費利浦·麥克莫蘭銅金 (FCX) 2002 Q2 法說會逐字稿

Thank you, operator.

Good morning, everyone.

Welcome to the Freeport-McMoran Copper & Gold's second quarter earnings call.

The FCX earnings release has been out this morning, and you should have a copy by now.

If you don't, a copy is available on our website, fcx.com.

We also have our on website this morning some slides showing our Grasberg mine operations.

The slides may be accessed from the website.

They're in the blue-shaded box at the bottom of the FCX home page, which has a reference showing new.

You can access those right now, and go ahead and print them so when we refer to them later on the call, Mr. Moffett will be discussing that.

It may be easier to have those up on the screen or already printed.

If you have any questions about that, you can call my secretary, and she can get you on to the web page and see those slides.

Today's conference call is also being broadcast live on the internet.

That can be accessed on the web page also.

The financial press has been invited to the call and a replay of the call will be available for the next two weeks through August the 2nd, through Friday, August the 2nd.

Of course, the press release and the slides will remain on our website in the future.

Before we begin today's call, I would like to remind everyone that today's press release and certain of our comments on this call may be considered forward-looking statements regarding sales and production volumes, production costs and other costs, operating cash flow estimates and estimates of debt reduction, the impact of copper and gold commodity price changes, capital expenditures, development projects, reserves and resources and expiration activities, and other matters.

Important factors that could cause future results to differ from these projections are described in FCX'S annual report on form 10-k as filed with the Securities and Exchange Commission.

Also with me today on the call are Jim Bob Moffett, Chairman and CEO of Freeport-McMoran Copper & Gold and Richard Adkerson, President and Chief Financial Officer.

As usual, after our remarks, we'll open up the call for your questions.

For second quarter 2000, FCX reported net income of 5.6 million, or 4 cents per share, compared to 36 million, or 45 cents per share, for second quarter '01.

Included in the net income for second quarter of '02 is the non-cash charge of $9 million, or 6 cents per share for Euro currency translation adjustments which we previously disclosed and Richard will discuss in a moment.

As we reported on July 2nd, second quarter results reflected lower quarter sales than we previously expected because of the sequencing of mining and heavy rainfall in late June hindering production and delaying some concentrate shipment.

As a result, the second quarter sales for 350 million pounds for copper compared to 390 last year and 394,000 ounces of gold compared to 814,000 ounces last year.

Mr. Moffett is going to discuss specifically mine operations and refer to the slides I mentioned earlier in his remarks in a moment.

Second quarter cash production costs were 18 cents per pound this year versus a credit of .2 cents per pound last year.

Primarily reflecting the lower gold grade this year and hence less gold credits.

Both credits were about 22 cents less per pound this year, and that accounts for most of the difference in the net cash cost.

And grades improve and production and sales for the remainder of the year, unit costs are expected to be lower, and we expect to be approximately 10 cents per pound on average for the year ascending current gold prices of 316 and gold volumes, our current estimate of 2.2 million ounces.

Richard's going to discuss operating results further in a moment also.

Average price realizations were 75 cents a pound this quarter versus 72 cents and gold realizations were 309 per ounce versus 267 last year.

From prior quarters, provisionally priced sales, final prices is in S.A. volume adjustments had a negative effect on revenues of 5.9 million, which was 3 million to net income, or about 2 cents per share.

With respect to open pound going forward, we have approximately 130 million pounds provisionally priced at a price of 76 cents per pound.

Most of which will price in the third quarter of 2002.

A one-cent change in the final pricing from that provisional pricing of 76 cents on those pounds would approximate $700,000 in FCX net income, or approximately half cents per share.

Now, I will turn the call over to Richard to discuss operations and financial matters.

Good morning.

As you know, we are continuing to focus on running our business at Grasberg AND Niraji (ph.) to generate cash flows to maximize efficiencies and to reduce our debt and create opportunities for the future.

This is a great asset for our shareholders.

Jim Bob in a few minutes is going to talk about the specifics of our mining operation, and we have some new information that I think you will find -- new presentation of information that I think you will find useful in understanding what we talked about on July 2nd.

As Chris indicated, our plans call for us to have significantly higher copper and gold sales in the second half.

