fcx2q08-10q.htm

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
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)
  
   
One North Central Avenue
  
Phoenix, AZ
85004-4414
(Address of principal executive offices)
(Zip Code)
 
(602) 366-8100
(Registrant's telephone number, including area code)
 
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.
R Yes ÿo No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer R   Accelerated filer oÿ Non-accelerated filer oÿ Smaller reporting company oÿ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ÿo Yes R No

On July 31, 2008, there were issued and outstanding 383,957,306 shares of the registrant’s Common Stock, par value $0.10 per share.

 
 

FREEPORT-McMoRan COPPER & GOLD INC.

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Table of Contents
FREEPORT-McMoRan COPPER & GOLD INC.
PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements.

FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

   
June 30,
    
December 31,
  
   
2008
    
2007
  
   
(In Millions)
  
                 
ASSETS
                
Current assets:
                
    Cash and cash equivalents
  
$
1,648
    
$
1,626
  
Trade accounts receivable
    
1,964
      
1,099
  
Other accounts receivable
    
247
      
196
  
Product inventories and materials and supplies, net
    
2,365
      
2,178
  
Mill and leach stockpiles
    
866
      
707
  
Prepaid expenses and other current assets
    
81
      
97
  
Total current assets
    
7,171
      
5,903
  
Property, plant, equipment and development costs, net
    
26,129
      
25,715
  
Goodwill
    
6,048
      
6,105
  
Long-term mill and leach stockpiles
    
1,215
      
1,106
  
Trust assets
    
598
      
606
  
Intangible assets, net
    
448
      
472
  
Other assets and deferred charges
    
739
      
754
  
Total assets
  
$
42,348
    
$
40,661
  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
Accounts payable and accrued liabilities
  
$
2,405
    
$
2,345
  
Accrued income taxes
    
288
      
420
  
Current portion of reclamation and environmental liabilities
    
247
      
263
  
Dividends payable
    
213
      
212
  
Current portion of long-term debt and short-term borrowings
    
31
      
31
  
Copper price protection program
    
–
      
598
  
Total current liabilities
    
3,184
      
3,869
  
Long-term debt, less current portion:
                
Senior notes
    
6,886
      
6,928
  
Project financing, equipment loans and other
    
357
      
252
  
Revolving credit facility
    
90
      
–
  
Total long-term debt, less current portion
    
7,333
      
7,180
  
Deferred income taxes
    
6,986
      
7,300
  
Reclamation and environmental liabilities, less current portion
    
1,937
      
1,733
  
Other liabilities
    
1,120
      
1,106
  
Total liabilities
    
20,560
      
21,188
  
Minority interests in consolidated subsidiaries
    
1,616
      
1,239
  
Stockholders’ equity:
                
5½% Convertible Perpetual Preferred Stock
    
1,100
      
1,100
  
6¾% Mandatory Convertible Preferred Stock
    
2,875
      
2,875
  
Common stock
    
50
      
50
  
Capital in excess of par value
    
13,675
      
13,407
  
Retained earnings
    
5,332
      
3,601
  
Accumulated other comprehensive income
    
42
      
42
  
Common stock held in treasury
    
(2,902
)
    
(2,841
)
Total stockholders’ equity
    
20,172
      
18,234
  
Total liabilities and stockholders’ equity
  
$
42,348
    
$
40,661
  
                 

The accompanying notes are an integral part of these consolidated financial statements.

 
3
 
Table of Contents
FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


                         
 
Three Months Ended
  
Six Months Ended
  
 
June 30,
  
June 30,
  
 
2008
  
2007
  
2008
  
2007
  
 
(In Millions, Except Per Share Amounts)
                         
Revenues
$
5,441
  
$
5,443
  
$
11,113
  
$
7,689
  
Cost of sales:
                        
Production and delivery
  
2,720
    
2,540
    
5,442
    
3,443
  
Depreciation, depletion and amortization
  
462
    
374
    
880
    
490
  
Total cost of sales
  
3,182
    
2,914
    
6,322
    
3,933
  
Selling, general and administrative expenses
  
126
    
135
    
210
    
183
  
Exploration and research expenses
  
80
    
40
    
132
    
47
  
Total costs and expenses
  
3,388
    
3,089
    
6,664
    
4,163
  
Operating income
  
2,053
    
2,354
    
4,449
    
3,526
  
Interest expense, net
  
(140
)
  
(179
)
  
(305
)
  
(231
)
Losses on early extinguishment of debt
  
–
    
(47
)
  
(6
)
  
(135
)
Gains on sales of assets
  
13
    
38
    
13
    
38
  
Other income, net
  
9
    
38
    
11
    
62
  
Equity in affiliated companies’ net earnings
  
7
    
7
    
14
    
12
  
Income from continuing operations before income
                        
taxes and minority interests
  
1,942
    
2,211
    
4,176
    
3,272
  
Provision for income taxes
  
(658
)
  
(764
)
  
(1,387
)
  
(1,222
)
Minority interests in net income of consolidated
                        
subsidiaries
  
(274
)
  
(307
)
  
(593
)
  
(421
)
Income from continuing operations
  
1,010
    
1,140
    
2,196
    
1,629
  
Income from discontinued operations, net of taxes
  
–
    
28
    
–
    
32
  
Net income
  
1,010
    
1,168
    
2,196
    
1,661
  
Preferred dividends
  
(63
)
  
(64
)
  
(127
)
  
(81
)
Net income applicable to common stock
$
947
  
$
1,104
  
$
2,069
  
$
1,580
  
                         
Basic net income per share of common stock:
                        
Continuing operations
$
2.47
  
$
2.83
  
$
5.40
  
$
5.16
  
Discontinued operations
  
–
    
0.07
    
–
    
0.11
  
Basic net income per share of common stock
$
2.47
  
$
2.90
  
$
5.40
  
$
5.27
  
                         
Diluted net income per share of common stock:
                        
Continuing operations
$
2.25
  
$
2.56
  
$
4.89
  
$
4.71
  
Discontinued operations
  
–
    
0.06
    
–
    
0.09
  
Diluted net income per share of common stock
$
2.25
  
$
2.62
  
$
4.89
  
$
4.80
  
                         
Average common shares outstanding:
                        
Basic
  
384
    
381
    
383
    
300
  
Diluted
  
450
    
446
    
449
    
346
  
                         
Dividends declared per share of common stock
$
0.4375
  
$
0.3125
  
$
0.875
  
$
0.625
  

The accompanying notes are an integral part of these consolidated financial statements.

 
4
 
Table of Contents
FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

   
Six Months Ended
  
   
June 30,
  
   
2008
    
2007
  
   
(In Millions)
  
Cash flow from operating activities:
                
Net income
  
$
2,196
    
$
1,661
  
Adjustments to reconcile net income to net cash provided by
                
operating activities:
                
Depreciation, depletion and amortization
    
880
      
495
  
Minority interests in net income of consolidated subsidiaries
    
593
      
427
  
Stock-based compensation
    
92
      
80
  
Accretion of reclamation and environmental liabilities
    
74
      
12
  
Unrealized losses on copper price protection program
    
–
      
168
  
Losses on early extinguishment of debt
    
6
      
135
  
Deferred income taxes
    
(114
)
    
(102
)
Increase in long-term mill and leach stockpiles
    
(109
)
    
(101
)
Increase in other long-term liabilities
    
71
      
68
  
Other, net
    
41
      
(4
)
(Increases) decreases in working capital, excluding amounts
                
acquired from Phelps Dodge:
                
Accounts receivable
    
(921
)
    
(557
)
Inventories
    
(371
)
    
298
  
Prepaid expenses and other
    
9
      
16
  
Accounts payable and accrued liabilities
    
(525
)
    
210
  
Accrued income taxes
    
(212
)
    
(20
)
Settlement of reclamation and environmental liabilities
    
(86
)
    
(36
)
Net cash provided by operating activities
    
1,624
      
2,750
  
                 
Cash flow from investing activities:
                
North America capital expenditures
    
(367
)
    
(353
)
South America capital expenditures
    
(166
)
    
(36
)
Indonesia capital expenditures
    
(223
)
    
(175
)
Africa capital expenditures
    
(384
)
    
(76
)
Other capital expenditures
    
(23
)
    
(32
)
Acquisition of Phelps Dodge, net of cash acquired
    
(1
)
    
(13,906
)
Proceeds from the sale of assets and other, net
    
56
      
90
  
Net cash used in investing activities
    
(1,108
)
    
(14,488
)
                 
Cash flow from financing activities:
                
Proceeds from term loans under bank credit facility
    
–
      
10,000
  
Repayments of term loans under bank credit facility
    
–
      
(7,550
)
Net proceeds from sales of senior notes
    
–
      
5,880
  
Net proceeds from sale of common stock
    
–
      
2,816
  
Net proceeds from sale of 6¾% Mandatory Convertible Preferred Stock
    
–
      
2,803
  
Proceeds from revolving credit facility and other debt
    
524
      
227
  
Repayments of revolving credit facility and other debt
    
(384
)
    
(481
)
Cash dividends paid:
                
Common stock
    
(337
)
    
(182
)
Preferred stock
    
(127
)
    
(30
)
Minority interests
    
(280
)
    
(314
)
Net proceeds from (payments for) exercised stock options
    
22
      
(24
)
Excess tax benefit from exercised stock options
    
25
      
7
  
Bank credit facilities fees and other, net
    
63
      
(243
)
Net cash (used in) provided by financing activities
    
(494
)
    
12,909
  
                 
Net increase in cash and cash equivalents
    
22
      
1,171
  
Cash and cash equivalents at beginning of year
    
1,626
      
907
  
Cash and cash equivalents at end of period
  
$
1,648
    
$
2,078
  

The accompanying notes are an integral part of these consolidated financial statements.

 
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Table of Contents
FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

                                     
   
Convertible Perpetual
  
Mandatory Convertible
              
Accumulated
  
Common Stock
        
   
Preferred Stock
  
Preferred Stock
  
Common Stock
          
Other
  
Held in Treasury
        
   
Number
      
Number
      
Number
      
Capital in
      
Compre-
  
Number
            
   
of
  
At Par
  
of
  
At Par
  
of
  
At Par
  
Excess of
  
Retained
  
hensive
  
of
  
At
  
Stockholders’
  
   
Shares
  
Value
  
Shares
  
Value
  
Shares
  
Value
  
Par Value
  
Earnings
  
Income
  
Shares
  
Cost
  
Equity
  
   
(In Millions)
  
Balance at December 31, 2007
  
1
  
$
1,100
    
29
  
$
2,875
    
497
  
$
50
  
$
13,407
  
$
3,601
  
$
42
    
114
  
$
(2,841
)
$
18,234
  
Exercised stock options, issued
                                                                        
restricted stock and other
  
–
    
–
    
–
    
–
    
2
    
–
    
203
    
–
    
–
    
–
    
–
    
203
  
Stock-based compensation costs
  
–
    
–
    
–
    
–
    
–
    
–
    
56
    
–
    
–
    
–
    
–
    
56
  
Tax benefit for stock option
                                                                        
exercises and restricted stock
  
–
    
–
    
–
    
–
    
–
    
–
    
9
    
–
    
–
    
–
    
–
    
9
  
Tender of shares for exercised
                                                                        
stock options and restricted
                                                                        
stock
  
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
1
    
(61
)
  
(61
)
Dividends on common stock
  
–
    
–
    
–
    
–
    
–
    
–
    
–
    
(338
)
  
–
    
–
    
–
    
(338
)
Dividends on preferred stock
  
–
    
–
    
–
    
–
    
–
    
–
    
–
    
(127
)
  
–
    
–
    
–
    
(127
)
Comprehensive income:
                                                                        
Net income
  
–
    
–
    
–
    
–
    
–
    
–
    
–
    
2,196
    
–
    
–
    
–
    
2,196
  
Other comprehensive income,
                                                                        
net of taxes:
                                                                        
Unrealized losses on
                                                                        
    securities
  
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
(3
)
  
–
    
–
    
(3
)
Defined benefit plans:
                                                                        
Amortization of
                                                                        
unrecognized amounts
  
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
3
    
–
    
–
    
3
  
Other comprehensive income
  
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
  
Total comprehensive income
  
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
2,196
  
Balance at June 30, 2008
  
1
  
$
1,100
    
29
  
$
2,875
    
499
  
$
50
  
$
13,675
  
$
5,332
  
$
42
    
115
  
$
(2,902
)
$
20,172
  
                                                                         

The accompanying notes are an integral part of these consolidated financial statements.

 
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Table of Contents
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.  
GENERAL INFORMATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by generally accepted accounting principles (GAAP) in the United States (U.S.). Therefore, this information should be read in conjunction with Freeport-McMoRan Copper & Gold Inc.’s (FCX) consolidated financial statements and notes contained in its 2007 Annual Report on Form 10-K. The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. With the exception of certain adjustments associated with the acquisition of Phelps Dodge Corporation (Phelps Dodge), all such adjustments are, in the opinion of management, of a normal recurring nature. Operating results for the three-month and six-month periods ended June 30, 2008, are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

As further discussed in Note 2, on March 19, 2007, FCX acquired Phelps Dodge. The six months ended June 30, 2007, financial results include Phelps Dodge’s results beginning March 20, 2007. Additionally, Phelps Dodge had an international wire and cable business, Phelps Dodge International Corporation (PDIC), which FCX sold on October 31, 2007. As a result of the sale, Phelps Dodge’s three-month and six-month periods ended June 30, 2007, operating results have been restated to remove PDIC from continuing operations and report PDIC as discontinued operations in the consolidated statements of income (see Note 3).

2.  
ACQUISITION OF PHELPS DODGE
On March 19, 2007, Phelps Dodge became a wholly owned subsidiary of FCX. The estimated fair value of assets acquired and liabilities assumed and the results of Phelps Dodge’s operations are included in FCX’s consolidated financial statements beginning March 20, 2007.

The acquisition was accounted for under the purchase method as required by Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” with FCX as the accounting acquirer. In the acquisition, each share of Phelps Dodge common stock was exchanged for 0.67 of a share of FCX common stock and $88.00 in cash. As a result, FCX issued 136.9 million shares and paid $18.0 billion in cash to Phelps Dodge stockholders for total consideration of $25.8 billion.

In accordance with the purchase method of accounting, the purchase price paid was determined at the date of the public announcement of the transaction and was allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the closing date of March 19, 2007. In valuing acquired assets and assumed liabilities, fair values were based on, but were not limited to: quoted market prices, where available; the intent of FCX with respect to whether the assets purchased were to be held, sold or abandoned; expected future cash flows; current replacement cost for similar capacity for certain fixed assets; market rate assumptions for contractual obligations; and appropriate discount rates and growth rates. A decline in copper or molybdenum prices from those used to estimate the fair values of the acquired assets could result in impairment to the carrying amounts assigned to inventories; mill and leach stockpiles; property, plant and equipment; and goodwill. At the date of acquisition of Phelps Dodge, price projections used to value the assets acquired ranged from a near-term price of $2.98 per pound for copper and $26.20 per pound for molybdenum to a long-term average price of $1.20 per pound for copper and $8.00 per pound for molybdenum.
 
 
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Table of Contents
 
A summary of the final purchase price allocation as of March 19, 2007, follows (in billions):

         
Purchase
  
 
Historical
  
Fair Value
  
Price
  
 
Balances
  
Adjustments
  
Allocation
  
Cash and cash equivalents
$
4.2
  
$
–
  
$
4.2
  
Inventories, including mill and leach stockpiles
  
0.9
    
2.8
    
3.7
  
Property, plant and equipmenta
  
6.0
    
16.2
    
22.2
  
Other assets
  
3.1
    
0.2
    
3.3
  
Allocation to goodwill
  
–
    
6.2
    
6.2
b
Total assets
  
14.2
    
25.4
    
39.6
  
Deferred income taxes (current and long-term)c
  
(0.7
)
  
(6.3
)
  
(7.0
)
Other liabilities
  
(4.1
)
  
(1.5
)
  
(5.6
)
Minority interests
  
(1.2
)
  
–
    
(1.2
)
Total
$
8.2
  
$
17.6
  
$
25.8
  
                   
 
a.  
Includes amounts for proven and probable reserves and values assigned to value beyond proven and probable reserves (VBPP).
 
b.  
Includes $160 million of goodwill associated with PDIC, which was sold in the fourth quarter of 2007.
 
c.  
Deferred income taxes have been recognized based on the difference between the tax basis and the fair values assigned to net assets.

Goodwill arising from the acquisition of Phelps Dodge was $6.2 billion, which primarily related to the requirement to recognize a deferred tax liability for the difference between the assigned values and the tax bases of assets acquired and liabilities assumed in a business combination. FCX allocated goodwill to the individual mines it believes have contributed to the excess purchase price and also included consideration of the mines’ potential for future growth (see Note 10 for the allocation of goodwill to FCX’s reportable segments).

Pro Forma Financial Information.  The following pro forma information assumes that FCX acquired Phelps Dodge effective January 1, 2007. The most significant adjustments relate to the purchase accounting impacts on the carrying values of acquired metal inventories (including mill and leach stockpiles) and property, plant and equipment using March 19, 2007, metal prices and assumptions (in millions, except per share data):

 
Historical
          
       
Phelps
  
Pro Forma
  
Pro Forma
  
Six months ended June 30, 2007
FCX
  
Dodgea
  
Adjustments
  
Consolidated
  
Revenues
$
7,689
  
$
2,294
  
$
60
  
$
10,043
b
Operating income
$
3,526
  
$
793
  
$
(356
)
$
3,963
b,c
Income from continuing operations before
                        
income taxes and minority interests
$
3,272
  
$
837
  
$
(472
)
$
3,637
b,c,d,e
Net income from continuing operations
                        
applicable to common stock
$
1,548
  
$
493
  
$
(346
)
$
1,695
b,c,d,e
Diluted net income per share of common
                        
stock from continuing operations
$
4.71
    
N/A
    
N/A
  
$
4.08
b,c,d,e
Diluted weighted-average shares of
                        
common stock outstanding
  
346
    
N/A
    
N/A
    
446
f
                         
 
a.  
Represents the results of Phelps Dodge’s operations from January 1, 2007, through March 19, 2007. Beginning March 20, 2007, the results of Phelps Dodge’s operations are included in FCX’s consolidated financial statements.
 
Additionally, for comparative purposes, the historical Phelps Dodge financial information for the six months ended June 30, 2007, represents results from continuing operations, and therefore, excludes the results of PDIC (i.e., discontinued operations).

 
8
 
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b.  
Includes charges to revenues for mark-to-market accounting adjustments on the copper price protection program totaling $188 million ($115 million to net income or $0.26 per share). Also includes pro forma credits for amortization of acquired intangible liabilities totaling $60 million ($37 million to net income or $0.08 per share).
 
c.  
Includes charges associated with the impacts of the increases in the carrying values of acquired metal inventories (including mill and leach stockpiles) and property, plant and equipment, and also includes the amortization of intangible assets and liabilities resulting from the acquisition totaling $1.1 billion ($679 million to net income or $1.52 per share).
 
d.  
Excludes net losses on early extinguishment of debt totaling $88 million ($69 million to net income or $0.15 per share) for financing transactions related to the acquisition of Phelps Dodge.
 
e.  
Includes interest expense from the debt issued in connection with the acquisition of Phelps Dodge totaling $341 million ($266 million to net income or $0.60 per share). Also includes accretion on the fair value of environmental liabilities resulting from the acquisition totaling $48 million ($29 million to net income or $0.07 per share).
 
f.  
Estimated pro forma diluted weighted-average shares of common stock outstanding for the six months ended June 30, 2007, follow (in millions):

Average number of basic shares of FCX common stock
      
outstanding prior to the acquisition of Phelps Dodge
  
198
  
Shares of FCX common stock issued in the acquisition
  
137
  
Sale of shares of FCX common stock
  
47
  
Assumed conversion of Mandatory Convertible Preferred Stock
  
39
  
Assumed conversion of other dilutive securities
  
25
  
Pro forma weighted-average shares of FCX common stock outstanding
  
446
  
       
The above pro forma consolidated information has been prepared for illustrative purposes only and is not intended to be indicative of the results that would actually have occurred, or the results expected in future periods, had the events reflected herein occurred on the dates indicated.

3.  
DISCONTINUED OPERATIONS
On October 31, 2007, FCX sold its international wire and cable business, PDIC, for $735 million, which resulted in a net loss of $14 million ($9 million to net income) for transaction-related costs. The transaction generated after-tax proceeds of approximately $650 million (net proceeds of $597 million after taxes, transaction-related costs and PDIC cash).

As a result of the sale, the operating results of PDIC have been removed from continuing operations in the consolidated statements of income. Selected financial information related to discontinued operations for the three months ended June 30, 2007, and for the period March 20, 2007 through June 30, 2007, follows (in millions):

 
Three Months
  
March 20, 2007
  
 
Ended
  
Through
  
 
June 30, 2007
  
June 30, 2007
  
Revenues
$
364
  
$
421
  
Operating income
  
45
    
52
  
Provision for income taxes
  
13
    
15
  
Income from discontinued operations
  
28
    
32
  
             


 
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4.  
PENSION AND POSTRETIREMENT BENEFITS
The components of net periodic benefit cost for pension and postretirement benefits for the three-month and six-month periods ended June 30, 2008 and 2007 (six months ended June 30, 2007 includes Phelps Dodge’s plans for the period March 20, 2007, through June 30, 2007) follow (in millions):

   
Three Months Ended
  
Six Months Ended
  
   
June 30,
  
June 30,
  
   
2008
  
2007
  
2008
  
2007
  
Service cost
  
$
9
  
$
9
  
$
18
  
$
11
  
Interest cost
    
27
    
25
    
54
    
31
  
Expected return on plan assets
    
(32
)
  
(32
)
  
(64
)
  
(36
)
Amortization of prior service cost
    
1
    
1
    
3
    
2
  
Amortization of net actuarial loss
    
1
    
1
    
1
    
1
  
Net periodic benefit cost
  
$
6
  
$
4
  
$
12
  
$
9
  
                           
The increase in service and interest costs and the expected return on plan assets for the six months ended June 30, 2008, resulted primarily from the impact of the Phelps Dodge plans for the full six months in 2008.

5.  
EARNINGS PER SHARE
FCX’s basic net income per share of common stock was calculated by dividing net income applicable to common stock by the weighted-average shares of common stock outstanding during the period. The following is a reconciliation of net income and weighted-average shares of common stock outstanding for purposes of calculating diluted net income per share for the three-month and six-month periods ended June 30, 2008 and 2007 (in millions, except per share amounts):

                           
   
Three Months Ended
  
Six Months Ended
  
   
June 30,
  
June 30,
  
   
2008
  
2007
  
2008
  
2007
  
Income from continuing operations
  
$
1,010
  
$
1,140
  
$
2,196
  
$
1,629
  
Preferred dividends
    
(63
)
  
(64
)
  
(127
)
  
(81
)
Income from continuing operations applicable
                          
to common stock
    
947
    
1,076
    
2,069
    
1,548
  
Plus income impact of assumed conversion of:
                          
6¾% Mandatory Convertible Preferred Stock
    
48
    
49
    
97
    
51
  
5½% Convertible Perpetual Preferred Stock
    
15
    
15
    
30
    
30
  
Diluted net income from continuing operations
                          
applicable to common stock
    
1,010
    
1,140
    
2,196
    
1,629
  
Income from discontinued operations
    
–
    
28
    
–
    
32
  
Diluted net income applicable to common stock
  
$
1,010
  
$
1,168
  
$
2,196
  
$
1,661
  
                           
Weighted-average shares of common stock outstanding:
    
384
    
381
    
383
    
300
  
Add stock issuable upon conversion, exercise or
                          
vesting of:
                          
6¾% Mandatory Convertible Preferred Stock
    
39
    
39
    
39
    
21
  
5½% Convertible Perpetual Preferred Stock
    
23
    
23
    
23
    
23
  
Dilutive stock options
    
3
    
2
    
3
    
1
  
Restricted stock
    
1
    
1
    
1
    
1
  
Weighted-average shares of common stock outstanding
                          
for purposes of calculating diluted net income per share
    
450
    
446
    
449
    
346
  
                           
Diluted net income per share of common stock:
                          
Continuing operations
  
$
2.25
  
$
2.56
  
$
4.89
  
$
4.71
  
Discontinued operations
    
–
    
0.06
    
–
    
0.09
  
Diluted net income per share of common stock
  
$
2.25
  
$
2.62
  
$
4.89
  
$
4.80
  
                           
Outstanding stock options with exercise prices greater than the average market price of FCX’s common stock during the period are excluded from the computation of diluted net income per share of common stock. FCX’s
 
10
 
convertible instruments are also excluded when including the conversion of these instruments increases reported diluted net income per share. Excluded amounts were approximately 150,000 stock options with a weighted-average exercise price of $112.82 for second-quarter 2008 and approximately 75,000 stock options with a weighted-average exercise price of $112.82 for the six months ended June 30, 2008. Excluded amounts were approximately 169,000 stock options with a weighted-average exercise price of $78.92 for second-quarter 2007 and approximately 568,000 stock options with a weighted-average exercise price of $67.71 for the six months ended June 30, 2007.

6.  
INVENTORIES, AND MILL AND LEACH STOCKPILES
The components of inventories follow (in millions):
 
   
June 30,
  
December 31,
  
   
2008
  
2007
  
Mining Operations:
              
Raw materials
  
$
20
  
$
1
  
Work-in-process
    
111
    
71
  
Finished goodsa
    
813
    
898
  
Atlantic Copper:
              
Raw materials (concentrates)
    
212
    
164
  
Work-in-process
    
215
    
220
  
Finished goods
    
9
    
6
  
Total product inventories
    
1,380
    
1,360
  
Total materials and supplies, netb
    
985
    
818
  
Total inventories
  
$
2,365
  
$
2,178
  
               
a.  
Primarily includes copper concentrates, anodes, cathodes and rod, and molybdenum.
 
b.  
Materials and supplies inventory is net of obsolescence reserves totaling $18 million at June 30, 2008, and $16 million at December 31, 2007.

The following is a detail of mill and leach stockpiles (in millions):

   
June 30,
  
December 31,
  
   
2008
  
2007
  
Current:
              
Mill stockpiles
  
$
4
  
$
6
  
Leach stockpiles
    
862
    
701
  
Total current mill and leach stockpiles
  
$
866
  
$
707
  
               
Long-terma:
              
Mill stockpiles
  
$
314
  
$
248
  
Leach stockpiles
    
901
    
858
  
Total long-term mill and leach stockpiles
  
$
1,215
  
$
1,106
  
               
 
a.  
Metals in stockpiles not expected to be recovered within the next 12 months.


