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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(MARK ONE)
[X] AMENDMENT NO. 1 TO
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9916
FREEPORT-MCMORAN COPPER & GOLD INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2480931
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1615 POYDRAS STREET
NEW ORLEANS, LOUISIANA 70112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 582-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Class A Common Stock, par value $0.10 per share New York Stock Exchange
Class B Common Stock, par value $0.10 per share New York Stock Exchange
Depositary Shares representing 0.05 shares of Step-Up Convertible New York Stock Exchange
Preferred Stock, par value $0.10 per share
Depositary Shares representing 0.05 shares of Gold-Denominated New York Stock Exchange
Preferred Stock, par value $0.10 per share
Depositary Shares, Series II, representing 0.05 shares of Gold- New York Stock Exchange
Denominated Preferred Stock, Series II, par value $0.10 per share
Depositary Shares representing 0.015625 shares of Silver- New York Stock Exchange
Denominated Preferred Stock, par value $0.10 per share
8-1/4% Convertible Senior Notes due 2006 of the registrant None
and FCX Investment Ltd.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
The aggregate market value of classes of common stock held by
non-affiliates of the registrant on February 26, 2002 was approximately
$1,079,000,000.
On February 26, 2002, there were issued and outstanding 55,567,714
shares of Class A Common Stock and 88,584,099 shares of Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Annual Report for the year ended December 31, 2000 are
incorporated by reference into Parts II and IV of this report and portions of
the Proxy Statement for our 2001 Annual Meeting held on May 3, 2001 are
incorporated by reference into Part III of this report.
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TABLE OF CONTENTS
Page
Part I
Items 1. and 2. Business and Properties...........................................................................1
Item 3. Legal Proceedings......................................................................................26
Item 4. Submission of Matters to a Vote of Security Holders....................................................27
Executive Officers of the Registrant...................................................................27
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................................28
Item 6. Selected Financial Data................................................................................28
Items 7. and 7A. Management's Discussion and Analysis of Financial Condition and
Results of Operations and Quantitative and Qualitative Disclosures About Market Risk...........28
Item 8. Financial Statements and Supplementary Data............................................................28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................28
Part III
Item 10. Directors and Executive Officers of the Registrant.....................................................28
Item 11. Executive Compensation.................................................................................29
Item 12. Security Ownership of Certain Beneficial Owners and Management.........................................29
Item 13. Certain Relationships and Related Transactions.........................................................29
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................29
Signatures......................................................................................................S-1
Index to Financial Statements...................................................................................F-1
Report of Independent Public Accountants........................................................................F-1
Exhibit Index...................................................................................................E-1
i
PART I
Except as otherwise specifically noted, this Amendment No. 1 to Annual
Report on Form 10-K of Freeport-McMoRan Copper & Gold Inc. for the fiscal year
ended December 31, 2000 reflects information as of March 23, 2001, the date of
the original filing of the Form 10-K with the Securities and Exchange
Commission.
ITEMS 1. AND 2. BUSINESS AND PROPERTIES.
GENERAL
We are one of the world's largest copper and gold mining companies in
terms of reserves and production. We believe we are the lowest cost copper
producer in the world, after taking into account customary credits for related
gold and silver production.
Our principal operating subsidiary is PT Freeport Indonesia, a limited
liability company organized under the laws of the Republic of Indonesia and
domesticated in Delaware. PT Freeport Indonesia explores for, develops, mines
and processes ore containing copper, gold and silver. Our operations are located
in the remote rugged highlands of the Sudirman Mountain Range in the province of
Irian Jaya (Papua), Indonesia, which is located on the western half of the
island of New Guinea. PT Freeport Indonesia markets its concentrates containing
copper, gold and silver worldwide. We have an 85.86 percent ownership interest
in this subsidiary and the Government of Indonesia has a 9.36 percent interest.
PT Nusamba Mineral Industri (Nusamba), an Indonesian company, has most of the
remaining ownership interest in PT Freeport Indonesia. See the discussion under
"Risk Factors" about our guarantee of certain Nusamba debt.
PT Freeport Indonesia's operations are conducted pursuant to an
agreement, called a Contract of Work, with the Government of Indonesia. The
Contract of Work allows us to conduct exploration, mining and production
activities in a 24,700-acre area that we call Block A. In 1988, we discovered
our largest mine, Grasberg, in Block A. Grasberg contains the largest single
gold reserve and one of the largest copper reserves of any mine in the world.
The Contract of Work also allows us to explore for minerals in a 0.5
million-acre area that we call Block B. All of our current proven and probable
reserves are located in Block A (see "Ore Reserves").
PT Freeport Indonesia's Contract of Work governs our rights and
obligations relating to taxes, exchange controls, royalties, repatriation and
other matters (see "Contracts of Work"). The Contract of Work provides a 35
percent corporate income tax rate for PT Freeport Indonesia 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. The
Contract of Work also provides for royalties on the metals PT Freeport Indonesia
sells.
Another of our operating subsidiaries, PT Irja Eastern Minerals, which
we refer to as Eastern Minerals, holds an additional Contract of Work in Irian
Jaya (Papua) covering approximately 1.25 million acres and is conducting
exploration activities under this Contract of Work. We have a 94.9 percent
ownership interest in Eastern Minerals.
In 1996, we established joint ventures with Rio Tinto plc, an
international mining company with headquarters in London, England. One joint
venture covers PT Freeport Indonesia's mining operations in Block A. This joint
venture gives Rio Tinto, through 2021, a 40 percent interest in certain assets
and in production above specified levels from operations in Block A and, after
2021, a 40 percent interest in all production in Block A. Under our joint
venture arrangements, Rio Tinto also has a 40 percent interest in PT Freeport
Indonesia's Contract of Work and Eastern Minerals' Contract of Work. In
addition, Rio Tinto has the option to participate in 40 percent of any of our
other future exploration projects in Irian Jaya (Papua).
Under another joint venture agreement through PT Nabire Bakti Mining,
we conduct exploration activities in an area covering approximately 0.5 million
acres in five parcels contiguous to PT Freeport Indonesia's Block B and one of
Eastern Minerals' blocks. Rio Tinto has elected to participate in 40 percent of
our interest and cost in the venture.
Field exploration activities outside of our current mining operations
in Block A have been temporarily suspended due to safety and security issues and
uncertainty relating to a possible conflict between our mining and
1
exploration rights in forest areas covered by the Contracts of Work and an
Indonesian law enacted in 1999 prohibiting open-pit mining in forest
preservation areas.
We also smelt and refine copper concentrates in Spain and market the
refined copper products through our wholly owned subsidiary, Atlantic Copper,
S.A. In addition, PT Freeport Indonesia has a 25 percent interest in PT
Smelting, an Indonesian company that operates a copper smelter and refinery in
Gresik, Indonesia.
The following maps indicate the location of the Irian Jaya (Papua)
province in which we operate; the location of our Contracts of Work areas within
the Irian Jaya (Papua) province; and the infrastructure of our Contracts of Work
project area.
[MAP APPEARS HERE]
2
[MAP APPEARS HERE]
3
[MAP APPEARS HERE]
4
REPUBLIC OF INDONESIA
The Republic of Indonesia consists of more than 17,000 islands
stretching 3,000 miles along the equator from Malaysia to Australia and is the
fourth most populous nation in the world with over 200 million people. Following
many years of Dutch colonial rule, Indonesia gained independence in 1945 and now
has a presidential republic system of government.
Maintaining a good working relationship with the Government of
Indonesia is of particular importance to us because all of our mining operations
are located in Indonesia. Our mining complex was Indonesia's first copper mining
project and was the first major foreign investment in Indonesia following the
economic development program instituted by the Government of Indonesia in 1967.
We work closely with the central, provincial and local governments in
development efforts in the area surrounding our operations.
In May 1998, President Suharto, Indonesia's political leader for more
than 30 years, resigned in the wake of an economic crisis in Indonesia and other
parts of Southeast Asia and in the face of growing social unrest. Vice President
B.J. Habibie succeeded Suharto. In June 1999, Indonesia held a new parliamentary
election on a generally peaceful basis as the first step in the process of
electing a new president. In October 1999, in accordance with the Indonesian
constitution, the country's highest political body, composed of the newly
elected national parliament along with additional provincial and other
representatives, elected Abdurrahman Wahid as president and Megawati
Sukarnoputri as vice president.
Economic and political conditions remain challenging in Indonesia. The
Indonesian economy grew by an estimated 5 percent in 2000 after remaining flat
in 1999 and contracting by 13 percent in 1998. Indonesia is Asia's second
largest exporter of oil and continues to benefit from higher oil prices. While
the economy has exceeded growth projections, progress on reforming the nation's
failed banking system and raising capital from bank-related assets has been
slow. As a result, the country remains heavily reliant on foreign aid to balance
its budget and the national currency, the rupiah, declined approximately 32
percent in value during 2000.
Despite gradual improvements on the economic front, Indonesia's
recovery remains vulnerable to ongoing political and social tensions. There have
been repeated challenges to the political leadership of President Wahid.
Incidents of violence and separatist pressures continue to add to political
instability within the country as the Wahid administration struggles to address
the country's economic and social issues. 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.
President Wahid and his administration have focused in recent months on
issues involving regional autonomy. The program to shift a greater share of
revenues and greater control of economic, regulatory and social affairs to
Indonesia's 31 provinces and over 300 regencies is one of the government's most
important initiatives. Although new autonomy laws became effective January 1,
2001, there will be a transition period to allow the provinces to prepare for
the assumption and administration of these new responsibilities.
While the uncertainties of the autonomy process have created concern
among foreign investors, the Indonesian government has repeatedly assured
investors that existing contracts would be honored. The president of Indonesia
and several cabinet members have publicly stated that the Government of
Indonesia will honor previously existing contracts and that they have no
intention of revoking or unilaterally amending such contracts, specifically
including PT Freeport Indonesia's Contract of Work. Our belief that our
Contracts of Work will continue to be honored is further supported by U.S. laws,
which prohibit U.S. aid to countries that nationalize property owned by, or take
steps to nullify a contract with, a U.S. citizen or company at least 50 percent
owned by U.S. citizens if the foreign country does not within a reasonable time
take appropriate steps to provide full value compensation or other relief under
international law.
Pro-independence movements in certain areas also have become more
prominent, especially in the province of Aceh, and to a lesser extent in Irian
Jaya (Papua). The area surrounding our mining development is sparsely populated
by local people and former residents of more populous areas of Indonesia, some
of whom have resettled in
5
Irian Jaya (Papua) under the Government of Indonesia's transmigration program. A
segment of the local population is opposing Indonesian rule over Irian Jaya
(Papua), and several separatist groups have sought political independence for
the province. Moreover, in Irian Jaya (Papua), there have been sporadic attacks
on civilians by separatists and sporadic but highly publicized conflicts between
separatists and the Indonesian military.
We have a board-approved policy statement on social and human rights,
and have comprehensive and extensive social, cultural and community development
programs, to which we have committed significant financial and managerial
resources. These policies and programs are designed to address the impact of our
operations on the local villages and people and to provide assistance for the
development of the local people. While we believe these efforts should serve to
avoid damage to and disruptions of our mining operations, our operations could
be damaged or disrupted by social, economic and political forces beyond our
control. For example, in March 1996, local people engaged in acts of vandalism
that caused approximately $3 million in damages to our property and caused us to
close the Grasberg mine and mill for three days as a precautionary measure,
although our concentrate shipments were not interrupted. See "Risk Factors."
CONTRACTS OF WORK
PT Freeport Indonesia and Eastern Minerals conduct their current
exploration operations and PT Freeport Indonesia conducts its mining operations
in Indonesia by virtue of their Contracts of Work. Both Contracts of Work govern
our rights and obligations relating to taxes, exchange controls, royalties,
repatriation and other matters. Both Contracts of Work were concluded pursuant
to the 1967 Foreign Capital Investment Law, which expresses Indonesia's foreign
investment policy and provides basic guarantees of remittance rights and
protection against nationalization, a framework for economic incentives and
basic rules regarding other rights and obligations of foreign investors. Any
disputes regarding the provisions of the Contracts of Work are subject to
international arbitration.
PT Freeport Indonesia's Contract of Work covers both Block A, which was
first included in a 1967 Contract of Work that was replaced by a new Contract of
Work in 1991, and Block B, to which we gained rights in 1991. The initial term
of our Contract of Work expires in December 2021 but we can extend it for two
10-year periods subject to Indonesian government approval, which cannot be
withheld or delayed unreasonably. We originally had the rights to explore 6.5
million acres in Block B, but pursuant to the Contract of Work we have only
retained the rights to 0.5 million acres, which we believe, following
significant geological assessment, contain the most promising exploration
opportunities.