In the second quarter, though, despite the issues THAT we addressed on July 2nd and the lower earnings hand we expected, we did generate substantial cash flows of $132 million.

We'll have higher cash flows in the second half.

Of course, our cash flows are always dependent on prices, but if you were to model out a continuation of the existing price for copper at 73 cents a pound and for gold $316 an ounce, we would generate operating cash flows of approximately $500 million for the year with our capital expenditures being slightly over $200 million.

We will have a net debt reduction of about $225 million.

So we're continuing to move forward with the plans that we've been talking about with you for some time.

Our total debt and preferred stock net of our restricted cash, which came about as a result of our convertible note offerings last year, was $2.6 billion.

Indicating that during the first half when we had lower production volumes and continued lower copper prices than long-term expectations, we reduced debt and preferred by $60 million.

Our current year's capital program includes the joint effort that we're undertaking with Caterpillar to improve efficiency of our mine operations through the addition and acceleration of acquisition of new trucks and new maintenance alliance in which Caterpillar is going to provide greater resources in assisting us in dealing with maintenance costs.

We're spending capital for the entire operation of $40 million for this program, (inaudible) net PTFI share, $32 million, and this is going to be financed with financial support provided by Caterpillar as part of our alliance in the form of unsecured debt and lease arrangements, so it's attractive financing and attractive program to help us to continue to deal with the major operating element that we face, and that is keeping our heavy equipment operating at the altitude and at the weather conditions that we face, we face at Grasberg.

We continue to work to reduce our debt and are really pleased with the way that is going.

Our smelter operations which continue to be positive for us in terms of providing a home for our concentrates and providing us for strength and our strategy of negotiating PC and RC rates, the processing rates with refiners, continues to be positive.

Even though if you look at the segment information for smelters, they're obviously going to be showing weak financial results as all smelters at this level of PCs and RCs.

Atlantic copper continues to have good operating rates.

It's expected to be operating at a rate of 300 tons of metal per year during the second half.

In the year-ago quarter, you may recall that it had a 27-day major maintenance turnaround period which had $15 million of cost, including the lost sales, so it shows the benefit in the year-to-year comparison.

We've talked on July 2nd about the effects of the change in exchange rates of the Euro going from 87 cents per dollar, -- 87 cents per Euro at the end march 31st to approximately 1 for 1 equivalency at June 30th.

Atlantic Copper has only -- the only significant liability that it had is some pension obligations that we had when we acquired the asset of 70 million Euros and under accounting rules, that is mark-to-market, and that generates to 6 cents non-cash charge that Chris referred to earlier.

The Euro hedges that we had earlier now run through operating costs are now running through equity and not through earnings.

PC Smelting, our smeltering in Indonesia, had a 28-day turnaround.

These smelterings have these MAJOR maintenance turnarounds every year or so, and PC smelting had its in this quarter, but it's operated at planned rates in June, and we expect it to continue to operating in an efficient manner as we go forward.

From the financial front, you may have noticed that S&P raised our, quickly, credit rating from Triple C plus.

This resulted in a reduction of 50-basis point reduction of costs under our interest cost of a credit facility, and continues to reflect the improved outlook of the financial markets not only of our company as people recognize our ability to manage the political risk factor that they have factored into our credit ratings earlier, but also a better financial markets in Indonesia, a number of other companies that have issued securities, a number of other Indonesian companies have issued securities and the outlook is certainly more positive.

We also announced that we engaged Earnst & Young of our new auditors of our financial statements, and they are at work now on the quarterly review, and they will be replacing Arthur Andersen on an ongoing basis.

We did certify our Class A and Class B shares.

It gives us one single class of stock, giving the common stock more liquidity and removing a complication from our balance sheet.

That's a quick overview of our financial situation, and Jim Bob, I will turn the telephone over to you so you can talk about our mining sequencing.

Thank you very much, Richard.

I appreciate it.

Good morning to everybody.

I appreciate you being on the call.

We talked a lot in the last five years, and specifically, over the last few years about our mining plan especially as it regards our ability to produce metals, copper and gold, on an annual basis, and on an annual basis, the mine is very predictable because of the drilling and densities that we have, which I'm going to discuss with you.