 
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7.  
INCOME TAXES
FCX’s second-quarter 2008 income tax provision from continuing operations resulted from taxes on international operations ($546 million) and U.S. taxes ($112 million). FCX’s income tax provision for the first six months of 2008 included taxes on international operations ($1.1 billion) and U.S. taxes ($262 million). The difference between FCX’s consolidated effective income tax rate of approximately 33 percent for the first six months of 2008 and the U.S. federal statutory rate of 35 percent primarily was attributable to a U.S. benefit for percentage depletion, partially offset by withholding taxes and incremental U.S. income tax accrued on foreign earnings.

FCX’s second-quarter 2007 income tax provision from continuing operations resulted from taxes on earnings at international operations ($626 million) and U.S. taxes ($138 million). FCX’s income tax provision for the first six months of 2007 included taxes on international operations ($1.1 billion) and U.S. taxes ($92 million). The difference between FCX’s consolidated effective income tax rate of approximately 37 percent for the first six months of 2007 and the U.S. federal statutory rate of 35 percent primarily was attributable to (i) withholding taxes incurred in connection with earnings from Indonesia and South America operations, (ii) income taxes incurred by PT Indocopper Investama, a wholly owned subsidiary of FCX whose only asset is its investment in PT Freeport Indonesia and (iii) a U.S. foreign tax credit limitation; partly offset by a U.S. benefit for percentage depletion.

8.  
INTEREST COSTS
Capitalized interest totaled $33 million in second-quarter 2008, $50 million in second-quarter 2007, $55 million for the first six months of 2008 and $57 million for the first six months of 2007.

9.  
NEW ACCOUNTING STANDARDS
Fair Value Measurements. In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, “Fair Value Measurements,” which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS No. 157 does not require any new fair value measurements under U.S. GAAP but rather establishes a common definition of fair value, provides a framework for measuring fair value under U.S. GAAP and expands disclosure requirements about fair value measurements. In February 2008, FASB issued FASB Staff Position (FSP) No. FAS 157-2, which delays the effective date of SFAS No. 157 for nonfinancial assets or liabilities that are not required or permitted to be measured at fair value on a recurring basis to fiscal years beginning after November 15, 2008, and interim periods within those years. Effective January 1, 2008, FCX adopted SFAS No. 157 for financial assets and liabilities recognized at fair value on a recurring basis. This partial adoption of SFAS No. 157 did not have a material impact on our financial reporting and disclosures as FCX’s financial assets are measured using quoted market prices, or Level 1 inputs. FCX is currently evaluating the impact that the adoption of SFAS No. 157 will have on its financial reporting and disclosures for pension and postretirement related financial assets and nonfinancial assets or liabilities not valued on a recurring basis (at least annually).

Disclosures about Derivative Instruments and Hedging Activities. In March 2008, FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.” SFAS No. 161 amends the disclosure requirements for derivative instruments and hedging activities contained in SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Under SFAS No. 161, entities are required to provide enhanced disclosures about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and related interpretations and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS No. 161 encourages, but does not require disclosure for earlier periods presented for comparative purposes at initial adoption. The adoption of SFAS No. 161 will not affect FCX’s accounting for derivative financial instruments; however, FCX is currently evaluating the impact on its related disclosures.

The Hierarchy of Generally Accepted Accounting Principles. In May 2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” which identifies the sources of accounting and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP. SFAS No. 162 is effective 60 days following the U.S. Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Presenting Fairly in Conformity with Generally Accepted Accounting Principles.” The adoption of SFAS No. 162 is not expected to result in a change in FCX’s accounting practices.
 
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Table of Contents
 
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion. In May 2008, FASB issued FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement),” which will change the accounting treatment for convertible debt securities that the issuer may settle fully or partially in cash. FSP No. APB 14-1 requires bifurcation of convertible debt instruments into a debt component that is initially recorded at fair value and an equity component, which represents the difference between the initial proceeds from issuance of the instrument and the fair value allocated to the debt component. The debt component is subsequently accreted (as a component of interest expense) to par value over its expected life. FSP No. APB 14-1 is effective for fiscal years and interim periods beginning after December 15, 2008, and must be retrospectively applied to all prior periods presented, even if an instrument has matured, converted, or otherwise been extinguished as of the FSP’s effective date. FCX will adopt FSP No. APB 14-1 on January 1, 2009, and will be required to retrospectively apply its provisions to its 7% Convertible Senior Notes. FCX is currently evaluating the impact that the adoption of FSP No. APB 14-1 will have on its consolidated financial statements.

10.  
BUSINESS SEGMENTS
FCX has a regional approach to the management of its operations. FCX has organized its operations geographically into three primary operating divisions – North America, South America and Indonesia. Notwithstanding this geographic structure, FCX internally reports information on a mine-by-mine basis. Therefore, in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” FCX concluded that its operating segments include individual mines. Operating segments that meet SFAS No. 131 thresholds are reportable segments. FCX has revised its segment disclosures for second-quarter 2007 to conform with the current year presentation. Further discussion of the reportable segments included in FCX’s primary operating divisions, as well as FCX’s other reportable segment – Atlantic Copper Smelting & Refining, follows.

North America.  North America operations are comprised of copper operations from mining through rod production, molybdenum operations from mining through conversion to chemical and metallurgical products, and the marketing and sale of both product lines. FCX has seven operating copper mines in North America – Morenci, Bagdad, Sierrita, Safford and Miami in Arizona and Chino and Tyrone in New Mexico, as well as one operating molybdenum mine – Henderson in Colorado. The North America division includes the Morenci copper mine, Rod & Refining operations and Molybdenum operations as reportable segments.

Morenci. The Morenci open-pit mine, located in southeastern Arizona, primarily produces copper cathodes and copper concentrates. In addition to copper, the Morenci mine produces molybdenum concentrates as a by-product. FCX owns an 85 percent undivided interest in Morenci via an unincorporated joint venture.

Rod & Refining. The Rod & Refining segment consists of copper conversion facilities, including a refinery, four rod mills and a specialty copper products facility. This segment processes copper produced at FCX’s North America mines and purchased copper into copper anode, cathode, rod and custom copper shapes. At times this segment refines copper and produces copper rod and shapes for customers on a toll basis. Toll arrangements require the tolling customer to deliver appropriate copper-bearing material to FCX’s facilities for processing into a product that is returned to the customer, who pays FCX for processing its material into the specified products.

Molybdenum. The Molybdenum segment includes FCX’s wholly owned Henderson molybdenum mine in Colorado and related conversion facilities. The Henderson underground mine produces high-purity, chemical-grade molybdenum concentrates, which are typically further processed into value-added molybdenum chemical products. This segment is an integrated producer of molybdenum, with mining, roasting and processing facilities that produce high-purity, molybdenum-based chemicals, molybdenum metal powder and metallurgical products, which are sold to customers around the world. This segment also includes a sales company that purchases and sells molybdenum from Henderson as well as from FCX’s North America and South America copper mines that produce molybdenum as a by-product. In addition, at times this segment roasts and/or processes material on a toll basis. Toll arrangements require the tolling customer to deliver appropriate molybdenum-bearing material to FCX’s facilities for processing into a product that is returned to the customer, who pays FCX for processing its material into the specified products.

The Molybdenum segment also includes FCX’s wholly owned Climax molybdenum mine in Colorado, which has been on care-and-maintenance status since 1995. FCX is currently undertaking a project to restart the Climax mine with start up expected in 2010.

13
 
Other North America. Other North America operations include FCX’s other operating southwestern U.S. copper mines – Bagdad, Sierrita, Safford, Miami, Chino and Tyrone. In addition to copper, the Bagdad, Sierrita and Chino mines produce molybdenum, gold and silver. Other North America operations also include the Miami smelter, which processes our North America concentrates and provides a significant source of sulfuric acid for the various North America leaching operations; and a sales company, which functions as an agent to purchase metals, primarily copper from the North and South America operations, and sells to Atlantic Copper, S.A. (Atlantic Copper) and third parties.

South America.  FCX has four operating copper mines in South America – Cerro Verde in Peru, and Candelaria, Ojos del Salado and El Abra in Chile. These operations include open-pit and underground mining, sulfide ore concentrating, leaching, solution extraction and electrowinning (SX/EW). The South America division includes the Cerro Verde copper mine as a reportable segment.

Cerro Verde. The Cerro Verde open-pit copper mine, located near Arequipa, Peru, produces copper cathodes and copper concentrates. In addition to copper, the Cerro Verde mine produces molybdenum concentrates. FCX owns a 53.56 percent interest in Cerro Verde.

Other South America. Other South America operations include FCX’s Chilean copper mines – Candelaria, Ojos del Salado and El Abra – which include open-pit and underground mining, sulfide ore concentrating, leaching and SX/EW operations. In addition to copper, the Candelaria and Ojos del Salado mines produce gold and silver. FCX owns an 80 percent interest in both the Candelaria and Ojos del Salado mines, and owns a 51 percent interest in the El Abra mine.

Indonesia.  Indonesia operations include PT Freeport Indonesia’s Grasberg copper and gold mining operations and PT Puncakjaya Power’s power-generating operations (after eliminations with PT Freeport Indonesia). FCX owns 90.64 percent of PT Freeport Indonesia, including 9.36 percent owned through PT Indocopper Investama. In 1996, FCX established an unincorporated joint venture with Rio Tinto, which covers PT Freeport Indonesia’s mining operations in Block A and gives Rio Tinto, through 2021, a 40 percent interest in certain assets and future production exceeding specified annual amounts of copper, gold and silver. After 2021, Rio Tinto will have a 40 percent interest in all production from Block A.

Atlantic Copper Smelting & Refining.  Atlantic Copper, FCX’s wholly owned smelting unit in Spain, smelts and refines copper concentrates and markets refined copper and precious metals in slimes.

Other. Intersegment sales by the Indonesia and South America mines are based on similar arms-length transactions with third parties at the time of the sale. Intersegment sales of any individual mine may not be reflective of the actual prices ultimately realized because of a variety of factors, including additional processing, timing of sales to unaffiliated customers and transportation premiums.

FCX allocates certain operating costs, expenses and capital to the operating divisions and individual segments. However, not all costs and expenses applicable to a mine or operation are allocated. All federal and state income taxes are recorded and managed at the corporate level with the exception of foreign income taxes, which are generally recorded and managed at the applicable mine or operation. In addition, most exploration and research activities are managed at the corporate level, and those costs are not allocated to the operating divisions or segments. Accordingly, the following segment information reflects management determinations that may not be indicative of what the actual financial performance of each operating division or segment would be if it was an independent entity.


 
14
 
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Business Segments
(In Millions)
North America
  
South America
  
Indonesia
              
                                           
Atlantic
  
Corporate,
      
               
Other
      
Total
      
Other
  
Total
      
Copper
  
Other &
      
       
Rod &
  
Molyb-
  
North
  
Elimi-
  
North
  
Cerro
  
South
  
South
      
Smelting
  
Elimi-
  
FCX
  
Second-Quarter 2008
Morenci
  
Refining
  
denum
  
America
  
nations
  
America
  
Verde
  
America
  
America
  
Grasberg
  
& Refining
  
nations
  
Total
  
Revenues:
                                                      
Unaffiliated customersb
$
46
  
$
1,675
  
$
715
  
$
572
  
$
–
  
$
3,008
  
$
428
  
$
468
  
$
896
  
$
811
a
$
724
  
$
2
  
$
5,441
  
Intersegment
  
569
  
8
  
–
  
1,131
  
(1,571
)
137
  
262
  
251
  
513
  
205
  
–
  
(855
)
–
  
Production and deliveryb
  
294
  
1,677
  
421
  
1,161
  
(1,590
)
1,963
  
206
  
256
  
462
  
439
  
698
  
(842
)
2,720
  
Depreciation, depletion and amortizationb
  
79
  
1
  
69
  
122
  
–
  
271
  
46
  
81
  
127
  
48
  
9
  
7
  
462
  
Selling, general and administrative expenses
  
–
  
–
  
5
  
2
  
–
  
7
  
–
  
–
  
–
  
47
  
6
  
66
  
126
  
Exploration and research expenses
  
–
  
–
  
1
  
–
  
–
  
1
  
–
  
–
  
–
  
–
  
–
  
79
  
80
  
Operating incomeb
  
242
  
5
  
219
  
418
  
19
  
903
  
438
  
382
  
820
  
482
  
11
  
(163
)
2,053
  
                                                       
Interest expense, net
  
–
  
1
  
–
  
10
  
(1
)
10
  
1
  
(2
)
(1
)
2
  
2
  
127
  
140
  
Provision for income taxes
  
–
  
–
  
–
  
–
  
–
  
–
  
154
  
121
  
275
  
205
  
–
  
178
  
658
  
Goodwill at June 30, 2008
  
1,912
  
–
  
703
  
2,299
  
–
  
4,914
  
763
  
366
  
1,129
  
–
  
–
  
5
  
6,048
  
Total assets at June 30, 2008
  
7,000
  
605
  
4,156
  
13,712
  
(805
)
24,668
  
5,247
  
4,967
  
10,214
  
4,066
  
1,059
  
2,341
  
42,348
  
Capital expenditures
  
82
  
1
  
32
  
77
  
–
  
192
  
45
  
58
  
103
  
108
  
7
  
245
  
655
  
                                                       
Second-Quarter 2007
                                                      
Revenues:
                                                      
Unaffiliated customers
  
23
  
1,826
  
463
  
367
  
–
  
2,679
  
157
  
572
  
729
  
1,415
a
619
  
1
  
5,443
  
Intersegment
  
519
  
11
  
–
  
733
  
(1,259
)
4
  
298
  
205
  
503
  
347
  
–
  
(854
)
–
  
Production and deliveryb
  
304
  
1,825
  
406
  
763
  
(1,194
)
2,104
  
100
  
203
  
303
  
390
  
608
  
(865
)
2,540
  
Depreciation, depletion and amortizationb
  
69
  
3
  
22
  
74
  
–
  
168
  
35
  
101
  
136
  
56
  
9
  
5
  
374
  
Selling, general and administrative expenses
  
–
  
–
  
5
  
2
  
–
  
7
  
–
  
–
  
–
  
45
  
6
  
77
  
135
  
Exploration and research expenses
  
–
  
–
  
–
  
–
  
–
  
–
  
–
  
–
  
–
  
–
  
–
  
40
  
40
  
Operating income (loss)b
  
169
  
9
  
30
  
261
  
(65
)
404
  
320
  
473
  
793
  
1,271
  
(4
)
(110
)
2,354
  
                                                       
Interest expense, net
  
–
  
1
  
–
  
1
  
(1
)
1
  
4
  
(1
)
3
  
3
  
7
  
165
  
179
  
Provision for income taxes
  
–
  
–
  
–
  
–
  
–
  
–
  
123
  
156
  
279
  
559
  
–
  
(74
)
764
  
Total assets at June 30, 2007
  
4,737
  
670
  
1,894
  
9,462
  
(736
)
16,027
  
4,294
  
4,339
  
8,633
  
4,352
  
1,062
  
10,560
c
40,634
  
Capital expenditures
  
60
  
1
  
11
  
228
  
–
  
300
  
17
  
17
  
34
  
101
  
14
  
81
  
530
  
                                                       
 
a.  
Includes PT Freeport Indonesia’s sales to PT Smelting totaling $356 million in second-quarter 2008 and $625 million in second-quarter 2007.
 
b.  
The following tables summarize the impact of purchase accounting fair value adjustments on operating income (loss) primarily associated with the impacts of the increases in the carrying values of Phelps Dodge’s metals inventories (including mill and leach stockpiles) and property, plant and equipment:
 
Second-Quarter 2008
                                                      
Revenues
$
–
  
$
–
  
$
(3
)
$
–
  
$
–
  
$
(3
)
$
5
  
$
1
  
$
6
  
N/A
  
N/A
  
$
–
  
$
3
  
Production and delivery
  
(11
)
–
  
2
  
5
  
(10
)
(14
)
5
  
(3
)
2
  
N/A
  
N/A
  
–
  
(12
)
Depreciation, depletion and amortization
  
(50
)
–
  
(46
)
(63
)
–
  
(159
)
(23
)
(48
)
(71
)
N/A
  
N/A
  
–
  
(230
)
Reduction of operating income
$
(61
)
$
–
  
$
(47
)
$
(58
)
$
(10
)
$
(176
)
$
(13
)
$
(50
)
$
(63
)
N/A
  
N/A
  
$
–
  
$
(239
)
                                                   
 
Second-Quarter 2007
                                                      
Production and delivery
$
(68
)
$
–
  
$
(67
)
$
(59
)
$
(57
)
$
(251
)
$
–
  
$
(18
)
$
(18
)
N/A
  
N/A
  
$
–
  
$
(269
)
Depreciation, depletion and amortization
  
(60
)
–
  
(10
)
(47
)
–
  
(117
)
(15
)
(55
)
(70
)
N/A
  
N/A
  
1
  
(186
)
Reduction of operating income
$
(128
)
$
–
  
$
(77
)
$
(106
)
$
(57
)
$
(368
)
$
(15
)
$
(73
)
$
(88
)
N/A
  
N/A
  
$
1
  
$
(455
)
                                                   
 
c.  
Includes preliminary goodwill of $6.8 billion, which had not been allocated to reporting units, and also includes assets of $1.4 billion associated with discontinued operations (see Note 3).
 
 
15
 
Table of Contents
 
(In Millions)
North America
  
South America
  
Indonesia
              
                                           
Atlantic
  
Corporate,
      
               
Other
      
Total
      
Other
  
Total
      
Copper
  
Other &
      
       
Rod &
  
Molyb-
  
North
  
Elimi-
  
North
  
Cerro
  
South
  
South
      
Smelting
  
Elimi-
  
FCX
  
Six Months Ended June 30, 2008
Morenci
  
Refining
  
denum
  
America
  
nations
  
America
  
Verde
  
America
  
America
  
Grasberg
  
& Refining
  
nations
  
Total
  
Revenues:
                                                      
Unaffiliated customersb
$
96
  
$
3,355
  
$
1,434
  
$
1,276
  
$
–
  
$
6,161
  
$
890
  
$
971
  
$
1,861
  
$
1,698
a
$
1,389
  
$
4
  
$
11,113
  
Intersegment
  
1,110
  
16
  
–
  
2,199
  
(3,068
)
257
  
515
  
626
  
1,141
  
370
  
–
  
(1,768
)
–
  
Production and deliveryb
  
566
  
3,353
  
881
  
2,378
  
(3,077
)
4,101
  
368
  
526
  
894
  
838
  
1,349
  
(1,740
)
5,442
  
Depreciation, depletion and amortizationb
  
160
  
3
  
108
  
227
  
–
  
498
  
89
  
168
  
257
  
93
  
18
  
14
  
880
  
Selling, general and administrative expenses
  
–
  
–
  
11
  
6
  
–
  
17
  
–
  
–
  
–
  
84
  
14
  
95
  
210
  
Exploration and research expenses
  
–
  
–
  
1
  
–
  
–
  
1
  
–
  
–
  
–
  
–
  
–
  
131
  
132
  
Operating incomeb
  
480
  
15
  
433
  
864
  
9
  
1,801
  
948
  
903
  
1,851
  
1,053
  
8
  
(264
)
4,449
  
                                                       
Interest expense, net
  
1
  
2
  
–
  
21
  
(2
)
22
  
2
  
(2
)
–
  
3
  
6
  
274
  
305
  
Provision for income taxes
  
–
  
–
  
–
  
–
  
–
  
–
  
327
  
281
  
608
  
444
  
–
  
335
  
1,387
  
Capital expenditures
  
159
  
4
  
44
  
160
  
–
  
367
  
62
  
104
  
166
  
223
  
12
  
395
  
1,163
  
                                                       
Six Months Ended June 30, 2007
                                                      
Revenues:
                                                      
Unaffiliated customers
  
23
  
2,032
  
515
  
428
  
–
  
2,998
  
171
  
698
  
869
  
2,747
a
1,073
  
2
  
7,689
  
Intersegment
  
540
  
13
  
–
  
787
  
(1,336
)
4
  
395
  
230
  
625
  
724
  
–
  
(1,353
)
–
  
Production and deliveryb
  
333
  
2,031
  
458
  
876
  
(1,267
)
2,431
  
144
  
275
  
419
  
713
  
1,035
  
(1,155
)
3,443
  
Depreciation, depletion and amortizationb
  
74
  
3
  
25
  
80
  
–
  
182
  
44
  
120
  
164
  
115
  
19
  
10
  
490
  
Selling, general and administrative expenses
  
–
  
–
  
5
  
3
  
–
  
8
  
–
  
–
  
–
  
89
  
10
  
76
  
183
  
Exploration and research expenses
  
–
  
–
  
–
  
–
  
–
  
–
  
–
  
–
  
–
  
–
  
–
  
47
  
47
  
Operating incomeb
  
156
  
11
  
27
  
256
  
(69
)
381
  
378
  
533
  
911
  
2,554
  
9
  
(329
)
3,526
  
                                                       
Interest expense, net
  
–
  
1
  
–
  
1
  
(1
)
1
  
4
  
(1
)
3
  
7
  
14
  
206
  
231
  
Provision for income taxes
  
–
  
–
  
–
  
–
  
–
  
–
  
145
  
175
  
320
  
1,021
  
–
  
(119
)
1,222
  
Capital expenditures
  
75
  
2
  
13
  
263
  
–
  
353
  
18
  
18
  
36
  
175
  
21
  
87
  
672
  
                                                       
 
a.  
Includes PT Freeport Indonesia’s sales to PT Smelting totaling $820 million in the first six months of 2008 and $1.2 billion in the first six months of 2007.
 
b.  
The following tables summarize the impact of purchase accounting fair value adjustments on operating income primarily associated with the impacts of the increases in the carrying values of Phelps Dodge’s metals inventories (including mill and leach stockpiles) and property, plant and equipment:

Six Months Ended June 30, 2008
                                                      
Revenues
$
–
  
$
–
  
$
(3
)
$
–
  
$
–
  
$
(3
)
$
5
  
$
1
  
$
6
  
N/A
  
N/A
  
$
–
  
$
3
  
Production and delivery
  
(29
)
–
  
(12
)
3
  
(23
)
(61
)
(4
)
(19
)
(23
)
N/A
  
N/A
  
–
  
(84
)
Depreciation, depletion and amortization
  
(97
)
–
  
(80
)
(118
)
–
  
(295
)
(44
)
(97
)
(141
)
N/A
  
N/A
  
(1
)
(437
)
Reduction of operating income
$
(126
)
$
–
  
$
(95
)
$
(115
)
$
(23
)
$
(359
)
$
(43
)
$
(115
)
$
(158
)
N/A
  
N/A
  
$
(1
)
$
(518
)
                                                   

Six Months Ended June 30, 2007
                                                      
Production and delivery
$
(84
)
$
–
  
$
(80
)
$
(73
)
$
(62
)
$
(299
)
$
(20
)
$
(46
)
$
(66
)
N/A
  
N/A
  
$
–
  
$
(365
)
Depreciation, depletion and amortization
  
(63
)
–
  
(12
)
(48
)
–
  
(123
)
(21
)
(70
)
(91
)
N/A
  
N/A
  
–
  
(214
)
Reduction of operating income
$
(147
)
$
–
  
$
(92
)
$
(121
)
$
(62
)
$
(422
)
$
(41
)
$
(116
)
$
(157
)
N/A
  
N/A
  
$
–
  
$
(579
)
                                                   
 

 
16
 
Table of Contents
 

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
FREEPORT-McMoRan COPPER & GOLD INC.

We have reviewed the condensed consolidated balance sheet of Freeport-McMoRan Copper & Gold Inc. as of June 30, 2008, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 2008 and 2007, the consolidated statements of cash flows for the six-month periods ended June 30, 2008 and 2007, and the consolidated statement of stockholders’ equity for the six-month period ended June 30, 2008. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Freeport-McMoRan Copper & Gold Inc. as of December 31, 2007, and the related consolidated statements of income, cash flows, and stockholders’ equity for the year then ended (not presented herein), and in our report dated February 29, 2008, we expressed an unqualified opinion on those consolidated financial statements and which report included an explanatory paragraph for the Company’s adoption of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109,” effective January 1, 2007; Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment,” effective January 1, 2006; Emerging Issues Task Force Issue No. 04-6, “Accounting for Stripping Costs Incurred during Production in the Mining Industry,” effective January 1, 2006; and SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132R,” effective December 31, 2006. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2007, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.


ERNST & YOUNG LLP


Phoenix, Arizona
August 8, 2008



 
17
 
Table of Contents
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

In Management’s Discussion and Analysis of Financial Condition and Results of Operations, “we,” “us” and “our” refer to Freeport-McMoRan Copper & Gold Inc. (FCX) and its consolidated subsidiaries, including, except as otherwise stated, Phelps Dodge Corporation (Phelps Dodge) and its subsidiaries, which we acquired on March 19, 2007. You should read this discussion in conjunction with our financial statements, the related Management’s Discussion and Analysis of Financial Condition and Results of Operations and the discussion of our “Business and Properties” in our Form 10-K for the year ended December 31, 2007, filed with the U.S. Securities and Exchange Commission (SEC). The results of operations reported and summarized below are not necessarily indicative of future operating results. In particular, the financial results included for the first six months of 2007 include the operations of Phelps Dodge only since March 20, 2007, not the full six-month period because of the accounting treatment for the acquisition. References to “Notes” are Notes included in our “Notes to Consolidated Financial Statements.” Throughout Management's Discussion and Analysis of Financial Condition and Results of Operations all references to earnings or losses per share are on a diluted basis, unless otherwise noted.

We are one of the world’s largest copper, gold and molybdenum mining companies in terms of reserves and production. Our portfolio of assets includes the Grasberg minerals district in Indonesia, which contains the largest single recoverable copper reserve and the largest single gold reserve of any mine in the world based on the latest available reserve data provided by third-party industry consultants; significant mining operations in North and South America; and the Tenke Fungurume development project in the Democratic Republic of Congo (DRC).

In North America, we have seven operating copper mines – Morenci, Bagdad, Sierrita, Safford and Miami in Arizona and Chino and Tyrone in New Mexico, as well as one operating molybdenum mine – Henderson in Colorado. In addition, we are restarting the Climax molybdenum mine in Colorado. All of these mining operations are wholly owned, except for Morenci. We have an 85 percent undivided interest in Morenci, an unincorporated joint venture. The North America operations are operated in an integrated fashion and have long-lived reserves with additional development potential.

In South America, we have four operating copper mines – Cerro Verde in Peru, and Candelaria, Ojos del Salado and El Abra in Chile. We own a 53.56 percent interest in Cerro Verde, an 80 percent interest in both Candelaria and Ojos del Salado and a 51 percent interest in El Abra.