Eastern Minerals signed its Contract of Work in August 1994. The
Contract of Work originally covered approximately 2.5 million acres. Eastern
Minerals' Contract of Work provides for a four-to-seven year exploratory term
and a 30-year term for mining operations, which we can extend for two 10-year
periods subject to Indonesian government approval which cannot be withheld or
delayed unreasonably.
Because of safety and security issues and uncertainty relating to a
possible conflict between our mining and exploration rights in forest areas
covered by the Contracts of Work and an Indonesian law enacted in 1999
prohibiting open-pit mining in forest preservation areas, we have requested and
received from the Government of Indonesia formal temporary suspensions of our
obligations under the Contracts of Work in all areas outside of Block A. These
suspensions are granted for one-year periods and we may seek renewals for one or
more additional one-year periods by written request to the Government of
Indonesia.
Like the PT Freeport Indonesia contract, the Eastern Minerals Contract
of Work requires us to relinquish our rights to 25 percent of the original 2.5
million-acre Contract of Work area at the end of each of three specified
periods. As of December 31, 2000, we had relinquished approximately 1.25 million
acres, and within three months of resuming exploratory activity under the
Contract of Work we must relinquish an approximate 0.6 million additional acres.
PT Freeport Indonesia pays a copper royalty under its Contact of Work
that varies from 1.5 percent of copper net revenue at a copper price of $0.90 or
less per pound to 3.5 percent at a copper price of $1.10 or more per pound. The
Contract of Work royalty rate for gold and silver sales is 1.0 percent.
A large part of the mineral royalties under Government of Indonesia
regulations are designated to the provinces from which the minerals are
extracted. In connection with our "fourth concentrator mill expansion," PT
6
Freeport Indonesia agreed to pay the Government of Indonesia voluntary
additional royalties, that is, royalties not required by our Contract of Work,
to provide further support to the local governments and the people of Irian Jaya
(Papua). The additional royalties are paid on metal from production above
200,000 metric tons of ore per day. The additional royalty for copper equals the
Contract of Work royalty rate and for gold and silver equals twice the Contract
of Work royalty rates. Therefore, our royalty rate on copper net revenues from
production above 200,000 metric tons of ore per day is double the Contract of
Work royalty rate, and our royalty rates on gold and silver sales from
production above 200,000 metric tons of ore per day are triple the Contract of
Work royalty rates.
The combined royalties, including the voluntary additional royalties
which became effective January 1, 1999, totaled $20.2 million in 2000, $23.0
million in 1999 and $16.2 million in 1998.
ORE RESERVES
During 2000, additions to the aggregate proven and probable reserves at
the Grasberg mining complex totaled approximately 202 million metric tons of ore
representing increases of 2.7 billion recoverable pounds of copper and 4.5
million recoverable ounces of gold. Year-end aggregate proven and probable
recoverable reserves, net of 2000 production, were 2.51 billion metric tons of
ore averaging 1.10 percent copper, 1.04 grams of gold per metric ton and 3.40
grams of silver per metric ton representing 50.9 billion pounds of copper, 63.7
million ounces of gold and 139.6 million ounces of silver. Approximately
one-half of the reserve additions are in the Ertsberg Stockwork Zone, an
underground deposit contiguous to our existing Deep Ore Zone ore body, with the
remainder of the reserve additions being in the Grasberg open pit and
underground ore bodies.
Pursuant to joint venture arrangements between PT Freeport Indonesia
and Rio Tinto, Rio Tinto has a 40 percent interest in future production from
reserves above those reported at December 31, 1994. Net of Rio Tinto's share, PT
Freeport Indonesia's share of proven and probable recoverable copper, gold and
silver reserves was 38.9 billion pounds of copper, 50.3 million ounces of gold
and 108.5 million ounces of silver as of December 31, 2000. FCX's equity
interest in proven and probable recoverable reserves as of December 31, 2000 was
33.4 billion pounds of copper, 43.2 million ounces of gold and 93.2 million
ounces of silver. We estimated recoverable reserves using a copper price of
$0.90 per pound and a gold price of $300 per ounce. Using a copper price of
$0.75 per pound and a gold price of $270 per ounce would have resulted in less
than a one percent reduction in our estimated recoverable copper and gold
reserves.
All of our proven and probable reserves lie within Block A. The
Grasberg deposit contains the largest single gold reserve and is one of the
largest copper reserves of any mine in the world. Aggregate Grasberg open pit
and underground proven and probable ore reserves, as of December 31, 2000, are
shown below along with those of our other deposits. Reserve calculations were
prepared by our employees under the supervision of George MacDonald, Vice
President of Exploration for FCX, and were verified by Independent Mining
Consultants, Inc., experts in mining, geology and reserve determination. See
"Risk Factors." Our current mine plan has been developed and our operations are
based on completing the mining of all of our currently designated recoverable
reserves before 2041, which would be the expiration of our Contract of Work
including two 10-year extensions. Based on proven and probable reserves as of
December 31, 2001 and our mine plan as of February 2002, we expect to mine
approximately 63 percent of the aggregate proven and probable ore, representing
approximately 71 percent of PT Freeport Indonesia's share of recoverable copper
reserves and approximately 77 percent of PT Freeport Indonesia's share of
recoverable gold reserves, prior to the expiration of the initial term of our
Contract of Work in December 2021.
7
Proven Probable
------------------------------------------------ ---------------------------------------
Average Ore Grade Average Ore Grade
Metric Tons ----------------------------- Metric Tons ----------------------
of Ore (000s)(a) Copper Gold Silver of Ore (000s)(a) Copper Gold Silver
---------------- ------ ---- ------ ---------------- ------ ---- ------
(%) (g/t) (g/t) (%) (g/t) (g/t)
Developed and producing
reserves:
Grasberg open pit 309,681 1.10 1.56 2.32 771,124 0.95 1.06 2.32
Deep Ore Zone 80,759 1.29 0.87 6.77 104,717 1.11 0.79 5.09
Intermediate Ore Zone 11,237 1.11 0.43 8.32 4,552 1.04 0.40 6.37
Undeveloped reserves:
Grasberg underground 113,107 1.17 1.06 2.78 629,926 1.08 0.75 2.77
Kucing Liar 29,309 1.39 1.00 4.31 291,148 1.42 1.45 5.40
Big Gossan -- -- -- -- 37,349 2.69 1.02 16.42
Ertsberg Stockwork Zone 21,469 0.58 0.84 1.84 79,262 0.55 0.80 1.73
Dom -- -- -- -- 30,892 1.67 0.42 9.63
------- ---------
Total 565,562 1.12 1.21 3.00 1,948,970 1.08 0.97 3.35
======= =========
Total
----------------
Metric Tons
of Ore (000s)(a)
----------------
Developed and producing
reserves:
Grasberg open pit 1,080,805
Deep Ore Zone 185,476
Intermediate Ore Zone 15,789
Undeveloped reserves:
Grasberg underground 743,033
Kucing Liar 320,457
Big Gossan 37,349
Ertsberg Stockwork Zone 100,731
Dom 30,892
---------
Total 2,514,532
=========
Proven and Probable
Mill Recoveries (%) Recoverable Reservesb
------------------------- -------------------------------
Copper Gold Silver Copper Gold Silver
------ ---- ------ --------- --------- ---------
(Billions (Millions (Millions
of Lbs.) of Ozs.) of Ozs.)
Developed and producing reserves:
Grasberg open pit 85.0 79.1 63.8 19.3 32.0 40.3
Deep Ore Zone 90.0 83.7 67.5 4.2 4.0 18.4
Intermediate Ore Zone 90.0 83.7 67.5 0.3 0.1 2.1
Undeveloped reserves:
Grasberg underground 87.4 76.9 68.3 15.1 14.1 35.5
Kucing Liar 85.0 73.1 59.5 8.2 10.3 25.5
Big Gossan 85.0 79.1 63.8 1.8 0.9 9.9
Ertsberg Stockwork Zone 89.0 78.0 71.0 1.1 2.0 3.2
Dom 82.6 75.2 62.0 0.9 0.3 4.7
------ ----- ------
Total 50.9 63.7 139.6
====== ===== ======
PT Freeport Indonesia's share 38.9 50.3 108.5
====== ===== ======
FCX's equity share 33.4 43.2 93.2
====== ===== ======
a. Ore reserve tonnage estimates are after application of applicable
mining recovery factors.
b. Recoverable reserves represent estimated payable metal after
application of estimated mill recovery rates and smelter recovery rates
of 96.5 percent for copper, 97.0 percent for gold and 78.5 percent for
silver. The term "recoverable reserve" means that part of a mineral
deposit which we estimate can be economically and legally extracted or
produced at the time of the reserve determination.
8
The following table sets forth the average drill hole spacing for each
of our ore bodies. The average drill hole spacing within each ore body has been
calculated using the distance from the center of each block in the resource
model to the nearest drill hole composite. The averages of these values were
calculated within the volume of each ore body and are reported under the column
entitled "Average Distance: To Nearest Sample." This value represents at least
one-half of the average drill hole spacing within each deposit. The value under
the column entitled "Average Distance: Between Drill Holes" was calculated by
multiplying the average minimum distance value by two, and represents the
maximum average drill hole spacing.
Spacing Average Distance
(in meters) (in meters)
------------------------ -------------------------
Surface Underground Between
Drilling (& Surface) Drilling To Nearest Drill Holes
Deposit Mining Unit Grids Drill Fans Method Sample (less than)
------- ----------- -------- ----------- -------- ---------- -----------
Grasberg Open Pit 50 75 core 45 89
Grasberg Block Cave - 100 core 46 92
Deep Ore Zone Block Cave - 50 core 13 25
Intermediate Ore Zone Block Cave - 50 core 13 25
Ertsberg Stockwork Zone Block Cave 100 50 core 26 52
Mill Level Zone Sublevel Cave - 50 core 20 40
Kucing Liar Block Cave - 75 core 36 72
Big Gossan Open Stope 100 50 core 22 45
Dom Open Pit - 50 core 25 50
Dom Block Cave - 50 core 26 52
MINING OPERATIONS
We and our predecessors have conducted exploration and mining
operations in Block A since 1967 and have been the only operator of those
operations. Following are descriptions of ore mines in production, ore mines in
development and our ore bodies.
Mines in Production. We currently have three mines in operation: the
Grasberg open pit, the Intermediate Ore Zone and the Deep Ore Zone. As of
December 31, 2000, our capital expenditures incurred to date for our mining
operations in Indonesia totaled $4.4 billion. Our mine development, expansion
and infrastructure capital expenditures totaled $61.0 million in 2000, $56.8
million in 1999 and $131.4 million in 1998. Expenditures in 1998 primarily
related to our fourth concentrator mill expansion and expenditures in 1999 and
2000 primarily related to development of the Deep Ore Zone ore body. We began
open-pit mining of the Grasberg ore body in January 1990. Production is at the
3,600- to 4,250-meter elevation level and totaled 76.8 million metric tons of
ore in 2000, which provided 91 percent of our mill feed. The underground
Grasberg reserves will be mined near the end of open-pit mining, which is
expected to continue until approximately 2015.
The Intermediate Ore Zone is an underground block-cave operation that
began production in the first half of 1994. Production is at the 3,475-meter
elevation level and totaled 6.7 million metric tons of ore in 2000. We expect to
fully deplete the Intermediate Ore Zone by 2003.
The Deep Ore Zone ore body lies vertically below the Intermediate Ore
Zone. We began production from the Deep Ore Zone ore body in 1989, but we
suspended production in 1991 in favor of production from the Grasberg deposit.
Production using the block-cave method at the Deep Ore Zone officially restarted
in September 2000. Production is at the 3,150-meter elevation level and totaled
0.6 million metric tons of ore in 2000. The Deep Ore Zone will ramp up from its
approximately 3,000 metric tons of ore per day rate at December 31, 2000 to
approximately 14,000 metric tons of ore per day by the end of 2001 and a full
production rate of 25,000 metric tons of ore per day by 2004. We are conducting
a feasibility study to assess increasing the Deep Ore Zone mine production rate
to 35,000 metric tons of ore per day.
9
Our principal source of power for all our operations is a coal-fired
power plant that was built in conjunction with our fourth concentrator expansion
(see "Infrastructure Improvements"). Peaking and backup power is supplied by
medium-speed diesel generators. Water for our operations is provided by a
combination of naturally occurring mountain streams and water derived from our
underground operations. The average annual rainfall in the project area is 180
inches.
