Connecting the World 2010 ANNUAL REPORT
FREEPORT-McMoRan COPPER & GOLD INC.
Freeport-McMoRan Copper & Gold Inc. (FCX) is a leading international mining company with headquarters in Phoenix, Arizona. FCX operates large, long-lived, geographically diverse assets with significant proven and probable reserves of copper, gold and molybdenum. FCX has a dynamic portfolio of operating, expansion and growth projects in the copper industry and is the world’s largest producer of molybdenum.
FCX’s portfolio of assets includes the Grasberg minerals district, the world’s largest copper and gold mine in terms of recoverable reserves; significant mining operations in the Americas, including the large-scale Morenci and Safford minerals districts in North America and the Cerro Verde and El Abra operations in South America; and the Tenke Fungurume minerals district in the Democratic Republic of Congo. Additional information about FCX is available on FCX’s website at www.fcx.com.
Summary Financial Highlights
Years Ended December 31, 2010 2009 2008 2007 2006
(In Millions, Except Per Share Amounts) Revenues $ 18,982 $ 15,040 $ 17,796 $ 16,939 $ 5,791 Operating income (loss) 9,068 6,503 (12,710) + 6,555 2,869 Operating cash flows 6,273 4,397 3,370 6,225 1,866 Capital expenditures 1,412 1,587 2,708 1,755 251 Net income (loss) attributable to FCX common stockholders 4,273 2,527 (11,341)+ 2,769 1,396 Diluted net income (loss) per common share* 4.57 2.93 (14.86)+ 3.75 3.32 Dividends paid per common share* 0.95 — 0.91 0.63 2.38
At December 31: Cash and cash equivalents 3,738 2,656 872 1,626 907 Total assets 29,386 25,996 23,353 40,661 5,390 Total debt, including current portion 4,755 6,346 7,351 7,211 680 Total FCX stockholders’ equity 12,504 9,119 5,773 18,234 2,445
+ Includes charges totaling $17.7 billion ($13.2 billion to net loss attributable to FCX common stockholders or $17.23 per share) associated with asset impairment, lower of cost or market inventory adjustments, restructuring and other charges. * Adjusted to reflect the February 1, 2011, two-for-one stock split.
Revenue Net Income Operating Cash Flow Year End Cash Balance $ in billions $ in billions $ in billions $ in billions 20.0 5.0 8.0 4.0
4.0 15.0 6.0 3.0
3.0 10.0 4.0 2.0 2.0 5.0 2.0 1.0 1.0
2009 2010 2009 2010 2009 2010 2009 2010 Freeport-McMoRan Copper & Gold plays a significant role in “Connecting the World” by producing metals that are vital to the world’s economies. We are a global leader in the production of copper, gold and molybdenum and have a long and successful history of conducting our business in a safe, highly efficient and socially responsible manner for the benefit of our stakeholders.
Table of Contents
2 Major Mine Operations and Development Projects
3 Letter to Our Shareholders
6 Operational Overview
16 Reserves and Mineralized Material
17 Sustainable Development
18 Board of Directors and Management
19 Financial and Operating Information
110 Stockholder Information
111 Stockholder Information Morenci, Arizona Sierrita, Arizona Bagdad, Arizona Safford, Arizona Miami, Arizona
Henderson, Colorado Climax, Colorado
Tyrone, New Mexico Chino, New Mexico
Cerro Verde, Peru
El Abra, Chile
Candelaria, Chile Ojos del Salado, Chile
Copper (Cu)
Gold (Au)
Molybdenum (Mo)
Cobalt (Co)
Major Mine Operations and Development Projects
North America South America Indonesia Africa Consolidated Totals
Reserves Cu 42.2 billion lbs Cu 37.5 billion lbs Cu 32.7 billion lbs Cu 8.1 billion lbs Cu 120.5 billion lbs at 12/31/10 Au 0.4 million ozs Au 1.4 million ozs Au 33.7 million ozs Co 0.8 billion lbs Au 35.5 million ozs Mo 2.8 billion lbs Mo 0.6 billion lbs Mo 3.4 billion lbs Co 0.8 billion lbs
2010 Sales Cu 1.1 billion lbs Cu 1.3 billion lbs Cu 1.2 billion lbs Cu 0.3 billion lbs Cu 3.9 billion lbs Mo 66.5 million lbs+ Au 0.1 million ozs Au 1.8 million ozs Co 20.0 million lbs Au 1.9 million ozs Mo 66.5 million lbs+ Co 20.0 million lbs
+ Includes sales of molybdenum produced at FCX’s North and South America copper mines. 3 FREEPORT-McMoRan COPPER & GOLD INC. & GOLD COPPER FREEPORT-McMoRan
2010 Annual Report
To Our Shareholders
The theme of this annual report, “Connecting the World,” highlights Freeport-McMoRan Copper & Gold’s significant role in producing metals that are vital to the world’s economies. In particular, copper, which generated 78 percent of our 2010 revenues, is critical in connecting the world through a broad range of applications, including infrastructure development, Tenke Fungurume, power systems, transportation, industrial applications Democratic Republic of Congo and a variety of energy-saving devices. We are a global leader in the production of copper, gold and molybdenum and have a long and successful history of Grasberg, Indonesia conducting our business in a safe, highly efficient and socially responsible manner for the benefit of our stakeholders.
2010 was an outstanding year for our company. After successfully managing through one of the most severe economic downturns in history, we achieved in 2010 the best financial results in our company’s history. Our global team performed at an exceptional level and achieved a number of safety and operational records. We were also successful in achieving a significant increase in our mineral reserves, which provide building blocks of future growth. Our copper business benefited from strong demand from China and emerging markets, recovering economic conditions in the United States, Europe and Japan — and limited supplies. 4 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report early shareholders. We repaid projects andprovideincreasedcashreturnsto development attractive our advance position, liquidity our us tofurtherstrengthenourfinancialposition,enhance which tookeffectonFebruary split, stock two-for-one a authorize to Board our enabled business our for outlook and performance price share per share(pre-split)inDecember $3.59 averaged copper for price realized Our prices. commodity higher and inventories exchange declining conditions, These marketdynamicsresultedintightphysical Our outstandingfinancialresultsduring conditions warrant. market as shareholders to returns cash attractive providing of tradition longstanding our continue to expect We also opportunities. development large-scale pursue and business our in volatility inherent manage effectively to us enable will which position, liquidity and sheet balance strong a maintain to continue also will We profits. and flows cash increased generate and efficiencies, around theworldtogrowourproductionprofile,improve sites operating our of several at expansions mine in investments large pursuing Weactively are projects. development attractive economically in invest to is cash using for priority first Our shareholders. for value build to designed strategy financial focused highly a We have us togeneratesolidfinancialresultsaswegoforward. enable should products our for markets robust the and largest molybdenumproducer. Ourlarge-scaleoperations world’s the as position our maintain to efforts advancing are we business, molybdenum our In conditions. favorable these from benefit to positioned well are we projects, development attractive and reserves long-lived with copper of producer leading a As supplies. constrained be favorableduring Most marketexpertsexpectcopperpricestocontinue stock dividendover common quarterly our increased Directors of Board our paid asupplementalcommonstockdividendof high of 2009. Thecopperpriceendedtheyearatanall-time 2011 perpoundin $4.42 . per pound and reached new highs in in highs new reached and pound per 200 2011 2010 percentduringtheyear. We also $1.6 , driven by rising demand and and demand rising by driven , , 38 billionindebt percent higher than in in than higher percent 1 , 2011 2010 . , and our positive positive our and , 2010 allowed allowed 2010 $1.00
, and
March Respectfully yours, the World” forthe promising future.Together wewillcontinue“Connecting and success past our shaped have counsel and wisdom whose Directors, of Board our to gratitude our express to want We also success. continued for us positioned have team global our by contributions positive The In for theirhardworkandaccomplishmentsduring organization entire our to appreciation our Weexpress responsibility programs. social corporate our of driver primary a and These commitmentsarecentraltoourcorevalues responsibility. social and management cost aggressive for metalswhilecontinuingtoemphasizesafety, future growthinresponsetotheglobalmarketdemand Chairman oftheBoard James R.Moffett 2011 15 , wewillfocusonexecutingourplansfor , 2011 21 st century. Chief ExecutiveOfficer President and Richard C.Adkerson
2010
.
5 FREEPORT-McMoRan COPPER & GOLD INC. & GOLD COPPER FREEPORT-McMoRan
We are actively pursuing large investments in mine expansions at several of our
operating sites around 2010 Annual Report the world to grow our production profile, improve efficiencies, and generate increased cash flows and profits. The Morenci mine in Arizona (photo) is our largest-producing copper mine in North America. We are increasing production in 2011 and evaluating further expansion opportunities. We have also announced production increases at other North America mines.
Announced Increases in Copper Production approximately 500 million lbs
86% North America 8% Africa
6% South America
primarily , compared per pound. per pound. 2010 2010 $2.60 million ounces at an 2.6 per pound in $3.59 sales of 0.05 1.66 0.14 1.10 (0.75) 2011e $ $ 2009 million ounces at an average realized price of million ounces at an average realized price 1.9 primarily resulted from lower ore grades at the
0.15 0.05 0.79 1.40 (0.81) 2010
2010 $ $ , compared with billion pounds at an average realized price of billion pounds at an average realized price 2010 4.1
(1) sales of per ounce in 2009 billion pounds at an average realized price of billion pounds at an average realized price Royalties Treatment Charges Treatment By-product Credits Site Production & Delivery Quarterly unit costs will vary significantly with quarterly metal sales volumes. Unit net cash costs for 2011 would change by approximately $0.02/lb for each $50/oz change in gold and for each $2/lb change in molybdenum. Unit net cash costs for 2011 would change by approximately $0.02/lb for each $50/oz change in gold Estimates assume average prices of $4.25/lb for copper, $1,350/oz for gold, $15/lb for molybdenum and $14/lb for cobalt for 2011. $1,350/oz for gold, $15/lb Estimates assume average prices of $4.25/lb for copper, Operational Overview with Lower copper sales volumes in Consolidated Unit Production Costs per lb of copper $1,271 Consolidated Results consolidated copper sales totaled (FCX) Freeport-McMoRan Copper & Gold Inc.’s 3.9 Grasberg open-pit mine in Indonesia and lower volumes from the North America copper copper America North the from volumes lower and Indonesia in mine open-pit Grasberg Fungurume mine in Africa. from the Tenke mines, partly offset by additional volumes consolidated gold sales totaled FCX’s reflected lower ore grades at Grasberg from planned mine sequencing. average realized price of $993 per ounce. Lower gold sales volumes in Cash Unit Costs
(1) Unit Net Cash Costs Note: e=estimate.
produced at Morenci). copper cathode the world (pictured: the metal that wires company, we provide company, publicly traded copper publicly traded As the world’s largest As the world’s 6
7 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report
2011e billion pounds billion pounds 3.85 2010 20 60 80 40 Consolidated Molybdenum Sales in million lbs
sales of 58 million pounds sales of 58 million pounds 2009 million pounds at an average realized million pounds at an average realized 67 million pounds of molybdenum. Lower million pounds of molybdenum. Lower
2011e 7% Africa 70 35% North America 31% South America 27% Indonesia
Consolidated Copper Reserve Breakdown per pound. Higher molybdenum sales volumes per pound. Higher molybdenum sales volumes are estimated to approximate 2010 , compared with 2011 $12.36 Consolidated Gold Sales in million ozs 1.0 1.5 2.0 0.5 2010 per pound in million ounces of gold and
2011e 1.4 $16.47 2010 are a result of lower ore grades at Grasberg. Consolidated Consolidated Copper Sales in billion lbs 1.0 2.0 3.0 4.0 in 2010 reflected improved demand in the chemicals sector. in 2010 reflected improved demand in Consolidated sales volumes for price of FCX’s consolidated molybdenum sales totaled FCX’s 2011 of copper, of copper, copper sales from Indonesia as a result of mining in a lower grade section of the of mining in a lower grade section of the copper sales from Indonesia as a result by increases from North America, primarily Grasberg open pit are expected to be offset Lower estimated gold sales volumes for reflecting increased mining rates at Morenci. at an average realized price of
8
The Sierrita mine in Arizona (above) FCX is the world’s produces both copper largest producer and molybdenum. of molybdenum. It is one of our seven Molybdenum hardens open-pit copper steel and resists mines in North heat and corrosion. America. North America assets include the Henderson underground mine (large photo) and the Climax mine (below) in Colorado, where we plan to advance construction and conduct mine preparation activities during 2011.
We produce a number of specialty copper products (left) at our facilities in North America, offering a world of industrial applications vital to infrastructure, transportation, electronics and communications. 9 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report
, . The 2010
2011 . FCX expects . FCX expects billion pounds of billion pounds of
2009 1.2 (2)
billion pounds in Other Morenci Sierrita Bagdad 1.1 17% 34% 29% 20% North America Copper North America Copper Reserves by Mine 42.2 billion consolidated lbs million pounds in 58 . Consolidated molybdenum sales totaled million pounds. 70 2009 1.73 1.39 0.10 (0.44) 2011e $ $ million pounds FCXAdditionally, per is year. evaluating , compared to 125
0.09 2010 1.24 1.50 (0.35) 2010
$ $ billion pounds in 1.2 sales from North America copper mines to approximate sales from North America copper mines million pounds in
(1) further increases to Morenci’s mining rate and the potential of a new mill at Morenci. mining rate and further increases to Morenci’s at the Miami mine and has initiated FCX has also initiated limited mining activities a restart of mining and milling activities at the Chino mine. a restart of mining and milling activities mine are ongoing; FCX plans to Construction activities at the Climax molybdenum preparation activities during advance construction and conduct mine compared to copper, which reflects increased mining and milling rates at the Morenci mine, and milling rates at the Morenci mine, and which reflects increased mining and copper, molybdenum sales to approximate 67 2011 North America of copper and industry in North America in the production FCX leads the metals the United States seven open-pit copper mines in molybdenum. FCX operates (Morenci, Sierrita, Bagdad, Safford and Miami in Arizona, and Chino and Tyrone at the Henderson conducts molybdenum mining operations in New Mexico). FCX Sierrita and by FCX’s Colorado. Molybdenum is also produced underground mine in Bagdad mines. material currently Morenci mill to process available sulfide FCX has restarted the mining rate at the Morenci commenced a staged ramp-up of the being mined and has to enable copper production to mine. These activities at Morenci are expected increase by approximately timing for start-up of mining and milling activities is dependent on market conditions. the most attractive primary molybdenum FCX believes that this project is one of attractive large-scale production capacity, development projects in the world, with cash costs and future growth options. totaled Consolidated copper sales in North America Operational Overview Operational
+
Treatment Charges Treatment Site Production & Delivery By-product Credits
North America Unit Production Costs per lb of copper Cash Unit Costs
Unit Net Cash Costs
2011e 2011e Unit net cash costs for 2011 would change by approximately $0.05/lb for each $2/lb change in molybdenum. Estimates assume average prices of $4.25/lb for copper and $15/lb for molybdenum for 2011. Chino and Cobre. Includes copper reserves from Safford, Miami, Tyrone, (1) (2) Note: e=estimate.
2010 2010 at FCX’s North and at FCX’s South America copper mines. molybdenum produced Includes sales of
+ 60 80 40 20 Molybdenum Sales in million lbs North America Copper Sales in billion lbs 1.25 1.00 0.75 0.50 0.25
10 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report Note: e=estimate. (2) (1) Unit NetCashCosts
Cash UnitCosts per lbofcopper South AmericaUnitProductionCosts Productioncostsinclude profitsharing. Estimatesassume average pricesof$4.25/lbforcopper, $1,350/ozforgoldand$15/lb formolybdenum2011. Site Production&Delivery By-product Credits Treatment Charges (1)
(2)
0.3 0.6 1.2 0.9 1.5 in billionlbs Copper Sales South America average realizedpriceof America salestoapproximate sulfide depositatElAbratoextenditsminelifebyover large a of development the with associated activities construction completing is FCX molybdenum concentrates. Candelaria, OjosdelSaladoandElAbrainChile.CerroVerde alsoproduces FCX operatesfourcopperminesinSouthAmerica—CerroVerde inPeruand South America annual productionofapproximately throughput attheCerroVerde concentrator, whichisexpectedtoresultinincremental increase to project a completed FCX recoveries. higher achieve to and material sulfide in studiesforapotentiallarge-scalemillingoperationatElAbratoprocessadditional realized priceof South Americaconsolidatedcoppersalestotaled expand theexistingfacility’s capacity. Significant reserveadditionsinrecentyearshaveprovidedopportunitiestosignificantly Verde. Cerro at expansion concentrator large-scale a of evaluation its completing is Operational Overview $ $
2010 (0.21) 1.21 1.15 0.15
2010 2011e
$ $
2011e (0.24) 1.25 1.32 0.17 $3.68 perpoundin $2.70 consolidated lbs 37.5 billion Reserves byMine South AmericaCopper 1.3 perpoundin in billionlbs Copper Reserves America South 40.0 30.0 20.0 10.0 12% 15% 73% billionpoundsofcopperand Year End 30 2010 El Abra Ojos delSalado Candelaria and Cerro Verde 2007 millionpoundsofcopper. Inaddition,FCX
, comparedto
Year End 2010 2009
1.3 . For
billion pounds at an average 2011 1.4 10 years.FCXisalsoengaged billion pounds at an , FCX expects South 100,000 ouncesofgold.
11
The El Abra operations in Chile are now processing ore from a large sulfide deposit that will extend the mine life by more than 10 years. In January 2011, the El Recent optimization of Abra mine achieved the current Cerro the first conveyance Verde concentrator in of ore from the sulfide Peru (above) is deposit (below). expected to result in incremental output from the mine. Reserve additions at the Cerro Verde mine (large photo) are providing opportunities for a new, large- scale concentrator expansion.
As the world grows more connected, copper provides the power to communicate. Candelaria and Ojos del Salado provide free Wi- Fi to the town square of Copiapó, Chile (left).
12
Copper concentrates from our Grasberg operations are sold to smelters and refiners around the world. Below is a port site photo of refined copper at FCX’s wholly owned smelting unit, Atlantic Copper, in Huelva, Spain.
The Grasberg minerals district in Papua, Indonesia, contains the world’s largest reserve of both copper and gold. As mining continues in the Grasberg open pit (above), PT Freeport Indonesia is pursuing several major capital projects to continue development of the nearby large-scale, high-grade underground ore bodies (large photo).
Copper is essential to the development of infrastructure. China and other emerging markets are driving demand for copper and other metals (pictured: Shanghai, China). FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 13 , 2011 2011e , million billion
1.8 1.2 2009 2010
primarily reflected
Indonesia Gold Sales in million ozs 1.0 1.5 2.0 0.5
2010 Underground Open Pit per pound and per ounce. For million ounces of gold in 89% 11% 1.3 $3.69 Indonesia Copper Indonesia Copper 32.7 billion consolidated lbs Reserves by Mine $1,271
2011e
2010 0.17 0.16 2.08 0.60 (1.81) 2011e $ $ Indonesia Copper Sales in billion lbs 0.75 1.25 1.00 0.50 0.25 billion pounds of copper at an average realized price of billion pounds of copper at an average 1.4 million ounces of gold at an average realized price of million ounces of gold at an average realized 0.22 0.13 1.53 2.5 (0.04) (1.92) 2010
$ $ billion pounds of copper and 1.0 , consolidated sales from FCX’s Indonesia operations totaled Indonesia operations , consolidated sales from FCX’s per pound and per ounce. Lower copper and gold sales volumes in per ounce. Lower copper and gold sales . These projects include continued development of the Common Infrastructure continued development of the Common . These projects include 2010
(1) consolidated sales totaled as production transitions to a lower grade section of the Grasberg open pit. as production transitions to a lower grade mining in a lower grade section of the Grasberg open pit. FCX expects Indonesia sales mining in a lower grade section of the Grasberg to approximate ounces of gold at an average realized price of ounces of gold at an average realized price project, the Grasberg Block Cave, the Big Gossan underground mine and the Deep Mill Block Cave, the Big Gossan underground project, the Grasberg from the efficiencies of will continue to benefit mine. We Level Zone underground mines reach full rates. large-scale operations once the underground For pounds of copper at an average realized price of pounds of copper at an average realized $2.65 $994 Indonesia through its single reserve of both copper and gold largest FCX mines the world’s district in Papua, Indonesia. Indonesia, in the Grasberg minerals PT Freeport subsidiary, the Grasberg minerals is pursuing several capital projects in PT Freeport Indonesia underground ore bodies of the large-scale, high-grade district, including development scheduled to be depleted in nearby the Grasberg open pit, which is located beneath and 2016 Operational Overview Operational Royalties Treatment Charges Treatment By-product Credits Site Production & Delivery Cash Unit Costs
Unit Net Cash (Credits) Costs Indonesia Unit Production Costs per lb of copper quarterly metal sales volumes. Unit net cash costs for 2011 would change by approximately $0.065/lb for each $50/oz change in gold. Estimates assume average prices of $4.25/lb for copper and $1,350/oz for gold for 2011. Quarterly unit costs will vary significantly with Estimates assume average prices of $4.25/lb for copper and $1,350/oz for gold for 2011. Quarterly unit (1)
Note: e=estimate.
14
Operational Overview 2010 Annual Report Annual 2010
Africa FCX operates the Tenke Fungurume copper and cobalt mine in the Katanga province of the Democratic Republic of Congo (DRC). FCX is engaged in drilling activities, exploration analyses and metallurgical testing to evaluate the potential of the highly prospective minerals district at Tenke Fungurume. These analyses are being incorporated in future plans to evaluate opportunities for expansion. FCX is planning a second phase of the project, which would include optimizing the current plant and increasing capacity. Future expansions are subject to
FREEPORT-McMoRan COPPER & GOLD INC. a number of factors, including economic and market conditions and the business and investment climate in the DRC.
Consolidated sales from Tenke Fungurume increased to 262 million pounds of copper in 2010, compared with 130 million pounds of copper in 2009, reflecting higher operating rates and a full year of production in 2010. Consolidated cobalt sales totaled 20 million pounds in 2010. FCX expects Tenke Fungurume sales of approximately 285 million pounds of copper and over 20 million pounds of cobalt in 2011.
In October 2010, the government of the DRC announced the conclusion of the review of Tenke Fungurume Mining’s (TFM) contracts, and confirmed that TFM’s existing mining contracts are in good standing and acknowledged the rights and benefits granted under those contracts. In connection with the review, TFM made several commitments that have been reflected in amendments to its mining contracts.
Africa Africa Copper Sales Cobalt Sales in billion lbs in million lbs
0.30 20 0.25 15 0.20 0.15 10 0.10 5 0.05
2010 2011e 2010 2011e
Africa Unit Production Costs Africa Copper per lb of copper Reserves 2010 2011e 8.1 billion consolidated lbs Cash Unit Costs (1) Site Production & Delivery $ 1.40 $ 1.41 By-product Credits (0.58) (0.65) Royalties 0.08 0.09 Unit Net Cash Costs $ 0.90 $ 0.85
(1) Estimates assume average prices of $4.25/lb for copper and $14/lb for cobalt for 2011. Quarterly unit costs will vary significantly with quarterly metal sales volumes. Unit net cash costs for 2011 would change by approximately $0.09/lb for each $2/lb change in cobalt. Note: e=estimate.
15
FCX is pursuing many opportunities in the highly prospective Tenke Fungurume minerals district (above) in the Democratic Republic of Congo, in the heart of the African Copper Belt.
Our milling (above) and processing (large photo) facilities at Tenke Fungurume performed above design capacity in 2010.
Copper is core to a variety of energy-saving devices, including hybrid and electric vehicles (left), which require two to three times more copper than the average gas-engine automobile.
16
We were successful in achieving a significant increase in our mineral reserves, and exploration will continue to drive our future plans. As we seek new metals deposits around the world, we are primarily focused on the proven rich areas near our existing operations. (pictured: exploration drilling near the Morenci mine in Arizona).
Reserves and Mineralized Material
As of December 31, 2010, FCX’s estimate of consolidated recoverable proven and probable reserves totaled 120.5 billion pounds of copper, 35.5 million ounces of gold and 3.39 billion pounds of molybdenum. Net reserve additions of 20.2 billion pounds of copper and 0.87 billion pounds of molybdenum replaced approximately 5 times FCX’s 2010 copper production and approximately 12 times FCX’s 2010 molybdenum production. Estimated recoverable reserves were determined using long-term average prices of $2.00 per pound for copper, $750 per ounce for gold and $10.00 per pound for molybdenum.
At December 31, 2010, in addition to the estimated proven and probable reserves, FCX identified estimated mineralized material (assessed using a long-term average price of $2.20 per pound for copper) with incremental contained copper of 110 billion pounds. FCX continues to pursue aggressively opportunities to convert this mineralized material into reserves, future production volumes and cash flow.
Value Creation Focus Investment in Attractive Mineral Reserve Development Production Cash Flows/ Resources Additions Projects Growth Returns
17 FREEPORT-McMoRan COPPER & GOLD INC. & GOLD COPPER FREEPORT-McMoRan
2010 Community 2010 Annual Report Investment $189 million
54% Community Trust Funds 16% Education and Training 10% Safety, Health and Environment 8% Economic Development & Infrastructure 8% Administration 4% Resettlement and Other
Sustainable Development
FCX directly contributes to a sustainable future by providing metals that literally connect the world’s infrastructure. As a leading international mining company, FCX understands the importance of producing these metals in a safe and socially responsible manner. As the earth’s population continues to grow along with the global standard of living, FCX expects the demand for its metals to similarly increase. This will challenge our ability to reduce or mitigate certain impacts, such as greenhouse gas emissions and water consumption, as production expands. FCX evaluates opportunities to minimize environmental impacts and to be a catalyst for sustainability in communities where it operates. Guiding FCX in meeting this challenge is the International Council on Mining and Metals (ICMM). As a founding member, FCX endorses the ICMM’s Sustainable Development Framework, including its 10 Sustainable Development Principles. In addition, FCX has established and reports against its progress on company-wide sustainable development performance targets that address issues identified by internal and external stakeholders. FCX reports its sustainability performance according to the Global Reporting Initiative and FCX’s 2010 Working Toward Sustainable Development report will be available on FCX’s website at www.fcx.com upon completion of third-party assurance. 18 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report BOARD COMMITTEES: COMMITTEES: BOARD Chief FinancialOfficerand Treasurer Executive Vice President, Kathleen L.Quirk Chief AdministrativeOfficer Executive Vice Presidentand Michael J.Arnold President andChiefExecutiveOfficer Richard C.Adkerson Chairman oftheBoard James R.Moffett MANAGEMENT 4 3 2 1 Board ofDirectorsandManagement H. DevonGraham,Jr. Diamond-A FordCorp. Chairman oftheBoard R.E. SmithInterests President Robert A.Day Anadarko PetroleumCorporation Director andChairmanEmeritus Gerald J.Ford Trust CompanyoftheWest Chief ExecutiveOfficer Chairman oftheBoardand Robert J.Allison,Jr Freeport-McMoRan Copper&GoldInc. President andChiefExecutiveOfficer Richard C.Adkerson Freeport-McMoRan Copper&GoldInc. Chairman oftheBoard James R.Moffett BOARD OFDIRECTORS ) ) Corporate Personnel Committee Personnel ) Corporate ) ) Nominating and Corporate Governance Committee Governance ) Nominating Corporate and Audit Committee Audit Committee Public Policy Committee (1,3) (1, 3)
. (2, 3,4) (1,2)
Vice President –FCX(CathodeandRod) Company Inc. President –Freeport-McMoRanSales Stephen T. Higgins Senior Vice President–FCX(Concentrates) President –AtlanticCopper, S.A. Javier Targhetta MARKETING President –ClimaxMolybdenumCo. David H.Thornton President –Freeport-McMoRanAfrica Phillip S.Brumit Company President –Freeport-McMoRanMining Richard E.Coleman President Director–PTFreeportIndonesia Armando Mahler President –Freeport-McMoRanIndonesia Mark J.Johnson President –Freeport-McMoRanAmericas Harry M.“Red”Conger OPERATIONS Bobby LeeLackey Chief AdministrationOfficer, MBNACorp. Retired ExecutiveVice Chairmanand United StatesMarineCorps Former Commandant Kissinger Associates,Inc. Chairman Dr. HenryA.Kissinger Director Emeritus Private Investor General CharlesC.Krulak Jon C.Madonna Consultant Stephen H.Siegele Private Investor Freeport-McMoRan Copper&GoldInc. Vice ChairmanoftheBoard B. M.Rankin,Jr Brunswick Corporation Chairman andChiefExecutiveOfficer Dustan E.McCoy Chief ExecutiveOfficer, KPMGLLP Retired Chairmanand . (1) (4) (4)
(2, 4)
(1,4)
(2,4)
Deloitte &Touche LLP Internal Auditors Controller –FinancialReporting Vice Presidentand C. DonaldWhitmire,Jr Federal GovernmentAffairs International Relationsand Senior Vice President– W. RussellKing General Counsel Senior Vice Presidentand L. RichardsMcMillan,I FINANCE ANDADMINISTRATION M.D. AndersonCancerCenter The UniversityofTexas Retired Professor, GynecologicOncology President forPatientAffairs Retired SpecialAssistanttothe Dr. J.Taylor Wharton to Indonesia Former UnitedStatesAmbassador the UnitedStates Kissinger InstituteonChinaand Director J. StapletonRoy Freeport-McMoRan Copper&GoldInc. Special CounselonHumanRightsto Judge, Iran-UnitedStatesClaimsTribunal Gabrielle K.McDonald Former UnitedStatesSenator Johnston DevelopmentCo.LLC Johnston &Associates,LLCand Chairman J. BennettJohnston ADVISORY DIRECTORS . 19
FINANCIAL AND OPERATING INFORMATION
TABLE OF CONTENTS
20 Selected Financial and Operating Data
23 Management’s Discussion and Analysis
63 Report of Independent Registered Public Accounting Firm
64 Management’s Report on Internal Control Over Financial Reporting
65 Report of Independent Registered Public Accounting Firm
66 Consolidated Statements of Operations
67 Consolidated Statements of Cash Flows
68 Consolidated Balance Sheets
69 Consolidated Statements of Equity
70 Notes to Consolidated Financial Statements Selected Financial and operating Data
Years Ended December 31, 2010 2009 2008 2007a 2006 (In Millions, Except Per Share Amounts)
FCX CONSOLIDATED FINANCIAL DATA Revenues $18,982 $ 15,040 $ 17,796 $ 16,939b $ 5,791 Operating income (loss) 9,068 6,503c,e (12,710)d,e,f 6,555b,f 2,869 Income (loss) from continuing operations 5,544 3,534 (10,450) 3,733 1,625 Net income (loss) 5,544 3,534 (10,450) 3,779 1,625 Net income attributable to noncontrolling interests 1,208 785 617 802 168 Net income (loss) attributable to FCX common stockholders 4,273g 2,527c,e,g (11,341)d,e,f,g 2,769b,f,g 1,396g Basic net income (loss) per share attributable to FCX common stockholders: Continuing operationsh $ 4.67 $ 3.05 $ (14.86) $ 4.01 $ 3.66 Discontinued operationsh — — — 0.05 — Basic net income (loss)h $ 4.67 $ 3.05 $ (14.86) $ 4.06 $ 3.66
Basic weighted-average common shares outstandingh 915 829 763 682 381 Diluted net income (loss) per share attributable to FCX common stockholders: Continuing operationsh $ 4.57 $ 2.93 $ (14.86) $ 3.70 $ 3.32 Discontinued operationsh — — — 0.05 — Diluted net income (loss)h $ 4.57g $ 2.93c,e,g $ (14.86)d,e,f,g $ 3.75b,f,g $ 3.32g
Diluted weighted-average common shares outstandingh 949 938 763 794 443 Dividends declared per share of common stockh $ 1.125 $ 0.075 $ 0.6875 $ 0.6875 $ 2.53125 At December 31: Cash and cash equivalents $ 3,738 $ 2,656 $ 872 $ 1,626 $ 907 Property, plant, equipment and development costs, net 16,785 16,195 16,002 25,715 3,099 Goodwill — — — 6,105 — Total assets 29,386 25,996 23,353 40,661 5,390 Total debt, including current portion 4,755 6,346 7,351 7,211 680 Total FCX stockholders’ equity 12,504 9,119 5,773 18,234 2,445
The selected consolidated financial data shown above is derived from our audited consolidated financial statements. These historical results are not necessarily indicative of results that you can expect for any future period. You should read this data in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and our full consolidated financial statements and notes thereto contained in this annual report.
a. Includes the results of Phelps Dodge Corporation (Phelps Dodge) beginning March 20, 2007. b. Includes charges totaling $175 million ($106 million to net income attributable to FCX common stockholders or $0.13 per share) for mark-to-market accounting adjustments on the 2007 copper price protection program assumed in the acquisition of Phelps Dodge. c. Includes charges totaling $77 million ($61 million to net income attributable to FCX common stockholders or $0.07 per share) associated with a loss contingency and restructuring charges. d. Includes charges totaling $17.0 billion ($12.7 billion to net loss attributable to FCX common stockholders or $16.60 per share) associated with impairment and restructuring charges. e. Includes charges for lower of cost or market inventory adjustments totaling $19 million ($15 million to net income attributable to FCX common stockholders or $0.02 per share) in 2009 and $782 million ($479 million to net loss attributable to FCX common stockholders or $0.63 per share) in 2008. f. Includes purchase accounting impacts related to the acquisition of Phelps Dodge totaling $1.0 billion ($622 million to net loss attributable to FCX common stockholders or $0.82 per share) in 2008 and $1.3 billion ($793 million to net income attributable to FCX common stockholders or $1.00 per share) in 2007. g. Includes net losses on early extinguishment and conversion of debt totaling $71 million ($0.07 per share) in 2010, $43 million ($0.04 per share) in 2009, $5 million ($0.01 per share) in 2008, $132 million ($0.17 per share) in 2007 and $30 million ($0.07 per share) in 2006; 2008 also includes charges totaling $22 million ($0.03 per share) associated with privately negotiated transactions to induce conversion of a portion of our 5½% Convertible Perpetual Preferred Stock into FCX common stock. h. Amounts have been adjusted to reflect the February 1, 2011, two-for-one stock split. 2010 Annual Report Annual 2010 FREEPORT-McMoRan COPPER & GOLD INC.
20 Selected Financial and operating Data
For comparative purposes, operating data shown below for the years ended December 31, 2007 and 2006 combines our historical data with Phelps Dodge pre-acquisition data. As the pre-acquisition operating data represent the results of these operations under Phelps Dodge management, such combined data is not necessarily indicative of what past results would have been under FCX management or of future operating results.
Years Ended December 31, 2010 2009 2008 2007a 2006a
FCX CONSOLIDATED MINING OPERATING DATA Copper (recoverable) Production (millions of pounds) 3,908 4,103 4,030 3,884 3,639 Production (thousands of metric tons) 1,773 1,861 1,828 1,762 1,651 Sales, excluding purchases (millions of pounds) 3,896 4,111 4,066 3,862 3,630 Sales, excluding purchases (thousands of metric tons) 1,767 1,865 1,844 1,752 1,647 Average realized price per pound $ 3.59 $ 2.60 $ 2.69 $ 3.22b $ 2.80b Gold (thousands of recoverable ounces) Production 1,886 2,664 1,291 2,329 1,863 Sales, excluding purchases 1,863 2,639 1,314 2,320 1,866 Average realized price per ounce $ 1,271 $ 993 $ 861 $ 682 $ 566c Molybdenum (millions of recoverable pounds) Production 72 54 73 70 68 Sales, excluding purchases 67 58 71 69 69 Average realized price per pound $ 16.47 $ 12.36 $ 30.55 $ 25.87 $ 21.87 NORTH AMERICA COPPER MINES Operating Data, Net of Joint Venture Interest Copper (recoverable) Production (millions of pounds) 1,067 1,147 1,430 1,320 1,305 Production (thousands of metric tons) 484 520 649 599 592 Sales, excluding purchases (millions of pounds) 1,085 1,187 1,434 1,332 1,303 Sales, excluding purchases (thousands of metric tons) 492 538 650 604 591 Average realized price per pound $ 3.42 $ 2.38 $ 3.07 $ 3.10d $ 2.29d Molybdenum (millions of recoverable pounds) Production 25 25 30 30 31 100% Operating Data Solution extraction/electrowinning (SX/EW) operations Leach ore placed in stockpiles (metric tons per day) 648,800 589,400 1,095,200 798,200 801,200 Average copper ore grade (percent) 0.24 0.29 0.22 0.23 0.30 Copper production (millions of recoverable pounds) 746 859 943 940 1,013 Mill operations Ore milled (metric tons per day) 189,200 169,900 249,600 223,800 199,300 Average ore grade (percent): Copper 0.32 0.33 0.40 0.35 0.33 Molybdenum 0.03 0.02 0.02 0.02 0.02 Copper recovery rate (percent) 83.0 86.0 82.9 84.5 85.0 Production (millions of recoverable pounds): INC. & GOLD COPPER FREEPORT-McMoRan Copper 398 364 599 501 414 Molybdenum 25 25 30 30 31 SOUTH AMERICA MINING Copper (recoverable) Production (millions of pounds) 1,354 1,390 1,506 1,413 1,133 Production (thousands of metric tons) 614 631 683 641 514 Sales (millions of pounds) 1,335 1,394 1,521 1,399 1,126 Sales (thousands of metric tons) 606 632 690 635 511 Average realized price per pound $ 3.68 $ 2.70 $ 2.57 $ 3.25 $ 3.03 Gold (thousands of recoverable ounces) Production 93 92 114 116 112 Sales 93 90 116 114 111
Average realized price per ounce $ 1,263 $ 982 $ 853 $ 683 $ 552 2010 Annual Report Molybdenum (millions of recoverable pounds) Production 7 2 3 1 — SX/EW operations Leach ore placed in stockpiles (metric tons per day) 268,800 258,200 279,700 289,100 257,400 Average copper ore grade (percent) 0.41 0.45 0.45 0.43 0.45 Copper production (millions of recoverable pounds) 504 565 560 569 695
21 Selected Financial and operating Data
Years Ended December 31, 2010 2009 2008 2007a 2006a
SOUTH AMERICA MINING (continued) Mill operations Ore milled (metric tons per day) 188,800 181,300 181,400 167,900 68,500 Average ore grade (percent): Copper 0.65 0.66 0.75 0.74 0.87 Molybdenum 0.02 0.02 0.02 0.02 — Copper recovery rate (percent) 90.0 88.9 89.2 87.1 93.8 Production (recoverable): Copper (millions of pounds) 850 825 946 844 438 Gold (thousands of ounces) 93 92 114 116 112 Molybdenum (millions of pounds) 7 2 3 1 — INDONESIA MINING Operating Data, Net of Joint Venture Interest Copper (recoverable) Production (millions of pounds) 1,222 1,412 1,094 1,151 1,201 Production (thousands of metric tons) 554 640 496 522 545 Sales (millions of pounds) 1,214 1,400 1,111 1,131 1,201 Sales (thousands of metric tons) 551 635 504 513 545 Average realized price per pound $ 3.69 $ 2.65 $ 2.36 $ 3.32 $ 3.13 Gold (thousands of recoverable ounces) Production 1,786 2,568 1,163 2,198 1,732 Sales 1,765 2,543 1,182 2,185 1,736 Average realized price per ounce $ 1,271 $ 994 $ 861 $ 681 $ 567c 100% Operating Data Ore milled (metric tons per day) 230,200 238,300 192,900 212,600 229,400 Average ore grade: Copper (percent) 0.85 0.98 0.83 0.82 0.85 Gold (grams per metric ton) 0.90 1.30 0.66 1.24 0.85 Recovery rates (percent): Copper 88.9 90.6 90.1 90.5 86.1 Gold 81.7 83.7 79.9 86.2 80.9 Production (recoverable): Copper (millions of pounds) 1,330 1,641 1,109 1,211 1,300 Gold (thousands of ounces) 1,964 2,984 1,163 2,608 1,824 AFRICA MINING Copper (recoverable) Production (millions of pounds) 265 154e N/A N/A N/A Production (thousands of metric tons) 120 70e N/A N/A N/A Sales (millions of pounds) 262 130e N/A N/A N/A Sales (thousands of metric tons) 119 59e N/A N/A N/A Average realized price per pound $ 3.45 $ 2.85e N/A N/A N/A Cobalt (millions of recoverable pounds) Production 20 N/A N/A N/A N/A Sales 20 N/A N/A N/A N/A Average realized price per pound $ 10.95 N/A N/A N/A N/A Ore milled (metric tons per day) 10,300 7,300e N/A N/A N/A Average ore grade (percent): Copper 3.51 3.69e N/A N/A N/A Cobalt 0.40 N/A N/A N/A N/A Copper recovery rate (percent) 91.4 92.1e N/A N/A N/A MOLYBDENUM OPERATIONS Molybdenum sales, excluding purchases (millions of pounds)f 67 58 71 69 69 2010 Annual Report Annual 2010 Average realized price per pound $ 16.47 $ 12.36 $ 30.55 $ 25.87 $ 21.87 Henderson molybdenum mine Ore milled (metric tons per day) 22,900 14,900 24,100 24,000 22,200 Average molybdenum ore grade (percent) 0.25 0.25 0.23 0.23 0.23 Molybdenum production (millions of recoverable pounds) 40 27 40 39 37
a. For comparative purposes, operating data for the years ended December 31, 2007 and 2006 combines our historical data with Phelps Dodge pre-acquisition data. As the pre-acquisition data represents the results of these operations under Phelps Dodge management, such combined data is not necessarily indicative of what past results would have been under FCX management or of future operating results. b. Before charges for hedging losses related to copper price protection programs, amounts were $3.27 per pound for 2007 and $3.08 per pound for 2006. c. Amount was approximately $606 per ounce before a loss resulting from the redemption of FCX’s Gold-Denominated Preferred Stock, Series II. d. Before charges for hedging losses related to copper price protection programs, amounts were $3.25 per pound for 2007 and $3.06 per pound for 2006. e. Results for 2009 represent mining operations that began production in March 2009. f. Includes sales of molybdenum produced at our North and South America copper mines. FREEPORT-McMoRan COPPER & GOLD INC.
22 MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW molybdenum mine. Studies are under way to evaluate a large-scale In Management’s Discussion and Analysis of Financial Condition and concentrator expansion at Cerro Verde, a major mill project at Results of Operations, “we,” “us” and “our” refer to Freeport- El Abra, various mill projects to process significant sulfide ore in McMoRan Copper & Gold Inc. (FCX) and its consolidated subsidiaries. North America and staged expansion options at Tenke. The The results of operations reported and summarized below advancement of these studies is designed to position us to invest are not necessarily indicative of future operating results (refer to in production growth within our existing portfolio of assets. Refer to “Cautionary Statement” for further discussion). References to “Operations” for further discussion of our current operating and “Notes” are Notes included in our Notes to Consolidated development activities. Financial Statements. Throughout Management’s Discussion and Our results for the year 2010, compared with 2009, primarily Analysis of Financial Condition and Results of Operations, all reflected higher average realized metals prices, partially offset by references to earnings or losses per share are on a diluted basis, lower copper and gold sales volumes (refer to “Consolidated Results” unless otherwise noted, and have been retroactively adjusted to for further discussion of our consolidated financial results for the reflect the February 1, 2011, two-for-one stock split. years ended December 31, 2010, and 2009). At December 31, 2010, we had $3.7 billion in consolidated cash We are one of the world’s largest copper, gold and molybdenum and $4.8 billion in long-term debt. Since January 1, 2009, we mining companies in terms of reserves and production. Our portfolio repaid approximately $2.6 billion in debt (refer to “Capital Resources of assets includes the Grasberg minerals district in Indonesia, and Liquidity” for further discussion). At current copper prices significant mining operations in North and South America, and the we expect to produce substantial operating cash flows in 2011, and Tenke Fungurume (Tenke) minerals district in the Democratic plan to focus on using our cash to invest in our development Republic of Congo (DRC). The Grasberg minerals district contains the projects and return cash to shareholders through common stock largest single recoverable copper reserve and the largest single gold dividends and/or share repurchases. On February 24, 2011, we reserve of any mine in the world based on the latest available reserve announced our intent to redeem the remaining $1.1 billion of the data provided by third-party industry consultants. We also operate 8.25% Senior Notes due 2015 on April 1, 2011. We expect to Atlantic Copper, our wholly owned copper smelting and refining unit record a loss on early extinguishment of debt of approximately in Spain. $56 million (approximately $49 million to net income attributable We have significant reserves, resources and future development to FCX common stockholders) in second-quarter 2011 in opportunities within our portfolio of assets. Since the merger with connection with this redemption. We have no significant debt Phelps Dodge Corporation (Phelps Dodge) in 2007, we have added maturities in the near term; however, we may consider additional 42.9 billion pounds of proven and probable copper reserves, opportunities to prepay debt in advance of scheduled maturities. including 20.2 billion pounds during 2010, and 1.72 billion pounds In December 2010, our Board of Directors authorized a of proven and probable molybdenum reserves, including 0.87 billion $0.50 per share supplemental common stock dividend paid on pounds during 2010. At December 31, 2010, our estimated December 30, 2010, and a two-for-one common stock split consolidated recoverable proven and probable reserves totaled effected on February 1, 2011 (refer to Note 11 for further 120.5 billion pounds of copper, which were determined using a discussion). All references to shares of our common stock, per long-term average copper price of $2.00 per pound (refer to “Critical share amounts and dividends on common stock herein have been Accounting Estimates — Mineral Reserves” for further discussion). INC. & GOLD COPPER FREEPORT-McMoRan retroactively adjusted to reflect the two-for-one stock split. During 2010, 60 percent of our consolidated copper production In October 2010, the government of the DRC announced the was from our Grasberg, Morenci and Cerro Verde mines. We also conclusion of the review of Tenke Fungurume Mining S.A.R.L.’s produce gold, primarily at the Grasberg minerals district in Indonesia, (TFM) contracts, confirmed that TFM’s existing mining contracts which accounted for 95 percent of our consolidated gold production are in good standing and acknowledged the rights and benefits for 2010. For 2010, 56 percent of our consolidated molybdenum granted under those contracts. In connection with the review, TFM production was from the Henderson molybdenum mine, 34 percent made several commitments that have been reflected in amendments was produced at certain of our North America copper mines and to its mining contracts. In December 2010, the addenda to 10 percent was produced at our Cerro Verde mine in Peru. Refer to TFM’s Amended and Restated Mining Convention and Amended “Operations” for further discussion of our mining operations. and Restated Shareholders’ Agreement were signed by the parties We are increasing near-term production at several of our copper and are pending a Presidential Decree. TFM’s existing mining 2010 Annual Report mines and are undertaking major projects, including the development contracts will be in effect until the Presidential Decree is obtained. of the El Abra sulfide reserves and the underground ore bodies at After giving effect to the amendments and obtaining approval of the Grasberg. We are also advancing development activities at the Climax
23 MANAGEMENT’S DISCUSSION AND ANALYSIS
modification to TFM’s bylaws, our effective ownership interest we estimate our consolidated unit net cash costs (net of by-product in the project will be 56.0 percent, compared to our credits) for our copper mining operations would average previous ownership interest of 57.75 percent (refer to Note 14 approximately $1.10 per pound in 2011. The impact of price changes for further discussion). in 2011 on consolidated unit net cash costs would approximate $0.02 per pound for each $50 per ounce change in the average OUTLOOK price of gold and for each $2 per pound change in the average price We view the long-term outlook for our business positively, supported of molybdenum. Consolidated unit net cash costs in 2011 are by limitations on supplies of copper and by the requirements expected to be higher than consolidated unit net cash costs of for copper in the world’s economy, and will continue to adjust our $0.79 per pound of copper in 2010 primarily because of the impact operating strategy as market conditions change. of higher unit net cash costs at Grasberg associated with lower Our financial results can vary significantly as a result of copper and gold volumes and higher input costs. Refer to fluctuations in the market prices of copper and, to a lesser extent, “Consolidated Results — Production and Delivery Costs” for further gold and molybdenum. World market prices for these commodities discussion of consolidated production and delivery costs. have fluctuated historically and are affected by numerous Operating Cash Flows. Our operating cash flows vary with prices factors beyond our control. Because we cannot control the price of realized from copper, gold and molybdenum sales, our sales volumes, our products, the key measures that management focuses on in production costs, income taxes and other working capital changes operating our business are sales volumes, unit net cash costs and and other factors. Based on the above projected consolidated sales operating cash flow. Discussion of the outlook for each of these volumes and unit net cash costs for 2011, and assuming average measures follows. prices of $4.25 per pound of copper, $1,350 per ounce of gold and Sales Volumes. Following are our actual consolidated sales volumes $15 per pound of molybdenum in 2011, we estimate consolidated for 2010 and our projected consolidated sales volumes for 2011: operating cash flows will approximate $8 billion in 2011, net of an 2010 2011 estimated $100 million for working capital requirements. In addition (Actual) (Projected) to projected working capital requirements, our estimate of operating Copper (billions of recoverable pounds): cash flow for the year 2011 is also net of estimated taxes of North America copper mines 1.1 1.2 South America mining 1.3 1.3 $3.5 billion (refer to “Consolidated Results — (Provision for) Benefit Indonesia mining 1.2 1.0 from Income Taxes” for discussion of our projected annual Africa mining 0.3 0.3 consolidated effective tax rate for 2011). The impact of price changes 3.9 3.9a in 2011 on operating cash flows would approximate $150 million Gold (millions of recoverable ounces): Indonesia mining 1.8 1.3 for each $0.05 per pound change in the average price of copper, South America mining 0.1 0.1 $55 million for each $50 per ounce change in the average price 1.9 1.4 of gold and $80 million for each $2 per pound change in the average Molybdenum (millions of recoverable pounds)b 67 70 price of molybdenum.
a. Represents the sum of projected copper sales volumes before rounding. COPPER, GOLD AND MOLYBDENUM MARKETS b. Includes sales of molybdenum produced at our North and South America copper mines. World prices for copper, gold and molybdenum can fluctuate significantly. During the period from January 2001 through Consolidated sales volumes for 2011 are estimated to approximate February 11, 2011, the London Metal Exchange (LME) spot copper 3.85 billion pounds of copper, 1.4 million ounces of gold price varied from a low of $0.60 per pound in 2001 to a new record and 70 million pounds of molybdenum. Lower copper sales from high of $4.60 per pound in February 2011; the London gold price Indonesia as a result of mining in a lower grade section of the fluctuated from a low of $256 per ounce in 2001 to a new record Grasberg open pit are expected to be offset by increases from North
2010 Annual Report Annual 2010 high of $1,421 per ounce in November 2010; and the Metals Week America primarily reflecting increased mining rates at Morenci. Molybdenum Dealer Oxide weekly average price ranged from a low Lower estimated gold sales volumes for 2011 are a result of lower ore of $2.19 per pound in 2001 to a high of $39.25 per pound in 2005. grades at Grasberg. Our projected sales volumes for 2011 depend Copper, gold and molybdenum prices are affected by numerous on the achievement of targeted mining rates, the successful factors beyond our control as described further in our “Risk Factors” operation of production facilities, the impact of weather conditions contained in Part I, Item 1A of our Form 10-K for the year ended and other factors. December 31, 2010. Unit Net Cash Costs. Assuming average prices of $1,350 per ounce of gold and $15 per pound of molybdenum for 2011, and achievement of current 2011 sales volume and cost estimates, FREEPORT-McMoRan COPPER & GOLD INC.
