56,222)
-------- --------
(Increase) decrease in working capital (5,899) 54,405
-------- --------
Net cash provided by operating activities 290,824 228,234
-------- --------
Cash flow from investing activities:
PT Freeport Indonesia capital expenditures (73,339) (87,376)
Atlantic Copper capital expenditures (7,329) (3,871)
Investment in PT Smelting - (5,717)
Other 4,572 (6,442)
-------- --------
Net cash used in investing activities (76,096) (103,406)
-------- --------
Cash flow from financing activities:
Proceeds from debt 103,758 368,538
Repayments of debt (280,150) (310,483)
Purchases of FCX common shares (3,436) (122,358)
Cash dividends paid:
Preferred stock (18,265) (18,980)
Minority interests (4,181) (30,808)
Other (5,476) (11,574)
-------- --------
Net cash used in financing activities (207,750) (125,665)
-------- --------
Net increase (decrease) in cash and cash equivalents 6,978 (837)
Cash and cash equivalents at beginning of year 7,968 6,698
-------- --------
Cash and cash equivalents at end of period $ 14,946 $ 5,861
======== ========
The accompanying notes are an integral part of these financial
statements.
5
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO FINANCIAL STATEMENTS
1. AMENDED BANK CREDIT FACILITIES
Freeport-McMoRan Copper & Gold Inc. (FCX) has commitments from all
of the members in its bank group to amend its existing bank credit
facilities to extend the maturities to December 2005 and to provide
financing for any obligations FCX may have under its guarantee of
PT Nusamba Mineral Industri's bank credit agreement. The amendment
of the bank credit facilities is conditioned on FCX's sale of $300
million of convertible notes, the negotiation and execution of
definitive agreements and satisfaction of other conditions.
2. EARNINGS PER SHARE
FCX's basic net income (loss) per share of common stock was
calculated by dividing net income (loss) applicable to common stock
by the weighted-average number of common shares outstanding during
the period. Diluted net income (loss) per share of common stock was
calculated by dividing net income (loss) applicable to common stock
by the weighted-average number of common shares outstanding during
the period plus the net effect of dilutive stock options and
restricted stock. Dilutive stock options represented 1.0 million
shares in the second quarter of 2001 and 0.7 million shares in the
2001 six-month period. Stock options representing less than 0.1
million shares in the second quarter of 2000 and 0.7 million shares
in the 2000 six-month period that otherwise would have been
considered dilutive were excluded from the diluted net income
(loss) per share calculation because of the net losses for those
periods. Dilutive restricted stock totaled 0.3 million shares in
the second quarter of 2001 and in the 2001 six-month period.
Options excluded from the computation of diluted net income
(loss) per share of common stock because their exercise prices were
greater than the average market price of the common stock during
the respective periods totaled options for 11.3 million shares
(average exercise price of $21.56 per share) in each of the 2001
periods and 11.8 million shares (average price of $21.47 per share)
in each of the 2000 periods. Convertible preferred stock
outstanding was not included in the computation of diluted net
income (loss) per share of common stock because doing so would have
increased diluted net income per share of common stock or decreased
diluted net loss per share of common stock. The preferred stock
was convertible into 11.7 million shares of common stock, and the
related accrued dividends totaled $6.1 million in the second
quarters of 2001 and 2000, and $12.2 million in the 2001 and 2000
six-month periods.
3. DERIVATIVE CONTRACTS
At times FCX and its subsidiaries have entered into derivative
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. Effective January 1, 2001, FCX adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133, as
subsequently amended, 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. The accounting for changes in the fair
value of a derivative instrument depends on the intended use of the
derivative and the resulting designation.
Upon adoption of SFAS 133 on January 1, 2001, FCX recorded
immaterial cumulative gain adjustments totaling $0.8 million to
other income ($0.8 million to net income) to adjust the recorded
values of PT Freeport Indonesia's and Atlantic Copper's (FCX's
subsidiaries) foreign currency forward contracts to fair value and
$0.8 million to revenues ($0.4 million to net income) to adjust the
embedded derivatives in PT Freeport Indonesia's provisionally
priced copper sales to fair value, as calculated under SFAS 133.
In addition, FCX recorded a cumulative effect net loss adjustment
to other comprehensive income totaling $1.0 million for the fair
value of Atlantic Copper's interest rate swaps on January 1, 2001.
FCX has entered into derivative contracts in limited instances
to achieve specific objectives. Currently, the objectives
principally relate to managing risks associated with foreign
currency, commodity prices and interest rate risks with Atlantic
Copper's smelting operations, where certain derivative contracts
are required under financing agreements. In addition, in response
to volatility in the Indonesian rupiah and Australian dollar
currencies, FCX has sought to manage certain foreign currency risks
with PT Freeport Indonesia's mining operations. In the past, FCX
entered into derivative contracts related to its exposure to copper
and gold prices, but activities in this regard since 1997 have been
limited to establishing fixed prices for open copper sales under PT
Freeport Indonesia's concentrate sales contracts. FCX does not
enter into derivative contracts for speculative purposes. A
summary of FCX's outstanding derivative instruments at June 30,
2001 and a discussion of FCX's risk management strategies for those
designated as hedges follow.
6
Commodity Price Protection Contracts
From time to time, PT Freeport Indonesia has entered into forward
and option contracts to hedge the market risk associated with
fluctuations in the prices of commodities it sells. The primary
objective of these contracts has been to set a minimum price and
the secondary objective is to retain market upside, if available at
a reasonable cost. As of June 30, 2001, FCX had no price
protection contracts relating to its mine production. FCX has
outstanding gold- and silver-denominated redeemable preferred stock
with dividends and redemption amounts determined by commodity
prices. FCX elected to continue its historical accounting for its
redeemable preferred stock indexed to commodities under the
provisions of SFAS 133 which allow such instruments issued before
January 1, 1998 to be excluded from those instruments required to
be adjusted for changes in their fair values. Therefore, FCX's
redeemable preferred stock is carried on its books at its original
issue value less redemptions, and totaled $475.0 million at June
30, 2001.
Certain of PT Freeport Indonesia's concentrate sales contracts
allow for final pricing in future periods. Under SFAS 133, these
pricing terms cause a portion of the contracts to be considered
embedded derivatives which must be recorded at fair value. Prior
to January 1, 2001, PT Freeport Indonesia adjusted the revenues
from these provisionally priced sales based on then-current spot
prices on or near each reporting date. Effective January 1, 2001,
PT Freeport Indonesia began adjusting the revenues from these
provisionally priced sales to reflect fair value based on forward
prices for the final pricing periods on or near each reporting
date. The impact of this change was to increase revenues by $0.8
million ($0.4 million to net income) on January 1, 2001. Changes
in the fair value of these embedded derivatives are recorded in
current period revenues.
At June 30, 2001, Atlantic Copper had forward copper contracts
designed to hedge its copper price risk whenever its physical
purchases and sales pricing periods do not match. Although these
contracts provide a hedge against changes in copper prices, they do
not qualify for hedge accounting under SFAS 133 because Atlantic
Copper bases its hedging contracts on its net sales/purchases
position and contracts to hedge a net position do not qualify for
hedge accounting under SFAS 133. Atlantic Copper recorded gains
(losses) to production costs totaling $1.1 million in the second
quarter of 2001, $(0.4) million in the second quarter of 2000, $4.2
million in the first six months of 2001 and $(0.9) million in the
first six months of 2000 related to its forward copper sales
contracts. Atlantic Copper held forward copper sales contracts for
13.1 million pounds and the fair value of these contracts was a
$0.5 million gain, which is recorded in accounts payable at June
30, 2001.
Foreign Currency Exchange Contracts
PT Freeport Indonesia and Atlantic Copper enter into foreign
currency forward contracts to hedge the market risks of their
forecasted costs denominated in a currency other than the U.S.
dollar, their functional currency. The primary objective of these
contracts is either to lock-in an exchange rate or to minimize the
impact of adverse exchange rate changes. As of June 30, 2001, PT
Freeport Indonesia had foreign currency forward contracts to hedge
48.0 million of its aggregate projected Australian dollar payments
from July 2001 through December 2001, or approximately 50 percent
of its aggregate projected remaining 2001 Australian dollar
payments at an average exchange rate of $0.58 to one Australian
dollar. PT Freeport Indonesia also had foreign currency forward
contracts to hedge 698.7 billion of its aggregate projected
Indonesian rupiah payments from July 2001 through December 2002, or
approximately 50 percent of its projected remaining 2001 and 2002
rupiah payments at an average exchange rate of 12,296 rupiahs to
one U.S. dollar. Atlantic Copper had foreign currency forward
contracts to hedge 152.2 million of its projected euro payments
from July 2001 through December 2003, or approximately 50 percent
of its projected remaining 2001 peseta/euro payments and
approximately 67 percent of its projected 2002 and 2003 euro
payments at an average exchange rate of $1.02 per euro. The fair
value of PT Freeport Indonesia's and Atlantic Copper's foreign
currency contracts at June 30, 2001 totaled a loss of $27.8
million, of which $14.0 million was recorded in accrued liabilities
and $13.8 million was recorded in other long-term liabilities.