Mines in Development. Four other significant ore bodies, referred to as
the Dom, Big Gossan, Kucing Liar and the newly discovered Ertsberg Stockwork
Zone are located in Block A. These ore bodies are at various stages of
development, and are included in our proven and probable reserves. We incurred
less than $10 million for mine development, expansion and infrastructure capital
expenditures related to these ore bodies during the last three years. See "Risk
Factors."
The Dom ore body lies approximately 1,500 meters southeast of the
depleted Ertsberg open-pit deposit. We completed pre-production development at
the Dom, including all maintenance, warehouse and service facilities, just as
Grasberg began open-pit production in 1990. We have deferred production at the
Dom ore body and may not begin until after completion of open-pit mining.
The Big Gossan ore body is located approximately 1,000 meters southwest
of the original Ertsberg open-pit deposit. We began the initial underground
development of the ore body in 1993 when we drove tunnels from the mill area
into the ore zone at the 2,900-meter elevation level. As of February 2002, we
expected to use a variety of stoping methods to mine the deposit, and planned to
complete a detailed feasibility study in 2002 to determine when to begin
production.
The Kucing Liar ore body lies on the southern flank of and underneath
the southern portion of the Grasberg open pit at the 2,500- to 3,100-meter
elevation level. We are reviewing development plans for Kucing Liar.
The Ertsberg Stockwork Zone ore body extends off the southwest side of
the Deep Ore Zone ore body at the 3,150- to 3,750-meter elevation level.
Drilling efforts continue to determine the extent of this ore body, which we
expect to mine using a block-cave method after we complete mining at the Deep
Ore Zone ore body.
Description of Ore Bodies. Our ore bodies cluster within and around two
main igneous intrusions, the Grasberg Monzo diorite and the Ertsberg diorite.
The host rocks of these ore bodies include both carbonate and clastic rocks that
form the ridge crests and upper flanks of the Sudirman Range, and the igneous
rocks of monzonitic to dioritic composition that intrude them. The
igneous-hosted ore bodies (the Grasberg pit and block cave and the Ertsberg
Stockwork Zone block cave) occur as vein stockworks and disseminations of copper
sulphides, dominated by chalcopyrite and, to a much lesser extent, bornite. The
sedimentary-rock hosted ore bodies occur as `magnetite-rich, calcium/magnesian
skarn' replacements, whose location and orientation are strongly influenced by
major faults and by the chemistry of the carbonate rocks along the margins of
the intrusions.
The copper mineralization in these skarn deposits is also dominated by
chalcopyrite, but higher bornite concentrations are common. Moreover, gold
occurs in significant concentrations in all of the district's ore bodies, though
rarely visible to the naked eye. These gold concentrations usually occur as
inclusions within the copper sulphide minerals, though, in some deposits, can
also be strongly associated with pyrite.
The following map, which encompasses an area of approximately 42 square
kilometers (approximately 16 square miles), indicates the relative positions and
sizes of our reported reserve ore bodies and the location of our mines.
10
[MAP APPEARS HERE]
11
The following diagram indicates the relative elevations (in meters) of
our reported reserve ore bodies:
[DIAGRAM APPEARS HERE INDICATING THE RELATIVE ELEVATIONS OF RESERVE ORE BODIES]
The following chart illustrates our plans as of February 2002 for
sequencing and producing each of our ore bodies and the years in which
production of each ore body will begin and end, based on proven and probable
reserves as of December 31, 2001. Our mine plan is subject to change based on a
number of factors, including the results of our exploration efforts.
[CHART APPEARS HERE WITH THE FOLLOWING DATA POINTS]
PRODUCTION SEQUENCING
Reserves as of December 31, 2001
YEAR START YEAR END
---------- --------
Grasberg open pit 2002 2014
Intermediate Ore Zone 2002 2002
Deep Ore Zone 2002 2015
Big Gossan 2004 2021
Kucing Liar 2009 2033
Grasberg block cave 2010 2036
Dom open pit 2014 2016
Mill Level Zone 2015 2035
Ertsberg Stockwork Zone 2015 2031
Dom block cave 2016 2026
Contract of Work Term
(including extensions) 2002 2041
During 2000, we mined an average of 671,000 metric tons of material per
day, including ore and overburden. We expected to mine approximately 685,000
metric tons of material per day in 2001 and, in fact, did mine an average of
684,800 metric tons of material per day in 2001. We do not require any
additional approvals for higher rates. The following chart illustrates our
aggregate mill capacity, aggregate permitted mill capacity and projected milling
rates as of February 2002, based on proven and probable reserves as of December
31, 2001. The decline in milling rates in 2015 reflects the expected completion
date of open-pit mining at the Grasberg ore body. We are continuing to develop
our mine plans to optimize production levels and to offset the anticipated
decline in 2015.
12
[CHART APPEARS HERE WITH THE FOLLOWING DATA POINTS]
PROJECTED MILL RATES & Mill Capacities
December 31, 2001 Reserves--Production Plan
Mill Rate (000S OF METRIC TONS PER DAY)
YEAR
2002 2003 2004 2005 2006 2007 2008 2009 2010
---- ---- ---- ---- ---- ---- ---- ---- ----
PERMITTED MILL CAPACITY 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0
CURRENT MILL CAPACITY 245.0 245.0 245.0 245.0 245.0 245.0 245.0 245.0 245.0
PROJECTED MILL RATE 237.2 233.8 243.2 242.3 243.0 245.0 245.7 244.3 245.0
YEAR
2011 2012 2013 2014 2015 2016 2017 2018 2019
---- ---- ---- ---- ---- ---- ---- ---- ----
PERMITTED MILL CAPACITY 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0
CURRENT MILL CAPACITY 245.0 245.0 245.0 245.0 245.0 245.0 245.0 245.0 245.0
PROJECTED MILL RATE 245.0 245.7 244.3 253.7 129.5 154.9 149.9 188.5 207.8
YEAR
2020 2021 2022 2023 2024 2025 2026 2027 2028
---- ---- ---- ---- ---- ---- ---- ---- ----
PERMITTED MILL CAPACITY 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0
CURRENT MILL CAPACITY 245.0 245.0 245.0 245.0 245.0 245.0 245.0 245.0 245.0
PROJECTED MILL RATE 218.0 221.4 217.5 215.3 210.5 206.6 203.6 200.3 200.2
YEAR
2029 2030 2031 2032 2033 2034 2035 2036
---- ---- ---- ---- ---- ---- ---- ----
PERMITTED MILL CAPACITY 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0
CURRENT MILL CAPACITY 245.0 245.0 245.0 245.0 245.0 245.0 245.0 245.0
PROJECTED MILL RATE 199.5 200.0 186.7 180.0 159.5 120.3 117.1 19.1
The following is the projected aggregate capital expenditures (in
millions) required to reach full production capacity for each of our undeveloped
ore bodies based on our mine plan as of February 2002 and proven and probable
reserves as of December 31, 2001. Actual costs could differ materially from
these estimates as most of the expenditures will not be incurred for several
years. In addition, these costs will be shared with Rio Tinto in accordance with
our joint venture agreement.
Grasberg block cave $950
Kucing Liar block cave 700
Dom block cave 200
Big Gossan 150
Ertsberg Stockwork Zone block cave 100
Dom open pit 40
Mill Level Zone sublevel cave 30
------
Total $2,170
======
EXPLORATION
As a result of our joint venture arrangements, Rio Tinto pays for 40
percent of our exploration and drilling costs in Irian Jaya (Papua). The joint
ventures' 2001 exploration budget totaled approximately $10 million and, in
2001, the joint ventures incurred total exploration costs of $14.4 million. We
continue drilling in Block A to better define the ore bodies at Kucing Liar (as
discussed above), Grasberg Underground, the underground Ertsberg Stockwork Zone
and a newly defined surface target called Guru Ridge. One rig continues to drill
between the Kucing Liar reserve and the Grasberg Underground reserve and
indicates positive results for continuity of mineralization. Several rigs
drilled from the Deep Ore Zone mine into the Ertsberg Stockwork Zone to define
its extent. Several more rigs conducted drilling on the Guru Ridge surface
target which lies 2,000 meters east of the original Ertsberg open-pit mine.
13
In June 1998, we entered into a joint venture agreement to conduct
exploration activities in PT Nabire Bakti Mining's Contract of Work area
covering approximately 1.0 million acres in several blocks contiguous to PT
Freeport Indonesia's Block B and one of Eastern Minerals' blocks in Irian Jaya
(Papua). Rio Tinto shares in 40 percent of our interest and costs in this
exploration joint venture. We and Rio Tinto can earn up to a 62 percent interest
in the PT Nabirie Bakti Mining Contract of Work by spending up to $21 million on
exploration and other activities in the joint venture areas. We have spent $15.2
million through December 31, 2000.
Field exploration activities in Block B, which includes the Wabu Ridge
gold prospect, as well as in the other Contract of Work areas of Eastern
Minerals and PT Nabire Bakti Mining have been temporarily suspended. The
suspension is due to safety and security issues and uncertainty relating to a
possible conflict between our mining and exploration rights in forest areas
covered by the Contracts of Work and an Indonesian law enacted in 1999
prohibiting open-pit mining in forest preservation areas. All of these areas are
outside of our current mining operations area.
MILLING AND PRODUCTION
The ore from our mines moves by a conveyor system to a series of ore
passes through which it drops to our milling and concentrating complex located
approximately 2,900 meters above sea level. At the mill, the ore is crushed and
ground and mixed in tanks with water and small amounts of flotation reagents
where it is continuously agitated with air. During this physical separation
process, copper-, gold- and silver-bearing particles rise to the top of the
tanks and are collected and thickened into a concentrate. The concentrate leaves
the mill complex as a slurry, consisting of approximately 65 percent solids by
weight, and is pumped through three parallel 115 kilometer pipelines to our
coastal port site facility at Amamapare where it is filtered, dried and stored
for shipping. Ships are loaded at dock facilities at the port until they draw
their maximum water, then move to deeper water, where loading is completed from
shuttling barges.
In early 1998, PT Freeport Indonesia completed construction on the
fourth concentrator mill expansion. Pursuant to the expansion joint venture
agreement, in addition to funding its 40 percent share of all expansion costs
including the fourth concentrator mill expansion, Rio Tinto provided a $450
million nonrecourse loan to PT Freeport Indonesia for PT Freeport Indonesia's
share of the cost of the expansion. In less than two and one-half years, PT
Freeport Indonesia repaid the $450 million loan, plus interest, from its share
of incremental cash flow attributable to the expansion. Operating, nonexpansion
capital and administrative costs are shared proportionately between PT Freeport
Indonesia and Rio Tinto based on the ratio of (a) the incremental revenues from
production from the expansion and (b) total revenues from production from Block
A, including production from PT Freeport Indonesia's previously existing
reserves. PT Freeport Indonesia receives 100 percent of the cash flow from
specified annual amounts of copper, gold and silver production through 2021 and
will receive 60 percent of all remaining cash flow thereafter.
Our production results for the last three years are as follows:
Years Ended December 31, Percentage Change
----------------------------- ---------------------------
2000 1999 1998 1999 to 2000 1998 to 1999
---- ---- ---- ------------ ------------
Mill throughput (metric tons of ore per
day) 223,500 220,700 196,400 1% 12%
Copper production, net to PT Freeport
Indonesia (000 pounds) 1,388,100 1,428,100 1,427,300 (3)% --
Gold production, net to PT Freeport
Indonesia (ounces) 1,899,500 2,379,100 2,227,700 (20)% 7%
Average net cash production costs per
pound of coppera $ 0.23 $ 0.09 $ 0.11 156% (18)%
----------
a. Includes site production and delivery costs, smelting and
refining costs, and royalties, less credits for gold and
silver sales.
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. Normal
14
overburden placement at the Wanagon overburden stockpile resumed and the
restriction on production from the Grasberg open pit was lifted at the end of
2000 (see "Wanagon Overburden Stockpile Slippage").
Gold production in 2000 declined primarily because of lower ore grades.
We expected gold production to improve in 2001 and, in fact, gold production did
increase 39% in 2001 primarily because of higher ore grades. Average net cash
production costs per pound of copper were higher in 2000 because of lower
credits from gold sales and because of higher mine maintenance and energy costs.
For more information regarding our operating and financial results, see our
Annual Report incorporated herein by reference as part of "Item 6. Selected
Financial Data" and "Items 7. and 7A. Management's Discussion and Analysis of
Financial Condition and Results of Operations and Quantitative and Qualitative
Disclosures About Market Risk."