We own 90.64 percent of PT Freeport Indonesia, including 9.36 percent owned through our wholly owned subsidiary, PT Indocopper Investama. PT Freeport Indonesia operates under an agreement, called a Contract of Work, with the Government of Indonesia that allows us to conduct exploration, mining and production activities in a 24,700-acre area called Block A located in Papua, Indonesia. Under the Contract of Work, PT Freeport Indonesia also conducts exploration activities in an approximate 500,000-acre area called Block B in Papua. All of PT Freeport Indonesia’s proven and probable mineral reserves and current mining operations, including the Grasberg minerals district, are located in Block A.

We also operate Atlantic Copper S.A. (Atlantic Copper), a wholly owned subsidiary, located in Spain. Atlantic Copper’s operations involve the smelting and refining of copper concentrates and the marketing of refined copper and precious metals in slimes. Additionally, PT Freeport Indonesia owns a 25 percent interest in PT Smelting, an Indonesian company, which operates a copper smelter and refinery in Gresik, Indonesia.

Phelps Dodge also had an international manufacturing division, Phelps Dodge International Corporation (PDIC), which manufactured engineered wire and cable products principally for the global energy sector. On October 31, 2007, we sold PDIC, and as a result, the operating results of PDIC have been removed from continuing operations and reported as discontinued operations in the consolidated statements of income.


 
18
 
Table of Contents
ACQUISITION OF PHELPS DODGE

Phelps Dodge became our wholly owned subsidiary on March 19, 2007. In the acquisition, each share of Phelps Dodge common stock was exchanged for 0.67 of a share of FCX common stock and $88.00 in cash. As a result, we issued 136.9 million shares and paid $18.0 billion in cash to Phelps Dodge shareholders for total consideration of $25.8 billion. The results of Phelps Dodge’s operations are included in our consolidated financial statements beginning March 20, 2007.

Accounting for the Acquisition. The acquisition of Phelps Dodge was accounted for under the purchase method as required by Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” with FCX as the accounting acquirer. In accordance with the purchase method of accounting, the purchase price has been allocated to the assets acquired and liabilities assumed based upon their fair values on the acquisition date of March 19, 2007. In valuing acquired assets and assumed liabilities, fair values were based on, but were not limited to: quoted market prices, where available; our intent with respect to whether the assets purchased were to be held, sold or abandoned; expected future cash flows; current replacement cost for similar capacity for certain fixed assets; market rate assumptions for contractual obligations; and appropriate discount rates and growth rates.

At June 30, 2008, the carrying value of goodwill associated with our acquisition of Phelps Dodge totaled approximately $6.0 billion, which primarily related to the requirement to recognize a deferred tax liability for the difference between the assigned values and the tax bases of assets acquired and liabilities assumed in the business combination. FCX has allocated goodwill to the individual mines it believes have contributed to the excess purchase price and also included consideration of the mines’ potential for future growth (refer to Note 10 for the allocation of goodwill to our reportable segments).

The following table summarizes the impacts of purchase accounting fair value adjustments on operating income and income from continuing operations for the three and six month periods ended June 30, 2008, and 2007.  These impacts are primarily associated with fair value adjustments that increased the carrying values of Phelps Dodge’s property, plant and equipment and metal inventories, including mill and leach stockpiles (in millions):
 

     
Six Months Ended
  
 
Second-Quarter
  
June 30,
  
 
2008
  
2007
  
2008
  
2007a
  
Purchase accounting impacts:
                        
Revenues
$
3
  
$
–
  
$
3
  
$
–
  
Production and delivery costs
  
(12
)
  
(269
)
  
(84
)
  
(365
)
Depreciation, depletion and amortization
  
(230
)
  
(186
)
  
(437
)
  
(214
)
Reduction of operating income
$
(239
)
$
(455
)
$
 (518
)
$
(579
)
                         
Reduction of income from continuing operations
$
(163
)b
$
(284
)
$
(347
)b
$
(363
)

a.  
Represents purchase accounting impacts for the period March 20, 2007, through June 30, 2007.
 
b.  
Includes net purchase accounting fair value adjustments related to non-operating income and expenses of $22 million ($13 million to net income) in second-quarter 2008 and $37 million ($22 million to net income) for the first six months of 2008 primarily related to accretion of the fair values determined on a discounted cash flow basis for environmental liabilities assumed in the acquisition of Phelps Dodge.


 
19
 
Table of Contents
COPPER, GOLD AND MOLYBDENUM MARKETS

The graphs below are intended to illustrate the movements in metals prices from 1992 through July 2008. World prices for copper, gold and molybdenum have fluctuated significantly during this period. The London Metal Exchange (LME) spot copper price varied from a low of $0.60 per pound in 2001 to record highs above $4.00 per pound in July 2008, the London gold price fluctuated from a low of approximately $250 per ounce in 1999 to record highs above $1,000 per ounce in March 2008, and the Metals Week Molybdenum Dealer Oxide prices ranged from a low of $1.82 per pound in 1992 to a high of $40.00 per pound in 2005. Copper, gold and molybdenum prices are affected by numerous factors beyond our control as described further in our “Risk Factors” contained in Part I, Item 1A of our Form 10-K for the year ended December 31, 2007.

 
*  Excludes Shanghai stocks, producer, consumer and merchant stocks.

The graph above presents LME spot copper prices and reported stocks of copper at the LME and New York Commodity Exchange (COMEX) through July 31, 2008. Since 2003, global consumption has exceeded production, evidenced by the decline in exchange warehouse inventories. Combined LME and COMEX stocks of approximately 132,600 metric tons at June 30, 2008, remain at historically low levels, representing less than three days of global consumption. Disruptions associated with strikes and other operational issues resulted in low levels of inventory in 2006, 2007 and the first half of 2008. During second-quarter 2008, copper prices continued to be strong, with LME copper prices ranging from $3.59 per pound to $4.03 per pound and averaging $3.83 per pound. Future copper prices may continue to be volatile and are expected to be influenced by demand from China, economic activity in the United States (U.S.) and other industrialized countries, the timing of the development of new supplies of copper, production levels of mines and copper smelters and the level of direct participation by investors. We consider the current underlying supply and demand conditions in the global copper markets to be positive for our company and continue to pursue opportunities to expand production. The LME spot price closed at $3.75 per pound on July 31, 2008; however, prices declined in early August 2008 with the LME spot price closing at $3.41 per pound on August 8, 2008.


 
20
 
Table of Contents


Gold prices continue to be supported by increased investment demand for gold, ongoing geopolitical tensions, a weak U.S. dollar, inflationary pressures and reduced mine supply. During second-quarter 2008, gold prices ranged from approximately $853 per ounce to $946 per ounce and averaged approximately $896 per ounce. On July 31, 2008, London gold prices closed at approximately $918 per ounce; however, prices declined in early August 2008 with the London gold price closing at $853 per ounce on August 8, 2008.
 


Molybdenum markets have been strong in recent years with growing demand and limited supply. During second-quarter 2008, molybdenum prices ranged from $32.20 per pound to $33.50 per pound and averaged $32.93 per pound. The Metals Week Molybdenum Dealer Oxide price was $33.75 per pound on July 28, 2008 and August 4, 2008.

 
21
 
Table of Contents
OUTLOOK

Consolidated sales volumes (excluding sales of purchased metal) for second-quarter 2008 totaled 942 million pounds of copper, 265 thousand ounces of gold and 20 million pounds of molybdenum, compared with approximately 1.0 billion pounds of copper, 913 thousand ounces of gold and 15 million pounds of molybdenum for second-quarter 2007. Consolidated sales volumes (excluding sales of purchased metal) for the first six months of 2008 totaled approximately 1.9 billion pounds of copper, 545 thousand ounces of gold and 40 million pounds of molybdenum, compared with approximately 1.5 billion pounds of copper, 1.9 million ounces of gold and 17 million pounds of molybdenum for the first six months of 2007. Pro forma sales volumes (excluding sales of purchased metal) for the first six months of 2007, including Phelps Dodge sales volumes prior to the acquisition, totaled approximately 2.0 billion pounds of copper, 1.9 million ounces of gold and 34 million pounds of molybdenum.

Because of mine sequencing at Grasberg and the ramp up of production at the Safford mine, second-half 2008 production and sales are expected to be higher than the first half of 2008. Projected consolidated sales volumes (excluding sales of purchased metal) for the full year 2008 are estimated to be 4.1 billion pounds of copper, 1.4 million ounces of gold and 75 million pounds of molybdenum, including 2.2 billion pounds of copper, 890 thousand ounces of gold and 35 million pounds of molybdenum in the second half of 2008. Copper sales are expected to be approximately 100 million pounds lower than previous estimates primarily because of delays in achieving full production at the new Safford mine and lower than expected production at Morenci. Achievement of the above sales estimates depends on the achievement of targeted mining rates and expansion plans, the successful operation of production facilities, the impact of weather conditions and other factors. Additionally, sales volumes may vary from these estimates depending on the areas being mined within the Grasberg open pit, with quarterly sales volumes expected to vary significantly. Refer to “Operations” for further discussion of sales volumes at our North America, South America and Indonesia operations.

Consolidated revenues, operating cash flows and net income vary significantly with fluctuations in the market prices of copper, gold and molybdenum, sales volumes and other factors. Based on projected consolidated sales volumes (excluding sales of purchased metal) for 2008 and assuming an average price of $3.75 per pound of copper, $900 per ounce of gold and $30 per pound of molybdenum for the remainder of 2008, our consolidated operating cash flow would approximate $6.0 billion in 2008, including net reductions totaling $1.8 billion for estimated working capital requirements. Each $0.20 per pound change in copper prices for the balance of the year would have an approximate $300 million impact on 2008 operating cash flows.

We continue to experience increases in our worldwide copper production costs. Consolidated unit net cash costs for the second quarter of 2008 increased to $1.25 per pound of copper, compared to $1.06 per pound of copper in the first quarter of 2008, primarily because of higher commodity input costs, mostly related to energy, and lower by-product credits, partly offset by higher copper volumes. Because energy is a significant portion of our production costs we have been negatively impacted by rising energy prices and could continue to be impacted by future energy availability issues and/or additional increases in energy prices. Energy costs, which are expected to approximate 30 percent of our consolidated copper production costs for 2008, include purchases of approximately 225 million gallons of diesel fuel per year, 800 thousand metric tons of coal per year, seven thousand gigawatt hours of electricity and 1.5 million british thermal units of natural gas. Assuming an average price of $3.75 per pound of copper, $900 per ounce of gold and $30 per pound of molybdenum for the remainder of 2008, our consolidated unit net cash costs for the year 2008 would approximate $1.10 per pound, which is higher than previous estimates primarily because of increases in energy and other input costs.

We also have significant development activities under way to expand our production volumes, extend our mine lives and develop large-scale underground ore bodies. Capital costs associated with these development activities have also been affected by rising input costs, including equipment, materials and supplies and labor.  Additionally, our development of large-scale underground ore bodies in Indonesia are more sensitive to labor costs than our large-scale open pit and mill processing operations. Accordingly, increasing labor costs without corresponding productivity gains will adversely impact our current and future underground development and operations. For further discussion of our significant development projects refer to “Development Projects.”



 
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Table of Contents
CONSOLIDATED RESULTS

     
Six Months Ended
  
 
Second-Quarter
  
June 30,
  
 
2008
  
2007
  
2008
  
2007
  
Financial Data (in millions, except per share amounts)
                        
Revenues
$
5,441
a
$
5,443
a,b
$
11,113
a
$
7,689
a,b
Operating income
  
2,053
a,c
  
2,354
a,b
  
4,449
a,c
  
3,526
a,b
Income from continuing operations applicable
  
947
c,e,f
  
1,076
b,e,f
  
2,069
c,e,f
  
1,548
b,e,f
to common stockd
                        
Net income applicable to common stockd
  
947
c,e,f
  
1,104
b,e,f
  
2,069
c,e,f
  
1,580
b,e,f
Diluted net income per share of common stockg:
                        
Continuing operations
$
2.25
  
$
2.56
  
$
4.89
  
$
4.71
  
Discontinued operations
  
–
    
0.06
    
–
    
0.09
  
Diluted net income per share of common stock
$
2.25
c,e,f
$
2.62
b,e,f
$
4.89
c,e,f
$
4.80
b,e,f
Diluted average common shares outstandingg,h
  
450
    
446
    
449
    
346
  
                         
Operating Data - Sales from Mines, Excluding Sales
                        
of Purchased Metal
                        
Copper
                        
Consolidated share (millions of recoverable pounds)
  
942
    
1,010
    
1,853
    
1,530
  
Average realized price per pound
$
3.85
  
$
3.34
b
$
3.77
  
$
3.32
b
Site production and delivery costs per poundi
$
1.59
  
$
1.13
  
$
1.53
  
$
1.04
  
Unit net cash costs per poundi
$
1.25
  
$
0.53
  
$
1.16
  
$
0.47
  
Gold
                        
Consolidated share (thousands of recoverable ounces)
  
265
    
913
    
545
    
1,869
  
Average realized price per ounce
$
911.98
  
$
658.51
  
$
917.37
  
$
659.61
  
Molybdenum
                        
Consolidated share (millions of recoverable pounds)
  
20
    
15
    
40
    
17
  
Average realized price per pound
$
31.59
  
$
24.83
  
$
31.63
  
$
24.68
  

a. 
A summary of revenues and operating income (loss) by operating division for the second quarters and first six months of 2008 and 2007 follow (in millions):

 
Second-Quarter 2008
  
Second-Quarter 2007
  
     
Operating
      
Operating
  
     
Income
      
Income
  
 
Revenues
  
(Loss)
  
Revenues
  
(Loss)
  
North America
$
3,145
  
$
903
  
$
2,683
  
$
404
  
South America
  
1,409
    
820
    
1,232
    
793
  
Indonesia
  
1,016
    
482
    
1,762
    
1,271
  
Atlantic Copper smelting & refining
  
724
    
11
    
619
    
(4
)
Corporate, other & eliminations
  
(853
)
  
(163
)
  
(853
)
  
(110
)
Total FCX
$
5,441
  
$
2,053
  
$
5,443
  
$
2,354
  

 
Six Months Ended
  
Six Months Ended
  
 
June 30, 2008
  
June 30, 2007
  
     
Operating
      
Operating
  
     
Income
      
Income
  
 
Revenues
  
(Loss)
  
Revenues
  
(Loss)
  
North America
$
6,418
  
$
1,801
  
$
3,002
  
$
381
  
South America
  
3,002
    
1,851
    
1,494
    
911
  
Indonesia
  
2,068
    
1,053
    
3,471
    
2,554
  
Atlantic Copper smelting & refining
  
1,389
    
8
    
1,073
    
9
  
Corporate, other & eliminations
  
(1,764
)
  
(264
)
  
(1,351
)
  
(329
)
Total FCX
$
11,113
  
$
4,449
  
$
7,689
  
$
3,526
  
 
Refer to Note 10 for further discussion of our operating divisions.
 
b.  
Includes charges to revenues for mark-to-market accounting adjustments on the 2007 copper price protection program totaling $130 million ($80 million to net income or $0.18 per share) and a reduction in

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average realized copper prices of $0.13 per pound in second-quarter 2007, and $168 million ($103 million to net income or $0.30 per share) and a reduction in average realized prices of $0.11 per pound for the first six months of 2007.
 
c. 
Includes costs totaling approximately $25 million ($13 million to net income or $0.03 per share) in the second quarter and first six months of 2008 for local infrastructure projects in South America.
 
d. 
After preferred dividends.
 
e.
Includes the impact of purchase accounting fair value adjustments associated with the acquisition of Phelps Dodge totaling $262 million ($163 million to net income or $0.36 per share) in second-quarter 2008 and $556 million ($347 million to net income or $0.77 per share) for the first six months of 2008.  These purchase accounting fair value adjustments include amounts for non-operating income and expenses totaling $22 million ($13 million to net income or $0.03 per share) in second-quarter 2008 and $37 million ($22 million to net income or $0.05 per share) for the first six months of 2008 primarily related to accretion of the fair values determined on a discounted cash flow basis for environmental liabilities assumed in the acquisition of Phelps Dodge.
 
Includes the impact of purchase accounting fair value adjustments associated with the acquisition of Phelps Dodge totaling $456 million ($284 million to net income or $0.64 per share) in second-quarter 2007 and $579 million ($363 million to net income or $1.05 per share) for the first six months of 2007.
 
f. 
Includes a loss on early extinguishment of debt totaling $6 million ($5 million to net income or $0.01 per share) for the first six months of 2008 associated with an open-market purchase of our 9.5% Senior Notes. The second quarter and first six months of 2008 also include gains on the sales of assets totaling $13 million ($8 million to net income or $0.02 per share).
 
Includes net losses on early extinguishment of debt totaling $47 million ($35 million to net income or $0.08 per share) in second-quarter 2007 and $135 million ($110 million to net income or $0.32 per share) for the first six months of 2007 primarily related to premiums paid and the accelerated recognition of deferred financing costs associated with prepayments of debt. The second quarter and first six months of 2007 also include gains on the sales of assets totaling $38 million ($23 million to net income or $0.05 per share for second-quarter 2007 and $0.07 per share for the first six months of 2007).
 
g. 
Reflects assumed conversion of our 5½% Convertible Perpetual Preferred Stock and 6¾% Mandatory Convertible Preferred Stock.
 
h. 
On March 19, 2007, we issued 137 million common shares to acquire Phelps Dodge, and on March 28, 2007, we sold 47 million common shares. Common shares outstanding on June 30, 2008, totaled 384 million. Assuming conversion of the instruments discussed in Note g above and including dilutive stock options and restricted stock units, total common shares outstanding would approximate 450 million at June 30, 2008.
 
i. 
Reflects per pound weighted average production and delivery costs and unit net cash costs (net of by-product credits) for all mines. For reconciliations of the actual and pro forma per pound costs by geographic region to production and delivery costs applicable to actual or pro forma sales reported in our consolidated financial statements or pro forma consolidated financial results, refer to “Unit Net Cash Costs” included in “Operations” and to “Product Revenues and Production Costs.”

Revenues
Consolidated revenues include the sales of copper, copper concentrates, gold, molybdenum and other metals and metal-related products by our North and South America operations, our Indonesia operation’s sale of copper concentrates (which also contain significant quantities of gold and silver), and the sale by Atlantic Copper of copper anodes, copper cathodes, and gold in anodes and slimes. Consolidated revenues in both second-quarter 2008 and 2007 totaled approximately $5.4 billion. Consolidated revenues for second-quarter 2008, compared with second-quarter 2007, reflected lower copper and gold sales volumes at our Indonesia operations associated with mining lower-grade ore during second-quarter 2008, offset by higher copper, gold and molybdenum prices.

Revenues for the first six months of 2008 were approximately $3.4 billion higher than in the comparable 2007 period reflecting higher overall copper and molybdenum sales volumes because of a full six months of activity from our North and South America operations in 2008, partly offset by lower sales volumes at our Indonesia operations associated with mining lower-grade ore during the first six months of 2008. Higher revenues for the first six months of 2008 also reflected higher copper, gold and molybdenum prices.
 
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For the first six months of 2008, approximately half of our mined copper was sold in concentrate, 30 percent as rod (principally from our North America operations) and the remaining 20 percent as cathodes. Substantially all of our concentrate sales contracts and some of our cathode sales contracts provide final copper pricing in a specified future period (generally one to four months from the shipment date) based primarily on quoted LME prices. We ultimately receive market prices based on prices in the specified future period; however, the accounting rules applied to these sales result in changes recorded to revenues until the specified future period. We record revenues and invoice customers at the time of shipment based on then-current LME prices, which results in an embedded derivative on our provisional priced concentrate and cathode sales that is adjusted to fair value through earnings each period until the date of final pricing. To the extent final prices are higher or lower than what was recorded on a provisional basis, an increase or decrease to revenues is recorded each reporting period until the date of final pricing. Accordingly, in times of rising copper prices, our revenues during a quarter benefit from higher prices received for contracts priced at current market rates and also from an increase related to the final pricing of provisionally priced contracts entered into in prior periods; in times of falling copper prices, the opposite occurs.

Second-quarter 2008 LME copper prices averaged $3.83 per pound, compared with our average recorded price of $3.85 per pound. The applicable forward curve price at the end of the quarter was $3.88 per pound. Approximately half of our consolidated copper sales during second-quarter 2008 were provisionally priced at the time of shipment and are subject to final pricing later in 2008.

At June 30, 2008, our copper sales included 369 million pounds of copper (net of minority interests) priced at an average of $3.88 per pound and subject to final pricing over the next several months. We estimate that each $0.05 change in the price realized from the June 30, 2008, provisional price recorded would impact our 2008 consolidated revenues by $25 million ($11 million to net income). Prices have declined significantly from the June 30, 2008, price used to determine provisional pricing for our open copper sales. Assuming the settlement price for these sales was the quarter-to-date average price through August 8, 2008, of $3.76 per pound, our third-quarter 2008 revenues would be reduced approximately $60 million (approximately $26 million to net income). The LME closing spot price for copper on August 8, 2008, was $3.41 per pound and the final pricing for the June 30, 2008, provisionally priced open copper sales will be determined based on actual settlements occurring throughout the quarter.

At March 31, 2008, 362 million pounds of copper (net of minority interests) were provisionally priced at $3.82 per pound. Higher prices in second-quarter 2008 resulted in adjustments to these prior period copper sales and increased consolidated revenues by $5 million ($3 million to net income or $0.01 per share), compared with an increase of $188 million ($95 million to net income or $0.21 per share) in second-quarter 2007 related to prior period copper sales. Additionally, adjustments to prior year copper sales resulted in an increase in consolidated revenues of $267 million ($126 million to net income or $0.28 per share) for the first six months of 2008, compared with an increase of $90 million ($43 million to net income or $0.12 per share) for the first six months of 2007.

On limited past occasions, in response to market conditions, we have entered into copper and gold price protection contracts for a portion of our expected future mine production to mitigate the risk of adverse price fluctuations. Also, in connection with the Phelps Dodge acquisition, FCX assumed the 2007 copper price protection program, which resulted in charges to revenues for second-quarter 2007 totaling $130 million ($80 million to net income or $0.18 per share), and $168 million ($103 million to net income or $0.30 per share) for the first six months of 2007. The 2007 copper price protection program matured on December 31, 2007, and in January 2008, we made a $598 million payment upon the settlement of the related contracts. We do not intend to enter into similar hedging programs in the future.

Production and Delivery Costs
Consolidated production and delivery costs for second-quarter 2008 were approximately $180 million higher than second-quarter 2007 reflecting increases in our worldwide copper production costs, including higher energy costs (refer to “Outlook” and “Operations” for further discussion), and also included higher costs of concentrate purchases at Atlantic Copper associated with higher copper and gold prices. Higher costs were partly offset by $257 million of lower purchase accounting impacts as impacts associated with increased inventory values were mostly realized in 2007.
 
Consolidated production and delivery costs for the first six months of 2008 were approximately $2.0 billion higher than the first six months of 2007, reflecting a full six months of costs associated with our North and South America operations in 2008 as well as the impact of increased worldwide copper production costs, including
 
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Table of Contents
 
higher energy costs (refer to “Outlook” and “Operations” for further discussion). Higher production and delivery costs for the first six months of 2008 also reflected higher costs of concentrate purchases at Atlantic Copper associated with higher copper and gold prices. Higher costs were partly offset by $281 million of lower purchase accounting impacts as impacts associated with increased inventory values were mostly realized in 2007.

Depreciation, Depletion and Amortization
Consolidated depreciation, depletion and amortization expense of $462 million for second-quarter 2008 was $88 million higher than second-quarter 2007. The increase reflected $44 million of higher purchase accounting impacts related to the increase in the carrying values of acquired property, plant and equipment resulting from revised valuations of acquired assets that were finalized in first-quarter 2008, and also included higher depreciation expense under the unit-of-production method resulting from higher copper production at our North and South America mines in second-quarter 2008.

Consolidated depreciation, depletion and amortization expense of $880 million for the six months of 2008 was $390 million higher than the first six months of 2007. The increase reflected $223 million of higher purchase accounting impacts related to a full six months of purchase accounting impacts in the 2008 period, combined with increases in the carrying values of acquired property, plant and equipment resulting from revised valuations of acquired assets that were finalized in first-quarter 2008. Higher depreciation, depletion and amortization expense also reflected higher depreciation expense under the unit-of-production method resulting from a full six months of production from our North and South America operations in 2008.

Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses totaled $126 million in second-quarter 2008 and $210 million for the first six months of 2008, compared with $135 million in second-quarter 2007 and $183 million for the first six months of 2007. The $27 million increase for the first six months of 2008 reflected a full six months of expense associated with Phelps Dodge operations in 2008, partly offset by reductions to adjust 2007 incentive compensation to actual cash and stock-based awards approved by the Corporate Personnel Committee of our Board of Directors in January 2008.

Exploration and Research Expenses
Consolidated exploration and research expenses totaled $80 million for second-quarter 2008, compared with $40 million for second-quarter 2007. Higher expenditures in second-quarter 2008 primarily reflects increased exploration efforts in North America, mostly in the Safford, Morenci, and Bagdad districts, and also in Africa, including targets outside the area of initial development at Tenke Fungurume. (Refer to “Exploration Activities” for further discussion of our exploration activities.)

Consolidated exploration and research expenses totaled $132 million for the first six months of 2008, compared with $47 million for the first six months of 2007. The increase in expenditures for first six months of 2008 primarily reflected a full six months of exploration and research expenses associated with Phelps Dodge operations in 2008.

Interest Expense, Net
Consolidated interest expense (before capitalization) decreased to $173 million in second-quarter 2008, compared with $230 million in second-quarter 2007, primarily reflecting 2007 net repayments of debt incurred in connection with the acquisition of Phelps Dodge, partly offset by net purchase accounting impacts of $22 million recorded in second-quarter 2008 primarily related to accretion of the fair values determined on a discounted cash flow basis for environmental liabilities assumed in the acquisition of Phelps Dodge.

Consolidated interest expense (before capitalization) increased to $360 million for the first six months of 2008, compared with $289 million for the first six months of 2007, primarily reflecting a full six months of interest in 2008 on debt related to the acquisition of Phelps Dodge, and also included net purchase accounting impacts of $41 million recorded during the first six months of 2008 primarily for accretion of the fair values determined on a discounted cash flow basis for environmental liabilities assumed in the acquisition of Phelps Dodge.

Capitalized interest totaled $33 million in second-quarter 2008 and $55 million for the first six months of 2008, compared with $50 million in second-quarter 2007 and $57 million for the first six months of 2007. Capitalized interest is primarily related to our development projects (refer to “Development Projects” for further discussion), which included Tenke Fungurume during the 2008 and 2007 periods, and also included Safford during 2007.