24 MANAGEMENT’S DISCUSSION AND ANALYSIS
Historical LME Copper Prices London Gold Prices Through February 11, 2011 Through February 11, 2011
1,500 $5.00 $1,450
$4.50 $ 1, 3 5 0 $1,250 1,200 $4.00 $1,150 Dollars per pound Dollars per ounce $3.50 $1, 0 5 0 900 $3.00 $950 $850 $2.50 $750 600 $2.00 $650 000s of metric tons $1.50 $550 $450 300 $1.00 $350 $0.50 $250 2001 2003 2005 2007 2009 2011 2001 2003 2005 2007 2009 2 0 11
LME Copper Prices This graph presents London gold prices from January 2001 LME & COMEX Exchange Stocks* * Excludes Shanghai stocks, producer, consumer and merchant stocks. through February 11, 2011. Gold prices reached a new record high of $1,421 per ounce in November 2010, supported by investment This graph presents LME spot copper prices and reported stocks of demand and weakness in the U.S. dollar. During 2010, gold prices copper at the LME and the New York Mercantile Exchange (COMEX) ranged from $1,058 per ounce to $1,421 per ounce, averaged $1,225 from January 2001 through February 11, 2011. From 2006 through per ounce and closed at $1,410 per ounce on December 31, 2010. most of 2008, disruptions associated with strikes and other London gold prices closed at $1,364 per ounce on February 11, 2011. operational issues, combined with growing demand from China and Metals Week Molybdenum Dealer Oxide Prices other emerging economies, resulted in low levels of inventory. Beginning in late 2008, slowing consumption led to increases in Through February 11, 2011 inventory levels; however, China’s increased buying activity $40 contributed to a decline in exchange inventories during the first half $35 of 2009. After reaching a low in July 2009, inventories grew $30 during the second half of 2009. During 2010, inventories have Dollars per pound decreased and at December 31, 2010, combined LME and COMEX $25 stocks totaled approximately 436 thousand metric tons, which $20 represents approximately eight days of global consumption. $15 Turmoil in the United States (U.S.) financial markets and concerns $10 about the global economy negatively impacted copper prices in $5 late 2008, which declined to a four-year low of $1.26 per pound in 2001 2003 2005 2007 2009 2011 December 2008; however, copper prices have since improved significantly, attributable to a combination of strong demand from This graph presents the Metals Week Molybdenum Dealer Oxide
China, recovering demand in the western world and limitations of weekly average price from January 2001 through February 11, 2011. INC. & GOLD COPPER FREEPORT-McMoRan available supply. During 2010, LME spot copper prices ranged from In late 2008, molybdenum prices declined significantly as a result of $2.76 per pound to $4.42 per pound, averaged $3.42 per pound the financial market turmoil and a decline in demand; however, molybdenum prices have since increased, which we believe is supported and closed at $4.42 per pound on December 31, 2010. We believe by improved demand in the chemicals sector. During 2010, the the underlying fundamentals of the copper business remain positive, weekly average price of molybdenum ranged from $11.75 per supported by limited supplies from existing mines and the absence pound to $18.60 per pound, averaged $15.71 per pound and was of significant new development projects. Future copper prices are $16.40 per pound on December 31, 2010. The Metals Week expected to be volatile and are likely to be influenced by demand Molybdenum Dealer Oxide weekly average price was $17.58 per from China, economic activity in the U.S. and other industrialized pound on February 11, 2011. countries, the timing of the development of new supplies of copper and production levels of mines and copper smelters. The LME spot 2010 Annual Report copper price closed at $4.50 per pound on February 11, 2011.
25 MANAGEMENT’S DISCUSSION AND ANALYSIS
CRITICAL ACCOUNTING ESTIMATES The following table summarizes changes in our estimated Management’s Discussion and Analysis of Financial Condition and consolidated recoverable proven and probable copper, gold and Results of Operations is based on our consolidated financial molybdenum reserves during 2009 and 2010:
statements, which have been prepared in conformity with generally Copper Gold Molybdenum accepted accounting principles (GAAP) in the U.S. The preparation (billion (million (billion pounds) ounces) pounds) of these statements requires that we make estimates and Consolidated reserves at assumptions that affect the reported amounts of assets, liabilities, December 31, 2008 102.0 40.0 2.48 revenues and expenses. We base these estimates on historical Net additions/revisions 6.3 (0.1) 0.16 experience and on assumptions that we consider reasonable under Production (4.1) (2.7) (0.05) Consolidated reserves at the circumstances; however, reported results could differ from those December 31, 2009 104.2 37.2 2.59 based on the current estimates under different assumptions or Net additions/revisions 20.2 0.2 0.87 conditions. The areas requiring the use of management’s estimates Production (3.9) (1.9) (0.07) are also discussed in Note 1 under the subheading “Use of Consolidated reserves at December 31, 2010 120.5 35.5 3.39 Estimates.” Management has reviewed the following discussion of its development and selection of critical accounting estimates with the Additions to recoverable copper reserves during 2010 included Audit Committee of our Board of Directors. 15.7 billion pounds at our North America copper mines and 4.8 billion Mineral Reserves. Recoverable proven and probable reserves are pounds at our South America mines reflecting positive exploration the part of a mineral deposit that can be economically and legally results and the effect of higher prices. These additions were partially extracted or produced at the time of the reserve determination. offset by revisions at other mines. The increases in reserves The determination of reserves involves numerous uncertainties with replaced approximately 5 times our 2010 copper production. Refer respect to the ultimate geology of the ore bodies, including to Note 19 for further information regarding estimated recoverable quantities, grades and recovery rates. Estimating the quantity and proven and probable reserves. grade of reserves requires us to determine the size, shape and depth As discussed in Note 1, we depreciate our life-of-mine mining and of our ore bodies by analyzing geological data, such as samplings milling assets and values assigned to proven and probable reserves of drill holes, tunnels and other underground workings. In addition using the unit-of-production (UOP) method based on our estimated to the geology of our mines, assumptions are required to determine recoverable proven and probable reserves, and also have other the economic feasibility of mining these reserves, including assets that are depreciated on a straight-line basis over their estimates of future commodity prices and demand, the mining estimated useful lives. Because the economic assumptions used to methods we use and the related costs incurred to develop and mine estimate reserves change from period to period and additional our reserves. Our estimates of recoverable proven and probable geological data is generated during the course of operations, reserves are prepared by and are the responsibility of our employees. estimates of reserves may change, which could have a significant A majority of these estimates have been reviewed and verified by impact on our results of operations, including changes to prospective independent experts in mining, geology and reserve determination. depreciation rates and asset carrying values. Based on projected At December 31, 2010, our consolidated recoverable proven and copper sales volumes for 2011, if estimated copper reserves at our probable reserves included 120.5 billion pounds of copper, mines were 10 percent higher at December 31, 2010, we estimate 35.5 million ounces of gold and 3.39 billion pounds of molybdenum, that our annual depreciation, depletion and amortization expense which were determined using long-term average prices of $2.00 per for 2011 would decrease by $34 million ($17 million to net income pound for copper, $750 per ounce for gold and $10.00 per pound attributable to FCX common stockholders), and a 10 percent for molybdenum, compared with $1.60 per pound for copper, decrease in copper reserves would increase depreciation, depletion $550 per ounce for gold and $8.00 per pound for molybdenum for and amortization expense by $41 million ($21 million to net income 2010 Annual Report Annual 2010 the proven and probable reserve estimates at December 31, 2009. attributable to FCX common stockholders). We perform annual assessments of our existing assets in connection with the review of mine operating and development plans. If it is determined that assigned asset lives do not reflect the expected remaining period of benefit, any change could affect prospective depreciation rates. At December 31, 2010, our long-lived assets include amounts assigned to proven and probable reserves totaling $4.5 billion. As FREEPORT-McMoRan COPPER & GOLD INC.
26 MANAGEMENT’S DISCUSSION AND ANALYSIS
discussed below and in Note 1, we review and evaluate our long-lived Environmental Obligations. Our mining, exploration, production assets for impairment when events or changes in circumstances and historical operating activities are subject to stringent laws and indicate that the related carrying amount of such assets may not be regulations governing the protection of the environment, and recoverable, and changes to our estimates of recoverable proven compliance with those laws requires significant expenditures. and probable reserves could have an impact on our assessment of Environmental expenditures for closed facilities and closed portions asset recoverability. of operating facilities are expensed or capitalized depending upon Recoverable Copper. We record, as inventory, applicable costs for their future economic benefits. The general guidance provided by copper contained in mill and leach stockpiles that are expected to U.S. GAAP requires that liabilities for contingencies be recorded be processed in the future based on proven processing technologies. when it is probable that a liability has been incurred and the amount Mill and leach stockpiles are evaluated periodically to ensure that can be reasonably estimated. Refer to Note 1 for discussion of our they are stated at the lower of cost or market. Accounting for accounting policy for environmental expenditures. recoverable copper from mill and leach stockpiles represents a Accounting for environmental obligations represents a critical critical accounting estimate because (i) it is generally impracticable accounting estimate because changes to environmental laws and to determine copper contained in mill and leach stockpiles by regulations and/or circumstances affecting our operations could physical count, which requires management to employ reasonable result in significant changes to our estimates, which could have a estimation methods and (ii) recovery rates from leach stockpiles can significant impact on our results of operations. We review changes vary significantly. The quantity of material delivered to mill and in facts and circumstances associated with our environmental leach stockpiles is based on surveyed volumes of mined material and obligations on a quarterly basis. Judgments and estimates are based daily production records. Sampling and assaying of blasthole upon available facts, existing technology, presently enacted laws cuttings determine the estimated copper grade contained in the and regulations, remediation experience, whether or not we are a material delivered to the mill and leach stockpiles. potentially responsible party (PRP), the ability of other PRPs to pay Expected copper recovery rates for mill stockpiles are determined their allocated portions and take into consideration reasonably by metallurgical testing. The recoverable copper in mill stockpiles, possible outcomes. Our cost estimates can change substantially as once entered into the production process, can be produced into additional information becomes available regarding the nature copper concentrate almost immediately. or extent of site contamination, required remediation methods and Expected copper recovery rates for leach stockpiles are determined actions by or against governmental agencies or private parties. using small-scale laboratory tests, small- to large-scale column At December 31, 2010, environmental obligations recorded in our testing (which simulates the production-scale process), historical consolidated balance sheets totaled approximately $1.4 billion, trends and other factors, including mineralogy of the ore and rock which reflect obligations for environmental liabilities attributed to the type. Ultimate recovery of copper contained in leach stockpiles can Comprehensive Environmental Response, Compensation, and vary significantly from a low percentage to more than 90 percent Liability Act (CERCLA) or analogous state programs and for depending on several variables, including type of copper recovery, estimated future costs associated with environmental matters at mineralogy and particle size of the rock. For newly placed material closed facilities and closed portions of certain operating facilities. on active stockpiles, as much as 70 percent of the copper Following is a summary of changes in our estimated ultimately recoverable may be extracted during the first year, and the environmental obligations for the years ended December 31 FREEPORT-McMoRan COPPER & GOLD INC. & GOLD COPPER FREEPORT-McMoRan remaining copper may be recovered over many years. (in millions):
Processes and recovery rates are monitored regularly, and recovery 2010 2009 2008 rate estimates are adjusted periodically as additional information Balance at beginning of year $ 1,464 $1,401 $ 1,268 becomes available and as related technology changes. During Liabilities assumed in the acquisition fourth-quarter 2010, revised recovery rate estimates at El Abra of Phelps Dodge — — 117 a resulted in a reduction of 163 million pounds in leach stockpiles. Accretion expense 97 102 95 Additions 19 40 36 At December 31, 2010, estimated recoverable copper was 2.6 billion Reductions — (3) (1) pounds in leach stockpiles (with a carrying value of $1.8 billion) Spending (158) (76) (114) and 1.3 billion pounds in mill stockpiles (with a carrying value of Balance at end of year $ 1,422 $1,464 $ 1,401
$505 million). a. Represents accretion of the fair value of environmental obligations assumed in the
acquisition of Phelps Dodge, which were determined on a discounted cash flow basis. 2010 Annual Report
Refer to Note 13 for further discussion of environmental obligations.
27 MANAGEMENT’S DISCUSSION AND ANALYSIS
Reclamation and Closure Costs. Reclamation is an ongoing At least annually, we review our ARO estimates for changes in activity that occurs throughout the life of a mine. We record the fair the projected timing of certain reclamation costs, changes in cost value of our estimated asset retirement obligations (AROs) estimates and additional AROs incurred during the period. associated with tangible long-lived assets in the period incurred. Following is a summary of changes in our AROs for the years Fair value is measured as the present value of cash flow estimates ended December 31 (in millions): after considering inflation and then applying a market risk 2010 2009 2008 premium. Our cost estimates are reflected on a third-party cost Balance at beginning of year $731 $712 $728 basis and comply with our legal obligation to retire tangible Liabilities incurred 5 12 5 long-lived assets in the period incurred. These cost estimates may Revisions to cash flow estimates 105a (17) 21 differ from financial assurance cost estimates for reclamation Accretion expense 54 52 51 activities because of a variety of factors, including obtaining Spending (38) (28) (91) Foreign currency translation adjustment (1) — (2) updated cost estimates for reclamation activities, the timing of Balance at end of year $856 $731 $712 reclamation activities, changes in scope and the exclusion of a. During 2010, the revisions to cash flow estimates were primarily related to the increased certain costs not considered reclamation and closure costs. Refer cost and accelerated timing of closure activities at Chino. to Note 1 for further discussion of our accounting policy for reclamation and closure costs. Refer to Note 13 for further discussion of reclamation and Generally, ARO activities are specified by regulations or in permits closure costs. issued by the relevant governing authority, and management Deferred Taxes. In preparing our annual consolidated financial judgment is required to estimate the extent and timing of statements, we estimate the actual amount of taxes currently payable expenditures based on life-of-mine planning. Accounting for or receivable as well as deferred tax assets and liabilities attributable reclamation and closure costs represents a critical accounting to temporary differences between the financial statement carrying estimate because (i) we will not incur most of these costs for a amounts of existing assets and liabilities and their respective tax number of years, requiring us to make estimates over a long bases. Deferred income tax assets and liabilities are measured using period, (ii) reclamation and closure laws and regulations could enacted tax rates expected to apply to taxable income in the years change in the future and/or circumstances affecting our operations in which these temporary differences are expected to be recovered or could change, either of which could result in significant changes settled. The effect on deferred tax assets and liabilities of a change to our current plans, (iii) calculating the fair value of our AROs in tax rates or laws is recognized in income in the period in which requires management to estimate projected cash flows, make such changes are enacted. long-term assumptions about inflation rates, determine our A valuation allowance is provided for those deferred tax assets for credit-adjusted, risk-free interest rates and determine market risk which it is more likely than not that the related benefits will not premiums that are appropriate for our operations and (iv) given be realized. In determining the amount of the valuation allowance, we the magnitude of our estimated reclamation and closure costs, consider estimated future taxable income as well as feasible tax changes in any or all of these estimates could have a significant planning strategies in each jurisdiction. If we determine that we will impact on our results of operations. not realize all or a portion of our deferred tax assets, we will increase our valuation allowance. Conversely, if we determine that we will ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced. At December 31, 2010, our valuation allowances totaled $2.2 billion and covered all of our U.S. foreign tax credit carryforwards, and a 2010 Annual Report Annual 2010 portion of our foreign net operating loss carryforwards, U.S. state net operating loss carryforwards, and U.S. minimum tax credit carryforwards. At December 31, 2009, our valuation allowances totaled $2.2 billion and covered all of our U.S. foreign tax credit FREEPORT-McMoRan COPPER & GOLD INC.
28 MANAGEMENT’S DISCUSSION AND ANALYSIS
carryforwards and U.S. state net operating loss carryforwards, and During fourth-quarter 2008, we concluded that the then-current a portion of our foreign net operating loss carryforwards and U.S. economic environment and significant declines in copper and minimum tax credit carryforwards. These valuation allowances molybdenum prices represented significant adverse changes in our include $59 million and $44 million, respectively, relating to tax business and evaluated our long-lived assets for impairment. benefits that, if recognized, would be credited directly to other Projected metal prices represented the most significant assumption comprehensive income. The $69 million increase in the valuation used in the cash flow estimates to assess recoverability and measure allowance during 2010 was primarily the result of an increase in fair value of our individual mining operations. Our evaluation resulted foreign tax credit carryforwards, partially offset by a decrease in in the recognition of asset impairment charges totaling $10.9 billion minimum tax credit carryforwards. ($6.6 billion to net loss attributable to FCX common stockholders or Refer to Note 12 for further discussion. $8.67 per share) for 2008. Refer to Note 17 for further discussion of Impairment of Assets. We evaluate our long-lived assets (to be held the 2008 asset impairment charges. and used) for impairment when events or changes in circumstances Additionally, goodwill was recorded in connection with the March indicate that the related carrying amount of such assets may not be 2007 acquisition of Phelps Dodge and was assigned to the recoverable. In evaluating our long-lived assets for recoverability, reporting units, or individual mines, that were expected to benefit estimates of after-tax undiscounted future cash flows of our individual from the business combination. Goodwill is required to be mining operations are used, with impairment losses measured by evaluated for impairment at least annually and at any other time if reference to fair value. As quoted market prices are unavailable for an event or change in circumstances indicates that the fair value of our individual mining operations, fair value is determined through the a reporting unit is below its carrying amount. Our annual goodwill use of discounted estimated future cash flows. The estimated cash impairment test was performed in fourth-quarter 2008, which flows used to assess recoverability of our long-lived assets and resulted in the full impairment of goodwill and the recognition of measure fair value of our mining operations are derived from current charges totaling $6.0 billion ($6.0 billion to net loss attributable to business plans, which are developed using near-term price forecasts FCX common stockholders or $7.84 per share). Refer to Note 5 for reflective of the current price environment and management’s further discussion. projections for long-term average metal prices. In addition to near and long-term metal price assumptions, other key estimates include commodity-based and other input costs; proven and probable reserves, including the timing and cost to develop and produce the reserves; and the use of appropriate escalation and discount rates. Because the cash flows used to assess recoverability of our long-lived assets and measure fair value of our mining operations require us to make several estimates and assumptions that are subject to risk and uncertainty, changes in these estimates and assumptions could result in the impairment of our long-lived assets values. Events that could result in impairment of our long-lived assets include, but are not limited to, decreases in future metal prices, FREEPORT-McMoRan COPPER & GOLD INC. & GOLD COPPER FREEPORT-McMoRan decreases in estimated recoverable proven and probable reserves and any event that might otherwise have a material adverse effect on mine site production levels or costs. 2010 Annual Report
29 MANAGEMENT’S DISCUSSION AND ANALYSIS
CONSOLIDATED RESULTS
Years Ended December 31, 2010 2009 2008
Financial Data (in millions, except per share amounts) Revenuesa,b $ 18,982 $ 15,040 $ 17,796 Operating income (loss)b 9,068 6,503 (12,710)c Net income (loss) 5,544 3,534 (10,450) Net income attributable to noncontrolling interests 1,208 785 617 Net income (loss) attributable to FCX common stockholdersd 4,273e 2,527e (11,341)c,e Diluted net income (loss) per share attributable to FCX common stockholdersf,g $ 4.57e $ 2.93e $ (14.86)c,e Diluted weighted-average common shares outstandingf,g 949 938 763 Mining Operating Data Copper (recoverable) Production (millions of pounds) 3,908 4,103 4,030 Sales, excluding purchases (millions of pounds) 3,896 4,111 4,066 Average realized price per pound $ 3.59 $ 2.60 $ 2.69 Site production and delivery costs per poundh $ 1.40 $ 1.12 $ 1.51 Unit net cash costs per poundh $ 0.79 $ 0.55 $ 1.16 Gold (recoverable) Production (thousands of ounces) 1,886 2,664 1,291 Sales, excluding purchases (thousands of ounces) 1,863 2,639 1,314 Average realized price per ounce $ 1,271 $ 993 $ 861 Molybdenum (recoverable) Production (millions of pounds) 72 54 73 Sales, excluding purchases (millions of pounds) 67 58 71 Average realized price per pound $ 16.47 $ 12.36 $ 30.55
a. Includes the impact of adjustments to provisionally priced concentrate and cathode sales recognized in prior periods. Refer to “Revenues” and “Disclosures About Market Risks — Commodity Price Risk” for further discussion. b. Following is a summary of revenues and operating income (loss) by operating division (in millions):
Years Ended December 31, 2010 2009 2008
Revenues North America copper mines $ 4,136 $ 3,235 $ 5,265 South America mining 4,991 3,839 4,166 Indonesia mining 6,377 5,908 3,412 Africa mining 1,106 389 — Molybdenum 1,205 847 2,488 Rod & Refining 4,470 3,356 5,557 Atlantic Copper Smelting & Refining 2,491 1,892 2,341 Corporate, other & eliminations (5,794) (4,426) (5,433) Total FCX revenues $ 18,982 $ 15,040 $ 17,796
Years Ended December 31, 2010 2009 2008
Operating income (loss) North America copper mines $ 1,848 $ 1,020 $ (11,522) South America mining 3,063 2,001 (694) Indonesia mining 4,099 4,034 1,307 2010 Annual Report Annual 2010 Africa mining 490 8 (26) Molybdenum 357 126 (1,473) Rod & Refining 19 14 2 Atlantic Copper Smelting & Refining (37) (56) 10 Corporate, other & eliminations (771) (644) (314) Total FCX operating income (loss) $ 9,068 $ 6,503 $ (12,710)
Refer to Note 18 for further discussion of our operating divisions and business segments. FREEPORT-McMoRan COPPER & GOLD INC.
30 MANAGEMENT’S DISCUSSION AND ANALYSIS
c. Includes long-lived asset impairments and other charges totaling $11.0 billion Price Realizations ($6.7 billion to net loss attributable to FCX common stockholders or $8.76 per share), goodwill impairment charges totaling $6.0 billion ($6.0 billion to net loss attributable to 2010 compared with 2009. Our consolidated revenues can vary FCX common stockholders or $7.84 per share), and charges for LCM inventory significantly as a result of fluctuations in the market prices of copper adjustments totaling $782 million ($479 million to net loss attributable to FCX common stockholders or $0.63 per share). Refer to Notes 5 and 17 for further discussion. and, to a lesser extent, gold and molybdenum. Consolidated revenues d. After noncontrolling interests and preferred dividends. in 2010 reflected higher price realizations. Realized copper prices e. Includes net losses on early extinguishment and conversions of debt totaling $71 million ($0.07 per share) in 2010 associated with the redemption of our $1.0 billion averaged $3.59 per pound in 2010, compared with $2.60 per pound Senior Floating Rate Notes and open-market purchases of Senior Notes, $43 million in 2009; realized gold prices averaged $1,271 per ounce in 2010, ($0.04 per share) in 2009 associated with the redemption and open-market purchases of Senior Notes and $5 million ($0.01 per share) in 2008 associated with an open- compared with $993 per ounce in 2009; and realized molybdenum market purchase of Senior Notes. Refer to Note 9 for further discussion. prices averaged $16.47 per pound in 2010, compared with f. Amounts have been adjusted to reflect the February 1, 2011, two-for-one stock split. g. As applicable, reflects assumed conversion of our 5½% Convertible Perpetual Preferred $12.36 per pound in 2009. Stock (which converted into 35.8 million shares of FCX common stock in September 2009 compared with 2008. Consolidated revenues in 2009 2009) and 6¾% Mandatory Convertible Preferred Stock (which converted into 78.9 million shares of FCX common stock during 2010). In addition, the 2009 period were impacted by lower copper and molybdenum prices compared includes the effects of the 53.6 million shares of common stock we sold in February to 2008. Realized copper prices averaged $2.60 per pound in 2009. Common shares outstanding on December 31, 2010, totaled 945 million. Refer to Note 11 for further discussion. 2009, compared with $2.69 per pound in 2008; and realized h. Reflects per pound weighted average production and delivery costs and unit net cash molybdenum prices averaged $12.36 per pound in 2009, compared costs (net of by-product credits) for all copper mines, excluding net noncash and other costs. The 2009 period excludes the results of Africa mining as start-up activities were with $30.55 per pound in 2008. Partly offsetting lower copper and still under way. For reconciliations of the per pound costs by operating division to molybdenum realizations were higher realized gold prices, which production and delivery costs applicable to sales reported in our consolidated financial statements, refer to “Operations — Unit Net Cash Costs” and to “Product Revenues and averaged $993 per ounce in 2009, compared with $861 per ounce Production Costs.” in 2008. Revenues Sales Volumes Consolidated revenues totaled $19.0 billion in 2010, compared with 2010 compared with 2009. Consolidated sales volumes totaled $15.0 billion in 2009 and $17.8 billion in 2008, and include 3.9 billion pounds of copper, 1.9 million ounces of gold and the sale of copper concentrates, copper cathodes, copper rod, gold, 67 million pounds of molybdenum in 2010, compared with molybdenum and other metals by our North and South America 4.1 billion pounds of copper, 2.6 million ounces of gold and mines; the sale of copper concentrates (which also contain significant 58 million pounds of molybdenum in 2009. Lower consolidated quantities of gold and silver) by our Indonesia mining operations; copper sales volumes in 2010 primarily resulted from lower ore the sale of copper cathodes and cobalt hydroxide by our Africa mining grades at Grasberg and lower volumes at our North America copper operations; the sale of molybdenum in various forms by our mines, partly offset by additional volumes provided by our Tenke Molybdenum operations; and the sale of copper cathodes, copper mine in Africa. Lower consolidated gold sales volumes in 2010 anodes, and gold in anodes and slimes by Atlantic Copper. Our primarily reflected lower ore grades at Grasberg from planned mine mining revenues for 2010 include sales of copper (78 percent), sequencing. Higher consolidated molybdenum sales volumes gold (12 percent) and molybdenum (6 percent). in 2010 reflected improved demand in the chemicals sector. Refer Following is a summary of year-to-year changes in our consolidated to “Operations” for further discussion of sales volumes at our revenues (in millions): operating divisions. FREEPORT-McMoRan COPPER & GOLD INC. & GOLD COPPER FREEPORT-McMoRan 2010 2009 2009 compared with 2008. Consolidated sales volumes totaled 4.1 billion pounds of copper, 2.6 million ounces of gold and Consolidated revenues – prior year $15,040 $17,796 Higher (lower) price realizations from 58 million pounds of molybdenum in 2009, compared with 4.1 billion mining operations: pounds of copper, 1.3 million ounces of gold and 71 million pounds Copper 3,779 (288) of molybdenum in 2008. Copper sales volumes in 2009, compared Gold 517 349 Molybdenum 273 (1,056) with 2008, reflected mining in a higher grade section of the Grasberg Higher (lower) sales volumes from mining operations: open pit and the contribution of 2009 sales volumes from the Copper (563) 121 Tenke mine, offset by lower sales volumes as a result of production Gold (771) 1,141 curtailments at the North America copper mines and lower ore Molybdenum 105 (395) Cobalt 195 24 grades at Candelaria. Mining in a higher grade section of the Lower net adjustments primarily for prior year Grasberg open pit also resulted in substantially higher gold sales 2010 Annual Report provisionally priced sales (155) (139) volumes in 2009. Lower molybdenum sales volumes in 2009 Higher (lower) purchased copper and molybdenum 188 (1,414) reflected reduced demand in the metallurgical and chemicals sectors. Higher (lower) Atlantic Copper revenues 599 (449) Other, including intercompany eliminations (225) (650) Consolidated revenues – current year $18,982 $15,040
31 MANAGEMENT’S DISCUSSION AND ANALYSIS
Provisionally Priced Sales production and delivery costs applicable to sales reported in our Under the long-established structure of sales agreements prevalent consolidated financial statements. in the industry, substantially all of our concentrate and cathode sales Our copper mining operations require significant energy, principally are provisionally priced at the time of shipment. The provisional electricity, diesel, coal and natural gas. Energy costs approximated prices are finalized in a contractually specified future period (generally 20 percent of our consolidated copper production costs in 2010 one to four months from the shipment date) based primarily on and 2009, and included purchases of approximately 215 million quoted LME monthly average spot prices (refer to “Disclosures About gallons of diesel fuel; 6,100 gigawatt hours of electricity at our Market Risks — Commodity Price Risk” for further discussion). North America, South America and Africa copper mining operations Adjustments to the December 31, 2009, provisionally priced copper (we generate all of our power at our Indonesia mining operation); sales resulted in a net decrease to consolidated revenues of 800 thousand metric tons of coal for our coal power plant in $24 million ($10 million to net income attributable to FCX common Indonesia; and 1 million MMBTU (million British thermal units) of stockholders or $0.01 per share) in 2010. Adjustments to the natural gas at certain of our North America mines. For 2011, we December 31, 2008, provisionally priced copper sales resulted in a estimate energy costs will approximate 20 percent of our net increase to consolidated revenues of $132 million ($61 million consolidated copper production costs. to net income attributable to FCX common stockholders or 2009 compared with 2008. Consolidated production and delivery $0.07 per share) in 2009. Adjustments to the December 31, 2007, costs totaled $7.0 billion in 2009, compared with $10.4 billion provisionally priced copper sales resulted in an increase of in 2008. Lower production and delivery costs for 2009 primarily $268 million ($114 million to net loss attributable to FCX common reflect the effects of lower operating rates at our North America stockholders or $0.15 per share) in 2008. copper mines, lower commodity-based input costs and lower purchases of copper. Purchased Copper and Molybdenum We primarily purchase copper cathode to be processed by our Rod Depreciation, Depletion and Amortization & Refining segment when production from our North America copper 2010 compared with 2009. Consolidated depreciation, depletion mines does not meet customer demand. We also purchase and amortization expense totaled $1.0 billion in 2010 and 2009. molybdenum concentrates when customer demand requires it. The Higher depreciation, depletion and amortization expense in 2010 decrease in purchased copper and molybdenum for 2009, compared for a full year of operations at our Tenke mine was offset by lower to 2008, resulted from lower demand. expense under the unit-of-production method at our South America and Grasberg mines. Atlantic Copper Revenues 2009 compared with 2008. Consolidated depreciation, depletion The increase in Atlantic Copper’s revenues in 2010, compared with and amortization expense totaled $1.0 billion in 2009, compared 2009, primarily reflected higher copper revenues associated with $1.8 billion in 2008. The decrease in depreciation, depletion with higher prices. Atlantic Copper’s revenues decreased in 2009, and amortization expense reflected the impact of long-lived asset compared with 2008, primarily reflecting lower copper prices. impairments recognized at December 31, 2008, on our depreciable Production and Delivery Costs net book values. 2010 compared with 2009. Consolidated production and delivery Lower of Cost or Market (LCM) Inventory Adjustments costs totaled $8.4 billion in 2010, compared with $7.0 billion in 2009. Higher production and delivery costs for 2010 primarily Inventories are required to be recorded at the lower of cost or reflect higher input costs at our mining operations and higher costs market. In 2009, we recognized charges of $19 million ($15 million of concentrate purchases at Atlantic Copper associated with higher to net income attributable to FCX common stockholders or copper prices. $0.02 per share) for LCM molybdenum inventory adjustments. We recorded no further LCM inventory adjustments subsequent to
2010 Annual Report Annual 2010 Consolidated unit site production and delivery costs for our copper mining operations averaged $1.40 per pound of copper in 2010, first-quarter 2009. compared with $1.12 per pound of copper in 2009. Higher site In 2008, we recorded LCM inventory adjustments totaling production and delivery costs in 2010 primarily reflected the impact $782 million ($479 million to net loss attributable to FCX common of lower copper sales volumes and increased input costs, including stockholders or $0.63 per share). Inventories acquired in materials, labor and energy, higher North America mining rates and connection with the acquisition of Phelps Dodge (including long-term lower volumes at Grasberg. Refer to “Operations — Unit Net Cash mill and leach stockpiles) were recorded at fair value using Costs” for further discussion of unit net cash costs associated with near-term price forecasts reflecting the then-current price our operating divisions, and to “Product Revenues and Production environment and management’s projections for long-term average Costs” for reconciliations of per pound costs by operating division to metal prices. FREEPORT-McMoRan COPPER & GOLD INC.
32 MANAGEMENT’S DISCUSSION AND ANALYSIS
Selling, General and Administrative Expenses declines in copper and molybdenum prices and the deterioration of 2010 compared with 2009. Consolidated selling, general and the economic environment represented significant adverse changes administrative expenses totaled $381 million in 2010, compared in the business and evaluated our long-lived assets for impairment with $321 million in 2009. Approximately half of the increase in as of December 31, 2008, which resulted in the recognition of selling, general and administrative expenses reflected higher asset impairment charges totaling $10.9 billion ($6.6 billion to net stock-based compensation and other incentive compensation costs loss attributable to FCX common stockholders or $8.67 per share). related to financial performance. In addition, we recorded net restructuring and other charges 2009 compared with 2008. Consolidated selling, general totaling $111 million ($67 million to net loss attributable to FCX and administrative expenses totaled $321 million in 2009, compared common stockholders or $0.09 per share) associated with our with $269 million in 2008. Higher selling, general and administrative revised operating plans, including contract termination costs, other expenses primarily reflected a net increase in incentive compensation project cancellation costs, employee severance and benefits and costs related to financial performance, partly offset by reductions special retirement benefits and curtailments. associated with administrative costs savings initiatives. Refer to Note 17 for further discussion of these charges.
Exploration and Research Expenses Goodwill Impairment Consolidated exploration and research expenses totaled $143 million Our annual impairment test of goodwill at December 31, 2008, in 2010, $90 million in 2009 and $292 million in 2008. resulted in the full impairment of goodwill and the recognition of Throughout most of 2008, expenditures primarily reflected charges totaling $6.0 billion ($6.0 billion to net loss attributable increased exploration efforts in North America and also in Africa, to FCX common stockholders or $7.84 per share). Refer to Note 5 for including targets outside the area of initial development at Tenke. further discussion. However, in response to weak market conditions at the end of 2008, Interest Expense, Net we revised operating plans to significantly reduce exploration costs Consolidated interest expense (before capitalization) totaled in 2009. During 2009 and 2010, we focused on analyzing exploration $528 million in 2010, $664 million in 2009 and $706 million in data gained through the core drilling previously undertaken in 2008. Lower interest expense primarily reflected the impact of addition to conducting new activities. debt repayments during 2009 and 2010 (refer to “Capital Resources Exploration activities are being conducted near our existing mines and Liquidity — Financing Activities” for discussion of debt with a focus on opportunities to expand reserves that will support repayments). Lower interest expense in 2009, compared with 2008, additional future production capacity in the large minerals districts also reflected lower interest rates on our variable-rate debt. where we currently operate. Favorable exploration results indicate Capitalized interest is primarily related to our development opportunities for significant future potential reserve additions in North projects and totaled $66 million in 2010, $78 million in 2009 and and South America and in the Tenke minerals district. The drilling $122 million in 2008. data in North America continue to indicate the potential for expanded sulfide production. Losses on Early Extinguishment of Debt For 2011, exploration and research expenditures are being During 2010, we recorded losses on early extinguishment of debt increased to an estimated $250 million, including approximately totaling $81 million ($71 million to net income attributable to FCX FREEPORT-McMoRan COPPER & GOLD INC. & GOLD COPPER FREEPORT-McMoRan $200 million for exploration. Exploration activities will continue common stockholders or $0.07 per share) associated with the to focus primarily on the potential for future reserve additions in our redemption of our Senior Floating Rate Notes and open-market existing minerals districts. purchases of our 8.25%, 8.375% and 9.50% Senior Notes. During 2009, we recorded losses on early extinguishment of debt Long-Lived Asset Impairments and Other Charges totaling $48 million ($43 million to net income attributable to During 2009, net restructuring and other charges totaled $77 million FCX common stockholders or $0.04 per share), associated with ($61 million to net income attributable to FCX common stockholders the redemption of our 6 7/8% Senior Notes and for open-market or $0.07 per share), which included a charge of $54 million purchases of our 8.25%, 8.375% and 8¾% Senior Notes. ($43 million to net income attributable to FCX common stockholders During 2008, we recorded net losses on early extinguishment of or $0.05 per share) associated with the partial settlement of the debt totaling $6 million ($5 million to net loss attributable to City of Blackwell lawsuit. FCX common stockholders or $0.01 per share) associated with an 2010 Annual Report During 2008, we recognized charges totaling $11.0 billion open-market purchase of our 9½% Senior Notes. ($6.7 billion to net loss attributable to FCX common stockholders Refer to Note 9 for further discussion of these transactions. or $8.76 per share) for long-lived asset impairments and other charges. During fourth-quarter 2008, we concluded that the
33 MANAGEMENT’S DISCUSSION AND ANALYSIS
(Provision for) Benefit from Income Taxes mix of income between U.S. and international operations. The Our income tax provision for 2010 resulted from taxes on international difference between our consolidated effective income tax rate of operations ($2.7 billion) and U.S. operations ($244 million). 40 percent in 2009 and the U.S. federal statutory rate of As presented in the table below, our consolidated effective income 35 percent primarily was attributable to the high proportion of tax rate was 35 percent for 2010. income earned in Indonesia, which was taxed at an effective tax rate Our income tax provision for 2009 resulted from taxes on of 42 percent. international operations ($2.3 billion) and U.S. operations A summary of the approximate amounts in the calculation of our ($35 million). During 2009, our consolidated effective income tax consolidated provision for income taxes for 2010 and 2009 follows rate was highly sensitive to changes in commodity prices and the (in millions, except percentages):
Year Ended Year Ended December 31, 2010 December 31, 2009 Income Income Tax Tax Income Effective (Provision) Income Effective (Provision) (Loss)a Tax Rate Benefit (Loss)a Tax Rate Benefit
U.S. $ 1,307 19% $ (244) $ 98 36% $ (35)b South America 2,995 33% (999) 2,010 32% (650) Indonesia 3,873 42% (1,635) 4,000 42% (1,697) Africa 395 30% (118) (60) 25% 15 Eliminations and other (58) N/A 13 (232) N/A 60 Consolidated FCX $ 8,512 35% $ (2,983) $ 5,816 40% $ (2,307)
a. Represents income (loss) by geographic location before income taxes and equity in affiliated companies’ net earnings. b. Includes a favorable adjustment totaling $43 million resulting from completion of a review of U.S. deferred income tax accounts.
Our estimated consolidated effective tax rate for 2011 will vary Year Ended December 31, 2008 with commodity price changes and the mix of income from Income international and U.S. operations. Assuming average prices of Tax Income Effective (Provision) $4.25 per pound for copper, $1,350 per ounce for gold, $15 per (Loss)a Tax Rate Benefit pound for molybdenum and current sales estimates, we estimate our U.S. $ 1,258 15% $ (191) annual consolidated effective tax rate will approximate 34 percent. South America 1,752 32% (553) Our benefit from income taxes in 2008 resulted from U.S. Indonesia 1,432 43% (612) operations ($3.4 billion), partly offset by taxes on international Africa (187) 35% 66 Asset impairment charges (10,867) 39% 4,212 operations ($604 million). The difference between our consolidated Goodwill impairment charges (5,987) N/A — effective income tax rate of 21 percent in 2008 and the U.S. federal LCM inventory adjustments (782) 38% 299 statutory rate of 35 percent primarily was attributable to goodwill Eliminations and other 72 N/A (18) b impairment charges, which were non-deductible for tax purposes, Adjustments N/A N/A (359) Consolidated FCX $ (13,309) 21% $ 2,844 and the recognition of a valuation allowance against U.S. federal alternative minimum tax credits, partly offset by benefits for a. Represents income (loss) by geographic location before income taxes and equity in affiliated companies’ net earnings. percentage depletion and U.S. state income taxes. b. Represents an adjustment to establish a valuation allowance against U.S. federal A summary of the approximate amounts in the calculation of our alternative minimum tax credits. consolidated benefit from income taxes for 2008 follows (in millions, Refer to Note 12 for further discussion of income taxes. except percentages):
2010 Annual Report Annual 2010 OPERATIONS North America Copper Mines We currently operate seven copper mines in North America — Morenci, Sierrita, Bagdad, Safford and Miami in Arizona, and Tyrone and Chino in New Mexico. All of these mining operations are wholly owned, except for Morenci, an unincorporated joint venture, in which we own an 85 percent undivided interest. The North America copper mines include open-pit mining, sulfide ore concentrating, leaching and solution extraction/ electrowinning (SX/EW) operations. Molybdenum is also produced FREEPORT-McMoRan COPPER & GOLD INC.
34 MANAGEMENT’S DISCUSSION AND ANALYSIS
by Sierrita and Bagdad. A majority of the copper produced at our in second-quarter 2011 at a capital investment of approximately North America copper mines is cast into copper rod by our Rod & $150 million. Project costs of $98 million have been incurred as Refining operations. Rod and wire sales to outside wire and of December 31, 2010, of which $69 million was incurred during the cable manufacturers represented approximately 81 percent of our year 2010. North America copper sales in 2010. The remainder of our Twin Buttes. In December 2009, we purchased the Twin Buttes North America copper sales is primarily in the form of copper copper mine, which ceased operations in 1994 and is adjacent to our cathode or copper concentrate. Refer to Note 18 for further Sierrita mine. The purchase provides significant synergies in the discussion of our reportable segment (Morenci) in the North America Sierrita minerals district, including the potential for expanded mining copper mines division. activities and access to material that can be used for Sierrita tailings Operating and Development Activities. We have restarted the and stockpile reclamation purposes. Studies have commenced Morenci mill and have commenced a staged ramp up of Morenci’s to incorporate the Twin Buttes resources in our development plans. mining rates. We have also resumed certain project development Other Matters. Refer to Note 13 for information on contingencies at activities, including initiating restarts of mining at the Miami and the North America copper mines. Chino mines. Operating Data. Following is summary operating data for the Morenci Mill Restart and Mine Ramp-up. In March 2010, we North America copper mines for the years ended December 31. restarted the Morenci mill to process available sulfide material 2010 2009 2008 currently being mined. Mill throughput averaged 42,200 metric tons Operating Data, Net of Joint Venture Interest of ore per day in fourth-quarter 2010 and 26,000 metric tons of ore Copper (millions of recoverable pounds) per day during the year 2010 and is expected to increase to Production 1,067 1,147 1,430 approximately 50,000 metric tons per day in 2011. We have also Sales, excluding purchases 1,085 1,187 1,434 commenced a staged ramp up at the Morenci mine from the 2009 Average realized price per pound $ 3.42 $ 2.38 $ 3.07 rate of 450,000 metric tons per day to 635,000 metric tons per day. Molybdenum (millions of recoverable pounds) Productiona 25 25 30 The mining rate averaged 566,000 metric tons per day in fourth- 100% Operating Data quarter 2010 and over 480,000 metric tons per day during the year SX/EW operations 2010. These activities are expected to enable copper production Leach ore placed in stockpiles to increase by approximately 125 million pounds per year in 2011. (metric tons per day) 648,800 589,400 1,095,200 Further increases to Morenci’s mining rate are being evaluated. Average copper ore grade (percent) 0.24 0.29 0.22 Copper production (millions of We are also evaluating the potential for a new mill at Morenci, which recoverable pounds) 746 859 943 would involve significant investment. Mill operations Miami Restart. We initiated limited mining activities at the Miami Ore milled (metric tons per day) 189,200 169,900 249,600 mine to improve efficiencies of ongoing reclamation projects Average ore grade (percent): Copper 0.32 0.33 0.40 associated with historical mining operations at the site. During an Molybdenum 0.03 0.02 0.02 approximate five-year mine life, we expect to ramp up production at Copper recovery rate (percent) 83.0 86.0 82.9 Miami to approximately 100 million pounds of copper per year by Production (millions of recoverable pounds): 2012. We are investing approximately $40 million for this project, Copper 398 364 599 Molybdenum 25 25 30 INC. & GOLD COPPER FREEPORT-McMoRan which is benefiting from the use of existing mining equipment. Chino Restart. We have initiated a restart of mining and milling a. Reflects molybdenum production from certain of our North America copper mines. Sales of molybdenum are reflected in the Molybdenum division. activities at the Chino mine, which were suspended in late 2008. The ramp up of mining and milling activities will significantly increase 2010 compared with 2009. Copper sales volumes from our North copper production at Chino, which is currently producing small America copper mines decreased to 1.1 billion pounds in 2010, amounts of copper from existing leach stockpiles. Planned mining compared with 1.2 billion pounds in 2009, primarily because of and milling rates are expected to be achieved by the end of 2013. anticipated lower ore grades at Safford and Sierrita, lower mill Incremental annual copper production is expected to be 100 million throughput because of unscheduled crusher maintenance at Bagdad pounds in 2012 and 2013 and 200 million pounds in 2014. Costs and mill maintenance at Sierrita. Copper sales volumes from our for the project are expected to approximate $150 million, associated North America copper mines are expected to approximate 1.2 billion with equipment and mill refurbishment. pounds in 2011. The impact of increased mining and milling rates 2010 Annual Report Safford Sulphur Burner. We are completing construction of a at the Morenci mine and the restarts of the Miami and Chino mines sulphur burner at the Safford mine, which will provide a more are expected to further increase production in future periods. cost-effective source of sulphuric acid used in SX/EW operations and lower transportation costs. This project is expected to be completed
35 MANAGEMENT’S DISCUSSION AND ANALYSIS
Molybdenum production from our North America copper mines is information differs from measures of performance determined in expected to approximate 35 million pounds in 2011. accordance with U.S. GAAP and should not be considered in isolation 2009 compared with 2008. Copper sales volumes from or as a substitute for measures of performance determined in our North America copper mines decreased to 1.2 billion pounds accordance with U.S. GAAP. This measure is presented by other in 2009, compared with 1.4 billion pounds in 2008, which mining companies, although our measure may not be comparable to reflects certain of our North America copper mines operating at similarly titled measures reported by other companies. reduced rates in response to reduced demand for copper in the Gross Profit per Pound of Copper and Molybdenum. The following western world. tables summarize unit net cash costs and gross profit per pound at Unit Net Cash Costs. Unit net cash costs per pound of copper is a the North America copper mines for the years ended December 31. measure intended to provide investors with information about the Refer to “Product Revenues and Production Costs” for an explanation cash-generating capacity of our mining operations expressed on a of the “by-product” and “co-product” methods and a reconciliation basis relating to the primary metal product for our respective of unit net cash costs per pound to production and delivery costs operations. We use this measure for the same purpose and for applicable to sales reported in our consolidated financial statements. monitoring operating performance by our mining operations. This
2010 2009
By-Product Co-Product Method By-Product Co-Product Method Method Copper Molybdenuma Method Copper Molybdenuma
Revenues, excluding adjustments $ 3.42 $ 3.42 $15.60 $ 2.38 $ 2.38 $10.96 Site production and delivery, before net noncash and other costs shown below 1.50 1.35 7.95 1.25 1.15 5.67 By-product creditsa (0.35) — — (0.23) — — Treatment charges 0.09 0.09 — 0.09 0.09 — Unit net cash costs 1.24 1.44 7.95 1.11 1.24 5.67 Depreciation, depletion and amortization 0.24 0.22 0.54 0.22 0.21 0.40 Noncash and other costs, net 0.12 0.12 0.01 0.11 0.11 0.07 Total unit costs 1.60 1.78 8.50 1.44 1.56 6.14 Revenue adjustments, primarily for hedging — — — 0.08 0.08 — Idle facility and other non-inventoriable costs (0.08) (0.08) (0.02) (0.08) (0.08) — Gross profit per pound $ 1.74 $ 1.56 $ 7.08 $ 0.94 $ 0.82 $ 4.82
Copper sales (millions of recoverable pounds) 1,082 1,082 1,185 1,185 Molybdenum sales (millions of recoverable pounds)b 25 25
a. Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita. b. Reflects molybdenum produced by the North America copper mines.
Unit net cash costs (net of by-product credits) for our North America Our operating North America copper mines have varying cost copper mines increased to $1.24 per pound of copper in 2010, structures because of differences in ore grades and characteristics, compared with $1.11 per pound in 2009, primarily reflecting higher processing costs, by-products and other factors. During 2010, unit site production and delivery costs ($0.25 per pound) associated with net cash costs for the North America copper mines ranged from a net higher input costs and increased mining and milling activities at cost of $0.64 per pound to $2.25 per pound at the individual certain mines. Partly offsetting these higher costs were higher mines and averaged $1.24 per pound. Based on current operating molybdenum credits ($0.12 per pound) primarily resulting from plans and assuming achievement of current sales volume and cost higher molybdenum prices. estimates and an average price of $15 per pound of molybdenum for
2010 Annual Report Annual 2010 Some of our U.S. copper rod customers request a fixed market 2011, we estimate that average unit net cash costs (net of by-product price instead of the COMEX average price in the month of credits) for our North America copper mines would approximate shipment. We hedge this price exposure in a manner that allows us $1.39 per pound of copper in 2011. Unit net cash costs for 2011 to receive market prices in the month of shipment while the are expected to be higher, compared with 2010, primarily because of customer pays the fixed price they requested. Because these higher mining rates and input costs. Each $2 per pound change in contracts previously did not meet the criteria to qualify for hedge the average price of molybdenum during the year would have an accounting, revenue adjustments in 2009 reflected unrealized approximate $0.05 per pound impact on the North America copper gains on these copper derivative contracts (refer to Note 15 for mines’ 2011 unit net cash costs. further discussion). FREEPORT-McMoRan COPPER & GOLD INC.