INFRASTRUCTURE IMPROVEMENTS
The location of our mining operations in a remote area requires that
our operations be virtually self-sufficient. In addition to the mining
facilities described above, in the course of the development of our project we
have constructed ourselves or participated with others in the construction of an
airport, a port, a 119 kilometer road, an aerial tramway, a hospital and related
medical facilities, and two town sites with housing, schools and other
facilities sufficient to support more than 17,000 persons.
In 1996, we completed a significant infrastructure program, which
includes various residential, community and commercial facilities. We designed
the program to provide the infrastructure needed for our operations, to enhance
the living conditions of our employees, and to develop and promote the growth of
local and other third party activities and enterprises in Irian Jaya (Papua). We
have developed the facilities through joint ventures or direct ownership
involving local Indonesian interests and other investors.
From December 1993 to March 1997, PT Freeport Indonesia sold $270.0
million of infrastructure assets to joint ventures owned one-third by PT
Freeport Indonesia and two-thirds by PT ALatieF Nusakarya Corporation (ALatieF),
an Indonesian investor. Funding for the purchases consisted of $90.0 million in
equity contributions by the joint venture partners, a $60.0 million bank loan
and FCX's 9 3/4% Senior Notes. PT Freeport Indonesia subsequently sold its
one-third interest in the joint ventures to ALatieF in March 1997. In September
1998, PT Freeport Indonesia reacquired for $30 million an aggregate one-third
interest in the joint ventures. During 2000, PT Freeport Indonesia purchased the
remaining interest in the joint ventures for $25.9 million cash and the
assumption of $34.1 million of bank debt.
In December 1997, we sold the new coal-fired power plant facilities
associated with the fourth concentrator mill expansion for $366.4 million to the
joint venture that owns the power plants that already provided electricity to
us. The purchase price included $123.2 million for Rio Tinto's share of the new
power plant facilities. Asset sales to the power joint venture totaled $581.4
million through 1997, including $458.2 million of assets we owned. We
subsequently sold our 30 percent interest in the joint venture to the other
partners and we purchase power under infrastructure asset financing arrangements
pursuant to a power sales agreement.
MARKETING
PT Freeport Indonesia sells its copper concentrates, which contain
significant quantities of gold and silver, under United States
dollar-denominated sales agreements, mostly to companies in Asia and Europe and
to international trading companies. We sell substantially all of our budgeted
production of copper concentrates under long-term contracts with the selling
price based on world metals prices (generally the London Metal Exchange
settlement prices for Grade A copper). Under these contracts, initial billing
occurs at the time of shipment and final settlement on the copper portion is
generally based on average prices for a specified future period. Gold generally
is sold at the average London Bullion Market Association price for a specified
month near the month of shipment.
Revenues from concentrate sales are recorded net of royalties (see
"Contracts of Work"), treatment and all refining charges (including
participation charges, if applicable, based on the market prices of metals), and
the impact of derivative financial instruments, if any, used to hedge against
risks from metals price fluctuations. Moreover, because a portion of the metals
contained in copper concentrates is unrecoverable as a result of the smelting
process,
15
our revenues from concentrate sales are also recorded net of allowances based on
the quantity and value of these unrecoverable metals. These allowances are a
negotiated term of our contracts and vary by customer. Treatment and refining
charges represent payments to smelters and refiners and are either fixed or in
certain cases vary with the price of copper. We sell some copper concentrates in
the spot market. See "Risk Factors."
We had commitments, including commitments from Atlantic Copper and PT
Smelting, for essentially all of our estimated 2001 production at market prices.
We expected our share of sales for 2001 to approximate 1.4 billion pounds of
copper and 2.4 million ounces of gold and, in fact, our share of sales
approximated 1.4 billion pounds of copper and 2.6 million ounces of gold in
2001. Our projected share of 2001 copper and gold sales reflected the
expectation of higher average mill throughput rates than in 2000 and higher gold
grades and, in fact, our average mill throughput rates and gold grades were
higher than in 2000. See "Risk Factors."
PT Freeport Indonesia has a long-term contract through 2007 to provide
Atlantic Copper with approximately 60 percent of its copper concentrate
requirements at market prices. PT Freeport Indonesia's agreement with PT
Smelting provides for the supply of 100 percent of the copper concentrate
requirements necessary to reach the Gresik smelter's design capacity and
substantially all of any incremental copper concentrate requirements that may be
needed in excess of that amount. For the first 15 years of PT Smelting's
operations, the treatment and refining charges on the majority of the
concentrate PT Freeport Indonesia supplies will not fall below a specified
minimum rate, currently $0.23 per pound, the rate for 2000. We expected the
specified minimum rate for 2001 to be $0.23 per pound and, in fact, this rate
was $0.23 per pound in 2001. We anticipate that PT Freeport Indonesia will sell
approximately 50 percent of its annual concentrate production to Atlantic Copper
and PT Smelting. A recap of PT Freeport Indonesia's aggregate percentage
concentrate sales to its affiliates and to other parties for the last three
years are as follows:
2001 2000 1999
---- ---- ----
PT Smelting 28% 25% 17%
Atlantic Copper 23% 22% 23%
Other parties 49% 53% 60%
--- --- ---
100% 100% 100%
=== === ===
INVESTMENT IN SMELTERS
Our investment in smelters (Atlantic Copper and PT Smelting) 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.
Treatment charges for smelting and refining copper concentrates
represent a cost to PT Freeport Indonesia and income to Atlantic Copper and PT
Smelting. However, because we have integrated our upstream (mining and milling)
and downstream (smelting and refining) operations, we are able to achieve
operating hedges which substantially offset the effect of changes in treatment
charges for smelting and refining PT Freeport Indonesia's copper concentrates.
For example, while low smelting and refining charges will adversely affect the
operating results of Atlantic Copper and PT Smelting, low charges will benefit
the operating results of PT Freeport Indonesia's mining operations.
As a result, changes in smelting and refining charges do not have a
significant impact on our consolidated operating results. Taking into account
taxes and minority ownership interests, an equivalent change in the charges PT
Freeport Indonesia pays and the charges Atlantic Copper and PT Smelting receive
would essentially offset in our consolidated operating results.
ATLANTIC COPPER, S.A.
We own 100 percent of Atlantic Copper. Atlantic Copper completed the
last expansion of its production capacity in 1997 and its smelter currently has
a design capacity of 290,000 metric tons of copper per year. During 2000,
Atlantic Copper treated 916,300 metric tons of concentrate and produced 289,900
metric tons of new copper anodes. Atlantic Copper purchased approximately 64
percent of its 2000 concentrate requirements from PT Freeport Indonesia at
market prices. We have no present plans to expand Atlantic Copper's production
capacity. Atlantic Copper has experienced no material operating problems, and we
are not aware of any potential material environmental liabilities at Atlantic
Copper.
We contributed $40.0 million to Atlantic Copper in December 1999 and an
additional $32.4 million during 2000. The funds are intended to strengthen
Atlantic Copper's financial structure during this period of extremely low
treatment and refining charge rates. Our total investment in Atlantic Copper
through December 31, 2000 totaled $212.3 million.
16
PT SMELTING
PT Freeport Indonesia owns 25 percent of PT Smelting. PT Smelting
temporarily shut down its 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 and during the third quarter of 2000
achieved its goal of reaching full design capacity of 200,000 metric tons of
copper per year. During 2000, PT Smelting treated 582,200 metric tons of
concentrate and produced 173,800 metric tons of new copper anodes. PT Smelting
has no present plans to expand its treatment capacity and has experienced no
material operating problems. We are not aware of any potential material
environmental liabilities at PT Smelting.
In 1999, its first full year of operations, PT Smelting treated 436,000
metric tons of concentrate and produced 126.7 metric tons of new copper anodes.
PT Smelting is a joint venture among PT Freeport Indonesia, Mitsubishi Materials
Corporation, Mitsubishi Corporation and Nippon Mining & Metals Co., Ltd., which
own 25 percent, 60.5 percent, 9.5 percent and 5 percent, respectively, of the
outstanding PT Smelting common stock. PT Freeport Indonesia is providing nearly
all of PT Smelting's copper concentrate requirements. PT Freeport Indonesia
agreed to assign its earnings in PT Smelting to support a 13 percent cumulative
annual return to the other owners for the first 20 years of operations. PT
Freeport Indonesia's total investment in PT Smelting through December 31, 2000
totaled $96.4 million.
COMPETITION
We compete with other mining companies in the sale of our mineral
concentrates and the recruitment and retention of qualified personnel. Some
competing companies possess financial resources equal to or greater than ours
and possess multiple mining assets less geographically concentrated in a single
area than ours. We believe, however, that we are the lowest cost copper producer
in the world, taking into account customary credits for related gold and silver
production, which we believe gives us a significant competitive advantage.
SOCIAL DEVELOPMENT AND HUMAN RIGHTS
We have a social and human rights policy to ensure that we operate in
compliance with the laws in the areas of our operations, and in a manner that
respects basic human rights and the culture of the people who are indigenous to
the area. We continue to incur significant costs on social and cultural
activities, primarily in Irian Jaya (Papua). These activities include:
o comprehensive job training programs;
o basic education programs;
o several public health programs, including extensive malaria
control;
o agricultural assistance programs;
o a business incubator program to encourage the local people to
establish their own small scale businesses;
o cultural preservation programs; and
o charitable donations.
In 1996, PT Freeport Indonesia agreed to commit at least one percent of
its revenues for the following 10 years to the Freeport Fund for Irian Jaya
Development to support village-based health, education, economic and social
development programs in its area of operations. This commitment replaced our
community development programs in which we spent a similar amount of money each
year. We contributed $14.1 million in 2000, $14.7 million in 1999 and $13.5
million in 1998 to the Freeport Fund for Irian Jaya Development.
Lembaga Pengembangan Masyarakat-Irian Jaya, or the People's Development
Foundation-Irian Jaya, oversees disbursement of the funds we contribute to the
Freeport Fund for Irian Jaya Development. The foundation's board of directors is
made up of the head of the local government, currently a Kamoro; a leader of the
Amungme people; a leader of the Kamoro people and leaders of the three local
churches.
17
We believe that our social and economic development programs are
responsive to the issues raised by the local villages and people and should help
us to avoid disruptions of mining operations. Nevertheless, social and political
instability in the area may adversely impact our mining operations.
In December 2000, we endorsed the joint U.S. State Department-British
Foreign Office Voluntary Principles on Human Rights and Security. The Voluntary
Principles were endorsed by several major natural resources companies and by
important human rights organizations. We participated in drafting these
principles with all of the parties involved and added them to our social and
human rights policy.
ENVIRONMENTAL MATTERS
We have an environmental policy that commits us not only to compliance
with applicable federal, state and local environmental statutes and regulations,
but also to continuous improvement of our environmental performance at every
operational site. We believe that we conduct our Indonesian operations pursuant
to all necessary permits and are in compliance in all material respects with
applicable Indonesian environmental laws, rules and regulations.
Mining operations on the scale of our operations in Papua involve
significant environmental challenges, primarily related to the disposition of
tailings, which are the crushed and ground rock material resulting from the
physical separation of commercially valuable minerals from the ore. We have
comprehensive, ongoing environmental monitoring and management plans for the
disposal of tailings resulting from our milling operations, which have been
approved by the Government of Indonesia. Pursuant to these plans, we manage and
monitor the impact of our tailings disposal on the ecosystem of the Ajkwa River
and the ecosystems of adjoining water bodies and the surrounding coastal areas.
In 1997, we completed an engineered levee system to minimize the impact of the
tailings through a controlled deposition area located on a portion of the flood
plain of the Ajkwa River. We will revegetate and reclaim the deposition area
when our mining operations are completed.
In furtherance of our commitments to the Indonesian government pursuant
to our tailings plan, we monitor the acid-neutralizing capacity of tailings on a
daily basis to ensure the discharge of non-acid generating tailings into our
tailings deposition area. The net acid-neutralizing capacity of our tailings
discharge is maintained through a managed program of blending underground ore
with ore from the open pit, the addition of supplemental limestone (or lime) to
the ore blend, and the addition of lime for control of the pH levels in the
flotation system. Daily samples are collected and tested and this data is
communicated to our mill operations so that adjustments in ore blending and
lime/limestone addition can be made as appropriate.
With respect to waste rock, acid rock drainage is our primary
environmental issue. Our approaches to this issue include the mitigation of acid
rock drainage generation, the control of acid rock drainage migration, and the
capture and treatment of acid rock drainage emanating from the stockpile. In
addition, tests have shown the feasibility of revegetating the stockpile and, as
a result, we have engaged in stockpile reclamation as an additional means of
mitigating acid rock drainage.