 
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Losses on Early Extinguishment of Debt
For the first six months of 2008, we recorded net charges totaling $6 million ($5 million to net income or $0.01 per share) for early extinguishment of debt associated with an open market purchase of $33 million of our 9.5% Senior Notes in first-quarter 2008.

For the first six months of 2007, we recorded net charges totaling $135 million ($110 million to net income or $0.32 per share) for early extinguishment of debt. These net charges include $88 million ($75 million to net income) recorded in first-quarter 2007 and $30 million ($25 million to net income) recorded in second-quarter 2007 related to the accelerated recognition of deferred financing costs associated with early repayment of amounts under the $11.5 billion senior credit facility. Also included is $17 million ($10 million to net income) recorded in second-quarter 2007 related to premiums paid and the accelerated recognition of deferred financing costs associated with the redemption of our 10⅛% Senior Notes.

Gains on Sales of Assets
Gains on sales of assets totaled $13 million ($8 million to net income) for both the second quarter and first six months of 2008, compared with $38 million ($23 million to net income) for both the second quarter and first six months of 2007 primarily associated with the sale of marketable securities.

Other Income, Net
Other income, net, totaled $9 million in second-quarter 2008 and $11 million for the first six months of 2008, compared with $38 million in second-quarter 2007 and $62 million for the first six months of 2007. The decrease in other income, net, in the 2008 periods primarily reflected lower interest income associated with lower average cash balances and higher foreign currency exchange losses related to a weaker U.S. dollar.

Provision for Income Taxes
Our second-quarter 2008 income tax provision from continuing operations resulted from taxes on international operations ($546 million) and U.S. taxes ($112 million). Our income tax provision for the first six months of 2008 included taxes on international operations ($1.1 billion) and U.S. taxes ($262 million). The difference between our consolidated effective income tax rate of approximately 33 percent for the first six months of 2008 and the U.S. federal statutory rate of 35 percent primarily was attributable to a U.S. benefit for percentage depletion, partly offset by withholding taxes and incremental U.S. income tax accrued on foreign earnings.

Our second-quarter 2007 income tax provision from continuing operations resulted from taxes on earnings at international operations ($626 million) and U.S. taxes ($138 million). Our income tax provision for the first six months of 2007 included taxes on international operations ($1.1 billion) and U.S. taxes ($92 million). The difference between our consolidated effective income tax rate of approximately 37 percent for the first six months of 2007 and the U.S. federal statutory rate of 35 percent primarily was attributable to (i) withholding taxes related to earnings from Indonesia and South America operations, (ii) income taxes incurred by PT Indocopper Investama, a wholly owned subsidiary of FCX whose only asset is its investment in PT Freeport Indonesia, and (iii) a U.S. foreign tax credit limitation, partly offset by a U.S. benefit for percentage depletion.

A summary of the approximate amounts in the calculation of our consolidated provision for income taxes for the first six months of 2008 and 2007 follows (in millions, except percentages):

   
Six Months Ended
  
Six Months Ended
  
   
June 30, 2008
  
June 30, 2007
  
           
Effective
  
Provision for
          
Effective
  
Provision for
  
   
Incomea
    
Tax Rate
  
Income Tax
  
Incomea
    
Tax Rate
  
Income Tax
  
U.S.
  
$
1,686
    
27%
  
$
452
  
$
408
    
30%
  
$
122
  
South America
    
1,999
    
33%
    
663
    
1,076
    
35%
    
374
  
Indonesia
    
1,064
    
42%
    
444
    
2,365
    
43%
    
1,021
  
Eliminations and other
    
(17
)
  
N/A
    
19
    
2
    
N/A
    
(1
)
Purchase accounting adjustments
    
(556
)
  
37%
    
(209
)
  
(579
)
  
37%
    
(216
)
Annualized rate adjustmentb
    
N/A
    
N/A
    
18
    
N/A
    
N/A
    
(78
)
Consolidated FCX
  
$
4,176
    
33%
  
$
1,387
  
$
3,272
    
 37%
  
$
1,222
  

a. 
 Represents income from continuing operations before income taxes and minority interests.
 
b. 
 In accordance with applicable accounting rules, we adjust our interim provision for income taxes to equal our estimated annualized tax rate.

27
 
Minority Interests in Net Income of Consolidated Subsidiaries
Minority interests in net income of consolidated subsidiaries of $274 million in second-quarter 2008 was $33 million lower than second-quarter 2007 because of a lower minority interest share of PT Freeport Indonesia net income associated with lower second-quarter 2008 earnings, partly offset by greater minority interest shares in our South America operations’ net income associated with higher second-quarter 2008 earnings.

Minority interests in net income of consolidated subsidiaries of $593 million for the first six months of 2008 was $172 million higher than the first six months of 2007 because of greater minority interest shares in our South America operations’ net income reflecting a full six months of operations in 2008, partly offset by a lower minority interest share of PT Freeport Indonesia net income related to lower earnings for the first six months of 2008.

OPERATIONS

North America
Our North America operations include copper operations from mining through rod production, molybdenum operations from mining through conversion to chemical and metallurgical products, and the marketing and sale of both product lines. We have seven operating copper mines in North America – Morenci, Bagdad, Sierrita, Safford, Miami, Chino and Tyrone, and one operating molybdenum mine – Henderson.

The North America division includes the Morenci copper mine, Rod & Refining operations and Molybdenum operations as reportable segments. Following is further discussion of these reportable segments, as well as other operations included in the North America division.

Morenci. We have an 85 percent undivided interest in the Morenci open-pit mine, located in southeastern Arizona, which primarily produces copper cathodes and copper concentrates. In addition to copper, Morenci produces molybdenum concentrates as a by-product. The concentrate-leach, direct-electrowinning facility at Morenci is ramping up production following its commissioning in third-quarter 2007. The facility uses FCX’s proprietary medium-temperature, pressure-leaching and direct-electrowinning technology, which enhances cost savings by processing concentrates on-site instead of shipping concentrates to smelters for treatment and by providing acid for leaching operations.

Rod & Refining. The Rod & Refining segment consists of copper conversion facilities, including a refinery, rod mills and a specialty copper products facility. This segment processes copper produced at our North America mines and purchased copper into copper anode, cathode, rod and custom copper shapes. At times this segment refines copper and produces copper rod and shapes for customers on a toll basis. Toll arrangements require the tolling customer to deliver appropriate copper-bearing material to our facilities for processing into a product that is returned to the customer, who pays us for processing their material into the specified products.

Molybdenum. The Molybdenum segment includes our wholly owned Henderson molybdenum mine in Colorado and related conversion facilities. The Henderson underground mine produces high-purity, chemical-grade molybdenum concentrates, which are typically further processed into value-added molybdenum chemical products. This segment is an integrated producer of molybdenum, with mining, roasting and processing facilities that produce high-purity, molybdenum-based chemicals, molybdenum metal powder and metallurgical products, which are sold to customers around the world. The Molybdenum segment also includes a sales company that purchases and sells molybdenum from Henderson as well as from our North America and South America copper mines that produce molybdenum as a by-product. In addition, at times this segment roasts and/or processes material on a toll basis. Toll arrangements require the tolling customer to deliver appropriate molybdenum-bearing material to our facilities for processing into a product that is returned to the customer, who pays us for processing their material into the specified products.

The Molybdenum segment also includes our wholly owned Climax molybdenum mine in Colorado, which has been on care-and-maintenance status since 1995. In December 2007, we announced a project to restart the Climax mine, which is believed to be the largest, highest-grade and lowest-cost undeveloped molybdenum ore body in the world (refer to “Development Projects” for further discussion).

In March 2008, the labor agreement covering employees of the Rotterdam conversion plant expired, and we successfully negotiated a new three-year agreement effective April 1, 2008. Additionally, in May 2008, the labor
 
28
 
agreement covering employees of the Stowmarket conversion plant expired, and we successfully negotiated a new three-year agreement effective June 1, 2008.

Other North America operations. Other North America operations include our other operating southwestern U.S. copper mines – Bagdad, Sierrita, Safford, Miami, Chino and Tyrone. In addition to copper, the Bagdad, Sierrita and Chino mines produce molybdenum, gold and silver. Other North America operations also include the Miami smelter, which processes our North America concentrates and provides a significant source of sulfuric acid for the various North America leaching operations; and a sales company, which functions as an agent to purchase metals, primarily copper, from the North America and South America operations and sells to Atlantic Copper and third parties.

North America Revenues. A summary of changes in revenues at our North America operations between periods follows (in millions):

 
Second
  
Six
  
 
Quarter
  
Months
  
North America revenues – prior year period
$
2,683
  
$
3,002
  
Sales volumes:
            
Copper
  
47
    
1,116
a
Molybdenum
  
109
    
572
a
Price realizations:
            
Copper
  
132
    
185
  
Molybdenum
  
135
    
281
  
Purchased copper and molybdenum
  
(100
)b
  
1,005
b
Impact of the 2007 copper price protection program
  
130
    
168
  
Adjustments, primarily for copper pricing on prior period/year open sales
  
(1
)
  
80
  
Other, net
  
10
    
9
  
North America revenues – current year period
$
3,145
  
$
6,418
  
 
a. 
 The increase in sales volumes primarily reflected a full six months of sales for 2008, compared with the first six months of 2007, which included sales beginning March 20, 2007.
 
b. 
 Includes changes of $11 million for the second quarter periods and $516 million for the six month periods related to revenues associated with purchases of copper and molybdenum from our South America mines, which is sold to third parties by the North America copper and molybdenum sales companies.


 
29
 
Table of Contents
 
North America Operating Results. The following discussion of our North America operations includes pro forma results for the six-month period ended June 30, 2007, to reflect the period prior to our acquisition of these operations:

       
Six Months Ended
  
   
Second-Quarter
  
June 30,
  
   
2008
  
2007
  
2008
  
2007
  
   
(Actual)
  
(Actual)
  
(Actual)
  
(Pro Forma)
  
Consolidated Operating Data, Net of Joint Venture Interest
                          
Copper (millions of recoverable pounds)
                          
Production
    
350
    
335
    
677
    
636
  
Sales, excluding purchases
    
347
    
333
    
686
    
640
  
Average realized price per pound
  
$
3.82
  
$
3.05
a
$
3.66
  
$
2.79
a
                           
Molybdenum (millions of recoverable pounds)
                          
Production
    
18
    
18
    
35
    
35
  
Sales, excluding purchases
    
20
    
15
    
40
    
34
  
Average realized price per pound
  
$
31.59
  
$
24.83
  
$
31.63
  
$
23.83
  
                           
100% Operating Data, Including Joint Venture Interest
                          
Solution extraction/electrowinning (SX/EW) operations
                          
Leach ore placed in stockpiles (metric tons per day)
    
1,099,500
    
743,100
    
1,117,200
    
710,400
  
Average copper ore grade (percent)
    
0.23
    
0.25
    
0.21
    
0.27
  
Copper production (millions of recoverable pounds)
    
215
    
248
    
432
    
476
  
                           
Mill operations
                          
Ore milled (metric tons per day)
    
257,600
    
227,300
    
250,800
    
218,200
  
Average ore grade (percent):
                          
Copper
    
0.40
    
0.34
    
0.39
    
0.32
  
Molybdenum
    
0.02
    
0.03
    
0.02
    
0.02
  
Recovery rate (percent):
                          
Copper
    
84.6
    
84.4
    
82.9
    
84.6
  
Production (millions of recoverable pounds):
                          
Copper
    
163
    
119
    
299
    
220
  
Molybdenum (by-product)
    
7
    
8
    
15
    
15
  
                           
Molybdenum operations (Henderson)
                          
Ore milled (metric tons per day)
    
26,800
    
25,400
    
25,900
    
25,000
  
Average molybdenum ore grade (percent)
    
0.23
    
0.22
    
0.22
    
0.22
  
Molybdenum production (millions of recoverable pounds)
    
11
    
10
    
20
    
20
  
 
a. 
 Amounts were $3.44 per pound for second-quarter 2007 and $3.08 per pound for the first six months of 2007 before charges for mark-to-market accounting adjustments on the 2007 copper price protection program.

Consolidated copper sales from North America operations increased to 347 million pounds in second-quarter 2008 and 686 million pounds for the first six months of 2008, compared with 333 million pounds in second-quarter 2007 and 640 million pounds for the first six months of 2007. Higher copper sales volumes in the 2008 periods primarily reflected an increase in production from the recently commissioned Safford mine and also included higher production from mill operations resulting from higher grades, partly offset by lower production from SX/EW operations because of lower grades.

Consolidated copper sales volumes from our North America operations are expected to total approximately 1.4 billion pounds in 2008, compared with 1.3 billion pounds of copper for the pro forma year 2007. North America’s copper sales are expected to be approximately 100 million pounds lower than previous estimates primarily because of delays in achieving full production at the recently commissioned Safford mine and lower than expected production at Morenci; efforts are under way to offset these shortfalls.

Consolidated molybdenum sales volumes increased to 20 million pounds in second-quarter 2008 and 40 million pounds for the first six months of 2008, compared with 15 million pounds in second-quarter 2007 and 34 million
 
30
 
pounds for the first six months of 2007. The increase in molybdenum sales volumes in the 2008 periods was primarily because of improved market conditions.

Consolidated molybdenum sales volumes are expected to approximate 75 million pounds in 2008, compared with 69 pounds of molybdenum for the pro forma year 2007. Approximately 85 percent of our expected 2008 molybdenum production is committed for sale throughout the world pursuant to annual or quarterly agreements based primarily on prevailing market prices one month prior to the time of sale.

Unit Net Cash Costs. Unit net cash costs per pound of copper and molybdenum are measures intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other mining companies, although our measures may not be comparable to similarly titled measures reported by other companies.
 
The following tables summarize the unit net cash costs at the North America copper mines, including pro forma unit net cash costs for the six-month period ended June 30, 2007, which includes the period prior to our acquisition of these operations. Henderson, our operating molybdenum mine, is not included in these tables – see “Henderson Unit Net Cash Costs.” We have included the impacts of purchase accounting fair value adjustments as additional depreciation, depletion and amortization and noncash and nonrecurring costs. Accordingly, we have revised the previously reported disclosures for the 2007 periods to conform to the current period presentation. Refer to “Product Revenues and Production Costs” for an explanation of the “by-product” and “co-product” methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements or pro forma consolidated financial results.
 

Gross Profit per Pound of Copper and Molybdenum for North America Copper Mines

Three Months Ended June 30, 2008
                  
   
By-Product
  
Co-Product Method
  
   
Method
    
Copper
    
Molybdenum
a
                   
Revenues, after adjustments shown below
$
3.82
  
$
3.82
  
$
32.85
  
                   
Site production and delivery, before net noncash and
                  
nonrecurring costs shown below
  
1.84
    
1.60
    
11.70
  
By-product creditsa
  
(0.70
)
  
–
    
–
  
Treatment charges
  
0.10
    
0.10
    
–
  
Unit net cash costs
  
1.24
    
1.70
    
11.70
  
Depreciation, depletion and amortization
  
0.53
    
0.47
    
2.54
  
Noncash and nonrecurring costs, net
  
0.06
    
0.06
    
0.19
  
Total unit costs
  
1.83
    
2.23
    
14.43
  
Revenue adjustments, primarily for pricing on prior period
                  
open sales
  
(0.01
)
  
(0.01
)
  
–
  
Idle facility and other non-inventoriable costs
  
(0.04
)
  
(0.04
)
  
(0.02
)
Gross profit
$
1.94
  
$
1.54
  
$
18.40
  
                   
Consolidated sales (millions of recoverable pounds)
                  
Copper
  
346
    
346
        
Molybdenum
              
7
  

a. 
 Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.


 
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Table of Contents

Three Months Ended June 30, 2007
                  
   
By-Product
  
Co-Product Method
  
   
Method
    
Copper
    
Molybdenum
a
                   
Revenues, after adjustments shown below
$
3.44
  
$
3.44
  
$
28.52
  
                   
Site production and delivery, before net noncash and
                  
nonrecurring costs shown below
  
1.46
    
1.21
    
10.04
  
By-product creditsa
  
(0.74
)
  
–
    
–
  
Treatment charges
  
0.09
    
0.09
    
–
  
Unit net cash costs
  
0.81
    
1.30
    
10.04
  
Depreciation, depletion and amortization
  
0.40
    
0.33
    
2.58
  
Noncash and nonrecurring costs, net
  
0.44
    
0.40
    
(0.12
)
Total unit costs
  
1.65
    
2.03
    
12.50
  
Revenue adjustments, primarily for pricing on prior period
                  
open sales and hedging
  
(0.43
)
  
(0.43
)
  
–
  
Idle facility and other non-inventoriable costs
  
(0.02
)
  
(0.02
)
  
–
  
Gross profit
$
1.34
  
$
0.96
  
$
16.02
  
                   
Consolidated sales (millions of recoverable pounds)
                  
Copper
  
327
    
327
        
Molybdenum
              
8
  

a. 
 Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.

Six Months Ended June 30, 2008
                  
   
By-Product
  
Co-Product Method
  
   
Method
    
Copper
    
Molybdenum
a
                   
Revenues, after adjustments shown below
$
3.66
  
$
3.66
  
$
32.80
  
                   
Site production and delivery, before net noncash and
                  
nonrecurring costs shown below
  
1.74
    
1.52
    
10.68
  
By-product creditsa
  
(0.74
)
  
–
    
–
  
Treatment charges
  
0.10
    
0.10
    
–
  
Unit net cash costs
  
1.10
    
1.62
    
10.68
  
Depreciation, depletion and amortization
  
0.53
    
0.47
    
2.50
  
Noncash and nonrecurring costs, net
  
0.08
    
0.07
    
0.15
  
Total unit costs
  
1.71
    
2.16
    
13.33
  
Revenue adjustments, primarily for pricing on prior period
                  
open sales
  
0.06
    
0.06
    
–
  
Idle facility and other non-inventoriable costs
  
(0.04
)
  
(0.04
)
  
(0.02
)
Gross profit
$
1.97
  
$
1.52
  
$
19.45
  
                   
Consolidated sales (millions of recoverable pounds)
                  
Copper
  
683
    
683
        
Molybdenum
              
15
  

a. 
 Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.


 
32
 
Table of Contents

Six Months Ended June 30, 2007 (Pro Forma)
                  
   
By-Product
  
Co-Product Method
  
   
Method
    
Copper
    
Molybdenum
a
                   
Revenues, after adjustments shown below
$
3.08
  
$
3.08
  
$
26.95
  
                   
Site production and delivery, before net noncash and
                  
nonrecurring costs shown below
  
1.39
    
1.19
    
9.90
  
By-product creditsa
  
(0.64
)
  
–
    
–
  
Treatment charges
  
0.08
    
0.08
    
–
  
Unit net cash costs
  
0.83
    
1.27
    
9.90
  
Depreciation, depletion and amortization
  
0.45
    
0.38
    
3.06
  
Noncash and nonrecurring costs, net
  
0.66
    
0.57
    
2.81
  
Total unit costs
  
1.94
    
2.22
    
15.77
  
Revenue adjustments, primarily for pricing on prior period
                  
open sales and hedging
  
(0.21
)
  
(0.21
)
  
–
  
Idle facility and other non-inventoriable costs
  
(0.02
)
  
(0.02
)
  
–
  
Gross profit
$
0.91
  
$
0.63
  
$
11.18
  
                   
Consolidated sales (millions of recoverable pounds)
                  
Copper
  
628
    
628
        
Molybdenum
              
15
  

a. 
 Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.

The North America mining operations have experienced production cost increases in recent years primarily as a result of higher energy costs and costs of other consumables, higher mining and milling rates, labor costs and other factors. Higher unit net cash costs for the second quarter and first six months of 2008, compared with the 2007 periods, primarily reflected increases in energy costs, labor, sulfuric acid and other input costs, increases in mining rates and lower grades at Morenci, and also reflected higher unit net cash costs at Safford as the mine ramps up to full production rates. Partly offsetting these higher costs in the by-product calculation for the first six months of 2008 were higher molybdenum credits resulting from higher average prices and production.

The estimated fair values of acquired inventory and property, plant and equipment were based on preliminary estimates for the 2007 periods, with adjustments made until such values were finalized in first-quarter 2008; accordingly, depreciation, depletion and amortization reflect changes in purchase accounting impacts associated with adjustments to the carrying values of these assets. Additionally, noncash and nonrecurring costs for the 2008 periods reflect lower purchase accounting impacts as impacts related to increased carrying values of acquired inventory were mostly realized in 2007.

Assuming average prices of $3.75 per pound of copper and $30 per pound of molybdenum for the remainder of 2008 and achievement of current sales estimates, we estimate that the 2008 average unit net cash costs for our North America copper mines, including molybdenum credits, would approximate $1.29 per pound of copper.


 
33
 
Table of Contents
 
Henderson Unit Net Cash Costs. The following table summarizes the unit net cash costs at our Henderson operation, including pro forma unit net cash costs for the six-month period ended June 30, 2007, which includes the period prior to our acquisition of these operations. We have included the impacts of purchase accounting fair value adjustments as additional depreciation and amortization. Accordingly, we have revised the previously reported disclosures for the 2007 periods to conform to the current period presentation. Refer to “Product Revenues and Production Costs” for a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements or pro forma consolidated financial results.

Gross Profit per Pound of Molybdenum for Henderson Molybdenum Mine

     
Six Months Ended
  
 
Second-Quarter
  
June 30,
  
 
2008
  
2007
  
2008
  
2007
  
 
(Actual)
  
(Actual)
  
(Actual)
  
(Pro forma)
  
Revenues
$
30.05
  
$
25.12
  
$
29.76
  
$
23.70
  
Site production and delivery, before net noncash
                        
and nonrecurring costs shown below
  
4.96
    
4.38
    
5.06
    
4.27
  
Unit net cash costs
  
4.96
    
4.38
    
5.06
    
4.27
  
Depreciation, depletion and amortization
  
4.24
    
1.77
    
4.25
    
3.93
  
Noncash and nonrecurring costs, net
  
0.02
    
0.01
    
0.02
    
0.01
  
Total unit costs
  
9.22
    
6.16
    
9.33
    
8.21
  
Gross profita
$
20.83
  
$
18.96
  
$
20.43
  
$
15.49
  
                         
Consolidated molybdenum sales (millions of recoverable
                        
pounds)
  
11
    
10
    
20
    
20
  
 
a. 
Gross profit reflects sales of Henderson products based on volumes produced at market-based pricing. On a consolidated basis, the Molybdenum segment includes profits on sales as they are made to third parties and realizations based on actual contract terms. As a result, the actual gross profit realized will differ from the amounts reported in this table.

Henderson’s unit net cash costs per pound of molybdenum for the second quarter and first six months of 2008 were higher than the comparable 2007 periods primarily because of higher input costs, including labor, maintenance, supplies and energy.

The estimated fair values of acquired property, plant and equipment were based on preliminary estimates for the 2007 periods, with adjustments made until such values were finalized in first-quarter 2008; accordingly, depreciation, depletion and amortization reflect changes in purchase accounting impacts associated with adjustments to the carrying values of these assets.

Assuming achievement of current sales estimates, we estimate that the 2008 average unit net cash costs for Henderson would approximate $5.00 per pound of molybdenum.

South America
We have four operating copper mines in South America – Cerro Verde in Peru, and Candelaria, Ojos del Salado and El Abra in Chile. These operations include open-pit and underground mining, sulfide ore concentrating, leaching and SX/EW.

The South America division includes the Cerro Verde copper mine as a reportable segment. Following is further discussion of this reportable segment, as well as other operations included in the South America division.

Cerro Verde. We own a 53.56 percent interest in Cerro Verde. The Cerro Verde open-pit mine, located near Arequipa, Peru, produces copper cathodes and copper concentrates. In addition to copper, the Cerro Verde mine produces molybdenum concentrates. In mid-2007, the recently expanded mill at Cerro Verde reached design capacity of 108,000 metric tons of ore per day. The expansion enables Cerro Verde to produce approximately 650 million pounds of copper per year (approximately 348 million pounds per year for our share) and approximately 8 million pounds of molybdenum per year (approximately 4 million pounds per year for our share) for the next several years.
 
34
 
Cerro Verde has provided a variety of community support projects over the years. During 2006, as a result of discussions with local mayors in the Arequipa region, Cerro Verde agreed to contribute to the design and construction of domestic water and sewage treatment plants for the benefit of the region. These facilities are being designed in a modular fashion so that initial installations can be readily expanded in the future. The cost associated with the construction of these facilities, which will be split equally between Cerro Verde and local municipalities, is currently under review.

During 2006, the Peruvian government announced that all mining companies operating in Peru will make annual contributions to local development funds for a five-year period. The contribution is equal to 3.75 percent of after-tax profits, of which 2.75 percent is contributed to a local mining fund and 1.00 percent to a regional mining fund. As the contribution program was being established, Cerro Verde negotiated an agreement that allowed a credit against contributions to the local mining fund for Cerro Verde’s contributions made to the Arequipa region for construction of local water and sewage treatment facilities. During third-quarter 2007, the agreement with the government was modified to exclude this credit. A charge to production and delivery costs totaling $13 million was recorded in second-quarter 2008 and $27 million for the first six months of 2008 related to these local mining fund contributions.

Other South America Operations. Other South America operations include our Chilean copper mines – Candelaria, Ojos del Salado and El Abra – which include open-pit and underground mining, sulfide ore concentrating, leaching and SX/EW operations. In addition to copper, the Candelaria and Ojos del Salado mines produce gold and silver. We own an 80 percent interest in both the Candelaria and Ojos del Salado mines, and own a 51 percent interest in the El Abra mine.

El Abra had a labor agreement covering certain of its employees, which expired July 2008. In April 2008, El Abra and its workers successfully negotiated a new four-year agreement effective August 1, 2008. The new agreement provides for an increase in base wages, bonuses and an employee loan program. The estimated cost of the increased wages and bonuses over the four year term is approximately $40 million.

South America Revenues. A summary of changes in revenues at our South America operations between periods follows (in millions):

 
Second
  
Six
  
 
Quarter
  
Months
  
South America revenues – prior year period
$
1,232
  
$
1,494
  
Sales volumes:
            
Copper
  
86
    
1,076
a
Gold
  
(1
)
  
12
a
Price realizations:
            
Copper
  
117
    
263
  
Gold
  
6
    
13
  
Treatment charges
  
(1
)
  
(52
)
Adjustments, primarily for copper pricing on prior period/year open sales
  
(51
)
  
155
  
Other, net
  
21
    
41
  
South America revenues – current year period
$
1,409
  
$
3,002
  
 
a. 
 The increase in sales volumes primarily reflected a full six months of sales for 2008, compared with the first six months of 2007, which included sales beginning March 20, 2007.