PT Freeport Indonesia and Atlantic Copper have designated their
foreign currency forward contracts as cash flow hedges. FCX
recorded losses to other comprehensive income for changes in the
unrealized fair value of its foreign currency forward contracts
totaling $6.1 million in the second quarter of 2001 and $19.8
million in the first six months of 2001. During the second quarter
of 2001, PT Freeport Indonesia reclassed losses totaling $1.2
million ($0.6 million to net income) and Atlantic Copper reclassed
losses totaling $1.0 million ($1.0 million to net income) from
accumulated other comprehensive income to production costs for
matured foreign currency forward contracts. For the first six
months of 2001, PT Freeport Indonesia reclassed losses totaling
$1.7 million ($0.8 million to net income) and Atlantic Copper
reclassed losses totaling $1.3 million ($1.3 million to net income)
from accumulated other comprehensive income to production costs for
matured contracts. No hedge ineffectiveness was recorded for the
outstanding
7
contracts at June 30, 2001. Prior to 2001, PT Freeport Indonesia
and Atlantic Copper recorded changes in the market value of their
foreign currency forward contracts to production costs as incurred.
Net gains (losses) charged to production cost for changes in market
value of foreign currency forward contracts totaled $0.1 million
for the second quarter of 2000 and $(5.9) million for the first six
months of 2000.
Interest Rate Contracts
Atlantic Copper entered into interest rate swap contracts to manage
exposure to interest rate changes on a portion of its variable-rate
debt. The primary objective of these contracts is to lock-in an
interest rate considered to be favorable. As of June 30, 2001,
Atlantic Copper had interest rate swap contracts at an average
interest rate of 6.7 percent on $66.7 million of financing,
reducing quarterly through September 2003. Atlantic Copper has
designated its interest rate swap contracts as cash flow hedges and
no ineffectiveness is expected from these hedges. Atlantic Copper
recognized additional interest costs of $0.1 million in the second
quarter of 2001, and benefits of $0.1 million in the second quarter
of 2000, $0.1 million in the first six months of 2001 and less than
$0.1 million in the first six months of 2000 related to its
interest rate swap contracts. FCX's other comprehensive income for
the first six months of 2001 included a $1.0 million cumulative
effect loss to record the fair value of Atlantic Copper's interest
rate swap contracts on January 1, 2001 and losses for changes in
the unrealized fair value of its swaps totaled $0.2 million for the
second quarter of 2001 and $1.3 million for the first six months of
2001. Atlantic Copper receives no tax benefit for these losses.
The fair value of these interest rate swap contracts totaled a loss
of $2.3 million, $1.7 million of which is recorded in accrued
liabilities and $0.6 million is recorded in other long-term
liabilities at June 30, 2001.
4. COMPREHENSIVE INCOME
The 2000 periods did not include any items of other comprehensive
income. FCX's comprehensive income for the 2001 periods is
summarized below (in thousands).
Three Six
Months Months
Ended Ended
June 30 June 30
------- -------
Net income applicable to common stock $36,292 $74,331
Other comprehensive income (loss):
Cumulative effect of change in accounting,
no tax effect - (982)
Change in unrealized derivatives' fair value
(net of tax benefit of $0.1 million and taxes
of $1.6 million, respectively) (6,314) (21,138)
Reclass to earnings (net of tax benefits of
$0.4 million and $0.6 million, respectively) 1,766 2,097
------- -------
Total comprehensive income $31,744 $54,308
======= =======
5. INTEREST COST
Interest expense excludes capitalized interest of $2.1 million in
the second quarter of 2001, $1.5 million in the second quarter of
2000, $4.1 million in the first six months of 2001 and $2.9 million
in the first six months of 2000.
6. BUSINESS SEGMENTS
FCX has two operating segments: "mining and exploration" and
"smelting and refining." The mining and exploration segment
includes the copper and gold mining operations of PT Freeport
Indonesia 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.
8
Mining Smelting
and and Eliminations FCX
Exploration Refining and Other Total
---------- -------- --------- ----------
(In Thousands)
Three months ended June 30, 2001:
Revenues $ 421,062a $194,399 $ (77,202)b $ 538,259
Production and delivery 143,539 198,866 (75,661)b 266,744
Depreciation and amortization 70,153 6,846 1,320 78,319
Exploration expenses 2,311 - 109 2,420
Equity in PT Smelting losses - 352c - 352
General and administrative
expenses 12,043 2,153 1,946 16,142
---------- -------- --------- ----------
Operating income (loss) $ 193,016 $(13,818) $ (4,916) $ 174,282
========== ======== ========= ==========
Interest expense, net $ 24,085 $ 7,073 $ 10,235 $ 41,393
========== ======== ========= ==========
Provision for income taxes $ 62,224 $ 385 $ 9,799 $ 72,408
========== ======== ========= ==========
Capital expenditures $ 37,075 $ 3,864 $ 392 $ 41,331
========== ======== ========= ==========
Total assets $3,264,190d $671,185e $ (7,396) $3,927,979
========== ======== ========= ==========
Three months ended June 30, 2000:
Revenues $ 259,885a $201,795 $ (64,332)b $ 397,348
Production and delivery 134,748 192,898 (74,362)b 253,284
Depreciation and amortization 46,123 7,088 1,117 54,328
Exploration expenses 1,487 - 354 1,841
Equity in PT Smelting losses - 5,878c - 5,878
General and administrative
expenses 13,081 1,857 1,580 16,518
---------- -------- --------- ----------
Operating income (loss) $ 64,446 $ (5,926) $ 6,979 $ 65,499
========== ======== ========= ==========
Interest expense, net $ 31,869 $ 6,094 $ 11,850 $ 49,813
========== ======== ========= ==========
Provision for income taxes $ 11,634 $ 264 $ 6,354 $ 18,252
========== ======== ========= ==========
Capital expenditures $ 30,737 $ 2,407 $ 235 $ 33,379
========== ======== ========= ==========
Total assets $3,284,735d $639,771e $ 60,146 $3,984,652
========== ======== ========= ==========
Six months ended June 30, 2001:
Revenues $ 781,108a $353,525 $(149,287)b $ 985,346
Production and delivery 258,641 349,851 (147,298)b 461,194
Depreciation and amortization 130,172 13,635 2,641 146,448
Exploration expenses 4,286 - 185 4,471
Equity in PT Smelting losses - 2,820c - 2,820
General and administrative
expenses 22,818 4,172 3,561 30,551
---------- -------- --------- ----------
Operating income (loss) $ 365,191 $(16,953) $ (8,376) $ 339,862
========== ======== ========= ==========
Interest expense, net $ 54,599 $ 14,219 $ 21,012 $ 89,830
========== ======== ========= ==========
Provision for income taxes $ 114,529 $ (46) $ 18,540 $ 133,023
========== ======== ========= ==========
Capital expenditures $ 72,641 $ 7,329 $ 698 $ 80,668
========== ======== ========= ==========
9
Mining Smelting
and and Eliminations FCX
Exploration Refining and Other Total
---------- -------- --------- ----------
(In Thousands)
Six months ended June 30, 2000:
Revenues $ 567,380a $426,682 $(129,122)b $ 864,940
Production and delivery 278,488 410,240 (169,380)b 519,348
Depreciation and amortization 101,185 14,268 2,234 117,687
Exploration expenses 3,057 - 752 3,809
Equity in PT Smelting losses - 3,637c - 3,637
General and administrative
expenses 30,017 4,174 3,076 37,267
---------- -------- --------- ----------
Operating income (loss) $ 154,633 $ (5,637) $ 34,196 $ 183,192
========== ======== ========= ==========
Interest expense, net $ 65,559 $ 12,848 $ 21,341 $ 99,748
========== ======== ========= ==========
Provision for income taxes $ 34,756 $ 1,728 $ 22,241 $ 58,725
========== ======== ========= ==========
Capital expenditures $ 87,009 $ 9,588 $ 367 $ 96,964
========== ======== ========= ==========
a. Includes PT Freeport Indonesia sales to PT Smelting totaling
$111.9 million in the second quarter of 2001, $58.9 million in the
second quarter of 2000, $202.5 million in the six-month period
ended June 30, 2001 and $129.4 million in the six-month period
ended June 30, 2000.
b. Represents elimination of intersegment sales from PT Freeport
Indonesia to Atlantic Copper and the change in deferred profits on
intersegment sales remaining in Atlantic Copper's inventories.
c. Includes effect of changes in deferred intercompany profits on
25 percent of PT Freeport Indonesia's sales to PT Smelting that
remain in PT Smelting's inventory at period end, totaling $(1.0)
million in the second quarter of 2001, $(0.7) million in the second
quarter of 2000, $0.1 million in the six-month period ended June
30, 2001 and $(4.7) million in the six-month period ended June 30,
2000.
d. Includes PT Freeport Indonesia's trade receivables with PT
Smelting totaling $26.7 million at June 30, 2001 and $8.9 million
at June 30, 2000.
e. Includes PT Freeport Indonesia's equity investment in PT
Smelting totaling $53.3 million at June 30, 2001 and $68.2 million
at June 30, 2000.
7. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first six months of
2001 and 2000 was 3.7 to 1 and 1.8 to 1, respectively. For this
calculation, earnings consist of income from continuing operations
before income taxes, minority interests and fixed charges. Fixed
charges include interest and that portion of rent deemed
representative of interest.
----------------------
Remarks
The information furnished herein should be read in conjunction with
FCX's financial statements contained in its 2000 Annual Report on
Form 10-K. The information furnished herein reflects all
adjustments which are, in the opinion of management, necessary for
a fair statement of the results for the periods. All such
adjustments are, in the opinion of management, of a normal
recurring nature.
