Freeport-McMoRan 2005 Annual Report Download - page 29

OVERVIEW
In฀management’s฀discussion฀and฀analysis,฀“we,”฀“us”฀and฀“our”฀
refer฀to฀Freeport-McMoRan฀Copper฀&฀Gold฀Inc.฀(FCX)฀and฀its฀
consolidated฀subsidiaries.฀References฀to฀“aggregate”฀amounts฀mean฀
the฀total฀of฀our฀share฀and฀Rio฀Tinto฀plc’s฀share฀as฀our฀joint฀venture฀
partner.฀The฀results฀of฀operations฀reported฀and฀summarized฀below฀are฀
not฀necessarily฀indicative฀of฀future฀operating฀results.฀The฀following฀
discussion฀should฀be฀read฀together฀with฀our฀consolidated฀financial฀
statements฀and฀the฀related฀notes.฀References฀to฀“Notes”฀are฀Notes฀
included฀in฀our฀“Notes฀to฀Consolidated฀Financial฀Statements.”
Through฀our฀majority-owned฀subsidiary,฀PT฀Freeport฀
Indonesia,฀we฀have฀one฀of฀the฀world’s฀largest฀copper฀and฀
gold฀mining฀and฀production฀operations฀in฀terms฀of฀
reserves and฀production.฀We฀are฀also฀one฀of฀the฀lowest-cost฀
copper฀producers฀in฀the฀world,฀after฀taking฀into฀account฀
credits฀for฀related฀gold฀and฀silver฀production.฀Our฀principal฀
asset฀is฀the฀Grasberg฀minerals฀district,฀which฀based฀on฀
available฀year-end฀2004฀reserve฀data,฀contains฀the฀largest฀
single฀copper฀reserve฀and฀the฀largest฀single฀gold฀reserve฀of฀
any฀mine฀in฀the฀world.
฀ PT฀Freeport฀Indonesia,฀our฀principal฀operating฀subsidiary,฀
operates฀under฀an฀agreement,฀called฀a฀Contract฀of฀Work,฀
with฀the฀Government฀of฀Indonesia.฀The฀Contract฀of฀Work฀
allows฀us฀to฀conduct฀exploration,฀mining฀and฀production฀
activities฀in฀a฀24,700-acre฀area฀called฀Block฀A฀located฀in฀
Papua,฀Indonesia.฀Under฀the฀Contract฀of฀Work,฀PT฀Freeport฀
Indonesia฀also฀conducts฀exploration฀activities฀(which฀are฀
currently฀suspended,฀but฀are฀under฀review฀for฀resumption)฀
in฀an฀approximate฀500,000-acre฀area฀called฀Block฀B฀in฀
Papua.฀All฀of฀our฀proven฀and฀probable฀mineral฀reserves฀and฀
current฀mining฀operations฀are฀located฀in฀Block฀A.฀
฀ We฀also฀conduct฀mineral฀exploration฀activities฀(which฀are฀
currently฀suspended)฀in฀Papua,฀Indonesia฀through฀one฀฀฀฀฀฀
of฀our฀wholly฀owned฀subsidiaries,฀PT฀Irja฀Eastern฀Minerals฀
(Eastern฀Minerals).฀Eastern฀Minerals฀holds฀an฀additional฀
Contract฀of฀Work฀originally฀covering฀a฀2.5-million-acre฀area.฀
Under฀the฀terms฀of฀Eastern฀Minerals’฀Contract฀of฀Work,฀we฀
have฀already฀relinquished฀1.3฀million฀acres฀and฀must฀relinquish฀
an฀additional฀0.6฀million฀acres฀at฀the฀end฀of฀the฀three-year฀
exploration฀period฀(currently฀in฀suspension),฀which฀can฀be฀
extended฀by฀the฀Government฀of฀Indonesia฀for฀as฀many฀as฀two฀
additional฀years.
฀ In฀addition฀to฀the฀PT฀Freeport฀Indonesia฀and฀Eastern฀
Minerals฀exploration฀acreage,฀we฀have฀the฀right฀to฀conduct฀
other฀mineral฀exploration฀activities฀in฀Papua฀pursuant฀to฀
a฀joint฀venture฀through฀PT฀Nabire฀Bakti฀Mining.฀Field฀
exploration฀activities฀outside฀of฀our฀current฀mining฀operations฀
in฀Block฀A฀have฀been฀suspended฀in฀recent฀years฀because฀of฀
safety฀and฀security฀issues฀and฀regulatory฀uncertainty฀relating฀to฀
a฀possible฀conflict฀between฀our฀mining฀and฀exploration฀rights฀
in฀certain฀forest฀areas฀and฀an฀Indonesian฀Forestry฀law฀enacted฀
in฀1999฀prohibiting฀open-pit฀mining฀in฀forest฀preservation฀
areas.฀Recent฀Indonesian฀legislation฀permits฀open-pit฀mining฀
in฀PT฀Freeport฀Indonesia’s฀Block฀B฀area,฀subject฀to฀certain฀
requirements.฀We฀continue฀to฀assess฀these฀requirements฀and฀
security฀issues.฀The฀timing฀for฀our฀resumption฀of฀exploration฀
activities฀in฀our฀Contract฀of฀Work฀areas฀outside฀of฀Block฀A฀
depends฀on฀the฀resolution฀of฀these฀matters.
฀ 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฀project,฀we฀have฀agreed฀to฀consider฀a฀potential฀sale฀of฀
an฀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.
฀ We฀also฀operate฀through฀a฀majority-owned฀subsidiary,฀PT฀
Puncakjaya฀Power฀(Puncakjaya฀Power),฀and฀through฀Atlantic฀
Copper,฀S.A.฀(Atlantic฀Copper),฀a฀wholly฀owned฀subsidiary.฀
We฀acquired฀an฀85.7฀percent฀ownership฀in฀Puncakjaya฀Power฀
in฀2003.฀Puncakjaya฀Power’s฀sole฀business฀is฀to฀supply฀power฀
to฀PT฀Freeport฀Indonesia’s฀operations฀(see฀Note฀2).฀Atlantic฀
Copper’s฀operations฀are฀in฀Spain฀and฀involve฀the฀smelting฀฀
and฀refining฀of฀copper฀concentrates฀and฀the฀marketing฀of฀
refined฀copper฀and฀precious฀metals฀in฀slimes.฀PT฀Freeport฀
Indonesia฀owns฀a฀25฀percent฀interest฀in฀PT฀Smelting,฀an฀
Indonesian฀company฀which฀operates฀a฀copper฀smelter฀and฀
refinery฀in฀Gresik,฀Indonesia.฀
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.฀
Management’s Discussion and Analysis
฀26฀|฀FREEPORT-McMoRan฀COPPER฀&฀GOLD฀INC.฀฀฀FINANCIAL฀&฀OPERATING฀INFORMATION