We have made significant capital expenditures with respect to the
capture and treatment of acid rock drainage and additional capital expenditures
are currently in progress. In addition, we are in the process of developing and
implementing technology for the treatment of captured acid rock drainage. In the
interim, acid rock drainage collected by boreholes near the base of the
stockpile is neutralized.
We have committed to independent external environmental audits of our
Papua operations by qualified experts every three years, with the results to be
made public. The second such audit was completed in 1999. The second audit
reported that we continue to be in material compliance with Indonesian
environmental laws and regulations and that we had fulfilled the recommendations
in the 1996 audit report. The 1999 external audit report made some additional
environmental management recommendations that are being implemented. The report
concluded that our environmental management systems achieve the standard of
practice for world-class mines. The auditors also found our environmental
management systems to be exemplary and a showcase for the mining industry. We
also are continuing our annual internal audits, through the life of our mining
operations, so that our environmental management and monitoring programs will
remain sound and our operations will remain in material compliance with local
laws.
18
We have environmental approvals from the Government of Indonesia to
expand our milling rate up to a maximum of 300,000 metric tons of ore per day.
In 2000, we averaged 223,500 metric tons of ore per day. We expected to average
235,000 metric tons of ore per day in 2001 and, in fact, we averaged 237,800
metric tons of ore per day in 2001.
The cost 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 tailings management levee maintenance and mine
reclamation. We expected to incur approximately $47 million of environmental
capital expenditures in 2001 and, in fact, we incurred $78.2 million in
environmental capital expenditures and other environmental costs in 2001. These
environmental capital expenditures were part of our $190.0 million overall 2001
capital expenditure budget.
Upon the completion of our mining operations, we will fulfill the
remaining commitments we made to the Indonesian government in connection with
our tailings management plan. Our options for revegetation of affected areas of
the deposition area will include forage crops and grasses, fruits, grains and
vegetables, and other traditional food and medicinal crops. Decisions on these
options will be made after consultation with local and regional government and
local residents. In addition to the revegetation and reclamation of the
deposition area, we will continue to operate our wastewater treatment plants as
long as necessary. We will also monitor and test the water discharged from our
mine and the pH, sulfate and electrical conductivity levels of ground water in
the deposition area. In addition, we will provide flood protection to
surrounding areas by diverting the Ajkwa and Otomona Rivers and enhancing levee
embankments. The stability of our levees will be ensured through periodic visual
inspection, revegetation of the levee embankments, and the transfer of our levee
roads for public use. Moreover, we will submit an annual written report to the
Indonesian government regarding our reclamation activities.
Our ultimate reclamation and closure activities will be determined
after consultation with the Indonesian government, affected local residents and
other affected parties. Thus, we cannot currently project with precision the
ultimate amount of reclamation and closure costs we will incur. Our best
estimate at this time is that PT Freeport Indonesia's total reclamation and
closure costs may require in excess of $100 million but are not expected to
exceed $150 million. Estimates of reclamation and closure costs involve complex
issues requiring integrated assessments over a period of many years and are
subject to revision over time as we perform more complete studies. Some
reclamation costs will be incurred during mining activities, while most closure
costs and the remaining reclamation costs will be incurred at the end of our
mining activities, which are currently estimated to continue for more than 30
years. We had $19.2 million accrued on a unit-of-production basis at December
31, 2000 for mine closure and reclamation costs.
Moreover, we cannot predict with any certainty the ultimate future uses
of the deposition area once our mining operations are completed. In addition to
forage crop and grass planting and food and medicinal crop production, possible
future uses of the deposition area include rainforest production, production of
timber, fuel woods, fruits and nuts and other economic forestry, and the
cultivation of fish, shellfish and other aquaculture. The ultimate future uses
of the deposition area will be determined after consultation with local and
regional government and local residents.
In 1996, we began contributing approximately $0.6 million annually to a
cash fund ($2.5 million balance at December 31, 2000) designed to accumulate at
least $100 million by the end of our Indonesian mining activities. The amount of
our annual contribution to the cash fund is adjusted once every five years. We
plan to use this fund, including accrued interest, to pay for mine closure and
reclamation costs. Any incremental costs in excess of the $100 million fund are
expected to be incurred throughout the life of the mine and would be funded by
operational cash flow or the sale of assets, as needed. An increasing emphasis
on environmental issues and future changes in regulations could require us to
incur additional costs that would be charged against future operations.
Estimates involving environmental matters are by their nature imprecise and
changes in government regulations, operations, technology and inflation could
require us to revise them over time.
In 1998, a court in Huelva, Spain found an employee of Atlantic Copper
guilty of a criminal offense against the environment in connection with Atlantic
Copper's transportation and use of weak acid and spent electrolyte at a
19
facility owned and operated by Minas de Rio Tinto, S.A.L. The court fined the
employee approximately $48,000. The Huelva court ruling did not prohibit
Atlantic Copper's Huelva complex from continuing to engage in these operations.
Moreover, Atlantic Copper's weak acid and spent electrolyte transport and use
operations have been authorized by Spanish environmental regulators. In response
to the Huelva court decision, Atlantic Copper has voluntarily constructed an
on-site plant for the treatment of weak acid and recycling of spent electrolyte.
We believe that Atlantic Copper's facilities and operations are in
compliance in all material respects with all applicable Spanish environmental
laws, rules and regulations. During 1999, Atlantic Copper achieved ISO 14001
certification for its two remaining uncertified facilities. In addition,
environmental management systems at all of Atlantic Copper's facilities have
been validated as being in compliance with the European Union Regulation on
Environmental Eco-Management and Eco-Auditing.
The Indonesian and Spanish governments may periodically revise their
environmental laws and regulations or adopt new ones, and we cannot predict the
effects on our operations of new or revised regulations. We have expended
significant resources, both financial and managerial, to comply with
environmental regulations and permitting and approval requirements, and we
anticipate that we will continue to do so in the future. There can be no
assurance that we will not incur additional significant costs and liabilities to
comply with such current and future regulations or that such regulations will
not have a material effect on our operations. See "Risk Factors."
For additional information on our environmental and social efforts, see
our annual report incorporated herein by reference as part of "Items 7. and 7A.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Quantitative and Qualitative Disclosures About Market Risk."
WANAGON OVERBURDEN STOCKPILE SLIPPAGE
On May 4, 2000, a slippage occurred in the overburden waste stockpile
at the Wanagon basin following a period of excessive rainfall, causing a wave of
water and material to overflow from the basin. Four employees of a contractor to
PT Freeport Indonesia were working in the area and perished. Contained within
the mud were the treatment solids from the lime precipitation of acid rock
drainage, which then entered the tailings river system near the village of
Banti. PT Freeport Indonesia charged $2.9 million to its second-quarter 2000
production costs, primarily for assets lost as a result of the incident. In
addition, we incurred environmental costs for overburden disposition, stockpile
stabilization, laboratory testing and consulting studies relating to the Wanagon
overburden waste stockpile.
Sampling and monitoring were initiated at a number of stations covering
the entire tailings system between the mine and estuary for a period of several
months. A specific risk analysis was conducted as a result of this event and was
based on the monitoring program. No long-term environmental effects were found
from the direct monitoring nor predicted by the risk assessment. The slippage
caused a flow of sediments containing slightly elevated levels of precipitated
copper. As a result, water quality in the river was temporarily diminished due
to higher levels of total suspended solids. According to water quality tests,
the pre-slippage water quality in the river was substantially reestablished by
the following day and was fully reestablished within 22 days after the incident.
PT Freeport Indonesia engaged international experts and outside
consultants led by a team from the Institute of Technology of Bandung
(Indonesia) to conduct a comprehensive study of the cause of the slippage and to
recommend a future course of action. Working with the close cooperation of the
Indonesian Department of Energy and Natural Resources and also BAPEDAL (the
Indonesian environmental protection agency), the company initiated a stockpile
stabilization program and voluntarily agreed to a temporary limitation on
production from the Grasberg open pit of 200,000 tons per day average.
Underground ore production was not affected. A safe-zone based on engineering
calculations was subsequently identified along the Wanagon River and within the
village of Banti. The residents within this zone were temporarily moved to
Tembagapura, our original mining town site, and the houses were removed. These
families are being relocated to new housing designed according to their wishes
and located on higher ground in Banti.
20
After successful completion of the stabilization program and
consultation with affected local residents, and with the approval of the
Indonesian government, normal overburden placement at the Wanagon stockpile
resumed and the restriction on production from the Grasberg open pit was lifted
at the end of 2000.
EMPLOYEES AND RELATIONSHIP WITH FM SERVICES COMPANY
As of December 31, 2000, PT Freeport Indonesia had 6,934 employees
(approximately 98 percent Indonesian). In addition, as of December 31, 2000, PT
Freeport Indonesia had 1,953 contract workers, the vast majority of whom were
Indonesian. Approximately 50 percent of our Indonesian employees are members of
the All Indonesia Workers' Union, which operates under Government of Indonesia
supervision. During 1999, PT Freeport Indonesia and the union agreed to a new
labor agreement that expires September 30, 2001. PT Freeport Indonesia's
relations with the workers' union have generally been positive.
As of December 31, 2000, Atlantic Copper had 739 employees, of which
approximately 78 percent are covered by a union contract that expires December
31, 2002. Atlantic Copper experienced no work stoppages in 2000 and relations
with these unions have also generally been good.
FM Services Company, a Delaware corporation 45 percent owned by us as
of December 31, 2000, has furnished executive, administrative, financial,
accounting, legal, tax and similar services to us. We reimburse FM Services at
its cost, including allocated overhead, for these services on a monthly basis.
As of December 31, 2000, FCX had 17 employees and FM Services had 134 employees.
FM Services employees also provide services to two other publicly traded
companies.
RISK FACTORS
This report contains "forward-looking statements" within the meaning of the
federal securities laws. Forward-looking statements are all statements other
than statements of historical facts, such as statements regarding anticipated
production volumes, sales volumes, ore grades, commodity prices, development and
capital expenditures, environmental reclamation and closure costs, reserve
estimates, political, economic and social conditions in our areas of operations,
and exploration efforts and results. Except for our ongoing obligations under
the federal securities laws, we do not intend, and we undertake no obligation,
to update or revise any forward-looking statements. Readers are cautioned that
forward-looking statements are not guarantees of future performance and actual
results may differ materially from those projected, anticipated or assumed in
the forward-looking statements. Important factors that could cause our actual
results to differ materially from those anticipated in the forward-looking
statements include the following:
BECAUSE OUR PRIMARY OPERATING ASSETS ARE LOCATED IN THE REPUBLIC OF INDONESIA,
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY INDONESIAN POLITICAL, ECONOMIC AND
SOCIAL UNCERTAINTIES BEYOND OUR CONTROL, IN ADDITION TO THE USUAL RISKS
ASSOCIATED WITH CONDUCTING BUSINESS IN A FOREIGN COUNTRY.
Maintaining a good working relationship with the Indonesian government
is important to us because all of our mining operations are located in Indonesia
and are conducted pursuant to Contracts of Work with the Indonesian government.
For a discussion of the risks relating to our Contracts of Work, see the risk
factor below.
Indonesia continues to face political and economic uncertainties,
including separatist movements and civil and religious strife in a number of
provinces. In particular, social, economic and political instability in the
province of Irian Jaya (Papua), where our mining operations are located, could
have a material adverse impact on us if this instability results in damage to
our property or interruption of our activities.
With the approval of the Indonesian government, we have temporarily
suspended our field exploration activities outside of Block A due to safety and
security issues and uncertainty relating to a possible conflict between our
mining and exploration rights in forest areas covered by the Contracts of Work
and an Indonesian law enacted in 1999 prohibiting open-pit mining in forest
preservation areas.
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In August 1998, we suspended operations for three days at our Grasberg
mine in response to a wildcat work stoppage (not authorized by the workers'
union) by a group of workers, a majority of whom were employees of our
contractors. The workers cited employment issues as the reasons for their work
stoppage. In March 1996, local people engaged in acts of vandalism that caused
approximately $3.0 million of damages to our property and caused us to close the
Grasberg mine and mill for three days as a precautionary measure.
Several separatist groups are opposing Indonesian rule over Irian Jaya
(Papua) and have sought political independence for the province. In response to
the demands for political independence from Indonesia, new regional autonomy
laws became effective January 1, 2001. However, the manner in which these new
autonomy laws will be implemented and the degree of political and economic
autonomy that is being provided to individual provinces, including Irian Jaya
(Papua), is uncertain and is a current issue in Indonesian politics. Moreover,
in Irian Jaya (Papua), there have been sporadic attacks on civilians by
separatists and sporadic but highly publicized conflicts between separatists and
the Indonesian military.