On a quarterly basis, as you've heard on a numerous occasions, including the end of the second quarter, trying to operate the -- one of the biggest open-pit mines in the world and deal with the ore body, since it does have various geometric shapes that affect the copper grade and gold grade, which generally follow each other is, as you might imagine, rather difficult to do when you're talking about closing out at the end of each quarter.

Especially at the end of the second quarter, you have other situations that affect your operations as we did with the mine landings that hit us in the last part of June.

I thought in light of that, since we talk about the shape of this ore body and the mine sequencing, et cetera, that for those of you that had been to the mine site and have attended some of our analyst conferences, you've seen some of this information, but I thought I would update it and just try to explain it in practical sense what we came here to talk about when we came to talk about ore grades and mine sequencing.

You have four slides that you should have been able to pull up from our website, and those four slides are in order.

Slide one, which is the gold grade of the mine, and what you see looking at this is a planned view of the mine.

The colors represent the percent of gold grade and grams per ton and the other lines that you see that are contour lines represent the shape of the pit that as it currently exists.

There's also a line which is a line drawn at a north-south angle, and it's labeled a and b.

What you see there is the red area.

They're the areas that have three grams of gold per ton, and red and green, 1 to 3 grams, or 2.99, and from .5 grams to .99 gram per ton is shown in blue, and then the areas that have no color would indicate grams per ton or less than one half of gram, which we don't record as reserves.

So that shows you what I will refer to as the golden horseshoe.

In spite of the fact, in this case, it shows up in red.

That, on a planned view, would represent to you at 3,520 meters what you would see if you were to look at that section and make an effort to determine where the higher gold grades were.

The next slide just before we go to the cross-sections, is a slide which shows copper equivalent.

Now that slide looks similar to slide one, if you compare it to -- because in that case, it shows a horseshoe look, the so-called golden horseshoe, and it's not completely coincidental with the gold configuration because in this slide, we have done what we call a copper equivalent grade, and that means that we take our copper and gold, and we convert gold into copper by using a ratio of .68 grams per ton being equivalent do 1% copper, so what we've done on this slide is to show you what our copper equivalent would be.

Again, the red would be greater than 2% copper.

The green would be from 1% copper to 1.99 copper, and a .5 to .99 for copper equivalent.

The other areas that you see in the other lines are, again, the contour of the pit.

Anything below .5 grams of copper, we don't map as reserves, and therefore, it would show no color.

So if you take those, you'll see that it also, the copper equivalent slide has an A and B. Let's turn to slide three, and slide three is the cross section which goes across the gold grades.

And in this case, instead of a planned view, you're now looking at a cross-section, which we have cut through the mine in this bias that we label A and B. To make it clear to you of what this all means that if you look at the plan view and the cross-sections, this is what we can print out by using the 1,200 holes that have been drilled in the Grasberg.

Those 1,200 holes are a part of the drilling program that we drilled in the Grasberg district.

In the immediate district, we drilled over a thousand of these drill holes, 500 specifically in Grasberg, to generate these slides of the map and the cross-section.

In the high grade area, the spacing for the core holes are 75 meter grid, and as you go away from the red high grade to the green and after the perimeter of the blue on all of these sections, the hole spacing increases from 75 meters to 100 meters to 150 meters on the very perimeter.

Now, the spacing of 75 meters is actually closer than most drilling.

Most drilling for reserves in your models is about 100 meters.

I think as you can see, we've got with those 1,200 core tests that have been drilled, the average core tests were drilled to about 350 meters.

The deepest core we have is 1,450 meters.

I might also point out to you that the bottom of this cross-section that you look at on gold grades, we have just arbitrarily cut that off for this conversation, so as not to make this too small of a scale.

We have cut this off at 3,400 meters.

The ultimate pit would go down and had been drilled, and if you were to go deeper into the pit of 33,060 meters, which would be our ultimate pit depth, this configuration would be similar.

In order to -- and by the way, the bottom of the blockade would be at 2,850 meters, so you can see this ore body goes down considerably deeper than the current cross-section of 3,400 meters.

We cut it off for you at 3,400 meters, but if you will look at slide 3, we wanted to show you where the pit was at the end of 2001.

