Freeport-McMoRan 2005 Annual Report Download - page 75

฀72฀|฀FREEPORT-McMoRan฀COPPER฀&฀GOLD฀INC.฀฀฀FINANCIAL฀&฀OPERATING฀INFORMATION฀72฀|฀FREEPORT-McMoRan฀COPPER฀&฀GOLD฀INC.฀฀฀FINANCIAL฀&฀OPERATING฀INFORMATION
efforts฀to฀improve฀the฀country’s฀economy,฀fight฀corruption฀
and฀terrorism฀and฀increase฀foreign฀investment.฀Indonesia฀
continues฀to฀face฀political,฀economic฀and฀social฀uncertainties,฀
including฀separatist฀movements฀and฀civil฀and฀religious฀strife฀฀
in฀a฀number฀of฀provinces.
฀ FCX฀owns฀100฀percent฀of฀the฀outstanding฀Atlantic฀Copper฀
common฀stock.฀At฀December฀31,฀2005,฀FCX’s฀net฀investment฀
in฀Atlantic฀Copper฀totaled฀$115.0฀million,฀FCX฀had฀a฀฀฀฀฀฀
$189.5฀million฀loan฀outstanding฀to฀Atlantic฀Copper฀and฀Atlantic฀
Copper’s฀debt฀under฀financing฀arrangements฀that฀are฀
nonrecourse฀to฀FCX฀totaled฀$5.0฀million.฀Atlantic฀Copper฀is฀
not฀expected฀to฀pay฀dividends฀in฀the฀near฀future.฀Under฀the฀
terms฀of฀its฀concentrate฀sales฀agreements฀with฀Atlantic฀Copper,฀
PT฀Freeport฀Indonesia฀had฀outstanding฀trade฀receivables฀฀฀฀
from฀Atlantic฀Copper฀totaling฀$320.4฀million฀at฀December฀31,฀฀฀
2005.฀FCX฀made฀cash฀contributions฀to฀Atlantic฀Copper฀฀฀฀
totaling฀$202.0฀million฀in฀2004฀and฀$10.0฀million฀in฀2003.฀
These฀transactions฀had฀no฀impact฀on฀FCX’s฀consolidated฀
financial฀statements.
฀ FCX฀owns฀100฀percent฀of฀FM฀Services฀Company.฀FM฀
Services฀Company฀provides฀certain฀administrative,฀financial฀
and฀other฀services฀on฀a฀cost-reimbursement฀basis฀to฀FCX฀and฀
provides฀similar฀services฀to฀two฀other฀public฀companies฀under฀
management฀services฀agreements฀with฀fixed฀fee฀terms฀plus฀
reimbursements฀for฀special฀projects฀and฀out-of-pocket฀expenses.฀
The฀costs฀billed฀to฀FCX฀and฀PT฀Freeport฀Indonesia,฀which฀
include฀related฀overhead,฀totaled฀$47.2฀million฀in฀2005,฀฀฀฀
$34.6฀million฀in฀2004฀and฀$33.4฀million฀in฀2003.฀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฀$5.6฀million฀during฀2005,฀฀฀฀฀฀฀฀฀฀
$4.3฀million฀during฀2004฀and฀$3.6฀million฀during฀2003.
฀ In฀July฀2003,฀FCX฀acquired฀the฀85.7฀percent฀ownership฀
interest฀in฀Puncakjaya฀Power฀owned฀by฀affiliates฀of฀Duke฀
Energy฀Corporation฀for฀$68.1฀million฀cash,฀net฀of฀$9.9฀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฀March฀2005,฀FCX฀prepaid฀$187.0฀million฀of฀bank฀debt฀
associated฀with฀Puncakjaya฀Power’s฀operations;฀and฀as฀a฀฀฀
result฀of฀this฀prepayment฀of฀debt,฀at฀December฀31,฀2005,฀FCX฀
had฀a฀$135.4฀million฀loan฀outstanding฀to฀Puncakjaya฀Power.฀฀
At฀December฀31,฀2005,฀PT฀Freeport฀Indonesia฀had฀
infrastructure฀asset฀financing฀obligations฀to฀Puncakjaya฀Power฀
totaling฀$218.1฀million฀and฀Puncakjaya฀Power฀had฀a฀receivable฀
from฀PT฀Freeport฀Indonesia฀for฀$280.0฀million,฀including฀฀฀฀฀฀฀
Rio฀Tinto’s฀share.฀FCX฀consolidates฀PT฀Freeport฀Indonesia฀
and฀Puncakjaya฀Power฀and฀FCX’s฀consolidated฀balance฀฀฀฀฀฀฀
sheet฀only฀reflects฀a฀$61.9฀million฀receivable฀($8.8฀million฀in฀
other฀accounts฀receivable฀and฀$53.1฀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฀spin-off฀of฀FCX฀as฀an฀
independent฀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฀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฀reference฀to฀its฀proven฀and฀probable฀reserves฀as฀of฀
December฀31,฀1994,฀and฀60฀percent฀of฀all฀remaining฀cash฀flow.
Notes to Consolidated Financial Statements