We are also subject to the usual risks associated with conducting
business in a foreign country, including the risk of forced modification of
existing contracts, changes in the country's laws or policies, including laws or
policies relating to taxation, royalties, imports, exports and currency, and the
risk of having to submit to the jurisdiction of a foreign court or having to
enforce the judgment of a foreign court or arbitration panel against a sovereign
nation within its own territory. In addition, we are subject to the risk of
expropriation and our insurance policies do not provide coverage for losses
caused by expropriation.
OUR CONTRACTS OF WORK ARE SUBJECT TO TERMINATION IF WE DO NOT COMPLY WITH OUR
CONTRACTUAL OBLIGATIONS AND, IF A DISPUTE ARISES, WE MAY HAVE TO SUBMIT TO THE
JURISDICTION OF A FOREIGN COURT OR PANEL. IN ADDITION, UNLESS THE INDONESIAN
GOVERNMENT PERMITS US TO SUSPEND ACTIVITIES UNDER OUR CONTRACTS OF WORK, WE ARE
REQUIRED TO CONTINUE THOSE ACTIVITIES OR POTENTIALLY BE DECLARED IN DEFAULT.
PT Freeport Indonesia's and Eastern Minerals' Contracts of Work were
entered into under Indonesia's 1967 Foreign Capital Investment Law, which
provides guarantees of remittance rights and protection against nationalization.
Our Contracts of Work can be terminated by the Government of Indonesia if we do
not satisfy our contractual obligations, which include the payment of royalties
and taxes to the government and the satisfaction of certain mining,
environmental, safety and health requirements. Indonesian government officials
have periodically raised questions regarding our compliance with Indonesian
environmental laws and regulations and the terms of the Contracts of Work. In
order to address these questions, the Government of Indonesia formed a
fact-finding team in 2000 that reviewed our compliance with all aspects of PT
Freeport Indonesia's Contract of Work. It is uncertain if or when the Indonesian
government will release its report on its investigation. In addition, we cannot
assure you that the Indonesian government's report, if and when released, will
conclude that we are in compliance with all of the provisions of PT Freeport
Indonesia's Contract of Work.
Moreover, in recent years, certain government officials and others in
Indonesia have called into question the validity of contracts entered into by
the Government of Indonesia prior to October 1999, including PT Freeport
Indonesia's Contract of Work, which was signed in December 1991. We cannot
assure you that the validity of, or our compliance with the terms of, the
Contracts of Work will not be challenged for political or other reasons. PT
Freeport Indonesia's and Eastern Minerals' Contracts of Work require that
disputes with the Indonesian government be submitted to international
arbitration. Notwithstanding the international arbitration provision, if a
dispute arises under the Contracts of Work, we face the risk of having to submit
to the jurisdiction of a foreign court or having to enforce the judgment of a
foreign court or arbitration panel against Indonesia within its own territory.
In addition, our Contracts of Work permit us to suspend activities
under the contracts for a period of one year by making a written request to the
Indonesian government. These suspension requests are subject to the approval of
the Indonesian government and are renewable annually. If we do not request a
suspension or are denied a suspension, then we are required to continue our
activities under the Contract of Work or potentially be declared in default.
Moreover, if a suspension continues for more than one year for reasons other
than force majeure and the Indonesian government has not approved such
continuation, then the Indonesian government would be entitled to declare a
default under the Contract of Work.
22
WE HAVE SIGNIFICANT SCHEDULED DEBT AND REDEEMABLE PREFERRED STOCK MATURITIES IN
2002 AND 2003 THAT WILL BE DIFFICULT TO REFINANCE.
Our scheduled debt and redeemable preferred stock maturities total
approximately $200 million in 2001, $1 billion in 2002 and $500 million in 2003,
based on year-end 2000 gold and silver prices. Our $1 billion bank facility
matures in December 2002. The outstanding balance at December 31, 2000 was
$760.0 million, and $162.0 million was available under PT Freeport Indonesia's
$550 million facility and $78.0 million was available under the FCX/PT Freeport
Indonesia $450 million facility. We have begun discussions with the banks in our
credit facility regarding extending its maturity and revising its terms. If the
banks agree to an extension and revision of terms it would result in scheduled
maturity requirements, higher financing costs and certain restrictions on our
financial management.
Our guarantee of a $253.4 million bank loan to Nusamba, which is
discussed below, also matures in 2002. We are working on a plan to coordinate
any payment that might be required as a result of our guarantee with the
extension of the maturity of amounts due under the $1 billion bank facility. In
addition, we have maturities of senior notes and redeemable preferred stock in
2003 totaling approximately $400 million, based on year-end 2000 gold and silver
prices. Because of the economic and political issues affecting Indonesia, our
current ability to obtain capital is limited.
WE HAVE GUARANTEED AN OBLIGATION OF AN INDONESIAN ENTITY, AND HAVE LENT FUNDS TO
THE ENTITY, AND THE ENTITY MAY NOT BE ABLE TO PAY ITS DEBTS.
In 1997, we guaranteed a $253.4 million loan from a syndicate of
commercial banks, including JPMorgan Chase Bank as agent, to PT Nusamba Mineral
Industri. Nusamba, an Indonesian company, used the loan proceeds plus $61.6
million of cash, for a total of $315.0 million, to purchase stock in PT
Indocopper Investama, a company whose only significant assets are 9.36 percent
of PT Freeport Indonesia's stock and 10.0 percent of Eastern Minerals' stock.
Nusamba owns approximately 51 percent of PT Indocopper Investama's stock and we
own approximately 49 percent. We guaranteed the Nusamba loan for the purpose of
continuing minority Indonesian ownership in our principal operating subsidiary,
PT Freeport Indonesia. Nusamba acquired the ownership interest from our previous
Indonesian partner to whom we sold the interest in 1991 to satisfy the
Indonesian ownership requirements in our Contract of Work. Those requirements
were relaxed in 1997, but, at the time of the Nusamba transaction, we believed
that it was prudent and in our best interests to facilitate the continuation of
Indonesian ownership, although no longer legally required. Except for Nusamba's
indirect ownership of PT Freeport Indonesia stock, we have no ownership interest
in, or contractual relationships with, Nusamba.
The loan is secured by a pledge of the PT Indocopper Investama stock
owned by Nusamba and is due in March 2002. We also agreed to lend Nusamba any
amounts necessary to cover shortfalls between the interest payments on the loan
and dividends received by Nusamba on the PT Indocopper Investama stock. At
December 31, 2000, we had loaned Nusamba $56.1 million, also due in March 2002,
for this purpose.
If Nusamba does not pay the loans when due, and we are obligated to pay
the loan to the commercial bank, we will seek to recover the PT Indocopper
Investama stock as provided by the financing documents, which are governed by
Indonesian law.
SERVICING OUR DEBT WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH, AND OUR ABILITY TO
GENERATE SUFFICIENT CASH DEPENDS ON MANY FACTORS, SOME OF WHICH ARE BEYOND OUR
CONTROL.
Our ability to make payments on and to refinance our debt depends on
our ability to generate sufficient cash flow. This, to a significant extent, is
subject to commodity prices and general economic, financial, regulatory,
political and other factors that are beyond our control. In addition, our
ability to borrow funds in the future to service our debt will depend on our
meeting the financial covenants in our bank credit facilities and other debt
agreements we may have in the future. Future borrowings may not be available to
us under our bank credit facilities or otherwise in amounts sufficient to enable
us to pay our debt or to fund other liquidity needs. As a result, we may need to
23
refinance all or a portion of our debt on or before maturity. Any inability to
generate sufficient cash flow or refinance our debt on favorable terms could
have a material adverse effect on our financial condition.
Political and economic conditions in Indonesia have had a negative
effect on our credit ratings. The major credit rating agencies have generally
had a policy of limiting the credit ratings of companies with operations limited
to a particular country to the credit rating for the sovereign debt of that
country. As of February 2002, the sovereign credit ratings of Indonesia were B3
by Moody's Investors Service and CCC by Standard & Poor's and our credit ratings
on our senior unsecured debt were B3 by Moody's Investors Service and CCC by
Standard & Poor's. Our current credit ratings have an impact on the availability
and cost of capital to us.
OUR MINING OPERATIONS CREATE DIFFICULT AND COSTLY ENVIRONMENTAL CHALLENGES, AND
FUTURE CHANGES IN ENVIRONMENTAL LAWS, OR UNANTICIPATED ENVIRONMENTAL IMPACTS
FROM OUR OPERATIONS, COULD REQUIRE US TO INCUR INCREASED COSTS.
Mining operations on the scale of our operations in Irian Jaya (Papua)
involve significant environmental challenges. Our primary challenge is to
dispose of the large amount of crushed and ground rock material, called
tailings, that results from the process by which we physically separate the
copper, gold and silver from the ore that we mine. Under our tailings management
plan, the river system near our mine transports the tailings to the lowlands
where deposits of the tailings and natural sediments are controlled through a
levee system for future revegetation and reclamation. We incurred costs of $8.2
million in 2000, $11.7 million in 1999 and $8.0 million in 1998 for our tailings
management plan.
Another of our major environmental challenges is managing overburden,
which is the rock that must be moved aside in order to reach the ore in the
mining process. In the presence of air, water and naturally occurring bacteria,
some overburden can cause acid rock drainage, or acidic water containing
dissolved metals which, if not properly managed, can have a negative impact on
the environment.
Certain Indonesian governmental officials have from time to time raised
issues with respect to our tailings management plan and overburden management
plan, including a suggestion that a pipeline system rather than our current
system be implemented for tailings disposal. Our ongoing assessment of tailings
management has identified significant unresolved technical, environmental and
economic issues associated with a pipeline system. Because our mining operations
are remotely located in steep mountainous terrain and in an active seismic area,
a pipeline system would be costly, difficult to construct and maintain, and more
prone to catastrophic failure. For these reasons, we do not believe that a
pipeline system is practical.
We anticipate that we will continue to spend significant financial and
managerial resources on environmental compliance. In addition, changes in
Indonesian environmental laws or unanticipated environmental impacts from our
operations could require us to incur significant additional costs.
THE VOLUME AND GRADE OF THE RESERVES WE RECOVER AND OUR RATES OF PRODUCTION MAY
BE MORE OR LESS THAN ANTICIPATED. IN ADDITION, WE MAY BE UNABLE TO COMPLETE THE
MINING OF ALL OF OUR RESERVES PRIOR TO THE EXPIRATION OF THE INITIAL TERM OF OUR
CONTRACT OF WORK.
Our reserve amounts are determined in accordance with established
mining industry practices and standards, but are only estimates of the mineral
deposits that can be economically and legally recovered. In addition, our mines
may not conform to standard geological expectations. Because ore bodies do not
contain uniform grades of minerals, our metal recovery rates will vary from time
to time, which will result in variations in the volumes of minerals that we can
sell from period to period. Some of our reserves may become unprofitable to
develop if there are unfavorable long-term market price fluctuations in copper
and gold, or if there are significant increases in our operating and capital
costs. In addition, our exploration programs may not result in the discovery of
additional mineral deposits that we can mine profitably.
All of our current proven and probable reserves, including the Grasberg
deposit, are located in Block A. The initial term of our Contract of Work
covering Block A expires at the end of 2021. We can extend this term for
24
two successive 10-year periods, subject to the approval of the Indonesian
government, which cannot be withheld or delayed unreasonably. Our reserve
amounts reflect our estimates of the reserves that can be recovered before 2041
(i.e., before the expiration of the two 10-year extensions) and our current mine
plan has been developed and our operations are based on our receiving the two
10-year extensions. As a result, we do not anticipate the mining of all of our
reserves prior to the end of 2021 based on our current mine plan, and there can
be no assurance that the Indonesian government will approve the extensions.
Based on proven and probable reserves as of December 31, 2001 and our mine plan
as of February 2002, we expect to mine approximately 63 percent of the aggregate
proven and probable ore, representing approximately 71 percent of PT Freeport
Indonesia's share of recoverable copper reserves and approximately 77 percent of
PT Freeport Indonesia's share of recoverable gold reserves, prior to the
expiration of the initial term of our Contract of Work in December 2021.
OUR NET INCOME CAN VARY SIGNIFICANTLY WITH FLUCTUATIONS IN THE MARKET PRICES OF
COPPER AND GOLD.