 
35
 
Table of Contents
 
South America Operating Results. The following discussion of our South America operations includes pro forma results for the six-month period ended June 30, 2007, to reflect the period prior to our acquisition of these operations:

   
Second-Quarter
  
Six Months Ended June 30,
  
   
2008
  
2007
  
2008
  
2007
  
   
(Actual)
  
(Actual)
  
(Actual)
  
(Pro Forma)
  
Copper (millions of recoverable pounds)
                          
Production
    
369
    
338
    
722
    
645
  
Sales
    
366
    
343
    
731
    
644
  
Average realized price per pound
  
$
3.86
  
$
3.54
  
$
3.84
  
$
3.33
  
                           
Gold (thousands of recoverable ounces)
                          
Production
    
25
    
28
    
51
    
52
  
Sales
    
26
    
28
    
53
    
53
  
Average realized price per ounce
  
$
910.19
  
$
674.01
  
$
914.41
  
$
608.79
  
                           
Molybdenum (millions of recoverable pounds)
                          
Production
    
–
 a
  
–
    
1
    
–
  
                           
SX/EW operations
                          
Leach ore placed in stockpiles (metric tons per day)
    
291,500
    
305,200
    
282,800
    
290,700
  
Average copper ore grade (percent)
    
0.42
    
0.42
    
0.41
    
0.40
  
Copper production (millions of recoverable pounds)
    
144
    
142
    
279
    
291
  
                           
Mill operations
                          
    Ore milled (metric tons per day)
    
177,200
    
168,000
    
173,900
    
154,700
  
Average copper ore grade (percent):
                          
Copper
    
0.72
    
0.72
    
0.73
    
0.70
  
Molybdenum
    
0.02
    
–
    
0.02
    
–
  
    Recovery rate (percent):
                            
Copper
    
89.7
    
84.1
    
90.2
    
85.3
  
    Production (millions of recoverable pounds):
                          
Copper
    
225
    
196
    
443
    
354
  
Molybdenum
    
–
a
  
–
    
1
    
–
  

a. 
Rounds to less than one million pounds.

Consolidated copper sales from South America operations increased to approximately 366 million pounds in second-quarter 2008 and 731 million pounds for the first six months of 2008, compared with 343 million pounds in second-quarter 2007 and 644 million for the first six months of 2007. Higher copper sales volumes in the 2008 periods primarily reflected increased production from Cerro Verde’s new concentrator, which reached design capacity in mid-2007.

Consolidated sales volumes from our South America operations are expected to approximate 1.5 billion pounds of copper and 100 thousand ounces of gold in 2008, compared with 1.4 billion pounds of copper and 114 thousand ounces of gold for the pro forma year 2007. In addition, in 2008 Cerro Verde expects to produce three million pounds of molybdenum, compared with one million pounds for the pro forma year 2007.

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other mining companies, although our measures may not be comparable to similarly titled measures reported by other companies.
 
The following tables summarize the unit net cash costs at the South America copper mines, including pro forma unit net cash costs for the six-month period ended June 30, 2007, which includes the period prior to our
36
 
acquisition of these operations. The below tables reflect unit net cash costs per pound of copper under the by-product and co-product methods as the South America mines also had small amounts of gold and silver sales. We have included the impacts of purchase accounting fair value adjustments as additional depreciation, depletion and amortization, and noncash and nonrecurring costs. Accordingly, we have revised the previously reported disclosures for the 2007 periods to conform to the current period presentation. Refer to “Product Revenues and Production Costs” for an explanation of the “by-product” and “co-product” methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements or pro forma consolidated financial results.

Gross Profit per Pound of Copper for South America Copper Mines

Three Months Ended June 30, 2008
        
 
By-Product
  
Co-Product
  
 
Method
  
Method
  
Revenues, after adjustments shown below
$
3.86
  
$
3.86
  
Site production and delivery, before net noncash and
            
nonrecurring costs shown below
  
1.15
    
1.11
  
By-product credits
  
(0.12
)
  
–
  
Treatment charges
  
0.19
    
0.19
  
Unit net cash costs
  
1.22
    
1.30
  
Depreciation, depletion and amortization
  
0.34
    
0.33
  
Noncash and nonrecurring costs, net
  
0.09
    
0.09
  
Total unit costs
  
1.65
    
1.72
  
Revenue adjustments, primarily for pricing on prior period
            
open sales
  
0.04
    
0.04
  
Other non-inventoriable costs
  
(0.02
)
  
(0.02
)
Gross profit
$
2.23
  
$
2.16
  
             
Consolidated sales
            
Copper (millions of recoverable pounds)
  
366
    
366
  

Three Months Ended June 30, 2007
        
 
By-Product
  
Co-Product
  
 
Method
  
Method
  
Revenues, after adjustments shown below
$
3.54
  
$
3.54
  
Site production and delivery, before net noncash and
            
nonrecurring costs shown below
  
0.82
    
0.81
  
By-product credits
  
(0.07
)
  
–
  
Treatment charges
  
0.21
    
0.20
  
Unit net cash costs
  
0.96
    
1.01
  
Depreciation, depletion and amortization
  
0.41
    
0.41
  
Noncash and nonrecurring costs, net
  
0.03
    
0.02
  
Total unit costs
  
1.40
    
1.44
  
Revenue adjustments, primarily for pricing on prior period
            
open sales
  
0.18
    
0.18
  
Other non-inventoriable costs
  
(0.02
)
  
(0.02
)
Gross profit
$
2.30
  
$
2.26
  
             
Consolidated sales
            
Copper (millions of recoverable pounds)
  
343
    
343
  
             


 
37
 
Table of Contents
 
Six Months Ended June 30, 2008
        
 
By-Product
  
Co-Product
  
 
Method
  
Method
  
Revenues, after adjustments shown below
$
3.84
  
$
3.84
  
Site production and delivery, before net noncash and
            
nonrecurring costs shown below
  
1.12
    
1.08
  
By-product credits
  
(0.13
)
  
–
  
Treatment charges
  
0.19
    
0.19
  
Unit net cash costs
  
1.18
    
1.27
  
Depreciation, depletion and amortization
  
0.35
    
0.34
  
Noncash and nonrecurring costs, net
  
0.08
    
0.08
  
Total unit costs
  
1.61
    
1.69
  
Revenue adjustments, primarily for pricing on prior period
            
open sales
  
0.32
    
0.32
  
Other non-inventoriable costs
  
(0.03
)
  
(0.03
)
Gross profit
$
2.52
  
$
2.44
  
             
Consolidated sales
            
Copper (millions of recoverable pounds)
  
731
    
731
  

Six Months Ended June 30, 2007 (Pro Forma)
        
 
By-Product
  
Co-Product
  
 
Method
  
Method
  
Revenues, after adjustments shown below
$
3.33
  
$
3.33
  
Site production and delivery, before net noncash and
            
nonrecurring costs shown below
  
0.83
    
0.81
  
By-product credits
  
(0.07
)
  
–
  
Treatment charges
  
0.19
    
0.19
  
Unit net cash costs
  
0.95
    
1.00
  
Depreciation, depletion and amortization
  
0.35
    
0.34
  
Noncash and nonrecurring costs, net
  
0.21
    
0.20
  
Total unit costs
  
1.51
    
1.54
  
Revenue adjustments, primarily for pricing on prior period
            
open sales
  
0.02
    
0.02
  
Other non-inventoriable costs
  
(0.02
)
  
(0.02
)
Gross profit
$
1.82
  
$
1.79
  
             
Consolidated sales
            
Copper (millions of recoverable pounds)
  
644
    
644
  
             
The South America mining operations also have experienced production cost increases in recent years primarily as a result of higher energy costs and costs of other consumables, higher mining costs and milling rates, labor costs and other factors. Higher unit net cash costs for the second quarter and first six months of 2008, compared with the 2007 periods, primarily reflected higher energy costs, higher mining rates at Candelaria and higher milling costs at Cerro Verde and Candelaria. Other 2008 increases included local mining fund contributions at Cerro Verde, partly offset by increased production from the expanded mill at Cerro Verde. Also offsetting these factors in the by-product calculation were higher by-product credits reflecting higher average gold prices and molybdenum production at Cerro Verde in the 2008 periods.

The estimated fair values of acquired inventory and property, plant and equipment were based on preliminary estimates for the 2007 periods, with adjustments made until such values were finalized in first-quarter 2008; accordingly, depreciation, depletion and amortization reflect changes in purchase accounting impacts associated with adjustments to the carrying values of property, plant and equipment. Additionally, the inventory impacts on noncash and nonrecurring costs were mostly realized in 2007.

Assuming average prices of $3.75 per pound of copper for the remainder of 2008 and achievement of current sales estimates, we estimate that 2008 average unit net cash costs for our South America mines, including gold and molybdenum credits, would approximate $1.18 per pound of copper.

38
 
Indonesia
We own 90.64 percent of PT Freeport Indonesia, including 9.36 percent owned through our wholly owned subsidiary, PT Indocopper Investama. The Government of Indonesia owns the remaining 9.36 percent of PT Freeport Indonesia. In July 2004, we received a request from the Indonesian Department of Energy and Mineral Resources that we offer to sell shares in PT Indocopper Investama to Indonesian nationals at fair market value. In response to this request and in view of the potential benefits of having additional Indonesian ownership in our operations, we agreed to consider a potential sale of any or all of our interest in PT Indocopper Investama at fair market value. Neither our Contract of Work nor Indonesian law requires us to divest any portion of our ownership interest in PT Freeport Indonesia or PT Indocopper Investama. In May 2008, we signed a Memorandum of Understanding with the Papua provincial government (the Province) whereby the parties agreed to work cooperatively to determine the feasibility of an acquisition by the Province of the PT Indocopper Investama shares at fair market value.

Joint Ventures with Rio Tinto plc (Rio Tinto). In 1996, we established joint ventures with Rio Tinto, an international mining company with headquarters in London, England. One joint venture covers PT Freeport Indonesia’s mining operations in Block A and gives Rio Tinto, through 2021, a 40 percent interest in certain assets and future production exceeding specified annual amounts of copper, gold and silver in Block A, and, after 2021, a 40 percent interest in all production from Block A. All of PT Freeport Indonesia’s current mining operations and reserves are in Block A.

Operating, nonexpansion capital and administrative costs are shared proportionately between PT Freeport Indonesia and Rio Tinto based on the ratio of the incremental revenues from production from our expansion completed in 1998 to total revenues 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 through 2021, calculated by reference to its proven and probable reserves as of December 31, 1994, and 60 percent of all remaining cash flow.

Indonesia Revenues. A summary of changes in PT Freeport Indonesia’s revenues between periods follows (in millions):

 
Second
  
Six
  
 
Quarter
  
Months
  
PT Freeport Indonesia revenues – prior year period
$
1,762
  
$
3,471
  
Sales volumes:
            
Copper
  
(362
)
  
(1,073
)
Gold
  
(424
)
  
(884
)
Price realizations:
            
Copper
  
103
    
192
  
Gold
  
60
    
125
  
Treatment charges
  
47
    
141
  
Adjustments, primarily for copper pricing on prior period/year open sales
  
(158
)
  
66
  
Other, net
  
(12
)
  
30
  
PT Freeport Indonesia revenues – current year period
$
1,016
  
$
2,068
  


 
39
 
Table of Contents
 
Indonesia Operating Results. Following is a discussion of our Indonesia operations:

       
Six Months Ended
  
   
Second-Quarter
  
June 30,
  
   
2008
  
2007
  
2008
  
2007
  
Consolidated Operating Data, Net of Joint Venture Interest
                          
Copper (millions of recoverable pounds)
                          
Production
    
222
    
298
    
422
    
766
  
Sales
    
229
    
334
    
436
    
751
  
Average realized price per pound
  
$
3.88
  
$
3.43
  
$
3.84
  
$
3.40
  
                           
Gold (thousands of recoverable ounces)
                          
Production
    
221
    
795
    
467
    
1,869
  
Sales
    
235
    
880
    
486
    
1,827
  
Average realized price per ounce
  
$
911.84
  
$
657.91
  
$
917.31
  
$
659.43
  
                           
100% Operating Data, Including Joint Venture Interest
                          
Ore milled (metric tons per day):
                          
Grasberg open pita
    
117,300
    
165,100
    
118,000
    
172,100
  
Deep Ore Zone (DOZ) underground minea
    
66,000
    
49,900
    
63,600
    
49,600
  
Total
    
183,300
    
215,000
    
181,600
    
221,700
  
Average ore grade:
                          
Copper (percent)
    
0.75
    
0.82
    
0.72
    
1.02
  
Gold (grams per metric ton)
    
0.54
    
1.63
    
0.57
    
1.82
  
Recovery rates (percent):
                          
Copper
    
89.8
    
91.8
    
89.7
    
91.3
  
Gold
    
78.9
    
88.6
    
79.0
    
88.1
  
Production (recoverable):
                          
Copper (millions of pounds)
    
237
    
310
    
451
    
790
  
Gold (thousands of ounces)
    
221
    
889
    
467
    
2,035
  
 
a. 
 Amounts represent the approximate average daily throughput processed at PT Freeport Indonesia’s mill facilities from each producing mine.

PT Freeport Indonesia’s share of sales totaled 229 million pounds of copper and 235 thousand ounces of gold in second-quarter 2008 and 436 million pounds of copper and 486 thousand ounces of gold for the first six months of 2008. At the Grasberg mine, the sequencing in mining areas with varying ore grades causes fluctuations in the timing of ore production, resulting in varying quarterly and annual sales of copper and gold. Copper and gold sales volumes for the second quarter and first six months of 2008 decreased, compared to the 2007 periods, as a result of mining in a lower ore grade section of the Grasberg open pit. PT Freeport Indonesia expects to mine in a higher grade section in the second half of 2008, with approximately 63 percent of copper and gold sales estimated in the second half of the year.

Total consolidated sales from PT Freeport Indonesia for 2008 are expected to approximate 1.2 billion pounds of copper and 1.3 million ounces of gold, compared with 1.1 billion pounds of copper and 2.2 million ounces of gold for the year 2007.

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other mining companies, although our measures may not be comparable to similarly titled measures reported by other companies.

The following tables summarize the unit net cash costs at our Indonesia mining operations. Refer to “Production Revenues and Production Costs” for an explanation of “by-product” and “co-product” methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.
 
40
 
Gross Profit per Pound of Copper/per Ounce of Gold for PT Freeport Indonesia

Three Months Ended June 30, 2008
                
 
By-Product
  
Co-Product Method
  
 
Method
  
Copper
  
Gold
  
Revenues, after adjustments shown below
$
3.88
  
$
3.88
  
$
911.84
  
                   
Site production and delivery, before net noncash and
                  
nonrecurring costs shown below
  
1.90
    
1.51
    
346.42
  
Gold and silver credits
  
(0.99
)
  
–
    
–
  
Treatment charges
  
0.28
    
0.23
    
51.35
  
Royalty on metals
  
0.13
    
0.11
    
23.96
  
Unit net cash costs
  
1.32
    
1.85
    
421.73
  
Depreciation and amortization
  
0.22
    
0.17
    
37.89
  
Noncash and nonrecurring costs, net
  
0.02
    
0.02
    
3.76
  
Total unit costs
  
1.56
    
2.04
    
463.38
  
Revenue adjustments, primarily for pricing on prior
                  
period open sales
  
(0.01
)
  
(0.01
)
  
(9.80
)
PT Smelting intercompany profit
  
–
    
–
    
(0.47
)
Gross profit
$
2.31
  
$
1.83
  
$
438.19
  
                   
Consolidated sales
                  
Copper (millions of recoverable pounds)
  
229
    
229
        
Gold (thousands of recoverable ounces)
              
235
  

Three Months Ended June 30, 2007
                
 
By-Product
  
Co-Product Method
  
 
Method
  
Copper
  
Gold
  
Revenues, after adjustments shown below
$
      3.43
  
$
      3.43
  
$
657.91
  
                   
Site production and delivery, before net noncash and
                  
nonrecurring costs shown below
  
1.14
    
0.75
    
142.52
  
Gold and silver credits
  
(1.79
)
  
–
    
–
  
Treatment charges
  
0.33
    
0.22
    
41.75
  
Royalty on metals
  
0.14
    
0.09
    
17.87
  
Unit net cash costs (credits)
  
(0.18
)
  
1.06
    
202.14
  
Depreciation and amortization
  
0.17
    
0.11
    
20.96
  
Noncash and nonrecurring costs, net
  
0.03
    
0.02
    
4.00
  
Total unit costs
  
0.02
    
1.19
    
227.10
  
Revenue adjustments, primarily for pricing on prior
                  
period open sales
  
0.53
    
0.52
    
6.44
  
PT Smelting intercompany profit
  
–
    
–
    
(0.02
)
Gross profit
$
3.94
  
$
2.76
  
$
437.23
  
                   
Consolidated sales
                  
Copper (millions of recoverable pounds)
  
334
    
334
        
Gold (thousands of recoverable ounces)
              
880
  
                   


 
41
 
Table of Contents
 
Six Months Ended June 30, 2008
                
 
By-Product
  
Co-Product Method
  
 
Method
  
Copper
  
Gold
  
Revenues, after adjustments shown below
$
3.84
  
$
3.84
  
$
917.31
  
                   
Site production and delivery, before net noncash and
                  
nonrecurring costs shown below
  
1.88
    
1.46
    
351.21
  
Gold and silver credits
  
(1.11
)
  
–
    
–
  
Treatment charges
  
0.31
    
0.24
    
56.77
  
Royalty on metals
  
0.13
    
0.10
    
23.60
  
Unit net cash costs
  
1.21
    
1.80
    
431.58
  
Depreciation and amortization
  
0.21
    
0.17
    
39.66
  
Noncash and nonrecurring costs, net
  
0.04
    
0.03
    
8.06
  
Total unit costs
  
1.46
    
2.00
    
479.30
  
Revenue adjustments, primarily for pricing on prior
                  
period open sales
  
0.23
    
0.23
    
14.13
  
PT Smelting intercompany profit
  
(0.01
)
  
(0.01
)
  
(2.27
)
Gross profit
$
2.60
  
$
2.06
  
$
449.87
  
                   
Consolidated sales
                  
Copper (millions of recoverable pounds)
  
436
    
436
        
Gold (thousands of recoverable ounces)
              
486
  

Six Months Ended June 30, 2007
                
 
By-Product
  
Co-Product Method
  
 
Method
  
Copper
  
Gold
  
Revenues, after adjustments shown below
$
      3.40
  
$
      3.40
  
$
659.43
  
                   
Site production and delivery, before net noncash and
                  
nonrecurring costs shown below
  
0.92
    
0.62
    
119.85
  
Gold and silver credits
  
(1.65
)
  
–
    
–
  
Treatment charges
  
0.35
    
0.24
    
45.73
  
Royalty on metals
  
0.13
    
0.09
    
16.83
  
Unit net cash costs (credits)
  
(0.25
)
  
0.95
    
182.41
  
Depreciation and amortization
  
0.15
    
0.10
    
19.88
  
Noncash and nonrecurring costs, net
  
0.03
    
0.02
    
3.37
  
Total unit costs (credits)
  
(0.07
)
  
1.07
    
205.66
  
Revenue adjustments, primarily for pricing on prior
                  
period open sales
  
0.05
    
0.05
    
1.38
  
PT Smelting intercompany profit
  
(0.05
)
  
(0.03
)
  
(6.18
)
Gross profit
$
3.47
  
$
2.35
  
$
448.97
  
                   
Consolidated sales
                  
Copper (millions of recoverable pounds)
  
751
    
751
        
Gold (thousands of recoverable ounces)
              
1,827
  

Because of the fixed nature of a large portion of PT Freeport Indonesia’s costs, unit costs vary significantly from period to period depending on volumes of copper and gold sold during the period. PT Freeport Indonesia has also experienced significant increases in production costs in recent years primarily as a result of higher energy costs and costs of other consumables, higher mining costs and milling rates, labor costs and other factors. PT Freeport Indonesia’s higher unit net cash costs in the second quarter and first six months of 2008, compared with the 2007 periods, primarily reflected significantly lower copper and gold sales volumes and higher input costs. Partly offsetting lower volumes in the by-product calculation were higher average realized gold prices, which benefited gold credits in the 2008 periods.

Unit treatment charges vary with the price of copper, and unit royalty costs vary with prices of copper and gold. Market rates for treatment charges have decreased since 2006 and will vary based on PT Freeport Indonesia’s customer mix.

42
 
Treatment charges vary with the volume of metals sold and the price of copper, and royalties vary with the volume of metals sold and the prices of copper and gold. Royalties decreased to $30 million in second-quarter 2008 and $55 million for the first six months of 2008, compared with $48 million in second-quarter 2007 and $97 million for the first six months of 2007. The reduction in royalties primarily reflects lower copper and gold sales volumes; partly offset by higher metal prices. Assuming average prices of $3.75 per pound of copper and $900 per ounce of gold for the remainder of 2008 and achievement of current sales estimates for PT Freeport Indonesia, royalty costs would total approximately $155 million ($0.13 per pound of copper) in 2008.

Because certain assets are depreciated on a straight-line basis, PT Freeport Indonesia’s unit depreciation rate varies with the level of copper production and sales. Accordingly, PT Freeport Indonesia’s unit depreciation rate increased in the second-quarter 2008 and first six months of 2008, compared with the 2007 periods, resulting from lower copper volumes in the 2008 periods.

Assuming average copper prices of $3.75 per pound and average gold prices of $900 per ounce for the remainder of 2008 and achievement of current sales estimates, PT Freeport Indonesia estimates that its annual 2008 unit net cash costs, including gold and silver credits, would approximate $0.80 per pound, and each $25 per ounce change in gold prices for the remainder of the year would have an approximate $0.02 per pound impact on PT Freeport Indonesia’s 2008 unit net cash costs. Because the majority of PT Freeport Indonesia’s costs are fixed, unit costs vary with volumes sold and the price of gold, and are currently projected to be higher during 2008 than in 2007 primarily because of lower projected gold sales volumes.

DEVELOPMENT PROJECTS

We have significant development activities recently completed or under way to expand our production volumes, extend our mine lives and develop large-scale underground ore bodies. Capital cost estimates are being affected by rising input costs, including equipment, materials and supplies and labor. We will continue to review and update our capital cost estimates for major development projects as engineering and construction activities progress. Following is further discussion of our major development projects.

Safford. Construction of a major new copper mine in Safford, Arizona, is complete, with copper production being ramped up to design capacity of 240 million pounds per year. The Safford copper mine produces ore from two open-pit mines and includes a SX/EW facility. The total capital investment for this project approximated $675 million. Safford produced 22 million pounds of copper in first-quarter 2008 and 24 million pounds of copper in second-quarter 2008. A number of start-up issues are being addressed principally associated with achieving design capacity of the ore stacking circuit and leach recovery optimization. The mine will continue to ramp up during the second half of 2008. We will continue to pursue significant additional exploration and development potential in this district, including the Lone Star project, a potentially large mineral resource that is currently being evaluated with a drilling program.

Climax. In December 2007, our Board of Directors approved the restart of the Climax molybdenum mine near Leadville, Colorado. The Climax mine, which has been on care-and-maintenance status since 1995, is believed to be the largest, highest-grade and lowest-cost undeveloped molybdenum ore body in the world. Major permits were secured in early 2008. Engineering is in an advanced stage and construction activities commenced in second-quarter 2008. Long-lead items have been ordered and are on schedule for delivery. The initial $500 million project involves the restart of open-pit mining and the construction of new milling facilities. After start-up and commissioning in 2010, annual production is expected to approximate 30 million pounds. The project is designed to enable the consideration of a further large-scale expansion of the Climax mine. We are currently evaluating a second phase of the Climax project to expand production rates should market conditions warrant additional production.

We also plan to increase our annual molybdenum processing capacity by 20 million pounds through the conversion of our copper concentrate leach facility at Bagdad, Arizona, to a molybdenum concentrate leach facility by 2010.

Miami. We have restarted limited mining activities at the Miami copper mine in Arizona as we continue to conduct reclamation activities associated with historical mining operations. During the approximate five-year mine life, we expect to ramp up to full rates of production of approximately 100 million pounds of copper per year by 2010. The capital investment for this project is expected to total approximately $100 million, primarily for mining equipment.

43
 
El Abra. We are advancing the development of a large sulfide deposit at El Abra that will extend the mine life by over 10 years. Copper production from the sulfides is targeted to begin in 2010 and is expected to average approximately 325 million pounds of copper per year beginning in 2012, replacing depleting oxide production. Certain of the existing facilities at El Abra will be used to process the additional sulfide reserves. In March 2008, we received approval of the environmental impact study associated with this project. Total initial capital for the project is estimated to approximate $450 million, the majority of which will be spent between 2008 and 2011.

Incremental Expansions. As an initial step in evaluating our potential for expansion opportunities associated with existing ore bodies, we have initiated plans for incremental expansions at the Morenci, Sierrita and Bagdad mines in Arizona and the Cerro Verde mine in Peru. Based on scoping level estimates, these projects are expected to provide incremental production ramping up to over 200 million pounds of copper per year and 7 million pounds of molybdenum per year by 2011 with preliminary capital costs estimated to approximate $400 million. Detailed engineering for these projects is under way, which is expected to result in revised capital estimates and potential project scope changes.

DOZ Expansion. In mid-2007, PT Freeport Indonesia completed the expansion of the capacity of the DOZ underground operation to allow a sustained rate of 50,000 metric tons per day. PT Freeport Indonesia’s further expansion of the DOZ mine to 80,000 metric tons of ore per day is under way with completion targeted by 2010. The capital cost for this expansion is expected to approximate $100 million, with PT Freeport Indonesia’s 60 percent share totaling approximately $60 million. The success of the development of the DOZ mine, one of the world’s largest underground mines, provides confidence in the future development of PT Freeport Indonesia’s large-scale undeveloped underground ore bodies.

Grasberg Block Cave (and associated Common Infrastructure). In 2004, PT Freeport Indonesia commenced its Common Infrastructure project to provide access to its large undeveloped underground ore bodies located in the Grasberg minerals district through a tunnel system located approximately 400 meters deeper than its existing underground tunnel system. In addition to providing access to our underground ore bodies, the tunnel system will enable PT Freeport Indonesia to conduct future exploration in prospective areas associated with currently identified ore bodies. We are completing the feasibility study for the development of the Grasberg block cave, which accounts for over one-third of our reserves in Indonesia, and expect to initiate multi-year mine development activities by year-end 2008. Aggregate mine development capital for the Grasberg block cave (and associated Common Infrastructure) based on a 2008 feasibility study is expected to approximate $3.1 billion to be incurred between 2008 and 2021, with PT Freeport Indonesia’s share totaling approximately $2.8 billion. Industry-wide increases in construction, labor and equipment costs have resulted in increased development costs from previous studies. Our underground operations in Indonesia are more sensitive to changes in labor costs than our open-pit and process operations. We will continue to pursue productivity initiatives to mitigate the impact of increased labor costs.