10
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Freeport-McMoRan Copper & Gold Inc.:
We have reviewed the accompanying condensed balance sheet of
Freeport-McMoRan Copper & Gold Inc. (a Delaware corporation) as of
June 30, 2001, the related statements of operations for the three
and six-month periods ended June 30, 2001 and 2000, and the
statements of cash flows for the six-month periods ended June 30,
2001 and 2000. These financial statements are the responsibility
of the Company's management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data and
making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally accepted
in the United States, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with accounting
principles generally accepted in the United States.
We have previously audited, in accordance with auditing
standards generally accepted in the United States, the balance
sheet of Freeport-McMoRan Copper & Gold Inc. as of December 31,
2000, and the related statements of income, stockholders' equity
and cash flows for the year then ended (not presented herein), and,
in our report dated January 18, 2001, we expressed an unqualified
opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed balance sheet
as of December 31, 2000, is fairly stated, in all material
respects, in relation to the balance sheet from which it has been
derived.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
July 18, 2001
11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OVERVIEW
We operate through our majority-owned subsidiaries, PT Freeport
Indonesia and PT Irja Eastern Minerals (Eastern Minerals), and
through Atlantic Copper, S.A. (Atlantic Copper), our wholly owned
subsidiary. PT Freeport Indonesia also has a 25 percent interest
in PT Smelting, an Indonesian company that operates a copper
smelter and refinery in Gresik, Indonesia. In addition to the PT
Freeport Indonesia and Eastern Minerals exploration activities,
we conduct other mineral exploration activities in Irian Jaya
(Papua), Indonesia pursuant to joint venture and other
arrangements. The results of operations reported and summarized
below are not necessarily indicative of future operating results.
Summary comparative results for the second-quarter and six-
month periods follow (in millions, except per share amounts):
Second Quarter Six Months
---------------- ----------------
2001 2000 2001 2000
------ ------ ------ ------
Revenues $538.3 $397.3 $985.3 $864.9
Operating income 174.3 65.5 339.9 183.2
Net income (loss) applicable to
common stock 36.3 (18.6) 74.3 (9.4)
Diluted net income (loss) per
share of common stock .25 (.12) .51 (.06)
Our consolidated revenues include PT Freeport Indonesia's
sale of copper concentrates, which also contain significant
amounts of gold, and the sale by Atlantic Copper of copper
anodes, cathodes, wire and wire rod. Our revenues and net income
vary significantly with fluctuations in the market prices of
copper and gold and other factors. At various times, in response
to market conditions, 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.
We currently have no copper or gold price protection contracts
relating to our mine production. We have outstanding gold- and
silver-denominated preferred stock with dividends and redemption
amounts determined by commodity prices. Based on PT Freeport
Indonesia's projected share of 2001 copper sales (1.4 billion
pounds), a $0.01 per pound change in the average price realized
would have an approximate $14 million impact on our revenues and
an approximate $7 million impact on our net income. A $5 per
ounce change in the average price realized on PT Freeport
Indonesia's share of projected 2001 gold sales (2.5 million
ounces) would have an approximate $12.5 million impact on our
revenues and an approximate $6 million impact on our net income.
Our 2001 consolidated revenues improved significantly when
compared with the 2000 periods primarily because of higher copper
and gold sales volumes at PT Freeport Indonesia. Second-quarter
2001 revenues include benefits of $0.7 million ($0.4 million to
net income or less than $0.01 per share) and second-quarter 2000
revenues benefited by $6.2 million ($3.0 million to net loss or
$0.02 per share) from adjustments to prior period "open"
concentrate sales. Six-month 2001 revenues include reductions of
$2.7 million ($1.3 million to net income or $0.01 per share) for
adjustments to December 31, 2000 open concentrate sales, while
six-month 2000 revenues were increased by $10.5 million ($5.1
million to net loss or $0.03 per share) for adjustments to
December 31, 1999 open concentrate sales.
Consolidated cost of sales for the 2001 second quarter was
higher when compared with the 2000 quarter largely because of
higher PT Freeport Indonesia sales volumes partly offset by lower
unit costs. The decline in consolidated cost of sales during the
first six months of 2001 compared with the first six months of
2000 primarily reflects the significant decline in Atlantic
Copper sales volumes during the first quarter of 2001 as they
prepared for a major maintenance turnaround in April 2001.
From time to time we enter into foreign currency contracts
to hedge our projected operating costs denominated in foreign
currencies. On January 1, 2001, accounting standards for these
types of hedging contracts changed (see Note 3). Prior to
January 1, 2001, our foreign currency forward contracts did not
qualify for hedge accounting and all changes in the market values
of these contracts were included in earnings as they occurred.
As a result, our reported earnings prior to January 1, 2001
included the effects of changes in market value of all our
outstanding foreign currency forward contracts, which were
significant at times. The 2000 periods included gains totaling
$0.1 million for the second quarter and losses totaling $5.9
million for the six-month period for changes in market value of
foreign currency forward contracts, most of which would have been
charged to other comprehensive income under the new accounting
rules we adopted on January 1, 2001.
12
The lower losses we recorded during 2001 for our equity
interest in PT Smelting primarily reflects improvements in PT
Smelting's operating results during 2001, compared to 2000 when
operations were ramping up to full production capacity. General
and administrative expenses during the second quarter of 2001
were slightly lower than the second quarter of 2000 and during
the first six months of 2001 they were $6.7 million lower than
during the 2000 period. In the first quarter of 2000 we recorded
net charges of $5.3 million related to contribution commitments,
personnel severance costs and stock appreciation rights. Our
effective tax rate for the first six months of 2001 was 53
percent compared with an effective rate of 71 percent in the
first six months of 2000. The lower effective rate for the first
six months of 2001 primarily reflects the impact of higher income
at PT Freeport Indonesia. The higher level of minority interests
in net income of consolidated subsidiaries in the 2001 periods is
the result of improved earnings at PT Freeport Indonesia.
RESULTS OF OPERATIONS
We have two operating segments: "mining and exploration" and
"smelting and refining." The mining and exploration segment
includes 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 25
percent equity investment in PT Smelting. Summary comparative
operating income (loss) by segment for the second-quarter and
six-month periods follows (in millions):
Second Quarter Six Months
---------------- ----------------
2001 2000 2001 2000
------ ----- ------ ------
Mining and exploration $193.0 $64.4 $365.2 $154.6
Smelting and refining (13.8) (5.9) (17.0) (5.6)
Intercompany eliminations and other (4.9) 7.0 (8.3) 34.2
------ ----- ------ ------
FCX operating income a $174.3 $65.5 $339.9 $183.2
====== ===== ====== ======
a. Profits on PT Freeport Indonesia's sales to Atlantic Copper
and on 25 percent of PT Freeport Indonesia's sales to PT Smelting
are deferred until the final sale to third parties has occurred.
Changes in the amount of these deferred profits benefited
operating income by $0.7 million in the second quarter of 2001,
$11.2 million in the second quarter of 2000, $0.6 million in the
six-month 2001 period and $46.5 million in the six-month 2000
period. Our consolidated quarterly earnings fluctuate depending
on the timing and prices of these sales.
MINING AND EXPLORATION
A summary of increases (decreases) in PT Freeport Indonesia
revenues between the periods follows (in millions):
Second Six
Quarter Months
------ ------
PT Freeport Indonesia revenues - 2000 periods $259.9 $567.4
Increases (decreases):
Sales volumes:
Copper 105.7 128.1
Gold 134.9 193.9
Price realizations:
Copper (26.9) (41.2)
Gold (9.9) (27.1)
Adjustments, primarily for copper pricing on
prior period open sales (14.1) (4.0)
Treatment charges, royalties and other (28.5) (36.0)
------ ------
PT Freeport Indonesia revenues - 2001 periods $421.1 $781.1
====== ======
PT Freeport Indonesia's 2001 revenues for both second-
quarter and six-month periods benefited from significant
increases in sales volumes compared to the 2000 periods. When
compared to the 2000 periods, copper sales volumes improved by 52
percent in the 2001 second quarter and 29 percent in the 2001 six-
month period, while gold sales volumes improved by 146 percent in
the 2001 second quarter to a quarterly record 813,600 ounces and
by 88 percent in the 2001 six-month period. The higher sale
volumes were partly offset by decreases in copper and gold price
realizations. Treatment charges and royalties in total were
higher in 2001 primarily because of higher sales volumes.
13
PT Freeport Indonesia has commitments from various parties,
including Atlantic Copper and PT Smelting, to purchase virtually
all of its estimated 2001 production at market prices. Net of
Rio Tinto plc's joint venture interest, PT Freeport Indonesia's
share of sales for the third quarter of 2001 is projected to
approximate 340 million pounds of copper and 590,000 ounces of
gold. PT Freeport Indonesia's share of sales for 2001 is
projected to approximate 1.4 billion pounds of copper and 2.5
million ounces of gold, an increase from 2000 of approximately
600,000 ounces. Projected 2001 gold sales reflect the expectation
of higher average gold ore grades compared to 2000.