Our revenues are derived primarily from the sale of copper
concentrates, which also contain significant amounts of gold, and from the sale
of copper cathodes, copper wire rod and copper wire. Most of our copper
concentrates are sold under long-term contracts, but the selling price is based
on world metal prices at or near the time of shipment and delivery.
Copper and gold prices fluctuated widely in 2001, primarily due to the
slowdown in global economic activity and the economic and political
uncertainties created by the terrorist attacks in the United States on September
11, 2001. During 2001, the daily closing price for copper on the London spot
market ranged from 60 cents per pound to 83 cents per pound and the daily
closing price for gold on the London spot market ranged from $256 per ounce to
$293 per ounce.
World metal prices for copper have historically fluctuated widely and
are affected by numerous factors beyond our control, including:
o the strength of the United States economy and the economies of
other industrialized and developing nations;
o available supplies of copper from mine production and
inventories;
o sales by holders and producers of copper;
o demand for industrial products containing copper; and
o speculation.
World gold prices have also historically fluctuated widely and are
affected by numerous factors beyond our control, including:
o the strength of the United States economy and the economies of
other industrialized and developing nations;
o global or regional political or economic crises;
o the relative strength of the United States dollar and other
currencies;
o expectations with respect to the rate of inflation;
o interest rates;
o sales of gold by central banks and other holders;
25
o demand for jewelry containing gold; and
o speculation.
Any material decrease in market prices of copper or gold would have a
material adverse impact on our results of operations and financial condition.
IN ADDITION TO THE USUAL RISKS ENCOUNTERED IN THE MINING INDUSTRY, WE FACE
ADDITIONAL RISKS BECAUSE OUR OPERATIONS ARE LOCATED AN DIFFICULT TERRAIN IN A
VERY REMOTE AREA OF THE WORLD.
Our mining operations are located in steeply mountainous terrain in a
very remote area in Indonesia. These conditions have required us to overcome
special engineering difficulties and to develop extensive infrastructure
facilities. In addition, the area receives considerable rainfall, which has led
to periodic floods and mud slides. The mine site is also in an active seismic
area and has experienced earth tremors from time to time. In addition to these
special risks, we are also subject to the usual risks associated with the mining
industry, such as the risk of encountering unexpected geological conditions that
may result in cave-ins and flooding of mine areas. Our insurance coverages may
not be sufficient to cover an unexpected natural or operating disaster.
Moreover, our insurance policies do not provide coverage for damages and losses
caused by war.
MOVEMENTS IN FOREIGN CURRENCY EXCHANGE RATES OR INTEREST RATES COULD HAVE A
NEGATIVE EFFECT ON OUR OPERATING RESULTS.
All of our revenues are denominated in U.S. dollars. However, some of
our costs and some of our asset and liability accounts are denominated in
Indonesian rupiah, Australian dollars or Spanish pesetas/euros. As a result, our
profitability is generally adversely affected when the U.S. dollar weakens
against these foreign currencies.
The Indonesian rupiah/U.S. dollar exchange rate was volatile during
2001. The rupiah/U.S. dollar daily closing exchange rate ranged from 8,470
rupiahs per U.S. dollar to 11,980 rupiahs per U.S. dollar during 2001, and on
December 31, 2001, the closing exchange rate was 10,160 rupiahs per U.S. dollar.
The Australian dollar/U.S. dollar and euro/U.S. dollar exchange rates also
fluctuated substantially in 2001. During 2001, the Australian dollar/U.S. dollar
daily closing exchange rate ranged from $0.48 per Australian dollar to $0.57 per
Australian dollar and the euro/U.S. dollar daily closing exchange rate ranged
from $0.84 per euro to $0.96 per euro. On December 31, 2001, the closing
exchange rates were $0.51 per Australian dollar and $0.88 per euro.
From time to time we have in the past and may in the future implement
currency hedges intended to reduce our exposure to changes in foreign currency
exchange rates. However, our hedging strategies may not be successful, and any
of our unhedged foreign exchange payment requirements will continue to be
subject to market fluctuations.
BECAUSE WE ARE PRIMARILY A HOLDING COMPANY, OUR ABILITY TO PAY OUR DEBTS DEPENDS
UPON THE ABILITY OF OUR SUBSIDIARIES TO PAY US DIVIDENDS AND TO ADVANCE US
FUNDS. IN ADDITION, OUR ABILITY TO PARTICIPATE IN ANY DISTRIBUTION OF OUR
SUBSIDIARIES' ASSETS IS GENERALLY SUBJECT TO THE PRIOR CLAIMS OF THE
SUBSIDIARIES' CREDITORS.
Because we conduct business primarily through PT Freeport Indonesia,
our major subsidiary, and other subsidiaries, our ability to pay our debts
depends upon the earnings and cash flow of PT Freeport Indonesia and our other
subsidiaries and their ability to pay us dividends and to advance us funds.
Contractual and legal restrictions applicable to our subsidiaries could also
limit our ability to obtain cash from them. Our rights to participate in any
distribution of our subsidiaries' assets upon their liquidation, reorganization
or insolvency would generally be subject to the prior claims of the
subsidiaries' creditors, including trade creditors and preferred stockholders,
if any.
ITEM 3. LEGAL PROCEEDINGS.
Yosefa Alomang v. Freeport-McMoRan Inc. and Freeport-McMoRan Copper & Gold Inc.,
Civ. No. 96-9962 (Orleans Civ. Dist. Ct. La. filed June 19, 1996). The plaintiff
alleges environmental, human rights and social/cultural violations
26
in Indonesia and seeks unspecified monetary damages and other equitable relief.
In March 2000, the Civil District Court for the Parish of Orleans, State of
Louisiana, granted our exception of no cause of action and dismissed the entire
case with prejudice. The plaintiff has appealed to the Louisiana Fourth Circuit
Court of Appeal, which is expected to hear oral arguments in second quarter of
2001. We will continue to defend this action vigorously.
In addition to the foregoing proceedings, we are involved from time to
time in various legal proceedings of a character normally incident to the
ordinary course of our business. We believe that potential liability in such
proceedings would not have a material adverse effect on our financial condition
or results of operations. We maintain liability insurance to cover some, but not
all, potential liabilities normally incident to the ordinary course of our
business as well as other insurance coverage customary in our business, with
coverage limits that we deem prudent.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information as of March 1, 2001 about our executive officers,
including their position or office with Freeport-McMoRan Copper & Gold Inc.
(FCX), PT Freeport Indonesia and Atlantic Copper, is set forth in the following
table and accompanying text:
Name Age Position or Office
---- --- ------------------
Richard C. Adkerson 54 President and Chief Financial Officer of FCX. Director and Executive
Vice President of PT Freeport Indonesia. Chairman of Atlantic
Copper.
W. Russell King 51 Senior Vice President of FCX.
Adrianto Machribie 59 President Director of PT Freeport Indonesia.
James R. Moffett 62 Director, Chairman of the Board and Chief Executive Officer of FCX.
President Commissioner of PT Freeport Indonesia.
Richard C. Adkerson has served as FCX's President since April 1997 and Chief
Financial Officer since October 2000. Mr. Adkerson is also Executive Vice
President and a director of PT Freeport Indonesia, Chairman of Atlantic Copper,
and Co-Chairman of the Board, President and Chief Executive Officer of McMoRan
Exploration Co. (McMoRan). From April 1994 to November 1998 he was Co-Chairman
of the Board and Chief Executive Officer of McMoRan Oil & Gas Co. (McMoRan Oil &
Gas), and from November 1997 to November 1998 he was Vice Chairman of the Board
of Freeport-McMoRan Sulphur Inc. (Freeport Sulphur). Mr. Adkerson served as
Executive Vice President of FCX from July 1995 to April 1997, as Senior Vice
President from February 1994 to July 1995 and as Chief Financial Officer from
July 1995 to November 1998. He also served as Chairman of the Board of Stratus
Properties Inc., a real estate development company, from March 1992 to August
1998, as President from August 1995 to May 1996 and as Chief Executive Officer
from August 1995 to May 1998. Mr. Adkerson served as Vice Chairman of the Board
of Freeport-McMoRan Inc. until December 1997 and as Senior Vice President and
Chief Financial Officer of Freeport-McMoRan Inc. from May 1992 to August 1995.
W. Russell King has served as Senior Vice President of FCX since July 1994. Mr.
King served as Senior Vice President of Freeport-McMoRan Inc. from November 1993
to December 1997.
Adrianto Machribie has served as President Director of PT Freeport Indonesia
since March 1996. From September 1992 to March 1996, Mr. Machribie was a
director and Executive Vice President of PT Freeport Indonesia.
James R. Moffett has served as Chairman of the Board and Chief Executive Officer
of FCX since July 1995 and has served as Chairman of the Board of FCX since May
1992. He is also President Commissioner of PT Freeport Indonesia
27
and Co-Chairman of the Board of McMoRan. From November 1994 to November 1998 he
was Co-Chairman of the Board of McMoRan Oil & Gas and from November 1997 to
November 1998 he was Co-Chairman of the Board of Freeport Sulphur. Mr. Moffett
served as Chairman of the Board of Freeport-McMoRan Inc. from September 1982 to
December 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information set forth under the captions "FCX Class A Common
Shares," "FCX Class B Common Shares" and "Common Share Dividends," on the inside
back cover of our 2000 Annual Report is incorporated herein by reference. As of
March 15, 2001, there were 6,253 and 10,457 holders of record of our Class A and
Class B common stock, respectively.
ITEM 6. SELECTED FINANCIAL DATA.
The information set forth under the caption "Selected Financial and
Operating Data" of our Annual Report is incorporated herein by reference.
Years Ended December 31,
--------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Ratio of earnings to fixed charges 4.5x 3.8x 2.5x 2.9x 2.3x
Ratio of earnings to fixed charges
and preferred stock dividends 2.6x 2.8x 1.9x 2.2x 1.7x
For the ratio of earnings to fixed charges calculation, earnings
consist of income from continuing operations before income taxes, minority
interests and fixed charges. Fixed charges include interest and that portion of
rent deemed representative of interest. For the ratio of earnings to fixed
charges and preferred stock dividends calculation, we assumed that our preferred
stock dividend requirements were equal to the pre-tax earnings that would be
required to cover those dividend requirements. We computed those pre-tax
earnings using actual tax rates for each year.
ITEMS 7. AND 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
The information set forth under the caption "Management's Discussion
and Analysis" of our 2000 Annual Report as well as the "Working Toward
Sustainable Development" report set forth in our 2000 Annual Report are
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our financial statements and the notes thereto, the report thereon of
Arthur Andersen LLP, and the report of management, each as set forth in our 2000
Annual Report, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEMS 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the caption "Information About Nominees
and Directors" of our Proxy Statement submitted to our stockholders in
connection with our 2001 Annual Meeting held on May 3, 2001 is incorporated
herein by reference.
28
ITEMS 11. EXECUTIVE COMPENSATION.
The information set forth under the captions "Director Compensation"
and "Executive Officer Compensation" of our Proxy Statement submitted to our
stockholders in connection with our 2001 Annual Meeting held on May 3, 2001 is
incorporated herein by reference.
ITEMS 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the captions "Stock Ownership of
Directors and Executive Officers" and "Stock Ownership of Certain Beneficial
Owners" of our Proxy Statement submitted to our stockholders in connection with
our 2001 Annual Meeting held on May 3, 2001 is incorporated herein by reference.
ITEMS 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "Certain Transactions" of
our Proxy Statement submitted to our stockholders in connection with our 2001
Annual Meeting held on May 3, 2001 is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1). Financial Statements.
Reference is made to the Index to Financial Statements appearing on
page F-1 hereof.
(a)(2). Financial Statement Schedules.
Reference is made to the Index to Financial Statements appearing on
page F-1 hereof.
(a)(3). Exhibits.
Reference is made to the Exhibit Index beginning on page E-1 hereof.
(b). Reports on Form 8-K.
During the last quarter of the period covered by this report, we did
not file any Current Reports on Form 8-K.
29
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this Amendment No. 1 to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 8, 2002.
FREEPORT-MCMORAN COPPER & GOLD INC.
By: /s/Richard C. Adkerson
--------------------------------------
Richard C. Adkerson
President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Amendment No. 1 has been signed by the following persons on behalf of the
registrant in the capacities indicated on March 8, 2002.
* Chairman of the Board,
-------------------------------------------- Chief Executive Officer and
James R. Moffett Director (Principal
Executive Officer)
* Vice Chairman of the
-------------------------------------------- Board and Director
B. M. Rankin, Jr.
/s/Richard C. Adkerson President and Chief
-------------------------------------------- Financial Officer
Richard C. Adkerson (Principal Financial
Officer)
* Vice President and
-------------------------------------------- Controller-Financial Reporting
C. Donald Whitmire, Jr. (Principal Accounting Officer)
* Director
--------------------------------------------
Robert J. Allison, Jr.