Big Gossan. The Big Gossan underground mine is a high-grade deposit located near PT Freeport Indonesia’s existing milling complex. The Big Gossan mine is being developed as an open-stope mine with backfill consisting of mill tailings and cement, an established mining methodology expected to be higher cost than the block-cave method used at the DOZ mine. Production is expected to ramp up to 7,000 metric tons per day in 2011 (average annual aggregate incremental production of 125 million pounds of copper and 65,000 ounces of gold, with PT Freeport Indonesia receiving 60 percent of these amounts). The total capital investment for this project is currently estimated at approximately $480 million.

Tenke Fungurume. We hold an effective 57.75 percent interest in the Tenke Fungurume copper and cobalt mining concessions in the Katanga province of the DRC and are the operator of the project. The initial project at Tenke Fungurume is based on mining and processing ore reserves approximating 100 million metric tons with average ore grades of 2.3 percent copper and 0.3 percent cobalt. We are currently engaged in drilling activities, exploration and metallurgical testing to evaluate the potential of this highly prospective district and expect the ore reserves to increase significantly over time.

Approximately $700 million in aggregate project costs have been incurred to date. Construction activities are being advanced with current activities focused on concrete placement, steel tank erection, structural steel and infrastructure development, including shops, warehouses and extensive social and regional infrastructure programs. All long lead-time equipment has been ordered, and initial production is targeted during the second half of 2009. Annual production in the initial years is expected to approximate 250 million pounds of copper and 18 million pounds of cobalt. We expect the results of drilling activities will enable significant future expansion of initial production rates.
 
44
 
We are responsible for funding 70 percent of project development costs and are also responsible for financing our partner’s share of certain project overruns. A capital cost review prepared in April 2008 indicated estimated capital costs of approximately $1.75 billion for this project (approximately $1.9 billion including loans to a third-party government agency for power development). These estimates include substantial amounts for infrastructure to support a larger scale operation than the initial phase of the project, including the provision for expanded electrical power-generating capacity and improved power reliability for the region. The regional power infrastructure investment is estimated at approximately $175 million, the majority of which is expected to be funded through a loan to the DRC state power authority.

We are continuing to develop plans to enhance the economic returns of the project, including expansion of this high-potential resource. We will continue to review and, as necessary, update our capital cost estimate as project development progresses.

In February 2008, we received a letter from the Ministry of Mines, Government of the DRC, seeking our comment on proposed material modifications to our mining contract for the Tenke Fungurume concession, including the amount of transfer payments payable to the government, the government’s percentage ownership and involvement in the management of the mine, regularization of certain matters under Congolese law and the implementation of social plans. Our mining contract was negotiated transparently and approved by the Government of the DRC following extended negotiations, and we believe it complies with Congolese law and is enforceable without modifications. We are working cooperatively with the government to resolve these matters while continuing with our project development activities.

In March 2008, the labor agreement covering employees at Tenke Fungurume expired, and Tenke Fungurume and its workers successfully negotiated a new two-year agreement effective May 22, 2008. 

EXPLORATION ACTIVITIES

We are conducting exploration activities near our existing mines with a focus on opportunities to expand reserves that will support additional future production capacity in the large mineral districts where we currently operate. Drilling activities have been significantly expanded over the last 12 months and involve drilling adjacent to existing ore bodies. The number of drill rigs has been expanded from 26 in March 2007 to 80 currently. Aggregate exploration expenditures for the full year 2008 are expected to approximate $240 million.

Results to date have been positive, providing opportunities for significant potential reserve additions at Morenci, Bagdad and Sierrita in North America; at Cerro Verde in South America and in the high potential Tenke district. Drilling also continues at the Lone Star deposit in the Safford district.

In Indonesia, we have continued to pursue exploration, including testing extensions of the Deep Grasberg and Kucing Liar mine complex, evaluating the resource below the old Ertsberg pit for potential resumption of open pit mining and evaluating targets in the area between the Ertsberg East and Grasberg mineral systems from the new Common Infrastructure tunnels. We have also resumed exploration activities in certain prospective areas in Papua, outside Block A (the Grasberg contract area).

We will continue to incorporate the results of drilling activities into our mine plans to evaluate potential reserve additions and future expansion opportunities. Feasibility studies will incorporate various considerations, including recent cost escalation, water and power issues and environmental and regulatory factors.

ATLANTIC COPPER SMELTING & REFINING

Our investment in smelters serves an important role in our concentrate marketing strategy. PT Freeport Indonesia generally sells, under long-term contracts, approximately one-half of its concentrate production to its affiliated smelters, Atlantic Copper and PT Smelting, and the remainder to other customers. Additionally, beginning in 2008, certain of our South America mining operations began selling a portion of their concentrate and cathode inventories to Atlantic Copper. Treatment charges for smelting and refining copper concentrates represent a cost to PT Freeport Indonesia and our South America mining operations and income to Atlantic Copper and PT Smelting. Through downstream integration, we are assured placement of a significant portion of our concentrate production. Smelting and refining charges consist of a base rate and, in certain contracts, price participation based on copper prices. Higher treatment and refining charges benefit our smelter operations at Atlantic Copper and adversely affect our mining operations in Indonesia and South America. North America
 
45
 
mining operations are not significantly affected by changes in treatment and refining charges because these operations are fully integrated.

Atlantic Copper has a labor contract covering certain employees, which expired in December 2007. The contract has been provisionally extended until a further extension is negotiated.

The following discussion of Atlantic Copper’s operations covers the three and six months ended June 30, 2008 and 2007:

       
Six Months Ended
  
   
Second-Quarter
  
June 30,
  
   
2008
  
2007
    
2008
  
2007
  
Gross profit (in millions)
  
$
17
  
$
2
  
$
22
  
$
19
  
Add depreciation and amortization expense (in millions)
    
9
    
9
    
18
    
19
  
Other
    
(5
)
  
–
    
(5
)
  
–
  
Cash margin (in millions)
  
$
21
  
$
11
  
$
35
  
$
38
  
                           
Operating income (loss) (in millions)
  
$
11
  
$
(4
)
$
8
  
$
9
  
Concentrate and scrap treated (thousands of metric tons)
    
268
    
181
    
529
    
424
  
Anodes production (millions of pounds)
    
152
    
112
    
294
    
261
  
Treatment rates per pound
  
$
0.18
  
$
0.31
  
$
0.21
  
$
0.33
  
Cathodes sales (millions of pounds)
    
152
    
134
    
294
    
269
  
Gold sales in anodes and slimes (thousands of ounces)
    
100
    
174
    
210
    
288
  
                           
Atlantic Copper’s operating cash margin was $21 million in second-quarter 2008 and $35 million for the first six months of 2008, compared with $11 million in second-quarter 2007 and $38 million for the first six months of 2007. Operating income totaled $11 million in second-quarter 2008 and $8 million for the first six months of 2008, compared with an operating loss of $4 million in second-quarter 2007 and operating income of $9 million for the first six months of 2007. Atlantic Copper’s operating results for the second quarter and first six months of 2007 included a $23 million impact from its scheduled 23-day maintenance turnaround completed in June 2007. Excluding the impact of the scheduled maintenance turnaround on the 2007 periods, Atlantic Copper’s cash margin and operating income in the second quarter and first six months 2008, compared with the 2007 periods, reflected the impact of lower treatment rates, and higher costs associated with a stronger euro and increased energy costs, partly offset by lower unit costs primarily resulting from higher recoveries, combined with higher sulfuric acid and gold credits.

Atlantic Copper’s treatment charges, including price participation, which are what PT Freeport Indonesia, our South America mines and third parties pay Atlantic Copper to smelt and refine concentrates, averaged $0.18 per pound in second-quarter 2008 and $0.21 per pound for the first six months of 2008, compared with $0.31 per pound in second-quarter 2007 and $0.33 per pound in the first six months of 2007. Market treatment rates have been volatile in recent years. Rates began declining in 2006 as a result of limited concentrate availability, and this has continued into 2008. Assuming average copper prices of $3.75 per pound for the remainder of 2008, we expect these rates to average approximately $0.19 per pound in 2008.

We defer recognizing profits on PT Freeport Indonesia’s and our South America mines’ sales to Atlantic Copper and on 25 percent of PT Freeport Indonesia’s sales to PT Smelting until final sales to third parties occur. Changes in these net deferrals resulted in net reductions to net income totaling $6 million ($0.01 per share) in second-quarter 2008 and additions of less than $1 million for the first six months of 2008, compared with additions to net income totaling $7 million to net income ($0.02 per share) in second-quarter 2007 and reductions to net income of $103 million ($0.30 per share) in the first six months of 2007. At June 30, 2008, our net deferred profits on PT Freeport Indonesia’s and the South America mines’ inventories at Atlantic Copper and PT Smelting to be recognized in future periods’ net income after taxes and minority interests totaled $93 million.


 
46
 
Table of Contents
CAPITAL RESOURCES AND LIQUIDITY

Our operating cash flows vary with prices realized from copper, gold and molybdenum sales, our production levels, production costs, cash payments for income taxes and interest, other working capital changes and other factors. Based on current mine plans and subject to future copper, gold and molybdenum prices, during 2008 we expect to generate cash flows greater than our budgeted capital expenditures, minority interest distributions, dividends and other cash requirements.

Cash and Cash Equivalents
At June 30, 2008, we had consolidated cash and cash equivalents of $1.6 billion. The following table reflects the U.S. and international components of consolidated cash and cash equivalents at June 30, 2008, and December 31, 2007 (in billions):

 
June 30,
  
December 31,
  
 
2008
  
2007
  
Cash at parent companya
$
0.1
  
$
0.3
  
Cash at international operations
  
1.5
    
1.3
  
Total consolidated cash and cash equivalents
  
1.6
    
1.6
  
Less: minority interests’ share
  
(0.5
)
  
(0.3
)
Cash, net of minority interests’ share
  
1.1
    
1.3
  
Withholding and other taxes if distributedb
  
(0.2
)
  
(0.2
)
Net cash available to FCX
$
0.9
  
$
1.1
  

a. 
 Includes cash at our North America operations.
 
b. 
 Cash at our international operations is subject to foreign withholding taxes of up to 22 percent upon repatriation into the U.S.

Operating Activities
We generated operating cash flows totaling $1.6 billion for the first six months 2008, net of $2.1 billion used for working capital requirements. Operating cash flows for the first six months of 2007 totaled $2.8 billion, net of $89 million used for working capital requirements. Operating cash flows for the first six months of 2008 were lower than the comparable 2007 period reflecting significantly higher working capital requirements, including $598 million to settle the 2007 copper price protection program contract, partly offset by the benefit of a full six months of operating cash flows from Phelps Dodge operations in 2008.

Operating activities are expected to generate positive cash flows for the foreseeable future based on anticipated operating results and metal prices. Based on estimated sales volumes (refer to “Outlook”) and assuming average prices of $3.75 per pound of copper, $900 per ounce of gold and $30 per pound of molybdenum for the second half of 2008, operating cash flows in 2008 would approximate $6.0 billion, including net reductions totaling $1.8 billion for estimated working capital requirements. Each $0.20 per pound change in copper prices in the balance of the year would have an approximately $300 million impact on 2008 operating cash flows.

Investing Activities
Capital expenditures, including capitalized interest, totaled $1.2 billion for the first six months of 2008, compared with $672 million for the first six months of 2007. The increase in capital expenditures for the first six months of 2008 primarily reflected a full six months of capital spending associated with Phelps Dodge operations in 2008, and also reflected higher costs associated with our development projects (refer to “Development Projects” for further discussion).
 
Capital expenditures are expected to approximate $3.0 billion for 2008, including $1.8 billion for major projects. Following is a summary of capital expenditures (excluding capitalized interest) for the first six months of 2008 and projected capital expenditures (excluding capitalized interest) for the full year 2008 associated with major projects (refer to “Development Projects” for further discussion of these projects) (in millions):

 
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Table of Contents
 

 
Six Months Ended
  
Full Year
  
 
June 30, 2008
  
2008
  
 
(Actual)
  
(Estimate)
  
Tenke Fungurume mine development
$
342
  
$
1,000
  
Climax molybdenum mine restart
  
25
    
160
  
Incremental expansions
  
76
    
170
  
Big Gossan mine development
  
75
    
160
  
El Abra sulfide mine
  
    22
    
70
  
Grasberg Block Cave/Common Infrastructure
  
21
    
75
  
Other major projects
  
77
    
165
  
 
$
638
  
$
1,800
  

Capital costs have been affected by the prices of input costs, including energy, equipment, materials and supplies, and labor. We will continue to review and update our capital cost estimates as engineering and construction activities progress on our major projects.

Financing Activities
At June 30, 2008, total debt approximated $7.4 billion, compared with $7.2 billion at December 31, 2007. During the first six months of 2008, we borrowed under our $1.5 billion revolving credit facilities to fund working capital. At June 30, 2008, we had $90 million of borrowings and $63 million of letters of credit issued, resulting in total availability of approximately $1.3 billion under the facilities. Our $1.5 billion revolving credit facilities contain restrictions on the amount available for dividend payments, purchases of our common stock and certain debt prepayments. With the repayment of the $10 billion of term loans at year-end 2007, these restrictions do not apply as long as pro forma availability under the revolvers plus domestic cash exceeds $750 million. As of June 30, 2008, we had availability under the revolvers plus available domestic cash totaling approximately $1.6 billion.

During first-quarter 2008, we purchased in the open market $33 million of our 9.5% Senior Notes for $46 million.

In April 2008, Standard & Poor’s Rating Services and Fitch Ratings raised our corporate credit rating and the ratings on our unsecured debt to BBB- (investment grade). As a result of the upgrade of our unsecured notes to investment grade, the restricted payment covenants contained in our $6.0 billion in senior notes used to finance the acquisition of Phelps Dodge and 6⅞% Senior Notes have been suspended. To the extent the rating is lowered below investment grade, the covenants would again be effective.
 
In December 2007, our Board of Directors approved an open market share purchase program for up to 20 million shares. On July 21, 2008, our Board of Directors approved an increase in the open market share purchase program for up to 30 million shares. In August 2008, through August 8, 2008, we have acquired 1.9 million shares for approximately $165 million ($86.59 per share average), and 28.1 million shares remain available under this program. The timing of future purchases of our common stock is dependent on many factors, including the price of our common shares, our operating results, cash flows and financial position, copper, gold and molybdenum prices, and general economic and market conditions.
 
For the first six months of 2008, common stock dividends paid totaled $337 million. In December 2007, our Board of Directors increased our annual cash dividend on our common stock from $1.25 per share to $1.75 per share, paid at a quarterly rate of $0.4375 per share. On June 26, 2008, FCX declared a regular quarterly dividend, which was paid on August 1, 2008, to common shareholders of record at the close of business on July 15, 2008. On July 21, 2008, our Board of Directors increased our annual cash dividend on our common stock to $2.00 per share, paid at a quarterly rate of $0.50 per share, commencing November 1, 2008. The declaration and payment of dividends is at the discretion of our Board of Directors. The amount of our current quarterly cash dividend on our common stock is dependent upon our financial results, cash requirements, future prospects and other factors deemed relevant by our Board of Directors. Based on outstanding common shares on June 30, 2008, and annual cash dividends of $2.00 per share, our annual common stock dividends approximate $770 million.
 
For the first six months of 2008, preferred stock dividends paid totaled $127 million representing dividends on our 5½% Convertible Perpetual Preferred Stock and 6¾% Mandatory Convertible Preferred Stock. Annual preferred stock dividends on our 5½% Convertible Perpetual Preferred Stock and 6¾% Mandatory Convertible Preferred Stock total approximately $255 million.

48
 
Each share of our 5½% Convertible Perpetual Preferred Stock was initially convertible into 18.8019 shares of our common stock. The conversion rate is adjustable upon the occurrence of certain events, including the payment in any quarter of common stock dividends exceeding $0.20 per share. As a result of the quarterly and supplemental common stock dividends paid through August 1, 2008, each share of preferred stock is now convertible into 21.3874 shares of FCX common stock, or an aggregate of approximately 24 million shares of FCX common stock. We currently have 1.1 million shares of our 5½% Convertible Perpetual Preferred Stock outstanding. Beginning March 30, 2009, we may redeem shares of the 5½% Convertible Perpetual Preferred Stock by paying cash, our common stock or any combination thereof for $1,000 per share plus unpaid dividends, but only if our common stock has exceeded 130 percent of the conversion price for at least 20 trading days within a period of 30 consecutive trading days immediately preceding the notice of redemption. On June 26, 2008, FCX declared a regular quarterly dividend of $13.75 per share of FCX’s 5½% Convertible Perpetual Preferred Stock, which was paid on August 1, 2008, to shareholders of record at the close of business on July 15, 2008.

In March 2007, we sold 28.75 million shares of 6¾% Mandatory Convertible Preferred Stock, which will automatically convert on May 1, 2010, into shares of FCX common stock. The preferred stock was initially convertible into between 1.3605 and 1.6327 shares of our common stock, depending on the applicable market value of our common stock. The conversion rate is adjustable upon the occurrence of certain events, including the payment in any quarter of common stock dividends exceeding $0.3125 per share; however, adjustments required as a result of dividends that do not exceed one percent are carried forward and must be made no later than August 1 of each year. As a result of the quarterly common stock dividends paid through August 1, 2008, each share of preferred stock is now convertible into between 1.3654 and 1.6386 shares of FCX common stock, and holders may elect to convert at any time prior to May 1, 2010, at a conversion rate equal to 1.3654 shares of common stock, or an aggregate of approximately 39 million shares. On June 26, 2008, FCX declared a regular quarterly dividend of $1.6875 per share of FCX’s 6¾% Mandatory Convertible Preferred Stock, which was paid on August 1, 2008, to shareholders of record at the close of business on July 15, 2008.

Cash dividends paid to minority interests for the first six months of 2008 totaled $280 million primarily reflecting dividends paid to the minority interest owners of our South America mines. Cash dividends paid to minority interests for the first six months of 2007 totaled $314 million reflecting dividends paid to the minority interest owners of PT Freeport Indonesia and of our South America mines.

CONTRACTUAL OBLIGATIONS

Other than in the ordinary course of business, there have been no material changes in our contractual obligations since year-end 2007. Refer to Item 7 in our report on Form 10-K for the year ended December 31, 2007, for further information regarding our contractual obligations.

ENVIRONMENTAL AND RECLAMATION MATTERS

Our mining, exploration, production and historical operating activities are subject to stringent laws and regulations governing the protection of the environment. Other than in the ordinary course of business, there have been no material changes to our environmental and reclamation obligations since year-end 2007. Refer to Note 15 in our report on Form 10-K for the year ended December 31, 2007, for further information regarding our environmental and reclamation obligations.

 
NEW ACCOUNTING STANDARDS

Fair Value Measurements. In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, “Fair Value Measurements,” which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS No. 157 does not require any new fair value measurements under U.S. GAAP but rather establishes a common definition of fair value, provides a framework for measuring fair value under U.S. GAAP and expands disclosure requirements about fair value measurements. In February 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-2, which delays the effective date of SFAS No. 157 for nonfinancial assets or liabilities that are not required or permitted to be measured at fair value on a recurring basis to fiscal years beginning after November 15, 2008, and interim periods within those years. Effective January 1, 2008, we adopted SFAS No. 157 for financial assets and liabilities recognized at fair value on a recurring basis. This partial adoption of SFAS No. 157 did not have a material impact on our financial reporting and disclosures as our financial assets are measured using quoted market prices, or Level 1 inputs. We are currently evaluating the impact that the adoption of SFAS No. 157 will have on our financial reporting and disclosures for pension and
 
49
 
postretirement related financial assets and on nonfinancial assets or liabilities that are not required or permitted to be measured at fair value on a recurring basis.

Disclosures about Derivative Instruments and Hedging Activities. In March 2008, FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.” SFAS No. 161 amends the disclosure requirements for derivative instruments and hedging activities contained in SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Under SFAS No. 161, entities are required to provide enhanced disclosures about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and related interpretations, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS No. 161 encourages, but does not require disclosure for earlier periods presented for comparative purposes at initial adoption. The adoption of SFAS No. 161 will not affect our accounting for derivative financial instruments; however, we are currently evaluating its impact on our related disclosures.

The Hierarchy of Generally Accepted Accounting Principles.  In May 2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” which identifies the sources of accounting and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Presenting Fairly in Conformity with Generally Accepted Accounting Principles.”  The adoption of SFAS No. 162 is not expected to result in a change in our accounting practices.

Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion. In May 2008, FASB issued FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement),” which will change the accounting treatment for convertible debt securities that the issuer may settle fully or partially in cash. FSP No. APB 14-1 requires bifurcation of convertible debt instruments into a debt component that is initially recorded at fair value and an equity component, which represents the difference between the initial proceeds from issuance of the instrument and the fair value allocated to the debt component. The debt component is subsequently accreted (as a component of interest expense) to par value over its expected life. FSP No. APB 14-1 is effective for fiscal years and interim periods beginning after December 15, 2008, and must be retrospectively applied to all prior periods presented, even if an instrument has matured, converted, or otherwise been extinguished as of the FSP’s effective date. We will adopt FSP No. APB 14-1 on January 1, 2009, and will be required to retrospectively apply its provisions to our 7% Convertible Senior Notes. We are currently evaluating the impact that the adoption of FSP No. APB 14-1 will have on our consolidated financial statements.


 
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Table of Contents
PRODUCT REVENUES AND PRODUCTION COSTS

Unit net cash cost per pound of copper and molybdenum are measures intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for the respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other mining companies, although our measures may not be comparable to similarly titled measures reported by other companies.

We present gross profit per pound of copper using both a “by-product” method and a “co-product” method. We use the by-product method in our presentation of gross profit per pound of copper because (i) the majority of our revenues are copper revenues, (ii) we mine ore, which contains copper, gold, molybdenum and other metals, (iii) it is not possible to specifically assign all of our costs to revenues from the copper, gold, molybdenum and other metals we produce, (iv) it is the method used to compare mining operations in certain industry publications and (v) it is the method used by our management and Board of Directors to monitor operations. In the co-product method presentation below, costs are allocated to the different products based on their relative revenue values, which will vary to the extent our metals sales volumes and realized prices change.

In both the by-product and the co-product method calculations, we show adjustments to copper revenues for prior period open sales as separate line items. Because the copper pricing adjustments do not result from current period sales, we have reflected these separately from revenues on current period sales. Noncash and nonrecurring costs consist of items such as stock-based compensation costs, write-offs of equipment or unusual charges. They are removed from site production and delivery costs in the calculation of unit net cash costs. As discussed above, gold, molybdenum and other metal revenues at copper mines are reflected as credits against site production and delivery costs in the by-product method. We have included the impacts of purchase accounting fair value adjustments as additional depreciation, depletion and amortization, and noncash and nonrecurring costs. Accordingly, we have revised the previously reported disclosures for the 2007 periods for our North America copper mining operations, Henderson molybdenum mine, and South America mining operations to conform to the current period presentation. Presentations under both methods are shown below together with reconciliations to amounts reported in our consolidated financial statements or pro forma consolidated financial results.


 
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Table of Contents
North America Copper Mining Product Revenues and Production Costs

Three Months Ended June 30, 2008
        
 
By-Product
  
Co-Product Method
  
(In millions)
Method
  
Copper
  
Molybdenum a
  
Other b
  
Total
  
Revenues, after adjustments shown below
$
1,323
  
$
1,323
  
$
234
  
$
20
  
$
1,577
  
                               
Site production and delivery, before net noncash
                              
and nonrecurring costs shown below
  
636
    
555
    
84
    
8
    
647
  
By-product creditsa
  
(243
)
  
–
    
–
    
–
    
–
  
Treatment charges
  
37
    
35
    
–
    
2
    
37
  
Net cash costs
  
430
    
590
    
84
    
10
    
684
  
Depreciation, depletion and amortization
  
183
    
164
    
18
    
1
    
183
  
Noncash and nonrecurring costs, net
  
20
    
19
    
1
    
–
    
20
  
Total costs
  
633
    
773
    
103
    
11
    
887
  
Revenue adjustments, primarily for pricing on prior
                              
period open sales
  
(4
)
  
(4
)
  
–
    
–
    
(4
)
Idle facility and other non-inventoriable costs
  
(14
)
  
(14
)
  
–
    
–
    
(14
)
Gross profit
$
672
  
$
532
  
$
131
  
$
9
  
$
672
  
                               
Reconciliation to Amounts Reported
                              
(In millions)
      
Production
    
Depreciation,
              
       
and
    
Depletion and
              
 
Revenues
  
Delivery
    
Amortization
              
Totals presented above
$
1,577
  
$
647
  
$
183
              
Net noncash and nonrecurring costs per above
  
N/A
    
20
    
N/A
              
Treatment charges per above
  
N/A
    
37
    
N/A
              
Revenue adjustments, primarily for pricing on prior
                              
period open sales per above
  
(4
)
  
N/A
    
N/A
              
North America copper mines
  
1,573
    
704
    
183
              
Henderson molybdenum operations
  
321
    
53
    
45
              
Other operations and eliminationsc
  
1,251
    
1,206
    
43
              
Total North America operations
  
3,145
    
1,963
    
271
              
South America operations
  
1,409
    
462
    
127
              
Indonesia operations
  
1,016
    
439
    
48
              
Atlantic Copper smelting & refining
  
724
    
698
    
9
              
Corporate, other & eliminations
  
(853
)
  
(842
)
  
7
              
As reported in FCX’s consolidated financial statements
$
5,441
  
$
2,720
  
$
462
              
 
a. 
 Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.
 
b. 
 Includes gold and silver product revenues and production costs.
 
c. 
 Includes amounts associated with Rod & Refining operations, the copper and molybdenum sales companies and related eliminations.