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 (LME) price for a specified future
month. Copper revenues on provisionally priced open pounds are
adjusted monthly based on then-current forward prices. At June
30, 2001, we had consolidated copper sales totaling 212.2 million
pounds recorded at an average price of $0.70 per pound remaining
to be finally priced. Approximately 80 percent of these open
pounds are expected to be finally priced during the third quarter
of 2001 with the remaining pounds to be priced during the fourth
quarter of 2001. A one-cent movement in the average price used
for these open pounds would have an approximate $1 million impact
on our 2001 net income.
At times PT Freeport Indonesia has entered into derivative
contracts to manage certain risks resulting from fluctuations in
commodity prices. During the first half of 2001 and as of June
30, 2001, PT Freeport Indonesia had no price protection programs
in place for its copper and gold sales other than our gold-
denominated preferred stock. As conditions warrant, PT Freeport
Indonesia may enter into new contracts for its future sales.
During the second quarter of 2000 PT Freeport Indonesia entered
into forward copper sales contracts to fix the price at $0.81 per
pound on approximately 60 percent of its March 31, 2000 open
concentrate sales. During the first quarter of 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 concentrate sales. We recorded $0.8
million of additional revenues in the second quarter of 2000 and
$6.9 million of additional revenues in the first quarter of 2000
from these forward sales.
PT Freeport Indonesia Operating Results
Second Quarter Six Months
---------------- -------------------
2001 2000 2001 2000
------- ------- --------- -------
PT Freeport Indonesia, Net of Rio Tinto's Interest
Copper
Production (000s of recoverable pounds) 359,100 287,300 736,200 595,800
Sales (000s of recoverable pounds) 389,800 256,200 723,200 562,100
Average realized price $.72 $.79 $.74 $.79
Gold
Production (000s of recoverable pounds) 751,500 358,800 1,482,400 806,100
Sales (000s of recoverable pounds) 813,600 330,500 1,458,300 774,700
Average realized price $267.04 $279.26 $265.11 $283.70
Gross profit per pound of copper (cents):
Average realized price 72.2 79.1 73.8 79.5
------- ------- --------- -------
Production costs:
Site production and delivery 36.6a 51.1b 35.8a 49.1b
Gold and silver credits (57.1) (37.1) (54.6) (40.5)
Treatment charges 18.3 18.1 18.2 18.0
Royalty on metals 2.0 1.3 2.0 1.3
------- ------- --------- -------
Cash production costs (0.2) 33.4 1.4 27.9
Depreciation and amortization 18.0 18.0 18.0 18.0
------- ------- --------- -------
Total production costs 17.8 51.4 19.4 45.9
------- ------- --------- -------
Adjustments, primarily for copper
pricing on prior period sales (1.0) 4.6 (0.2) 0.3
------- ------- --------- -------
Gross profit per pound of copper 53.4 32.3 54.2 33.9
======= ======= ========= =======
14
Second Quarter Six Months
------------------ -------------------
2001 2000 2001 2000
--------- ------- --------- -------
PT Freeport Indonesia, 100% Operating Statistics
Ore milled (metric tons per day) 240,000 218,500 234,800 225,000
Copper grade (percent) 1.04 .94 1.08 .94
Gold grade (grams per metric ton) 1.57 .86 1.62 .93
Recovery rate (percent)
Copper 86.6 86.4 87.9 86.1
Gold 89.3 84.1 88.6 84.5
Copper (000s of recoverable pounds)
Production 412,400 336,500 847,300 697,200
Sales 447,700 300,100 832,600 658,200
Gold (000s of recoverable ounces)
Production 982,500 442,900 1,928,500 999,900
Sales 1,061,800 407,600 1,894,800 958,600
a. Net of deferred mining costs totaling $9.7 million (2.5
cents per pound) in the second quarter of 2001 and $18.0 million
(2.5 cents per pound) in the first six months of 2001. During
the fourth quarter of 2000, PT Freeport Indonesia changed its
estimated average ratio of waste rock to ore over the life of the
mine in its deferred mining calculation to 1.6 to 1 from 2.4 to
1. For additional information, see Note 1 to the consolidated
financial statements in our annual report for the year ended
December 31, 2000.
b. Includes recaptured mining costs totaling $6.0 million (2.3
cents per pound) in the second quarter of 2000 and $13.3 million
(2.4 cents per pound) in the first six months of 2000.
PT Freeport Indonesia's 2001 production benefited from
higher mill throughput rates, ore grades and recovery rates when
compared with the prior-year periods. Mill throughput averaged a
record 240,000 metric tons of ore per day during the second
quarter of 2001. Second-quarter 2001 copper grades were 11
percent higher than the prior-year quarter and gold grades were
83 percent higher. Six-month 2001 copper grades were 15 percent
higher than the prior-year period and gold grades were 74 percent
higher. Recovery rates remained strong reflecting high-recovery
ore processed during the last three quarters and recovery
initiatives achieved at the mill. As previously reported, lower
gold grades in the Grasberg pit during the first three quarters
of 2000 reflected an expected mining of lower grade ore in
accordance with the mine plan during that period and the gold
grades in the first half of 2001 reflect a continuation of the
improved grades that began to be mined during the fourth quarter
of 2000. Ore grades for the second half of 2001 are expected to
decline to an average of approximately 0.96 percent for copper
and 1.20 grams per metric ton for gold.
In May 2000, PT Freeport Indonesia, in consultation with the
Government of Indonesia, voluntarily agreed to temporarily limit
Grasberg open-pit production because of an incident at its
Wanagon overburden stockpile. In January 2001, PT Freeport
Indonesia resumed normal mining operations at Grasberg after
receiving governmental approval. Mill throughput rates will vary
based on the characteristics of the ore being processed as we
manage our operations to optimize metal production.
Unit site production and delivery costs in the second quarter
of 2001 averaged $0.37 per pound of copper, $0.14 per pound lower
than the $0.51 reported in the second quarter of 2000, primarily
because of higher sales volumes, the previously reported change
in the estimated ratio of waste rock to ore over the life of the
mine, weaker foreign currencies (the Indonesian rupiah and
Australian dollar) and implementation of operating initiatives
introduced in 2000 designed to improve processes and reduce
costs. Gold credits of $0.57 per pound in the 2001 quarter were
higher when compared with the 2000 quarter level of $0.37 per
pound because of higher gold ore grades and sales. Unit site
production and delivery costs and gold credits in the first six
months of 2001, compared with the 2000 period, benefited for the
same reasons as second-quarter 2001 unit costs. Royalties were
higher in the 2001 periods because of higher sales volumes and
totaled $8.0 million in the second quarter of 2001, $3.3 million
in the second quarter of 2000, $14.3 million in the first six
months of 2001 and $7.2 million in the first six months of 2000.
PT-FI has a labor agreement covering its hourly paid
Indonesian employees, the key provisions of which are
renegotiated biannually. PT-FI's labor agreement was scheduled
to expire on September 30,
15
2001. In June 2001, PT-FI and its workers agreed to terms for a
new labor agreement that expires September 30, 2003. PT-FI's
relations with the workers' union have generally been positive.
We conduct the majority of our operations in Indonesia and
Spain. Our functional currency is the U.S. dollar. All of our
revenues are denominated in U.S. dollars; however, certain costs
and asset and liability accounts are denominated in Indonesian
rupiahs, Australian dollars or Spanish pesetas/euros. 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/U.S. dollar exchange rate
has been volatile. One U.S. dollar was equivalent to 11,430
rupiahs at June 30, 2001 and 9,215 rupiahs at December 31, 2000.
PT Freeport Indonesia recorded losses totaling $0.2 million
during the second quarter of 2001, $0.4 million during the second
quarter of 2000, $0.6 million during the first six months of 2001
and $0.7 million during the first six months of 2000 related to
its rupiah-denominated net assets. The weakened rupiah currency
has resulted in lower reported costs by PT Freeport Indonesia,
primarily lower labor costs. At estimated annual aggregate
rupiah payments of 800 billion and a June 30, 2001 exchange rate
of 11,430 rupiahs to one U.S. dollar, a one-thousand-rupiah
increase in the exchange rate would result in an approximate $6
million decrease in annual operating costs and a one-thousand-
rupiah decrease in the exchange rate would result in an
approximate $7 million increase in annual operating costs, before
any hedging effects.
In April 2000, PT Freeport Indonesia entered into foreign
currency forward contracts to hedge a portion of its aggregate
anticipated Australian dollar payments for the remainder of 2000
and for 2001. As of June 30, 2001, these contracts hedge 48.0
million of Australian dollar payments from July 2001 through
December 2001, or approximately 50 percent of aggregate projected
remaining 2001 Australian dollar payments at an average exchange
rate of $0.58 to one Australian dollar. The exchange rate was
$0.51 to one Australian dollar at June 30, 2001. Each $0.01
change in the U.S. dollar/Australian dollar exchange rate impacts
the market value of these contracts by approximately $0.5
million.
In July 2000, PT Freeport Indonesia entered into foreign
currency forward contracts to hedge a portion of its aggregate
projected April through July 2001 Indonesian rupiah payments. In
June 2001, PT Freeport Indonesia entered into additional foreign
currency forward contracts to hedge a portion of its aggregate
projected August 2001 through December 2002 rupiah payments. As
of June 30, 2001, the rupiah contracts hedge 698.7 billion of
rupiah payments from July 2001 through December 2002, or
approximately 50 percent of projected remaining 2001 rupiah
payments and 2002 rupiah payments at an average exchange rate of
12,296 rupiahs to one U.S. dollar. Each 1,000-rupiah change in
the Indonesian rupiah/U.S. dollar exchange rate impacts the
market value of these contracts by approximately $5 million,
before any hedging effects. PT Freeport Indonesia recorded net
realized losses to production costs related to matured Australian
dollar and Indonesian rupiah contracts totaling $1.2 million in
the second quarter of 2001 and $1.7 million in the first six
months of 2001, compared to a gain of $1.9 million in the second
quarter and first six months of 2000 for all outstanding currency
hedging contracts in the 2000 periods.