That would be the black line that shows at the top, and there's an arrow that notes that for you.

Then we took a yellow line, which I hope you can see from your color print, and that's where we were at the bottom of the second quarter -- at the end of the second quarter, excuse me, for 2002.

On a simple basis, if you take that yellow line and look at the black line that was the pit at the beginning of the year.

Then you'll see what we mined in the first and second quarter.

What I also tried to show new the light blue, which is right below the yellow line, is where we'll be with the bottom of the pit at the end of the fourth quarter of 2002, and once again, I hope this is clear to you.

If you just look at the area between the yellow line and the light blue line, that area would be the ore that we will escalate from the pit and prepare and send to the mill for the results that we're estimating for the third and fourth quarter.

Now, quickly, look at slide four because it is the copper equivalent slide and just as we did on the slide, -- the slides that showed the horizontal map view, what we've done here is to combine the copper and gold and state it in copper equivalence.

Again, using a .68 gram equal to 1% copper.

Now, as you'll notice, once again, if you relay this on these two cross-sections on top of each other, they're not exactly co-incidental because the gold, as it drops out on the perimeter of the ore body, as your copper grades go down to the half a percent proper, the gold becomes insignificant on the perimeter, and that's why the gold cross-section doesn't look as wide as the copper equivalent, but once again, to go through the exercise with you for clarity, what we have shown is the bottom of the pit, which is the black line at 2001.

We show you the yellow line is what we excavated in the second, first and second quarter of 2002 and the light blue line would show you where we will be at the end of the fourth quarter.

Now, hopefully, this is not too much detail for you.

We thought it was important since we're talking about mine sequencing and ore grades for you to see specifically what we're talking about, and this ore grade, when you look at the way this pit has been excavated, we can't get to some of this higher grade ore until we mine off some of the perimeter because we have to keep the steepness of the pit.

As a practical matter, until you lift off the ore that's above you, as you see in this sequence, you don't get down to the bottom of the yellow line.

So when we said that we were not able to access some of the higher grade ore as quickly as possible, it was because we had to work from the top down, as you can imagine, in the bottom of this pit, and there's one other issue, and I didn't show it on these cross sections.

As you get into the higher-grade ore, it has more veins in it.

For those of you who have seen the sections of the ore, the quartz veins, which represent more fractures, the veins are filled with quartz, and that was the mineralizing fluids that gave you the ore grades.

And when you get to the higher-grade ore and you take this to the mill, it actually breaks along those cleavage plains, so-called quartz veins, cleavage plains, and gives up a more ready the gold.

We actually call it Type A, Type B, Type C ore, which Type A ore is anything over 92% mill recovery, and we actually average 97% recovery in that Type A ore that has the quartz veining and the richer ore body, and we have Type B ore, which is anything from 83% recovery to 92, and then anything below 83% is C ore, which by the way, averages 77% recovery, and the Type A, Type B, Type C don't exactly coincide with the grade of the ore, but principally does, and not only do we get into higher grade other, but we get into ore where we get more of the metal because of what I just described to you because of the physical characteristics of the ore.

In the second half, as we have seen in some the big quarters, we anticipate the ore we estimated for you and in the second half of the year, we estimated the remainder of the quarter, two quarters, and with that, we have estimated that we're going to make our sales of 1.5 billion pounds and 2.2 million ounces of gold, so you can see we're going to have a substantial increase between the first half, and that's why the cash flows and revenues go up so significantly.

Now, I don't want to take any more time.

I hope these cross-sections and maps have been helpful to you, and I hope they'll help you understand why we say that you can't really always at the end of each quarter predict exactly where you are going to be in this pit, and therefore, we do get these changes, such as we reported to you where on occasion, we'll have ore that's in the port site, but we haven't been able to load it to the ship.

We've had delayed sales before in the second quarter.

At the end of the second quarter, we had an abnormal amount of that because we were literally were out of business down there as these rains washed out the roads and basically slowed our operations in the pit, and getting the sales made.

So with that, I would stop there, on that explanation, and hope that it has not been too much of information for you, but for those of you that are comparing mine sequencing and ore grades and quarterly reports, we wanted you to have the specifics of what we're talking about to give you some of the good confidence that you need of the predicability of this ore body.

