Freeport-McMoRan 2004 Annual Report Download - page 64

Notes To Consolidated Financial Statements
million฀in฀2003฀and฀$31.1฀million฀in฀2002.฀Management฀believes฀
these฀costs฀do฀not฀differ฀materially฀from฀the฀costs฀that฀would฀
have฀been฀incurred฀had฀the฀relevant฀personnel฀providing฀these฀
services฀been฀employed฀directly฀by฀FCX.฀The฀amounts฀FM฀Services฀
Company฀billed฀to฀the฀two฀other฀public฀companies฀totaled฀$4.3฀
million฀during฀2004,฀$3.6฀million฀during฀2003฀and฀$2.6฀million฀
during฀2002.฀Long-term฀receivables฀from฀one฀of฀those฀companies฀
totaled฀$3.2฀million฀at฀December฀31,฀2004,฀and฀relate฀to฀certain฀
FM฀Services฀Company฀long-term฀employee฀benefit฀obligations.
In฀July฀2003,฀FCX฀acquired฀the฀85.7฀percent฀ownership฀
interest฀in฀Puncakjaya฀Power฀owned฀by฀affiliates฀of฀Duke฀
Energy฀Corporation฀for฀$78฀million฀cash.฀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฀arrange-
ments.฀At฀December฀31,฀2004,฀PT฀Freeport฀Indonesia฀had฀
infrastructure฀asset฀financing฀obligations฀to฀Puncakjaya฀Power฀
totaling฀$258.7฀million฀and฀Puncakjaya฀Power฀had฀a฀receiv-
able฀from฀PT฀Freeport฀Indonesia฀for฀$340.1฀million,฀including฀
Rio฀Tinto’s฀share.฀As฀a฀result฀of฀this฀transaction,฀FCX฀is฀now฀
consolidating฀Puncakjaya฀Power฀and฀FCX’s฀consolidated฀balance฀
sheet฀no฀longer฀reflects฀PT฀Freeport฀Indonesia’s฀obligation฀to฀
Puncakjaya฀Power฀or฀Puncakjaya฀Power’s฀receivable฀from฀PT฀
Freeport฀Indonesia,฀but฀instead฀reflects฀the฀$187.0฀million฀
of฀outstanding฀Puncakjaya฀Power฀bank฀debt฀at฀December฀31,฀
2004,฀and฀a฀$73.5฀million฀receivable฀($11.5฀million฀in฀other฀
accounts฀receivable฀and฀$62.0฀million฀in฀long-term฀assets)฀for฀
Rio฀Tinto’s฀share฀of฀Puncakjaya฀Power’s฀receivable฀as฀provided฀
for฀in฀FCX’s฀joint฀venture฀agreement฀with฀Rio฀Tinto.
Joint Ventures With Rio Tinto.฀In฀March฀2004,฀FCX฀
purchased฀Rio฀Tinto’s฀23.9฀million฀shares฀of฀FCX฀common฀
stock฀for฀$881.9฀million฀(approximately฀$36.85฀per฀share)฀
with฀a฀portion฀of฀the฀proceeds฀from฀the฀sale฀of฀the฀5฀1/2%฀
Convertible฀Perpetual฀Preferred฀Stock฀(see฀Note฀7).฀Rio฀Tinto฀
acquired฀these฀shares฀from฀FCX’s฀former฀parent฀company฀in฀
1995฀in฀connection฀with฀the฀spinoff฀of฀FCX฀as฀an฀indepen-
dent฀company.฀FCX฀and฀Rio฀Tinto฀have฀established฀certain฀
unincorporated฀joint฀ventures฀which฀are฀not฀impacted฀by฀
FCX’s฀purchase฀of฀its฀shares฀from฀Rio฀Tinto฀discussed฀above.฀
Under฀the฀joint฀venture฀arrangements,฀Rio฀Tinto฀has฀a฀40฀
percent฀interest฀in฀PT฀Freeport฀Indonesia’s฀Contract฀of฀Work฀
and฀Eastern฀Minerals’฀Contract฀of฀Work,฀and฀the฀option฀to฀
participate฀in฀40฀percent฀of฀any฀other฀future฀exploration฀
projects฀in฀Papua.฀Under฀the฀arrangements,฀Rio฀Tinto฀funded฀
$100฀million฀in฀1996฀for฀approved฀exploration฀costs฀in฀the฀
areas฀covered฀by฀the฀PT฀Freeport฀Indonesia฀and฀Eastern฀
Minerals฀Contracts฀of฀Work.฀Agreed-upon฀exploration฀costs฀
in฀the฀joint฀venture฀areas฀are฀generally฀shared฀60฀percent฀by฀
FCX฀and฀40฀percent฀by฀Rio฀Tinto.