 
52
 
Table of Contents
 
Three Months Ended June 30, 2007
        
 
By-Product
  
Co-Product Method
  
(In millions)
Method
  
Copper
  
Molybdenum a
  
Other b
  
Total
  
Revenues, after adjustments shown below
$
1,126
  
$
1,126
  
$
235
  
$
19
  
$
1,380
  
                               
Site production and delivery, before net noncash
                              
and nonrecurring costs shown below
  
476
    
397
    
83
    
9
    
489
  
By-product creditsa
  
(241
)
  
–
    
–
    
–
    
–
  
Treatment charges
  
29
    
28
    
–
    
1
    
29
  
Net cash costs
  
264
    
425
    
83
    
10
    
518
  
Depreciation, depletion and amortizationc
  
131
    
109
    
21
    
1
    
131
  
Noncash and nonrecurring costs, netc
  
144
    
132
    
(1
)
  
13
    
144
  
Total costs
  
539
    
666
    
103
    
24
    
793
  
Revenue adjustments, primarily for pricing on prior
                              
period open sales and hedging
  
(139
)
  
(139
)
  
–
    
–
    
(139
)
Idle facility and other non-inventoriable costs
  
(8
)
  
(8
)
  
–
    
–
    
(8
)
Gross profit (loss)
$
440
  
$
313
  
$
132
  
$
(5
)
$
440
  
                               
Reconciliation to Amounts Reported
                              
(In millions)
      
Production
    
Depreciation,
              
       
and
    
Depletion and
              
 
Revenues
  
Delivery
    
Amortization
              
Totals presented above
$
1,380
  
$
489
  
$
131
              
Net noncash and nonrecurring costs per above
  
N/A
    
144
    
N/A
              
Treatment charges per above
  
N/A
    
29
    
N/A
              
Revenue adjustments, primarily for pricing on prior
                              
period open sales and hedging per above
  
(139
)
  
N/A
    
N/A
              
North America copper mines
  
1,241
    
662
    
131
              
Henderson molybdenum operations
  
255
    
45
    
18
              
Other operations and eliminationsd
  
1,187
    
1,397
    
19
              
Total North America operations
  
2,683
    
2,104
    
168
              
South America operations
  
1,232
    
303
    
136
              
Indonesia operations
  
1,762
    
390
    
56
              
Atlantic Copper smelting & refining
  
619
    
608
    
9
              
Corporate, other & eliminations
  
(853
)
  
(865
)
  
5
              
As reported in FCX’s consolidated financial statements
$
5,443
  
$
2,540
  
$
374
              

a.  
Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.
 
b. 
 Includes gold and silver product revenues and production costs.
 
c. 
 The estimated fair values of acquired inventory and property, plant and equipment were based on preliminary estimates during 2007, with adjustments made until such values were finalized in first-quarter 2008. Additionally, the inventory impacts on noncash and nonrecurring costs were mostly realized during 2007.
 
d. 
 Includes amounts associated with Rod & Refining operations, the copper and molybdenum sales companies and related eliminations.
 
 
53
 
Table of Contents

 
Six Months Ended June 30, 2008
        
 
By-Product
  
Co-Product Method
  
(In millions)
Method
  
Copper
  
Molybdenum a
  
Other b
  
Total
  
Revenues, after adjustments shown below
$
2,502
  
$
2,502
  
$
490
  
$
36
  
$
3,028
  
                               
Site production and delivery, before net noncash
                              
and nonrecurring costs shown below
  
1,189
    
1,036
    
160
    
15
    
1,211
  
By-product creditsa
  
(504
)
  
–
    
–
    
–
    
–
  
Treatment charges
  
68
    
66
    
–
    
2
    
68
  
Net cash costs
  
753
    
1,102
    
160
    
17
    
1,279
  
Depreciation, depletion and amortization
  
363
    
323
    
37
    
3
    
363
  
Noncash and nonrecurring costs, net
  
50
    
48
    
2
    
–
    
50
  
Total costs
  
1,166
    
1,473
    
199
    
20
    
1,692
  
Revenue adjustments, primarily for pricing on prior
                              
period open sales
  
38
    
38
    
–
    
–
    
38
  
Idle facility and other non-inventoriable costs
  
(27
)
  
(27
)
  
–
    
–
    
(27
)
Gross profit
$
1,347
  
$
1,040
  
$
291
  
$
16
  
$
1,347
  
                               
Reconciliation to Amounts Reported
                              
(In millions)
      
Production
    
Depreciation,
              
       
and
    
Depletion and
              
 
Revenues
  
Delivery
    
Amortization
              
Totals presented above
$
3,028
  
$
1,211
  
$
363
              
Net noncash and nonrecurring costs per above
  
N/A
    
50
    
N/A
              
Treatment charges per above
  
N/A
    
68
    
N/A
              
Revenue adjustments, primarily for pricing on prior
                              
period open sales per above
  
38
    
N/A
    
N/A
              
North America copper mines
  
3,066
    
1,329
    
363
              
Henderson molybdenum operations
  
603
    
102
    
86
              
Other operations and eliminationsc
  
2,749
    
2,670
    
49
              
Total North America operations
  
6,418
    
4,101
    
498
              
South America operations
  
3,002
    
894
    
257
              
Indonesia operations
  
2,068
    
838
    
93
              
Atlantic Copper smelting & refining
  
1,389
    
1,349
    
18
              
Corporate, other & eliminations
  
(1,764
)
  
(1,740
)
  
14
              
As reported in FCX’s consolidated financial statements
$
11,113
  
$
5,442
  
$
880
              
 
a.  
Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.
 
b.  
Includes gold and silver product revenues and production costs.
 
c.  
Includes amounts associated with Rod & Refining operations, the copper and molybdenum sales companies and related eliminations.
 
 
54
 
Table of Contents
 
Six Months Ended June 30, 2007 (Pro Forma)
        
 
By-Product
  
Co-Product Method
  
(In millions)
Method
  
Copper
  
Molybdenum a
  
Other b
  
Total
  
Revenues, after adjustments shown below
$
1,938
  
$
1,938
  
$
413
  
$
29
  
$
2,380
  
                               
Site production and delivery, before net noncash
                              
and nonrecurring costs shown below
  
870
    
745
    
152
    
12
    
909
  
By-product creditsa
  
(403
)
  
–
    
–
    
–
    
–
  
Treatment charges
  
51
    
50
    
–
    
1
    
51
  
Net cash costs
  
518
    
795
    
152
    
13
    
960
  
Depreciation, depletion and amortizationc
  
287
    
239
    
47
    
1
    
287
  
Noncash and nonrecurring costs, netc
  
415
    
358
    
43
    
14
    
415
  
Total costs
  
1,220
    
1,392
    
242
    
28
    
1,662
  
Revenue adjustments, primarily for pricing on prior
                              
period open sales and hedging
  
(131
)
  
(131
)
  
–
    
–
    
(131
)
Idle facility and other non-inventoriable costs
  
(18
)
  
(18
)
  
–
    
–
    
(18
)
Gross profit
$
569
  
$
397
  
$
171
  
$
1
  
$
569
  
                               
Reconciliation to Amounts Reported
                              
(In millions)
      
Production
    
Depreciation,
              
       
and
    
Depletion and
              
 
Revenues
  
Delivery
    
Amortization
              
Totals presented above
$
2,380
  
$
909
  
$
287
              
Net noncash and nonrecurring costs per above
  
N/A
    
415
    
N/A
              
Treatment charges per above
  
N/A
    
51
    
N/A
              
Revenue adjustments, primarily for pricing on prior
                              
period open sales and hedging per above
  
(131
)
  
N/A
    
N/A
              
Eliminations and other
  
7,794
    
3,651
    
477
              
As reported in FCX’s pro forma consolidated
                              
financial results
$
10,043
  
$
5,026
  
$
764
              

a. 
 Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.
 
b.  
Includes gold and silver product revenues and production costs.
 
c.  
The estimated fair values of acquired inventory and property, plant and equipment were based on preliminary estimates during 2007, with adjustments made until such values were finalized in first-quarter 2008. Additionally, the inventory impacts on noncash and nonrecurring costs were mostly realized during 2007.

 
55
 
Table of Contents
Henderson Product Revenues and Production Costs


 
Three Months Ended
  
 
June 30,
  
 
2008
  
2007
  
(In millions)
(Actual)
  
(Actual)
  
Revenues
$
321
  
$
255
  
             
Site production and delivery, before net noncash
            
and nonrecurring costs shown below
  
53
    
45
  
Net cash costs
  
53
    
45
  
Depreciation, depletion and amortizationa
  
45
    
18
  
Noncash and nonrecurring costs, net
  
–
    
–
  
Total costs
  
98
    
63
  
Gross profitb
$
223
  
$
192
  

Reconciliation to Amounts Reported
                  
(In millions)
    
Production
  
Depreciation,
  
       
and
  
Depletion and
  
 
Revenues
  
Delivery
  
Amortization
  
Three Months Ended June 30, 2008
                  
Totals presented above
$
321
  
$
53
  
$
45
  
Net noncash and nonrecurring costs per above
  
N/A
    
–
    
N/A
  
Other molybdenum operations and eliminationsc
  
394
    
368
    
24
  
Total Molybdenum operations
  
715
    
421
    
69
  
North America copper mines, other operations and eliminations
  
2,430
    
1,542
    
202
  
Total North America operations
  
3,145
    
1,963
    
271
  
South America operations
  
1,409
    
462
    
127
  
Indonesia operations
  
1,016
    
439
    
48
  
Atlantic Copper smelting & refining
  
724
    
698
    
9
  
Corporate, other & eliminations
  
(853
)
  
(842
)
  
7
  
As reported in FCX’s consolidated financial statements
$
5,441
  
$
2,720
  
$
462
  
                   
Three Months Ended June 30, 2007
                  
Totals presented above
$
255
  
$
45
  
$
18
  
Net noncash and nonrecurring costs per above
  
N/A
    
–
    
N/A
  
Other molybdenum operations and eliminationsc
  
208
    
361
    
4
  
Total Molybdenum operations
  
463
    
406
    
22
  
North America copper mines, other operations and eliminations
  
2,220
    
1,698
    
146
  
Total North America operations
  
2,683
    
2,104
    
168
  
South America operations
  
1,232
    
303
    
136
  
Indonesia operations
  
1,762
    
390
    
56
  
Atlantic Copper smelting & refining
  
619
    
608
    
9
  
Corporate, other & eliminations
  
(853
)
  
(865
)
  
5
  
As reported in FCX’s consolidated financial statements
$
5,443
  
$
2,540
  
$
374
  
 

a.  
The estimated fair values of acquired property, plant and equipment were based on preliminary estimates during 2007, with adjustments made until such values were finalized in first-quarter 2008.
 
b.  
Gross profit reflects sales of Henderson products based on volumes produced at market-based pricing. On a consolidated basis, the Molybdenum segment includes profits on sales as they are made to third parties and realizations based on actual contract terms. As a result, the actual gross profit realized will differ from the amounts reported in this table.
 
c.  
Primarily includes amounts associated with the molybdenum sales company that are included in Molybdenum operations.


 
56
 
Table of Contents
 
Six Months Ended
  
 
June 30,
  
 
2008
  
2007
  
(In millions)
(Actual)
  
(Pro Forma)
  
Revenues
$
603
  
$
463
  
             
Site production and delivery, before net noncash
            
and nonrecurring costs shown below
  
102
    
83
  
Net cash costs
  
102
    
83
  
Depreciation, depletion and amortizationa
  
86
    
77
  
Noncash and nonrecurring costs, net
  
1
    
–
  
Total costs
  
189
    
160
  
Gross profitb
$
414
  
$
303
  

 
Reconciliation to Amounts Reported
      
Production
  
Depreciation,
  
(In millions)
      
and
  
Depletion and
  
   
Revenues
  
Delivery
  
Amortization
  
Six Months Ended June 30, 2008
                  
Totals presented above
$
603
  
$
102
  
$
86
  
Net noncash and nonrecurring costs per above
  
N/A
    
1
    
N/A
  
Other molybdenum operations and eliminationsc
  
831
    
778
    
22
  
Total Molybdenum operations
  
1,434
    
881
    
108
  
North America copper mines, other operations and eliminations
  
4,984
    
3,220
    
390
  
Total North America operations
  
6,418
    
4,101
    
498
  
South America operations
  
3,002
    
894
    
257
  
Indonesia operations
  
2,068
    
838
    
93
  
Atlantic Copper smelting & refining
  
1,389
    
1,349
    
18
  
Corporate, other & eliminations
  
(1,764
)
  
(1,740
)
  
14
  
As reported in FCX’s consolidated financial statements
$
11,113
  
$
5,442
  
$
880
  
                   
Six Months Ended June 30, 2007
                  
Totals presented above
$
463
  
$
83
  
$
77
  
Eliminations and other
  
9,580
    
4,943
    
687
  
As reported in FCX’s pro forma consolidated financial results
$
10,043
  
$
5,026
  
$
764
  
 

a.  
The estimated fair values of acquired property, plant and equipment were based on preliminary estimates during 2007, with adjustments made until such values were finalized in first-quarter 2008.
 
b.  
Gross profit reflects sales of Henderson products based on volumes produced at market-based pricing. On a consolidated basis, the Molybdenum segment includes profits on sales as they are made to third parties and realizations based on actual contract terms. As a result, the actual gross profit realized will differ from the amounts reported in this table.
 
c.  
Primarily includes amounts associated with the molybdenum sales company that are included in Molybdenum operations.
 
 
57
 
Table of Contents
South America Mining Product Revenues and Production Costs


Three Months Ended June 30, 2008
                
 
By-Product
  
Co-Product Method
  
(In millions)
Method
  
Copper
  
Other a
  
Total
  
Revenues, after adjustments shown below
$
1,417
  
$
1,417
  
$
46
  
$
1,463
  
                         
Site production and delivery, before net noncash
                        
nonrecurring costs shown below
  
423
    
409
    
17
    
426
  
By-product credits
  
(43
)
  
–
    
–
    
–
  
Treatment charges
  
68
    
68
    
–
    
68
  
Net cash costs
  
448
    
477
    
17
    
494
  
Depreciation, depletion and amortization
  
127
    
122
    
5
    
127
  
Noncash and nonrecurring costs, net
  
31
    
31
    
–
    
31
  
Total costs
  
606
    
630
    
22
    
652
  
Revenue adjustments, primarily for pricing on prior
                        
period open sales
  
16
    
16
    
–
    
16
  
Other non-inventoriable costs
  
(10
)
  
(10
)
  
–
    
(10
)
Gross profit
$
817
  
$
793
  
$
24
  
$
817
  
                         
Reconciliation to Amounts Reported
                        
(In millions)
      
Production
  
Depreciation,
        
       
and
  
Depletion and
        
 
Revenues
  
Delivery
  
Amortization
        
Totals presented above
$
1,463
  
$
426
  
$
127
        
Net noncash and nonrecurring costs per above
  
N/A
    
31
    
N/A
        
Less: Treatment charges per above
  
(68
)
  
N/A
    
N/A
        
Revenue adjustments, primarily for pricing on prior
                        
period open sales per above
  
16
    
N/A
    
N/A
        
Purchased metal
  
91
    
91
    
N/A
        
Eliminations and other
  
(93
)
  
(86
)
  
–
        
Total South America operations
  
1,409
    
462
    
127
        
North America operations
  
3,145
    
1,963
    
271
        
Indonesia operations
  
1,016
    
439
    
48
        
Atlantic Copper smelting & refining
  
724
    
698
    
9
        
Corporate, other & eliminations
  
(853
)
  
(842
)
  
7
        
As reported in FCX’s consolidated financial statements
$
5,441
  
$
2,720
  
$
462
        

a.  
Includes gold, silver and molybdenum product revenues and production costs.


 
58
 
Table of Contents
 
Three Months Ended June 30, 2007
                
 
By-Product
  
Co-Product Method
  
(In millions)
Method
  
Copper
  
Other a
  
Total
  
Revenues, after adjustments shown below
$
1,210
  
$
1,210
  
$
26
  
$
1,236
  
                         
Site production and delivery, before net noncash
                        
nonrecurring costs shown below
  
281
    
276
    
8
    
284
  
By-product credits
  
(23
)
  
–
    
–
    
–
  
Treatment charges
  
70
    
70
    
–
    
70
  
Net cash costs
  
328
    
346
    
8
    
354
  
Depreciation, depletion and amortizationb
  
141
    
138
    
3
    
141
  
Noncash and nonrecurring costs, netb
  
8
    
8
    
–
    
8
  
Total costs
  
477
    
492
    
11
    
503
  
Revenue adjustments, primarily for pricing on prior
                        
period open sales
  
62
    
62
    
–
    
62
  
Other non-inventoriable costs
  
(7
)
  
(7
)
  
–
    
(7
)
Gross profit
$
788
  
$
773
  
$
15
  
$
788
  
                         
Reconciliation to Amounts Reported
                        
(In millions)
      
Production
  
Depreciation,
        
       
and
  
Depletion and
        
 
Revenues
  
Delivery
  
Amortization
        
Totals presented above
$
1,236
  
$
284
  
$
141
        
Net noncash and nonrecurring costs per above
  
N/A
    
8
    
N/A
        
Less: Treatment charges per above
  
(70
)
  
N/A
    
N/A
        
Revenue adjustments, primarily for pricing on prior
                        
period open sales per above
  
62
    
N/A
    
N/A
        
Purchased metal
  
81
    
81
    
N/A
        
Eliminations and other
  
(77
)
  
(70
)
  
(5
)
      
Total South America operations
  
1,232
    
303
    
136
        
North America operations
  
2,683
    
2,104
    
168
        
Indonesia operations
  
1,762
    
390
    
56
        
Atlantic Copper smelting & refining
  
619
    
608
    
9
        
Corporate, other & eliminations
  
(853
)
  
(865
)
  
5
        
As reported in FCX’s consolidated financial statements
$
5,443
  
$
2,540
  
$
374
        

a.  
Includes gold and silver product revenues and production costs.
 
b.  
The estimated fair values of acquired inventory and property, plant and equipment were based on preliminary estimates during 2007, with adjustments made until such values were finalized in first-quarter 2008.


 
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Six Months Ended June 30, 2008
                
 
By-Product
  
Co-Product Method
  
(In millions)
Method
  
Copper
  
Other a
  
Total
  
Revenues, after adjustments shown below
$
2,806
  
$
2,806
  
$
105
  
$
2,911
  
                         
Site production and delivery, before net noncash
                        
nonrecurring costs shown below
  
818
    
790
    
37
    
827
  
By-product credits
  
(96
)
  
–
    
–
    
–
  
Treatment charges
  
144
    
144
    
–
    
144
  
Net cash costs
  
866
    
934
    
37
    
971
  
Depreciation, depletion and amortization
  
257
    
248
    
9
    
257
  
Noncash and nonrecurring costs, net
  
56
    
56
    
–
    
56
  
Total costs
  
1,179
    
1,238
    
46
    
1,284
  
Revenue adjustments, primarily for pricing on prior
                        
period open sales
  
237
    
237
    
–
    
237
  
Other non-inventoriable costs
  
(19
)
  
(18
)
  
(1
)
  
(19
)
Gross profit
$
1,845
  
$
1,787
  
$
58
  
$
1,845
  
                         
Reconciliation to Amounts Reported
                        
(In millions)
      
Production
  
Depreciation,
        
       
and
  
Depletion and
        
 
Revenues
  
Delivery
  
Amortization
        
Totals presented above
$
2,911
  
$
827
  
$
257
        
Net noncash and nonrecurring costs per above
  
N/A
    
56
    
N/A
        
Less: Treatment charges per above
  
(144
)
  
N/A
    
N/A
        
Revenue adjustments, primarily for pricing on prior
                        
period open sales per above
  
237
    
N/A
    
N/A
        
Purchased metal
  
165
    
165
    
N/A
        
Eliminations and other
  
(167
)
  
(154
)
  
–
        
Total South America operations
  
3,002
    
894
    
257
        
North America operations
  
6,418
    
4,101
    
498
        
Indonesia operations
  
2,068
    
838
    
93
        
Atlantic Copper smelting & refining
  
1,389
    
1,349
    
18
        
Corporate, other & eliminations
  
(1,764
)
  
(1,740
)
  
14
        
As reported in FCX’s consolidated financial statements
$
11,113
  
$
5,442
  
$
880
        

a.  
Includes gold, silver and molybdenum product revenues and production costs.
 
 
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Table of Contents
 
Six Months Ended June 30, 2007 (Pro Forma)
                
 
By-Product
  
Co-Product Method
  
(In millions)
Method
  
Copper
  
Other a
  
Total
  
Revenues, after adjustments shown below
$
2,141
  
$
2,141
  
$
50
  
$
2,191
  
                         
Site production and delivery, before net noncash
                        
nonrecurring costs shown below
  
534
    
518
    
19
    
537
  
By-product credits
  
(47
)
  
–
    
–
    
–
  
Treatment charges
  
125
    
125
    
–
    
125
  
Net cash costs
  
612
    
643
    
19
    
662
  
Depreciation, depletion and amortizationb
  
224
    
219
    
5
    
224
  
Noncash and nonrecurring costs, netb
  
133
    
130
    
3
    
133
  
Total costs
  
969
    
992
    
27
    
1,019
  
Revenue adjustments, primarily for pricing on prior
                        
period open sales
  
16
    
17
    
(1
)
  
16
  
Other non-inventoriable costs
  
(14
)
  
(14
)
  
–
    
(14
)
Gross profit
$
1,174
  
$
1,152
  
$
22
  
$
1,174
  
                         
Reconciliation to Amounts Reported
                        
(In millions)
      
Production
  
Depreciation,
        
       
and
  
Depletion and
        
 
Revenues
  
Delivery
  
Amortization
        
Totals presented above
$
2,191
  
$
537
  
$
224
        
Net noncash and nonrecurring costs per above
  
N/A
    
133
    
N/A
        
Less: Treatment charges per above
  
(125
)
  
N/A
    
N/A
        
Revenue adjustments, primarily for pricing on prior
                        
period open sales per above
  
16
    
N/A
    
N/A
        
Purchased metal
  
148
    
148
    
N/A
        
Eliminations and other
  
7,813
    
4,208
    
540
        
As reported in FCX’s pro forma consolidated financial results
$
10,043
  
$
5,026
  
$
764
        

a.  
Includes gold and silver product revenues and production costs.
 
b.  
The estimated fair values of acquired inventory and property, plant and equipment were based on preliminary estimates during 2007, with adjustments made until such values were finalized in first-quarter 2008. Additionally, the inventory impacts on noncash and nonrecurring costs were mostly realized during 2007

 
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Indonesia Mining Product Revenues and Production Costs

Three Months Ended June 30, 2008
        
 
By-Product
  
Co-Product Method
  
(In millions)
Method
  
Copper
  
Gold
  
Silver
  
Total
  
Revenues, after adjustments shown below
$
896
  
$
896
  
$
212
  
$
15
  
$
1,123
  
                               
Site production and delivery, before net noncash
                              
and nonrecurring costs shown below
  
434
    
345
    
83
    
6
    
434
  
Gold and silver credits
  
(227
)
  
–
    
–
    
–
    
–
  
Treatment charges
  
64
    
51
    
13
    
–
    
64
  
Royalty on metals
  
30
    
24
    
5
    
1
    
30
  
Net cash costs
  
301
    
420
    
101
    
7
    
528
  
Depreciation and amortization
  
48
    
38
    
9
    
1
    
48
  
Noncash and nonrecurring costs, net
  
5
    
4
    
1
    
–
    
5
  
Total costs
  
354
    
462
    
111
    
8
    
581
  
Revenue adjustments, primarily for pricing on prior
                              
period open sales
  
(13
)
  
(13
)
  
–
    
–
    
(13
)
PT Smelting intercompany profit
  
–
    
(1
)
  
1
    
–
    
–
  
Gross profit
$
529
  
$
420
  
$
102
  
$
7
  
$
529
  
                               
Reconciliation to Amounts Reported
                              
(In millions)
    
Production
  
Depreciation,
              
     
and
  
Depletion and
              
 
Revenues
  
Delivery
  
Amortization
              
Totals presented above
$
1,123
  
$
434
  
$
48
              
Net noncash and nonrecurring costs per above
  
N/A
    
5
    
N/A
              
Less: Treatment charges per above
  
(64
)
  
N/A
    
N/A
              
Less: Royalty per above
  
(30
)
  
N/A
    
N/A
              
Revenue adjustments, primarily for pricing on prior
                              
period open sales per above
  
(13
)
  
N/A
    
N/A
              
Total Indonesia operations
  
1,016
    
439
    
48
              
North America operations
  
3,145
    
1,963
    
271
              
South America operations
  
1,409
    
462
    
127
              
Atlantic Copper smelting & refining
  
724
    
698
    
9
              
Corporate, other & eliminations
  
(853
)
  
(842
)
  
7
              
As reported in FCX’s consolidated financial statements
$
5,441
  
$
2,720
  
$
462
              
                               

 
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Three Months Ended June 30, 2007
        
 
By-Product
  
Co-Product Method
  
(In millions)
Method
  
Copper
  
Gold
  
Silver
  
Total
  
Revenues, after adjustments shown below
$
1,169
  
$
1,169
  
$
584
  
$
15
  
$
1,768
  
                               
Site production and delivery, before net noncash
                              
and nonrecurring costs shown below
  
379
    
251
    
125
    
3
    
379
  
Gold and silver credits
  
(599
)
  
–
    
–
    
–
    
–
  
Treatment charges
  
111
    
73
    
37
    
1
    
111
  
Royalty on metals
  
48
    
32
    
16
    
–
    
48
  
Net cash costs (credits)
  
(61
)
  
356
    
178
    
4
    
538
  
Depreciation and amortization
  
56
    
37
    
18
    
1
    
56
  
Noncash and nonrecurring costs, net
  
11
    
8
    
3
    
–
    
11
  
Total costs
  
6
    
401
    
199
    
5
    
605
  
Revenue adjustments, primarily for pricing on prior
                              
period open sales
  
153
    
153
    
–
    
–
    
153
  
PT Smelting intercompany profit
  
–
    
–
    
–
    
–
    
–
  
Gross profit
$
1,316
  
$
921
  
$
385
  
$
10
  
$
1,316
  
                               
Reconciliation to Amounts Reported
                              
(In millions)
    
Production
  
Depreciation,
              
     
and
  
Depletion and
              
 
Revenues
  
Delivery
  
Amortization
              
Totals presented above
$
1,768
  
$
379
  
$
56
              
Net noncash and nonrecurring costs per above
  
N/A
    
11
    
N/A
              
Less: Treatment charges per above
  
(111
)
  
N/A
    
N/A
              
Less: Royalty per above
  
(48
)
  
N/A
    
N/A
              
Revenue adjustments, primarily for pricing on prior
                              
period open sales per above
  
153
    
N/A
    
N/A
              
Total Indonesia operations
  
1,762
    
390
    
56
              
North America operations
  
2,683
    
2,104
    
168
              
South America operations
  
1,232
    
303
    
136
              
Atlantic Copper smelting & refining
  
619
    
608
    
9
              
Corporate, other & eliminations
  
(853
)
  
(865
)
  
5
              
As reported in FCX’s consolidated financial statements
$
5,443
  
$
2,540
  
$
374
              
                               



 
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Six Months Ended June 30, 2008
        