Under new accounting standards that became effective January
1, 2001 gains or losses on qualifying hedging contracts are
recognized in earnings as the contracts are settled, with changes
in the fair value of outstanding contracts reflected in Other
Comprehensive Income, a component of stockholders' equity, until
realized (Note 3). We recorded a net gain of $0.7 million to
Other Comprehensive Income in the second quarter of 2001 and a
net loss of $1.3 million in the first six months of 2001 for PT
Freeport Indonesia's outstanding currency hedging contracts at
June 30, 2001.
Exploration Activities
Our exploration efforts continue to focus on the GBT Atas or
"GBTA" project (previously referred to as Guru Ridge), the
underground Ertsberg Stockwork Zone and Grasberg Underground.
Exploration drilling and a preliminary study of the GBTA resource
during the first quarter of 2001 concluded that open-pit mining
appears promising and PT Freeport Indonesia continues to study
the feasibility of this surface mineralization target for
possible near-term development. Drilling rigs were operating
from the surface and from underground locations to explore and
delineate the grades and geometry of the resource. Reserve
extension drilling continues at the Ertsberg Stockwork Zone
adjacent to our Deep Ore Zone mine where underground production
began in 2000 and the Grasberg Underground to define the outward
extent of mineralization adjacent to and below the current block
cave reserve.
Field exploration activities outside of our current mining
operations area have been temporarily suspended pending the
resolution of security and regulatory issues involving a possible
conflict between
16
our mining and exploration rights under ourContract of Work and
the requirements of certain recently enacted Indonesian forestry
laws.
SMELTING AND REFINING
Impact of Smelter Treatment and Refining Charges
Our investment in smelters serves an important role in our
concentrate marketing strategy. Approximately one-half of PT
Freeport Indonesia's concentrate production is sold to its
affiliated smelters, Atlantic Copper and PT Smelting, and the
remainder is sold to other customers. Through downstream
integration, we are able to achieve operating hedges for changes
in treatment charges for smelting and refining PT Freeport
Indonesia's copper concentrates. While low smelter treatment and
refining charges adversely affect the operating results of our
smelter operations, they benefit the operating results of our
mining operations of PT Freeport Indonesia. Taking into account
taxes and minority ownership interests, an equivalent change in
rates would essentially offset in our consolidated operating
results.
Atlantic Copper Operating Results
Second Quarter Six Months
------------------- ------------------
2001 2000 2001 2000
------- ------- ------- -------
Cash margin before currency
hedging (in millions) $(2.6) $10.6 $6.0 $24.6
Operating loss (in millions) $(13.5) $ - $(14.1) $(2.0)
Concentrate treated (metric tons) 195,300 238,500 400,800 483,200
Anode production (000s of pounds) 134,300 167,800 278,300 346,100
Cathode, wire rod and wire
sales (000s of pounds) 129,100 147,100 264,700 284,200
Gold sales in anodes and
slimes (ounces) 181,000 173,200 289,200 384,400
Atlantic Copper's cash margin, revenues less production
costs, before currency hedging was $13.2 million lower in the
2001 quarter compared with the 2000 quarter and $18.6 million
lower in the first six months of 2001 compared with the first six
months of 2000 primarily because of a scheduled 27-day major
maintenance turnaround in April 2001. The major maintenance
turnaround was completed on schedule at a total cost of
approximately $15 million (approximately $9 million of direct
costs and $6 million related to lower sales volumes). Atlantic
Copper's cathode cash production costs per pound of copper,
before currency hedging, averaged $0.18 in the second quarter of
2001 and $0.16 in the first six months of 2001 compared with
$0.12 in both the second quarter of 2000 and the first six months
of 2000. The increase in unit costs reflects the effects of lower
production volumes and the costs resulting from the turnaround.
The next scheduled major maintenance turnaround is not
anticipated for another three years. Atlantic Copper's treatment
rates averaged $0.18 per pound in the 2001 periods, slightly
better than the $0.17 per pound average in the 2000 periods, but
still at historically low levels.
Atlantic Copper recorded operating losses of $13.5 million
for the second quarter of 2001, including approximately $9
million for direct costs related to the major maintenance
turnaround, compared with breakeven results in the 2000 period.
Atlantic Copper's operating results include a $1.0 million loss
in the second quarter of 2001 and a $1.3 million loss in the
first six months of 2001 on currency hedging contracts maturing
during the periods compared to a $1.8 million charge in the
second quarter of 2000 and a $7.8 million charge in the first six
months of 2000 for all outstanding currency hedging contracts in
the 2000 periods. Under new accounting standards discussed
previously and in Note 3, Atlantic Copper recorded charges to
Other Comprehensive Income totaling $5.3 million in the second
quarter of 2001 and $16.4 million in the first six months of 2001
for its outstanding currency hedging contracts at June 30, 2001,
reflecting an approximate 10 percent decline in the Spanish
peseta/euro exchange rate since December 31, 2000.
Atlantic Copper had peseta/euro-denominated net monetary
liabilities at June 30, 2001 totaling $49.8 million recorded at
an exchange rate of 196.2 pesetas to one U.S. dollar or $0.85 per
euro. The December 31, 2000 exchange rate was 178.8 pesetas to
one U.S. dollar or $0.93 per euro. Adjustments to Atlantic
Copper's peseta/euro-denominated net liabilities to reflect
changes in the exchange rate are recorded in other income and
totaled gains (losses) of $1.2 million in the second quarter of
2001, $(0.3) million in the second quarter of 2000, $4.3 million
in the first six months of 2001 and $2.1 million in the first six
months of 2000.
17
At estimated annual peseta/euro payments of 15 billion
pesetas/90 million euros and a June 30, 2001 exchange rate of
196.2 pesetas to one U.S. dollar or $0.85 per euro, a 10-
peseta/$0.06 increase or decrease in the exchange rate would
result in an approximate $4 million change in annual costs,
before any hedging effects.
As part of refinancing its debt in June 2000, Atlantic
Copper was required to significantly expand its program to hedge
anticipated peseta/euro-denominated operating costs. At June 30,
2001, Atlantic Copper had contracts to purchase 25.3 billion
pesetas/152.2 million euros from July 2001 through December 2003
at an average exchange rate of 163.8 pesetas per one U.S. dollar
or $1.02 per euro. These contracts currently hedge approximately
50 percent of Atlantic Copper's projected remaining 2001
peseta/euro disbursements and approximately 67 percent of
Atlantic Copper's projected 2002 and 2003 euro disbursements.
Each $0.01 change in the US$/euro exchange rate impacts the
market value of these contracts by approximately $1.5 million.
PT Smelting Operating Results
Second Quarter Six Months
-------------- --------------
2001 2000 2001 2000
------ ----- ------ ------
(In millions)
PT Freeport Indonesia share of net losses $ 1.4 $ 6.6 $ 2.7 $ 8.3
PT Freeport Indonesia profits
deferred (recognized) (1.0) (0.7) 0.1 (4.7)
------ ----- ------ ------
Equity in PT Smelting losses $ 0.4 $ 5.9 $ 2.8 $ 3.6
====== ===== ====== ======
PT Freeport Indonesia sales to PT Smelting $111.9 $58.9 $202.5 $129.4
====== ===== ====== ======
PT Freeport Indonesia accounts for its 25 percent interest
in PT Smelting under the equity method and has provided PT
Smelting with all of its concentrate requirements. PT Smelting
operated at 109 percent of its full design capacity of 200,000
metric tons of copper per year during the second quarter of 2001
and at 107 percent of its full design capacity during the first
six months of 2001. Concentrate treated during the second quarter
of 2001 totaled 179,700 metric tons, an 80 percent increase
compared to the amounts treated in the year-ago quarter when
operations were ramping up to full capacity. PT Smelting shut
down the smelter, as planned, at the end of March 2000 for the
tie-in of a new third anode furnace as well as for planned
maintenance. The smelter restarted at the end of April 2000.
Second-quarter 2001 anode production increased by 95 percent and
cathode production increased by nearly 100 percent when compared
to the year-ago period, resulting in a 90 percent increase in PT
Smelting's cathode sales in the 2001 quarter over the 2000
quarter. Anode production was 69 percent higher and cathode
production was 78 percent higher in the first six months of 2001
compared with the first six months of 2000. The higher
production levels in 2001 benefited PT Smelting's cathode cash
production costs per pound of copper, which decreased to $0.12 in
the 2001 quarter and first six months of 2001, compared with
$0.23 in the 2000 quarter and $0.17 in the first six months of
2000.
Our revenues include PT Freeport Indonesia's sales to PT
Smelting, but we defer recognizing profits on 25 percent of PT
Freeport Indonesia sales to PT Smelting that are still in PT
Smelting's inventory at the end of the period. The effect of
changes in these deferred profits was the recognition of profits
totaling $1.0 million in the second quarter of 2001, $0.7 million
in the second quarter of 2000 and $4.7 million in the first six
months of 2000, and the deferral of profits totaling $0.1 million
in the first six months of 2001.