36 MANAGEMENT’S DISCUSSION AND ANALYSIS
2009 2008
By-Product Co-Product Method By-Product Co-Product Method Method Copper Molybdenuma Method Copper Molybdenuma Revenues, excluding adjustments $ 2.38 $ 2.38 $10.96 $ 3.07 $ 3.07 $30.25 Site production and delivery, before net noncash and other costs shown below 1.25 1.15 5.67 1.88 1.63 12.67 By-product creditsa (0.23) — — (0.64) — — Treatment charges 0.09 0.09 — 0.09 0.09 — Unit net cash costs 1.11 1.24 5.67 1.33 1.72 12.67 Depreciation, depletion and amortization 0.22 0.21 0.40 0.53 0.46 2.81 Noncash and other costs, net 0.11 0.11 0.07 0.52 0.49 1.34 Total unit costs 1.44 1.56 6.14 2.38 2.67 16.82 Revenue adjustments, primarily for hedging 0.08 0.08 — (0.05) (0.05) — Idle facility and other non-inventoriable costs (0.08) (0.08) — (0.06) (0.06) (0.05) Gross profit per pound $ 0.94 $ 0.82 $ 4.82 $ 0.58 $ 0.29 $13.38
Copper sales (millions of recoverable pounds) 1,185 1,185 1,430 1,430 Molybdenum sales (millions of recoverable pounds)b 25 30 a. Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita. b. Reflects molybdenum produced by the North America copper mines.
Unit net cash costs (net of by-product credits) for our North America to copper, the Cerro Verde mine also produces molybdenum copper mines decreased to $1.11 per pound of copper in 2009, concentrates, and the Candelaria and Ojos del Salado mines also compared with $1.33 per pound in 2008, primarily reflecting a net produce gold and silver. Production from our South America mines is decrease in site production and delivery costs ($0.63 per pound) sold as copper concentrate or copper cathode under long-term associated with cost reduction and efficiency efforts, including the contracts. Beginning in 2008, our South America mines began impact of lower operating rates and reduced input costs (principally selling a portion of their copper concentrate and cathode inventories for energy), partly offset by changes in inventory, which reflects the to Atlantic Copper, an affiliated smelter. Refer to Note 18 for impact of historical higher cost production on inventory carrying further discussion of our reportable segment (Cerro Verde) in the values. The decrease in site production and delivery costs was partly South America mining division. offset by lower molybdenum credits ($0.41 per pound) primarily Operating and Development Activities. We have advanced certain resulting from lower molybdenum prices and sales volumes. project development activities, including the El Abra sulfide project The decrease in depreciation, depletion and amortization in 2009, and the completion of the Cerro Verde mill optimization project. compared with 2008, primarily reflected the impact of the El Abra Sulfide. We are completing construction activities long-lived asset impairment charges recognized in fourth-quarter associated with the development of a large sulfide deposit at El Abra 2008 (refer to Note 17 for further discussion). to extend its mine life by over 10 years. Construction activities for Noncash and other costs for 2008 include charges of $661 million the initial phase of the project are approximately 80 percent ($0.46 per pound) for LCM inventory adjustments; there were no complete. Production from the sulfide ore, which is projected to ramp LCM copper inventory adjustments recorded at the North America up to approximately 300 million pounds of copper per year, is FREEPORT-McMoRan COPPER & GOLD INC. & GOLD COPPER FREEPORT-McMoRan copper mines in 2009. expected to replace the currently depleting oxide copper production. Revenue adjustments in 2009 and 2008 primarily reflect The aggregate capital investment for this project is expected to total unrealized gains (losses) on copper derivative contracts with U.S. $725 million through 2015, of which approximately $565 million copper rod customers (refer to Note 15 for further discussion). is for the initial phase of the project that is expected to be completed in second-quarter 2011. Aggregate project costs of $361 million South America Mining have been incurred as of December 31, 2010, of which $286 million We operate four copper mines in South America — Cerro Verde in was incurred during 2010. Peru, and Candelaria, Ojos del Salado and El Abra in Chile. We own We are also engaged in studies for a potential large-scale milling a 53.56 percent interest in Cerro Verde, an 80 percent interest in operation at El Abra to process additional sulfide material and to both Candelaria and Ojos del Salado and a 51 percent interest in achieve higher recoveries. El Abra. All operations in South America are consolidated in our Cerro Verde Expansion. We have completed a project to increase 2010 Annual Report financial statements. throughput at the Cerro Verde concentrator. This project increased South America mining includes open-pit and underground mining, mill throughput from 108,000 metric tons of ore per day to 120,000 sulfide ore concentrating, leaching and SX/EW operations. In addition
37 MANAGEMENT’S DISCUSSION AND ANALYSIS
metric tons of ore per day resulting in incremental annual production 2010 compared with 2009. Copper sales volumes from our of approximately 30 million pounds of copper. The aggregate capital South America mining operations decreased to 1.3 billion pounds investment for this project totaled approximately $50 million. in 2010, compared with 1.4 billion in 2009, primarily reflecting In addition, we are completing our evaluation of a large-scale anticipated lower ore grades at El Abra. Consolidated sales concentrator expansion at Cerro Verde. Significant reserve additions volumes from our South America mines are expected to approximate in recent years have provided opportunities to significantly expand 1.3 billion pounds of copper and 100 thousand ounces of gold the existing facility’s capacity. A range of expansion options is being in 2011. reviewed and the related feasibility study is expected to be completed 2009 compared with 2008. Copper sales volumes from our in second-quarter 2011. South America mining operations decreased to 1.4 billion pounds Candelaria Water Plant. As part of our overall strategy to supply in 2009, compared with 1.5 billion in 2008, primarily reflecting water to the Candelaria mine, we have recently completed construction lower ore grades at Candelaria and downtime for mill maintenance at of a pipeline to bring water from a nearby water treatment facility. Cerro Verde. In addition, we have started engineering for a desalination plant that Unit Net Cash Costs. Unit net cash costs per pound of copper will supply all of Candelaria’s longer term water needs. The plant is is a measure intended to provide investors with information about expected to be completed by the end of 2012 and the aggregate the cash-generating capacity of our mining operations expressed capital investment for this project is expected to total approximately on a basis relating to the primary metal product for our respective $280 million. operations. We use this measure for the same purpose and for Other Matters. Refer to Note 13 for information on contingencies monitoring operating performance by our mining operations. This at our South America mining operations. information differs from measures of performance determined in Operating Data. Following is summary operating data for the accordance with U.S. GAAP and should not be considered in isolation South America mining operations for the years ended December 31. or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other 2010 2009 2008 mining companies, although our measure may not be comparable to Copper (millions of recoverable pounds) similarly titled measures reported by other companies. Production 1,354 1,390 1,506 Sales 1,335 1,394 1,521 Gross Profit per Pound of Copper. The following tables summarize Average realized price per pound $ 3.68 $ 2.70 $ 2.57 unit net cash costs and gross profit per pound at our South America Gold (thousands of recoverable ounces) mining operations for the years ended December 31. These tables Production 93 92 114 reflect unit net cash costs per pound of copper under the by-product Sales 93 90 116 Average realized price per ounce $ 1,263 $ 982 $ 853 and co-product methods as our South America mining operations Molybdenum also had small amounts of molybdenum, gold and silver sales. Refer (millions of recoverable pounds) to “Product Revenues and Production Costs” for an explanation of Productiona 7 2 3 the “by-product” and “co-product” methods and a reconciliation of SX/EW operations unit net cash costs per pound to production and delivery costs Leach ore placed in stockpiles applicable to sales reported in our consolidated financial statements. (metric tons per day) 268,800 258,200 279,700 Average copper ore grade (percent) 0.41 0.45 0.45 Copper production (millions of recoverable pounds) 504 565 560 Mill operations Ore milled (metric tons per day) 188,800 181,300 181,400 Average ore grade:b Copper (percent) 0.65 0.66 0.75 2010 Annual Report Annual 2010 Molybdenum (percent) 0.02 0.02 0.02 Copper recovery rate (percent) 90.0 88.9 89.2 Production (recoverable): Copper (millions of pounds) 850 825 946 Gold (thousands of ounces) 93 92 114 Molybdenum (millions of pounds) 7 2 3
a. Reflects molybdenum production from our Cerro Verde copper mine. Sales of molybdenum are reflected in the Molybdenum division. b. Average ore grades of gold produced at our South America mining operations rounds to less than 0.001 grams per metric ton. FREEPORT-McMoRan COPPER & GOLD INC.
38 MANAGEMENT’S DISCUSSION AND ANALYSIS
2010 2009 By-Product Co-Product By-Product Co-Product Method Method Method Method
Revenues, excluding adjustments $ 3.68 $ 3.68 $ 2.70 $ 2.70 Site production and delivery, before net noncash and other costs shown below 1.21 1.14 1.08 1.02 By-product credits (0.21) — (0.11) — Treatment charges 0.15 0.15 0.15 0.15 Unit net cash costs 1.15 1.29 1.12 1.17 Depreciation, depletion and amortization 0.19 0.18 0.20 0.19 Noncash and other costs, net 0.01 0.01 0.02 0.02 Total unit costs 1.35 1.48 1.34 1.38 Revenue adjustments, primarily for pricing on prior year open sales (0.01) (0.01) 0.08 0.08 Other non-inventoriable costs (0.04) (0.04) (0.02) (0.02) Gross profit per pound $ 2.28 $ 2.15 $ 1.42 $ 1.38
Copper sales (millions of recoverable pounds) 1,335 1,335 1,394 1,394
Unit net cash costs (net of by-product credits) for our South America by-products and other factors. During 2010, unit net cash costs for mining operations increased to $1.15 per pound of copper in 2010, the South America mines ranged from $1.04 per pound to $1.38 compared with $1.12 per pound in 2009, primarily reflecting higher per pound at the individual mines and averaged $1.15 per pound. site production and delivery costs ($0.13 per pound) associated with Assuming achievement of current sales volume and cost estimates higher input costs and the impact of higher copper prices on profit and an average price of $15 per pound of molybdenum and an sharing programs. Partly offsetting higher site production and delivery average price of $1,350 per ounce of gold in 2011, we estimate costs were higher by-product credits ($0.10 per pound) associated that average unit net cash costs (net of by-product credits) for with higher molybdenum volumes and prices and higher gold prices. our South America mining operations would approximate $1.25 per Our South America mines have varying cost structures because pound of copper in 2011. Higher unit net cash costs for 2011 of differences in ore grades and characteristics, processing costs, primarily reflect higher input costs.
2009 2008 By-Product Co-Product By-Product Co-Product Method Method Method Method
Revenues, excluding adjustments $ 2.70 $ 2.70 $ 2.57 $ 2.57 Site production and delivery, before net noncash and other costs shown below 1.08 1.02 1.13 1.07 By-product credits (0.11) — (0.13) — Treatment charges 0.15 0.15 0.14 0.14 Unit net cash costs 1.12 1.17 1.14 1.21 Depreciation, depletion and amortization 0.20 0.19 0.33 0.32 Noncash and other costs, net 0.02 0.02 0.07 0.06 Total unit costs 1.34 1.38 1.54 1.59 INC. & GOLD COPPER FREEPORT-McMoRan Revenue adjustments, primarily for pricing on prior year open sales 0.08 0.08 0.15 0.15 Other non-inventoriable costs (0.02) (0.02) (0.02) (0.02) Gross profit per pound $ 1.42 $ 1.38 $ 1.16 $ 1.11
Copper sales (millions of recoverable pounds) 1,394 1,394 1,521 1,521
Unit net cash costs (net of by-product credits) for our South America Indonesia Mining mining operations decreased to $1.12 per pound of copper in 2009, Indonesia mining includes PT Freeport Indonesia’s Grasberg compared with $1.14 per pound in 2008, primarily reflecting lower minerals district. We own 90.64 percent of PT Freeport Indonesia, site production and delivery costs ($0.05 per pound) associated with including 9.36 percent owned through our wholly owned subsidiary,
lower input costs (primarily energy). PT Indocopper Investama. 2010 Annual Report The decrease in depreciation, depletion and amortization in PT Freeport Indonesia produces copper concentrates, which 2009, compared with 2008, primarily reflected the impact contain significant quantities of gold and silver. Substantially all of of the long-lived asset impairment charges recognized in fourth- PT Freeport Indonesia’s copper concentrates are sold under quarter 2008 (refer to Note 17 for further discussion of these long-term contracts, of which approximately one-half is sold to impairment charges).
39 MANAGEMENT’S DISCUSSION AND ANALYSIS
affiliated smelters, Atlantic Copper and PT Smelting (PT Freeport with PT Freeport Indonesia’s share totaling approximately Indonesia’s 25-percent owned copper smelter and refinery in $3.4 billion. Aggregate project costs totaling $260 million have been Indonesia — refer to Note 2 for further discussion), and the remainder incurred through December 31, 2010, of which $143 million was to other customers. incurred during 2010. Targeted production rates once the Grasberg Refer to Note 2 for further discussion of our joint ventures with Block Cave mining operation reaches full capacity are expected to Rio Tinto plc and to Note 14 for further discussion of PT Freeport approximate 160,000 metric tons of ore per day. Indonesia’s Contract of Work with the Government of Indonesia. Big Gossan. The Big Gossan underground mine is a high-grade Development Activities. We have several projects in progress in the deposit located near PT Freeport Indonesia’s existing milling Grasberg minerals district, including development of the large-scale, complex. The Big Gossan mine is being developed as an open-stope high-grade underground ore bodies located beneath and adjacent mine with backfill consisting of mill tailings and cement, an to the Grasberg open pit. Aggregate capital spending on these established mining methodology expected to be higher cost than the projects approximated $288 million for the year 2010 ($228 million block-cave method used at the DOZ mine. Production, which began net to PT Freeport Indonesia). Over the next five years, aggregate in fourth-quarter 2010, is designed to ramp up to 7,000 metric tons capital spending on these projects is expected to average $600 million of ore per day by late 2012 (equal to average annual aggregate per year ($470 million net to PT Freeport Indonesia). Considering incremental production of 125 million pounds of copper and 65,000 the long-term nature and large size of these projects, actual costs ounces of gold, with PT Freeport Indonesia receiving 60 percent of could differ materially from these estimates. these amounts). The aggregate capital investment for this project is The following provides additional information on these projects, currently estimated at approximately $535 million, with PT Freeport including the continued development of the Common Infrastructure Indonesia’s share totaling approximately $500 million. Aggregate project, the Grasberg Block Cave and Big Gossan underground mines, project costs of $444 million have been incurred through the completed expansion of the Deep Ore Zone (DOZ) underground December 31, 2010, of which $67 million was incurred during 2010. mine and development of the Deep Mill Level Zone (DMLZ) ore body. DOZ Expansion. PT Freeport Indonesia’s further expansion of Common Infrastructure and Grasberg Block Cave. In 2004, the DOZ mine to 80,000 metric tons of ore per day was completed in PT Freeport Indonesia commenced its Common Infrastructure project first-quarter 2010. The capital cost for this expansion approximated to provide access to its large undeveloped underground ore bodies $100 million, with PT Freeport Indonesia’s share totaling located in the Grasberg minerals district through a tunnel system approximately $60 million. The success of the development of the located approximately 400 meters deeper than its existing DOZ mine, one of the world’s largest underground mines, provides underground tunnel system. In addition to providing access to our confidence in the future development of PT Freeport Indonesia’s underground ore bodies, the tunnel system will enable PT Freeport large-scale undeveloped underground ore bodies. Indonesia to conduct future exploration in prospective areas DMLZ. The DMLZ ore body lies below the DOZ mine at the associated with currently identified ore bodies. The tunnel system has 2,590-meter elevation and represents the downward continuation of reached the Big Gossan terminal and development of the lower mineralization in the Ertsberg East Skarn system and neighboring Big Gossan infrastructure is ongoing. We have also advanced Ertsberg porphyry. The DMLZ feasibility study was completed development of the Grasberg spur and have completed the tunneling in fourth-quarter 2009. We plan to mine the ore body using a required to reach the Grasberg underground ore body. Development block-cave method with production beginning in 2015, near continues on the Grasberg Block Cave terminal infrastructure and completion of mining at the DOZ. Drilling efforts continue to mine access. determine the extent of this ore body. We continue to develop the In 2008, we completed the feasibility study for the development of Common Infrastructure project and tunnels from mill level. In 2009, the Grasberg Block Cave underground mine, which accounts for over we completed a portion of the spur to the DMLZ mine and reached one-third of our reserves in Indonesia. Production at the Grasberg the edge of the DMLZ terminal and development continued on 2010 Annual Report Annual 2010 Block Cave mine is currently scheduled to commence at the end of terminal infrastructure and mine access in 2010. Aggregate mine mining the Grasberg open pit, which is currently expected to continue development capital costs for the DMLZ are expected to until mid-2016. The timing of the transition to underground approximate $2.0 billion (to be incurred from 2009 to 2020), Grasberg Block Cave mine development will continue to be assessed. with PT Freeport Indonesia’s share totaling approximately $1.2 billion. Aggregate mine development capital for the Grasberg Block Cave Aggregate project costs totaling $103 million have been incurred mine and associated Common Infrastructure is expected to through December 31, 2010, including $78 million during 2010. approximate $3.7 billion (to be incurred between 2008 and 2021), Targeted production rates once the DMLZ mining operation reaches full capacity are expected to approximate 80,000 metric tons of ore per day. FREEPORT-McMoRan COPPER & GOLD INC.
40 MANAGEMENT’S DISCUSSION AND ANALYSIS
Other Matters. Refer to Note 13 for information on contingencies at 2009 compared with 2008. PT Freeport Indonesia’s share of our Indonesia mining operations. sales increased to 1.4 billion pounds of copper and 2.5 million Operating Data. Following is summary operating data for our ounces of gold in 2009, compared with 1.1 billion pounds of copper Indonesia mining operations for the years ended December 31. and 1.2 million ounces of gold in 2008, as a result of mining in a higher grade section of the Grasberg open pit during 2009, including 2010 2009 2008 accelerated mining of a higher grade section that was previously Operating Data, Net of Joint Venture Interest scheduled to be mined in future periods. Copper (millions of recoverable pounds) Production 1,222 1,412 1,094 Unit Net Cash Costs. Unit net cash costs per pound of copper is a Sales 1,214 1,400 1,111 measure intended to provide investors with information about the Average realized price per pound $ 3.69 $ 2.65 $ 2.36 cash-generating capacity of our mining operations expressed on a Gold (thousands of recoverable ounces) basis relating to the primary metal product for our respective Production 1,786 2,568 1,163 Sales 1,765 2,543 1,182 operations. We use this measure for the same purpose and for Average realized price per ounce $ 1,271 $ 994 $ 861 monitoring operating performance by our mining operations. This 100% Operating Data information differs from measures of performance determined in Ore milled (metric tons per day):a accordance with U.S. GAAP and should not be considered in isolation Grasberg open pit 149,800 166,300 129,800 or as a substitute for measures of performance determined in DOZ underground mine 79,600 72,000 63,100 Big Gossan underground mine 800 — — accordance with U.S. GAAP. This measure is presented by other Total 230,200 238,300 192,900 mining companies, although our measure may not be comparable to Average ore grade: similarly titled measures reported by other companies. Copper (percent) 0.85 0.98 0.83 Gross Profit per Pound of Copper/per Ounce of Gold. The following Gold (grams per metric ton) 0.90 1.30 0.66 tables summarize the unit net cash (credits) costs and gross profit per Recovery rates (percent): Copper 88.9 90.6 90.1 pound of copper and per ounce of gold at our Indonesia mining Gold 81.7 83.7 79.9 operations for the years ended December 31. Refer to “Production Production (recoverable): Revenues and Production Costs” for an explanation of “by-product” Copper (millions of pounds) 1,330 1,641 1,109 and “co-product” methods and a reconciliation of unit net cash Gold (thousands of ounces) 1,964 2,984 1,163 (credits) costs per pound to production and delivery costs applicable a. Amounts represent the approximate average daily throughput processed at PT Freeport Indonesia’s mill facilities from each producing mine. to sales reported in our consolidated financial statements.
2010 compared with 2009. 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. PT Freeport Indonesia’s share of sales decreased to 1.2 billion pounds of copper and 1.8 million ounces of gold in 2010, compared with 1.4 billion pounds of copper and 2.5 million ounces of gold in 2009. Anticipated changes in ore grades FREEPORT-McMoRan COPPER & GOLD INC. & GOLD COPPER FREEPORT-McMoRan throughout the year resulted in significant variability in quarterly volumes during 2010. Lower copper and gold sales volumes in 2010 primarily reflect mining in a lower grade section of the Grasberg open pit during the first half of 2010. We expect to mine in a lower grade section of the Grasberg open pit during 2011. As a result, PT Freeport Indonesia’s projected sales of 1.0 billion pounds of copper and 1.3 million ounces of gold for 2011 are lower than 2010 volumes. Ore grades and copper and gold sales volumes are expected to be higher in the second half of 2011, compared with the first half, with approximately 53 percent
of copper and 57 percent of gold expected in the second half. 2010 Annual Report
41 MANAGEMENT’S DISCUSSION AND ANALYSIS
2010 2009
By-Product Co-Product Method By-Product Co-Product Method Method Copper Gold Method Copper Gold Revenues, after adjustments $ 3.69 $ 3.69 $1,271 $ 2.65 $ 2.65 $ 994 Site production and delivery, before net noncash and other costs shown below 1.53 1.01 347 1.05 0.62 232 Gold and silver credits (1.92) — — (1.86) — — Treatment charges 0.22 0.15 50 0.22 0.13 49 Royalty on metals 0.13 0.08 29 0.10 0.06 23 Unit net cash (credits) costs (0.04) 1.24 426 (0.49) 0.81 304 Depreciation and amortization 0.21 0.14 48 0.20 0.11 43 Noncash and other costs, net 0.04 0.02 9 0.03 0.02 6 Total unit (credits) costs 0.21 1.40 483 (0.26) 0.94 353 Revenue adjustments, primarily for pricing on prior year open sales (0.01) (0.01) 1 0.04 0.04 2 PT Smelting intercompany profit (0.03) (0.02) (8) (0.04) (0.02) (9) Gross profit per pound/ounce $ 3.44 $ 2.26 $ 781 $ 2.91 $ 1.73 $ 634
Copper sales (millions of recoverable pounds) 1,214 1,214 1,400 1,400 Gold sales (thousands of recoverable ounces) 1,765 2,543
Because of the fixed nature of a large portion of PT Freeport Projected lower copper and gold volumes for 2011 and the effect Indonesia’s costs, unit costs vary significantly from period to period of higher input costs are expected to result in an increase in depending on volumes of copper and gold sold during the period. PT Freeport Indonesia’s unit net cash costs. Assuming achievement Unit net cash costs (net of gold and silver credits) increased to a net of current sales volume and cost estimates, and an average gold credit of $0.04 per pound of copper in 2010, compared with a net price of $1,350 per ounce in 2011, we estimate that average unit net credit of $0.49 per pound in 2009, reflecting higher site production cash costs for PT Freeport Indonesia (net of gold and silver credits) and delivery costs ($0.48 per pound) primarily associated with would approximate $0.60 per pound of copper in 2011. Each higher input costs (including materials, labor and energy), higher $50 per ounce change in average gold prices during the year would maintenance and support costs and higher cost sharing under have an approximate $0.065 per pound impact on PT Freeport joint venture arrangements. Partly offsetting higher site production Indonesia’s 2011 unit net cash costs. Quarterly unit net cash costs and delivery costs were higher gold credits ($0.06 per pound) will vary significantly with variations in quarterly metal sales volumes, associated with higher gold prices. and unit net cash costs are expected to be higher in the first half of Treatment charges vary with the volume of metals sold and the 2011 compared with the second half. price of copper, and royalties vary with the volume of metals sold and the prices of copper and gold.
2009 2008
By-Product Co-Product Method By-Product Co-Product Method Method Copper Gold Method Copper Gold Revenues, after adjustments $ 2.65 $ 2.65 $ 994 $ 2.36 $ 2.36 $ 861 Site production and delivery, before net noncash and other costs shown below 1.05 0.62 232 1.59 1.13 413 Gold and silver credits (1.86) — — (0.97) — — Treatment charges 0.22 0.13 49 0.24 0.17 63 Royalty on metals 0.10 0.06 23 0.10 0.07 26
2010 Annual Report Annual 2010 Unit net cash (credits) costs (0.49) 0.81 304 0.96 1.37 502 Depreciation and amortization 0.20 0.11 43 0.20 0.14 52 Noncash and other costs, net 0.03 0.02 6 0.03 0.02 7 Total unit (credits) costs (0.26) 0.94 353 1.19 1.53 561 Revenue adjustments, primarily for pricing on prior year open sales 0.04 0.04 2 0.09 0.09 6 PT Smelting intercompany profit (0.04) (0.02) (9) 0.01 0.01 4 Gross profit per pound/ounce $ 2.91 $ 1.73 $ 634 $ 1.27 $ 0.93 $ 310
Copper sales (millions of recoverable pounds) 1,400 1,400 1,111 1,111 Gold sales (thousands of recoverable ounces) 2,543 1,182 FREEPORT-McMoRan COPPER & GOLD INC.
42 MANAGEMENT’S DISCUSSION AND ANALYSIS
Unit net cash costs (net of gold and silver credits) decreased to a net Operating Data. Following is summary operating data for our Africa credit of $0.49 per pound of copper in 2009, compared with a net mining operations for the years ended December 31. cost of $0.96 per pound in 2008, reflecting higher gold and silver 2010 2009a credits ($0.89 per pound) resulting from higher gold sales volumes Copper (millions of recoverable pounds) and prices in 2009, and lower site production and delivery costs Production 265 154 ($0.54 per pound) primarily associated with higher copper sales Sales 262 130 volumes and lower commodity-based input costs. Average realized price per poundb $ 3.45 $ 2.85 Cobalt (millions of recoverable pounds) Africa Mining Production 20 N/Ac Africa mining, which is consolidated in our financial statements, Sales 20 N/Ac Average realized price per pound $ 10.95 N/Ac includes the Tenke copper and cobalt mining concessions in the Ore milled (metric tons per day) 10,300 7,300 Katanga province of the DRC. The Tenke mine includes open-pit Average ore grade (percent): mining, leaching and SX/EW operations. Copper production from the Copper 3.51 3.69 Tenke mine is sold as copper cathode. In addition to copper, the Cobalt 0.40 N/Ac Tenke mine produces cobalt hydroxide. Copper recovery rate (percent) 91.4 92.1 In October 2010, the government of the DRC announced the a. Results for 2009 represent mining operations that began production in March 2009. b. Includes adjustments for point-of-sale transportation costs as negotiated in customer conclusion of the review of TFM’s contracts, and confirmed that contracts. TFM’s existing mining contracts are in good standing and c. Comparative results for the 2009 periods have not been included as start-up activities were still under way. acknowledged the rights and benefits granted under those contracts. In connection with the review, TFM made several commitments Copper sales volumes from the Tenke mine increased to 262 million that have been reflected in amendments to its mining contracts. pounds of copper in 2010, compared with 130 million pounds of In December 2010, the addenda to TFM’s Amended and Restated copper in 2009, reflecting higher operating rates and a full year of Mining Convention and Amended and Restated Shareholders’ production in 2010. Consolidated sales volumes from Tenke are Agreement were signed by the parties and are pending a Presidential expected to approximate 285 million pounds of copper and over Decree. TFM’s existing mining contracts will be in effect until 20 million pounds of cobalt in 2011. the Presidential Decree is obtained. After giving effect to the The milling facilities at Tenke, which were designed to produce amendments and obtaining approval of the modification to TFM’s at a capacity rate of 8,000 metric tons of ore per day, continue to bylaws, our effective ownership interest in the project will be perform above capacity, with 2010 mill throughput averaging 56.0 percent, compared to our previous ownership interest of 10,300 metric tons of ore per day. Additionally, Tenke has procured 57.75 percent (refer to Note 14 for further discussion). additional equipment, which is enabling additional high-grade Operating and Development Activities. Construction activities for material to be mined and processed in 2011. As a result of these the initial development project are complete, and copper production enhancements to the mine plan and using an expected mill throughput commenced in late March 2009, with targeted copper production rate of 10,000 metric tons of ore per day, we estimate the average rates achieved in September 2009. The cobalt and sulphuric acid annual copper production at Tenke will increase from the initial rate of plants were commissioned in third-quarter 2009. 250 million pounds of copper per year to approximately 290 million We continue to engage in drilling activities, exploration analyses pounds of copper. INC. & GOLD COPPER FREEPORT-McMoRan and metallurgical testing to evaluate the potential of the highly Unit Net Cash Costs. Unit net cash costs per pound of copper prospective minerals district at Tenke. These analyses are being is a measure intended to provide investors with information about the incorporated in future plans to evaluate opportunities for expansion. cash-generating capacity of our mining operations expressed We are planning a second phase of the project, which would include on a basis relating to the primary metal product for our respective optimizing the current plant and increasing capacity. As part of operations. We use this measure for the same purpose and for the second phase, a range of near-term expansion options are being monitoring operating performance by our mining operations. This considered, which have the potential of adding 100 million to information differs from measures of performance determined in 200 million pounds of copper per year over the next two to three accordance with U.S. GAAP and should not be considered in isolation years. We expect production volumes from the project to expand or as a substitute for measures of performance determined in significantly over time. Future expansions are subject to a number of
accordance with U.S. GAAP. This measure is presented by other 2010 Annual Report factors, including economic and market conditions and the business mining companies, although our measure may not be comparable and investment climate in the DRC. to similarly titled measures reported by other companies.
43 MANAGEMENT’S DISCUSSION AND ANALYSIS
Gross Profit per Pound of Copper/per Pound of Cobalt. The following Henderson mine and from certain of our North and South America table summarizes the unit net cash costs and gross profit per pound mines that produce molybdenum; and related conversion facilities of copper and cobalt at our Africa mining operations for the year that, at times, roast and/or process material on a toll basis for third ended December 31. Comparative information for the 2009 and parties. Toll arrangements require the tolling customer to deliver 2008 periods have not been included as start-up activities were still appropriate molybdenum-bearing material to our facilities for under way. Refer to “Production Revenues and Production Costs” processing into a product that is returned to the customer, who pays for an explanation of “by-product” and “co-product” methods and a us for processing their material into the specified products. reconciliation of unit net cash costs to production and delivery costs Development Activities. Construction activities at the Climax applicable to sales reported in our consolidated financial statements. molybdenum mine are continuing, and recent activities include completion of concrete foundations for various equipment 2010 installations and commencement of the ball mill shell assembly. We By-Product Co-Product Method Method Copper Colbalt plan to advance construction and conduct mine preparation activities
Revenues, excluding adjustmentsa $ 3.45 $ 3.45 $10.95 during 2011. The timing for startup of mining and milling activities Site production and delivery, before net is dependent on market conditions. We believe that this project is one noncash and other costs shown below 1.40 1.23 5.78 of the most attractive primary molybdenum development projects Cobalt credits (0.58)b — — in the world, with large-scale production capacity, attractive cash Royalty on metals 0.08 0.06 0.19 Unit net cash costs 0.90 1.29 5.97 costs and future growth options. The Climax molybdenum mine would Depreciation, depletion and amortization 0.49 0.41 1.03 have an initial annual design capacity of 30 million pounds with Noncash and other costs, net 0.11 0.10 0.23 significant expansion options. Total estimated costs for the project Total unit costs 1.50 1.80 7.23 Revenue adjustments, primarily for pricing approximate $700 million, of which approximately $254 million has on prior period open sales — — 0.18 been incurred ($54 million in 2010). Other non-inventoriable costs (0.08) (0.07) (0.16) Operating Data. Following is summary operating data for the Gross profit per pound $ 1.87 $ 1.58 $ 3.74 Molybdenum operations for the years ended December 31. Copper sales (millions of recoverable pounds) 262 262 Cobalt sales (millions of recoverable pounds) 20 2010 2009 2008
Molybdenum (millions of recoverable pounds) a. Includes adjustments for point-of-sale transportation costs as negotiated in customer a contracts. Production 40 27 40 b. Net of cobalt downstream processing and freight costs. Sales, excluding purchasesb 67 58 71 Average realized price per pound $ 16.47 $ 12.36 $ 30.55 Unit net cash costs (net of cobalt credits) for Tenke averaged Henderson molybdenum mine $0.90 per pound of copper in 2010. Assuming achievement of Ore milled (metric tons per day) 22,900 14,900 24,100 current sales volumes, our revised cost estimates and an average Average molybdenum ore grade (percent) 0.25 0.25 0.23 Molybdenum production cobalt price of $14 per pound for 2011, we estimate that average (millions of recoverable pounds) 40 27 40 unit net cash costs for Tenke (net of cobalt credits) would a. Reflects production at the Henderson molybdenum mine. approximate $0.85 per pound of copper in 2011. Each $2 per b. Includes sales of molybdenum produced at certain of our North and South America mines. pound change in the average price of cobalt would have an approximate $0.09 per pound impact on Tenke’s unit net cash costs. As a result of improved market conditions, Henderson operated at approximately 90 percent capacity during 2010, compared with Molybdenum 60 percent capacity during most of 2009. Molybdenum sales volumes Our Molybdenum operations are an integrated producer of increased to 67 million pounds in 2010, compared with 58 million molybdenum, with mining, sulfide ore concentrating, roasting and pounds in 2009, reflecting improved demand in the chemicals sector. processing facilities that produce high-purity, molybdenum-based
2010 Annual Report Annual 2010 Molybdenum sales volumes are expected to approximate 70 million chemicals, molybdenum metal powder and metallurgical products, pounds for the year 2011, of which approximately 45 million pounds which are sold to customers around the world, and include the represents production from our North and South America mines. wholly owned Henderson molybdenum mine in Colorado and related Unit Net Cash Costs. Unit net cash costs per pound of molybdenum conversion facilities. The Henderson underground mine produces is a measure intended to provide investors with information about high-purity, chemical-grade molybdenum concentrates, which are the cash-generating capacity of our mining operations expressed on typically further processed into value-added molybdenum chemical a basis relating to the primary metal product for our respective products. The Molybdenum operations also include the wholly owned operations. We use this measure for the same purpose and for Climax molybdenum mine in Colorado, for which construction monitoring operating performance by our mining operations. This activities in preparation to restart mining activities are ongoing; information differs from measures of performance determined in a sales company that purchases and sells molybdenum from our FREEPORT-McMoRan COPPER & GOLD INC.
44 MANAGEMENT’S DISCUSSION AND ANALYSIS
accordance with U.S. GAAP and should not be considered in Through downstream integration, we are assured placement of isolation or as a substitute for measures of performance determined a significant portion of our concentrate production. During 2010, in accordance with U.S. GAAP. This measure is presented by other Atlantic Copper purchased approximately 28 percent of its mining companies, although our measure may not be comparable to concentrate requirements from our Indonesia mining operation and similarly titled measures reported by other companies. approximately 25 percent from our South America mining operations. Gross Profit per Pound of Molybdenum. The following table Smelting and refining charges consist of a base rate and, in summarizes the unit net cash costs and gross profit per pound of certain contracts, price participation based on copper prices. molybdenum at our Henderson molybdenum mine for the years Treatment charges for smelting and refining copper concentrates ended December 31. Refer to “Product Revenues and Production represent a cost to our Indonesia and our South America mining Costs” for a reconciliation of unit net cash costs per pound to operations, and income to Atlantic Copper and PT Smelting, our production and delivery costs applicable to sales reported in our 25 percent owned smelter and refinery in Gresik, Indonesia. Thus, consolidated financial statements. higher treatment and refining charges benefit our smelter operations at Atlantic Copper and adversely affect our mining operations in 2010 2009 2008 Indonesia and South America. Our North America copper mines are Revenues $15.89 $12.78 $29.94 not significantly affected by changes in treatment and refining Site production and delivery, before net noncash and other costs shown below 4.82 5.43 5.35 charges because these operations are fully integrated with our Miami Treatment charges and other 1.08 1.09 0.67 smelter located in Arizona. Unit net cash costs 5.90 6.52 6.02 Atlantic Copper had operating losses of $37 million in 2010 and Depreciation, depletion and amortization 0.83 0.98 4.25 Noncash and other costs, net 0.03 0.04 0.19a $56 million in 2009, compared with operating income of $10 million Total unit costs 6.76 7.54 10.46 in 2008. The improvement in Atlantic Copper’s operating results in Gross profit per poundb $ 9.13 $ 5.24 $19.48 2010, compared with 2009, primarily reflected higher sulphuric acid Molybdenum sales and gold revenues associated with higher prices. Atlantic Copper’s (millions of recoverable pounds)c 40 27 40 operating results in 2009, compared with 2008, primarily reflect a. Includes charges of $0.03 per pound in 2008 associated with LCM inventory adjustments. lower sulphuric acid revenues resulting from lower prices. b. Gross profit reflects sales of Henderson products based on volumes produced at market-based pricing. On a consolidated basis, the Molybdenum division includes We defer recognizing profits on sales from our Indonesia and our profits on sales as they are made to third parties and realizations based on actual South America mining operations to Atlantic Copper and on contract terms. As a result, the actual gross profit realized will differ from the amounts reported in this table. 25 percent of our Indonesia mining sales to PT Smelting until final c. Reflects molybdenum produced by the Henderson molybdenum mine. sales to third parties occur. Our net deferred profits on our Henderson’s unit net cash costs were $5.90 per pound of Indonesia and South America mining operations’ inventories at molybdenum in 2010, $6.52 per pound in 2009 and $6.02 per Atlantic Copper and PT Smelting to be recognized in future pound in 2008. Henderson’s unit net cash costs benefited in 2010 periods’ net income after taxes and noncontrolling interests totaled from higher production volumes, partly offset by higher mining $271 million at December 31, 2010. Changes in these net costs. Higher unit net cash costs in 2009, compared with 2008, deferrals attributable to variability in intercompany volumes resulted primarily reflected lower production volumes, partly offset by the in net reductions to net income attributable to FCX common stockholders totaling $67 million ($0.07 per share) in 2010, impact of cost reduction efforts. Assuming achievement of current INC. & GOLD COPPER FREEPORT-McMoRan sales volume and cost estimates, we estimate that the 2011 average compared with net additions of $21 million ($0.02 per share) in unit net cash costs for Henderson would approximate $7.20 2009 and $12 million ($0.02 per share) in 2008. Quarterly per pound of molybdenum, which are higher than 2010 primarily variations in ore grades, the timing of intercompany shipments and because of anticipated lower volumes from Henderson. changes in prices will result in variability in our net deferred profits The decrease in Henderson’s depreciation, depletion and and quarterly earnings. amortization in 2009, compared with 2008, reflects the impact of CAPITAL RESOURCES AND LIQUIDITY long-lived asset impairment charges recognized in fourth-quarter Our operating cash flows vary with prices realized from copper, gold 2008 (refer to Note 17 for further discussion). and molybdenum sales, our sales volumes, production costs, income Atlantic Copper Smelting & Refining taxes and other working capital changes and other factors. As a result of weak economic conditions, we revised our operating plans at Atlantic Copper, our wholly owned subsidiary located in Spain, 2010 Annual Report smelts and refines copper concentrates and markets refined copper the end of 2008 and in early 2009 to protect liquidity while and precious metals in slimes. Our Indonesia mining operation preserving our large mineral resources and growth options for the sells copper concentrate and our South America mining operations longer term (refer to Note 17 for further discussion). However, strong sell copper concentrate and copper cathode to Atlantic Copper. operating performance and improved copper prices since the end of
45 MANAGEMENT’S DISCUSSION AND ANALYSIS
2008 have enabled us to enhance our financial and liquidity Investing Activities position, reduce debt and reinstate cash dividends to shareholders, Capital Expenditures. Capital expenditures, including capitalized while maintaining our future growth opportunities. In addition, interest, totaled $1.4 billion in 2010 (including $0.7 billion for major we resumed certain project development activities at our mining projects), $1.6 billion in 2009 (including $1.0 billion for major operations (refer to “Operations” for further discussion). We view the projects and the Twin Buttes property acquisition) and $2.7 billion in long-term outlook for our business positively, supported by limitations 2008 (including $1.6 billion for major projects). The decrease in on supplies of copper and by the requirements for copper in the capital expenditures in 2010, compared with 2009, primarily world’s economy, and will continue to adjust our operating strategy reflected lower capital spending for the initial Tenke development as market conditions change. project for which construction activities were substantially complete Based on current mine plans and subject to future copper, gold by mid-2009, partly offset by higher spending associated with and molybdenum prices, we expect estimated operating cash flows underground development projects at Grasberg and the sulfide ore for the year 2011 to be greater than our budgeted capital project at El Abra. The decrease in capital expenditures in 2009, expenditures, expected debt payments, dividends, noncontrolling compared with 2008, primarily reflected the effects of the decision interest distributions and other cash requirements. to defer capital spending for several projects, lower capital spending for the initial Tenke development project and reduced spending for Cash and Cash Equivalents sustaining capital. At December 31, 2010, we had consolidated cash and cash Capital expenditures for the year 2011 are expected to equivalents of $3.7 billion. The following table reflects the U.S. and approximate $2.5 billion (including $1.3 billion for major projects), international components of consolidated cash and cash equivalents primarily associated with underground development activities at at December 31, 2010 and 2009 (in billions): Grasberg, construction activities at the Climax molybdenum mine and 2010 2009 completion of the initial phase of the sulfide ore project at Cash at domestic companiesa $ 1.9 $ 1.5 El Abra. In addition, we are considering additional investments at Cash at international operations 1.8 1.2 several of our sites. Capital spending plans will continue to be Total consolidated cash and cash equivalents 3.7 2.7 reviewed and adjusted in response to changes in market conditions Less: Noncontrolling interests’ share (0.4) (0.3) Cash, net of noncontrolling interests’ share 3.3 2.4 and other factors. Refer to “Operations” for further discussion. Less: Withholding taxes and other (0.2) (0.2) Investment in McMoRan Exploration Co. (MMR). In December Net cash available to FCX $ 3.1 $ 2.2 2010, we completed the purchase of 500,000 shares of MMR’s
a. Includes cash at our parent company and North America operations. 5¾% Convertible Perpetual Preferred Stock (the Preferred Stock) for an aggregate purchase price of $500 million. The Preferred Stock Operating Activities is initially convertible into 62.5 shares of MMR common stock During 2010, we generated operating cash flows totaling $6.3 billion, per share of Preferred Stock (an aggregate of 31.25 million shares or net of $834 million for working capital uses. Operating cash flows approximately 14 percent of MMR’s common stock on a fully in 2009 totaled $4.4 billion, net of $770 million for working capital converted basis at December 31, 2010), or an initial conversion uses, which included approximately $600 million related to price of $16 per share of MMR common stock. settlement of final pricing with customers on 2008 provisionally Other Investing Activities. During 2008, our global reclamation priced copper sales. Operating cash flows in 2008 totaled and remediation trusts decreased by $430 million resulting primarily $3.4 billion, net of $965 million for working capital uses, which from reimbursement of previously incurred costs for reclamation included $598 million to settle the 2007 copper price protection and environmental activities. program contract. Our operating cash flows vary with prices realized from copper, gold Financing Activities
2010 Annual Report Annual 2010 and molybdenum sales, our sales volumes, production costs, income Debt and Equity Transactions. Total debt approximated $4.8 billion taxes and other working capital changes and other factors. Higher at December 31, 2010, $6.3 billion at December 31, 2009, and operating cash flows for 2010, compared with 2009, primarily $7.4 billion at December 31, 2008. Since January 1, 2009, we have reflected higher copper and gold price realizations. Higher operating repaid approximately $2.6 billion in debt, resulting in estimated cash flows for 2009, compared with 2008, primarily reflected lower annual interest savings of $167 million based on current interest rates. operating costs and higher gold sales volumes and price realizations. Refer to “Outlook” for further discussion of projected 2011 operating cash flows. FREEPORT-McMoRan COPPER & GOLD INC.
46 MANAGEMENT’S DISCUSSION AND ANALYSIS
During 2010, we redeemed all of our $1 billion Senior Floating We have an open-market share purchase program for up to Rate Notes due 2015 for which holders received 101 percent 30 million shares. During 2008, on a pre-split basis, we of the principal amount together with accrued and unpaid interest. purchased 6.3 million shares of our common stock for $500 million In addition, we made open-market purchases of $565 million of ($79.15 per share average) under our open-market share our senior notes at a cost of $621 million. purchase program; however, because of financial market turmoil
During 2009, we redeemed $340 million of our 6 7/8% Senior and the declines in copper and molybdenum prices, in Notes for $352 million (plus accrued and unpaid interest), and also September 2008, we suspended purchases of our common stock made open-market purchases of $387 million of our senior notes under the program. We made no purchases under this program for $416 million. during 2009 or 2010. There are 23.7 million shares remaining In February 2008, we made open-market purchases of $33 million under this program, and the timing of future purchases of our of our 9½% Senior Notes for $46 million. common stock is dependent on many factors, including our Refer to Note 9 for further discussion of these debt repayment operating results; cash flows and financial position; copper, gold transactions. and molybdenum prices; the price of our common shares; and We have no significant debt maturities in the near term; however, general economic and market conditions. we may consider opportunities to prepay debt in advance of Dividends. The declaration of dividends is at the discretion of scheduled maturities. Our 8.375% Senior Notes are redeemable in our Board of Directors (the Board). The amount of cash dividends on whole or in part, at our option, at make-whole redemption prices our common stock is dependent upon our financial results, cash prior to April 1, 2012, and afterwards at stated redemption prices. requirements, future prospects and other factors deemed relevant by Refer to Note 9 for further discussion of these notes. the Board. Because of the deterioration in copper and molybdenum We have revolving credit facilities available until March 19, 2012, prices and in general economic conditions, in December 2008, the which are composed of (i) a $1.0 billion revolving credit facility Board suspended the cash dividend on our common stock; accordingly, available to FCX and (ii) a $0.5 billion revolving credit facility available there were no common stock dividends paid in 2009, compared with to both FCX and PT Freeport Indonesia. Interest on the revolving $693 million ($0.90625 per share) in 2008. In October 2009, the credit facilities accrues at the London Interbank Offered Rate (LIBOR) Board reinstated a cash dividend on our common stock at an annual plus 1.00 percent, subject to an increase or decrease in the interest rate of $0.30 per share ($0.075 per share quarterly). In April 2010, the rate margin based on the credit ratings assigned by Standard & Poor’s Board authorized an increase in the cash dividend to an annual rate Rating Services and Moody’s Investors Service. At December 31, of $0.60 per share ($0.15 per share quarterly) and in October 2010, 2010, we had no borrowings and $43 million of letters of credit the Board authorized another increase in the cash dividend to an issued under the facilities, resulting in availability of approximately annual rate of $1.00 per share ($0.25 per share quarterly). $1.5 billion ($957 million of which could be used for additional letters In December 2010, the Board also declared a supplemental of credit). The revolving credit facilities contain restrictions on the common stock dividend of $0.50 per share, which was paid on amount available for dividend payments, purchases of our common December 30, 2010. For 2010, common stock dividends paid totaled stock and certain debt prepayments. However, these restrictions do $885 million, which included $472 million for the supplemental not apply as long as availability under the revolvers plus domestic cash dividend paid on December 30, 2010. On December 29, 2010, the exceeds $750 million. At December 31, 2010, we had availability Board declared a regular quarterly dividend of $0.25 per share, FREEPORT-McMoRan COPPER & GOLD INC. & GOLD COPPER FREEPORT-McMoRan under the revolvers plus available domestic cash (as defined by the which was paid on February 1, 2011, to common shareholders of revolving credit facility) of approximately $4.1 billion. record at the close of business on January 15, 2011. Based on In addition, the indenture governing certain of our senior notes outstanding common shares of 945 million at December 31, 2010, contains restrictions on incurring debt, making restricted payments at current levels our estimated common stock dividend for 2011 and selling assets. As a result of the investment grade ratings on approximates $945 million. these notes, these covenants are currently suspended. However, to In December 2010, the Board declared a two-for-one split of our the extent the rating is downgraded below investment grade by both common stock, which was effected on February 1, 2011. On Standard & Poor’s Rating Services and Moody’s Investors Service, February 2, 2011, our common stock began trading on the New York the covenants would again become effective. Stock Exchange on a split adjusted basis. As discussed previously, In February 2009, we completed a public offering of 53.6 million all common share and per share amounts have been adjusted shares of our common stock at an average price of $14.00 per share, to reflect the two-for-one stock split, unless otherwise noted. Refer to 2010 Annual Report which generated gross proceeds of $750 million (net proceeds of Note 11 for further discussion. approximately $740 million after fees and expenses), which were used for general corporate purposes.
47 MANAGEMENT’S DISCUSSION AND ANALYSIS
Preferred stock dividends paid totaled $95 million in 2010 Cash dividends and distributions paid to noncontrolling interests representing dividends on our 6¾% Mandatory Convertible Preferred totaled $816 million in 2010, $535 million in 2009 and $730 million Stock. Preferred stock dividends totaled $229 million in 2009 and in 2008, reflecting dividends and distributions paid to the $255 million in 2008 representing dividends on our 5½% Convertible noncontrolling interest owners of PT Freeport Indonesia and our Perpetual Preferred Stock and 6¾% Mandatory Convertible Preferred South America mines. Stock. During 2010, our 6¾% Mandatory Convertible Preferred Stock CONTRACTUAL OBLIGATIONS converted into 78.9 million shares of our common stock, and in 2009, We have contractual and other long-term obligations, including debt we redeemed our 5½% Convertible Perpetual Preferred Stock in maturities, which we expect to fund with projected operating exchange for 35.8 million shares of our common stock (refer to cash flows, availability under our revolving credit facilities or future Note 11 for further discussion). As a result of these transactions, we financing transactions, if necessary. A summary of these various no longer have requirements to pay preferred stock dividends. obligations at December 31, 2010, follows (in millions):
Total 2011 2012 to 2013 2014 to 2015 Thereafter Debt maturities $ 4,755 $ 95 $ 2 $ 1,081 $ 3,577 Scheduled interest payment obligationsa 2,728 381 755 711 881 Reclamation and environmental obligationsb 4,881 207 287 211 4,176 Take-or-pay contractsc 2,831 2,026 650 37 118 Operating lease obligations 183 33 39 27 84 Atlantic Copper obligation to insurance companyd 58 10 19 19 10 PT Freeport Indonesia mine closure and reclamation funde 19 2 1 1 15 f Total $15,455 $ 2,754 $ 1,753 $ 2,087 $ 8,861
a. Scheduled interest payment obligations were calculated using stated coupon rates for fixed-rate debt and interest rates applicable at December 31, 2010, for variable-rate debt. b. Represents estimated cash payments, on an undiscounted and unescalated basis, associated with reclamation and environmental activities. The timing and the amount of these payments could change as a result of changes in regulatory requirements, changes in scope and costs of reclamation activities and as actual spending occurs. Refer to Note 13 for additional discussion of environmental and reclamation matters. c. Represents contractual obligations for purchases of goods or services that are defined by us as agreements that are enforceable and legally binding and that specify all significant terms. Take-or-pay contracts primarily comprise the procurement of copper concentrates and cathodes ($2.1 billion), transportation ($201 million), electricity ($144 million) and oxygen ($143 million). Some of our take-or-pay contracts are settled based on the prevailing market rate for the service or commodity purchased, and in some cases, the amount of the actual obligation may change over time because of market conditions. Obligations for copper concentrates and cathodes provide for deliveries of specified volumes, at market-based prices, primarily to Atlantic Copper and the North America copper mines. Transportation obligations are primarily for South America contracted ocean freight rates and for North America natural gas transportation. Electricity obligations are primarily for contractual minimum demand at the South America and Tenke mines. Oxygen obligations provide for deliveries of specified volumes, at fixed prices, primarily to Atlantic Copper. d. In August 2002, Atlantic Copper complied with Spanish legislation by agreeing to fund 7.2 million euros annually for 15 years to an approved insurance company for an estimated 72 million euro contractual obligation to supplement amounts paid to certain retired employees. Atlantic Copper had $48 million recorded for this obligation at December 31, 2010. e. Represents PT Freeport Indonesia’s commitments to contribute amounts to a cash fund designed to accumulate at least $100 million, including interest, by the end of our Indonesia mining activities to pay for mine closure and reclamation. f. This table excludes certain other obligations in our consolidated balance sheets, including estimated funding for pension obligations as the funding may vary from year-to-year based on changes in the fair value of plan assets and actuarial assumptions, and accrued liabilities totaling $133 million that relate to unrecognized tax benefits where the timing of settlement is not determinable. This table also excludes purchase orders for the purchase of inventory and other goods and services, as purchase orders typically represent authorizations to purchase rather than binding agreements.
