Freeport-McMoRan 2008 Annual Report Download - page 79

Notes to Consolidated Financial Statements
2008 Annual Report FREEPORT-McMoRan COPPER & GOLD INC. 77
December 31, 2008, FMC’s major operating copper mines in
North America were Morenci, Sierrita, Bagdad and Safford
located in Arizona, and Tyrone located in New Mexico. FCX
has an 85 percent interest in Morenci (see “Joint Ventures –
Sumitomo”) and owns 100 percent of the other North America
mines. At December 31, 2008, operating copper mines in South
America were Cerro Verde (53.56 percent owned) located in Peru
and Candelaria (80 percent owned), Ojos del Salado (80 percent
owned) and El Abra (51 percent owned) located in Chile. FMC
also owns the Henderson and Climax molybdenum mines located
in Colorado. The Henderson mine is currently operating, while
the Climax mine is on care-and-maintenance status. In addition
to copper and molybdenum, certain mines produce other
minerals as by-products, such as gold, silver and rhenium. At
December 31, 2008, FMC’s net assets totaled $9.4 billion and its
accumulated deficit totaled $16.1 billion. As of December 31,
2008, FCX had a $137 million loan outstanding to FMC.
FCX owns an effective 57.75 percent interest (through its
ownership in FMC) in Tenke Fungurume Mining, S.A.R.L. (Tenke
Fungurume), a company incorporated under the laws of the DRC.
The remaining ownership interests are held by Tenke Mining
Corp. (TMC), which is owned by Lundin Mining Corporation (an
effective 24.75 percent) and La Générale des Carrières et des
Mines (Gécamines), which is wholly owned by the Government
of the DRC (17.5 percent). FCX is responsible for funding 70
percent of project development costs and is also responsible for
certain cost overruns on the initial project. Gécamines has an
undilutable carried interest and is not responsible for funding any
project costs. In accordance with the terms of the agreement,
Gécamines will receive asset transfer payments totaling
$100 million, $70 million of which has already been paid and the
remainder of which will be paid over a period of approximately
three years. Tenke Fungurume will produce copper and cobalt
and is expected to commence mining operations during the
second half of 2009.
FCX’s direct ownership in PT Freeport Indonesia totals 81.28
percent. PT Indocopper Investama, an Indonesian company, owns
9.36 percent of PT Freeport Indonesia and FCX owns 100 percent
of PT Indocopper Investama. At December 31, 2008, PT Freeport
Indonesia’s net assets totaled $2.3 billion and its retained
earnings totaled $2.1 billion. As of December 31, 2008, FCX had
no outstanding loans to PT Freeport Indonesia.
FCX owns 100 percent of the outstanding Atlantic Copper
common stock. At December 31, 2008, Atlantic Copper’s net
assets totaled $155 million and its accumulated deficit totaled
$235 million. FCX had a $130 million loan outstanding to
Atlantic Copper, and Atlantic Copper’s debt under financing
arrangements that are guaranteed by FCX totaled $82 million at
December 31, 2008.
In 2003, FCX acquired the 85.71 percent ownership interest in
PT Puncakjaya Power (Puncakjaya Power) owned by affiliates of
Duke Energy Corporation for $68 million cash, net of $10 million
of cash acquired. Puncakjaya Power is the owner of assets
supplying power to PT Freeport Indonesia’s operations, including
the 3x65 megawatt coal-fired power facilities. PT Freeport
Indonesia purchases power from Puncakjaya Power under
infrastructure asset financing arrangements. In 2005, FCX
prepaid $187 million of bank debt associated with Puncakjaya
Power’s operations. At December 31, 2008, FCX had a $37 million
loan outstanding to Puncakjaya Power, PT Freeport Indonesia
had infrastructure asset financing obligations payable to
Puncakjaya Power totaling $132 million and Puncakjaya Power
had a receivable from PT Freeport Indonesia for $172 million,
including Rio Tinto’s share. FCX consolidates PT Freeport
Indonesia and Puncakjaya Power. FCX’s consolidated balance
sheets reflect receivables of $37 million ($10 million in other
accounts receivable and $27 million in long-term assets) at
December 31, 2008, and $46 million ($9 million in other accounts
receivable and $37 million in long-term assets) at December 31,
2007, for Rio Tinto’s share of Puncakjaya Power’s receivable
as provided for in FCX’s joint venture agreement with Rio Tinto.
Joint Ventures. FCX has the following unincorporated joint
ventures with third parties.
Rio Tinto. In 2004, FCX purchased Rio Tinto’s 23.9 million
shares of FCX common stock for $882 million (approximately
$36.85 per share) with a portion of the proceeds from the sale of
the 5½% Convertible Perpetual Preferred Stock (see Note 13).
Rio Tinto acquired these shares from FCX’s former parent
company in 1995 in connection with the spin-off of FCX as an
independent company. FCX and Rio Tinto have established
certain unincorporated joint ventures that were not impacted by
FCX’s purchase of its shares from Rio Tinto. Under the joint
venture arrangements, Rio Tinto has a 40 percent interest in
PT Freeport Indonesia’s Contract of Work and the option to
participate in 40 percent of any other future exploration projects
in Papua, Indonesia.
Pursuant to the joint venture agreement, Rio Tinto has a
40 percent interest in certain assets and future production
exceeding specified annual amounts of copper, gold and silver
through 2021 in Block A of PT Freeport Indonesia’s Contract of
Work, and, after 2021, a 40 percent interest in all production from
Block A. All of PT Freeport Indonesia’s proven and probable
reserves and its mining operations are located in the Block A
area. Operating, nonexpansion capital and administrative costs
are shared proportionately between PT Freeport Indonesia and
Rio Tinto based on the ratio of (i) the incremental revenues from
production from PT Freeport Indonesia’s most recent expansion
completed in 1998 to (ii) total revenues from production from
Block A, including production from PT Freeport Indonesia’s
previously existing reserves. PT Freeport Indonesia will continue
to receive 100 percent of the cash flow from specified annual
amounts of copper, gold and silver through 2021 calculated by