OTHER FINANCIAL RESULTS
The FCX/Rio Tinto joint ventures incurred exploration costs of
$3.6 million in the 2001 second quarter, $2.7 million in the 2000
second quarter, $7.1 million in the 2001 six-month period and
$5.5 million in the 2000 six-month period. All costs in the
joint venture areas are now being shared 60 percent by us and 40
percent by Rio Tinto.
Second-quarter 2001 general and administrative expenses of
$16.1 million were slightly lower than the $16.5 million reported
in the 2000 quarter, and six-month 2001 general and
administrative expenses were $6.7 million lower compared to the
2000 period primarily because of a $6.0 million charge in 2000
for contribution commitments to support small business
development programs within Irian Jaya (Papua) that was paid over
a two-year period. The six-month 2000 period also included a $0.8
million charge for personnel severance costs, offset by a $1.5
million reversal of previously recorded charges relating to stock
appreciation rights because of a decrease in our common stock
price.
18
Our total interest costs (before capitalization) were $43.5
million in the 2001 quarter, $51.4 million in the 2000 quarter,
$93.9 million in the first six months of 2001 and $102.6 million
in the first six months of 2000. The decrease in interest costs
reflects lower debt levels and interest rates. We capitalized
$2.1 million of interest costs in the second quarter of 2001,
$1.5 million in the second quarter of 2000, $4.1 million in the
first six months of 2001 and $2.9 million in the first six months
of 2000.
Our effective tax rate was 53 percent for the first six
months of 2001 and 71 percent for the first six months of 2000.
PT Freeport Indonesia's Contract of Work provides a 35 percent
corporate income tax rate and a withholding tax rate of 10
percent (based on the tax treaty between Indonesia and the United
States) on dividends and interest paid to us by PT Freeport
Indonesia. 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
receive a small U.S. tax benefit on costs incurred by our parent
company because it has no U.S.-sourced income. As a result, our
effective tax rate varies with the level of earnings at PT
Freeport Indonesia, Atlantic Copper and the parent company. The
lower effective tax rate for the first six months of 2001
primarily reflects the impact of higher income at PT Freeport
Indonesia.
NEW ACOUNTING STANDARD AND ENVIRONMENTAL MATTERS
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 143, "Accounting
for Asset Retirement Obligations," which requires recording the
fair value of a liability for an asset retirement obligation in
the period incurred. The standard is effective for fiscal years
beginning after June 15, 2002, with earlier application
permitted. Upon adoption of the standard, we are required to use
a cumulative-effect approach to recognize transition amounts for
any existing asset retirement obligation liabilities, asset
retirement costs and accumulated depreciation. We have not
determined the transition amounts.
The costs of complying with environmental laws is a
fundamental cost of our business. We incurred environmental
capital expenditures and other environmental costs totaling
$106.1 million in 2000, $73.3 million in 1999 and $111.5 million
in 1998, including levee maintenance and mine reclamation. In
2001, we expect to incur approximately $47 million of
environmental capital expenditures, including $18.0 million of
capital expenditures in connection with our construction of a
treatment facility in the Lower Wanagon Basin to remove dissolved
copper from the acid rock drainage resulting from both mining and
overburden, and $46 million of other environmental costs. These
environmental capital expenditures are part of our $190.0 million
overall 2001 capital expenditure budget discussed below.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities was $290.8 million for
the first six months of 2001, compared with $228.2 million for
the 2000 period. Net cash used in investing activities totaled
$76.1 million in the 2001 period, compared with $103.4 million in
the 2000 period, primarily for PT Freeport Indonesia capital
expenditures. Net cash used in financing activities totaled
$207.8 million in 2001 compared with $125.7 million in 2000.
Operating Activities
Higher net income was only partly offset by working capital
changes in the first six months of 2001, resulting in a $62.6
million increase in operating cash flow to $290.8 million, from
the year-ago period. The $5.9 million net increase in working
capital for the first six months of 2001 primarily reflects an
increase in accounts receivable and joint venture payments to Rio
Tinto partly offset by an increase in income taxes payable. The
net $54.4 million decrease in working capital for the first six
months of 2000 primarily reflects the collection of accounts
receivable and an increase in accounts payable and accrued
liabilities, partly offset by an increase in inventories and the
payment of income taxes.
Investing Activities
Our six-month 2001 capital expenditures were lower compared to
the 2000 period primarily because we paid for previously
purchased mine equipment in the first half of 2000. Our capital
expenditures for 2001 are expected to total approximately $190
million, including $40 million for continued development of the
Deep Ore Zone underground ore body, which started production in
2000 and is expected to reach full production of 25,000 metric
tons of ore per day by 2003. Capital expenditure funding is
expected to be provided by operating cash flows.
19
Financing Activities
We used available operating cash flows to repay $176.4 million of
debt in the first six months of 2001. During the first six
months of 2000 we had net borrowings of $58.1 million and
purchased $122.4 million of our common stock. Repayments to Rio
Tinto totaled $60.6 million in the first six months of 2000 from
PT Freeport Indonesia's share of incremental cash flow
attributable to the fourth concentrator mill expansion. After
less than two and one-half years, PT Freeport Indonesia fully
repaid the $450 million loan from Rio Tinto, which funded PT
Freeport Indonesia's share of the fourth concentrator mill
expansion.
We guarantee a $253.4 million loan to PT Nusamba Mineral
Industri (Nusamba), as discussed in our Form 10-K for the year
ended December 31, 2000, which matures in March 2002. Based on
current market conditions, we may be required to perform under
the guarantee. See "Refinancing Transactions" below. We also
agreed to lend Nusamba any amounts necessary to cover shortfalls
between the interest payments on the loan and dividends received
by Nusamba on the PT Indocopper Investama stock. At June 30,
2001, we had loaned $61.8 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. The total of the guaranteed loan and the amounts we
have subsequently loaned to Nusamba exceeded the original
purchase price ($315 million) of Nusamba's acquisition of its
interest in PT Indocopper Investama in June 2001. Any amounts in
excess of the $315 million original purchase price we loan to
Nusamba are charged to other expense.
In June 2000, our Board of Directors authorized a 20-million-
share increase in our open market share purchase program,
bringing the total shares approved for purchase under this
program to 80 million. During the first six months of 2001, we
purchased 0.2 million of our shares (all during the first
quarter) for $1.6 million, $8.35 per share. During the first six
months of 2000, we acquired 10.6 million of our shares for $129.2
million (an average of $12.15 per share). From inception of
these programs in July 1995 through July 18, 2001, we have
purchased a total of 70.7 million shares for $1.24 billion (an
average of $17.53 per share) and approximately 9.3 million shares
remain available under the program. The timing of future
purchases is dependent upon many factors, including the price of
common shares, our business and financial position, and general
economic and market conditions. See "Amended Credit Facilities"
discussion below for limitations on future repurchases.
Refinancing Transactions
We have commitments from all of the members of our bank group to
amend our existing credit facilities to extend the maturities and
to provide a mechanism for financing any obligations we may have
under our guarantee of the commercial bank loan to PT Nusamba
Mineral Industri. The amendment to our bank credit facilities is
conditioned on the sale of $300 million of convertible notes, the
negotiation and execution of definitive agreements and
satisfaction of other conditions. The sale of the convertible
notes and entering into the amended credit facilities are
collectively referred to as the "refinancing transactions." We
believe that the refinancing transactions, together with our cash
flows from operations, will enable us to fund our ongoing capital
expenditures and meet our debt maturities over the next several
years. In addition to the refinancing transactions, we are also
considering means of refinancing or restructuring our gold-
denominated preferred stock to extend its current 2003 mandatory
redemption date.
* Existing Credit Facilities and Maturities
Our existing bank credit facilities provide total
availability of $1.0 billion, subject to a borrowing base that is
redetermined annually. The facilities mature in December 2002.
The outstanding balance at June 30, 2001 was $754.0 million, with
$214.0 million available to PT Freeport Indonesia and $32.0
million available to FCX.
The $253.4 million bank loan to PT Nusamba Mineral Industri
that we guarantee matures in March 2002. It is uncertain whether
Nusamba will pay its debt at maturity. If we are required to
perform under our guarantee of Nusamba's debt, the amended credit
facilities will provide a mechanism to finance our guarantee
obligation. Other significant maturities through 2006 include
the expected repayment of the senior notes of $250.0 million in
2003 and $200.0 million in 2006, and the redemption of preferred
stock totaling approximately $172.3 million in 2003 and $126.4
million in 2006, based on gold and silver prices as of June 29,
2001.
20
Our scheduled debt and redeemable preferred stock
maturities, including the Nusamba guarantee, total approximately
$1.2 billion in 2002 and $499.3 million in 2003 based on June 29,
2001 gold and silver prices, which determine the preferred stock
redemption amounts.
* Amended Credit Facilities
We have commitments from all members of our current bank
group to amend our credit facilities based on the following
terms. These terms are subject to the sale of $300 million of
convertible notes, negotiation and execution of definitive
agreements and satisfaction of other conditions.
Commitments and Availability. The aggregate commitments
under the amended credit facilities will be $760.0 million, all
of which will be available to PT Freeport Indonesia and $340.0
million of which will be available to FCX. If we sell more than
$300.0 million principal amount of convertible notes, the
additional net proceeds will be used to repay our outstanding
borrowings under the facilities and the commitments will be
reduced by the excess amount.