In addition to our debt maturities and other contractual obligations, ENVIRONMENTAL AND RECLAMATION MATTERS we have other commitments, which we expect to fund with projected Environmental. The cost of complying with environmental laws operating cash flows, available credit facilities or future financing is a fundamental and substantial cost of our business. We had transactions, if necessary. These include (i) PT Freeport Indonesia’s $1.4 billion at December 31, 2010, and $1.5 billion at December 31, commitment to provide one percent of its annual revenue for the 2009, recorded in our consolidated balance sheets for environmental development of the local people in its area of operations through the obligations attributed to CERCLA or analogous state programs and 2010 Annual Report Annual 2010 Freeport Partnership Fund for Community Development, (ii) Cerro for estimated future costs associated with environmental matters at Verde’s local mining fund contributions equal to 3.75 percent of closed facilities and closed portions of certain operating facilities. after-tax profits (refer to Note 14), (iii) Tenke’s commitment to Refer to Note 13 for further information about environmental provide 0.3 percent of its annual revenue for the development of the regulation, including significant environmental matters. local people in its area of operations and (iv) other commercial During 2010, we incurred environmental capital expenditures commitments, including standby letters of credit, surety bonds and and other environmental costs (including our joint venture partners’ guarantees (refer to Notes 13 and 14 for further discussion). shares) of $372 million for programs to comply with applicable environmental laws and regulations that affect our operations, compared to $289 million in 2009 and $377 million in 2008. The increase in environmental costs for 2010, compared with 2009, FREEPORT-McMoRan COPPER & GOLD INC.
48 MANAGEMENT’S DISCUSSION AND ANALYSIS
primarily related to settlement of legal proceedings (see Note 13 for concentrate and cathode sales contracts provide final copper pricing further discussion). The decrease in environmental capital spending in a specified future period (generally one to four months from the for 2009, compared with 2008, primarily related to completion of shipment date) based primarily on quoted LME monthly average spot large projects in 2008, combined with reduced discretionary prices. We receive market prices based on prices in the specified spending and extended project timelines. For 2011, we expect to future period, which results in price fluctuations recorded through incur approximately $460 million of aggregate environmental capital revenues until the date of settlement. We record revenues and invoice expenditures and other environmental costs, which are part of our customers at the time of shipment based on then-current LME prices, overall 2011 operating budget and primarily relate to ongoing which results in an embedded derivative on our provisional priced environmental compliance. concentrate and cathode sales that is adjusted to fair value through Asset Retirement Obligations. We recognize AROs as liabilities when earnings each period, using the period-end forward prices, until the incurred, with the initial measurement at fair value. These liabilities, date of final pricing. To the extent final prices are higher or lower than which are initially estimated based on discounted cash flow estimates, what was recorded on a provisional basis, an increase or decrease are accreted to full value over time through charges to income. to revenues is recorded each reporting period until the date of final Reclamation costs for future disturbances are recorded as an ARO in pricing. Accordingly, in times of rising copper prices, our revenues the period of disturbance. Our cost estimates are reflected on a benefit from higher prices received for contracts priced at current third-party cost basis and comply with our legal obligation to market rates and also from an increase related to the final pricing of retire tangible, long-lived assets. We had recorded AROs totaling provisionally priced sales pursuant to contracts entered into in prior $856 million at December 31, 2010, and $731 million at years; in times of falling copper prices, the opposite occurs. December 31, 2009, in current and long-term liabilities on the At December 31, 2009, we had provisionally priced copper sales consolidated balance sheets. Spending on AROs totaled $38 million totaling 378 million pounds at our copper mining operations in 2010, $28 million in 2009 and $91 million in 2008. The (net of intercompany sales and noncontrolling interests) recorded decrease in ARO spending for 2009, compared with 2008, primarily at an average of $3.34 per pound. Consolidated revenues for 2010 related to extended project timelines that resulted in reduced required include net reductions for adjustments related to these prior year expenditures for 2009. For 2011, we expect to incur approximately copper sales totaling $24 million ($10 million to net income $51 million for aggregate ARO payments. Refer to Note 13 for further attributable to FCX common stockholders or $0.01 per share), discussion of reclamation and closure costs. compared with net additions of $132 million ($61 million to net income attributable to FCX common stockholders or $0.07 per share) DISCLOSURES ABOUT MARKET RISKS in 2009 and $268 million ($114 million to net loss attributable to Commodity Price Risk. Our consolidated revenues include the sale of FCX common stockholders or $0.15 per share) in 2008. copper concentrates, copper cathodes, copper rod, molybdenum, At December 31, 2010, we had provisionally priced copper sales gold and other metals by our North and South America mines, the totaling 417 million pounds of copper at our copper mining operations sale of copper concentrates (which also contain significant quantities (net of intercompany sales and noncontrolling interests) recorded of gold and silver) by our Indonesia mining operations, the sale of at an average price of $4.36 per pound, subject to final pricing over copper cathodes and cobalt hydroxide by our Africa mining operations, the next several months. We estimate that each $0.05 change the sale of molybdenum in various forms by our Molybdenum in the price realized from the December 31, 2010, provisional price operations, and the sale of copper cathodes, copper anodes and gold INC. & GOLD COPPER FREEPORT-McMoRan recorded would have a net impact on our 2011 consolidated revenues in anodes and slimes by Atlantic Copper. Our financial results can of approximately $27 million ($13 million to net income attributable vary significantly as a result of fluctuations in the market prices of to FCX common stockholders). The LME spot copper price closed at copper and, to a lesser extent, gold and molybdenum. World market $4.50 per pound on February 11, 2011. prices for these commodities have fluctuated historically and On limited past occasions, in response to market conditions, we are affected by numerous factors beyond our control. Because we have entered into copper and gold price protection contracts for a cannot control the price of our products, the key measures that portion of our expected future mine production to mitigate the risk of management focuses on in operating our business are sales volumes, adverse price fluctuations. We do not currently intend to enter into unit net cash costs and operating cash flow. Refer to “Outlook” for similar hedging programs in the future. further discussion of projected sales volumes, unit net cash costs and Foreign Currency Exchange Risk. The functional currency for operating cash flows for 2011. most of our operations is the U.S. dollar. All of our revenues and a 2010 Annual Report For 2010, 52 percent of our mined copper was sold in concentrate, significant portion of our costs are denominated in U.S. dollars; 26 percent as cathodes and 22 percent as rod (principally from our however, some costs and certain assets and liability accounts are North America copper mines). Substantially all of our copper denominated in local currencies, including the Indonesian rupiah,
49 MANAGEMENT’S DISCUSSION AND ANALYSIS
Australian dollar, Chilean peso, Peruvian nuevo sol and euro. Generally, U.S. dollar weakens in relation to those foreign currencies. Following our results are positively affected when the U.S. dollar strengthens is a summary of estimated annual payments and the impact of changes in relation to those foreign currencies and adversely affected when the in foreign currency rates on our annual operating costs:
10% Change Exchange Rate per $1 in Exchange Rate at December 31, Estimated Annual Payments (in millions)b 2010 2009 2008 (in local currency) (in millions)a Increase Decrease
Indonesia Rupiah 8,990 9,420 10,850 2.8 trillion $ 311 $ (28) $35 Australian dollar 0.98 1.12 1.43 250 million $ 255 $ (23) $28 South America Chilean peso 468 506 648 240 billion $ 512 $ (47) $57 Peruvian nuevo sol 2.81 2.89 3.17 280 million $ 100 $ (9) $11 Atlantic Copper Euro 0.75 0.69 0.72 100 million $ 134 $ (12) $15
a. Based on December 31, 2010, exchange rates. b. Reflects the estimated impact on annual operating costs assuming a 10 percent increase or decrease in the exchange rate reported at December 31, 2010.
Interest Rate Risk. At December 31, 2010, we had total debt of for our scheduled maturities of principal for our outstanding $4.8 billion, of which approximately 4 percent was variable-rate debt debt and the related fair values at December 31, 2010 (in millions, with interest rates based on LIBOR or the Euro Interbank Offered except percentages): Rate (EURIBOR). The table below presents average interest rates
2011 2012 2013 2014 2015 Thereafter Fair Value Fixed-rate debt $ 85 $ 1 $ 1 $ 1 $ 1,080 $ 3,415 $ 4,974 Average interest rate 8.7% 5.8% 5.7% 5.7% 8.2% 8.3% 8.3% Variable-rate debt $ 10 $ — $ — $ — $ — $ 162 $ 172 Average interest rate 0.8% 4.0% 3.8%
NEW ACCOUNTING STANDARDS pound of copper because (i) the majority of our revenues are copper We do not expect the impact of recently issued accounting standards revenues, (ii) we mine ore, which contains copper, gold, molybdenum to have a significant impact on our future financial statements and and other metals, (iii) it is not possible to specifically assign all of disclosures. our costs to revenues from the copper, gold, molybdenum and other metals we produce, (iv) it is the method used to compare mining OFF-BALANCE SHEET ARRANGEMENTS operations in certain industry publications and (v) it is the method used Refer to Note 14 for discussion of off-balance sheet arrangements. by our management and the Board to monitor operations. In the PRODUCT REVENUES AND PRODUCTION COSTS co-product method presentation below, shared costs are allocated to the different products based on their relative revenue values, which will Unit net cash costs per pound of copper and molybdenum are vary to the extent our metals sales volumes and realized prices change. measures intended to provide investors with information about the We show revenue adjustments for prior period open sales as cash-generating capacity of our mining operations expressed on a separate line items. Because the pricing adjustments do not result basis relating to the primary metal product for the respective from current period sales, we have reflected these separately from operations. We use this measure for the same purpose and for revenues on current period sales. Noncash and other costs consist of monitoring operating performance by our mining operations. This 2010 Annual Report Annual 2010 items such as stock-based compensation costs, LCM inventory information differs from measures of performance determined adjustments, write-offs of equipment and/or unusual charges. They in accordance with U.S. GAAP and should not be considered in are removed from site production and delivery costs in the calculation isolation or as a substitute for measures of performance determined of unit net cash costs. As discussed above, gold, molybdenum and in accordance with U.S. GAAP. This measure is presented by other other metal revenues at copper mines are reflected as credits against metals mining companies, although our measure may not be site production and delivery costs in the by-product method. comparable to similarly titled measures reported by other companies. Following are presentations under both the by-product and co-product We present gross profit per pound of copper in the following tables methods together with reconciliations to amounts reported in our using both a “by-product” method and a “co-product” method. consolidated financial statements. We use the by-product method in our presentation of gross profit per FREEPORT-McMoRan COPPER & GOLD INC.
50 MANAGEMENT’S DISCUSSION AND ANALYSIS
North America Copper Mines Product Revenues and Production Costs
By-Product Co-Product Method Year Ended December 31, 2010 Method Copper Molybdenuma Otherb Total (In millions)
Revenues, excluding adjustments $ 3,702 $ 3,702 $ 383 $ 58 $ 4,143 Site production and delivery, before net noncash and other costs shown below 1,621 1,456 195 29 1,680 By-product creditsa (382) — — — — Treatment charges 105 102 — 3 105 Net cash costs 1,344 1,558 195 32 1,785 Depreciation, depletion and amortization 256 241 13 2 256 Noncash and other costs, net 131 131 — — 131 Total costs 1,731 1,930 208 34 2,172 Revenue adjustments, primarily for hedging (2) (2) — — (2) Idle facility and other non-inventoriable costs (87) (86) (1) — (87) Gross profit $ 1,882 $ 1,684 $ 174 $ 24 $ 1,882
Reconciliation to Amounts Reported Depreciation, Production Depletion and Revenues and Delivery Amortization (In millions)
Totals presented above $ 4,143 $ 1,680 $ 256 Treatment charges per above N/A 105 N/A Net noncash and other costs per above N/A 131 N/A Revenue adjustments, primarily for hedging per above (2) N/A N/A Idle facility and other non-inventoriable costs per above N/A 87 N/A Eliminations and other (5) 12 17 North America copper mines 4,136 2,015 273 South America mining 4,991 1,678 250 Indonesia mining 6,377 1,904 257 Africa mining 1,106 488 128 Molybdenum 1,205 784 51 Rod & Refining 4,470 4,443 8 Atlantic Copper Smelting & Refining 2,491 2,470 38 Corporate, other & eliminations (5,794) (5,428) 31 As reported in FCX’s consolidated financial statements $ 18,982 $ 8,354 $ 1,036
a. Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita. INC. & GOLD COPPER FREEPORT-McMoRan b. Includes gold and silver product revenues and production costs. 2010 Annual Report
51 MANAGEMENT’S DISCUSSION AND ANALYSIS
North America Copper Mines Product Revenues and Production Costs (continued)
By-Product Co-Product Method Year Ended December 31, 2009 Method Copper Molybdenuma Otherb Total (In millions)
Revenues, excluding adjustments $ 2,823 $ 2,823 $ 274 $ 45 $ 3,142 Site production and delivery, before net noncash and other costs shown below 1,483 1,364 142 22 1,528 By-product creditsa (274) — — — — Treatment charges 102 100 — 2 102 Net cash costs 1,311 1,464 142 24 1,630 Depreciation, depletion and amortization 264 251 10 3 264 Noncash and other costs, net 129 127 2 — 129 Total costs 1,704 1,842 154 27 2,023 Revenue adjustments, primarily for hedging 92 92 — — 92 Idle facility and other non-inventoriable costs (100) (100) — — (100) Gross profit $ 1,111 $ 973 $ 120 $ 18 $ 1,111
Reconciliation to Amounts Reported Depreciation, Production Depletion and Revenues and Delivery Amortization (In millions)
Totals presented above $ 3,142 $ 1,528 $ 264 Treatment charges per above N/A 102 N/A Net noncash and other costs per above N/A 129 N/A Revenue adjustments, primarily for hedging per above 92 N/A N/A Idle facility and other non-inventoriable costs per above N/A 100 N/A Eliminations and other 1 52 16 North America copper mines 3,235 1,911 280 South America mining 3,839 1,563 275 Indonesia mining 5,908 1,505 275 Africa mining 389 315 66 Molybdenum 847 660c 49 Rod & Refining 3,356 3,336 8 Atlantic Copper Smelting & Refining 1,892 1,895 36 Corporate, other & eliminations (4,426) (4,150) 25 As reported in FCX’s consolidated financial statements $ 15,040 $ 7,035c $ 1,014
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 LCM molybdenum inventory adjustments of $19 million. 2010 Annual Report Annual 2010 FREEPORT-McMoRan COPPER & GOLD INC.
52 MANAGEMENT’S DISCUSSION AND ANALYSIS
North America Copper Mines Product Revenues and Production Costs (continued)
By-Product Co-Product Method Year Ended December 31, 2008 Method Copper Molybdenuma Otherb Total (In millions)
Revenues, excluding adjustments $ 4,382 $ 4,382 $ 892 $ 72 $ 5,346 Site production and delivery, before net noncash and other costs shown below 2,681 2,326 374 35 2,735 By-product creditsa (910) — — — — Treatment charges 134 130 — 4 134 Net cash costs 1,905 2,456 374 39 2,869 Depreciation, depletion and amortization 753 664 83 6 753 Noncash and other costs, net 743c 701 39 3 743 Total costs 3,401 3,821 496 48 4,365 Revenue adjustments, primarily for hedging (71) (71) — — (71) Idle facility and other non-inventoriable costs (85) (83) (2) — (85) Gross profit $ 825 $ 407 $ 394 $ 24 $ 825
Reconciliation to Amounts Reported Depreciation, Production Depletion and Revenues and Delivery Amortization (In millions)
Totals presented above $ 5,346 $ 2,735 $ 753 Treatment charges per above N/A 134 N/A Net noncash and other costs per above N/A 743c N/A Revenue adjustments, primarily for hedging per above (71) N/A N/A Idle facility and other non-inventoriable costs per above N/A 85 N/A Eliminations and other (10) 11 17 North America copper mines 5,265 3,708 770 South America mining 4,166 1,854 511 Indonesia mining 3,412 1,792 222 Africa mining — 16 6 Molybdenum 2,488 1,629 192 Rod & Refining 5,557 5,527 8 Atlantic Copper Smelting & Refining 2,341 2,276 35 Corporate, other & eliminations (5,433) (5,604) 38 As reported in FCX’s consolidated financial statements $ 17,796 $ 11,198d $ 1,782
a. Molybdenum by-product credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita. INC. & GOLD COPPER FREEPORT-McMoRan b. Includes gold and silver product revenues and production costs. c. Includes charges totaling $661 million for LCM inventory adjustments. d. Includes LCM inventory adjustments of $782 million. 2010 Annual Report
53 MANAGEMENT’S DISCUSSION AND ANALYSIS
South America Mining Product Revenues and Production Costs
By-Product Co-Product Method Year Ended December 31, 2010 Method Copper Othera Total (In millions)
Revenues, excluding adjustments $ 4,911 $ 4,911 $ 299 $ 5,210 Site production and delivery, before net noncash and other costs shown below 1,613 1,521 110 1,631 By-product credits (281) — — — Treatment charges 207 207 — 207 Net cash costs 1,539 1,728 110 1,838 Depreciation, depletion and amortization 249 237 12 249 Noncash and other costs, net 19 18 1 19 Total costs 1,807 1,983 123 2,106 Revenue adjustments, primarily for pricing on prior year open sales (14) (14) — (14) Other non-inventoriable costs (44) (40) (4) (44) Gross profit $ 3,046 $ 2,874 $ 172 $ 3,046
Reconciliation to Amounts Reported Depreciation, Production Depletion and Revenues and Delivery Amortization (In millions)
Totals presented above $ 5,210 $ 1,631 $ 249 Treatment charges per above (207) N/A N/A Net noncash and other costs per above N/A 19 N/A Revenue adjustments, primarily for pricing on prior year open sales per above (14) N/A N/A Other non-inventoriable costs per above N/A 44 N/A Eliminations and other 2 (16) 1 South America mining 4,991 1,678 250 North America copper mines 4,136 2,015 273 Indonesia mining 6,377 1,904 257 Africa mining 1,106 488 128 Molybdenum 1,205 784 51 Rod & Refining 4,470 4,443 8 Atlantic Copper Smelting & Refining 2,491 2,470 38 Corporate, other & eliminations (5,794) (5,428) 31 As reported in FCX’s consolidated financial statements $ 18,982 $ 8,354 $ 1,036
a. Includes gold, silver and molybdenum product revenues and production costs. 2010 Annual Report Annual 2010 FREEPORT-McMoRan COPPER & GOLD INC.
54 MANAGEMENT’S DISCUSSION AND ANALYSIS
South America Mining Product Revenues and Production Costs (continued)
By-Product Co-Product Method Year Ended December 31, 2009 Method Copper Othera Total (In millions)
Revenues, excluding adjustments $ 3,768 $ 3,768 $ 167 $ 3,935 Site production and delivery, before net noncash and other costs shown below 1,512 1,429 91 1,520 By-product credits (159) — — — Treatment charges 206 206 — 206 Net cash costs 1,559 1,635 91 1,726 Depreciation, depletion and amortization 275 267 8 275 Noncash and other costs, net 28 28 — 28 Total costs 1,862 1,930 99 2,029 Revenue adjustments, primarily for pricing on prior year open sales 109 109 — 109 Other non-inventoriable costs (31) (26) (5) (31) Gross profit $ 1,984 $ 1,921 $ 63 $ 1,984
Reconciliation to Amounts Reported Depreciation, Production Depletion and Revenues and Delivery Amortization (In millions)
Totals presented above $ 3,935 $ 1,520 $ 275 Treatment charges per above (206) N/A N/A Net noncash and other costs per above N/A 28 N/A Revenue adjustments, primarily for pricing on prior year open sales per above 109 N/A N/A Other non-inventoriable costs per above N/A 31 N/A Eliminations and other 1 (16) — South America mining 3,839 1,563 275 North America copper mines 3,235 1,911 280 Indonesia mining 5,908 1,505 275 Africa mining 389 315 66 Molybdenum 847 660b 49 Rod & Refining 3,356 3,336 8 Atlantic Copper Smelting & Refining 1,892 1,895 36 Corporate, other & eliminations (4,426) (4,150) 25 As reported in FCX’s consolidated financial statements $ 15,040 $ 7,035b $ 1,014 INC. & GOLD COPPER FREEPORT-McMoRan a. Includes gold, silver and molybdenum product revenues and production costs. b. Includes LCM molybdenum inventory adjustments of $19 million. 2010 Annual Report
55 MANAGEMENT’S DISCUSSION AND ANALYSIS
South America Mining Product Revenues and Production Costs (continued)
By-Product Co-Product Method Year Ended December 31, 2008 Method Copper Othera Total (In millions)
Revenues, excluding adjustments $ 3,910 $ 3,910 $ 216 $ 4,126 Site production and delivery, before net noncash and other costs shown below 1,711 1,631 102 1,733 By-product credits (194) — — — Treatment charges 211 211 — 211 Net cash costs 1,728 1,842 102 1,944 Depreciation, depletion and amortization 508 483 25 508 Noncash and other costs, net 103b 100 3 103 Total costs 2,339 2,425 130 2,555 Revenue adjustments, primarily for pricing on prior year open sales 230 230 — 230 Other non-inventoriable costs (37) (34) (3) (37) Gross profit $ 1,764 $ 1,681 $ 83 $ 1,764
Reconciliation to Amounts Reported Depreciation, Production Depletion and Revenues and Delivery Amortization (In millions)
Totals presented above $ 4,126 $ 1,733 $ 508 Treatment charges per above (211) N/A N/A Net noncash and other costs per above N/A 103b N/A Revenue adjustments, primarily for pricing on prior year open sales per above 230 N/A N/A Other non-inventoriable costs per above N/A 37 N/A Eliminations and other 21 (19) 3 South America mining 4,166 1,854 511 North America copper mines 5,265 3,708 770 Indonesia mining 3,412 1,792 222 Africa mining — 16 6 Molybdenum 2,488 1,629 192 Rod & Refining 5,557 5,527 8 Atlantic Copper Smelting & Refining 2,341 2,276 35 Corporate, other & eliminations (5,433) (5,604) 38 As reported in FCX’s consolidated financial statements $ 17,796 $ 11,198c $ 1,782
a. Includes gold, silver and molybdenum product revenues and production costs. b. Includes charges totaling $10 million for LCM inventory adjustments. c. Includes LCM inventory adjustments of $782 million. 2010 Annual Report Annual 2010 FREEPORT-McMoRan COPPER & GOLD INC.
56 MANAGEMENT’S DISCUSSION AND ANALYSIS
Indonesia Mining Product Revenues and Production Costs
By-Product Co-Product Method Year Ended December 31, 2010 Method Copper Gold Silver Total (In millions)
Revenues, excluding adjustments $ 4,475 $ 4,475 $ 2,243 $ 90 $ 6,808 Site production and delivery, before net noncash and other costs shown below 1,856 1,220 612 24 1,856 Gold and silver credits (2,334) — — — — Treatment charges 270 178 89 3 270 Royalty on metals 156 102 51 3 156 Net cash (credits) costs (52) 1,500 752 30 2,282 Depreciation and amortization 257 169 85 3 257 Noncash and other costs, net 48 31 16 1 48 Total costs 253 1,700 853 34 2,587 Revenue adjustments, primarily for pricing on prior year open sales (6) (6) 1 — (5) PT Smelting intercompany profit (42) (28) (13) (1) (42) Gross profit $ 4,174 $ 2,741 $ 1,378 $ 55 $ 4,174
Reconciliation to Amounts Reported Depreciation, Production Depletion and Revenues and Delivery Amortization (In millions)
Totals presented above $ 6,808 $ 1,856 $ 257 Treatment charges per above (270) N/A N/A Royalty on metals per above (156) N/A N/A Net noncash and other costs per above N/A 48 N/A Revenue adjustments, primarily for pricing on prior year open sales per above (5) N/A N/A Indonesia mining 6,377 1,904 257 North America copper mines 4,136 2,015 273 South America mining 4,991 1,678 250 Africa mining 1,106 488 128 Molybdenum 1,205 784 51 Rod & Refining 4,470 4,443 8 Atlantic Copper Smelting & Refining 2,491 2,470 38 Corporate, other & eliminations (5,794) (5,428) 31 As reported in FCX’s consolidated financial statements $ 18,982 $ 8,354 $ 1,036 INC. & GOLD COPPER FREEPORT-McMoRan 2010 Annual Report
57 MANAGEMENT’S DISCUSSION AND ANALYSIS
Indonesia Mining Product Revenues and Production Costs (continued)
By-Product Co-Product Method Year Ended December 31, 2009 Method Copper Gold Silver Total (In millions)
Revenues, excluding adjustments $ 3,708 $ 3,708 $ 2,527 $ 73 $ 6,308 Site production and delivery, before net noncash and other costs shown below 1,468 862 589 17 1,468 Gold and silver credits (2,606) — — — — Treatment charges 312 183 125 4 312 Royalty on metals 147 86 59 2 147 Net cash (credits) costs (679) 1,131 773 23 1,927 Depreciation and amortization 275 162 110 3 275 Noncash and other costs, net 37 22 15 — 37 Total (credits) costs (367) 1,315 898 26 2,239 Revenue adjustments, primarily for pricing on prior year open sales 53 53 5 1 59 PT Smelting intercompany profit (54) (32) (21) (1) (54) Gross profit $ 4,074 $ 2,414 $ 1,613 $ 47 $ 4,074
Reconciliation to Amounts Reported Depreciation, Production Depletion and Revenues and Delivery Amortization (In millions)
Totals presented above $ 6,308 $ 1,468 $ 275 Treatment charges per above (312) N/A N/A Royalty on metals per above (147) N/A N/A Net noncash and other costs per above N/A 37 N/A Revenue adjustments, primarily for pricing on prior year open sales per above 59 N/A N/A Indonesia mining 5,908 1,505 275 North America copper mines 3,235 1,911 280 South America mining 3,839 1,563 275 Africa mining 389 315 66 Molybdenum 847 660a 49 Rod & Refining 3,356 3,336 8 Atlantic Copper Smelting & Refining 1,892 1,895 36 Corporate, other & eliminations (4,426) (4,150) 25 As reported in FCX’s consolidated financial statements $ 15,040 $ 7,035a $ 1,014
a. Includes LCM molybdenum inventory adjustments of $19 million. 2010 Annual Report Annual 2010 FREEPORT-McMoRan COPPER & GOLD INC.
58 MANAGEMENT’S DISCUSSION AND ANALYSIS
Indonesia Mining Product Revenues and Production Costs (continued)
By-Product Co-Product Method Year Ended December 31, 2008 Method Copper Gold Silver Total (In millions)
Revenues, excluding adjustments $ 2,628 $ 2,628 $ 1,018 $ 49 $ 3,695 Site production and delivery, before net noncash and other costs shown below 1,762 1,252 487 23 1,762 Gold and silver credits (1,075) — — — — Treatment charges 268 190 74 4 268 Royalty on metals 113 80 31 2 113 Net cash costs 1,068 1,522 592 29 2,143 Depreciation and amortization 222 158 61 3 222 Noncash and other costs, net 30 22 8 — 30 Total costs 1,320 1,702 661 32 2,395 Revenue adjustments, primarily for pricing on prior year open sales 90 90 7 1 98 PT Smelting intercompany profit 17 12 5 — 17 Gross profit $ 1,415 $ 1,028 $ 369 $ 18 $ 1,415
Reconciliation to Amounts Reported Depreciation, Production Depletion and Revenues and Delivery Amortization (In millions)
Totals presented above $ 3,695 $ 1,762 $ 222 Treatment charges per above (268) N/A N/A Royalty on metals per above (113) N/A N/A Net noncash and other costs per above N/A 30 N/A Revenue adjustments, primarily for pricing on prior year open sales per above 98 N/A N/A Indonesia mining 3,412 1,792 222 North America copper mines 5,265 3,708 770 South America mining 4,166 1,854 511 Africa mining — 16 6 Molybdenum 2,488 1,629 192 Rod & Refining 5,557 5,527 8 Atlantic Copper Smelting & Refining 2,341 2,276 35 Corporate, other & eliminations (5,433) (5,604) 38 As reported in FCX’s consolidated financial statements $ 17,796 $ 11,198a $ 1,782 INC. & GOLD COPPER FREEPORT-McMoRan a. Includes LCM inventory adjustments of $782 million. 2010 Annual Report
59 MANAGEMENT’S DISCUSSION AND ANALYSIS
Africa Mining Product Revenues and Production Costs
By-Product Co-Product Method Year Ended December 31, 2010 Method Copper Cobalt Total (In millions)
Revenues, excluding adjustmentsa $ 904 $ 904 $ 218 $ 1,122 Site production and delivery, before net noncash and other costs shown below 366 323 115 438 Cobalt creditsb (150) — — — Royalty on metals 20 16 4 20 Net cash costs 236 339 119 458 Depreciation, depletion and amortization 128 107 21 128 Noncash and other costs, net 30 26 4 30 Total costs 394 472 144 616 Revenue adjustments, primarily for pricing on prior year open sales — — 4 4 Other non-inventoriable costs (20) (17) (3) (20) Gross profit $ 490 $ 415 $ 75 $ 490
Reconciliation to Amounts Reported Depreciation, Production Depletion and Revenues and Delivery Amortization (In millions)
Totals presented above $ 1,122 $ 438 $ 128 Royalty on metals per above (20) N/A N/A Net noncash and other costs per above N/A 30 N/A Revenue adjustments, primarily for pricing on prior year open sales per above 4 N/A N/A Other non-inventoriable costs per above N/A 20 N/A Africa mining 1,106 488 128 North America copper mines 4,136 2,015 273 South America mining 4,991 1,678 250 Indonesia mining 6,377 1,904 257 Molybdenum 1,205 784 51 Rod & Refining 4,470 4,443 8 Atlantic Copper Smelting & Refining 2,491 2,470 38 Corporate, other & eliminations (5,794) (5,428) 31 As reported in FCX’s consolidated financial statements $ 18,982 $ 8,354 $ 1,036
a. Includes adjustments for point-of-sale transportation costs as negotiated in customer contracts. b. Net of cobalt downstream processing and freight costs.
2010 Annual Report Annual 2010 FREEPORT-McMoRan COPPER & GOLD INC.
60 MANAGEMENT’S DISCUSSION AND ANALYSIS
Henderson Molybdenum Mine Product Revenues and Production Costs
Years Ended December 31, 2010 2009a 2008a (In millions)
Revenues, excluding adjustments $ 637 $ 347 $ 1,209 Site production and delivery, before net noncash and other costs shown below 193 148 216 Treatment charges and other 43 30 27 Net cash costs 236 178 243 Depreciation, depletion and amortization 34 26 172 Noncash and other costs, net 1 1 7 Total costs 271 205 422 Gross profitb $ 366 $ 142 $ 787
Reconciliation to Amounts Reported Depreciation, Production Depletion and Revenues and Delivery Amortization (In millions)
Year Ended December 31, 2010 Totals presented above $ 637 $ 193 $ 34 Treatment charges and other per above (43) N/A N/A Net noncash and other costs per above N/A 1 N/A Henderson mine 594 194 34 Other molybdenum operations and eliminationsc 611 590 17 Molybdenum 1,205 784 51 North America copper mines 4,136 2,015 273 South America mining 4,991 1,678 250 Indonesia mining 6,377 1,904 257 Africa mining 1,106 488 128 Rod & Refining 4,470 4,443 8 Atlantic Copper Smelting & Refining 2,491 2,470 38 Corporate, other & eliminations (5,794) (5,428) 31 As reported in FCX’s consolidated financial statements $ 18,982 $ 8,354 $ 1,036
Year Ended December 31, 2009 Totals presented above $ 347 $ 148 $ 26 Treatment charges and other per above (30) N/A N/A
Net noncash and other costs per above N/A 1 N/A INC. & GOLD COPPER FREEPORT-McMoRan Henderson mine 317 149 26 Other molybdenum operations and eliminationsc 530 511d 23 Molybdenum 847 660 49 North America copper mines 3,235 1,911 280 South America mining 3,839 1,563 275 Indonesia mining 5,908 1,505 275 Africa mining 389 315 66 Rod & Refining 3,356 3,336 8 Atlantic Copper Smelting & Refining 1,892 1,895 36 Corporate, other & eliminations (4,426) (4,150) 25 As reported in FCX’s consolidated financial statements $ 15,040 $ 7,035d $ 1,014 2010 Annual Report
61 MANAGEMENT’S DISCUSSION AND ANALYSIS
Reconciliation to Amounts Reported (continued) Depreciation, Production Depletion and Revenues and Delivery Amortization (In millions)
Year Ended December 31, 2008 Totals presented above $ 1,209 $ 216 $ 172 Treatment charges per above (27) N/A N/A Net noncash and other costs per above N/A 7 N/A Henderson mine 1,182 223 172 Other molybdenum operations and eliminationsc 1,306 1,406d 20 Molybdenum 2,488 1,629 192 North America copper mines 5,265 3,708 770 South America mining 4,166 1,854 511 Indonesia mining 3,412 1,792 222 Africa mining — 16 6 Rod & Refining 5,557 5,527 8 Atlantic Copper Smelting & Refining 2,341 2,276 35 Corporate, other & eliminations (5,433) (5,604) 38 As reported in FCX’s consolidated financial statements $ 17,796 $ 11,198e $ 1,782
a. Revenues and costs were adjusted to include freight and downstream conversion costs in net cash costs; gross profit was not affected by these adjustments. b. Gross profit reflects sales of Henderson products based on volumes produced at market-based pricing. On a consolidated basis, the Molybdenum division 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, which includes sales of molybdenum produced at our North and South America copper mines. d. Includes LCM molybdenum inventory adjustments of $19 million in 2009 and $100 million in 2008. e. Includes LCM inventory adjustments of $782 million.
CAUTIONARY STATEMENT anticipated, projected or assumed in the forward-looking Our discussion and analysis contains forward-looking statements in statements. Important factors that can cause our actual results to which we discuss factors we believe may affect our future differ materially from those anticipated in the forward-looking performance. Forward-looking statements are all statements other statements include commodity prices, mine sequencing, production than statements of historical facts, such as those statements rates, industry risks, regulatory changes, political risks, the regarding projected ore grades and milling rates, projected production potential effects of violence in Indonesia, documentation of the and sales volumes, projected unit net cash costs, projected outcome of the contract review process and resolution of operating cash flows, projected commodity prices, projected capital administrative disputes in the Democratic Republic of Congo, risks expenditures, projected exploration efforts and results, projected related to the investment in McMoRan Exploration Co., weather- mine production and development plans, the impact of deferred related risks, labor relations, environmental risks, litigation results, intercompany profits on earnings, liquidity, other financial currency translation risks and other factors described in more commitments and tax rates, the impact of copper, gold, molybdenum detail under the heading “Risk Factors” in our Annual Report on and cobalt price changes, reserve estimates, potential prepayments Form 10-K for the year ended December 31, 2010, filed with the SEC. of debt, future dividend payments and potential share purchases. Investors are cautioned that many of the assumptions on which The words “anticipates,” “may,” “can,” “plans,” “believes,” our forward-looking statements are based are likely to change after “estimates,” “expects,” “projects,” “intends,” “likely,” “will,” “should,” our forward-looking statements are made, including for example “to be,” and any similar expressions are intended to identify those commodity prices, which we cannot control, and production volumes 2010 Annual Report Annual 2010 assertions as forward-looking statements. The declaration of and costs, some aspects of which we may or may not be able to dividends is at the discretion of our Board of Directors and will control. Further, we may make changes to our business plans that depend on our financial results, cash requirements, future prospects could or will affect our results. We caution investors that we do not and other factors deemed relevant by the Board. intend to update our forward-looking statements notwithstanding In making any forward-looking statements, we believe that any changes in our assumptions, changes in our business plans, the expectations are based on reasonable assumptions. We caution our actual experience, or other changes, and we undertake no readers that those statements are not guarantees of future obligation to update any forward-looking statements more frequently performance and our actual results may differ materially from those than quarterly. FREEPORT-McMoRan COPPER & GOLD INC.
62 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF In our opinion, the financial statements referred to above present FREEPORT-McMoRa n COPPER & GOLD INC. fairly, in all material respects, the consolidated financial position We have audited the accompanying consolidated balance sheets of of Freeport-McMoRan Copper & Gold Inc. at December 31, 2010 Freeport-McMoRan Copper & Gold Inc. as of December 31, 2010 and 2009, and the consolidated results of its operations and its and 2009, and the related consolidated statements of operations, cash flows for each of the three years in the period ended equity and cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted December 31, 2010. These financial statements are the accounting principles. responsibility of the Company’s management. Our responsibility is As discussed in Note 1 to the consolidated financial statements, to express an opinion on these financial statements based on the Company changed its method of accounting for noncontrolling our audits. interests with the adoption of the guidance originally issued in We conducted our audits in accordance with the standards of the FASB Statement No. 160, Noncontrolling Interests in Consolidated Public Company Accounting Oversight Board (United States). Financial Statements (codified in FASB ASC Topic 810, Those standards require that we plan and perform the audit to obtain Consolidation) effective January 1, 2009. reasonable assurance about whether the financial statements are We also have audited, in accordance with the standards of free of material misstatement. An audit includes examining, on a test the Public Company Accounting Oversight Board (United States), basis, evidence supporting the amounts and disclosures in the Freeport-McMoRan Copper & Gold Inc.’s internal control over financial statements. An audit also includes assessing the accounting financial reporting as of December 31, 2010, based on criteria principles used and significant estimates made by management, established in Internal Control-Integrated Framework issued as well as evaluating the overall financial statement presentation. We by the Committee of Sponsoring Organizations of the Treadway believe that our audits provide a reasonable basis for our opinion. Commission and our report dated February 25, 2011 expressed an unqualified opinion thereon.
Ernst & Young LLP
Phoenix, Arizona February 25, 2011 FREEPORT-McMoRan COPPER & GOLD INC. & GOLD COPPER FREEPORT-McMoRan 2010 Annual Report
63 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Freeport-McMoRan Copper & Gold Inc.’s (the Company’s) Because of its inherent limitations, internal control over financial management is responsible for establishing and maintaining reporting may not prevent or detect misstatements. Projections of any adequate internal control over financial reporting. Internal control evaluation of effectiveness to future periods are subject to the risk over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) that controls may become inadequate because of changes in under the Securities Exchange Act of 1934 as a process designed conditions, or that the degree of compliance with the policies or by, or under the supervision of, the Company’s principal executive procedures may deteriorate. and principal financial officers and effected by the Company’s Board Our management, including our principal executive officer and of Directors, management and other personnel, to provide reasonable principal financial officer, assessed the effectiveness of our internal assurance regarding the reliability of financial reporting and the control over financial reporting as of the end of the fiscal year covered preparation of financial statements for external purposes in by this annual report on Form 10-K. In making this assessment, our accordance with generally accepted accounting principles and management used the criteria set forth in Internal Control-Integrated includes those policies and procedures that: Framework issued by the Committee of Sponsoring Organizations • Pertain to the maintenance of records that in reasonable detail of the Treadway Commission (COSO). Based on our management’s accurately and fairly reflect the transactions and dispositions of assessment, management concluded that, as of December 31, 2010, the Company’s assets; our Company’s internal control over financial reporting is effective • Provide reasonable assurance that transactions are recorded as based on the COSO criteria. necessary to permit preparation of financial statements in Ernst & Young LLP, an independent registered public accounting accordance with generally accepted accounting principles, and firm, who audited the Company’s consolidated financial statements that receipts and expenditures of the Company are being made included in this Form 10-K, has issued an attestation report only in accordance with authorizations of management and on the Company’s internal control over financial reporting, which is directors of the Company; and included herein. • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Richard C. Adkerson Kathleen L. Quirk President and Executive Vice President, Chief Executive Officer Chief Financial Officer and Treasurer 2010 Annual Report Annual 2010 FREEPORT-McMoRan COPPER & GOLD INC.
64 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF maintenance of records that, in reasonable detail, accurately and FREEPORT-McMoRa n COPPER & GOLD INC. fairly reflect the transactions and dispositions of the assets of the We have audited Freeport-McMoRan Copper & Gold Inc.’s internal company; (2) provide reasonable assurance that transactions are control over financial reporting as of December 31, 2010, based on recorded as necessary to permit preparation of financial statements criteria established in Internal Control-Integrated Framework issued in accordance with generally accepted accounting principles, and by the Committee of Sponsoring Organizations of the Treadway that receipts and expenditures of the company are being made only Commission (the COSO criteria). Freeport-McMoRan Copper & Gold in accordance with authorizations of management and directors Inc.’s management is responsible for maintaining effective internal of the company; and (3) provide reasonable assurance regarding control over financial reporting, and for its assessment of the prevention or timely detection of unauthorized acquisition, use or effectiveness of internal control over financial reporting included disposition of the company’s assets that could have a material effect in the accompanying Management’s Report on Internal Control Over on the financial statements. Financial Reporting. Our responsibility is to express an opinion Because of its inherent limitations, internal control over financial on the company’s internal control over financial reporting based reporting may not prevent or detect misstatements. Also, projections on our audit. of any evaluation of effectiveness to future periods are subject to We conducted our audit in accordance with the standards of the the risk that controls may become inadequate because of changes in Public Company Accounting Oversight Board (United States). conditions, or that the degree of compliance with the policies or Those standards require that we plan and perform the audit to obtain procedures may deteriorate. reasonable assurance about whether effective internal control over In our opinion, Freeport-McMoRan Copper & Gold Inc. financial reporting was maintained in all material respects. Our audit maintained, in all material respects, effective internal control over included obtaining an understanding of internal control over financial financial reporting as of December 31, 2010, based on the reporting, assessing the risk that a material weakness exists, COSO criteria. testing and evaluating the design and operating effectiveness of We also have audited, in accordance with the standards of the internal control based on the assessed risk, and performing such Public Company Accounting Oversight Board (United States), other procedures as we considered necessary in the circumstances. the consolidated balance sheets of Freeport-McMoRan Copper & We believe that our audit provides a reasonable basis for our opinion. Gold Inc. as of December 31, 2010 and 2009 and the related A company’s internal control over financial reporting is a process consolidated statements of operations, equity and cash flows for designed to provide reasonable assurance regarding the reliability of each of the three years in the period ended December 31, 2010, financial reporting and the preparation of financial statements for and our report dated February 25, 2011 expressed an unqualified external purposes in accordance with generally accepted accounting opinion thereon. principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the Ernst & Young LLP
Phoenix, Arizona February 25, 2011 FREEPORT-McMoRan COPPER & GOLD INC. & GOLD COPPER FREEPORT-McMoRan 2010 Annual Report
65 CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2010 2009 2008 (In Millions, Except Per Share Amounts)
Revenues $ 18,982 $ 15,040 $ 17,796 Cost of sales: Production and delivery 8,354 7,016 10,416 Depreciation, depletion and amortization 1,036 1,014 1,782 Lower of cost or market inventory adjustments — 19 782 Total cost of sales 9,390 8,049 12,980 Selling, general and administrative expenses 381 321 269 Exploration and research expenses 143 90 292 Long-lived asset impairments and other charges — 77 10,978 Goodwill impairment — — 5,987 Total costs and expenses 9,914 8,537 30,506 Operating income (loss) 9,068 6,503 (12,710) Interest expense, net (462) (586) (584) Losses on early extinguishment of debt (81) (48) (6) Other expense, net (13) (53) (9) Income (loss) before income taxes and equity in affiliated companies’ net earnings 8,512 5,816 (13,309) (Provision for) benefit from income taxes (2,983) (2,307) 2,844 Equity in affiliated companies’ net earnings 15 25 15 Net income (loss) 5,544 3,534 (10,450) Net income attributable to noncontrolling interests (1,208) (785) (617) Preferred dividends and losses on induced conversions (63) (222) (274) Net income (loss) attributable to FCX common stockholders $ 4,273 $ 2,527 $ (11,341)
Net income (loss) per share attributable to FCX common stockholders:* Basic $ 4.67 $ 3.05 $ (14.86) Diluted $ 4.57 $ 2.93 $ (14.86)
Weighted-average common shares outstanding:* Basic 915 829 763 Diluted 949 938 763
Dividends declared per share of common stock* $ 1.125 $ 0.075 $ 0.6875
* Reflects the February 1, 2011, two-for-one stock split (refer to Note 11 for further discussion).
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 2010 Annual Report Annual 2010 FREEPORT-McMoRan COPPER & GOLD INC.
66 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2010 2009 2008 (In Millions)
Cash flow from operating activities: Net income (loss) $ 5,544 $ 3,534 $ (10,450) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization 1,036 1,014 1,782 Asset impairments, including goodwill — — 16,854 Lower of cost or market inventory adjustments — 19 782 Stock-based compensation 121 102 98 Charges for reclamation and environmental obligations, including accretion 167 191 181 Payments of reclamation and environmental obligations (196) (104) (205) Losses on early extinguishment of debt 81 48 6 Deferred income taxes 286 135 (4,653) Increase in long-term mill and leach stockpiles (103) (96) (225) Changes in other assets and liabilities 79 201 89 Amortization of intangible assets/liabilities and other, net 92 123 76 (Increases) decreases in working capital: Accounts receivable (680) (962) 542 Inventories (593) (159) (478) Other current assets (24) 87 (91) Accounts payable and accrued liabilities 331 (438) (171) Accrued income and other taxes 132 702 (767) Net cash provided by operating activities 6,273 4,397 3,370
Cash flow from investing activities: Capital expenditures: North America copper mines (233) (345) (609) South America (470) (164) (323) Indonesia (436) (266) (444) Africa (100) (659) (1,058) Other (173) (153) (274) Investment in McMoRan Exploration Co. (500) — — Proceeds from sales of assets 20 25 47 Decrease in global reclamation and remediation trust assets — — 430 Other, net 23 (39) (87) Net cash used in investing activities (1,869) (1,601) (2,318)
Cash flow from financing activities: Net proceeds from sale of common stock — 740 — Proceeds from revolving credit facility and other debt 70 330 890 Repayments of revolving credit facility and other debt (1,724) (1,380) (766) Purchases of FCX common stock — — (500)
Cash dividends and distributions paid: INC. & GOLD COPPER FREEPORT-McMoRan Common stock (885) — (693) Preferred stock (95) (229) (255) Noncontrolling interests (816) (535) (730) Contributions from noncontrolling interests 28 57 201 Net proceeds from stock-based awards 81 6 22 Excess tax benefit from stock-based awards 19 3 25 Other, net — (4) — Net cash used in financing activities (3,322) (1,012) (1,806) Net increase (decrease) in cash and cash equivalents 1,082 1,784 (754) Cash and cash equivalents at beginning of year 2,656 872 1,626 Cash and cash equivalents at end of year $ 3,738 $ 2,656 $ 872
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 2010 Annual Report
67 CONSOLIDATED BALANCE SHEETS
December 31, 2010 2009 (In Millions, Except Par Values)
ASSETS Current assets: Cash and cash equivalents $ 3,738 $ 2,656 Trade accounts receivable 2,132 1,517 Income tax receivables 98 139 Other accounts receivable 195 147 Inventories: Product 1,409 1,110 Materials and supplies, net 1,169 1,093 Mill and leach stockpiles 856 667 Other current assets 254 104 Total current assets 9,851 7,433 Property, plant, equipment and development costs, net 16,785 16,195 Long-term mill and leach stockpiles 1,425 1,321 Intangible assets, net 328 347 Other assets 997 700 Total assets $ 29,386 $ 25,996 LIABILITIES AND EQUITY Current liabilities: Accounts payable and accrued liabilities $ 2,441 $ 2,038 Accrued income taxes 648 474 Dividends payable 240 99 Current portion of reclamation and environmental obligations 207 214 Rio Tinto share of joint venture cash flows 132 161 Current portion of debt 95 16 Total current liabilities 3,763 3,002 Long-term debt, less current portion 4,660 6,330 Deferred income taxes 2,873 2,503 Reclamation and environmental obligations, less current portion 2,071 1,981 Other liabilities 1,459 1,423 Total liabilities 14,826 15,239 Equity: FCX stockholders’ equity: 6¾% Mandatory Convertible Preferred Stock, 29 shares issued and outstanding at December 31, 2009 — 2,875 Common stock, par value $0.10, 1,067 shares and 981 shares issued, respectively* 107 98 Capital in excess of par value* 18,751 15,637 Accumulated deficit (2,590) (5,805) Accumulated other comprehensive loss (323) (273) Common stock held in treasury – 122 shares, at cost (3,441) (3,413) Total FCX stockholders’ equity 12,504 9,119 Noncontrolling interests 2,056 1,638 Total equity 14,560 10,757 Total liabilities and equity $ 29,386 $ 25,996
* Reflects the February 1, 2011, two-for-one stock split (refer to Note 11 for further discussion).
2010 Annual Report Annual 2010 The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. FREEPORT-McMoRan COPPER & GOLD INC.