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.฀Operating,฀nonexpansion฀capital฀and฀administrative฀costs฀are฀
shared฀proportionately฀between฀PT฀Freeport฀Indonesia฀and฀Rio฀
Tinto฀based฀on฀the฀ratio฀of฀(a)฀the฀incremental฀revenues฀from฀
production฀from฀PT฀Freeport฀Indonesia’s฀most฀recent฀expansion฀
completed฀in฀1998฀to฀(b)฀total฀revenues฀from฀production฀from฀
Block฀A,฀including฀production฀from฀PT฀Freeport฀Indonesia’s฀previ-
ously฀existing฀reserves.฀PT฀Freeport฀Indonesia฀will฀continue฀to฀
receive฀100฀percent฀of฀the฀cash฀flow฀from฀specified฀annual฀
amounts฀of฀copper,฀gold฀and฀silver฀through฀2021฀calculated฀by฀
reference฀to฀its฀proven฀and฀probable฀reserves฀as฀of฀December฀31,฀
1994,฀and฀60฀percent฀of฀all฀remaining฀cash฀flow.฀The฀agreement฀
provides฀for฀adjustments฀to฀the฀specified฀annual฀amounts฀of฀
copper,฀gold฀and฀silver฀attributable฀100฀percent฀to฀PT฀Freeport฀
Indonesia฀upon฀the฀occurrence฀of฀certain฀events฀which฀cause฀an฀
extended฀interruption฀in฀production฀to฀occur,฀including฀events฀
such฀as฀the฀fourth-quarter฀2003฀Grasberg฀open-pit฀slippage฀and฀
debris฀flow.฀As฀a฀result฀of฀the฀Grasberg฀slippage฀and฀debris฀flow฀
events,฀the฀2004฀specified฀amounts฀attributable฀100฀percent฀to฀
PT฀Freeport฀Indonesia฀were฀reduced฀by฀178฀million฀pounds฀for฀
copper฀and฀280,000฀ounces฀for฀gold.฀These฀reductions฀were฀offset฀
by฀increases฀in฀the฀specified฀amounts฀attributable฀to฀PT฀Freeport฀
Indonesia฀totaling฀111฀million฀pounds฀for฀copper฀and฀175,000฀
ounces฀for฀gold฀in฀2005,฀and฀67฀million฀pounds฀for฀copper฀and฀
105,000฀ounces฀for฀gold฀in฀2021.
Note 3. Inventories
The฀components฀of฀inventories฀follow฀(in฀thousands):
The฀average฀cost฀method฀was฀used฀to฀determine฀the฀cost฀of฀
essentially฀all฀materials฀and฀supplies฀inventory.฀Materials฀and฀
supplies฀inventory฀is฀net฀of฀obsolescence฀reserves฀totaling฀
$17.1฀million฀at฀December฀31,฀2004,฀and฀$17.6฀million฀at฀
December฀31,฀2003.
December฀31,฀ ฀ 2004฀ 2003
PT฀Freeport฀Indonesia:฀฀Concentrates฀–฀Average฀cost฀ ฀ ฀ $฀ 11,830฀ $฀ 2,643
Atlantic฀Copper:฀ Concentrates฀–฀FIFO฀ ฀ ฀ ฀148,246฀ ฀ 81,668
฀ ฀ ฀ ฀ Work฀in฀process฀–฀FIFO฀ ฀ ฀ ฀ 86,710฀ ฀ 76,689
฀ ฀ ฀ ฀ ฀ Finished฀goods฀–฀FIFO฀ ฀ ฀ ฀ 6,479฀ ฀ 9,925
Total฀product฀inventories฀ ฀ ฀ ฀253,265฀ ฀170,925
Total฀materials฀and฀supplies,฀net฀ ฀ ฀ ฀213,447฀ ฀226,102
฀ Total฀inventories฀ ฀ ฀ $฀466,712฀ $฀397,027
62฀| FREEPORT-McMoRan COPPER & GOLD INC.