 
By-Product
  
Co-Product Method
  
(In millions)
Method
  
Copper
  
Gold
  
Silver
  
Total
  
Revenues, after adjustments shown below
$
1,691
  
$
1,691
  
$
453
  
$
29
  
$
2,173
  
                               
Site production and delivery, before net noncash
                              
and nonrecurring costs shown below
  
819
    
637
    
171
    
11
    
819
  
Gold and silver credits
  
(482
)
  
–
    
–
    
–
    
–
  
Treatment charges
  
132
    
103
    
28
    
1
    
132
  
Royalty on metals
  
55
    
43
    
11
    
1
    
55
  
Net cash costs
  
524
    
783
    
210
    
13
    
1,006
  
Depreciation and amortization
  
93
    
72
    
19
    
2
    
93
  
Noncash and nonrecurring costs, net
  
19
    
15
    
4
    
–
    
19
  
Total costs
  
636
    
870
    
233
    
15
    
1,118
  
Revenue adjustments, primarily for pricing on prior
                              
period open sales
  
82
    
82
    
–
    
–
    
82
  
PT Smelting intercompany profit
  
(5
)
  
(4
)
  
(1
)
  
–
    
(5
)
Gross profit
$
1,132
  
$
899
  
$
219
  
$
14
  
$
1,132
  
                               
Reconciliation to Amounts Reported
                              
(In millions)
    
Production
  
Depreciation,
              
     
and
  
Depletion and
              
 
Revenues
  
Delivery
  
Amortization
              
Totals presented above
$
2,173
  
$
819
  
$
93
              
Net noncash and nonrecurring costs per above
  
N/A
    
19
    
N/A
              
Less: Treatment charges per above
  
(132
)
  
N/A
    
N/A
              
Less: Royalty per above
  
(55
)
  
N/A
    
N/A
              
Revenue adjustments, primarily for pricing on prior
                              
period open sales per above
  
82
    
N/A
    
N/A
              
Total Indonesia operations
  
2,068
    
838
    
93
              
North America operations
  
6,418
    
4,101
    
498
              
South America operations
  
3,002
    
894
    
257
              
Atlantic Copper smelting & refining
  
1,389
    
1,349
    
18
              
Corporate, other & eliminations
  
(1,764
)
  
(1,740
)
  
14
              
As reported in FCX’s consolidated financial statements
$
11,113
  
$
5,442
  
$
880
              
                               


 
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Six Months Ended June 30, 2007
        
 
By-Product
  
Co-Product Method
  
(In millions)
Method
  
Copper
  
Gold
  
Silver
  
Total
  
Revenues, after adjustments shown below
$
2,578
  
$
2,578
  
$
1,207
  
$
36
  
$
3,821
  
                               
Site production and delivery, before net noncash
                              
and nonrecurring costs shown below
  
693
    
468
    
219
    
6
    
693
  
Gold and silver credits
  
(1,243
)
  
–
    
–
    
–
    
–
  
Treatment charges
  
265
    
178
    
84
    
3
    
265
  
Royalty on metals
  
97
    
66
    
30
    
1
    
97
  
Net cash costs (credits)
  
(188
)
  
712
    
333
    
10
    
1,055
  
Depreciation and amortization
  
115
    
78
    
36
    
1
    
115
  
Noncash and nonrecurring costs, net
  
20
    
14
    
6
    
–
    
20
  
Total costs (credits)
  
(53
)
  
804
    
375
    
11
    
1,190
  
Revenue adjustments, primarily for pricing on prior
                              
period open sales
  
12
    
12
    
–
    
–
    
12
  
PT Smelting intercompany profit
  
(36
)
  
(24
)
  
(11
)
  
(1
)
  
(36
)
Gross profit
$
2,607
  
$
1,762
  
$
821
  
$
24
  
$
2,607
  
                               
Reconciliation to Amounts Reported
                              
(In millions)
    
Production
  
Depreciation,
              
     
and
  
Depletion and
              
 
Revenues
  
Delivery
  
Amortization
              
Totals presented above
$
3,821
  
$
693
  
$
115
              
Net noncash and nonrecurring costs per above
  
N/A
    
20
    
N/A
              
Less: Treatment charges per above
  
(265
)
  
N/A
    
N/A
              
Less: Royalty per above
  
(97
)
  
N/A
    
N/A
              
Revenue adjustments, primarily for pricing on prior
                              
period open sales per above
  
12
    
N/A
    
N/A
              
Total Indonesia operations
  
3,471
    
713
    
115
              
North America operations
  
3,002
    
2,431
    
182
              
South America operations
  
1,494
    
419
    
164
              
Atlantic Copper smelting & refining
  
1,073
    
1,035
    
19
              
Corporate, other & eliminations
  
(1,351
)
  
(1,155
)
  
10
              
As reported in FCX’s consolidated financial statements
$
7,689
  
$
3,443
  
$
490
              
                               

 
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Table of Contents
CAUTIONARY STATEMENT

Our discussion and analysis contains forward-looking statements in which we discuss our expectations regarding future performance. Forward-looking statements are all statements other than historical facts, such as those regarding anticipated sales volumes, ore grades, milling rates, commodity prices, unit net cash costs, operating cash flows, royalty costs, capital expenditures, the impact of copper, gold and molybdenum price changes, the impact of changes in deferred intercompany profits on earnings, treatment charge rates, depreciation rates, exploration efforts and results, liquidity, other financial commitments and timing of dividend payments and open market purchases of FCX common stock. The declaration and payment of dividends is at the discretion of FCX’s Board of Directors and will depend on FCX’s financial results, cash requirements, future prospects and other factors deemed relevant by the Board of Directors. Accuracy of the forward-looking statements depends on assumptions about events that change over time and is thus susceptible to periodic change based on actual experience and new developments. We caution readers that we assume no obligation to update or publicly release any revisions to the forward-looking statements in this Form 10-Q and, except to the extent required by applicable law, do not intend to update or otherwise revise the forward-looking statements more frequently than quarterly. Additionally, important factors that might cause future results to differ from these forward-looking statements include mine sequencing, production rates, industry risks, regulatory changes, commodity prices, political risks, weather-related risks, labor relations, environmental risks, litigation results, currency translation risks and other factors described in more detail under the heading “Risk Factors” in Part I, Item 1A. of our report on Form 10-K for the year ended December 31, 2007.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.
There have been no material changes in FCX’s market risks during the six months ended June 30, 2008. For additional information on market risk, refer to “Disclosures About Market Risks” included in Part II, Item 7A of our report on Form 10-K for the year ended December 31, 2007.

Item 4.  Controls and Procedures.
 
(a)  
Evaluation of disclosure controls and procedures. Our chief executive officer and chief financial officer, with the participation of management, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report on Form 10-Q. Based on their evaluation, they have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.
 
(b)  
Changes in internal controls. There has been no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2008, that has materially affected, or is reasonably likely to materially affect our internal controls over financial reporting.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings.
There have been no material changes to the information included in “Legal Proceedings” in Part I, Item 3 of our report on Form 10-K for the year ended December 31, 2007, as updated in Part II, Item 1 of our report on Form 10-Q for the quarter ended March 31, 2008.

Item 1A.  Risk Factors.
There have been no material changes to our risk factors during the six months ended June 30, 2008. For additional information on risk factors, refer to “Risk Factors” included in Part I, Item 1A of our report on Form 10-K for the year ended December 31, 2007.


 
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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

(c) The following table sets forth information with respect to shares of common stock of FCX purchased by FCX during the three months ended June 30, 2008:
                   
             
(c) Total Number of
  
(d) Maximum Number
   
(a) Total Number
  
(b) Average
  
Shares Purchased as Part
  
of Shares That May
   
of Shares
  
Price Paid
  
of Publicly Announced
  
Yet Be Purchased Under
Period
  
Purchaseda
  
Per Share
  
Plans or Programsb
  
the Plans or Programsb
April 1-30, 2008
  
313
  
$
107.29
  
–
  
20,000,000
May 1-31, 2008
  
233,037
  
$
117.36
  
–
  
20,000,000
June 1-30, 2008
  
99
  
$
120.60
  
–
  
20,000,000
Total
  
233,449
  
$
117.35
  
–
  
20,000,000
                   
a.  
Consists of shares repurchased under FCX’s applicable stock incentive plans (Plans) and its non-qualified supplemental savings plan (SSP). Through the Plans, FCX repurchased 233,413 shares to satisfy tax obligations on restricted stock awards and to cover the cost of option exercises. Under the SSP, FCX repurchased 36 shares as a result of dividends paid.
 
b.  
In December 2007, our Board of Directors approved an open market share purchase program for up to 20 million shares. The program does not have an expiration date. No shares were purchased during the three-month period ended June 30, 2008. On July 21, 2008, our Board of Directors approved an increase in our open market share purchase program for up to 30 million shares.

Item 4. Submission of Matters to a Vote of Security Holders

Our annual meeting of stockholders was held on June 5, 2008 (the “Annual Meeting”). Proxies were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. The following matters were submitted to a vote of security holders during our Annual Meeting:

Name
For
Withheld
1. Election of Directors:
    
Richard C. Adkerson
299,451,161
32,885,004
Robert J. Allison, Jr.
216,801,157
115,535,008
Robert A. Day
300,339,483
31,996,682
Gerald J. Ford
302,333,890
30,002,275
H. Devon Graham, Jr.
221,720,278
110,615,887
J. Bennett Johnston
291,275,614
41,060,551
Charles C. Krulak
302,605,979
29,730,186
Bobby Lee Lackey
221,948,443
110,387,722
Jon C. Madonna
302,539,484
29,796,681
Dustan E. McCoy
265,163,590
67,172,575
Gabrielle K. McDonald
291,406,778
40,929,387
James R. Moffett
297,090,275
35,245,890
B.M. Rankin, Jr.
291,311,652
41,024,513
J. Stapleton Roy
291,433,835
40,902,330
Stephen H. Siegele
302,649,402
29,686,763
J. Taylor Wharton
291,337,381
40,998,784

There were no abstentions with respect to the election of directors.

 
      For    
Against
Abstentions
2. Ratification of Ernst & Young LLP as independent auditors.
329,016,916
430,300
2,888,949
3. Proposal to increase authorized shares of common stock.
260,444,605
68,836,142
3,055,418

Item 6.  Exhibits.
The exhibits to this report are listed in the Exhibit Index beginning on Page E-1 hereof.

 
67
 
Table of Contents
FREEPORT-McMoRan COPPER & GOLD INC.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

FREEPORT-McMoRan COPPER & GOLD INC.

By:          /s/ C. Donald Whitmire, Jr.
C. Donald Whitmire, Jr.
Vice President and
Controller-Financial Reporting
(authorized signatory and
Principal Accounting Officer)

Date:  August 8, 2008



 
68
 
Table of Contents
FREEPORT-McMoRan COPPER & GOLD INC.
EXHIBIT INDEX
 

 
   
Filed
        
Exhibit
  
with this
Incorporated by Reference
Number
Exhibit Title
Form 10-Q
Form
File No.
Date Filed
2.1
Agreement and Plan of Merger dated as of November 18, 2006, by and among Freeport-McMoRan Copper & Gold Inc. (FCX), Phelps Dodge Corporation and Panther Acquisition Corporation.
  
S-4
333-139252
12/11/2006
3.1
Amended and Restated Certificate of Incorporation of FCX.
  
8-K
001-11307-01
03/19/2007
Certificate of Amendment of Amended and Restated Certificate of Incorporation of FCX.
X
      
3.3
Amended and Restated By-Laws of FCX, as amended through May 1, 2007.
  
8-K
001-11307-01
05/04/2007
4.1
Certificate of Designations of 5½% Convertible Perpetual Preferred Stock of FCX.
  
8-K
001-11307-01
03/31/2004
4.2
Certificate of Designations of 6¾% Mandatory Convertible Preferred Stock of FCX.
  
8-K
001-11307-01
03/27/2007
4.3
Rights Agreement dated as of May 3, 2000, between FCX and ChaseMellon Shareholder Services, L.L.C., as Rights Agent.
  
10-Q
001-09916
05/15/2000
4.4
Amendment No. 1 to Rights Agreement dated as of February 26, 2002, between FCX and Mellon Investor Services.
  
10-Q
001-09916
05/07/2002
4.5
Indenture dated as of February 11, 2003, from FCX to The Bank of New York, as Trustee, with respect to the 7% Convertible Senior Notes due 2011.
  
8-K
001-09916
02/25/2003
4.6
Indenture dated as of March 19, 2007, from FCX to The Bank of New York, as Trustee, with respect to the 8.25% Senior Notes due 2015, 8.375% Senior Notes due 2017, and the Senior Floating Rate Notes due 2015.
  
8-K
001-11307-01
03/19/2007
4.7
Credit Agreement dated as of March 19, 2007, by and among FCX, the lenders party thereto, the issuing banks party thereto, JPMorgan Chase Bank, N.A. as administrative agent and collateral agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as syndication agent.
  
8-K
001-11307-01
03/19/2007
4.8
Amendment Agreement dated as of July 3, 2007, amending the Credit Agreement dated as of March 19, 2007, among FCX, the Lenders party thereto, the Issuing Banks party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent and as Collateral Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Syndication Agent.
  
8-K
001-11307-01
07/11/2007
4.9
Amended and Restated Credit Agreement dated as of March 19, 2007, by and among FCX, PT Freeport Indonesia, the lenders party thereto, the issuing banks party thereto, JPMorgan Chase Bank, N.A. as administrative agent, collateral agent, security agent and JAA security agent, U.S. Bank National Association, as FI trustee, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as syndication agent.
  
8-K
001-11307-01
03/19/2007

 
E-1
 
Table of Contents

4.10
Amendment Agreement dated as of July 3, 2007, amending the Amended and Restated Credit Agreement dated as of March 19, 2007, which amended and restated the Amended and Restated Credit Agreement, dated as of July 25, 2006, which amended and restated the Amended and Restated Credit Agreement, dated as of September 30, 2003, which amended and restated the Amended and Restated Credit Agreement, dated as of October 19, 2001, which amended and restated both the Credit Agreement, originally dated as of October 27, 1989 and amended and restated as of June 1, 1993 and the Credit Agreement, originally dated as of June 30, 1995, among FCX, PT Freeport Indonesia, U.S. Bank National Association, as trustee for the Lenders and certain other lenders under the FI Trust Agreement, the Lenders party thereto, the Issuing Banks party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, Security Agent, JAA Security Agent and Collateral Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Syndication Agent.
  
8-K
001-11307-01
07/11/2007
10.1
Contract of Work dated December 30, 1991, between the Government of the Republic of Indonesia and PT Freeport Indonesia.
  
S-3
333-72760
11/05/2001
10.2
Contract of Work dated August 15, 1994, between the Government of the Republic of Indonesia and PT Irja Eastern Minerals Corporation.
  
S-3
333-72760
11/05/2001
10.3
Participation Agreement dated as of October 11, 1996, between PT Freeport Indonesia and P.T. RTZ-CRA Indonesia (a subsidiary of Rio Tinto PLC) with respect to a certain contract of work.
  
S-3
333-72760
11/05/2001
10.4
Agreement dated as of October 11, 1996, to Amend and Restate Trust Agreement among PT Freeport Indonesia, FCX, the RTZ Corporation PLC (now Rio Tinto 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.
  
8-K
001-09916
11/13/1996
10.5
Concentrate Purchase and Sales Agreement dated effective December 11, 1996, between PT Freeport Indonesia and PT Smelting.
  
S-3
333-72760
11/05/2001
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.
  
S-3
333-72760
11/05/2001
10.7
Participation Agreement, dated as of March 16, 2005, among Phelps Dodge Corporation, Cyprus Amax Minerals Company, a Delaware corporation, Cyprus Metals Company, a Delaware corporation, Cyprus Climax Metals Company, a Delaware corporation, Sumitomo Corporation, a Japanese corporation, Summit Global Management, B.V., a Dutch corporation, Sumitomo Metal Mining Co., Ltd., a Japanese corporation, Compañia de Minas Buenaventura S.A.A., a Peruvian sociedad anonima abierta, and Sociedad Minera Cerro Verde S.A.A., a Peruvian sociedad anonima abierta.
  
8-K
001-00082
03/22/2005
10.8
Shareholders Agreement, dated as of June 1, 2005, among Phelps Dodge Corporation, Cyprus Climax Metals Company, a Delaware corporation, Sumitomo Corporation, a Japanese corporation, Sumitomo Metal Mining Co., Ltd., a Japanese corporation, Summit Global Management B.V., a Dutch corporation, SMM Cerro Verde Netherlands, B.V., a Dutch corporation, Compañia de Minas Buenaventura S.A.A., a Peruvian sociedad anonima abierta, and Sociedad Minera Cerro Verde S.A.A., a Peruvian sociedad anonima abierta.
  
8-K
001-00082
06/07/2005
10.9
Master Agreement and Plan of Merger between Columbian Chemicals Company, Columbian Chemicals Acquisition LLC and Columbian Chemicals Merger Sub, Inc., dated November 15, 2005.
  
10-K
001-00082
02/27/2006
10.10
Reclamation and Remediation Trust Agreement between Phelps Dodge Corporation and Wells Fargo Delaware Trust Company, dated December 22, 2005.
  
10-K
001-00082
02/27/2006
FCX Director Compensation
X
      
 
 
E-2
 
10.12*
Consulting Agreement dated December 22, 1988, with Kissinger Associates, Inc. (Kissinger Associates).
  
10-K405
001-09916
03/31/1998
10.13*
Letter Agreement dated May 1, 1989, with Kent Associates, Inc. (Kent Associates, predecessor in interest to Kissinger Associates).
  
10-K405
001-09916
03/31/1998
10.14*
Letter Agreement dated January 27, 1997, among Kissinger Associates, Kent Associates, FCX, Freeport-McMoRan Inc. (FTX), and FM Services Company (FMS).
  
10-K405
001-09916
03/08/2002
10.15*
Supplemental Agreement with Kissinger Associates and Kent Associates, effective as of January 1, 2008.
  
10-Q
001-11307-01
11/07/2007
10.16*
Agreement for Consulting Services between FTX and B. M. Rankin, Jr. effective as of January 1, 1990 (assigned to FMS as of January 1, 1996).
  
10-K405
001-09916
03/31/1998
10.17*
Supplemental Agreement dated December 15, 1997, between FMS and B. M. Rankin, Jr.
  
10-K405
001-09916
03/31/1998
10.18*
Supplemental Letter Agreement between FMS and B. M. Rankin, Jr., effective as of January 1, 2008.
  
10-K
001-11307-01
02/29/2008
10.19*
Letter Agreement effective as of January 7, 1997, between Senator J. Bennett Johnston, Jr. and FMS.
  
10-K405
001-09916
03/08/2002
10.20*
Supplemental Letter Agreement between FMS and J. Bennett Johnston, Jr., dated January 18, 2005.
  
10-K
001-11307-01
03/16/2005
10.21*
Supplemental Agreement between FMS and J. Bennett Johnston, Jr., effective as of January 1, 2008.
  
10-Q
001-11307-01
11/07/2007
Supplemental Agreement between FMS and J. Bennett Johnston, Jr., effective as of May 1, 2008.
X
      
10.23*
Letter Agreement dated November 1, 1999, between FMS and Gabrielle K. McDonald.
  
10-K405
001-09916
03/20/2000
10.24*
Supplemental Letter Agreement between FMS and Gabrielle K. McDonald, effective as of January 1, 2008.
  
10-Q
001-11307-01
11/07/2007
Supplemental Letter Agreement between FMS and Gabrielle K. McDonald, effective as of May 1, 2008.
X
      
10.26*
Agreement for Consulting Services between FMS and Dr. J. Taylor Wharton, effective as of January 11, 2008.
  
10-K
001-11307-01
02/29/2008
10.27*
Executive Employment Agreement dated April 30, 2001, between FCX and James R. Moffett.
  
10-Q
001-09916
07/30/2001
10.28*
Change of Control Agreement dated April 30, 2001, between FCX and James R. Moffett.
  
10-Q
001-09916
07/30/2001
10.29*
First Amendment to Executive Employment Agreement dated December 10, 2003, between FCX and James R. Moffett.
  
10-K
001-11307-01
03/10/2004
10.30*
First Amendment to Change of Control Agreement dated December 10, 2003, between FCX and James R. Moffett.
  
10-K
001-11307-01
03/10/2004
10.31*
Change of Control Agreement dated February 3, 2004, between FCX and Michael J. Arnold.
  
10-K
001-11307-01
03/10/2004
10.32*
Executive Employment Agreement effective January 29, 2008, between FCX and Richard C. Adkerson.
  
10-K
001-11307-01
02/29/2008
10.33*
Executive Employment Agreement effective January 29, 2008, between FCX and Kathleen L. Quirk.
  
10-K
001-11307-01
02/29/2008
10.34*
Form of Change of Control Agreement (amended and restated effective January 1, 2005), adopted by Phelps Dodge Corporation for agreements entered into between Phelps Dodge Corporation and other of its executive officers and other members of its senior management team.
  
10-K/A
001-00082
03/19/2007
10.35*
Form of Severance Agreement (as amended and restated effective January 1, 2005) adopted by Phelps Dodge Corporation and entered into between Phelps Dodge Corporation and certain of its executives.
  
10-K/A
001-00082
03/19/2007
 
E-3
 
10.36*
FCX Executive Services Program.
  
8-K
001-11307-01
05/05/2006
10.37*
FCX Supplemental Executive Retirement Plan, as amended and restated.
  
8-K
001-11307-01
02/05/2007
10.38*
FCX President’s Award Program.
  
S-3
333-72760
11/05/2001
10.39*
FCX Supplemental Executive Capital Accumulation Plan.
  
10-Q
001-11307-01
05/12/2008
10.40*
FCX Supplemental Executive Capital Accumulation Plan Amendment One.
  
10-Q
001-11307-01
05/12/2008
10.41*
FCX 1995 Stock Option Plan, as amended and restated.
  
10-Q
001-11307-01
05/10/2007
10.42*
FCX 1995 Stock Option Plan for Non-Employee Directors, as amended and restated.
  
10-Q
001-11307-01
05/10/2007
10.43*
FCX Amended and Restated 1999 Stock Incentive Plan, as amended and restated.
  
10-Q
001-11307-01
05/10/2007
10.44*
FCX 1999 Long-Term Performance Incentive Plan.
  
10-K
001-09916
03/20/2000
10.45*
FM Services Company Performance Incentive Awards Program, as amended effective February 2, 1999.
  
10-K
001-09916
03/19/1999
10.46*
FCX Stock Appreciation Rights Plan dated May 2, 2000.
  
10-Q
001-09916
07/30/2001
10.47*
FCX 2003 Stock Incentive Plan, as amended and restated.
  
10-Q
001-11307-01
05/10/2007
10.48*
Phelps Dodge 2003 Stock Option and Restricted Stock Plan, as amended.
  
S-8
333-141358
03/16/2007
10.49*
FCX 2004 Director Compensation Plan.
  
10-K
001-11307-01
03/16/2005
10.50*
Form of Amendment No. 1 to Notice of Grant of Nonqualified Stock Options and Stock Appreciation Rights under the 2004 Director Compensation Plan.
  
8-K
001-11307-01
05/05/2006
10.51*
FCX 2004 Director Compensation Plan, as amended and restated.
  
10-Q
001-11307-01
05/10/2007
10.52*
FCX 2005 Annual Incentive Plan.
  
8-K
001-11307-01
05/06/2005
10.53*
The Phelps Dodge Corporation Supplemental Retirement Plan, amended and restated effective January 1, 2005 and adopted on March 16, 2007.
  
10-Q
001-11307-01
05/10/2007
10.54*
First Amendment to the Phelps Dodge Corporation Supplemental Retirement Plan, dated as of November 9, 2007.
  
10-Q
001-11307-01
05/12/2008
10.55*
The Phelps Dodge Corporation Supplemental Savings Plan, amended and restated effective January 1, 2005, and adopted on March 16, 2007.
  
10-Q
001-11307-01
05/10/2007
10.56*
First Amendment to the Phelps Dodge Corporation Supplemental Savings Plan, dated March 16, 2007.
  
10-Q
001-11307-01
05/10/2007
10.57*
Second Amendment to the Phelps Dodge Corporation Supplemental Savings Plan, dated as of March 16, 2007.
  
10-Q
001-11307-01
05/10/2007
10.58*
Third Amendment to the Phelps Dodge Corporation Supplemental Savings Plan, dated as of November 14, 2007.
  
10-Q
001-11307-01
05/12/2008
10.59*
FCX Amended and Restated 2006 Stock Incentive Plan.
  
8-K
001-11307-01
07/13/2007
10.60*
FCX Performance Incentive Awards Program, as amended effective December 4, 2007.
  
10-K
001-11307-01
02/29/2008
10.61*
Form of Notice of Grant of Nonqualified Stock Options for grants under the FCX 1999 Stock Incentive Plan, the 2003 Stock Incentive Plan and the 2006 Stock Incentive Plan.
  
10-K
001-11307-01
02/29/2008
10.62*
Form of Restricted Stock Unit Agreement for grants under the FCX 1999 Stock Incentive Plan, the 2003 Stock Incentive Plan and the 2006 Stock Incentive Plan.
  
10-K
001-11307-01
02/29/2008
10.63*
Form of Performance-Based Restricted Stock Unit Agreement for grants under the FCX 1999 Stock Incentive Plan, the 2003 Stock Incentive Plan and the 2006 Stock Incentive Plan.
  
10-K
001-11307-01
02/29/2008
 
E-4
 
10.64*
Form of Restricted Stock Unit Agreement (form used in connection with participant elections) for grants under the FCX 1999 Stock Incentive Plan, the 2003 Stock Incentive Plan and the 2006 Stock Incentive Plan.
  
10-K
001-11307-01
02/29/2008
10.65*
Form of Performance-Based Restricted Stock Unit Agreement (form used in connection with participant elections) for grants under the FCX 1999 Stock Incentive Plan, the 2003 Stock Incentive Plan and the 2006 Stock Incentive Plan.
  
10-K
001-11307-01
02/29/2008
10.66*
Form of Amendment to the ELIP Split Dollar Life Insurance Agreement (Endorsement Method) adopted by Phelps Dodge Corporation and entered into by and between Phelps Dodge and certain of its executives.
  
10-Q
001-11307-01
05/10/2007
Letter from Ernst & Young LLP regarding unaudited interim financial statements.
X
      
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d – 14(a).
X
      
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d – 14(a).
X
      
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.
X
      
Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350.
X
      
_______________________

Note:  Certain instruments with respect to long-term debt of FCX have not been filed as exhibits to this Quarterly Report on Form 10-Q since the total amount of securities authorized under any such instrument does not exceed 10 percent of the total assets of FCX and its subsidiaries on a consolidated basis. FCX agrees to furnish a copy of each such instrument upon request of the Securities and Exchange Commission.

*  Indicates management contract or compensatory plan or arrangement.



 
E-5