68 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 69 69 2 8 1 9 3 3 6 (1) — (4) (9) 15 28 33 18 59 18 13 23 (52) (69) (63) (28) (65) (11) (61) 129 110 100 740 201 100 179 (816) (535) (222) (346) (340) (730) (274) (527) (500) Total 5,492 5,544 3,567 3,534 7,101 Equity (1,058) 14,560 10,757 19,473 (10,796) (10,450)
$
7 $
$ $
1 1 (2) (2) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 28 59 786 785 618 617 201 (816) (535) (730) 2,056 1,206 1,208 1,638 1,328 1,239 Interests $
— $
1 — $ 1 — $ Noncontrolling
2 8 1 8 3 3 6 — — (1) — (4) (9) — — — — 15 32 18 18 13 23 (50) (67) (63) (28) (65) (11) (61) 129 110 100 740 100 179
(222) (347) (341) (274) (527) (500) 4,286 4,336 9,119 2,781 2,749 5,773 (1,058) Equity 12,504 18,234 Total FCX Total (11,414) (11,067) Stockholders’ $
$
$
7 $ — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — (28) (11) (61) (500) At Cost (3,441)
(3,413) (3,402) (2,841) $ $ $ $ 1 6 1 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — Common Stock Held in Treasury Number 122 122 121 114 of Shares
2 8 3 3 — — — — — — — — — — — — — (4) (9) — — — — — — — — — — — — — — — — — — — — — — — 15 32 18 42 (50) (67) (323) (273) (305) (347) (341) Other (Loss)
Income
7 $
$ $ $ Accumulated Comprehensive
CONSOLIDATED STATEMENTS OF EQUITY STATEMENTS CONSOLIDATED — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — (63) (65)
(222) (274) (527) 4,336 2,749 3,601 (2,590) (1,058) (5,805) (8,267) Deficit) Earnings Retained $ $ (11,067) $ $ (Accumulated
8 1 6 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 18 13 129 109 100 735 827
100 179 289 2,867 18,751 15,637 13,951 13,370 Excess of Capital in Par Value* $ $ $ $
1 8 5 4 2
* — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 98 89 87 FCX Stockholders’ Equity 107 Value At Par $ $ $ $
7 3 4 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 79 53 36 14 981 Common Stock 889 871 Shares Number of 1,067
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
Value 2,875 At Par 2,875 2,875 (2,875) $ $ $ $
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — Preferred Stock 29 29 29 (29) Shares Mandatory Convertible Number of
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 832 (832) (268) Value At Par 1,100 $ $ $ $
1 1 — — — — — — — — — — — — — (1) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — Preferred Stock Shares
Convertible Perpetual Number of taxes of $19 million taxes of $51 million taxes of $190 million Amortization of unrecognized amounts Net loss during period, net of Amortization of unrecognized amounts Net gain during period, net of Amortization of unrecognized amounts Net gain (loss) during period, net of Defined benefit plans: Unrealized gains on securities Defined benefit plans: Translation adjustment Translation Unrealized gains on securities Defined benefit plans: Translation adjustment Translation net of taxes: Unrealized losses on securities Other comprehensive income Other comprehensive income, net of taxes: Net income Preferred Stock Other comprehensive income Other comprehensive income, net of taxes: Net income Convertible Perpetual Preferred Stock Other comprehensive income (loss) Other comprehensive income (loss), Net income (loss) Perpetual Preferred Stock
Balance at December 31, 2010 Total comprehensive income Total
Comprehensive income: Contributions from noncontrolling interests Distributions to noncontrolling interests Dividends on preferred stock Dividends on common stock Tender of shares for Tender stock-based awards Tax benefit for stock-based Tax awards Stock-based compensation Exercised and issued stock-based awards Conversions of 7% Convertible Senior Notes Conversions of 6¾% Mandatory Convertible Balance at December 31, 2009 Total comprehensive income Total
Comprehensive income: Contributions from noncontrolling interests Distributions to noncontrolling interests Dividends on preferred stock Dividends on common stock Tender of shares for Tender stock-based awards Tax benefit for stock-based Tax awards Stock-based compensation Exercised and issued stock-based awards Sale of common stock Conversions and redemptions of 5½% Balance at December 31, 2008 Total comprehensive income (loss) Total
Comprehensive income (loss): Contributions from noncontrolling interests Distributions to noncontrolling interests Dividends on preferred stock Dividends on common stock Common stock purchased Tender of shares for Tender stock-based awards Tax benefit for stock-based Tax awards Stock-based compensation Exercised and issued stock-based awards Conversions of 5½% Convertible
* Reflects the February 1, 2011, two-for-one stock split (refer to Note 11 for further discussion). The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. (In Millions) Balance at January 1, 2008
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Summary of Significant Accounting Policies Foreign Currencies. For foreign subsidiaries whose functional Basis of Presentation. The consolidated financial statements of currency is the U.S. dollar, monetary assets and liabilities Freeport-McMoRan Copper & Gold Inc. (FCX) include the accounts of denominated in the local currency are translated at current exchange those subsidiaries where FCX directly or indirectly has more rates, and non-monetary assets and liabilities, such as inventories, than 50 percent of the voting rights and has the right to control property, plant, equipment and development costs, are translated at significant management decisions. The most significant entities that historical rates. Gains and losses resulting from translation of such FCX consolidates include its 90.64 percent-owned subsidiary account balances are included in operating results, as are gains and PT Freeport Indonesia, and its wholly owned subsidiaries, Freeport- losses from foreign currency transactions. McMoRan Corporation (FMC) and Atlantic Copper, S.A. (Atlantic For foreign subsidiaries whose functional currency is the local Copper). FCX’s unincorporated joint ventures with Rio Tinto plc currency, assets and liabilities are translated at current exchange (Rio Tinto) and Sumitomo Metal Mining Arizona, Inc. (Sumitomo) rates, while revenues and expenses are translated at average rates are reflected using the proportionate consolidation method in effect for the period. The related translation gains and (refer to Note 2 for further discussion). All significant intercompany losses are included in accumulated other comprehensive income transactions have been eliminated. Amounts in tables are stated (loss) within equity. in millions, except per share amounts. Cash Equivalents. Highly liquid investments purchased with In December 2010, FCX’s Board of Directors declared a two-for-one maturities of three months or less are considered cash equivalents. split of its common stock in the form of a stock dividend on issued Inventories. The largest components of inventories include finished and outstanding shares, with the additional shares issued on goods (primarily concentrates and cathodes) at mining operations, February 1, 2011, to common shareholders of record at the close of concentrates and work-in-process at Atlantic Copper’s smelting business on January 15, 2011 (refer to Note 11 for further and refining operations, and materials and supplies inventories (refer discussion). All references to shares of common stock and per share to Note 3 for further discussion). Inventories of materials and amounts have been retroactively adjusted to reflect the two-for-one supplies, as well as salable products, are stated at the lower of stock split, unless otherwise noted. weighted-average cost or market. Costs of finished goods and Investments in unconsolidated companies owned 20 percent or work-in-process (i.e., not materials and supplies) inventories include more are recorded using the equity method. Investments in labor and benefits, supplies, energy, depreciation, depletion, companies owned less than 20 percent, and for which FCX does not amortization, site overhead costs, and other necessary costs exercise significant influence, are carried at cost. associated with the extraction and processing of ore, including, Business Segments. FCX has organized its operations into five depending on the process, mining, haulage, milling, concentrating, primary divisions — North America copper mines, South America smelting, leaching, solution extraction, refining, roasting and mining, Indonesia mining, Africa mining and Molybdenum operations. chemical processing. Corporate general and administrative costs are Notwithstanding this structure, FCX internally reports information not included in inventory costs. on a mine-by-mine basis. Therefore, FCX concluded that its operating Work-in-Process. In-process inventories represent materials that segments include individual mines. Operating segments that meet are currently in the process of being converted to a salable product. certain thresholds are reportable segments. Conversion processes for mining operations vary depending on Use of Estimates. The preparation of FCX’s financial statements in the nature of the copper ore and the specific mining operation. For conformity with accounting principles generally accepted in the sulfide ores, processing includes milling and concentrating and United States (U.S.) requires management to make estimates and results in the production of copper and molybdenum concentrates or, assumptions that affect the amounts reported in these financial alternatively, copper cathode by concentrate leaching. For oxide ores statements and accompanying notes. The more significant areas and certain secondary sulfide ores, processing includes leaching requiring the use of management estimates include mineral of stockpiles, solution extraction and electrowinning (SX/EW) and 2010 Annual Report Annual 2010 reserve estimation; useful asset lives for depreciation, depletion and results in the production of copper cathodes. In-process material amortization; reclamation and closure costs; environmental is measured based on assays of the material included in these obligations; estimates of recoverable copper in mill and leach processes and projected recoveries. In-process inventories are valued stockpiles; pension, postretirement, postemployment and other based on the costs incurred to various points in the process, employee benefits; deferred taxes and valuation allowances; reserves including depreciation relating to associated process facilities. For for contingencies and litigation; and asset impairment, including Atlantic Copper, in-process inventories represent copper concentrates estimates used to derive future cash flows associated with those at various stages of conversion into anodes and cathodes. Atlantic assets. Actual results could differ from those estimates. Copper’s in-process inventories are valued at the weighted-average cost of the material fed to the smelting and refining process plus in-process conversion costs. FREEPORT-McMoRan COPPER & GOLD INC.
70 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Finished Goods. Finished goods include salable products (e.g., production stage properties, are charged to expense as incurred. copper and molybdenum concentrates, copper anodes, copper Development costs are capitalized beginning after proven and cathodes, copper rod, copper wire, molybdenum oxide, high-purity probable reserves have been established. Development costs include molybdenum chemicals and other metallurgical products). Finished costs incurred resulting from mine pre-production activities goods are valued based on the weighted-average cost of source undertaken to gain access to proven and probable reserves including material plus applicable conversion costs relating to associated shafts, adits, drifts, ramps, permanent excavations, infrastructure process facilities. and removal of overburden. Additionally, interest expense allocable to Mill and Leach Stockpiles. Mill and leach stockpiles are stated the cost of developing mining properties and to constructing new at the lower of weighted-average cost or market. Both mill and facilities is capitalized until assets are ready for their intended use. leach stockpiles generally contain lower grade ores that have been Expenditures for replacements and improvements are capitalized. extracted from the ore body and are available for copper recovery. Costs related to periodic scheduled maintenance (i.e., turnarounds) For mill stockpiles, recovery is through milling, concentrating, are expensed as incurred. Depreciation for mining and milling smelting and refining or, alternatively, by concentrate leaching. life-of-mine assets, infrastructure and other common costs is For leach stockpiles, recovery is through exposure to acidic solutions determined using the unit-of-production method based on total that dissolve contained copper and deliver it in solution to estimated recoverable proven and probable copper reserves (for extraction processing facilities. The recorded cost of mill and primary copper mines) and proven and probable molybdenum leach stockpiles includes mining and haulage costs incurred to reserves (for the primary molybdenum mine). Development costs and deliver ore to stockpiles, depreciation, depletion, amortization and acquisition costs for proven and probable reserves that relate to a site overhead costs. specific ore body are depreciated using the unit-of-production Because it is generally impracticable to determine copper method based on estimated recoverable proven and probable contained in mill and leach stockpiles by physical count, reasonable reserves for the ore body benefited. Depreciation, depletion and estimation methods are employed. The quantity of material delivered amortization using the unit-of-production method is recorded upon to mill and leach stockpiles is based on surveyed volumes of mined extraction of the recoverable copper or molybdenum from the ore material and daily production records. Sampling and assaying of body, at which time it is allocated to inventory cost and then included blasthole cuttings determine the estimated copper grade of the as a component of cost of goods sold. Other assets are depreciated material delivered to mill and leach stockpiles. on a straight-line basis over estimated useful lives of up to 30 years Expected copper recovery rates for mill stockpiles are determined for buildings and three to 20 years for machinery and equipment, and by metallurgical testing. The recoverable copper in mill stockpiles, mobile equipment. once entered into the production process, can be produced into Included in property, plant, equipment and development costs is copper concentrate almost immediately. value beyond proven and probable reserves (VBPP) primarily resulting Expected copper recovery rates for leach stockpiles are determined from FCX’s acquisition of Phelps Dodge Corporation (Phelps Dodge) using small-scale laboratory tests, small- to large-scale column in 2007. The concept of VBPP has been interpreted differently by testing (which simulates the production-scale process), historical different mining companies. FCX’s VBPP is attributable to trends and other factors, including mineralogy of the ore and rock (i) mineralized material, which includes measured and indicated type. Ultimate recovery of copper contained in leach stockpiles can amounts, that FCX believes could be brought into production with the FREEPORT-McMoRan COPPER & GOLD INC. & GOLD COPPER FREEPORT-McMoRan vary significantly from a low percentage to more than 90 percent establishment or modification of required permits and should market depending on several variables, including type of copper recovery, conditions and technical assessments warrant, (ii) inferred mineral mineralogy and particle size of the rock. For newly placed material on resources and (iii) exploration potential, as further defined below. active stockpiles, as much as 70 percent of the copper ultimately Mineralized material is a mineralized body that has been recoverable may be extracted during the first year, and the remaining delineated by appropriately spaced drilling and/or underground copper may be recovered over many years. sampling to support reported tonnage and average grade of minerals. Processes and recovery rates are monitored regularly, and recovery Such a deposit does not qualify as proven and probable reserves until rate estimates are adjusted periodically as additional information legal and economic feasibility are confirmed based upon a becomes available and as related technology changes. comprehensive evaluation of development costs, unit costs, grades, Property, Plant, Equipment and Development Costs. Property, plant, recoveries and other material factors. Inferred mineral resources are equipment and development costs are carried at cost. Mineral that part of a mineral resource for which the overall tonnages, grades 2010 Annual Report exploration costs, as well as drilling and other costs incurred for the and mineral contents can be estimated with a reasonable level of purpose of converting mineral resources to proven and probable confidence based on geological evidence and apparent geological and reserves or identifying new mineral resources at development or grade continuity after applying economic parameters. An inferred mineral resource has a lower level of confidence than that applying to
71 72 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report NOTES TOCONSOLIDATED FINANCIALSTATEMENTS further discussion). further resulted in the full impairment of goodwill to (refer Note 5for FCX’s annual impairment inof 2008 quarter the test fourth than unitthe reporting fair less value was unit. of the reporting modelsdiscounted to determine flow cash value if carrying the of related unit amount. reporting FCX used carrying below its that would likelytests more than reduce not the fair value of a annual circumstances or changed occurred events between unless impairment for annually, tested was butleast at rather amortized, GoodwillPhelps had an indefinite Dodge. useful lifenot was and VBPP at the at VBPP date acquired, any impairment less amounts. with will VBPP with them the value properties for carry assigned to determined to impaired. be Additions to andproven probable reserves the is VBPP or produced are and the reserves probable reserves withuntil additional associated the becomes VBPP and proven availablewere of the as acquisition date. includingresults, geological information, that and/or geological data by interpreting the exploration known information and exploration value The to exploration potential assigned determined was access. value of potential mineral that FCX deposits the has legal right to an indicated potential Exploration mineral is the resource. estimated lived intangible fair value. value asset’s carrying below its annual that would likely tests more than reduce not the indefinite- annually, circumstances occur or change events unless between lived intangible subject are to impairment assets testing least at technology. All10 indefinite- and patents for process to years 20 and principally payments; 1to royalty for 12tire years contracts; useful lives 1to are 10 and treatment refining, for and power years estimated for ranges The projections. flow cash future discounted and principallyestimated based uponcomparable market transactions technology. fair The value of identifiable was intangibleassets and patents process payments, royalty and tirecontracts contracts), (primarily relatedpower to and treatment refiningrates, contract lived intangibles include favorable and unfavorable contracts Indefinite-lived intangiblesprimarily includeDefinite- water rights. and liabilities aresult as of the acquisition of Phelps Dodge. estimated future flows. cash value is generally determined using valuation techniques such as valueamount fair its by which exceeds carrying value. Fair the asset that an impairment the an impairment as is exists, measured loss it Once is amount determined than of the the asset. carrying less are to ifon exist an totalundiscounted estimatedfuture flows cash basis model. impairmentimpairment An is under considered the two-step other than indefinite-livedassets, are evaluated intangible for assets, that Long-lived recoverable. theamounts may be not related carrying impairmentfor changes in or when events circumstances indicate Carrying amounts assigned to VBPP are not charged to expense to tocharged not are expense VBPP amounts assigned Carrying Asset Impairment. Impairment. Asset and Liabilities.Intangible Assets Goodwill. FCX recorded goodwill FCX aresult recorded as of the acquisition of FCX reviews and evaluates its long-lived assets FCX reviews and evaluates long-lived its assets FCX recorded intangible assets intangible FCX recorded assets
current production cost and a component of the associated inventory.current and of acomponent the production associated cost of existing mining activities, accounted a stripping are as for costs subsequent pit major expansion or is considered acontinuation to be However, or benefited. second body the for a ore where reserves and proven probable estimatedrecoverable on based method development, capitalized are the on unit-of-production and amortized future mine production that considered pre-production to are be unique and identifiable outside the areas current mining for area Major development expenditures,including stripping to prepare costs duringproduced in the period which incurred. stripping are costs and included are production costs of acomponent inventory as during the of production amine phase considered variable are mineral incurred materialoverburden and waste deposits) to access whether or not FCX not iswhether or apotentially (PRP) and the responsible party enacted laws and regulations,presently remediation experience, includingfactors, currently available existing facts, technology, an on evaluation based are of various costs FCX’s of these estimates and facts circumstances. specific on considered probableare based with theassociated site. environmental Other remediation obligations any or and subsidiaries, of FCX, its probable have of assertion, been consideredis probable are when aclaimor programs is asserted, and analogous LiabilityCompensation, or state (CERCLA) Act attributed to the Environmental Comprehensive Response, obligation is considered probable. to Environmental be obligations of afacility, is by made management and the environmental obligation when adecision is accrued to close afacility, aportion or operating facilities with environmental obligations, an environmental estimated. Forreasonably facilities closed of and portions closed probable that obligations be can incurred have been and the costs Accruals when it suchis for expenditures recorded are benefits. capitalized, or expensed depending upontheir future economic the use ofthe appropriate use current and escalation discount rates. and and the timingdevelop of producing the reserves the reserves; including estimates, to andproven probable reserve any costs and other input costs; of commodity-based estimates assumptions; of futureEstimates include flows cash price metal and long-term near and management’s prices. metal projections average long-term for of reflective the pricecurrent environmentnear-term price forecasts currentderived plans, from business which developedusing are the fair and measure value of FCX’sassets mining are operations recoverability oflong-lived assess used to flows Estimated cash flows. determined through of the discounted use estimatedfuture cash unavailable FCX’s for individual mining fair operations, value is by reference to fairmeasured value. quoted are market prices As individual mining with used, are operations impairment losses undiscounted of after-tax estimates of FCX’s future flows cash In evaluating mining recoverability, for operations’ long-lived assets Deferred Mining Costs. Mining Costs. Deferred Environmental Expenditures. Environmental Expenditures. Stripping ( costs Environmental expenditures are i.e., the costs of removing the costs FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 73
FCX and its subsidiaries have entered entered have its subsidiaries and FCX FCX sells its products sales to sells pursuant FCX NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO Revenues from FCX’s concentrate and cathode and concentrate sales from are FCX’s recordedRevenues Revenue Recognition. Recognition. Revenue Derivative Instruments.Derivative With the exception of FCX’s Congolese FCX’s of operations, taxes exception income the With contracts entered into with its customers. Revenue for all FCX’s FCX’s for all its customers. with contracts Revenue into entered loss of risk and pass the to products title when recognized is reasonably is assured. The passing collectibility when customer and loss of customer are risk the based and to the on terms of title of or product. of delivery upon shipment sales contract, generally salesbased or price sales a final calculated on a provisional price in accordance with the terms specified in the relevant sales the relevant contract.in terms specified the accordance with in from sales concentrate Revenues are recorded treatment net of and as applicable, if participation, price charges (including refining all contracts. derivative of discussed Moreover, impact the below) and because copper in concentrates a portion contained metals the of process, smelting revenues the of as a result unrecoverable is FCX’s from sales concentrate are recorded also allowances based net of on these of metals. These unrecoverable value and quantity the contractsby vary FCX’s and of term are a negotiated allowances charges represent refining and payments Treatment customer. refiners smelters and to either or fixed adjustments and are price certain cases, in or, vary copper of price the (referred as with to price participation). tax return. FCX’s policy associated uncertain tax to is with policy positions tax FCX’s return. record interest accrued expense interest in in accrued and penalties for income expenses provision and the income other in rather than taxes for further discussion). 12 (refer Note to subsidiaries foreign material FCX’s of earnings are on the provided has FCX be distributed. these that will earnings assumption the under its Congolese to related earnings undistributed that determined toward have allocated beenor operations indefinitely are reinvested the localneeds of FCX has notoperations. identifiable specifically for differencesprovided other between book the tax and carrying these of amounts investments as considers FCX its ownership the related of quantification and duration be to permanent in position not practicable. is deferred tax liability into derivative contracts to manage certain risks resulting from from contracts certain manage derivative to resulting risks into copperforeign gold),and in commodity prices (primarily fluctuations rates interest offsetting and rates exchange currency creating by certain exposures. (including market instrument Every derivative contracts) other embedded in instruments recorded is derivative in measured at its fair asset an sheet as either balance the or liability a derivative of value fair the for in changes The accounting value. the and derivative use the of intended depends on the instrument for a summary FCX’s of 15 Note to Refer designation. resulting a and 2010, atDecember instruments derivative 31, outstanding strategies management risk for those FCX’s of designated discussion as hedges. FCX records the fair value of value records FCX fair the FCX accounts for deferred income taxes utilizing an accounts FCX for taxes deferred income utilizing Income Taxes. Asset Obligations. Retirement FCX accounts for uncertain income tax positions using a threshold accounts taxFCX for uncertain using income positions estimated asset retirement obligations (AROs) associatedestimated asset with obligations retirement assets Retirement long-lived period the incurred. in tangible assets associated long-lived with are thoseobligations for which or law, enacted settle existing to under obligation a legal is there statute, written or oral contract These or construction. legal by estimated based cash on discounted are initially which obligations, charges through time over value flow full to estimates, are accreted asset costs costto retirement sales. (ARCs) of addition, In are as part asset’s related are the carrying of and capitalized value basis) over the on a unit-of-production (primarily depreciated costs for future Reclamation asset’s respective life. useful the ARC in as as and a related are ARO disturbances an recognized costs of AROs primarily consist FCX’s period disturbance. the of These activities. closure and reclamation associated mine with costsfor include specific,generally are site which activities, (refer to earthwork, water treatment demolition and revegetation, for further discussion). 13 Note ability of other PRPs to pay their allocated portions. the allocated With pay their to PRPs other of ability Phelps of acquisition assumed the in those of obligations exception Dodge were 13 recorded (refer Note that values to at estimated fair are recorded on an obligations for further environmental discussion), to sufficient is information basis. Where available the undiscounted has been estimate used. that obligation, the of amount the estimate a ofto range sufficient establish only is Where information the any than more range is the likely within no point and liability probable range has been the lower of recoveries end the used. Possible other, someof these of costs from parties other the in are not recognized they become Legal probable. until statements financial consolidated as (such fees to remediation costs associated environmental with the extent and type determining to firmsfor work law outside relating costs of allocation among PRPs) the are and actions remedial of Environmental as part estimated obligation. the of included were Dodge, Phelps of which acquisition assumed the in obligations value basis, full are accreted to on estimated a discounted initially charges interest the through expense. to to over time Adjustments income. operating are charged to obligations asset and liability method, whereby deferred tax assets and liabilities whereby deferred method, tax assetsasset liabilities liability and and basedare recognized tax on the effects temporary of differences the statementstax and between of assetsbasis financial the and as tax measured enacted current by rates 12 (refer Note to liabilities, need the forfor further evaluates FCX discussion). When appropriate, deferred reduce tax to assets allowance estimated to a valuation recoverable amounts. The effect tax on deferred income assets and in income in tax in rates a change of or recognized is laws liabilities are changes enacted. such which periodthe in recognition statement financial for measurement the and attribute measurementand a tax or of a taken expected be in position to taken 74 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 11): Note to (refer of vesting or exercise conversion, upon issuable stock Add of: conversion assumed of impact income Plus stockholders common FCX to attributable share per (loss) income net Diluted interests noncontrolling to attributable income Net b. a. calculating of purposes for outstanding stock common of shares Weighted-average outstanding stock common of shares Weighted-average stockholders common FCX to attributable (loss) income net Diluted stockholders common FCX to attributable (loss) income Net conversions induced on losses and dividends Preferred (loss) income Net NOTES TOCONSOLIDATED FINANCIALSTATEMENTS d. c. e. priced based on prices published prices on priced based in Metals Week, Ryan’s Notes or monthmonththe near of shipment.specified generally Bullion London the average price a for Market Association of 2011 pursuant to the contracts. termsof the sales $4.36 of (net noncontrolling of of copper an pricedat average interests), mining copper its from sales of 417 operations million pounds 31,December 2010, FCX had outstanding provisionally pricedcopper qualify not derivative embedded The accounting. hedge does for At allownot and always netsettlement result for in physical delivery. do since contracts these agreements sales cathode concentrate or derivatives accounting and hedge guidance in contract its to the host exception in scope with and accordance sales normal purchases price. FCX applies the COMEX LME normal the or then-current the sale of at the metals contained cathodes in or the concentrates is contract required host The bifurcated to contract. be the from host pricing mechanism that is finalized the after time of delivery) that is COMEX prices, which prices, in results derivative an embedded COMEX ( the at timecustomers LME of shipment or then-current on based until revenues and the futureperiod. specified FCXrecords invoices result to in revenues sales future changes recorded and period, these in prices on the specified based market prices FCX receives prices. the NewYork or Exchange (LME) Mercantile Exchange (COMEX) months the from shipment the on quoted Metal London date)based finalized are prices (generally period future onein aspecified to four generally provisionally the pricedat time of shipment. provisional The in the industry, is contained inand copper cathodes concentrates
6¾% Mandatory Convertible Preferred Stock Preferred Convertible Mandatory 6¾% Stock Preferred Convertible Mandatory 6¾% options stock Dilutive Stock Preferred Perpetual Convertible 5½% share per (loss) income net diluted stock Restricted Stock Preferred Perpetual Convertible 5½% Approximately of FCX’s percent 90 2010 molybdenum were sales pricedaccording are toGold sales individual terms, contract Under the long-established structure of sales agreements prevalent agreements of structure sales Under the long-established All outstanding 6¾% Mandatory Convertible Preferred Stock automatically converted on May 1, 2010, into FCX common stock at a conversion rate of 2.7432 shares of FCX common stock. common FCX of shares 2.7432 of rate conversion a at stock common FCX into 2010, 1, May on converted automatically Stock Preferred Convertible Mandatory 6¾% outstanding All In September 2009, FCX redeemed the remaining outstanding shares of its 5½% Convertible Perpetual Preferred Stock. Preferred Perpetual Convertible 5½% its of shares outstanding remaining the redeemed FCX 2009, September In anti-dilutive. were they because excluded were shares million 78 approximately of stock common of shares additional and million $194 of impact income Potential Potential additional shares of common stock of approximately 3 million were anti-dilutive. were million 3 approximately of stock common of shares additional Potential anti-dilutive. were they because excluded were shares million 47 approximately of stock common of shares additional and million $58 of impact income Potential per pound, subjectmonths per to several finalpricing first the over
c
c
a a
i.e., a a
reduction to to (refer Note revenues 14 discussion). further for subject are royalties, a which to sales metal as certain recorded are adjustspriceor within afixed on pricebased ranges. certain remaining molybdenum generally sales have pricing that is either of the previous month quoted by the applicable publication. FCX’s price the average use sales of majority chemical these The products. additional such ferromolybdenum as and molybdenum processing, Bulletin, Metal share for the years ended December 31 endedDecember follows: theshare for years of calculatingoutstanding purposes for diluted per netincome (loss) stock of common shares and weighted-average net income (loss) outstanding stock duringof common the year. Areconciliation of shares attributable by the to weighted-average stockholders common calculated was stock common by dividing netincome (loss) Refer to Note 11 discussion. further for through the estimates finalthose vesting date of the awards. from in estimates if subsequentthose actualdiffer periods forfeitures the at time forfeitures FCX estimates and of grant revises (SARs). appreciation stock rights exercise or date cash-settled for reporting units stock date and restricted for ofthe grant intrinsic value the on the on fair recognized are value based the on costs compensation In addition, under awards the plans, other stock-based for determined using option valuation the Black-Scholes-Merton model. fair The tovalue vest. thatawards expected options of are stock is value the over requisite for and to charged period expense service including to employees, payments fair at options, stock measured are PT Freeport Indonesia and Tenke concentrate sales Freeport PT Fungurume Stock-Based Compensation. Stock-Based Compensation. Earnings Per Share. Per Earnings plus premiums conversion that undergo products for FCX’s basic net income (loss) per share of FCX’s per basic netincome (loss)
$ $ $
Compensation costs for share-based share-based for costs Compensation (1,208) 2010 4,336 5,544 4,273 4.57 915 949 (63) 26 63 — — 2 6
$ $ $ 2009 2,527 3,534 2,749 (785) (222) 2.93 829 194 938 25 79 28 3 2 $ $
$
(11,341) (10,450) (11,341) 2008 (14.86) (617) (274) 763 763
— — — — — — e e d b d b FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 75
FCX has the following unincorporated joint ventures joint unincorporated following has the FCX NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO Joint Ventures. Joint FCX owns 100 percent of the outstanding Atlantic Copper common Atlantic outstanding percent the of owns 100 FCX FCX’s direct ownership in PT in Freeport totals ownership Indonesia direct FCX’s Power PT percent interest in Puncakjaya 85.71 owns an FCX FCX and Rio Tinto have established certain have Tinto Rio and FCX Tinto. Rio At December 31, 2010, operating copper mines in South America copper mines operating 2010, 31, December At located in Peru, and percent owned) (53.56 Verde were Cerro Candelaria (80 percent Ojos del Salado (80 percent owned)owned), to owned) located in Chile. In addition percent (51 Abra El and copper and molybdenum,such other minerals, certain mines produce FMC owned an At December 31, 2010, rhenium. and silver gold, as Fungurume minerals interest in the Tenke percent 57.75 effective to Note 14 for discussion of changedistrict in the DRC (refer in ownership interest in 2011). In addition to copper, the Tenke the Tenke in 2011). In addition to copper, in ownership interest also produces cobalt hydroxide.Fungurume minerals district net assets FMC’s At December 31, 2010, totaled $12.5 billion and its accumulated deficit totaled $14.8 billion. As of of As billion. $14.8 deficit totaled and its accumulated 81.28 percent. PT company, Indocopper Indonesian Investama, an percent PT of owns owns 9.36 Freeport FCX and Indonesia 2010, 100 percent PT of Indocopper December Investama. At 31, its and net assets PT Freeport $3.5 billion totaled Indonesia’s 2010, As December of 31, $3.3 totaled earnings billion. retained PT to outstanding no loans had FreeportFCX Indonesia. Copper’s net assets Atlantic 2010, stock. December At 31, December 31, 2010, FCX had no loans outstanding to FMC. December 31, 2010, FCX had no loans outstanding totaled million. deficit $350 totaled its accumulated and $42 million Copper at Atlantic to outstanding loans in million $411 had FCX 2010. December 31, owner assets power the of Power), (Puncakjaya to supplying megawatt 3x65 the operations, PT including Freeport Indonesia’s Freeport coal-firedPT purchasesIndonesia powerpowerfacilities. asset infrastructure Power under from financing Puncakjaya loans any not have did FCX 2010, arrangements. December At 31, PT Freeport had Power, Indonesia Puncakjaya to outstanding Puncakjaya to payable obligations assetinfrastructure financing Power a receivable had Puncakjaya and $89Power million totaling Tinto’s Rio including million, from PT Freeport for $116 Indonesia PT consolidates FCX Freeportshare. Puncakjaya and Indonesia sheets balance reflect of receivables consolidated FCX’s Power. $23 and accounts million other receivable in ($2 million million $25 $27 million and long-term assets) 2010, in at December 31, ($2 million in other accounts receivable and $25 million in long-term in $25 million and accounts other receivable ($2 in million Puncakjaya of share Tinto’s assets) 2009, for Rio at December 31, agreement venture joint FCX’s as for provided in receivable Power’s Tinto. Rio with with third parties. third with arrangements, venture joint the ventures. Under joint unincorporated has a 40 PT percent interest Tinto in Freeport Indonesia’s Rio 40 percent in any of participate to Contract option the and Work of Indonesia. Papua, projects exploration in future other
Fair Value Measurements and and Measurements Value Fair FMC is a fully integrated producer of Smelting Ownership in Subsidiaries, Joint Ventures and and Ventures Joint Subsidiaries, in Ownership New Accounting Standard. Accounting New Outstanding stock options with exercise prices exercise greater the with than stockOutstanding options Investment in Pt in Investment Ownership in Subsidiaries. NOTE 2. in 2010, approximately 13 million stock options with a weighted- with stock options million 13 approximately 2010, in 2009 in and $36.27average of excluded price exercise a weighted-average with stock options 5 million approximately 2008. $34.94 of price in exercise share of common stock. There were approximately 10 million stock million 10 common of share stock. There were approximately $38.56 a weighted-average of price exercise with excluded options FCX’s convertible instruments are excluded from the computation from the computation are excluded convertible instruments FCX’s of stock when (loss) per share of common diluted net income of these instruments results in an anti- including the conversion period the are common stock during average FCX’s of price market (loss) net income per diluted of computation from the excluded dilutive effect on earnings per share (refer to footnotes b and d indilutive effect on earnings the table above). in the rollforward of activity in Level 3 fair value measurements. value 3 fair Level in activity rollforward of the in after for fiscalThoseyears are required disclosures beginning those fiscal periodsyears. within for and interim 2010, December 15, out of Level 1 and Level 2 fair value measurements be value to disclosed 2 fair Level 1 and Level out of reasons the transfers. with separately for the along Additionally, significant measurements value using fair for the in reconciliation the about purchases,unobservable (Level 3), sales, inputs information issuances settlements and must be presented separately (cannot for provides also clarification guidance This net asone number). and inputs disaggregation of level on (i) (ii) disclosures and existing conforming includes guidance this addition, In techniques. valuation postretirement of benefit disclosure foramendments employers’ annual and assets. was for interim effective plan guidance This for the 2009, except after Decemberreporting periods 15, beginning about purchases,disclosures sales, issuances settlements and Disclosures (Accounting Standards Codification (ASC) 820), Improving Improving (ASC)820), Codification Standards (Accounting Disclosures the January 2010, In Measurements. Value Fair about Disclosures issued Board Standards accounting (FASB) Accounting Financial value fair to related disclosures improve to intended guidance transfersandin significant requires measurements. guidance This copper and molybdenum, with mines in North America, South America Fungurume minerals district in the Democratic and the Tenke Republic of Congo (DRC), copper and molybdenum conversion facilities, and several development projects. At December 31, 2010, operating copper mines in North America were Morenci, FMC’s Sierrita, Bagdad, Safford and Miami located in Arizona, and Tyrone and Chino located in New Mexico. FCX has an 85 percent interest in Sumitomo”) and owns 100 percent — Morenci (refer to “Joint Ventures of the other North America copper mines. FMC also owns 100 percent of the Henderson molybdenum mine and the Climax molybdenum mine (on care-and-maintenance status), which are located in Colorado. 76 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 275,000 metric tons of copper per year from 250,000 metric 250,000 275,000 from tons. year metric per tons of copper SmeltingPT completed an expansion to production of its capacity Gresik, in asmelterDuringIndonesia. and refinery 2006, operates NOTES TOCONSOLIDATED FINANCIALSTATEMENTS $6 million$6 31, December at 2009. receivable million Sumitomo from of $8 31, December at 2010, and million90 pounds $281 for million FCX during had a 2008. during 2010, 75 million pounds $175 for million during and 2009 pounds of Morenci’s Sumitomo from cathode million $223 copper for kind share of Morenci’s its production. million 66 purchased FMC Mining in Co., takes Ltd. and Sumitomo partner Each Corporation. by Sumitomo,owned ajointly subsidiary owned of Sumitomo Metal via an unincorporated joint venture. remaining The 15 is percent of Work areas. Contract to participate in exploration Indonesia’s joint Freeport ventures in PT Nabire Mining Bakti PT an on annual Rio basis. Tinto continues participation Irja in Minerals PT Eastern amonthly on basis and in joint venture Rio agreement. Tinto the has option to resume will areas ininterest these decline time over in with accordance the and Rio100 areas in of Tinto’s future percent these exploration costs FCX the has tonot option exploration fund projects, to fund these in aresult, Indonesia.Work Rio areas long as as As Tinto continues Nabire MiningPT Bakti Irja Minerals of and PT Eastern Contract is participating longer no in exploration joint ventures in the by Rio percent FCX and 40 Tinto. Rio Since Tinto 2008, September inby the joint percent exploration costs 60 shared are venture areas of Work held by FCX subsidiaries. by Contracts covered Agreed-upon $100 million in in 1996 the areas exploration costs approved for 31,December 2009. $132was million 31, December at 2010, and $161 million at payableThe to Rio Tinto share of joint its for venture cash flows flow. 31,cash December 1994, of all percent and 60 remaining of as by reference and to proven probable its reserves calculated annual amounts of copper, gold and silver through 2021 specified from flow of the cash 100 percent continuereceive to will Indonesia Freeport PT Indonesia’s previously existing reserves. production including Block from A, Freeport production PT from expansion recent completed inmost 1998 to (ii) total from revenues Indonesia’s Freeport incremental production PT from revenues from Indonesia and Rio Freeport PT Tinto the on ratio of (i) the based between administrative proportionately shared are and costs in located theare Operating, Block nonexpansion capital Aarea. and mining its Indonesia’s operations and proven probable reserves in interest percent all 40 All production Block Freeport from A. of PT Indonesia’s of Freeport Work, 2021, and,PT after Contract of a annual amounts of copper, gold and silver through 2021 in Block A and future production exceeding in assets interest specified certain Investment Smelting. in PT Sumitomo. Under the joint Rio venture arrangements, Tinto funded Pursuant to the joint venture Rio agreement, Tinto percent a40 has FCX owns an 85 percent undivided FCX percent ownsan 85 in interest Morenci PT Smelting,PT an Indonesian company,
December 31,December 2010, million and $300 31, December at 2009. Smelting receivabletrade PT from totalinga million $455 at million$250 31, December at Indonesia had Freeport PT 2009. Indonesia, totaling $180 million 31, December at 2010, and SmeltingPT to Freeport debt, had project-specific nonrecourse PT 31, December 2010, million and $55 31, December at 2009. quantitiesfor metric annually. tons of 205,000 of copper in excess whichmarket rates, subject not are to aminimum maximum or rate, Indonesia Smelting also sells Freeport concentrate to PT PT copper at and of the Mineral Government of Indonesia. Resources Energy of which contract, by the approved sales Department long-term was is an amendment pound. agreement to per The the is $0.30 metric tons 205,000 for of copper. maximum The debt service) rate of (net creditsannual and including operating costs cash of costs determined annuallyPT Smelting’s sufficient andcover to be must applicable to April the period 27, to April 27, 2008, 2014, is but will fall not below specified minimumThe minimumrates. rate, paid to byfees smelters miners)would approximate market rates, that the combinedagreed and treatment refining(processing charges Indonesia beginning operations, 1998, Freeport PT December PT Smelting’s Forof basis. the first priority 15 years commercial annually (essentially the smelter’s original a on capacity) design Smelting PT for metric tons to205,000 of produce copper necessary supply of 100 concentrate requirements of the percent copper Smeltingoutstanding PT stock. common 60.5 9.5 percent, and respectively, 5percent, percent of the Nippon and Mining &Metals Co., Ltd. (Nippon) 25 own percent, Materials), Mitsubishi Unimetals Corporation Ltd. (Mitsubishi) Indonesia, Mitsubishi Freeport PT (Mitsubishi Materials Corporation FCX’s investment Smelting in PT totaled $11 million at Indonesia’s Freeport Smelting withPT contract PT the for provides
FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 77 a
27
471 279 167 938 393 (1,583) 10,748 10,056 12,331 2008
$ $ Impairments
4,303 1,297 2,983 2,703 7,282 2,136 1,084 2009 (5,593) 16,195 21,788 $ $
3,188 2,815 7,523 2,365 1,885 1,100 4,503 2010 (6,594) 16,785 23,379 $ $
Property, Plant, Equipment and and Equipment Property, Plant, Goodwill, and Intangible Assets Liabilities and Intangible and Goodwill, FCX recorded goodwill in 2007 in connection with the FCX recorded goodwill in 2007 in connection development costs, net development costs NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO FCX evaluated its long-lived assets for impairment as of December 31, 2008. These evaluations resulted in the recognition of asset impairment charges to reduce the carrying value of its property, plant, equipment and development costs (refer to Note 17 for further discussion). As a result of FCX’s annual goodwill impairment testing in the in testing impairment goodwill annual As FCX’s of a result FCX capitalized interest totaling $66 million in 2010, $78 million million $78 2010, in $66 interest million totaling capitalized FCX Property, plant, equipment and and amortization Property, plant, equipment and VBPP Phelps Dodge acquisition, which primarily related to the requirementPhelps Dodge acquisition, which primarily related to recognize a deferred tax liability for the difference between the assigned values and the tax basis of assets acquired and liabilities assumed in a business combination. In accordance with accounting rules, goodwill resulting from a business combination is assigned reporting units thatto the acquiring entity’s are expected to benefit to goodwill of from the business combination. The allocation reporting units, which FCX determined included its individual the mines, was completed in the first quarter of 2008. fourth charges quarter totaling 2008, of impairment recognized FCX common net loss FCX to to attributable ($6.0 billion $6.0 billion carrying full the share) eliminate to per diluted stockholders or $7.84 were on based time at that evaluations FCX’s goodwill. of value forecasts price near-term developed using business plans current management’s and then-currentthe reflectiveof environment price for long-term averageprojections metal prices 17 Note (refer to value). fair determining usedfor assumptions further in of discussion FCX recorded $2.2 billion for VBPP in connection with the PhelpsFCX recorded $2.2 billion for VBPP in connection million duringDodge acquisition in 2007 and transferred $197 to 2009 to2010, $159 million during 2009 and $383 million prior proven and probable reserves. interest 2008. primarily in Capitalized million 2009in $122 and Abra in El and mines projects Climax at development the to related 2009 in 2008. and mine Fungurume Tenke at the and 2010 5. NOTE Goodwill. NOTE 4. NOTE equipment and development plant, property, The components of net impairment charges, follow: costs, along with 2008 Proven and probable reserves a.
Development Costs,Development Net Accumulated depreciation, depletion Development and other Buildings and infrastructure Machinery and equipment Mobile equipment Construction in progress December 31, 1 35 15 46 821 955 470 856 108 588 171 227 442 621 879 667 1,321
1,425 Total Total 2,203 1,110 1,093 2009 $ $ $ $ $ $ $ $ $ $
9 1 — — — — — — — — 93 83 83 22 22 336 266 704 $ $ $ $ $ $ $ $ Africa Africa 1,169 1,409 2,578 2010 $ $
— — — — — — — — 24 24 39 39
$ $ $ $ $ $ $ $ Indonesia Indonesia
7 72 11 83 74 81 250 470 720 427 220 647
$ $ $ $ $ $ $ $ South South America America
b — — — 15 547 652 749 622 622 749 547 637
North North $ $ $ $ $ $ $ $ America America
a a a Inventories, Including Long-Term Mill and and Mill Long-Term Including Inventories, and leach stockpiles and leach stockpiles and leach stockpiles and leach stockpiles Total long-term mill Total current mill Total current mill Total long-term mill Materials in stockpiles not expected to be recovered within the next 12 months. Materials and supplies inventory is net of obsolescence reserves totaling $26 million at December 31, 2010, and $21 million at December 31, 2009. Primarily includes molybdenum concentrates and copper concentrates, anodes, cathodes cathodes anodes, and concentrates, copper concentrates molybdenum includes Primarily and rod. In 2008, FCX recorded charges totaling $782 million ($479 million million ($479 million 2008,In $782 recorded FCX charges totaling Work-in-process Finished goods Raw materials (concentrates) Work-in-process Finished goods Total inventories Mill stockpiles Mill stockpiles Mill stockpiles Leach stockpiles Mill stockpiles Leach stockpiles Raw materials Leach stockpiles Leach stockpiles December 31, 2009 December 31, 2010
Atlantic Copper: Total product inventories Total materials and supplies, net to net loss attributable to FCX common net loss FCX stockholdersto to or attributable $0.63 per declines the of as a result share) adjustments inventory for LCM diluted fourth the quarter prices copper 2008 of in molybdenum in and and costs operating higher of carrying impact on inventory the values. a. FCX recorded charges for lower of cost or market (LCM) molybdenum inventory adjustments totaling $19 million ($15 million to net income attributable to FCX common stockholders or $0.02 per diluted share) during first-quarter 2009 resulting from lower molybdenum prices.