The aggregate commitments under the amended credit
facilities will be $954.0 million if we are called on to perform
under the Nusamba guarantee when the Nusamba loan matures in
2002. Nusamba indirectly owns 4.7 percent of PT Freeport
Indonesia through its approximate 51 percent ownership of PT
Indocopper Investama. To secure its commercial bank loan,
Nusamba pledged its ownership in PT Indocopper Investama. If
Nusamba does not pay the loan when due and we are required to
perform under the guarantee, we would fund the $253.4 million
obligation under the amended credit facilities and would seek to
recover the PT Indocopper Investama stock as provided by the
Nusamba financing documents, which are governed by Indonesian
law.
Maturities and Term Loan Conversion. Amounts that we borrow
under the amended facilities will mature on December 31, 2005.
Amounts will be available on a revolving basis until December
2003, at which time all borrowed amounts will become term loans,
except for a $150.0 million revolver for working capital
purposes.
We will be able to use the amounts available under the
amended facilities to pay interest and principal requirements on
our other debt when due. We will be required to use all
available cash flow after debt service and capital expenditures
to reduce amounts outstanding under the amended facilities.
There are no minimum principal payments under the amended
facilities until 2004 at which time the loan will be subject to
scheduled amortization in an aggregate principal amount of $130.0
million per year in each of 2004 and 2005. The cumulative
amounts of any commitment reductions prior to December 31, 2003
will be credited toward the amortization payments.
Mandatory Repayments and Reductions in Commitments. All of
the proceeds from the sale of convertible notes will be used to
pay outstanding borrowings under our credit facilities. After we
have raised $250.0 million of additional financing in excess of
the $300.0 million of gross proceeds from the sale of convertible
notes, 25 percent of the proceeds from debt issuances and 50
percent of the proceeds from equity issuances would be available
to us for general corporate purposes. All other proceeds from
financings and all available cash of FCX and PT Freeport
Indonesia will be used to pay outstanding borrowings under the
amended credit facilities and the commitments under the
facilities will be reduced by those amounts, except as necessary
to maintain availability to repay the 7.20% senior notes and to
preserve the $150.0 million revolving facility that will continue
to be available through December 31, 2005.
Interest Rates and Fees. Interest rates on all loans under
the facilities, including any amounts used to fund our
obligations under the Nusamba guarantee, will initially be LIBOR
(currently 3.8 percent) plus 4.0 percent with annual increases of
0.125 percent on each anniversary of the closing of the amended
facilities. Interest rates will be reduced to a level yet to be
determined upon the achievement of minimum public debt ratings.
We will also pay an amendment fee of up to 1.25 percent on
available borrowings.
Beginning in November 2003, if we have not raised $250.0
million of additional financing in excess of the $300.0 million
of gross proceeds from the sale of convertible notes, and we use
proceeds under the facilities to repay our 7.20% senior notes,
then we will pay interest on those borrowings (up to a maximum of
$250.0 million) of LIBOR plus 5.0 percent with annual increases
of 0.125 percent. We will also pay an additional fee of 0.75
percent on amounts used under the facilities to repay our 7.20%
senior notes (up to a maximum of $250.0 million), which we expect
to repay in November 2003.
21
7.20% Senior Notes. Amounts available under the amended
credit facilities may be used to repay our 7.20% senior notes in
November 2003 to the extent necessary. In accordance with a
schedule to be determined, we will maintain progressively greater
amounts of unused availability under the amended credit
facilities so that we will have available $250.0 million in
November 2003 to repay the 7.20% senior notes.
Gold-Denominated Preferred Stock Due in 2003. Prior to the
mandatory redemption date in August 2003, we intend to refinance
or restructure our obligation to redeem our gold-denominated
preferred stock. Under the amended credit facilities, we have
limitations on the amount of preferred stock we may redeem and,
if by August 2003 we have not extended the maturity of a
specified amount of the gold-denominated preferred stock beyond
2005, we will not thereafter be permitted to redeem or pay
dividends on any of our preferred stock.
Other Covenants. The covenants under the amended credit
facilities are expected to include (a) a minimum consolidated
debt service coverage ratio to be determined, but no greater than
1.5:1.0 and (b) a maximum ratio of consolidated debt to EBITDA
equal to 3.5:1.0. The covenants will also include prohibitions
on common stock dividends and common stock repurchases,
limitations on capital expenditures to specified budgets,
limitations on investments, limitations on liens, limitations on
transactions with affiliates, and a requirement to implement
minimum hedging protection for copper prices under certain
circumstances.
Security and Guarantees. The obligations of FCX and PT
Freeport Indonesia under the amended credit facilities will be
secured by a first security lien on most of PT Freeport
Indonesia's assets and by our pledge of (1) 50.1 percent of the
outstanding capital stock of PT Freeport Indonesia, (2) the
approximate 49 percent of the outstanding capital stock of PT
Indocopper Investama owned by us and (3) the approximate 51
percent of the outstanding capital stock of PT Indocopper
Investama securing the original Nusamba loan, if acquired by us.
PT Freeport Indonesia's obligations will also continue to be
secured by its pledge of its rights under the Contract of Work.
In addition, PT Freeport Indonesia will guarantee FCX's
obligations under the amended credit facilities.
Revised Debt and Redeemable Preferred Stock Maturities.
Assuming the sale of $300 million of convertible notes and the
amendments to the bank credit facilities as currently
contemplated, following is a summary of our debt and redeemable
preferred stock maturities, including the Nusamba loan maturity,
based on loan balances as of June 30, 2001, and gold and silver
prices (which determine the preferred stock redemption amounts)
as of June 29, 2001 (in millions):
There-
2001 2002 2003 2004 2005 2006 after
----- ------ ------ ------ ------ ------ ------
Bank credit facilities a $ - $ - $ - $130.0 $409.0 $ - $ -
Infrastructure financings
and equipment loans 32.6 110.7 56.9 62.3 47.4 47.7 187.1
7.20% Senior Notes due
2026 b - - 250.0 - - - -
7.50% Senior Notes due
2006 c - - - - - 200.0 -
Convertible Notes - - - - - 300.0 -
Atlantic Copper facilities
and other 6.0 65.0 20.1 10.1 24.1 24.1 114.9
----- ------ ------ ------ ------ ------ ------
Total debt maturities 38.6 175.7 327.0 202.4 480.5 571.8 302.0
Nusamba loan guarantee d - - - - 253.4 - -
Redeemable preferred
stock e 10.3 10.3 172.3 10.3 10.3 126.4 -
----- ------ ------ ------ ------ ------ ------
Total maturities $48.9 $186.0 $499.3 $212.7 $744.2 $698.2 $302.0
===== ====== ====== ====== ====== ====== ======
a. The amount due in 2004 represents the minimum repayment
requirement under the amended credit facilities and the amount
due in 2005 represents the loan balances as of June 30, 2001 less
the 2004 minimum repayment requirement and the estimated net
proceeds from the sale of convertible notes.
b. Although due in 2026, the holders of the 7.20% senior notes
may, and are expected to, elect early repayment in November 2003.
c. Due November 15, 2006.
d. If we are required to perform under this guarantee, we
intend to fund the $253.4 million obligation under our amended
credit facilities; as reflected, $130.0 million under the bank
credit facilities will mature in 2004 and the balance will mature
in 2005.
22
e. Represents $10.3 million each year for our silver-
denominated preferred stock, $162.0 million in August 2003 for
our gold-denominated preferred stock, and $116.1 million in
February 2006 for our series II gold-denominated preferred stock.
Increased Cost of Debt. As of June 30, 2001, our weighted
average cost of debt was 7.7 percent. Had we completed the
refinancing transactions on June 30, 2001, our average borrowing
cost would have increased by approximately 1.2 percent.
In connection with the amended bank credit facilities, we
expect to incur premiums, fees and expenses that will result in a
cash outlay of approximately $19.4 million. This cash outlay has
been reflected in the expected approximately 1.2 percent increase
in our average borrowing cost.
DEVELOPMENTS IN INDONESIA
Indonesia's economic recovery remains vulnerable to ongoing
political and social tensions. There have been repeated
challenges to the political leadership of President Abdurrahman
Wahid since his election on October 20, 1999. In May 2001,
Indonesia's highest political institution, the People's
Consultative Assembly (MPR), scheduled a special session to hear
an accountability speech from President Wahid. If his speech
were to be rejected, the MPR would have the power to withdraw the
president's mandate and force him to resign. President Wahid had
publicly stated that he would not resign. Early on the morning of
July 23, 2001, President Wahid declared a state of emergency in
Indonesia and called for new MPR elections to be held in 2002.
However, the MPR, the military and the national police refused to
recognize the decree following a Supreme Court ruling that the
presidential decree had no legal basis. Later on July 23, 2001,
the MPR voted to immediately remove President Wahid, and elected
Vice President Megawati Sukarnoputri as the new president. The
international community, including the United States, has
expressed support for the newly elected President. While
President Wahid had previously warned of violence by his
supporters, no significant incidents of violence have been
reported thus far. No incidents of violence were reported in
PT Freeport Indonesia's area of operations, where the local
community leaders continue to support peaceful solutions to the
complex issue of regional autonomy.