* Director
--------------------------------------------
Robert W. Bruce III
* Director
--------------------------------------------
R. Leigh Clifford
* Director
--------------------------------------------
Robert A. Day
* Director
--------------------------------------------
Gerald J. Ford
* Director
--------------------------------------------
H. Devon Graham, Jr.
Director
--------------------------------------------
Steven Green
S-1
* Director
--------------------------------------------
Oscar Y. L. Groeneveld
* Director
--------------------------------------------
J. Bennett Johnston
* Director
--------------------------------------------
Bobby Lee Lackey
* Director
--------------------------------------------
Gabrielle K. McDonald
Director
--------------------------------------------
J. Stapleton Roy
* Director
--------------------------------------------
J. Taylor Wharton
*By: /s/Richard C. Adkerson
----------------------------------------
Richard C. Adkerson
Attorney-in-Fact
S-2
FREEPORT-McMoRan COPPER & GOLD INC.
INDEX TO FINANCIAL STATEMENTS
Our financial statements and the notes thereto and the report of Arthur
Andersen LLP appearing in our 2000 Annual Report to stockholders are
incorporated herein by reference.
The financial statements in schedule I listed below should be read in
conjunction with our financial statements in our 2000 Annual Report to
stockholders.
Page
Report of Independent Public Accountants F-1
Schedule I-Condensed Financial Information of Registrant F-2
Schedule II-Valuation and Qualifying Accounts F-4
Schedules other than the ones listed above have been omitted since they
are either not required, not applicable or the required information is included
in the financial statements or notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with auditing standards generally
accepted in the United States, the financial statements as of December 31, 2000
and 1999 and for each of the three years in the period ended December 31, 2000
included in Freeport-McMoRan Copper & Gold Inc.'s Annual Report to stockholders
incorporated by reference in this Form 10-K, and have issued our report thereon
dated January 18, 2001. Our audits were made for the purpose of forming an
opinion on those statements taken as a whole. The schedules listed in the index
above are the responsibility of the Company's management and are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
New Orleans, Louisiana,
January 18, 2001
F-1
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
December 31,
---------- ----------
2000 1999
---------- ----------
(In Thousands)
Assets:
Cash and cash equivalents $ 1,161 $ 832
Interest receivable 4,968 7,746
Due from affiliates 20,147 16,862
Notes receivable from PT Freeport Indonesia 602,306 779,991
Note receivable from Nusamba 56, 081 43,702
Investment in PT Freeport Indonesia and PT Indocopper Investama 742,832 824,513
Investment in Atlantic Copper 123,124(a) 97,518(b)
Other assets 43,821 41,616
---------- ----------
Total assets $1,594,440 $1,812,780
========== ==========
Liabilities and Stockholders' Equity:
Accounts payable and accrued liabilities $ 20,016 $ 23,173
Long-term debt, including current portion 999,694 1,060,411
Other long-term liabilities 26,419 --
Deferred income taxes 35,375 44,809
Redeemable preferred stock 475,005 487,507
Stockholders' equity 37,931 196,880
---------- ----------
Total liabilities and stockholders' equity $1,594,440 $1,812,780
========== ==========
STATEMENTS OF INCOME
Years Ended December 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
(In Thousands)
Income from investment in PT Freeport Indonesia and PT
Indocopper Investama, net of PT Freeport Indonesia tax provision $ 178,026 $ 237,606 $ 211,232
Net income (loss) from investment in Atlantic Copper (29,906) (18,982) 4,674
Intercompany charges and eliminations 10,200 (4,457) (7,700)
Exploration expenses (2,428) (7,055) (8,958)
General and administrative expenses (5,744) (8,643) (7,082)
Depreciation and amortization (4,704) (4,468) (4,384)
Interest expense, net (82,321) (76,246) (66,141)
Interest income on PT Freeport Indonesia notes receivable:
Promissory notes 17,423 28,461 29,273
Gold and silver production payment loans 16,395 17,568 19,212
8.235% debenture -- -- 8,101
Other income (expense), net 46 (379) 1,326
Provision for income taxes (20,000) (26,938) (25,705)
--------- --------- ---------
Net income 76,987 136,467 153,848
Preferred dividends (37,487) (35,680) (35,531)
--------- --------- ---------
$ 39,500 $ 100,787 $ 118,317
========= ========= =========
a. Includes additional support payments and commitments to Atlantic Copper
totaling $55.5 million during 2000.
b. Includes a $40.0 million equity contribution in 1999.
The footnotes to the consolidated financial statements of FCX contained in
FCX's 2000 Annual Report to stockholders incorporated by reference herein
are an integral part of these statements.
F-2
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOW
Years Ended December 31,
--------------------------------------
2000 1999 1998
--------- --------- ---------
(In Thousands)
Cash flow from operating activities:
Net income $ 76,987 $ 136,467 $ 153,848
Adjustments to reconcile net income to net cash provided by
operating activities:
Income from investment in PT Freeport Indonesia and
PT Indocopper Investama (178,071) (237,606) (211,232)
Deferred income taxes (8,684) 21,976 16,613
Net (income) loss from investment in Atlantic Copper 29,906 18,982 (4,674)
Elimination of intercompany profit (10,200) 4,457 7,700
Dividends received from PT Freeport Indonesia and
PT Indocopper Investama 268,670 18,361 48,832
Depreciation and amortization 4,704 4,468 4,384
Decrease in interest receivable and due from affiliates 2,527 2,888 50,933
Increase (decrease) in accounts payable and accrued liabilities (4,202) 2,320 (1,699)
Other (29,505)(a) 752 3,208
--------- --------- ---------
Net cash provided by (used in) operating activities 152,132 (26,935) 67,913
--------- --------- ---------
Cash flow from investing activities:
Investment in Atlantic Copper (3,000) (40,000) --
Other (3,559) (2,403) (9,583)
--------- --------- ---------
Net cash used in investing activities (6,559) (42,403) (9,583)
--------- --------- ---------
Cash flow from financing activities: Cash dividends paid:
Class A common stock -- -- (14,157)
Class B common stock -- -- (21,225)
Step-up convertible preferred stock (24,500) (24,500) (24,500)
Mandatory redeemable preferred stock (13,213) (13,520) (14,657)
Proceeds from debt 9,532 104,673 161,506
Repayment of debt (70,249) (11,514) (19,504)
Partial redemption of preferred stock (11,893) (11,946) --
Repayment from PT Freeport Indonesia 177,077 51,946 150,000
Loans to Nusamba (12,379) (18,264) (17,824)
Purchases of FCX common shares (199,945) (7,921) (259,213)
Other 326 414 545
--------- --------- ---------
Net cash provided by (used in) financing activities (145,244) 69,368 (59,029)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 329 30 (699)
Cash and cash equivalents at beginning of year 832 802 1,501
--------- --------- ---------
Cash and cash equivalents at end of year $ 1,161 $ 832 $ 802
========= ========= =========
Interest paid $ 85,190 $ 76,804 $ 68,950
========= ========= =========
Taxes paid $ 29,736 $ 5,281 $ 8,629
========= ========= =========
a. Includes support payments to Atlantic Copper totaling $29.4 million.
The footnotes to the consolidated financial statements of FCX contained in
FCX's 2000 Annual Report to stockholders incorporated by reference herein are
an integral part of these statements.
F-3
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C Col. D Col. E
------------ ------------ ---------- ----------- -----------
Additions
--------------------------
Balance at Charged to Charged to Other Balance at
Beginning Costs and Other Add End of
of Period Expense Accounts (Deduct) Period
------------ ------------ ---------- ----------- -----------
(In Thousands)
RESERVES AND ALLOWANCES
DEDUCTED FROM ASSET
ACCOUNTS:
2000
Materials and supplies
reserves $ 18,751 $ 6,000 $ -- $ (7,943)(a) $ 16,808
Allowance for uncollectible
value-added taxes 5,491 -- -- (5,191)(b) 300
Allowance for uncollectible
accounts receivable -- 2,500 -- -- 2,500
1999
Materials and supplies
reserves 24,633 1,500 -- (7,382)(a) 18,751
Allowance for uncollectible
value-added taxes 5,491 -- -- -- 5,491
1998
Materials and supplies
reserves 29,513 3,000 -- (7,880)(a) 24,633
Allowance for uncollectible
value-added taxes 3,825 833 833 -- 5,491
RECLAMATION AND MINE
SHUTDOWN RESERVES:
2000
PT Freeport Indonesia 14,085 5,135 - -- 19,220
1999
PT Freeport Indonesia 9,229 4,856 - -- 14,085
1998
PT Freeport Indonesia 5,466 3,763 - -- 9,229
a. Primarily represents write-offs of obsolete materials and supplies
inventories.
b. Represents a reversal of previously accrued amounts based on an updated
analysis of historical refunds of value-added tax payments.
F-4
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Agreement, dated as of May 2, 1995 by and between Freeport-McMoRan Inc.
(FTX) and FCX and The RTZ Corporation PLC, RTZ Indonesia Limited, and
RTZ America, Inc. (the Rio Tinto Agreement). Incorporated by reference
to Exhibit 2.1 to the Current Report on Form 8-K of FTX dated as of May
26, 1995.
2.2 Amendment dated May 31, 1995 to the Rio Tinto Agreement. Incorporated
by reference to Exhibit 2.1 to the Quarterly Report on Form 10-Q of FTX
for the quarter ended June 30, 1995 (the FCX 1995 Second Quarter Form
10-Q).
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 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 Form
8-A of FCX dated July 15, 1994 .
4.12 Form of Silver-Denominated Depositary Receipt. Incorporated by
reference to Exhibit 4.1 to the Form 8-A of FCX dated July 15, 1994.
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
------- -----------
4.18 $200 million Credit Agreement dated as of June 30, 1995 (the CDF) among
PT Freeport Indonesia, FCX, the several financial institutions that are
parties thereto, First Trust of New York, National Association, as PT
Freeport Indonesia Trustee, Chemical Bank, as administrative agent and
FCX collateral agent, The Chase Manhattan Bank (National Association),
as documentary agent. Incorporated by reference to Exhibit 4.2 to the
FCX 1995 Third Quarter Form 10-Q.
4.19 Amendment dated as of July 15, 1996 to the CDF among PT Freeport
Indonesia, FCX, the several financial institutions that are parties
thereto, First Trust of New York, National Association, as PT Freeport
Indonesia Trustee, Chemical Bank, as administrative agent and FCX
collateral agent, and The Chase Manhattan Bank (National Association),
as documentary agent. Incorporated by reference to Exhibit 4.1 to the
FCX 1996 Third Quarter Form 10-Q.
4.20 Amendment dated as of October 9, 1996 to the CDF among PT Freeport
Indonesia, FCX, the several financial institutions that are parties
thereto, First Trust of New York, National Association, as 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 10.2 to the FCX 1995 Form 10-K.
10.2 Contract of Work dated August 15, 1994 between the Government of the
Republic of Indonesia and PT Irja Eastern Minerals Corporation.
Incorporated by reference to Exhibit 10.2 to the FCX 1995 Form 10-K.
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
10.33)
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.
10.16 FCX 1995 Stock Option Plan. Incorporated by reference to Exhibit 10.13
to the FCX 1996 Form 10-K.
E-4
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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 FCX 1999 Form 10-K.
10.20 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.
10.21 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.
10.22 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.
10.23 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.
10.24 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.
10.25 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.
10.26 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.
10.27 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.
10.28 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.
10.29 Supplemental Agreement between FMS and B. M. Rankin, Jr. dated February
5, 2001. Incorporated by reference to Exhibit 10.29 to the Annual
Report of FCX on Form 10-K for the year ended December 31, 2000 and
filed March 23, 2001 (the FCX 2000 Form 10-K).
10.30 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.
10.31 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.
10.32 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.
E-5
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.33 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.
12.1 FCX Computation of Ratio of Earnings to Fixed Charges.*
13.1 Those portions of the 2000 Annual Report to stockholders of FCX that
are incorporated herein by reference.
21.1 Subsidiaries of FCX.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Independent Mining Consultants, Inc.
24.1 Certified resolution of the Board of Directors of FCX authorizing this
report to be signed on behalf of any officer or director pursuant to a
Power of Attorney.*
24.2 Powers of Attorney pursuant to which this report has been signed on
behalf of certain officers and directors of FCX.*
----------
* Previously filed with Form 10-K for year ended December 31, 2000.
E-6