Current:
Long-term:
Current: b. A summary of mill and leach stockpiles follows: a. December 31, Mining Operations: NOTE 3. NOTE follow: The components of inventories Leach Stockpiles
Long-term: 78 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report Royalty payments Royalty next five years consideredis be to immaterial. years five next million$3 the for expense estimatednetamortization The in 2008. millionin $4 was revenues in 2010, million $6 and in 2009 million of intangible$63 Amortization in 2008. liabilities recognized $10 was delivery costs million in 2010, $16 million and in 2009 concluded that impairments. no there were of 2010,intangible in quarters the fourth and assets and 2008 2009 (refer toNote17forfurtherdiscussion). share) toreducethecarryingvaluesofdefinite-livedintangibleassets loss attributabletoFCXcommonstockholdersor$0.10perdiluted asset impairmentchargestotaling$119 million($74tonet December 31, 2008.Theseevaluationsresultedintherecognitionof FCX evaluateditslong-livedassetsforimpairmentasof technology process and Patents rights water Indefinite-lived 2009 31, December liabilities: Intangible intangibles Other contracts Power payments Royalty technology process and Patents rights water Indefinite-lived 2010 31, December NOTES TOCONSOLIDATED FINANCIALSTATEMENTS assets and intangibleassets liabilities (included in other liabilities) follow: Power contracts Power Other intangibles Other liabilities: Intangible in terms refining and Treatment assets intangible Total in terms refining and Treatment assets intangible Total Amortization of intangible recognized inAmortization production and assets annual its impairmentFCX performed testing of indefinite-lived Intangible Assets and Liabilities.Intangible Assets contracts sales contracts sales
The components of intangible components The Carrying Carrying $ $ $ Gross Gross Value Value $ $ $ 253 389 380 245 48 38 25 52 25 52 48 25 25 37 Accumulated Accumulated Amortization Amortization $ $ $ $ $ $ (15) (14) (11) (17) (18) (25) (52) (21) (42) — — (8) (5) (6) $ $ $ $ $ $ Value Value Book Book Net Net 328 245 253 347 40 23 31 11 20 37 27 19 19 8 c. b. a. investments: Cost-method 31, December The componentsofotherassetsfollow: NOTE 6. a. postemployment postretirement, Pension, 31, December Additional informationregardingotherliabilitiesfollows: NOTE 8. b. a. payable Accounts 31, December liabilities follows: Additional informationregardingaccountspayableandaccrued NOTE 7. Other assets tax Deferred securities Available-for-sale investments: Equity-method costs issue Debt assets Trust receivables other and Notes
Other to obligation contractual Copper Atlantic other and postemployment postretirement, Pension, reserve claim Insurance benefits tax uncertain for Reserve Other liability tax deferred Current interest Accrued programs development Community taxes accrued Other revenue Deferred compensation other and wages Salaries,
McMoRan Exploration Co. (MMR) Co. Exploration McMoRan and other employment benefits employment other and assets other Total Other Smelting PT Other 10) Note to (refer company insurance benefits employee liabilities other Total liabilities accrued and payable accounts Total $741 million in 2008. in million $741 and 2009 in million $504 2010, in million $421 was FCX by paid interest Third-party December at million $8 was assets, current other in included is which portion, current The discussion). further for 13 Note to (refer mines Cobre and Tyrone Chino, the at AROs for funds restricted legally of 2009 in million $129 and 2010 in million $137 Includes MMR. of officers executive or directors as serve also officers executive and directors FCX’s of Several stock. common MMR of share per $16 of price conversion initial an or stock), common MMR of shares million 31.25 of aggregate (an Stock Preferred of share per stock common MMR of shares 62.5 into convertible initially is Stock Preferred The million. $500 of price purchase aggregate an for Stock) Preferred (the Stock Preferred InDecember 2010, FCXpurchased 500,000 shares ofMMR’s 5¾%Convertible Perpetual Refer to Note 7 for short-term portion and Note 10 for further discussion. further for 10 Note and portion short-term for 7 Note to Refer discussion. further for 10 Note and portion long-term for 8 Note to Refer Accounts Payable and Accrued Liabilities Other Assets Other Other Liabilities Other b,c 31, 2010, and $6 and 2010, 31,
b
a
million at December 31, 2009. 31, December at million
a
a
$ $ $ $ 2010 2010 1,459 1,074 2,441 1,272 $ $ 2010 146 133 136 148 152 156 180 244 140 200 997 500 48 58 61 92 12 28 43 11 58 2 3
3
$ $ $ $ 1,423 2,038 2009 2009 $ $ 2009 126 140 168 700 208 157 950 184 201 113 148 133 127 188 890 12 62 39 55 95 58 50 54 —
FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO The 9½% Senior Notes due June 2031 and the 8¾% Senior Notes Senior 8¾% the and 2031 Notes June Senior due The 9½% The 8.25% Senior Notes are redeemable at fixed prices initially Notes Senior areat The fixed redeemable 8.25% initially prices 1, on April beginning months percent for 12 starting at 104.125 starting Notes Senior are initially redeemable 8.375% the and 2011, 2012. 1, on April beginning months percent for 12 at 104.188 open-market purchased in 2009, FCX transactions During and million Notes Senior for $218 8.25% the of $203 million These million. Notes Senior for $172 8.375% the of million $160 open-market losses purchases of in resulted on early extinguishment to attributable net income to ($29 million $33 million totaling debt commonFCX stockholders share). 2010, or $0.03 During per diluted the of million open-market purchased in FCX transactions $218 the of $329 and million Notes Senior million for $237 8.25% losses in resulted on which Notes Senior for $358 million, 8.375% net to ($48 million $55 million totaling debt of early extinguishment common FCX stockholders to or attributable $0.05income per billion its of $1.0 redeemed FCX all 2010, share). 1, On April diluted holders Notes Rates for which Floating Senior outstanding of accrued together with amount principal percent the of received 101 recorded FCX a redemption, As interest. this of a result unpaid and ($20 million $22 million totaling debt of loss on early extinguishment common FCX stockholders to or attributable $0.02 net income to per for a discussion 21 Note to Refer 2010. share) during diluted of FCX’s February 2011 announcement to redeem the remaining redeem remaining to the announcement February 2011 FCX’s of Notes. Senior 8.25% the of billion $1.1 1 and on June bear semiannually interest payable 2011 June due TheseDecember part, or whole in 1. notes at the are in redeemable 2007, March In price. FCX, of at a make-whole redemption option in connection with the acquisition of Phelps Dodge, Phelps assumed of FCX acquisition the with connection in was which these $306 of a stated notes senior value with million, theseof value market reflect to the fair increased $54 by million being is value The increase date. in acquisition at the obligations amortized notes recorded the of and term of over the as a reduction interest expense. 2008, open-market an In purchased in FCX Notes Senior for $46 9½% the of million transaction $33 million recordedand losses totaling debt of on early extinguishment common net loss FCX to to attributable ($5 million $6 million share). purchased in 2009, FCX In perstockholders or diluted $0.01 Notes Senior 8¾% the of open-marketan transaction million $24 recorded and losses debt of onfor early $26 extinguishment million FCX to attributable net income to million ($1 million $1 totaling share). 2010, common In stockholders or per less diluted $0.01 than the of million open-market an purchased in transactionFCX $18 recorded and losses Notes Senior on for early $269½% million net income to ($3 million $4 million totaling debt of extinguishment common FCX stockholders to attributable or less than $0.01 principal outstanding per the share). diluted At 2010, December 31, 8¾% the and million Notes Senior was 9½% $143 the of amount NotesSenior was $84 million. 1
— 87 (16)
198 115 115 193
2009 6,346 6,330 3,340 1,297 1,000 $ $
— — — 85 (95) 175 175 115 115 4,755 3,011 1,079 4,660 2010 $ $
The revolving credit facilities are available In March 2007, in connection with financing FCX’s FCX’s financing with connection in 2007, March In Debt % Senior Notes due 2034 % Debentures due 2027 8 8 Total debt Less current portion of debt Long-term debt / / 1 1 Senior Notes. Interest on the revolving credit facilities is based is London on the facilities credit revolving Interest on the are certain guaranteed by wholly facilities credit The revolving short-term borrowings) 8¾% Senior Notes due 2011 7% Convertible Senior Notes due 2011 8.375% Senior Notes due 2017 8.25% Senior Notes due 2015 Senior Floating Rate Notes due 2015 9½% Senior Notes due 2031 Other (including equipment capital leases and 6 7 Senior Notes: billion of 8.375% Senior 8.375% of Dodge, Phelps sold $3.5 of FCX billion acquisition Notes April Senior due 8.25% of billion $1.5 2017, Notes April due 2015 Notes April due Rate Floating Senior of billion $1.0 and 2015 notes senior Interest on the is net proceedsfor total billion. $5.9 of Floating The Senior October 1 and 1. on April semiannually payable redeemed as further Notes been discussed have fully Rate below. The 8.25% and 8.375% Senior Notes are redeemable in whole or whole in Notes Senior are in redeemable 8.375% and The 8.25% pricespart, FCX, of at make-whole prior redemption option at the dates, afterwards and redemption the to prices. at stated redemption Interbank Offered Rate (LIBOR) plus 1.00 percent, subject to an to percent, subject 1.00 Offered plus (LIBOR) Interbank Rate increase or decrease based interest rate margin the credit on the in Services assignedratings & Poor’s Standard Rating by Moody’s and Investors Service. equity of are pledge secured and FCX the of by owned subsidiaries these of guarantors certain and subsidiary other all substantially in indebtedness FCX, intercompany of and non-guarantor subsidiaries owed FCX. to PT Borrowings and FCX by Freeport Indonesia million could be used for additional letters of credit. of which $957 million could be used for additional letters of of a pledge are secured also revolver with under $0.5the billion stock PT of outstanding percent the of Freeport Indonesia, 50.1 over 90 assets percent the of PT of with Freeport and, Indonesia respect borrowings to PT by the of Freeport a pledge Indonesia, ContractWork. of until March 19, 2012, and are composed of (i) a $1.0 billionuntil March 19, 2012, and are composed of (ii) a $0.5 billion revolving credit facility available to FCX and and PT Freeportrevolving credit facility available to both FCX no Indonesia. At December 31, 2010, FCX had borrowings and $43 credit million of letters of credit issued under the revolving $1.5 billion,facilities, resulting in availability of approximately Revolving Credit Facilities. Revolving Credit Facilities NOTE 9. NOTE follow: The components of debt December 31,
80 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report FCX purchased in open-market transactions $10 transactions FCX in purchased open-market million 6 of its 2014 million.due February of $344 netproceeds for During 2004, up to approximately $11 billion. of the allowed covenants related payments to payments for restricted 31, effective. At December again become 2010, restrictive the most the covenants would Service, Investors and Moody’s Rating Services by Standard both &Poor’s below investment grade downgraded currently are suspended. Toassets the the rating extent is incurring on Notes debt, and making selling payments restricted the contained restrictions grade, in FCX’s 8.375% and 8.25% Senior $4.1 billion. the ratings investment theare on senior Because notes by defined revolvingthe (as credit facility) totaling approximately 2010, FCX had availability under theplus revolvers cash domestic $750 exceeds plus cash revolvers million. domestic 31, At December facilities apply donot restrictions availability long as as under the subordinated revolving The debt and makeinvestments. certain credit equity, and common preferred redeem repurchase or prepay ability dividends to certain pay stock, and common preferred on the among instruments, but generally limit vary restrictions FCX’s covenants that limit FCX’s ability These to make payments. certain to finance used acquisitionnotes the contain of PhelpsDodge NOTES TOCONSOLIDATED FINANCIALSTATEMENTS senior notes was $124 was senior notes million. 31,At December 2010, the outstanding principal amount of these million $26 transaction inpurchased an open-market notes. of these additional as and During recorded expense. 2007, interest FCX in value decrease The is the over being term of the amortized notes the fair market value obligations of these the at acquisition date. value of $150 million, which by reduced $11 was million to reflect with senior notes astated these FCXof Phelpsassumed Dodge, redemption price. In March 2007, in connection with the acquisition redeemable in the at option wholein amake-whole at or of FCX, part, semiannually March on 15 and 15. September are notes These associated with theassociated redemption of the 6 $0.01 diluted or stockholders per common in share) 2009 totaling $14 million ($13 million to netincome attributable to FCX extinguishment early on of debt losses FCX recorded interest). 103.439 of the percent principal amount (plus and unpaid accrued million million$340 $352 for notes of these aredemption or price of the 20, August remaining On FCX 2009, redeemed Senior Notes. outstanding principal $115 was debentures amount of these million. and fair value of $115 million. 31, At December 2010, the with debentures astated these FCXof Phelpsassumed Dodge, redemption price. In March 2007, in connection with the acquisition redeemable in the at option wholein amake-whole at or of FCX, part, semiannually May on 1. 1and November are debentures The The 7 The In February 2004, FCX sold $350 million FCX sold$350 In 2004, February of 6 Restrictive Covenants. 6 The All of FCX’s unsecured. are senior notes 1 1 / / 8 8 % Senior Notes due March 2034 bear interest payable interest bear due% Senior March Notes 2034 % Debentures due November 2027 bear interest payable interest due 2027 November bear % Debentures The revolving The credit facilities and the senior 7 / 8 % Senior Notes. 7 / 8 % Senior Notes % Senior Notes
7
/
8 %
Pension Plans. NOTE 10. percent real estate investment trusts). estate real and 3 percent private percent equity, (5 investments private estate 3percent real and emerging fixed markets 3 percent income) percent alternative11 high inflation-protectionsecurities yield, and treasury 4percent U.S. percent fixed 5 internationalincome, fixed 5 percent income, emerging equities), markets fixed 35 percent income (18 percent U.S. equities, 12 international percent equities and 7 percent allocation equity (35 percent investments percent approximates 54 exercising prudent investment asset judgment. target FCX’s present manager, is FCX’s principal of reducing means volatility and ofand return.by class rates investment Diversification,asset by to achieve to another one andsatisfactory serve complementary fundamentally are various styles whose of investment managers and the selection classes asset among TrustMaster the assets boththrough the allocation program well-diversified investment of FCX’s investment objective emphasizes to the maintain need a FCX’s retirement plan administration and investment committee. that reviewed the are by formal establishment targets of asset-mix studies in Management these considers various investment portfolios. of risk returndetermine for and rates expected long-term expected includes the periodic development studies to of asset/liability Master Benefit (Master Defined Trust McMoRan Trust) Corporation time to time. various countries. Additional contributions from made also may be plans, the minimum legal requirements that applicable may be in the 1974, amended, as U.S. for or, plans; in of international the case requirements of the Employee Retirement of Act Income Security shall equalpension to trusts least at the minimum be funding eligible not are 2006, to participate in the U.S. FMC pension plan. 31, hired December employees FMC after Non-bargained service. of years five plans FMC inafter generally their vest benefits accrued Participants service. in the of each amount year afixed on for based calculated are In of other plans, the benefits case of service. and years calculated are monthly on final benefits average compensation based plans,any particular of these For groupcertain of employees. determinesdesign the manner incalculated are which benefits for international of its employees subsidiaries. applicable The plan FMC covering substantially all of FMC’s U.S. and employees some $1,080 million in 2015 and $3,577 million thereafter. in 2011, $1 million in 2012, $1 million in 2013, $1 million in 2014, 31,and termsoutstanding December at 2010, million total $95 FCX’s policy determining for the for Freeport- targets asset-mix FCX’s funding plans policy that these provides contributions for to FMCPlans. Maturities. Employee Benefits Maturities the on amounts of debt instruments based FollowingisadiscussionofFCX’s pensionplans. FMC has trusteed, non-contributory pension plans non-contributory trusteed, has FMC
FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 81
1,544 1,450 1,076 2009
$
1,581 1,662 1,122 2010 $
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO PT Freeport defined hasa Indonesia Plan. Indonesia Freeport PT Copper obligation has a contractual Atlantic Copper Plan. Atlantic uses FCX December a measurement of date 31 Information. Plan Accumulated benefit obligation Fair value of plan assets December 31, Projected benefit obligation FCX or its predecessor, but not including accounts funded accounts funded orFCX its predecessor, not including but has an also FCX pay. exclusively from participant’s deductions by excess for an its and directors plan pension benefits plan unfunded no longer accrue benefits.for its which both of executives, covering rupiah Indonesian in denominated benefitplan pension employees. PT Freeport national its of Indonesian all substantially invests and assets the plan the accordance in funds Indonesia was obligation The pension guidelines. pension Indonesian with dollar one U.S. to rupiah 8,990 rate of exchange at an valued on dollar one U.S. to rupiah 9,420 and 2010, on December 31, 2003 labor in enacted laws 2009. Indonesian December 31, benefits of level to a minimum provide companies that require based reason on the termination for employees upon employment years service. of employee’s the and PT Freeport termination to benefitsrelated include benefitdisclosures pension Indonesia’s expected on plan PT return rate of Freeport law. Indonesia’s this its consideration into taking assets at least annually, evaluated is long-range the plan for and the estimated return yield historical based asset on the mix. certain to paid amounts supplement euros to in denominated law, employees. Spanish by retired As national required Spanish Copper began August 2002, funding Atlantic in beginning 2010, based on a December 31, million euros ($10 million 7.2 years approved an to for 15 per euro) annually $1.34 rate of exchange contractual euro million for its estimated 72 company insurance invests company employees. Theretired insurance the to obligation and regulations, assets plan Spanish the accordance with in Atlantic Copper over has no control these investments. assets plan some the In plans, exceed accumulated for the its plans. the accumulated the remainder, in while benefit obligations, assets.forthoseplan benefit the exceed Information obligations plan the exceed benefit obligations where accumulated the plans assets follows:
zero coupon) interest rates at one-half year increments i.e., Among the assumptions used to estimate the benefit obligation is benefit used the estimate Among assumptions to obligation the February In 2004, unfunded established an FCX Plans. FCX Other For estimation purposes, estimation For assumes FCX long-term asset the mix The expected rate of return on plan assets atThe least expected on plan return rate of evaluated is spot ( corporate for high-quality bonds. Prior to information yield and rate based its discount on determined FCX 2010, December 31, expected benefit future paymentsfor togetherservicewith date to Curve. discount Discount the Changes Pension in the Citigroup for nexteach the of 30 years developed based is and on pricing a discount rate used to calculate the present expected of the future value rate used calculate to a discount benefit paymentsfor assumption discount rate service The date. to high-quality, designed on reflect is to yields plans U.S. for FCX’s of determination The duration. investmentsfixed-income forgiven a based rate for is these on expected benefit discount plans the future payments Mercer for the service Pension together with date to Curve.Discount Curve The Discount Mercer consists Pension of for its two (SERP) most Plan Retirement Executive Supplemental officers. executive senior benefits forprovides retirement SERP The or equivalent an survivor and annuity form a joint of the in payable a percentage executive’s equal the of will The annuity sum. lump highest three-year average consecutive compensation for any period the of the earlier preceding fiveyears the immediately during years service. 25 of credited of or completion retirement executive’s benefitsall paid of the value by be reduced benefitwill The SERP for these plans generally will be consistent with the current mix. mix. current the with be consistent will for generally these plans recorded of amount pension the impact asset the Changes could in mix need the for and or status plans income expense, the of funded the A lower-than-expected on assets return cash contributions. future decrease assets would also plan recorded of increase amount and the expected the years. expense future pension in When calculating assets, on plan return assets. of uses FCX value market the future in therefore, and, benefitrate areobligation reflectedFCX’s in costs.pension plan defined any benefit under or due or definedcontribution ownedsponsored subsidiary, wholly FM Services by FCX’s Company, annually, taking into consideration asset allocation, historical returns returns historical asset consideration allocation, into taking annually, types on current the the and assets of Masterthe Trust in held the of determination the plans, U.S. For environment. economic expected long-term rate of return on assets plan is based on expected asset performance asset plan future active and plan the of mix Basedmanagement. on these factors, expects FCX pension the the earnassets during average an percent 8.0 of per annum will was percent The 8.0 estimation 2011. January 1, years10 beginning percent and based 7.5 of on basis a passive on a compound return the percenttarget reflecting 0.5 of management for active a premium array. investment asset current and allocation 82 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report
assets: plan in Change status: funded of classification sheet Balance obligations: benefit determine to used assumptions Weighted-average status Funded
excess benefitsplans)fortheyearsendedDecember31follow: FCX’s pension plans (FMC’sfor plans;and FCX’s SERP, directorand benefit costandthecomponentsofnetperiodic The weighted-averageassumptionsusedtodeterminenetperiodic obligation: benefit in Change and AtlanticCopperplansasofDecember31follows: SERP, director andexcessbenefitsplans),PT FreeportIndonesia Information ontheFCX(includingFMC’s plans;andFCX’s NOTES TOCONSOLIDATED FINANCIALSTATEMENTS
obligation benefit Accumulated d. c. b. a.
(gains) losses exchange Foreign (gains) losses Actuarial cost Interest Service cost Service Benefits paid Benefits benefits retirement Special Benefits paid Benefits contributions Employer (losses) gains exchange Foreign assets plan on return Actual year of beginning at assets plan of value Fair liabilities accrued and payable Accounts assets Other rate Discount Other liabilities Other Curtailments year of beginning at obligation Benefit year of end at obligation Benefit year of end at assets plan of value Fair Rate of compensation increase compensation of Rate The rate of compensation increase shown for the FCX plans only relates to the FMC plans. FMC the to relates only plans FCX the for shown increase compensation of rate The percent. 4.00 was 2009 and 2010 in rate discount plan’s SERP The plan. SERP the except plans all to relates plans FCX the for 2009 and 2010 in shown rate discount The euro). per $1.34 of rate exchange 2010, 31, December a on (based plan Copper Atlantic the for million $10 and dollar) U.S. one to rupiah Indonesian 8,990 of rate exchange 2010, 31, December a on (based plan Indonesia Freeport PT the for million $8 plans, FCX the for million $40 approximate to expected are 2011 for contributions Employer discussion). further for 17 Note to (refer workforce the in reductions and plans operating mine revised from Resulted Total a c
b
a
d
$ $ $ $ $
2010 1,067 1,598 1,112 1,472 1,517 (486) (486) (488) 3.75% 5.40% benefits retirement Special Curtailments assets plan on return Expected cost Interest losses actuarial net of Amortization cost service prior of Amortization b. a. assumptions: Weighted-average Service cost Service 104 126 (85) (85) 82 26 — — (1) (4) (1) cost benefit periodic Net Discount rate: Discount Rate of compensation increase compensation of Rate assets plan on return Expected 6 5 Note 17 for further discussion). further for 17 Note to (refer workforce the in reductions and plans operating mine revised from Resulted plans. FMC the to relate only shown assumptions The
FCX SERP FCX FMC plans FMC
FCX b
$ $ $ $ $ 2009 1,472 1,067 1,412 1,378 (108) (108) (405) (406) (405) 4.25% 5.80% 209 959 64 85 26 (4) (3) (5) 1 1 6 5
b
$ $ $ $ $ 2010
8.00% 8.50% 135 (38) (38) (38) 80 68 41 13 78 97 — — — — a (6) (6) a
4 8 8 8 4
PT Freeport PT Indonesia
$ $ $ $ $ 10.50% $ $ 2009 2010 4.00% 4.25% 5.80% 8.50% 8.00% (87) 42 26 22 82 10 59 19 13 42 80 48 78 — — — — — — (1) (5) (5) (2) (2) (2) 4 7 5 9
$ $ 2009 4.25% 8.50% 6.10% 4.00% (73) 2010
$ $ $ $ $ 60 26 85 26 6.77% — (3) (1) N/A (48) (48) (48) Atlantic Copper Atlantic 21 71 23 79 71 — — — — — — — — (4) (7) (7) 3 9 — 4 — — — — —
— 2
$ $ 2008 (118) 4.25% 8.50% 6.30% 4.00% $ $ $ $ $ 34 80 29 39 2009 — — 6.77% 4 N/A (58) (58) (58) 81 10 19 79 79 21 — (8) (8) FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 83 — — — — — — — — — — — 46 28 74 $ $ Level 3 6 — — — — — — 41 74 71 10 483 134 147 $ $ Level 2 7 6 1 — — — 60 68 72 57 48 75 555 161 $ $ Level 1 6 7 7 71 57 10 46 76 75 Fair Value Fair at Value December 31, 2010 295 101 215 146 Total 1,112 $ $
a
a NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO At the end of 2010, FCX reevaluated its level determinations and transferred $68 million of government bonds and $38 million of corporate bonds from Level 2 to Level 1. A summary of the fair value hierarchy for pension plan assets plan for pension hierarchy value A summary fair the of Common stocks are valued at the closing price reported price Common closing on the stocks at the are valued based are valued underlying on the funds Commingled net realizable at the are valued cash and equivalents funds Mutual or a mid evaluation a bid using are valued securities income Fixed using value at net realizable are valued funds equity Private real estate estateReal trusts investment interests and include Total U.S. large-cap core U.S. small-cap core Emerging markets equity core International equity core International equity value Other Government bonds Corporate bonds Index-linked government bonds Other Private equity funds
associated with the FCX plans follows: plans FCX associated the with a. used forFollowing is a description of the valuation techniques with the FCXpension plan assets measured at fair value associated techniques used at plans. There have been no changes in the December 31, 2010. are traded. securities individual the on which market active preferred common and stocks, fixed and include investments, which securities. income shares at of year held end. value a at which price estimated an is evaluation A bid evaluation. average the is the of evaluation A mid pay for a security. dealer would a security the and sell a dealer would at which estimated price These pay for a security. a dealer would at which estimated price or models that are based prices, available, on quoted if evaluations use observable inputs. from general partners reported price information or on closing at the investments are the traded. on which market active the property quoted estate Real using funds. investments are valued the pricesmarket reported on which market active on the or value based at net realizable investments are available, traded, if appraisal firms,have who from independent information using real of property values expertise market and knowledge current the in investments. as the same the vicinity in Cash and cash equivalents Equity securities: Fixed income securities: Other types of investments: Real estate 1 1 4 2 6 6 6 (3)
11 9.00% 8.00% 6.77% 2008 2008
10.25% $ $ $ $ 1 1 1 9 4 5 5 7 (5) 6.77% 8.00% 2009 2009 12.00% 10.00% $ $ $ $
Atlantic Copper
1 1 8 3 4 8 PT Freeport Indonesia (7) — 10 6.77% 8.25% 8.00%
10.50% 2010 2010 $ $ $ $
FCX does assetsFCX 2011. plan in not expect any it to have returned to that hierarchy value assets a fair Plan are classifiedwithin Net periodic benefit cost Net periodic benefit cost Rate of compensation increase Expected return on plan assets Discount rate Discount rate Amortization of net actuarial loss Amortization of net actuarial loss Interest cost Expected return on plan assets Service cost Interest cost
prioritizes the inputs to valuation techniques used measure to fair techniques valuation to inputs the prioritizes quoted highest gives the priority unadjusted to The hierarchy value. (Level 1), assets markets for identical active prices or liabilities in observablelowestthe and 2) significant inputs to (Level then priority unobservable inputs (Level significant 3).Forfurther to discussionof 16. Note to refer hierarchy, value fair the of levels different the in net periodic pension cost for 2011 are less than $1 million for prior service credits and $22 million ($14 million net of tax and noncontrolling interests) for actuarial losses. ($1 million net of tax and noncontrolling interests) and unrecognizedand interests) noncontrolling and tax of net million ($1 net of tax andactuarial losses of $440 million ($267 million and unrecognizednoncontrolling interests) at December 31, 2010; net of tax andprior service credits of $2 million ($1 million actuarial losses of noncontrolling interests) and unrecognized $363 ($264 million net of tax and noncontrolling interests)million to be recognizedat December 31, 2009. The amounts expected Included in accumulated other comprehensive income (loss) areIncluded in accumulated other comprehensive Weighted-average assumption: in net periodicthe following amounts that have not been recognized of $2 millionpension cost: unrecognized prior service credits
Weighted-average assumptions:
The weighted-average assumptions used to determine net periodic used to determine net assumptions The weighted-average cost for of net periodic benefit and the components benefit cost pension plans for the Copper’s and Atlantic PT Freeport Indonesia’s 31 follow: years ended December Amortization of prior service cost
84 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report company, andAtlanticCopperisnotprovidedassetallocations. Atlantic Copper’s planisadministeredbyathird-partyinsurance 2010 1, January at Balance 31, endedDecember the for year plan 2010, assets follows: in adifferent fair value date. the at reporting measurement determine the fair value financial of certain could instruments result participants, of the different use techniques assumptions or to techniques appropriate are and consistent with other market of future fair while Furthermore, values. FCX believes valuation its that indicative may be not of netrealizable value reflective or traded. are the on active market which on price reported the individual securities valued the at netrealizable value end. held year of at shares techniques usedatDecember31,2010. PT FreeportIndonesiaplan.Therehavebeennochangesinthe pension planassetsmeasuredatfairvalueassociatedwiththe Following isadescriptionofthevaluationtechniquesusedfor bonds Government stocks Common equivalents cash and Cash NOTES TOCONSOLIDATED FINANCIALSTATEMENTS Balance at December 31, 2010 31, December at Balance associated with the PT Freeport Indonesia withplan Freeport theassociated follows: PT
net Settlements, Purchases assets: plans on return Actual Total A summary of changes inA summary the fair value of FCX’s Level 3pension The techniques mayabove a produce fairdescribed value calculation valued are the at andstocks closingGovernment common bonds equivalents,Cash which primarily consistof time are deposits, A summary of the fairA summary value hierarchy pension for plan assets assets to related gains unrealized Net gains Realized year the of end the at held still
Total
$ $ 29 97 19 49 Fair Value at December 31, 2010 31, December Valueat Fair Estate $ $ Level 1 Level Real 28 25 — — 1 2 $ $ 29 97 19 49 Private Equity Private Level 2 Level $ $ Funds $ $ 46 40 — (3) 7 2 — — — — Level 3 Level
$ $
Total $ $ 74 65 — — — — (3) 7 3 2 2020 through 2016 2015 2014 2013 2012 Funded status Funded assets: plan in Change
Postretirement andOtherBenefits. b. a. 2011 a. obligation: benefit in Change assumption rate Discount follows: plans. pension insuranceplans determinedwas benefit basisas FCX’s same on the render service. such postretirementbenefitsisaccruedduringtheyearsemployees require contributionsfromretirees.Theexpectedcostofproviding These postretirementbenefitsvaryamongplans,andmanyplans and, insomecases,employeesofcertaininternationalsubsidiaries. medical andlifeinsurancebenefitsforcertainU.S.employees status: funded of classification sheet Balance Indonesia’s and Atlantic pension plans Copper’s follow: and FCX’s SERP, PT plans), Freeport benefits director and excess
paid Benefits contributions Employee contributions partner and Employer assets plans on return Actual year of beginning at assets plan of value Fair partner and employee of net paid, Benefits benefits retirement Special (gains) losses Actuarial cost Interest year of beginning at obligation Benefit Other liabilities Other year of end at assets plan of value Fair year of end at obligation Benefit Curtailments liabilities accrued and payable Accounts Service cost Service Information plansDecember as the on of benefit postretirement 31 discountThe FCX’s ratefor medical postretirement and life The expected benefit payments for FCX’sfor payments (including benefit expected The FMC’s plans; Based on a December 31, 2010, exchange rate of $1.34 per euro. per $1.34 of rate exchange 2010, 31, December a on Based dollar. U.S. one to rupiah Indonesian 8,990 of rate exchange 2010, 31, December a on Based Note 17 for further discussion). further for 17 Note to (refer workforce the in reductions and plans operating mine revised from Resulted subsidy D Part Medicare and contributions, Total a
a
FCX also provides postretirement FCX alsoprovidespostretirement $ FCX 514 137 93 91 89 87
PT Freeport PT Indonesia $ $ $ $ 2010 (240) (214) (240) 4.90% $ 265 240 (26) (26) (13) (41) 87 11 10 11 30 13 — — — — — 9 9 9 1 — 9 — — 2 1
a
Copper Atlantic $ $ $ $ $ 2009 37 (265) (265) (236) 5.20%
265 257 8 8 8 8 8 (29) (39) (27) 30 15 20 (3) b FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO FCX also sponsors savings plans for the majority of its U.S. sponsors also FCX its majority of U.S. for the savings plans 2000, FM Services and During FCX their Company enhanced The costs FM Services operations charged for to FCX’s, Company’s, are related benefit certain employee hasplans, other of which FCX Prior to January 1, 2009, FMC had a defined contribution 2009, FMC a defined had contribution JanuaryPrior to 1, accumulated postemployment benefit current portionof a consisted accumulated accruedand liabilities) accounts payable in (included $8of million liabilities) other in (included a long-term portionand $53 of million (included portion million a current and $7 of 2010, at December 31, a long-term and portion accrued and liabilities) accounts payable in 2009. at December 31, liabilities) other in (included million $49 of a portion their of contribute employees to allow employees. The plans pre-tax and/or specified accordance with after-tax in income plans 401(k) qualified These are principally savings plans guidelines. these non-bargained and employees. salaried In hourly U.S. for all of investment the direct and control exercise participants plans, balances among investment account various and contributions their a percentage matches FCX pre-taxoptions. employee of deferral addition, vary In which plan. by certain to limits, up contributions a included savings plan FMC 2009, the principal prior January to 1, foritsfeature non-bargainedEffective sharing employees. profit thewas merged savings plan into FMC principal 2009,the January1, feature. a profitsharing does not include which savings plan, FCX employees following their all forprimary substantially savings plan definedplans. benefit their pension terminate to decision their FM Services and FCX enhancement, the Company to Subsequent 4 percent or either accounts totaling individual to amounts contribute on a combination depending pay, percent each of employee’s 10 of each earnings, regardlesseligible years of employee’s service. of FMC employees who were receiving most eligible However, previous the under earnings more eligible 4 percent their of than higher the to receive continue will plan FMC defined contribution earnings. eligible percentage their of plans defined and contribution savings plans employee FMC’s and 2009 in $58 and million $30 million 2010, in $36totaled million 2008. in costs.in operating are recognized results, which financial FCX’s to of each employee’s age years and service of 2000. eachof employee’s 30, as June of compensation exceeds certain levels, For employees whose eligible The balance plan. defined contribution providesFCX unfunded an and 2010, on December 31, million $49 totaled liability this of 2009. $43 on December 31, million 2007. on or after employees hired January 1, for its eligible plan accounts individual to amounts FMC contributed plan, this Under employee’s from 3 percent 6 percent each to of ranging eligible on years 2009, service. depending of earnings, January 1, Effective to Subsequent savings plan. FCX was the merged plan into this for amounts its eligible enhanced 2009, FMC contributes January 1, 4 percent totaling 2007, on or afterhired January 1, employees 1 (4) —
34 14 23 8.5% 5.0%
3.30% 4.30% 6.00% 2008 2009 2020 $ $
2 1 (3) — 15 15 N/A N/A 8.25% 4.75% 6.30% 2010 2009 2025 $ $
1 — — — 13 14 N/A N/A 5.20% 2010 $ $
a b
c
b
b
c life retiree medical retiree The assumptions shown only relate to the FMC plans. During 2008, the two Voluntary Employees’ Beneficiary Association (VEBA) trusts were amended to allow benefit payments for both active employees and retirees; therefore, the VEBA trusts no longer qualified as plan assets. Resulted from revised mine operating plans and reductions in the workforce (refer to Note 17 for further discussion). FCX has a number of postemployment plans covering severance, covering postemployment plans of has a number FCX Expected benefit payments for these plans total $26 million for Expected benefit payments million total forthese $26 plans net periodic The weighted-average used determine assumptions to to decline (the ultimate trend rate) Discount rate Expected return on plan assets – Net periodic benefit cost Expected return on plan assets – Interest cost Rate to which the cost trend rate is assumed Year that the rate reaches the ultimate trend rate The effect of a one-percent increase or decrease in the medical-care cost trend rates assumed for postretirement medical benefits Medical-care cost trend rate assumed for the next year insurance life and health of continuation income, long-term disability coverage employees benefits. or welfare other for disabled The b. c. The assumed medical-care trend rates at December 31 follow: would result in increases or decreases of less than $1 million in the aggregate service and interest cost components; for the postretirement benefit obligation, the effect of a one-percent increase is approximately $8 million and the effect of a one-percent decrease is approximately $7 million. a. Weighted-average assumptions: the following amounts that have not been recognized in net periodic been recognized in amounts that have not the following prior service credits of less thanbenefit cost: unrecognized Included in accumulated other comprehensive income (loss) are income accumulated other comprehensive Included in for $22 million for 2013, $23 million for 2012, million $24 2011, 2020. through for 2016 million $91 and for 2015 million $21 2014, benefit costthe components and of net benefit periodic cost FCX’s for postretirement benefitsyearsforthe follow: 31 ended December $1 million and unrecognized actuarial losses of $3 million ($2 million$1 million and unrecognized interests) at December 31, 2010; andnet of tax and noncontrolling credits of less than $1 million andunrecognized prior service losses of $15 million ($12 million net of taxunrecognized actuarial at December 31, 2009. The amountand noncontrolling interests) is in net periodic benefit cost for 2011 expected to be recognized prior service credits. less than $1 million for Service cost Expected return on plan assets Curtailments Special retirement benefits
86 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report shareholders of record at the close of business on January 15, the January at on close of business of record shareholders 2011. share, which per 1, paid$0.25 was February on 2011, to common 29, 2010, December On of FCX declared aregular dividend quarterly 20, 2010. December on the at close of business of record shareholders share, which 30, 2010, paid was December on to common FCX declared asupplemental dividend stock common per of $0.50 annual of rate $1.00 2010. share in per October 2010, In December to an annualshare in per April of2010 rate $0.60 and then to an authorized in an increase dividend the cash FCX’s on stock common share. FCX’s anat of annual Directors per Board of rate $0.30 dividend reinstated acash of Directors Board FCX’s on stock common dividends stock common paid in FCX’s 2009, In 2009. October dividend accordingly, FCX’s on stock; common no there were of approximately $740 million). of $750 proceeds millionshare, which gross generated proceeds (net price of $14.00 an at average of stock FCX common shares per and economic general and market conditions.stock; copper, the molybdenum price of FCX’s and gold common prices; including and financial FCX’s flows cash position; operating results, of FCX’spurchases is dependent stock many on common factors, timing The share purchase program. open-market its of future molybdenum FCX its suspended prices, purchases of shares under because of the financial turmoil and the decline and copper in remain available under this program. During September 2008, for $500 million ($79.15 per and 23.7 share average) million shares basis, apre-split on During 2008, FCX acquired 6.3 million shares up for to million 30 share purchase program the open-market shares. basis on February 2, 2011.basis February on noted. trading FCX’s began apost-split on otherwise stock common stock split, retroactivelytwo-for-one adjusted unless the to reflect share amounts have common been and per stock of common remains stock common $0.10 at share. All to per shares references million945 approximately from 472 million. value par The of FCX’s the outstanding numberincreased to of approximately shares 1, additionalThe February on issued 2011, were shares and date. that of share they as owned every for stock share of common 15, the January at on close of business 2011, additional one received of record shareholders Common and outstanding shares. issued on split in stock common of thedividend its of astock form two-for-one shares werenotaffectedbythetwo-for-one stocksplit. common stockand50 millionsharesofpreferredstock.Authorized capital stockto1.85billionshares,consistingof1.8shares stockholders approvedanincreaseinFCX’s authorizedsharesof Common Stock. NOTE 11. NOTES TOCONSOLIDATED FINANCIALSTATEMENTS In December 2008, FCX’s Board of Directors suspended the cash the suspended FCX’s cash of Directors Board 2008, In December In FCX 2009, completed February apublic offering of 53.6 million In July 2008, FCX’s Board of Directors approved an increase inIn an increase approved FCX’s July of Directors Board 2008, 2010,In December declared FCX’s a of Directors Board Stockholders’ Equity and Stock-Based Compensation Atthe2008annualstockholdermeeting,FCX’s
on anon ongoing basis. will of Directors Board The continue to review FCX’s financialpolicy for approximatelyfor $1 million in cash. andof stock, the FCX common remaining 1,025 redeemed were shares the call, into converted were 35.8 830,529 million shares shares the 831,554 Stock. Of Preferred outstanding the at time shares of remaining 5½% of its outstanding Convertible Perpetual shares Inoperations. FCX 2009, September called redemption for the inducedon conversionsin the consolidated statements of losses as million, valued stock common $22 at which recorded was to an theFCX additional issued holders 2.0 million of FCX shares Toof stock. FCX common induce shares, ofshares conversion these with aliquidation million of preference $268 into 11.5 million of 268,331 5½% of its Stock Convertible Perpetual shares Preferred through privately negotiated FCX induced transactions, conversion 2008, approximately share. In common December per $23.22 equivalentof stock, FCX common to price aconversion of each share of preferred stock was convertible was into stock share of preferred each 43.061 supplemental dividends stock common paid through 31, August 2009, exceeding $0.10 aresult of the and quarterly share. As per including the in payment dividends stock of any common quarter adjustable ratewas conversion events, uponthe of certain occurrence of $1.1 Stock netproceeds Perpetual for Preferred billion. The equal rate (conversion to 2.7432 of stock). FCX common shares into converted Stock were 78.9 million of stock FCX common shares outstanding of FCX’s shares Convertible Preferred 6¾% Mandatory During stock. common 2010,FCX of atotal of 28,749,560 prior to May 1, 2010, equal rate aconversion at to 2.7432 shares May 1, to 2010.prior could any at Holders time elect to convert ending period the on thethirdover 20-trading-day trading day the applicable market price of FCX’s average stock common May on 1, converted share, and, shares for 2010, on depended dividends stock of common quarter exceeding $0.15625 per including events, of certain occurrence the in payment any adjustable was rate conversion The stock. FCX uponthe common automaticallywere May on 1, converted 2010, into of shares billion.$2.8 Stock Convertible Preferred 6¾% The Mandatory a liquidation of preference $100 of netproceeds share, for per Stock, with Convertible Preferred of 6¾% Mandatory shares issuance of stock options, SARs, restricted stock, restricted stock stock restricted stock, options, of restricted stock issuance SARs, have available awards below), discussed grant. for the plans, of both which (which stockholder approved are are resulting the from acquisition. 31, of December As 2010, of only two plans, compensation includingstock-based plans Phelps Dodge two In March 2004, FCXIn sold1.1 March 2004, million of 5½% Convertible shares Preferred Stock.Preferred Stock Award Plans. The 2003 Stock Incentive 2003 The Plan) Plan the for provides (the 2003 On March On 28,2007, FCX sold28.75 million FCX currently outstanding awards has under its
shares
FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 87
803 264 Value
$ $
Intrinsic 32.49 35.21 29.09 45.55 24.25 Aggregate $ Average Average Weighted- Weighted- Option Price 2008 7.4 5.9 Average Weighted- Remaining Contractual Term (years) Term (315,500) Options 2,899,000 Number of (4,397,202) 21,519,596 19,705,894
31.00 30.22 36.15 30.29 27.59 27.54 Average Weighted- $ Option Price 27.59 32.49 12.94 20.15 30.29 Average
) $ Weighted- Option Price
2009 Options (212,500
Number of 9,079,694 8,303,000 (6,081,650) 24,921,594 26,930,444
(514,426) Options 7,302,000 Number of (1,571,874) 19,705,894 24,921,594
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO Granted Exercised Expired/Forfeited December 31 A summary of options outstanding as of December 31, 2010, 2010, as December of outstanding A summary options of 31, Stock options and SARs granted under the the SARs granted and under options Stock SARs. and Options Granted Exercised Expired/Forfeited
percent annual increments beginning one year of date from the beginning increments percent annual 25 in award and agreements participants Thegrant. plans that provide provide and vesting after year’s retirement following the receive will (as control defined in a change is for there accelerated vesting if compensation costs recognize to has elected plans). FCX for the in vest awards that stock option over several years on a straight-line accelerates period. vesting FCX overbasis the one year of employees. amortization for retirement-eligible year the ended SARs, during changes 95,896 and including follows: 2010, December 31, Balance at January 1 Balance at December 31 Vested and exercisable at SARs, and changesSummaries of options outstanding, including during the years ended December 31 follow: Balance at January 1 The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option valuation model. Expected volatility is based on implied volatilities from traded options on historicaluses FCX stock. FCX’s of volatility historical and stock FCX’s data to estimate future option exercises, forfeitures and expected life of the options. When appropriate, separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected dividend rate is calculated using the annual dividend (excludes supplemental dividends) at the date of grant. The risk-free interest rate is based onequaldates maturity with bonds for effect in rates Reserve Federal FCX did not capitalize any stock-based compensation costs to compensation costs capitalize any stock-based FCX did not during the years development costs plant, equipment and property, 2009 and 2008. ended December 31, 2010, years grant vest of after and date 10 the expire generally plans Balance at December 31
a
5 3 (2) (6) 66 56 95 57 (36) (29) $ $ 2008
5 2 4 (3) — 67 63 29 (41) 107 $ $ 2009
5 1 2 (3) — 30 84 74 (45) 122
$ $ 2010
b
Reflects an adjustment related to 2007 awards. Amounts are before Rio Tinto’s share of the cost of employee exercises of in-the-money stock options, which decreased consolidated selling, general and administrative expenses by $4 million in 2010, $2 million in 2009 and $1 million in 2008. In connection with the Phelps Dodge acquisition, former Phelps Dodge Phelps acquisition, the with connection In Compensation Cost. cost charged Compensation Stock-Based Impact on net income (loss) (including directors) Total stock-based compensation cost (including directors) Noncontrolling interests’ share
Restricted stock units awarded to employees Stock appreciation rights (SARs) Stock options awarded to nonemployees Restricted stock units in lieu of cash awards Tax benefit a. b. Restricted stock awards to employees Stock options awarded to employees
of these shares having graded-vesting features in which 25 percent theseof of graded-vesting 25 shares having which features in fourth and anniversaries the of vest sharesthe would third on the award 50 remaining the and percentFebruary In fifth the in year. 2010, Dodge formerthe Phelps restricted stock agreements were amended vesting period restricted accelerate the the to of stock awards Dodge restricted and stock stock awards options were converted into restricted FCX stock 174,782 and stock FCX options 1,613,190 granted were originally they which terms by the retain awards, which carry The stock options plans. Dodge’s a maximum Phelps under vested years 1,344,268 stock options upon the with 10 of term vested that Dodge stock options 268,922 Phelps of and acquisition ratably over a three-year participant the period or period the until stock Restricted was shorter. whichever became retirement-eligible, vested fiveyears, became in majority a awardswith generally fully units and other stock-based other and to awards. FCX units The 2003 allows Plan common shares eligible to million 16 grant to awards for up 2006, stockholders 2006 approved In participants. the FCX’s Stock stockholders 2006 approved (the FCX’s and Plan Plan), Incentive of increase number to the primarily 2007 in plan the to amendments grants permit outside to to 2010 for grants in and shares available directors. The 2006 provides issuance stock of for options, the Plan SARs, restricted stock-based other stock, restricted and stock units common shares. As December of 31, million 74 to awards forup shares the under million 41.7 for grant totaled shares available 2010, 2006 less and 30,000 Plan shares 2003 than the under Plan. against earnings for stock-based earnings against awards years for the ended follows: December 31 that were converted upon the acquisition of Phelps Dodge; Phelps of were therefore, converted that acquisition upon the cash the portionthese restricted that stock awards (excluding these conversion from of the resulted restricted stock awards of vested. value The fair became fully acquisition) the of time at the restrictedthe based stock awards was quoted on determined the acquisition. the of time at the price market 88 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report
rate dividend Expected tax for realized benefit tax Actual performance condition is met. The fair value of the restricted stock performance condition ismet.Thefairvalueofthe restrictedstock will receivethefollowingyear’s vestinguponretirementprovided the three years,andthisplanprovides thattheFCXexecutiveofficers performance-based award.Therestricted stockunitsvestratablyover flows fortheprecedingyearand, therefore,considered a incentive awardisafunctionofFCX’s consolidatedoperating cash to besubjectaperformanceconditionforthreeyears.Theannual annual bonusbepaidinrestrictedstockunitsthatwillcontinue The annualincentiveplanrequiresthataportionofeachexecutive’s initiated anewannualincentiveplanfortheFCXexecutiveofficers. Board ofDirectorsdiscontinuedthisprogramand,thereafter, cash incentivecompensation.EffectiveDecember2,2008,the to receiverestrictedstockunitsinlieuofallorparttheirannual restricted stockprogramthatallowedFCXseniorexecutivestoelect Restricted StockUnits.PriortoDecember2008,FCXhada a. pay to tendered shares FCX 31: during awards stock endedDecember the years options units stock and and SARs of vesting and restricted restricted average periodof1.6years. unvested stockoptionsexpectedtoberecognizedoveraweighted- $107 millionoftotalunrecognizedcompensationcostrelatedto $61 million during2008.AsofDecember31,2010,FCXhad vested was$61 millionduring2010,$702009and and $128 millionduring2008.Thetotalfairvalueofoptions exercised was$129 millionduring2010,$242009 $17.45 peroptionduring2008.Thetotalintrinsicvalueofoptions $15.33 peroptionduring2010,$7.142009and The weighted-averagegrant-datefairvalueofoptionsgrantedwas volatility Expected years endedDecember31follow: average assumptionsusedtovaluestockoptionawardsduringthe to theexpectedtermofoptionatgrantdate.Theweighted- NOTES TOCONSOLIDATED FINANCIALSTATEMENTS rate interest Risk-free years) (in options of life Expected Amounts FCX paid for exercised SARs exercised for paid FCX Amounts taxes employee for paid FCX Amounts option stock from received Cash
minimum required taxes required minimum deductions the exercise price and/or the the and/or price exercise the exercises The followingThe table includes amounts related of to stock exercises treasury shares were not affected by the two-for-one stock split. stock two-for-one the by affected not were shares treasury These taxes. required minimum the and/or price exercise the pay to FCX to shares FCX tender may employees awards, stock restricted and units stock restricted of vesting and options stock of exercise upon plans, related the of terms Under a
$ 934,099 2010
109 2010 51.9% 4.61 28 50 2.2% 0.8% 1
$
542,786 2009 2009 4.37 70.6% 18 12 21 1.5% 1 —% $ 823,915 2008 2008
4.60 49.3%
3.3% 2.0%
56 34 78 1
ended December 31,December ended 2010, follows: 31,December of as 2010,awards and activity during the year Phelps Dodge acquisition. stock of outstanding restricted Asummary in that issued awards connectionstock were with the restricted 31 December at Balance follows: 2010, and activity during 31, endedDecember the year 2010, date of grant. fair value units stock of is restricted recognized in earnings the on unitsstock immediately For retirement-eligible vest. the directors, Upon adirector’s retirement, all of their restricted unvested until retirement-eligible, the director becomes whichever is shorter. units the over the four-year is period or amortized vestingperiod fair The value four over stock years. unitsof thestock restricted vest units stock and paidrestricted accrue are uponthe award’s vesting. of retirement). Dividendsacceleration because on and interest units stock vesting withrestricted thatnot do year allow five receive the following retirement year’s vestingafter the for (except defined in control (as the plans) provideand participantsthat will vestingof allaccelerated units stock if restricted there is achange of provide The for plansagreements ofand up award to years. five the dateofgrant. performance ofservicescommencedinthecalendaryearpreceding with theyearduringwhichcashflowsweregeneratedas year andarechargedtoexpenseratablyoverthreeyears,beginning units areestimatedbasedonprojectedoperatingcashflowsforthe 31 December at Balance 1 January at Balance one year. expected toberecognizedoveraweighted-averageperiodoflessthan compensation costrelatedtounvestedrestrictedstock units December 31,2010,FCXhad$9millionoftotalunrecognized of As 2010, $22millionduring2009and$33 2008. intrinsic valueofrestrictedstockunitsvestedwas$50millionduring the yearendedDecember31,2010,was$23 million.Thetotal The totalgrant-datefairvalueofrestrictedstockunitsgrantedduring 1 January at Balance
Vested A summary of outstanding restricted stock units as of December 31, units stock of outstanding of December as restricted A summary units stock restricted The restricted to directors. its FCX grants units a stock period over FCX also other granted restricted that vest Restricted Stock FCX Awards. above, had discussed As Forfeited Vested Granted
(1,401,486) Stock Units 2,873,998 2,140,914 Number of Restricted 671,734 (3,332)
Term (years) Contractual Remaining Weighted- Average 1.1
Aggregate (74,228)
Intrinsic 74,228 $ Value 129
—
FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 89
3 3 (1) (3) — —
21% 35% 14 (16) 323 536
(686) (657) Percent 2008 1,261 1,811 (3,635) (4,978) (2,844)
$ $
2008 4 34 95 7 359 — (437) (336) 79 19 (70) 2,095 100 109 (2,844) (4,658) Amount 2,307 2,172 2,198
$ $ 2009 $ $
— 27 20 (10) 207 239 249 2 4 2 (3) — — — 2,500 2,734 2,983 40% 35% 2010 $ $ Percent 2009 (2) (3) — 112 228 104 (168) 2,307 2,036
Amount $ $
1 2 (3) — — — — 35% 35% Percent 2010 — 93 18 17 Total current Total deferred (35) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO 174 (263) Congolese (i) had FCX loss net operating 2010, DecemberAt 31, On the basis of available information at December 31, 2010, FCX 2010, at December 31, information available of basis On the Foreign State tax asset Foreign Federal Federal State 2,979 2,983
Amount
$ $
Valuation allowance on prior year deferred Deferred income taxes (benefits): Provision for (benefit from) income taxes
FCX’s provision for (benefit from) income taxes for the years ended taxes for the years ended (benefit from) income provision for FCX’s consists of the following: December 31 Current income taxes: tax rate to FCX’s A reconciliation of the U.S. federal statutory December 31 follows: effective income tax rate for the years ended
This valuation allowance includes $59 million relating to to relating $59 million includes allowance valuation This tax benefitsto other directly credited be would if recognized, that, income. comprehensive At December 31, 2010, FCX had U.S. foreign tax credit carryforwardsAt December 31, 2010, FCX had U.S. foreign and U.S.of $1.8 billion that will expire between 2011 and 2020, million that can beminimum tax credits carryforwards of $413 but may be used only to the extent that carried forward indefinitely, regular tax exceeds the alternative minimum tax in any given year. carryforwards can be that carried forward $898 of indefinitely, million net state loss operating U.S. carryforwards(ii) $669 of million net operating Spanish (iii) and 2030, and between expire that 2011 loss carryforwards between expire that 2011 $455 of million loss net operating foreign carryforwards, state net operating U.S. tax carryforwards.carryforwards credit loss minimum U.S. and and 2025. and for certain allowances its of deferred tax valuation has provided some not that portion than assets more is it likely where believes FCX 2010, December At 31, not be assets realized. such of or all will FCX’s of covered and all $2.2 totaled billion allowances valuation tax carryforwards, foreign U.S. credit a portion and its of
74 (66) 541 521 509 882 234 136
(766) 2009 1,664 4,020 1,863
2008 (4,441) (2,157) (3,609) (2,578) (13,309) (13,850) $ $ $ $
98 (28) 442 413 931 215 164 224 (917) 2009 5,718 5,816 2010 2,000 1,837 4,226 (4,819) (3,874) (2,226) (2,819) $ $ $ $
1,307 7,205 8,512 2010 $ $
income taxes Income Taxes Income Total deferred tax liabilities Net deferred tax assets Deferred tax assets The components deferred of taxes follow: Other Undistributed earnings Total Net operating loss carryforwards Minimum tax credits Accrued expenses Employee benefit plans Inventory Other Valuation allowances Property, plant, equipment and development costs Foreign tax credits Percentage depletion Goodwill impairment Valuation allowance on minimum tax credits Valuation State income taxes Other items, net Net deferred tax liabilities
Withholding taxes Withholding Foreign
Deferred tax liabilities: December 31, Deferred tax assets: taxes totalingFCX paid federal, state, local and foreign income U.S. federal statutory tax rate $2.7 billion in 2008.$2.6 billion in 2010, $1.6 billion in 2009 and and foreign income taxesFCX received refunds of federal, state, local millionof $26 million in 2010, $193 million in 2009 and $123 in 2008. United States Geographic sources of income (loss) before income taxes and income (loss) before income taxes and Geographic sources of equity years ended affiliated companies’ net earnings for the in December 31 consist of the following: NOTE 12. The total grant-date fair value of restricted stock awards was was restricted stock awards fair value of The total grant-date $5 million at the acquisition date. The total fair value of shares of shares The total fair value at the acquisition date. $5 million $3 million during 2010 and less thanreleased or vested was and 2008. As of December 31, 2010, FCX$1 million during 2009 of total unrecognized compensation costhad less than $1 million cash portion, which resulted from therelated to the unvested stock awards at the acquisition date, expectedconversion of restricted year. one than less of period weighted-average a over recognized be to Foreign tax credit limitation Provision for (benefit from) 90 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report Additions: 2009 31, December at Balance
Decreases:
Additions: allocated. not Amounts * 2010 31, December at Balance Decreases: 2009 1, January at Balance NOTES TOCONSOLIDATED FINANCIALSTATEMENTS unrecognized tax benefits, interest and penalties and interest follows: unrecognized benefits, tax of $17 million ($11 million net of noncontrolling in 2010. interests) in the mining FCX recognized an additional taxes, expense royalty tax tomove asliding of 5to scale 14 aresult of the increase As percent. 2013 through 2017. Beginning in 2018 and through will 2023, rates 2010 through 2012 and will return the for rate years to 4 percent its (depending4 to 9percent the on operational margin) the for years stabilized its opted from to transfer to rate the new sliding of scale $17 million However, in 2008. under the new legislation, FCX has andmillionof totaled 4 percent $23 and anetcredit in of 2009 and Candelaria mines currently are stabilized through 2017 arate at Miningeducation FCX’s at and health programs. El taxes Abra royalty mining to help fund taxes activities, royalty reconstruction earthquake have asignificant financialon impact its results in 2011 and 2012. 2010, for results the change expect not to in and rates FCX does did rate income tax have not anthe impact corporate our on financial distributions aresult, in the As increase shareholders. to non-resident available acredit as against withholding applicable taxes on 2011 and 2012. Taxes paid aresult as of will the increase be to for rate the increase income provisional tax corporate temporary in minimum by adecrease offset creditpartly carryforwards. tax primarilywas aresult in of credit an increase foreign carryforwards, tax to other comprehensive income. relatingthat, recognized,if benefits would to tax be credited directly This valuation allowance included millioncarryforwards. credit $44 and U.S. minimum carryforwards tax foreign netoperating loss of its and aportion and U.S.carryforwards, netoperating loss state alland covered of FCX’s U.S. credit foreign carryforwards tax positions tax year Prior penalties and Interest limitations of statute of Lapse positions tax year Current positions tax year Prior penalties and Interest positions tax year Current positions tax year Prior penalties and Interest limitations of statute of Lapse positions tax year Current positions tax year Prior penalties and Interest positions tax year Current A summary of the activities associated with FCX’s reserve for for of the activities withA summary FCX’s associated reserve 2010,In October the Chilean legislature in an increase approved In July 2010, the Chilean legislature and enacted approved a million $69 The in increase the valuation allowance during 2010 31,At December valuation 2009, allowances totaledbillion $2.2
Unrecognized TaxBenefits $ $ 253 238 200 (13) (26) (60) 12 25 24 — — — — — — (9) 9 Interest $ $ 34 15 23 33 (4) (3) 2 * * * * * * * * * * Penalties
$ $ — — — — — — —
* * * * * * * * * * throughout the U.S. to substantial spend FCX sums expects annually responsible of awideenvironmental for variety remediation projects in 2007, many of the subsidiary companies FCX ownsare now of FCX’s found.be aresult, acquisition because As of Phelps Dodge exist, have donot longer no the financial abilitycannot or respond to all or some of operators thein other or historical many owners cases is fully responsible of the the for cleanup, property operator although meaning with or that owner all each and operators, other owners it. liability That caused who is ajoint on shared often basis and several of when the to damage irrespective the environment or occurred facility into the environment, including to natural damages resources, facility the from the for released cleanup substances of hazardous of a and current on and operators and previous owners substances, the for of disposal hazardous arranged who responsibility persons on liabilities arising similar or under CERCLA laws that state impose subsidiaries in that operate the U.S. subject also are to potential and other toxic materials. wastes hazardous FCX substances, and generation, handling, and of disposal hazardous storage emissionsgovern of air pollutants; of water discharges pollutants; federal, environmental and local state laws and regulations that 2009 and$377millionin2008. partners’ share,totaling$372millionin2010,$289 expenditures andotherenvironmentalcosts,includingjointventure New Mexico New Arizona Chile Peru Indonesia Federal U.S. Jurisdiction examination follows: as are FCXfor and significant its subsidiaries thatremain subjectyears to jurisdiction and and foreign various state jurisdictions. tax The information to actual and the expiration of statute limitations. positions primarily were relatedestimated to the refinement of tax withpriorassociated year unrecognizedbenefits for tax reserve in Changes the methods. with FCX’s recovery associated cost positionswith primarily were currenttax year related to uncertainties provision forincometaxes. income taxbenefits)that,ifrecognized,wouldreduceFCX’s December 31,2010,includes$133million($77 netof The reserveforunrecognizedtaxbenefitsof$200millionat Environmental. NOTE 13. Contingencies FCX subsidiaries in that operate the U.S. subject are to various FCX or its subsidiaries its FCX or filereturns tax income in the U.S. federal associated unrecognizedbenefits for tax inChanges the reserve
Short Year Ending December 31, 2007 31, December Ending Year Short Short Year Ending March 19, 2007 19, March Ending Year Short FCX incurred aggregate environmental capital FCX incurredaggregateenvironmentalcapital Years Under Examination YearsUnder 2005-2006, 2008-2009 2003-2007 2005-2008 2009 2006 —
2002-2005, 2007-2010 2002-2005, Additional Open YearsOpen Additional 2003-2010 2008-2010 2009-2010 2010 2010
FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 91
Pinal Creek Group, et al. v. Newmont Mining v. et al. Creek Group, Pinal NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO From the 1930s until 1964, Phelps Dodge Phelps 1964, until 1930s the From Creek. Newtown The Pinal Creek site was listed under the Arizona Arizona the under was Creek listed site The Pinal Creek. Pinal United States Court, Case District Arizona, of District United Corporation,al., et Pursuant 1991. 1, PHX (LOA), DAE May on filed 91-1764 CIV No. certain to members $40 paid million Miami to a 2010, settlement in costs, incurred and previously PCG of the of settle allocation to the groundwater remediation for future responsibility agreed full take to The settlement did exceptions. limited with Creek site, Pinal at the was at estimated fair which obligation, the to a change in not result Dodge Phelps assumed when acquisition. the in value Corporation Refining (PDRC),of FMC, operatedsubsidiary a a operated it a refinery, 1984, on until 1930s from and the smelter, waterway mile-long Newtown a 3.5 banks of is the Creek, which forms partthat boundary the of between Queens Brooklyn and in Newtown banks of the along Heavy City. industrialization New York sewer systemCreek discharges City from and New York’s the of environmental significant over a century in more resulted than Attorney General The waterway. New York the of contamination about PDRC, including notified several previously companies, Newtown in sediments Creek. up clean to possible obligations others notifiedand PDRC five that EPA 2010, In April and March CERCLA. be under to considers PRPs them The notifiedEPA parties proposed EPA PRPs, other and identify to EPA began with working notified parties the Investigation/that perform Remedial a (RI/FS) Study for its expense EPA reimburse Feasibility and at their oversight costs. not expected is propose to EPA a remedy until expected several is after take years. to RI/FS an which completed, is Newtown designated Creek EPA as a 2010, On September 29, the to adjustment an in not result TheseSuperfund site. did actions assumed when the in value was estimated at fair which obligation, these remedial costs The actual fulfilling of DodgePhelps acquisition. these of costs allocation the and among are PRPs obligations uranium mining sites in the western U.S. The recorded western the environmental in U.S. sites mining uranium 2010. at December 31, billion for these $1.1 totaled sites obligations these of A discussion follows. sites (ADEQ) Quality Water Quality’s DepartmentEnvironmental of the in for contamination program 1989 in Fund Assurance Revolving near Creek Miami, drainage Pinal the within aquifers alluvial shallow was performed remediation environmental time, that Since Arizona. Creek (PCG), Group membersby Pinal the of Phelps of consisting FMC, of and owned subsidiary a wholly (Miami), Inc. Dodge Miami, Court District the two 1998, approved a companies. other In Consent Decree between PCG the members state Arizona the of and contemplated action matters enforcement an to resolving all related PCG the against state the Arizona by of members respect with to The Consent Decree PCG the committed groundwater contamination. Consent the in work outlined remediation the members complete to expected is and to time at this Decree, work that continues and was also a party Miami years future. for the to many in continue litigation entitled (1) 95 36
117 (114) (120) 2008 1,268 1,281 1,401 $ $ (3) — 40 (76) 102 (168) 1,296 1,401 1,464 2009 $ $
— — 97 19 (158) (138) 1,284 1,464 1,422 2010 $ $
a Represents accretion of the fair value of environmental obligations assumed in the acquisition of Phelps Dodge, which were determined on a discounted cash flow basis. As a result of the acquisition of Phelps Dodge, Phelps was of FCX required As acquisition the of a result FCX believes that there may be potential claims for recoveryfrom claims be may there potential that believes FCX mostenvironmental the significant 2010, DecemberAt 31, A summary of changes in environmental obligations for the years for the obligations environmental A summary in changes of of Phelps Dodge
Liabilities assumed in the acquisition Balance at end of year Long-term portion Accretion expense Additions Reductions Spending Less current portion a. an undiscounted andEstimated environmental cash payments (on $93 million in 2012,unescalated basis) total $138 million in 2011, $65 million in 2015$86 million in 2013, $49 million in 2014, and $1.9 billion thereafter. on value at fair obligations environmental to Dodge’s record Phelps business accordance combination with in date acquisition the theseto obligations adjustments Significant guidance. accounting be will obligations New environmental future. the in occur could Expenditures.” recorded “Environmental as 1 under described Note in totaled obligations environmental FCX’s 2010, DecemberAt 31, other third parties, including the U.S. government and other PRPs. other and government U.S. the parties, third other including is recoveriesThese unless are realization not recognized potential probable. considered Arizona; in the Creek site were Pinal associated the with obligations City; sites smelter severalNewtown New York historical in Creek site and Pennsylvania; Kansas, and Arizona, Oklahoma located in principally Balance at beginning of year billion unescalated ($1.4 and basis undiscounted on an $2.3 billion basis), estimates reasonably FCX is and it value fair on a discounted and billion range between could $1.9 thesepossible that obligations unescalated and basis. undiscounted on an $3.3 billion for many yearsfor many address to issues. those remediation Certain FCX Protection Environmental been have U.S. advised the by subsidiaries Department the of Agency Department the (EPA), Interior, the of several CERCLA and under state or agencies that, similar Agriculture for costs responding of be may liable they stateregulations, and laws been have that sites of at a number conditions environmental to ended December 31 follows: ended December 31 or are being investigated to determine whether releases whether hazardous determine of to investigated or are being implement and develop substances so, to if occurred have and, concerns. address to As actions of environmental remedial remediation active 100 more had FCX than 2010, December 31, where claims states. to 27 subject also is in FCX U.S. the projects in releasethe damaged hazardous of have to substances alleged is resources.natural 92 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report NOTES TOCONSOLIDATED FINANCIALSTATEMENTS suit alleges that the of BZC’s operations zinc smelter in Blackwell, This No. CJ-2008-68. Kay Case County, Oklahoma District Court, entitled entitled direct of its and several and indirect subsidiaries, including BZC, ofthe Oklahoma. state remediation activities being are coordinated with, by, and supervised remediation in the future. program All soil sampling of these and additional to could participate request in homeowners the sampling/ essentially are although complete; it is possiblethat 2008, October interior cleanup residential work, cleanups, yard in which started cleanupestablished With standards. the exception of related possible soils found were whose to have concentrations metal state- above smelter-related contaminants, and offering to remediate properties ofBlackwell sampled the for presence to have their properties in and around owners by inviting program outreach property occurringwater 2010. in October and initial startup with system, treatment system discharge of treated completed and the construction of agroundwaterextraction groundwater wells within the groundwaterplume BZC area. has and the closure andsystem treatment of domestic extraction adopted acleanup plan requiring the installation of agroundwater remedyingfor such contamination. of In theOklahoma state 2003, potentially attributable to smelter the and former evaluated options investigated the nature of and groundwatercontamination extent cleanup From standards. 1997state-established BZC to 2003, that found were to have concentrations metal properties on above residentialthe and nearby removing soils and commercial properties, remedial actions in Blackwell in 1996 and 1997, including sampling administrative with order of Oklahoma, the state BZC undertook to the Blackwell deeded Industrialproperty Authority. Pursuant to an Blackwell, Oklahoma. In 1974, the smelterdemolished was and the indirect azinc subsidiary and operated owned of smelter FCX, in relate to Blackwell, Oklahoma, and Bisbee, Arizona. significant environmental obligations for historicalsmelter sites and remediation. most two The of assessment in various stages with historical The theassociated smelters. smelter sites are to investigate and,programs if appropriate, remediate site conditions FCX subsidiaries have entered into remediation voluntary state conditions with At the certain associated other sites, smelters. investigating and, if appropriate, remediating environmental by EPA that agencies they state liable may or be of costs for FCX subsidiaries smelter certain sites, of these advised have been includingsome OklahomaFor Arizona, and Kansas, Pennsylvania. and zinc copper in smelters operated several or times owned states, EPA selection and remedy related allocation determinations. anduncertain subject tocharacterization on change information, based On AprilOn classfiled actionagainst was 14, FCX apurported 2008, In 2007, behalf on FCX, of BZC, community avoluntary commenced From 1916 to 1974, Blackwell Zinc Company, Inc. an (BZC), Historical various at Smelter Sites. and predecessors its FMC Coffey, etal., v. &Gold, Inc., Freeport-McMoRan Copper etal.