Indonesia's economy continues to struggle with a growing
budget deficit, a weak currency, rising local interest rates and
inflation, and a decline in exports. The political situation has
prevented the government from implementing fiscal policy,
prompting Standard & Poor's to downgrade Indonesia's credit
rating during the quarter. The government continues to work
closely with the International Monetary Fund to reach a new
agreement allowing the release of a $400 million loan
disbursement. Another factor impacting the country's economic
recovery is that its debt-restructuring agency has not generated
sufficient asset sale proceeds to meet government budget targets.
The rupiah continues to reflect the uncertain political and
social situation and the country's weak economic position. At
June 30, 2001, the rupiah exchange rate was 11,430 rupiahs to 1
U.S. dollar and is 24 percent weaker than the rate at December
31, 2000. Inflation is on the rise and local interest rates
currently exceed 16 percent.
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, the expected amendment to our bank credit
facilities, political, economic and social conditions in our
areas of operations, treatment charge rates 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 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, 2000.
23
PART II. OTHER INFORMATION
Item 1. 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 alleged environmental, human
rights and social/cultural violations in Indonesia and seeks
unspecified monetary damages and other equitable relief. In
addition, the plaintiff alleged that she was a third-party
beneficiary under the 1967 and the 1991 Contracts of Work, and
claimed that she had not received fair compensation for her land
rights.
On March 21, 2000 the trial court dismissed the entire case
with prejudice, granting FCX's exception of no cause of action.
On March 24, 2000, the plaintiff filed a petition of appeal to
the Louisiana Fourth Circuit. FCX will continue to defend this
action vigorously.
In addition to the foregoing proceedings, FCX may be from
time to time involved in various legal proceedings of a character
normally incident to the ordinary course of its business.
Management believes that potential liability in any proceedings
would not have a material adverse effect on the financial
condition or results of operations of FCX. FCX maintains
liability insurance to cover some, but not all, potential
liabilities normally incident to the ordinary course of its
business as well as other insurance coverage customary in its
business, with coverage limits as management deems prudent.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) The exhibits to this report are listed
in the Exhibit Index beginning on Page
E-1 hereof.
(b) During the quarter for which this report
is filed, the registrant did not file any
Current Reports on Form 8-K.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
FREEPORT-McMoRan COPPER & GOLD INC.
By: \s\ C. Donald Whitmire, Jr.
---------------------------------
C. Donald Whitmire, Jr.
Vice President and
Controller-Financial Reporting
(authorized signatory and
Principal Accounting Officer)
Date: July 30, 2001
24
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 of Designations of the Gold-Denominated Preferred
Stock of FCX. Incorporated by reference to Exhibit 4.3 to the
FCX 1995 Second Quarter Form 10-Q.
4.5 Deposit Agreement dated as of August 12, 1993 among FCX,
ChaseMellon, as Depositary, and holders of depositary receipts
(Gold-Denominated Depositary Receipts) evidencing certain
Depositary Shares, each of which, in turn, represents 0.05
shares of Gold-Denominated Preferred Stock. Incorporated by
reference to Exhibit 4.8 to the FCX 1993 Form 10-K.
4.6 Form of Gold-Denominated Depositary Receipt. Incorporated by
reference to Exhibit 4.9 to the FCX 1993 Form 10-K.
4.7 Certificate of Designations of the Gold-Denominated Preferred
Stock, Series II (the Gold-Denominated Preferred Stock II) of
FCX. Incorporated by reference to Exhibit 4.4 to the FCX 1995
Second Quarter Form 10-Q.
4.8 Deposit Agreement dated as of January 15, 1994, among FCX,
ChaseMellon, as Depositary, and holders of depositary receipts
(Gold-Denominated II Depositary Receipts) evidencing certain
Depositary Shares, each of which, in turn, represents 0.05
shares of Gold-Denominated Preferred Stock II. Incorporated
by reference to Exhibit 4.2 to the Quarterly Report on Form 10-
Q of FCX for the quarter ended March 31, 1994 (the FCX 1994
First Quarter Form 10-Q).
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.
E-2
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
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 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 10.1 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.
4.25 Certificate of Designations of Series A Participating
Cumulative Preferred stock of FCX. Incorporated by reference
to Exhibit 4.25 to the Quarterly Report on Form 10-Q of FCX
for the quarter ended March 31, 2000 (the FCX 2000 First
Quarter Form 10-Q).
4.26 Rights Agreement dated as of May 3, 2000 between FCX and
Chasemellon Shareholder Services, L.L.C., as Rights Agent.
Incorporated by reference to Exhibit 4.26 to the FCX 2000
First Quarter Form 10-Q.
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 10.20 to the
FCX 1991 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.
E-3
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
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.
10.4 Concentrate Purchase and Sales Agreement dated effective
December 11, 1996 between PT Freeport Indonesia and PT
Smelting. Incorporated by reference to Exhibit 10.34 to the
Annual Report of FCX on Form 10-K for the year ended December
31, 1999 (the FCX 1999 Form 10-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.
10.10 Option, 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 10.37)
10.11 Annual Incentive Plan of FCX as amended effective February 2,
1999. Incorporated by reference to Exhibit 10.11 to the 1998
FCX Form 10-K.
10.12 1995 Long-Term Performance Incentive Plan of FCX.
Incorporated by reference to Exhibit 10.9 to the FCX 1996 Form
10-K.
10.13 FCX Performance Incentive Awards Program as amended effective
February 2, 1999. Incorporated by reference to Exhibit 10.13
to the 1998 FCX Form 10-K.
10.14 FCX President's Award Program. Incorporated by reference to
Exhibit 10.8 to the FCX 1995 Form 10-K.
10.15 FCX Adjusted Stock Award Plan, as amended. Incorporated by
reference to Exhibit 10.15 to the 1997 FCX Form 10-K.
E-4
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
10.16 FCX 1995 Stock Option Plan. Incorporated by reference to
Exhibit 10.13 to the FCX 1996 Form 10-K.
10.17 FCX 1995 Stock Option Plan for Non-Employee Directors, as
amended. Incorporated by reference to Exhibit 10.17 to the
FCX 1997 Form 10-K.
10.18 FCX 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.
10.19 FCX 1999 Long-Term Performance Incentive Plan. Incorporated
by reference to Exhibit 10.19 to the Annual Report of FCX on
Form 10-K for the year ended December 31, 1999 (the FCX 1999
Form 10-K).
10.20 FCX Stock Appreciation Rights Plan dated May 2, 2000.
10.21 Financial Counseling and Tax Return Preparation and
Certification Program of FCX. Incorporated by reference to
Exhibit 10.12 to the FCX 1995 Form 10-K.
10.22 FM 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.
10.23 FM Services Company Financial Counseling and Tax Return
Preparation and Certification Program. Incorporated by
reference to Exhibit 10.14 to the FCX 1995 Form 10-K.
10.24 Consulting Agreement dated as of December 22, 1988 between FTX
and Kissinger Associates, Inc. (Kissinger Associates).
Incorporated by reference to Exhibit 10.21 to the FCX 1997
Form 10-K.
10.25 Letter Agreement dated May 1, 1989 between FTX and Kent
Associates, Inc. (Kent Associates, predecessor in interest to
Kissinger Associates). Incorporated by reference to Exhibit
10.22 to the FCX 1997 Form 10-K.
10.26 Letter Agreement dated January 27, 1997 among Kissinger
Associates, Kent Associates, FTX, FCX and FMS. Incorporated
by reference to Exhibit 10.20 to the FCX 1996 Form 10-K.
10.27 Agreement for Consulting Services between FTX and B. M.
Rankin, Jr. effective as of January 1, 1991 (assigned to FMS
as of January 1, 1996). Incorporated by reference to Exhibit
10.24 to the FCX 1997 Form 10-K.
10.28 Supplemental Agreement between FMS and B. M. Rankin Jr. dated
December 15, 1997. Incorporated by reference to Exhibit 10.25
to the FCX 1997 Form 10-K.
10.29 Supplemental 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.
10.30 Supplemental Agreement between FMS and B. M. Rankin, Jr. dated
February 5, 2001. Incorporated by reference to Exhibit 10.29
to the Annual Report on Form 10-K of FCX for the fiscal year
ended December 31, 2000.
10.31 Letter 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-K.
E-5
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
10.32 Supplemental Letter Agreement dated April 13, 2000 between J.
Bennett Johnston, Jr. and FMS. Incorporated by reference to
Exhibit 10.30 to the FCX 2000 First Quarter Form 10-Q.
10.33 Letter Agreement dated November 1, 1999 between FMS and
Gabrielle K. McDonald. Incorporated by reference to Exhibit
10.33 of the FCX 1999 Form 10-K.
10.34 Supplemental Letter Agreement dated May 17, 2000 between FMS
and Gabrielle K. McDonald. Incorporated by reference to
Exhibit 10.35 of the FCX 2000 Second Quarter Form 10-Q.
10.35 Executive Employment Agreement dated April 30, 2001 between
FCX and James R. Moffett.
10.36 Executive Employment Agreement dated April 30, 2001 between
FCX and Richard C. Adkerson.
10.37 Change of Control Agreement dated April 30, 2001 between FCX
and James R. Moffett.
10.38 Change of Control Agreement dated April 30, 2001 between FCX
and Richard C. Adkerson.
15.1 Letter dated July 18, 2001 from Arthur Andersen LLP regarding
unaudited interim financial statements.
E-6