, sampled for the presence of smelter and mine-relatedsampled the for metals. presence to have soils owners inviting their at properties program property Bisbee community avoluntary and commenced near outreach the expanded VRP to project FMC includeIn 2008, other communities Arizona Voluntary Remediation administered (VRP) Program by ADEQ. through into entered the 1908. FMC Bisbee In area the 2000, in approximately Bisbee from operated of smelters A series 1879 subsidiary mine entities Bisbee, acopper Arizona. near operated system. treatment wastewater prevent contamination entering from theof Blackwell’s City 2010) inremediation (which October startup system commenced to relatingdamages to the potential failure of FCX’s groundwater 31, December at all to settle of the claims 2009) except future for millionpaying $54 (included liabilities and accrued payable in accounts the of Blackwell City and the Blackwell Municipal by Authority In 2010, February damages. with settlement apartial FCX reached actual,unspecified equitable (for unjust enrichment) and punitive negligence and unjustnuisance, trespass, enrichment and claimed soils and groundwaterin theof Blackwell. City plaintiffs The alleged of BZC’soperations zinc smelter resulted in contamination of the No. CJ-2009-15B. Case suit The District Court, alleged that the &Gold, Inc,Freeport-McMoRan Copper etal. subsidiaries, including BZC, entitled of Blackwell City etal. v. Oklahoma, against direct of FCX its and several and indirect MunicipalCounty, filed Authority of actionKay an Court in District cases. two to these withpossible respect that reasonably are of losses ranges for made be can estimates intends vigorously and no FCX to matters defend of both these denied plaintiffs’ to remand the suit court request court. to state (CIV-10-295-HE).City July On 23, 2010, the district federal District of the for OklahomaU.S. Western in Oklahoma District Court and punitive In March damages. 2010, to the removed was the case injuries resulting and to seeking lead compensatory exposure from alleging No. CJ-2009-213), Case personal Oklahoma District Court, al. v. &Gold Inc., Freeport-McMoRan Copper etal. ahearingat May on 6, 2010. claims, denied and the plaintiffs’ court reconsideration for request FCX’sgranted motion to dismiss the plaintiffs’ medical monitoring 2, 2010, February On of the putative class members. the court fund to monitoring for pay anda monetary future the health present of allegedly and the establishment contaminated of properties Plaintiffsvalues. compelling an order also requested remediation alleged for diminution owners, and property residents in property consistingthe putative of class of members, current and former and punitivebehalfon compensatory unspecified damages seeks groundwater in Blackwell and the surrounding complaint The area. Oklahoma, 1918 from to 1974 resulted in contamination of soils and From until the 1880s 1975, and predecessor and certain FMC 15, October On theof 2009, Blackwell City and the Blackwell 7, December On 18 2009, individuals filedrelated a suit ( , Kay County, Oklahoma , Kay County, Brown et Brown
FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 93
Finalized closure plan requirements, including those resulting resulting those including requirements, plan closure Finalized NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO During 2010, the revisions to cash to flow revisions were the estimates primarily 2010, During Colorado and Arizona require New Mexico, in Legal requirements FCX’s Programs. Reclamation and Environmental New Mexico two-year period of the stay, then Tyrone will move to dismiss the the dismiss move to will two-year Tyrone then period stay, the of appeal. time commencing near the end of the mine life; however, certain the mine life; however, near the end of time commencing or if legally required activities may be accelerated reclamation beneficial. if determined to be economically closure of increased the cost to acceleratedrelated and timing at Chino. activities assuranceto forthe costs be provided estimated offinancial protection quality groundwater including closure, and reclamation programs. by has satisfied FCX assurance requirements financial as performance such a variety mechanisms, of guarantees,using demonstrations, surety trustfunds, lettersbonds, capability financial specify financial regulations The applicable collateral. and credit of strength tests areor designed confirm that to a company’s and reclamation fund estimated to capability financial guarantor’s to assuranceis required costs. FCX closure financial of The amount reclamation and vary laws, regulations in changes with will provide 2010, cost and estimates. requirements December At closure and 31, and closure associatedwith assurance obligations financial FCX’s approximately which of million, costs $793 totaled reclamation guarantees formparent company of the and was in $482 million had FCX 2010, 31, demonstrations. At December capability financial restricted to are legally which million, trust assets $137 totaling Cobre by and as required a portion Tyrone fund its of AROs for Chino, regulatoryNew Mexico authorities. Water New Mexico the under operationsNew Mexico are regulated Water act the by that under adopted regulations Act and Quality Control CommissionQuality (WQCC). The Environment New Mexico Department each these of (NMED) submit has operations required to must include plans The closure approval. for NMED’s plans closure standardsmeasures following assure groundwater quality to meeting groundwater or any abate to and facilities discharging of closure the operation Tyrone 2009, the March In surface water contamination. February dated 2009, regarding 4, WQCCappealed Order, the Final provides the which water,” of withdrawal of ”places the location of standards where groundwater quality statutory for basis determining December sites. In 2010, mining New Mexico must be met at FCX’s for calls that a settlement agreement NMED with into entered Tyrone a two-year WQCC the and NMED complete stay appeal the while of closure Tyrone’s of renewal including actions, several administrative approval and settlement,review the terms of the with consistent permit adoption and alternative of abatement plan a groundwater abatement of rules permit groundwater discharge new of standards, adoption and for copper on the The settlement mines. agreement contingent is stay to a motion Court the and granting, Appeal’s of WQCC’s joining, actions are concluded administrative the If appeal. pending Tyrone’s the within settlement the agreement terms of the with consistent
5 (2) 21 51
(91) (42)
728 712 670
2008 $ $ — 12 52 (28) (46) (17) 712 731 685 2009 $ $
5 (1) 54 (69) (38) 731 787 105 856 FCX’s ARO cost ARO estimates FCX’s 2010 $ $
Asset (AROs). Obligations Retirement During a period between During the and 1940 Sites. Mining Uranium A summary of changes in FCX’s AROs years for the FCX’s A summary ended in changes of ARO costs may increase or decrease significantly in the future as a result of changes in regulations, engineering designs and technology, permit modifications or updates, mine plans, inflation or other factors and as actual reclamation spending occurs. ARO activities and expenditures generally are made over an extended period of Balance at beginning of year For property For concentrationsmetal have to owners arefound whose soils above ADEQ-established standards, FMC has offered cleanup to As soils. a clean with them replace and soils impacted remove the increased and its income charged operating environmental FCX result, those For 2009. in million $31 by cleanup soil for Bisbee obligation property approximately owners requested that percent sampling, 47 approximately 2011, 31, As January of cleanup. some of level require were completed. cleanups residential percent the of 10 certain FMC predecessor in early 1970s, were involved entities exploration Similar western the in U.S. mining and exploration uranium caused have companies other environmental by activities mining and local and EPA and warranted have remediation, impacts that cleanup need the for significant evaluating are currently authorities at FMC has undertaken date, remediation To region. the in activities associated these sites of number with predecessora limited entities. established and liability a potential of existence the recognized FCX sites. An initiative for former uranium obligations environmental to gather additional information about sites in the region is ongoing, ongoing, region is the about in sites information gather additional to to was submitted initiative this gathered under information and quarters second 2008 of the third and the and 9 during Region EPA fourth quarter 2009 request of response by in information an to properties. Nation on Navajo activities mining uranium regarding EPA experience, in remediation results FMC’s of the utilized FCX gathered to information updated and historical with combination liabilities uranium-related of value fair the estimate initially to date, No information new Dodge Phelps assumed acquisition. the in statementsthat has financial the of date been the developed through those of estimate value fair initial the to adjustment an requires environmental obligations. Foreign currency translation adjustment Balance at end of year Long-term portion Revisions to cash flow estimates Liabilities incurred Accretion expense Spending Less current portion December 31 follows: December 31 are reflectedthird-partylegal on a FCX’s with cost and comply basis assets. long-lived tangible, retire to obligation 94 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report NOTES TOCONSOLIDATED FINANCIALSTATEMENTS applicable laws Indonesia’s and regulations Freeport and PT Indonesia’s Freeport PT willat operations determined on be based ultimateThe amount of reclamation incurred to be and closure costs reclamation of $214 and closure costs million Arizona its for operations. to FCX’s ARO liabilities. 31, At December 2010, FCX had accrued which sites, likely are to in result non-operating additional adjustments reclamation and closure activities other operating its and at and Morenci.Bagdad FCX will continue to evaluate options future for 2010, facilities FCX certain for updated closure its approaches at obligations;regulatory during site-specific toand Bagdad address and FCX 2009, Sierrita, at updated closure its Tohono approaches the reclamation specified in the plan.perform measures During 2008 Mine Inspector and include must State to an estimate of the cost reclamation plan. Reclamation plans by the approved be must consistent with post-mining land objectivesa use specified in requires AMLRA reclamation(AMLRA). to achieve stability and safety 1986, subject also are to the Arizona Mined Reclamation Land Act ability estimated in the to closure the meet APP. costs Apermit applicant operations. financial its cease demonstrate must ADEQ entityof notifies its apermitted intent after days to 90 maintenance. detailed Amore closure plan submitted be must within requirements, which may include monitoring post-closure and implement closure may the specify APP closureAn strategy. following and to of an operations estimate of the cost cessation that willstrategy applicable meet groundwater protection requirements discharge reduction elimination or discharges. of some also may requirewell program location. mitigation APP or The and aquifer quality water an at applicable standards point of compliance mining,for concentrating and smelting and require compliance with that require facilities, certain for permits activities used and structures adoptedhas regulations aquifer its for protection permit program (APP) ADEQ subject are in oversight areas. to several regulatory properties accruals could material. be plans and any resulting permit conditions, and the amount of those the requiredon may state’s be based review of FCX’s updated closure additional above, stated As accruals NewMexico operations. its million reclamationhad accrued FCX of $405 and closure costs for following of mining 31, cessation At December operations. 2010, approval of plans describing the reclamation performed to be Under the MiningDepartment. Act, mines required are to obtain of the NewMexico(MMD) Energy, Minerals and Natural Resources rules that administered are by the Mining and Minerals Division the 1993 NewMexico Mining (the Act Mining Act)and the related inresult in thecosts. Tyrone, increases closure ChinoCobre and thefrom actions taken to be under the settlement agreement, could PT Freeport Indonesia Reclamation and Closure Programs. of ArizonaPortions mining facilities 1, January after that operated applicationAn requires an for APP adescription of aclosure Arizona Environmental and Reclamation Programs. FCX’s Arizona FCX’s subject also are NewMexico operations to regulation under
however, that future developments will alter not this conclusion. assurance, no be can flow. There cash or of operations results financial business, uponits condition,in the aggregate, liquidity, willmatters either have not effect, individually amaterial adverse or currentlyfacts known, FCX believes liability, its if any, in these litigation on number of Based codefendants. to results date and suits Many in involve of these talcalleged products. asbestos alarge from or affiliates, by Phelps operated Dodge or owned properties contained in buildingseither asbestos from and facilities at located in ago, marketed or electrical many produced wire years products allegedlyclaim injury to contained asbestos exposure from personal defendants as named have in been number alarge of lawsuits that note under “Environmental.” as and byaffiliatesin Phelps its thisdiscussed the Dodge years environmental arising conducted operations over legacy issues from with associated are or ofin business the course ordinary addressed comments received during received comments of this the course reviewaddressed process. review and for Mineral and has Resources of Energy Department Indonesia submitted Freeport mine its PT closure plan to the of other options the for mine closure 2009, guarantee. In October requirements, toMineral review including these Resources discussion and Indonesia is working of Freeport Energy withPT the Department bankowned in Indonesia. of Work, In with accordance Contract its closure guarantee in the of atime form placed deposit in astate- reclamation and closure, which requires acompany to provide amine regulation its and revised Mineral regarding Resources Energy mine sources. or other flow by operational cash of the $100 in excess Any costs millioncosts. fund would funded be including interest, to mine pay accrued closure and reclamation mining Indonesia plans Freeport activities. this to PT use fund, $100 least at million (including by interest) the end Indonesia of its ($13 million 31, balance December at 2010) to accumulate designed obligation of $13 million (included in other assets). receivable Rio for Tinto’s share of the long-term a and million $129 of costs closure and Indonesia reclamation had accrued Freeport PT to continue At December than more years. for 30 31, 2010, estimated incurred the at end of miningcurrently are activities, which while and the remaining closure costs most reclamation will costs be reclamation willSome costs incurred be during mining activities, subject to revision time over complete more as performed. studies are and are of many aperiod over years requiring integrated assessments Indonesia willFreeport PT incur in the future involve complex issues precision. of the ultimate Estimates reclamation and closure costs and cannot currently with projected parties and be other affected consultationafter with governmental authorities, residents local affected of appropriate remedial activities inassessment the circumstances, Since approximately 1990, and Phelps various subsidiaries Dodge In December 2010,In December the Indonesian Minister of of the Department In Indonesiacontributing 1996, began Freeport PT fund to acash Litigation. FCX is involved in that various arise legal proceedings
FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 95
FCX purchases FCX products a variety to insurance of In October 2010, PT Freeport received from the Indonesia OctoberIn 2010, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO Other. Insurance. In December 2008, Cerro Verde was notified by SUNAT, the DecemberIn 2008, CerroSUNAT, wasby notified Verde In DecemberIn 2009, PT Freeport wasthe by notified Indonesia mitigate potential losses. potential products typically The insurance various mitigate and retentions amounts or self-insured specifiedhave deductible workers’ for U.S. self-insured is generally FCX limits. policy purchases but statutorycompensation, excess to up insurance limits. performed is analysis twiceAn actuarial a year FCX for various estimate to workers’ compensation, casualty programs, including reserves. insurance required reserves Insurance $67 totaled million portion a current of consisted of which 2010, at December 31, and accrued and liabilities) accounts payable in (included $9 million liabilities). other in (included a long-term portion $58 of million primarily for reclamation and environmental obligations, workers’ obligations, environmental and for reclamation primarily programs, compensation insurance tax obligations, customs and surety had FCX bonds addition, In and obligations. commercial other associated with 2010, at December 31, million $123 totaling — see above), discussion million ($101 closure and reclamation million) for workers’ compensation ($19 bonds primarily self-insurance bonds other ($3and million). PT Freeport Indonesia is obligated to pay value added taxes pay value to on PT Freeport obligated is Indonesia certain goods imported after year the 2000. taxes of The amount Freeport bePT Indonesia significant. believes would penalties and required its terms of Contract the only to is pursuant it Work, of that, added taxes pay value to on these types goods of imported after December 2009. PT 30, Freeport has not received an Indonesia government assessment applicable the with working is and matter. resolve to this authorities assess to royalties its of intent tax mining authority, national Peruvian processed minerals the to Cerrorelated the by concentrator, Verde 2006. late in processing was Cerro added to facilities which Verde’s August 2009, Cerro assessment received an In Verde approximating for mining obligations its alleged with connection in $34 million period for the from penalties October and royalties 2006 to denying issued a ruling SUNAT 2010, April In December 2007. protest assessment,Cerro the of Verde’s 2010, May in and Court.Cerro Cerro Tax the to Verde decision appealed this Verde mining in million assessmentreceived an also $41 approximating year for for the a 2008 penalties and royalties 21 (refer Note to a and matter February in 2011) on this ruling the of discussion year the 2009. covering royalties for mining request for information this until annually assess to royalties continue may mining SUNAT Indonesian tax assessment an Indonesian authorities taxes for additional $52 million interest and approximating million $106 approximating for 2005. PT exceptions Freeport Indonesia audit various to related theseto assessments objections has filed thatbecause it believes has properly taxesit paid the year for the with 2005 working is and matter. resolve tax to this Indonesian authorities Officethat Indonesia Largeof the of Government Taxpayer’s
Letters of , County of New York, , County New York, of Letters of Credit, Guarantees Bank Surety and Bonds. FCX has conducted a detailed investigation of this site and has and site this of investigation a detailed has conducted FCX formerly a subsidiary Company (Columbian), Chemicals Columbian On July 12, 2010, FCX was notified by the U.S. U.S. Department wasthe of FCX by notified 2010, 12, On July concluded that the Cyprus entities were engaged only in exploration Cyprus were in the engaged that only entities concluded operation large-scale the in mining were and not involved site at the a is there believes FCX condition. its current in left site that the responsereasonable the for basis apportioning costs based on the of liability so the that site, at the records activities of historical be harm done, proportional actual Cyprus should the to entities asserts. government as several, the and joint rather than is FCX vigorously to intends FCX and U.S. the with discussions engaged in filessuit. government matter the if this defend claims indemnification Dodge, of Phelps various of hasFCX notified was Columbian 2005 the out of agreement which to pursuant arising pending litigation (1) to relate claims outstanding The principal sold. state court personal West for alleged in Virginia Columbian against property and injury from exposure carbon to damage black resulting conducted being investigation an (2) and carbon matter) (the black period the during Act violations Air Clean potential of EPA by Dodge Act matter). was Air owned Clean Phelps by (the Columbian for these both of any, if obligations, its indemnity that believes FCX 2005 the under agreementmatters aggregate an to are subject limit Columbian’s that believes FCX million. $110 approximately of Act aggregate matter Air that below Clean is for the exposure, any, if exposure carbon for the Columbian’s estimate cannot FCX but limit, York state in New has asserted filed Columbian a suit in matter. black Company and Chemicals Columbian entitled 2010 court April in Freeport-McMoRan v. LLC Acquisition Chemicals Columbian Corporation f/k/a Dodge Phelps Corporation $91 million in response in costs significant expected and $91 incur to million response does FCX costs future. additional the not know whether in of reimbursement to materially parties other the contribute could these response costs. 600999/2010, No. Index CourtSupreme New York, of State the of is FCX and limit, that to carbon matter the not subject is that black the under meet assertion. to its obligations that opposing intends FCX effort any against defend vigorously by 2005 agreement, will but those obligations. interpret expansively to Columbian Justice, acting at the request of EPA, that the U.S. was to preparing U.S. the request at that the EPA, of acting Justice, federal in court ownedsubsidiaries itsagainst suit of two wholly file (Cyprus Corporation Mines Inc.) Cyprus and Company, Amax Minerals severaland parties other recover to costs or be to incurred incurred release the to or responding release threatened in of U.S. the by Lawrence in County, Site Mine Edge hazardous substances Gilt at the assert would South The Dakota. letter U.S. stated the the that that parties other the with liable severally and Cyprus are jointly entities CERCLA. under site response at this for all costs U.S. the by incurred The letter approximately asserted incurred had U.S. the that credit and bank guarantees totaled $97 million at December 31, 2010, 2010, at December 31, guarantees million $97 bank and totaled credit 96 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report these non-cancelableleasesatDecember31,2010,follows: offices andequipment.Asummaryoffutureminimumrentalsunder 2010, $74millionin2009and$902008. aggregate rentalexpenseunderoperatingleaseswas$64millionin by aggregateminimumsubleaserentals,whichareminimal.Total Minimum paymentsunderoperatingleaseshavenotbeenreduced 2012 2011 Operating Leases. NOTE 14. and Commitments Guarantees thisfor contingency. accrued amounts have No been rates. interest varying at increase approximated $61 million. amounts will These continue to approximated million, with $57 interest assessment and the 2008 with interest 2007 assessment to December 2006 October 31, payable.be At December 2010, amount of the the aggregate and the accrued currencyyear in the which the amounts would that 7to on from 18which range rates at based percent accrues royalties, it willresponsible these for liable also be interest, for minerals. Verde those If is ultimately Cerro processing for found mining its from of the used method irrespective concession, Peruvian government royalties exempts from all minerals extracted it believesroyalties that stability with because its the agreement Verde by the is Tax challenging is Cerro resolved matter Court. these NOTES TOCONSOLIDATED FINANCIALSTATEMENTS obligations total $2.0 billion in 2011, million $384 in 2012, primarily to Atlantic Copper. obligations provide deliveries for fixed prices, volumes,at of specified and theTenkeat America South Fungurume mines. Oxygen Electricity obligations primarily are contractual for minimum demand natural transportation. America gas and North freight for rates Transportation obligations ocean contracted America South for are mines. tocopper Atlantic America prices, and the North Copper provide deliveries for volumes,at market-based cathodes of specified of market conditions. Obligations and concentrates copper for the amount of the actual obligation may change time over because purchased. Incases, commodity or some market the for rate service unconditional purchase obligations the on prevailing based settled are worldwide. of to FCX’s operations that its essential Some are electricity ($144 million)million), ($143 and oxygen million)($201 ($2.1 and cathodes billion),concentrates transportation billion,of $2.8 primarily comprising the of procurement copper 31, 2010,December FCX unconditional has purchase obligations 2013 2014 2015 Thereafter
Total payments Total FCX’s future with commitments unconditional associated purchase Contractual Obligations. Contractual FCX leases various types of properties, including FCXleasesvarioustypesofproperties,including
Based on applicable on Based at prices
$ $ 183
33 22 17 14 13 84
generated when PT Freeport Indonesia’s Freeport when PT millinggenerated facilities operate annualspecified amounts copper,of gold and silverbe to expected Papua. additional The royalties paid are production on exceeding and governments the oflocal the people Indonesian province of to therequired of Work) tosupport provide by the further Contract the Government of Indonesia additional royalties (royalties not expansion completed to pay Indonesia in agreed 1998, Freeport PT In connection extracted. are mill with concentrator fourth its regulations is designated to which the from provinces the minerals gold for rate androyalty silver is 1.0 sales percent. price of $1.10copper of Work pound. Contract per The more or pound to 3.5 per a at percent less or price of $0.90 a copper 1.5 from of Work varies netrevenue of at copper Contract percent its market value.at acquisition by the shares Investama Province Indocopper of the PT to determine cooperatively to work theagreed feasibility of an the Papua provincial government (the Province) the whereby parties FCX signed aMemorandumIn of Understanding May 2008, with Investama. Indocopper Indonesia PT ownership or Freeport in PT Indonesianof Work nor law requires of its FCX toany divest portion fair at Investama Indocopper in market value. PT Neither Contract its the at time,FCX agreed, to consider apotential sale of an interest of havingadditional benefits Indonesianownership in operations, the market value. to this and in In view response request of the potential to Investama Indonesian Indocopper in nationals PT shares fair at and that to Mineral itsell offer Resources of Energy Department of Work. terms of the Contract theitapprove long as continues extensions as to comply with the Indonesia fullyFreeport that the government will expects PT in 1991 well the expiration before of the 1967 of Work, Contract government, which included entering into of Work the Contract Indonesia’s of working approximately with years the Indonesian 40 under thework Indonesian and PT legal system Freeport of contracts delayedor unreasonably. of Given the importance subject to Indonesian government approval, which withheld cannot be periods, 10-year Indonesia two for Freeport by PT extended be can initialThe in of term of Work expires the current 2021, Contract but into in 1967 of replaced Work in and with was 1991. anew Contract Government of Indonesia. original The entered of Work was Contract Indonesia and the Freeport PT of Work between under the Contract containing an unconditional obligation. in situations those settlements in which it terminated an agreement fulfilled its minimumcontractual purchase obligationsor negotiated $118 million thereafter. During 2010, FCX and 2008, 2009 million$266 in 2013, $18 million in 2014, $19 million in 2015 and A large part of the mineralA large part royalties under Government of Indonesia Indonesia under Freeport payable rate royalty by PT copper The the from In Indonesian July FCX arequest received 2004, Mining Contracts. Indonesia. FCX is entitled to mine in Indonesia
FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 97
FCX has adopted policies that that has policies adopted FCX NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO Community Development Programs. In 1996, PT Freeport Freeport established the 1996, Indonesia In govern its working relationships with the communities where it communities the with relationships govern its working operates its practices are programs designed guide and that to a in the of respects culture that the and manner rights human basic make to operations. continues FCX FCX’s by local peopleimpacted education, development, on community expenditures significant programs. cultural and training Freeport the (formerly Development for Community Partnership Fund PT Freeport which through Development) Jaya for Irian Fund assistance to technical and funding has made available Indonesia development social and education support health, economic the to area. the of PT 2011 Freeport through has committed Indonesia the of development for the revenue one percent itsprovide of annual itslocal area Freeport people the in operations of through PT Development. for Community Freeport Partnership Fund 2009 in and $59 million 2010, in charged $64Indonesia million 2008 in cost to commitment. sales of for this $34 million (Gécamines), which is wholly owned by the government of the DRC, the of government owned the by (Gécamines), wholly is which percent (non-dilutable), 20.0 to percent (non-dilutable) from 17.5 interest from a decrease ownership effective in FCX’s of resulting Corporation’s Mining percent Lundin percent 56.0 and to 57.75 percent; percent 24.0 to interest from ownership 24.75 effective metric for each 100,000 million royalty $1.2 of (2) additional an metric tons copper probable provenof and reserves million above 2.5 reserves new time at the tons are FCX; established by (3) additional installments equal six in be to paid $30 million payments totaling equity; to loans intercompany in conversion $50 of (4) million forsurface area(5) fees and $5 a million approximately payment of annually; surfaceongoing $0.8 area fees million approximately of and rights TFM’s that stating language (6) clarifying incorporating are governed Gécamines’ its by ARMC; (7) expanding and obligations its TFM TFM reiterated has also management. in participation use local the of services to commitment Congolese and employment. interest onrate annual the modifications, the with connection In advances from TFM shareholders increases plus from LIBOR a rate of addenda the December 6 percent. In 2010, plus 2 percent LIBOR to Amended Restated and and ARMC Shareholders’ TFM’s to Agreement parties a Presidential the were by signed are pending and the effect be in until contracts will mining Decree. existing TFM’s FCX’s in change the addition, In Decree obtained. is Presidential conversion the and Fungurume Tenke interest in ownership effective be effected after obtaining will equity to loans intercompany of In Decemberbylaws. 2010, to TFM’s modifications the of approval been have which $26.5 million, payments totaling made TFM recorded (included as 2010 contractprepaid costs at December 31, assets). current other in of $5 million upon reaching certain milestones; production upon reaching $5of million
FCX is entitled to mine in the DRC under the Amended the and DRC under the in mine to entitled is FCX The combined royalties, including the additional royalties that that royalties additional the including royalties, The combined law, 2008, mining a new enacted In Indonesia of Government the Africa. In February DRC, the 2008,In of Government Mines, of Ministry the above 200,000 metric tons of ore per day. The additional royalty for The additional above 200,000 ore of per tons metric day. Contract the copper and royalty Work for of gold equals rate,and twice Contract the equals royalty Work of rates.silver Therefore, 2010, in million $156 totaled 1999, became January effective 1, 2008. in million 2009 in $113 and million $147 system as opposed operate the a licensing to under will which contract PT to work of Freeport system In applies that Indonesia. regulations promulgated Indonesia of Government the 2010, PT Freeport Indonesia’s royaltyPT rate on copper Freeport net revenues from Indonesia’s Contract the Work of agreed double above the is production levels sales from royaltyroyalty the rates silver rate, and and on gold Contract the Work of agreed above the areproduction triple levels royalty rates. address certain and provisions law existing 2008 the under mining contracts that contracts provide work of will work. of The regulations regulations the However, expiration. their be to honored until continue contracts to law new of the of certain provisions apply attempt to new the be to pursuant extension periods any would work that and system Contract PT though even Freeport of Indonesia’s licensing providesWork for two existing 10-year extension periods the under itsterms of Contract Work. of Restated Mining Convention (ARMC) between Tenke Fungurume Fungurume (ARMC) Convention between Tenke Restated Mining S.A.R.L. (TFM) The DRC. original the of Government the and Mining was and replaced 1996 in wasinto entered Convention Mining sent a letter on proposed comment seeking modifications material with the ARMC in 2005. The current ARMC will remain in effect in for remain will ARMC 2005. The current in ARMC the with The concession exploitable. is Fungurume as Tenke as long the percent 2 is net of ARMC the TFM by royalty under rate payable and 2010 in $20 totaled royalties million Theserevenue. mining 2009. in million $7 concession, Fungurume contracts Tenke for the mining the to government, transfer the of payments to amount payable the including percentage involvement and government’s ownership the in certain of mattersthe regularization mine, the of management In plans. social of Congoleseunder implementation the and law conclusion the DRC announced the of government the October 2010, review the of contracts. The conclusion mining TFM’s of review the of contractsin good are process mining existing confirmed that TFM’s benefits and rights the acknowledged under and granted standing a 30 percent those fiscal contracts.including terms, key TFM’s royalty a 1 percent rate and taxincome rate, a 2 percent mining rates the with are consistent and apply to export continue fee, will review, the with Code. connection In Mining current in DRC’s the been have reflectedin TFM made several which commitments, the increase an in (1) contracts, including its mining to amendments interest La of ownership Générale des Carrières et des Mines’ 98 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report share is in excess of theshare exercise is in price. excess paid under this the guarantee as fair value of Sumitomo’s 15 percent information available, that it is probable that any amounts will be in connection with thisbelieve, not on FCX guarantee based does as any liability recorded not in consolidated its financial statements defined in December the venture agreement. At 31,2010, FCX had call option) totaled approximately $132 million calculations on based Sumitomo uponexercise of the FCX’s put option (or exercise of its the maximum potential FCX payment is obligated to make to purchase Sumitomo’s share of the 31, venture. At December 2010, to right share Likewise, to FCX. conditions, under certain FCX the has venture Sumitomo agreement, the has right to sell 15 its percent in the Morenci complex. conditions Under certain defined in the option guarantee clause. FCX undivided holds percent an 85 interest 7,February 1986, with Sumitomo, which includes aput and call indirect and indemnities. of the indebtednessof others) guarantees NOTES TOCONSOLIDATED FINANCIALSTATEMENTS $1 million this for of sales commitment. to cost in 2009 development. Tenke Fungurume million $3 charged in 2010 and pertaining such to those health, as education and economic services, communities with development infrastructure of local and related production to acommunity development fund the local to assist Fungurume will contribute revenue of from 0.3netsales percent within in the province Katanga concession of its the DRC. Tenke monitor with the this activity associated matter. different or mechanism. replaced byor atax FCX will continue to whether the contributioncertain will abandoned, extended, be $41 million in 2010 million and $28 It is not and 2008. in 2009 mining local these for of sales to fund cost contributions totaled mining fund and 1.00 to aregional percent mining fund. charge The whichof profits, 2.75after-tax percent contributedis to a local adjustedare annually. contribution The is equal to 3.75 of percent through 2010) levels2006 certain that exceed prices when copper (covering period the years developmentlocal funds a five-year for companies operating in would Peru make annual contributions to Verde’s facilities. ofCerro these share of the construction costs to adesignated bank account that is financing for being used and funded in approximately of 2008 sales cost charged $49 million initial installations readily be can in expanded the future. FCX facilitiesThese being in are designed amodular fashion that so plantsof treatment region.the the for benefit and water sewage to contributeagreed to the and design construction of domestic of discussions in with the mayors Arequipa local Verde region, Cerro aresult as During 2006, the over years. projects community support At Morenci its mine in Arizona, FCX dated aventure has agreement Guarantees. Tenke Fungurume the communities committed has to assist living theDuring Peruvian government 2006, announced that all mining VerdemineFCX’s of copper provided Cerro has avariety FCX provides certain financial certain FCX provides (including guarantees
a. contracts: Commodity 31December follows: ended commitments) sales the for years related item hedged (firm value along transactions, with hedge the on the unrealized losses derivative financial are designated instruments thatand qualifyas fair and equity inincome affiliated taxes companies’ earnings net for published marketclosingprices. values ofFCX’s financialderivativeinstrumentsarebasedonwidely commodity price,foreigncurrencyandinterestraterisks.Thefair objectives principallyrelatetomanagingrisksassociatedwith instruments inlimitedinstancestoachievespecificobjectives.These speculative purposes,buthasenteredintoderivativefinancial FCX doesnotenterintoanyderivativefinancialinstrumentsfor market risksandFCXintendstooffsetormitigatesuchrisks. a futureactivitythatislikelytooccurandwillresultinexposure unless thereisanexistingassetorobligationifitanticipates FCX doesnotpurchase,holdorsellderivativefinancialinstruments NOTE 15. Financial Instruments management to be probable and the costs can be reasonably estimated. reasonably be can management probable to and be the costs when potential environmental obligations considered by are accrued are guarantees these obligations, from costs any expected indemnities.these to FCX’s With environmental respect indemnity and accordingly, any obligations recorded not has with associated having aprobable likelihood of that payment estimable, is reasonably following consider not any sentence, of such FCX does obligations as estimate the maximum in potential described the as Except exposure. given the indemnity nature of these obligations, it is impossible to obligations ago,and that transactions many from closed arise years and various excluded liabilities obligations. indemnity or of these Most operating liabilities,and certain claims litigation or existing closing at purchased. indemnity The classifications include environmental, tax soldor future activities the from assets pre-closing for of FMC liabilities against certain indemnify the party that may in arise the closing. indemnity provisions These generally require now FCX to at to the party sale that transferred have would been otherwise excludedagainst certain retained or liabilities existing the at time of and from indemnified FMC transactions, counterparty these the actions taken) to prior the closing of date part of the transaction. As with conditionsassociated in claims existence (or with associated related toliabilities and the from against transaction certain time to time,parties or other indemnifiedsellers, buyers certain of merger, acquisition,part divestiture from and other transactions,
FMC’s copper futures and swap contracts swap and futures copper FMC’s A summary of unrealizedA summary gains recognized before in income (loss) Prior to acquisitionPrior its and subsidiaries its FMC by FCX, have, as Amounts are recorded in revenues. in recorded are Amounts instruments financial Derivative Hedged item Hedged
a 2010 $ (7) 7
2009 $ (11) 11
2008 $
— — FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 99
As described in Note 1 under “Revenue As “Revenue 1 under described Note in the price settlement mechanism that is settled is that after settlement price mechanism the i.e., NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO Embedded Derivatives. Embedded do not meet the criteria to qualify for hedge accounting are accounting are do not meet the criteria to qualify for hedge discussed below. Derivatives Not Designated as Hedging Instruments instruments that Embedded derivatives and derivative financial Derivatives Designated as Hedging Instruments — Instruments Hedging as Designated Derivatives Hedges Value Fair U.S. copper Contracts. Some of FMC’s Copper Futures and Swap a fixed market price instead of the COMEX rod customers request the month of shipment. FCX hedges thisaverage copper price in that allows it to receive the COMEXprice exposure in a manner of shipment while the customers pay theaverage price in the month FCX accomplishes this by entering intofixed price they requested. contracts and then liquidating the coppercopper futures and swap settling the copper swap contracts during the futures contracts and generally results in FCX receiving themonth of shipment, which price in the month of shipment. Hedge gainsCOMEX average copper contracts are recordedor losses from these copper futures and swap gains or losses duringin revenues. FCX did not have any significant resulting from hedgethe year ended December 31, 2010 and 2009, held copper futuresineffectiveness. At December 31, 2010, FCX accounting for 30 millionand swap contracts that qualified for hedge pounds at an average price of $3.83 per pound, with maturities through December 2012. Recognition,” certain copper FCX copper concentrate, cathode and Recognition,” based on primarily sales pricing gold contracts for provisional provide Market orLME COMEX prices London Bullion (copper) the and the asin specified shipment of Association (gold) time price at the purchases FCX under copper molybdenum and contract. Similarly, purchases (molybdenum pricing contracts for provisional provide that Dealer based Molybdenum Week are average generally on an Metals normal purchases the normal salesOxide price). and applies FCX hedge and accounting derivatives accordance with scope in exception host the to sales agreements contractsguidance the do not since Sales delivery. physical in for result net settlement always and allow embedded an sales contain price a provisional purchasesand with derivative ( host from the be to bifurcated required is that delivery) of time the contract. The host metals or the sale contract of purchase the is concentrates the or in cathodescontained then-current at the LME Associationor Market COMEX (copper), price London Bullion the Dealer Oxide Molybdenum Week (gold)price or average the Metals the contract.Mark-to-market in as defined (molybdenum) price price recorded the are reflecteddate through settlement in fluctuations revenues for sales contracts cost in sales and of and as production costsdelivery contracts. for purchase
— 34 11 (70) (71) 235 (184) 2009
$ 2008
(1,278) $ — 1 2 2 (3) — — 18 64 (10) 357 (115) 2010 (104) 2009 1,393 $ $
(2) — — (30) 619
2010 $
b
d a
b From time to time, FCX has entered into From time to time, FCX has entered into
b
a c
a
a a a Asset position Liability position Asset position Asset position Asset position sales/purchases contracts: sales contracts forward contracts Liability position purchase contracts Amounts recorded either as a net accounts receivable or a net accounts payable. Amounts recorded in accounts payable and accrued liabilities. At December 31, 2010, FCX had paid $3 million to a broker for margin requirements (recorded in other current assets), and received $8 million from a broker associated Amounts recorded in other current assets. with margin requirements (recorded in accounts payable and accrued liabilities). FCX had received $6 million from brokers associated with margin requirements (recorded in accounts payable and accrued liabilities) at December 31, 2009. Amounts recorded in cost of sales as production and delivery costs. Amounts recorded in revenues. A summary of the realized and unrealized gains (losses) gains unrealized and A summary realized the of FMC’s copper futures and swap contracts: Atlantic Copper’s copper forward contracts: Embedded derivatives in provisional FMC’s copper futures and swap contracts: Embedded derivatives in provisional PT Freeport Indonesia’s copper FMC’s copper futures and swap contracts Embedded derivatives in provisional Atlantic Copper’s copper forward contracts
Commodity Contracts. b. c. d. a. Commodity contracts: Commodity contracts: Derivatives not designated as hedging instruments December 31, Derivatives designated as hedging instruments b. financialA summary of the fair values of unsettled derivative balance sheets follows: instruments recorded on the consolidated a.
Commodity contracts: FCX realized gains, which are recorded in revenues, totaled in revenues, totaled gains, which are recorded FCX realized recognized in income (loss) income in before taxesrecognized income in equity and financial for derivative net earnings companies’ affiliated as do not qualify embedded derivatives, which including instruments, hedge transactions, years for the follows: ended December 31 $37 million during 2010 and $49 million during 2009 from from million during 2009 during 2010 and $49 $37 million instruments that qualified for matured derivative financial hedge accounting. forward, futures, and swap contracts to hedge the market risk associated with fluctuations in the prices of commodities it purchases and sells. Derivative financial instruments used by FCX to manage its risks do not contain credit risk-related contingent provisions. As of December 31, 2010 and 2009, FCX had no price protection derivative contracts relating to its mine production. A summary of FCX’s contracts and programs follows.
100 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report NOTES TOCONSOLIDATED FINANCIALSTATEMENTS
in derivatives Embedded 31,currency December at exchange contracts 2010. fluctuations exchange in FCX no outstanding had rates. foreign to exchange lock in minimize contracts or forward of the effects foreign currency time from transactions to time by entering into international its protect FCX or may settled. hedge are subsidiaries’ and made are thetime time agreements foreign currency transactions the exchange change can between rates risks because its increase Foreign currency of transactions FCX’s international subsidiaries in business many countriesFCX and transacts in many currencies.
transactions were recorded in revenues. recorded were transactions economic hedge these for Gains and losses contracts. sales the in did qualify not terms accounting of hedge for certain because also had similar with that FMC’s contracts U.S. customers rod copper that above qualifydiscussed fair for value accounting, hedge FCX future production. copper currently intend to change long-standing policy its of hedging not provisionally time from priced sales to time. However, not FCX does but may enter into future to transactions lock in pricing on since provisionally its for Aprilcontracts 2009 sales, pricedcopper in FCX entered not has into revenues. additional sales forward recorded were transactions economic hedge these for and losses price volatilityreduce short-term Gains in flows. earnings and cash intended were transactions economic hedge July to These 2009. Marchat 31, which 2009, final Aprilthrough priced from 2009 Indonesia’s Freeport pounds of PT provisionally sales pricedcopper of $1.86lock in an at average prices pound 355 on per million February 2011. at anaveragepriceof$4.15perpound,withmaturitiesthrough Copper heldnetforwardcoppersalescontractsfor43millionpounds losses recordedincostofsales.AtDecember31,2010,Atlantic changes incopperprices,withthemark-to-markethedginggainsor These economichedgetransactionsareintendedtoagainst physical purchasesandsalespricingperiodsdonotmatch. its copper contractsdesignedtohedgeitspriceriskwhenever Copper ForwardContracts.Atlanticentersintoforward in derivatives Embedded follows: provisional purchase contracts: purchase provisional provisional sales contracts: sales provisional Copper FuturesCopper and Swap Contracts. In addition to the contracts to In contracts April sales FCX 2009, entered into forward copper Foreign Currency Exchange Contracts. Exchange Foreign Currency 31, of FCX’sA summary derivatives December at embedded 2010, Molybdenum Molybdenum Copper (millions of pounds) of (millions Copper Gold (thousands of ounces) of (thousands Gold pounds) of (millions Copper pounds) of (thousands Positions Open 245 210 297 663
$ Contract
15.28 1,382 Average Price Average 3.82 3.84 As aglobal company, As Per Unit Per
$ Market 15.71 1,411 4.37 4.36
January 2011 January March 2011 March April 2011 April May 2011 May Maturities Through
had no outstanding interest rate swap contracts at December 31, December at contracts had outstanding no swap rate interest 2010. FCX changesrates. rate and tointerest of lower take advantage value of the underlying debt thatresult marketfrom fixed-rate interest toagainst changes in protect the contracts fair swap rate interest debt.rate Insituations, some FCX may enter into fixed-to-floating of the in designated floating-attributable rates interest to increases to variabilityagainst exposure its protect in future payments interest lock in considered rate favorable anto in interest be to order market conditions. FCX may to enter into contracts swap rate interest on projected current based and debt floating-rate versus fixed-rate to changesof rate and to interest achieve proportion adesired subsidiaries may enter into to exposure manage its swaps rate interest described below: (Level 3inputs).Thethreelevels ofthefairvaluehierarchyare (Level 1inputs)andthelowestpriority tounobservableinputs quoted pricesinactivemarkets for identicalassetsorliabilities fair value.Thehierarchygivesthe highestprioritytounadjusted that prioritizestheinputstovaluation techniquesusedtomeasure Fair valueaccountingguidanceincludesafairhierarchy NOTE 16. which was recorded at fair at which value recorded was the at acquisition date. except debt long-term acquired for in the acquisition, Phelps Dodge securities. available-for-sale and the fair value amountstatement represents assets of trust instruments andmaturity generally of these negligible credit losses. estimateis of the areasonable fair of the value short because Share of Joint Venture Flows. Cash financial The statement amount Payable and Accrued Liabilities, Dividends Payable and Rio Tinto instruments. debt.long-term Refer to Note 16 the for fair financial values of these dividends payable, Rio Tinto share of joint and venture flows cash available-for-sale payable securities, accounts liabilities, and accrued equivalents, and cash cash receivable, accounts assets, trust derivative transactions. did have not any significant withassociated credit exposure will default their on 31, obligations. of December As 2010, FCX anticipatenot that any of the financial institutions it deals with ensure that they maintaining are their credit ratings. FCX does institutionsperiodically of these reviews the creditworthiness to financial institutionsrequirements. certain FCX thatmeet also pay. To minimize highly FCX uses rated the risk of such losses, (commodity, foreign unable exchangeare andrateswaps) to interest institutions with which FCX entered has into derivative transactions Long-Term Debt. financial The cost statement amount represents Trust Assets and Available-for-Sale Securities. financial The and Equivalents,Cash Cash Accounts Receivable, Accounts Credit Risk.Credit Rate SwapInterest Contracts. Other FinancialOther Instruments. Fair Value Measurement FCX is exposed to when financial credit FCXloss is exposed Other financial Other instruments include From time to time, its FCX or
FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 101 — 74 14
(70)
235 146 Fair Value 2,656 (6,735) $ 2009 Molybdenum — 74 14 (70) 235 146 2,656 (6,346) Amount Carrying
$
34 18 623 357 148 (125) Fair Value 3,738 (5,146) $ 2010 34 18 500 357 148 (125) 3,738 (4,755) Amount Carrying
$
a
a a,c
e
a b
a,d
a,c NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO Recorded at fair value. Recorded at cost and included in other assets. Fair value is based on a bid evaluation, which is an estimated price at which a dealer would pay for a security. Current portion included in other current assets and long-term portion included in other assets. Included in other current assets. Recorded at cost except for long-term debt acquired in the Phelps Dodge acquisition, which was recorded at fair value at the acquisition date. Fair value of substantially all of FCX’s long-term debt is estimated based on quoted market prices. Equity securities are valued at the closing price reported price on the closing atEquity the securities are valued copper concentrate, embedded on provisional derivatives FCX’s instrumentsfor copper futures and swap financial derivative FCX’s instruments (i.e., The carrying for certain financial FCX value due within one year) accounts receivable long-term) (current and long-term) payable and accrued liabilities
Debt (including amounts Derivatives included in Trust assets (current and Available-for-sale securities Derivative assets Derivatives included in accounts a. b. Cash and cash equivalents c. d. e. fund) are valued using a bid evaluation or a mid evaluation. A bid A bid evaluation. or a mid evaluation a bid using are valued fund) pay for a a dealer would at which price estimated an is evaluation average at estimated price the is the of evaluation mid A security. at which estimated price a security the and sell a dealer would which are based These pay on for a security. evaluations a dealer would use or observable that models and, inputs prices, available, quoted if hierarchy. value the fair of 2 Level are classifiedwithin as such, are traded securities as and individual the on which market active hierarchy. value the fair of 1 Level are classifiedwithin such copper purchases cathode sales gold using and and are valued prices market basedquoted forward on the or LME COMEX prices Association Market (gold) price and, London Bullion (copper) the and FCX’s hierarchy. value the fair of 1 Level are classifiedwithin as such, purchases are molybdenum embedded on provisional derivatives basedvalued latest on the average Metals weekly Week theof 1 Level areDealer classifiedwithin as Oxide prices such, and, hierarchy. value fair contracts forward and of 1 Level contracts are classifiedwithin market quoted because using are hierarchy valued they value fair the for further discussion). 15 markets (refer Note to active prices in accrued and liabilities, accounts payable receivable, accounts cash flows) venture joint of share Tinto Rio and payable, dividends from been have therefore, excluded and, value fair approximate of value A summary carrying the fair of and below. amount table the follows:31 instruments of as December financial other FCX’s MMR cost investment
— — — — — — — — — — — — — — — — — — — — — —
$ $ $ $ Level 3 1 — — — — — — — — — — — — — — 23 22 10 42 35 133 133 $ $ $ $ Level 2 9 6 — — — — — — 15 19 71 15 34 18 (10) 357 375 (115) (125) 3,655 4,079 3,584 Level 1 $ $ $ $ 1 9 6 23 22 10 15 19 71 42 35 34 18 (10) 148 357 375 Fair Value Fair at Value December 31, 2010 (115) (125) Total 3,655 4,212 3,584
$ $ $
$
a
a Prices or valuation techniques that require inputs that arePrices or valuation techniques fair value measurement andboth significant to the by little or no market activity). unobservable (supported Quoted prices in markets that are not active, quoted pricesQuoted prices in markets in active markets, inputsfor similar assets or liabilities Unadjusted quoted prices in active markets that are markets that are quoted prices in active Unadjusted for identical, unrestricted the measurement date accessible at assets or liabilities; other than quoted prices that are observable for the asset orother than quoted prices from or or inputs that are derived principally liability, market data by correlation orcorroborated by observable other means; and
Total derivatives Total available-for-sale securities sales/purchases contracts Total derivatives sales/purchases contracts Total trust assets Total cash equivalents securities At the end of the first quarter of 2010, FCX reevaluated its level determinations and transferred $127 million of trust assets and $4 million of available-for-sale securities from Level 1 to Level 2. A summary of FCX’s financial assets and liabilities measured at assetsliabilities and financial A summary FCX’s of Fixed income securities (government agency securities securities, and income Fixed Embedded derivatives in provisional Copper forward contracts Embedded derivatives in provisional Copper futures and swap contracts Government bonds and notes Money market funds Municipal bonds Time deposits Equity securities Money market funds Time deposits U.S. core fixed income fund Government mortgage-backed Corporate bonds Asset-backed securities Money market funds fair value on a recurring basis follows: basis on recurring a value fair Valuation Valuation Techniques Money market funds and time deposits are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. corporate coreincome fixed bonds, asset-backed U.S. and securities a. Derivatives: Total assets Derivatives: Available-for-sale securities:
Trust assets (current and long-term): Assets Cash equivalents:
Level 3
Level 2 Level 1 Liabilities 102 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report
operating plans were revised in the fourth quarter of 2008 and and operating plans in of 2008 revised were quarter the fourth options the for term. longer and Accordingly, growth resources to liquidity protect near-termits strategy mineral its while preserving sudden downturn and near-term uncertain outlook by revising adjustments to near-term to its operating the plans. FCX responded ability and required projects to in invest FCX to make growth deterioration of the economic and credit environment limited FCX’s and the molybdenum inof 2008 prices quarter the fourth their full potential remained in place, the decline inand copper 31,December 2008. and closedin of 2008 quarter the fourth at $9.50 per pound on pound per $16 approximately averaged in 2008, November pound declinedprices significantly$8.75 to a four-year low of per molybdenum 2008, of months nine pound the for first per and $33 with pound averaging in approximately prices per 2007 years $30 Additionally, while molybdenum had markets been strong in recent and $1.32 at closed 31,of 2008 pound December on per 2008. $1.78 averaged quarter 2008, in December fourth pound in per the declined prices copper LME spot to afour-year low of $1.26 pound per in 2007 and $3.61 nine pound the for months first per 2008, of pound per averaging $3.23 andin After molybdenum copper prices. and special postretirement and retirementcurtailments. benefits $0.01 diluted or to stockholders FCX per common pension for share) and (ii) gains million of $9 ($7 million to netincome attributable costs cancellationproject and and employee benefit severance costs, diluted per termination $0.03 other contract for or share) costs, million($25 to netincome attributable to stockholders FCX common totaling (i) for restructuring below) costs million discussed $32 (as 2009 andoperating plansJanuary inof 2008 quarter the fourth lawsuit (refertoNote13forfurtherdiscussion). diluted share)forthepartialsettlementofCityBlackwell net incomeattributabletoFCXcommonstockholdersor$0.05per In 2009,FCXrecognizedachargeof$54million($43to settlement litigation partial Blackwell of City for FCX’s reportablesegments): (refer toNote18forlong-livedassetimpairmentsandothercharges other chargesrecordedduringtheyearsendedDecember 31follows A summaryoflong-livedassetimpairments,otherthangoodwill,and NOTE 17. NOTES TOCONSOLIDATED FINANCIALSTATEMENTS impairments asset Long-lived benefits special postretirement and Pension costs Restructuring Total long-lived asset impairments and and impairments asset long-lived Total curtailments and While FCX’s long-term strategy of developing its resources to to While of developing FCX’s resources its strategy long-term adramatic there was declineDuring of 2008, quarter the fourth inAlso relating FCX 2009, recognized charges to revised its charges other Asset Impairments Charges Asset and Other
2009 $ $ 77 54 32 — (9) $ $ 10,978 10,867 2008
61 50 —
contract terminationcontract and cancellation other project The costs costs. diluted per costs, and employee benefit for $0.04 share) severance million($30 attributable or to to stockholders FCX netloss common million diluted per of $50 $0.05 and restructuring costs share) million attributable or to to stockholders FCX netloss ($37 common and curtailments totaling benefits $61postretirement million special for plans pension and in of 2008 quarter the fourth Note discussion 5for of impairment related charges to goodwill. diluted Refer per to $8.67 or 2008. for stockholders share) common totaling $10.9 billion billion ($6.6 attributable to to FCX netloss impairment resulted in impairment the recognition of asset charges pound. per $8.00 $1.60 to average pound. assumed per Molybdenum were prices pound to $1.50 price pound, of per and average along-term which approximately from ranged three for years, prices $1.40 per priceon assumptions reflecting the then-prevailing futures copper impairment FCX’s evaluations 31, December at based were 2008, pound,at price per reflectingthat expectations time. to $8.00 pound molybdenum for per declining$26.20 period afive-year over declining an eight-year over to $1.20 period pound and per copper of $2.98 pound near-term for date from prices per ranged acquiredprojections to value used the at acquisition the net assets acquired, includingassets billion $6.2 goodwill. for Metal price the $25.8billion purchase price to the estimatedfair values of net with the March 2007 acquisition FCX of Phelpsallocated Dodge, estimates. significantconnectionassumption In flow used in cash the the most represented prices metal average Projected long-term ofthe appropriate use current and escalation discount rates. and and the timingdevelop of producing the reserves the reserves; including estimates, to and proven probable reserve any costs costs; and other input of commodity-based estimates price assumptions; individualits mining including: operations, and metal long-term near determining to determine of future flows estimates cash fairvalue of impairment required test, FCX to make assumptions several in evaluated are impairment for assets annually 31. of December as 31,of December Goodwill and indefinite-lived 2008. intangible than goodwill and indefinite-lived for impairmentintangible as assets, other FCX evaluated long-lived of its 2008, quarter assets, fourth suspension of FCX’s(iv) annual dividend. stock common reductions and and in administrative exploration, research costs; areduction inprojects, material and supplies inventory, and equipment that planned expansion were purchases to support control, including cost (iii) reductions, aggressive reduced workforce molybdenum (ii) mine; theat Henderson reductions; capital cost and of operations molybdenum America production North high-cost (i) productioncurtailment at to copper reflect: of 2009 January In 2008, FCX recognized charges relating FCX recognized charges In 2008, operating to revised its FCX’s evaluation than (other goodwill) of long-lived for assets impairmentFCX’s asset evaluations, including annual its goodwill In connectionchanges during significant withadverse these the
FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 103
FCX has seven copper FCX operating mines South America mining includes four operating four includes South America mining Other mines include FCX’s Chilean copper mines copper mines Chilean FCX’s Other include mines The Molybdenum segment producer integrated an The is Molybdenum Other mines include FCX’s other operating other FCX’s Other include mines Indonesia mining includes PT Freeport includes Indonesia’s mining Indonesia The Morenci open-pit mine, located in southeastern located in open-pitThe Morenci mine, Africa mining includes the Tenke Fungurume copper Fungurume Tenke the includes mining Africa NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO Morenci. Other Mines. Indonesia. Indonesia. Africa. Molybdenum. North America Copper Mines. South America. The Cerro open-pit located copper near Verde mine, Verde. Cerro Other Mines. Grasberg minerals district. PTGrasberg Freeport produces district. Indonesia copper minerals silver. and of gold quantities significant contain concentrates, which in North America — Morenci, Sierrita, Bagdad, Safford and Miami North Safford Bagdad, in Sierrita, Miami and America Morenci, — The North New Mexico. in America Chino and Tyrone and Arizona, in ore concentrating, sulfide open-pit mining, copper include mines SX/EW and leaching operations. copper the A majority of produced at Norththe America copper cast copper is rod mines FCX’s by into operations. The North & Refining include Rod America coppermines as a reportable copper Morenci the mine segment. producesArizona, copper cathodes copper and concentrates. The North percent FCX’s of America copper produced 41 mine Morenci 2010. during Safford, Bagdad, copper — Sierrita, southwestern mines U.S. and Sierrita the copper, to addition In Chino. and Tyrone Miami, concentrates. produceBagdad molybdenum mines and cobalt mining concessions in the Katanga province of the DRC. the of concessions Katanga province the in mining cobalt and leaching open-pit mining, includes mine Fungurume The Tenke Fungurume SX/EW Tenke the copper, to and addition operations. In Copper produces hydroxide. cathode cobalt mine production 2009. March commenced in copper — Cerro mines Ojos Salado Peru, Candelaria, del and in Verde open-pit These and operations include Abra Chile. El and in SX/EW and leaching ore concentrating, sulfide mining, underground Cerro the copper Verde includes operations. South America mining as a reportablemine segment. produces Peru, copperArequipa, cathodes copper and concentrates. produces Cerro the molybdenum mine Verde copper, to addition In percentconcentrates. FCX’s of produced 49 The Cerro mine Verde 2010. South America copper during copper, to addition Abra. El and In Salado Ojos del — Candelaria, silver. and produce gold mines Salado Ojos del and Candelaria the of molybdenum, with mining, sulfide ore concentrating, roasting and roasting ore concentrating, sulfide mining, with molybdenum, of molybdenum-based produce high-purity, that processing facilities products, metal powder metallurgical and molybdenum chemicals, the includes and customers are world, sold to the around which Colorado in related and owned Henderson mine wholly molybdenum produces The Henderson mine underground conversion facilities. are concentrates, chemical-grade molybdenum which high-purity, further processedtypically chemical value-added molybdenum into a 1 12 17 38 (16) (50)
$ $
Total Costs Restructuring
a 4 5 (4) — 16 (21) $ $ Costs Contract and Other Cancellation 1 (4) 13 33 (12) (29) Costs $ $ Employee Severance and Benefit
Business Segments Business Payments Additions Additions and adjustments Payments Excludes $3 million for the write off of other current assets in connection with a leasecancellation. The following table summarizes the liabilities (included in accounts in (included liabilities the summarizes table The following January 2009 program: Fourth-quarter 2008 program: Balance at December 31, 2009
FCX has organized its operations into five primary divisions — North America copper mines, South America mining, Indonesia mining, Africa mining and Molybdenum operations. Notwithstanding this structure, FCX internally reports information on a mine-by-mine basis. Therefore, FCX concluded that its operating segments include individual mines. Operating segments that meet certain thresholds are reportable segments. Further discussion of the reportable primary operating divisions, as well segments included in FCX’s Atlantic and other reportable segments — Rod & Refining FCX’s as Copper Smelting & Refining — follows. Refer to Note 2 for ownership interests and Note 14 for discussion information on FCX’s mining contracts. and TFM’s of PT Freeport Indonesia’s NOTE 18. NOTE a.
Balance at January 1, 2009
restructuring charges reflected workforce reductions (approximately charges reflected restructuring (approximately workforce reductions fourth-quarter3,000 to employees related 2008 revised operating January to 2009 employees related 1,500 approximately and plans chargestime other reflected and that that revised plans) at operating crushed- and mining in 50 percent reduction total approximate an approximate an Arizona, in leach rates mine Morenci at the rates stacking Safford and at the 50mining in percent reduction mining the in 50 percent reduction approximate an Arizona, in mine and mining of suspension New Mexico, in mine Tyrone rate at the limited (with New Mexico in mine Chino at the activities milling copper from leach operations), production residual approximate an and (an approximate production annual 40 in percent reduction fourth began the quarter percent 2008) in reduction of 25 at the revised the Colorado. addition, in In Henderson mine molybdenum certain defer to time at that decisions included plans operating projects expansion at incremental the (i) projects,capital including Cerro the mine Arizona, Verde in Bagdad and mines Sierrita the the with connection in incurred accrued and liabilities) payable fourth-quarter 2008 January and 2009 activities: restructuring the (ii) Chile, in El Abramine the at project sulfide the Peru and in restart the (iii) and the of Arizona in restart mine Miami the of Colorado. in mine molybdenum Climax 104 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report segment would ifsegment an be independent it was entity. of what the actual financialeachoperating of division performance or management determinationsreflects be that maynot indicative Accordingly,division segments. or the following information segment andgeneral administrative allocated not are to the operating costs along level, withselling,the some costs corporate and those at In addition,activities managed are exploration and research most and the at managed applicable recorded are income country. taxes level, foreign and the at managed corporate whereas recorded are allocated. are operation or All U.S. income and federal taxes state However, applicable andsegments. all not expenses to amine costs capital expenditures to the operating divisions and individual premiums. and transportation customers including additional timing processing, to unaffiliated of sales the actualultimately prices of factors, realized of avariety because theat time of reflective may be not of thesales sale. Intersegment similar on with based transactions are third arms-length parties from the South America mines the market America from at South prices. Indonesia andconcentrate requirementsFreeport 25 PT percent from slimes. During 2010, Atlantic of its 28 purchased percent Copper preciousand metals copper and refined markets in concentrates wholly smelting owned unit in Spain,copper and smelts refines processing its material its intoprocessing products. the specified into that aproduct is returned to the customer, FCX for pays who materialcopper-bearing to FCX’s facilities processing for appropriate Toll requirearrangements the tolling to customer deliver atoll on customers for andbasis. shapes rod copper and produce copper refine operations At times these shapes. custom copper and into mines rod cathode, and copper copper purchased copper America FCX’s at produced North copper process operations These rod refinery, millsthree facility.products and aspecialtycopper facilitiesconversion and includes America, in located North a who pays FCX for processing its material its into FCX processing for products. pays the specified who into that aproduct is processing for returned to the customer, deliver appropriate material molybdenum-bearing to FCX’s facilities atollon Toll basis. require arrangements the tolling to customer market conditions.on timingThe of mining startup for and milling activities is dependent miningactivities in to activities preparation restart ongoing. are Climaxowned molybdenum mine which for in Colorado, construction molybdenum.produce also Thisincludes segment FCX’s wholly mines that copper also and America South FCX’s from as North and sells mine molybdenum the well from Henderson as purchases also Thisincludes company segment products. that asales NOTES TOCONSOLIDATED FINANCIALSTATEMENTS Allocations. Intersegment sales. Intersegment In addition, at times this segment roasts and/or processes material processes In addition, and/or times at this roasts segment Atlantic Copper SmeltingAtlantic &Refining. Copper Rod &Refining. FCX allocates certain operating costs, expenses and and expenses operating costs, FCX allocates certain The Rod & Refining segment consists of copper RodThe &Refining copper of consists segment Intersegment sales between FCX’s operations between sales Intersegment Atlantic Copper, FCX’s
Revenues: years endedDecember31follows: Information concerningfinancialdatabygeographicareaforthe Geographic Area a. products copper Refined ended December31follow: FCX revenuesattributabletotheproductsitproducedforyears Product Revenue in PTSmelting. 2008. RefertoNote2forfurtherdiscussionofFCX’s in investment accounted for10percentormoreofFCX’s consolidatedrevenues FCX’s consolidatedrevenues)in2009.Nosinglecustomer consolidated revenues)in2010and$1.9billion(13 percentof Sales toPTSmeltingtotaled$2.3billion(12percentofFCX’s Major Customers a. assets: Long-lived a. Other Molybdenum Gold concentrates in Copper
United States United States United Total Others Spain Chile Peru Congo of Republic Democratic Indonesia Others India Korea Chile China Switzerland Spain Indonesia Japan $429 million for 2009 and $398 million for 2008. for million $398 and 2009 for million $429 2010, for million $413 totaling charges refining and treatment of net are Amounts Long-lived assets exclude deferred tax assets and intangible assets. intangible and assets tax deferred exclude assets Long-lived customer. the of location the on based countries to attributed are Revenues Total Total a a a
$ $ $ $ $ $ 18,982 19,205 18,982 2010 2010 2010 1,143 5,674 1,892 3,203 3,475 1,063 2,266 3,428 3,220 2,370 9,203 7,101 2,458 1,483 5,295 592 266 690 745 759 795 48
$ $ $ $ $ $ 15,040 18,090 15,040 2009 2009 2009 2,591 4,763 6,563 1,519 3,240 3,207 3,298 6,499 1,655 1,937 3,093 4,890 331 792 277 566 475 563 496 379 986 50 $ $ $ $ $ $ 17,756 17,796 17,796 2008 2008 2008 2,408 1,283 4,108 9,584 1,551 3,278 2,696 3,361 6,529 2,378 1,872 1,420 2,662 7,609 413 283 231 343 669 296 316 58 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 105 (9) — — 19 77 90 77 32 54 381 321 143 586 462 1,014 1,036 8,354 9,068 6,503 2,983 1,587 1,412 2,307 7,016 29,386 25,996 18,982 15,040 FCX Total $ $ $ $ 2 7 9 — — 56 88 25 31 31 49 56 54 (25) 233 199 141 557 433 231 (771) (644) 2,221 2,030 (4,435) (5,801) (5,428) (4,150) Other & $ $ $ $ Corporate, Eliminations 5 — — — — — — — — — — — 20 17 10 18 36 38 31 28 (56) (37) 991 2,470 1,317 2,473 1,895 1,892 Copper Atlantic Smelting $ $ $ $ & Refining 8 8 9 7 (2) (2) (2) — — — — — — — — — — — 28 26 14 19 311 291 4,443 4,444 3,336 3,328 Rod & Refining $ $ $ $ 2 2 1 (2) (1) (1) — — — — — — — 11 11 19 49 51 82 89
784 126 357 641 847 1,205 1,897 1,731 $ $ $ $ Molybdenum
b 5 8 — — — — — — — — — — — — 10 66 (15) 128 488 659 100 490 389 118 315 1,106 3,640 3,386 Tenke Africa
$ $ $ $
a a (3) — — — — — — — — — 94 936 117 257 266 436 275 1,904 1,505 1,147 4,034 4,099 1,635 6,048 4,974 1,697 5,230 4,972 Grasberg $ $ $ $ Indonesia
2 — — — — — — — — — — — 398 585 250 999 164 470 650 275 Total 1,678 1,563 2,001 3,063 7,535 6,452 4,406 3,441 $ $ $ $ 2 — — — — — — — — — — — 61 112 973 915 132 102 483 364 337 122 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO Other Mines 1,025 1,506 3,263 2,515 2,449 1,950 $ $ $ $ South America — — — — — — — — — — — —
286 705 648 453 148 976 516 106 103 313 153 Cerro Verde 1,557 4,272 3,937 1,957 1,491
$ $ $ $
(5) — — — — — — — — 15 14 29 24 24 273 233 345 280 111 162
3,073 2,015 1,911 1,848 6,417 6,141 4,025 1,020 Total $ $ $ $
4 (6) (2) (2) — — — — — — — — 12 10 94 52 139 669 299 186 138
2,000 1,326 1,289 1,149 4,207 4,477 2,562 Other Mines $ $ $ $ 3 4 1 — — — — — — — — 25 26 26 46 47 68 59
North America Copper Mines 689 622 351 699 142 134 1,463 1,073 1,934 1,940
Morenci
$ $ $ $
c
Includes charges totaling $50 million associated with Tenke Fungurume’s project start-up costs. The following table summarizes restructuring and other charges: Includes PT Freeport Indonesia’s sales to PT Smelting totaling $1.9 billion. Includes PT Freeport Indonesia’s sales to PT Smelting totaling $2.3 billion. Restructuring charges City of Blackwell partial litigation settlement Special retirement benefits and curtailments Restructuring and other charges Unaffiliated customers Intersegment Unaffiliated customers Intersegment
b. c. a. Interest expense, net Provision for (benefit from) income taxes assets at December Total 31, 2009 Capital expenditures Selling, general and administrative expenses Exploration and research expenses Restructuring and other charges Operating income (loss) Production and delivery Depreciation, depletion and amortization Lower of cost or market inventory adjustments Year Ended December 31, 2009 Revenues: Capital expenditures a. Interest expense, net Provision for income taxes assets at December Total 31, 2010 Depreciation, depletion and amortization Selling, general and administrative expenses Exploration and research expenses Operating income (loss) Revenues: Production and delivery Year Ended December 31, 2010 Business segments data for the years ended December 31Business segments data Business Segments are presented in the following tables. are presented in the following
106 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report
c. b. a. expenditures Capital 2008 31, TotalDecember at assets taxes income from) (benefit for Provision net expense, Interest income (loss) Operating charges other and impairments asset Long-lived impairment Goodwill expenses research and Exploration expenses administrative and general Selling, adjustments inventory market or cost of Lower amortization and depletion Depreciation, delivery and Production Revenues: 2008 31, December Ended Year NOTES TOCONSOLIDATED FINANCIALSTATEMENTS
Intersegment customers Unaffiliated Long-lived asset impairments and other charges other and impairments asset Long-lived charges Restructuring Special retirement benefits and curtailments and benefits retirement Special impairments asset Long-lived income (loss) operating on Impact amortization and depletion Depreciation, delivery and Production Revenues The following table summarizes long-lived asset impairments and other charges: other and impairments asset long-lived summarizes table following The values of acquired metals inventories (including mill and leach stockpiles) and property, plant and equipment: and plant property, and stockpiles) leach and mill (including inventories metals acquired of values carrying the in increases the of impacts the with associated primarily income (loss) operating on adjustments value fair accounting purchase of impact the summarizes table following The billion. $1.4 totaling Smelting PT to sales Indonesia’s Freeport PT Includes
b b
b
b
c
$ $ $ $ $
Morenci (4,498) 2,702 2,148 2,683 2,702 1,313 1,630 1,851 (246) North America Copper Mines Copper America North 370 302 209 276 330
16 37 — — — — 3 2 $ $ $ $ $ (7,024) Mines Other 5,457 5,411 4,050 5,457 1,734 2,919 2,299 (248)
346 261 440 359 333 (13) 26 20 11 — — — — $ $ $ $ $ (11,522) Total 8,159 8,094 6,198 8,159 3,047 4,549 4,150 (494)
470 770 716 661 609 42 24 23 13 — — — —
$ $ $ $ $
Verde 1,602 3,994 Cerro 178 223 313 129 698 261 763
(91) 87 — — — — — 1 5 9 1 2 1 South America South $ $ $ $ $ Mines Other 1,365 1,359 2,166 2,406 1,365 1,146 (239) (917) (267) 203 333 194 137 366 37 10 — — — 1 6 2 $ $ $ $ $ 1,366 1,359 3,768 6,400 1,366 1,844 1,129 Total (330) (694) 290 511 323 398 46 46 10 — — — 6 7 4
Indonesia $ $ $ Grasberg 2,934 1,307 4,420 1,792 222 612 444 478 N/A N/A N/A N/A 91 — — — — — — — — (1) a
$ $ $ $ $
Africa Tenke 1,058 2,685 (26) (66) 10 — — — — — — — — — — — 2 6 6 2 2 2
Molybdenum $ $ $ $ $ (1,473) 1,417 1,408 2,488 1,795 1,528 1,417 (173) 139 180 192 101 703
32 18 — — — (2) 5 4 2 $ $ $ $ $ Refining Rod & Rod 5,524 5,527 266 20 10 33 20 — — — — — — — — — 6 2 9 8 4 4 & Refining & $ $ $ Smelting Atlantic Copper 2,333 2,276 852 N/A N/A N/A N/A 10 34 35 13 20 — — — — — — — — — 8 Eliminations Corporate, $ $ $ $ $ Other & Other (5,604) (3,436) (5,466) (314) 551 737 290 140 (12) (11) 14 33 51 23 38 10 14 — — — 4 3 $ $ $ $ $ FCX TotalFCX (12,710) 10,978 10,867 17,796 10,416 23,353 10,978 (1,009) (2,844) 2,708 1,782 5,987 888 125 584 782 292 269 61 50 — 4 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 107
a — — 638 3,393 2,755 3,097 Molybdenum (million pounds) — 0.4 1.4 Gold 33.7 35.5 32.0 (million ounces) December 31, 2010 8.1 32.7 42.2 37.5 98.0 120.5 Copper
Recoverable Proven and Probable Reserves
(billion pounds)
b c NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO Recoverable proven and probable reserves are estimated metal quantities from which FCX expects to be paid after application of estimated metallurgical recovery rates and smelter recovery rates, where applicable. Recoverable reserves are that part of a mineral deposit that FCX estimates can be economically and legally extracted or produced at the time of the reserve determination. Consolidated basis reserves represent estimated metal quantities after reduction for joint venture partner interests at the Morenci mine in North America and the Grasberg minerals district in Indonesia. Excluded from the table above are FCX’s estimated recoverable proven and probable reserves for cobalt and silver totaling 0.75 billion pounds of cobalt at Tenke Fungurume and 325.0 million ounces of silver throughout the world. Net equity interest reserves represent estimated consolidated basis metal quantities further reduced for noncontrolling interest ownership. Excluded from the table above are FCX’s estimated recoverable proven and probable reserves for cobalt and silver totaling 0.43 billion pounds of cobalt at Tenke Fungurume and 270.0 million ounces of silver throughout the world.
Estimated recoverable reserves at December 31, 2010, were 31, 2010, were Estimated recoverable reserves at December determined of $2.00 per pound for using long-term average prices for molybdenum, $750 per ounce for gold, $10.00 per pound copper, pound for cobalt,$15.00 per ounce for silver and $10.00 per per ounce for $550 compared with $1.60 per pound for copper, per ounce for silvergold, $8.00 per pound for molybdenum, $12.00 used to determineand $10.00 per pound for cobalt that were 31, 2009. For the estimated recoverable reserves at December three pricesyears ended December 31, 2010, the LME spot copper prices averaged averaged $2.97 per pound, the London gold $1,023 and the weekly average price for molybdenumper ounce averaged $18.76 per pound. quoted by Metals Week North America South America Indonesia Africa Consolidated basis Net equity interest a. b. c.
Supplementary Mineral Reserve Information Reserve Information Supplementary Mineral FCX’s reserveFCX’s estimates are based on geological the latest available (Unaudited) and geotechnical studies. FCX conducts ongoing studies of its of ore studies conducts studies. ongoing FCX geotechnical and revises FCX risk. manage to and values economic bodies optimize to estimates mineral and probable proven of and plans its mine reserves studies. latest the available accordance with in as required recoverable estimated consolidated FCX’s 2010, DecemberAt 31, copper, of pounds billion reserves probable proven and 120.5 include molybdenum, of pounds billion 3.39 ounces gold, of million 35.5 cobalt. of pounds billion 0.75 and ounces silver of million 325.0 by the use of mapping, drilling, sampling, assaying and evaluation drilling, sampling, assaying and evaluation by the use of mapping, as more fully in the mining industry, methods generally applied as used in the reserve data The term “reserve,” discussed below. that part of a mineral deposit that can bepresented here, means at the time of theeconomically and legally extracted or produced means reserves forreserve determination. The term “proven reserves” revealed in outcrops,which (i) quantity is computed from dimensions quality aretrenches, workings or drill holes; (ii) grade and/or and (iii) the sites forcomputed from the results of detailed sampling; spaced so closely andinspection, sampling and measurements are that size, shape, depththe geologic character is sufficiently defined The termand mineral content of reserves are well established. quantity and grade are“probable reserves” means reserves for which for proven reservescomputed from information similar to that used are otherwise lessbut the sites for sampling are farther apart or although lower than adequately spaced. The degree of assurance, continuity that for proven reserves, is high enough to assume between points of observation. recoverable reserves consolidated include 2010, DecemberAt 31, leach in pounds billion 2.6 estimated recoverable copper totaling stockpiles. mill in pounds billion 1.3 and stockpiles NOTE 19: NOTE of probable reserves have been calculated as Recoverable proven and in accordance with Industry Guide 7 asDecember 31, 2010, proven and Exchange Act of 1934. FCX’s required by the Securities not be comparable to similar informationprobable reserves may disclosed in accordance with the guidanceregarding mineral reserves and probable reserves were determinedin other countries. Proven 108 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 2009 2008 2007 Year-End d. c. b. a. FCX’s equityshare Consolidated basis Total 100%basis Africa Indonesia America South America North 2010: 31, December at Area By 2010 2006 NOTES TOCONSOLIDATED FINANCIALSTATEMENTS
Developed andproducing: Undeveloped: Developed andproducing: Developed andproducing: Undeveloped: Developed andproducing: Recoverable proven and probable reserves also include 0.43 billion pounds of recoverable cobalt in Africa and 270.0 million ounces of recoverable silver throughout the world. the throughout silver recoverable of ounces million 270.0 and Africa in cobalt recoverable of pounds billion 0.43 include also reserves probable and proven Recoverable world. the throughout silver recoverable of ounces million 325.0 and Africa in cobalt recoverable of pounds billion 0.75 include also reserves probable and proven Recoverable 2008. late in suspended were which activities, milling and mining of restart the initiated FCX rounding. of because shown not Amounts Tenke Fungurume Deep MillLevelZone Kucing Liar Grasberg blockcave Big Gossan Deep OreZone Grasberg openpit Ojos delSalado Candelaria El Abra Cerro Verde Cobre Climax Henderson Miami Chino Tyrone Sierrita Safford Bagdad Morenci b
d c
metric tons)
18,516 13,807 14,067 12,224 18,516 (million 2,813 2,761 2,054 1,016 3,571 4,756 Ore 137 403 183 214 510 423 232 338 448 940 187 129 79 56 73 6
Copper 0.49 0.48 0.51 1.04 0.42 0.24 2.95 1.11 0.44 2.34 0.39 0.45 0.28 0.44 0.84 1.24 0.56 0.84 0.54 0.45 0.26 1.00 0.40 0.26 (%) — —
Average OreGrade Per MetricTon (grams) 0.17 0.17 0.20 0.90 0.12 0.28 1.11 0.02 0.71 1.10 0.66 0.93 0.12 0.77 Gold
— — — — — — — — — — — — a a
Molybdenum 100% Basis 0.004 0.015 0.002 0.025 0.013 0.158 0.177 0.01 0.01 0.01 0.01 (%) N/A
— — — — — — — — — — — — — —
pounds) 137.9 120.5 120.9 118.8 110.4 137.9 (billion Copper 98.0 54.8 19.2 27.4 17.0 12.2 8.1 0.1 0.6 2.6 0.3 3.6 0.8 1.7 8.2 9.9 2.4 5.2 5.4 4.6 8.6 — —
Recoverable Provenand Probable Reserves ounces) (million 32.0 35.5 47.9 49.8 53.4 54.1 54.3 47.9 16.9 Gold 1.3 0.1 9.1 7.0 3.8 8.0 1.4 0.2 0.1 — — — — — — — — — — — a — Molybdenum pounds) (million
3,097 3,393 3,408 2,595 2,485 2,042 3,408 1,238 638 100 410 578 431 N/A 13 — — — — — — — — — — — — — FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 109 a a a b c b,c b,c 785 million 4.57 4.67 2.93 3.05 million 5,544 4,273 1,208 9,068 Year 3,534 2,527 6,503 18,982 15,040 $ $
a a a b c b,c b,c
415 293 971 1.63 1.64 1.13 1.08 1,964 1,549 5,603 3,097 4,610 1,312 2,239 Fourth Quarter $ $
c c c million to net income attributable to FCX 355 224 925 1.24 1.25 1.11 1.04 Third 1,533 1,178 5,152 2,499 4,144 1,203 2,084 Quarter $ $ million to net income attributable to FCX common
a a a 832 649 168 812 164 588 0.70 0.71 0.71 0.69 3,864 1,424 3,684 1,508 Second Quarter $ $ million ($43 million ($3 million to net income attributable to FCX common stockholders
a a a b b b 43 270 897 672 207 104 1.04 1.00 0.05 0.05 First 1,215 4,363 2,048 2,602 Quarter
$
$ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED NOTES TO FCX evaluated events after December 31, 2010, and through through and 2010, events after December evaluated FCX 31, approximately $56 million (approximately $49 million to net net to million $49 (approximately $56 million approximately common second FCX stockholders) the to attributable in income redemption. this with connection in quarter 2011 of any statements wereissued,determined and financial the date the period would that this during events or transactions occurring addressed are appropriately or disclosure in recognition require statements.these financial
million to net income attributable to FCX common stockholders or $0.07 per share) for the year.
million ($71
Quarterly Financial Information (Unaudited) Information Quarterly Financial stockholders or $0.04 per share) for the year. Also includes a favorable adjustment to income tax expense totaling $43 million ($0.05 per share) in the fourth quarter and for the year resulting from the completion of a review of U.S. deferred income tax accounts. Includes losses on early extinguishment of debt totaling $27 million ($23 million to net income attributable to FCX common stockholders or $0.02 per share) in the first quarter, $50 ($42 million to net income attributable to FCX common stockholders or $0.05 per share) in the second quarter, $4 or less than $0.01 per share) in the fourth quarter and $81 common stockholders or $0.04 per share) in the first quarter and $32 million ($25 million to net income attributable to FCX common stockholders or $0.03 per share) for the year. Also includes pension and postretirement gains totaling $9 million ($9 million to net income attributable to FCX common stockholders or $0.01 per share in the first quarter and $7 million to net income attributable to FCX common stockholders or $0.01 per share for the year). Includes a charge for the partial settlement of the City of Blackwell lawsuit totaling $54 million ($43 million to net income attributable to FCX common stockholders or $0.05 per share) in the fourth quarter and for the year. Includes losses on early extinguishment of debt totaling $31 million ($28 million to net income attributable to FCX common stockholders or $0.03 per share) in the third quarter, $17 ($15 million to net income attributable to FCX common stockholders or $0.02 per share) in the fourth quarter and $48 Includes charges for LCM inventory adjustments totaling $19 million ($19 million to net income attributable to FCX common stockholders or $0.02 per share in the first quarter and $15 million to net income attributable to FCX common stockholders or $0.02 per share for the year). Includes restructuring charges totaling $34 million ($31 On February 24, 2011, FCX announced its intent to redeem to its intent announced FCX 2011, On February 24, Operating income NOTE 21. Subsequent Events Subsequent 21. NOTE denying Cerro Verde’s issued a ruling In February 2011, SUNAT royalties related protest for the year 2008 assessment of mining concentrator as to the minerals processed by the Cerro Verde is in the process of appealing discussed in Note 13. Cerro Verde Court. this decision to the Tax All references to income or losses per share are on a diluted basis. a. Net income Net income attributable to noncontrolling interests Basic net income per share attributable to FCX common stockholders 2009 Revenues c. Net income attributable to noncontrolling interests Net income attributable to FCX common stockholders Basic net income per share attributable to FCX common stockholders Diluted net income per share attributable to FCX common stockholders 2010 Revenues Operating income Net income Net income attributable to FCX common stockholders b. NOTE 20. NOTE Diluted net income per share attributable to FCX common stockholders the remaining $1.1 billion of the 8.25% Senior Notes due 2015 Notes 2015 Senior due 8.25% the of billion $1.1 remaining the percent the of 104.125 receive Holders will 2011. 1, on April interest. accrued unpaid and together with amount principal expectsFCX of record debt of to a loss on early extinguishment PERFORMANCE GRAPH
Comparison of Cumulative Total Return* Freeport-McMoRan Copper & Gold Inc., S&P 500 Stock Index and S&P 500 Materials Index
$300
$250
$200 dollars
$150
$100
$50
12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 $0
December 31, 2005 2006 2007 2008 2009 2010
Freeport-McMoRan Copper & Gold Inc. $ 100.00 $ 113.07 $ 211.27 $ 51.76 $ 170.03 $ 259.48
S&P 500 Stock Index 100.00 115.80 122.16 76.96 97.33 111.99
S&P 500 Materials Index 100.00 118.63 145.35 78.99 117.37 143.42
*Total return assumes reinvestment of dividends. 2010 Annual Report Annual 2010 FREEPORT-McMoRan COPPER & GOLD INC.
110
111 FREEPORT-McMoRan COPPER & GOLD INC. & GOLD COPPER FREEPORT-McMoRan
Stockholder Information
Investor Inquiries Common Stock Dividends The Investor Relations Department will be pleased to receive any In December 2010, the Board of Directors declared a two-for-one inquiries about the company. A link to our Annual Report on Form split of FCX common stock in the form of a stock dividend on issued 10-K filed with the Securities and Exchange Commission, which and outstanding shares effective February 1, 2011. All references to includes certifications of our Chief Executive Officer and Chief common stock dividends have been adjusted to reflect the two-for- Financial Officer and the company’s Principles of Business Conduct, one stock split. is available on our website. Additionally, copies will be furnished, In December 2008, the Board of Directors suspended the cash 2010 Annual Report without charge, to any stockholder of the company entitled to vote dividend on our common stock; accordingly, there were no common at its annual meeting, upon written request. The Investor Relations stock dividends paid in 2009. In October 2009, the Board of Department can be contacted as follows: Directors reinstated a cash dividend on our common stock. Below is a summary of the common stock dividends declared and paid for the Freeport-McMoRan Copper & Gold Inc. quarterly periods of 2010 and the 2010 supplemental dividend: Investor Relations Department 333 North Central Avenue 2010 Phoenix, Arizona 85004 Amount Telephone (602) 366-8400 per Share Record Date Payment Date www.fcx.com First Quarter $ 0.075 Jan. 15, 2010 Feb. 1, 2010 Transfer Agent Second Quarter 0.075 Apr. 15, 2010 May 1, 2010 Questions about lost certificates, lost or missing dividend checks, or notifications of change of address should be directed to the Third Quarter 0.150 July 15, 2010 Aug. 1, 2010 Freeport-McMoRan Copper & Gold Inc. transfer agent, registrar and Fourth Quarter 0.150 Oct. 15, 2010 Nov. 1, 2010 dividend disbursement agent: Supplemental Dividend 0.500 Dec. 20, 2010 Dec. 30, 2010 BNY Mellon Shareowner Services 480 Washington Boulevard In October 2010, the Board of Directors authorized an increase Jersey City, New Jersey 07310-8015 in the cash dividend on our common stock to an annual rate of Telephone (800) 953-2493 $1.00 per share, payable quarterly at a rate of $0.25 per share www.bnymellon.com/shareowner/isd beginning February 1, 2011. Notice of Annual Meeting Tax Withholding – Nonresident Alien Stockholders The annual meeting of stockholders will be held on June 15, 2011. Nonresident aliens who own stock in a United States corporation are Notice of the annual meeting will be sent to stockholders. In generally subject to a federal withholding tax on 100 percent of the accordance with SEC rules, we will report the voting results of our dividends paid on preferred and/or common stock. However, when annual meeting on a Form 8-K that will be available on our website 80 percent or more of a corporation’s income is generated outside (www.fcx.com). the United States, the withholding percentage is not calculated FCX Common Stock on 100 percent of the dividend, but rather on that portion of the dividend attributable to income generated in the United States. Our common stock trades on the New York Stock Exchange (NYSE) We have determined that, for quarterly dividends paid in 2010 to under the symbol “FCX.” The FCX common stock price is reported nonresident alien stockholders, 100 percent of the dividend amount daily in the financial press under “FMCG” in most listings of NYSE was subject to federal withholding tax. securities. At year-end 2010, the number of holders of record of our common stock was 17,5 42. For quarterly dividends paid in 2011, we estimate that 100 percent of the total dividend amount is subject to federal withholding tax NYSE composite tape common stock price ranges during 2010 unless exempted by tax treaty. The withholding tax rate may also be and 2009 were: reduced by tax treaty.
2010 a 2009 a If you have any questions, please contact the Investor Relations Department. High Low High Low FCX Beneficial Owner First Quarter $ 45.28 $ 33.02 $ 21.73 $ 10.58 The beneficial owner of more than five percent of our Second Quarter 44.15 29.12 30.78 18.30 outstanding common stock as of December 31, 2010, is BlackRock, Inc. (7.8 percent). Third Quarter 43.96 28.36 36.72 21.60 Fourth Quarter 60.39 43.19 43.68 31.50
a. Common share prices have been adjusted to reflect the February 1, 2011, two-for-one stock split. 1 FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report 333 CENTRAL NORTH AVENUE PHOENIX, ARIZONA 602.366.8100 85004 WWW.FCX.COM