With that, I will stop, and if we want to take questions, I have a few remarks which I would make about the current business situation and how it relates to Freeport, but I don't want to get into that before we take questions about Richard's comments and Chris' comments, if there are questions about my illustrations and my discussion of those.

Why don't we take those right quick.

Operator, we would like to go to the questions, and we'll come back with closing remarks with Jim Bob after we do the question and answer session.

Thank you.

Ladies and gentlemen, if you would like to ask a question for today's question and answer session, you will need to press the 1 followed by the 4 on your telephone.

You will hear a three-tone prompt to acknowledge your request.

If your question has been answered and you want to withdraw your request, you may do so by pressing the 1 followed by the 3.

If you are on the speaker phone, please pick up your handset before entering your request.

One moment, please, for the first question.

Once again, ladies and gentlemen, if you do have a question, you will need to press the 1 followed by the 4 at this time.

Our first question comes from Daniel Rolling from Merrill Lynch.

Please go ahead with your question.

Thank you.

Good presentation, Jim Bob.

I like the slides.

I thought they were very helpful, and will help us understand going forward.

With that said, could you try to quantify the impact the last couple weeks of those serious rains that you had, and did the concentrate still make it to the port?

Did the ships start going out in early July, or did you fall behind on the mining and you got to catch up on that, as well?

Dan, to answer that specifically, we fell behind somewhat in the pit.

As you can imagine, we almost ground to a halt.

I think the copper mining that's been under a dark cloud, as most of you might have noticed.

We had the freak storms in South America that shut down Askadita (ph.) and Suchikamata (ph.).

It wasn't a good end of the month for the mining business, but ours was more extended than their slow storms and rain over there.

We're prepared to handle rain, as most of you have come to know.

We had rainfalls for several days that were 400% of norm, which is about 300 inches a year, so it just washes out, and with the water that accumulated at the bottom of the pit and the condition -- what really affected us, Dan, is the conditions of the roads of the pit.

As you know, we have to take this ore and take it up to the crushers in order to get it to the mill and just getting in and out of the pit when it just rained continuously for that week, it made the road conditions really sloppy, and with these big trucks and with the fog that was there, it really hampered our operation.

We never shut down.

It just reduced our efficiency, and then the second part of your question, we did have ore that was -- that got to the bottom of the operation at port site, and it was sitting there.

As a matter of fact, I think we disclosed there was over 50,000 ounces of gold and 30 million pounds of copper sitting there that could have been sold and because we had to literally shut our port site down, in one case, for over a day and let the government bring in emergency supplies to the town of Tamica (ph.), which as you know, is a town of 100,000 people away from our operations and couldn't get food to the people because the government ports went completely underwater.

The government port is separate from ours.

We ended up, to answer your question, with those ounces just sitting there.

Now, they're being loaded and have been loaded out of the mangroves into the ships, as we speak.

Having said that, we're into the high-grade ore the first two weeks as we had anticipated, and we're having to sell that, and we've got all four concentrate lines full.

So we're loading both what we're producing and getting the 50,000 ounces and 30 million pounds incrementally loaded every day.

We take some of that and we put it to the ships, but that makes us chalker block full, and we'll catch up all of that ore in the month of July, and still not let it affect our daily targets.

As a matter of fact, we made certain on our daily reports to only record for our daily sales what we were producing at the mine and not have any of these bonus pounds that we were selling incrementally every day as we feed that as well as our normal feed in the port site.

So I hope that answers your question, Dan.

Yes, it does.

Thank you.

Next question.

Our next question comes from Mark Cohens.

Good morning, gentlemen.

He beat me about how great it slides were.

Best information that I ever heard on those slides. [ Inaudible ] The one question I have on that before I have a question for Richard, how long does it take for you to reach the bottom ore on the richest gold?

Are you talking about in the third and fourth quarter?

No, I'm talking about as the pit goes down.

Excuse me.

We'll try to maybe on the next call give you some sequences, Mark, to make that clear now that we all have become expert mine planners with these cross-sections and maps.

What we could do for you is to cut a section and show what the pit would look like in 2005, 2010 and 2016 when we get to the bottom of the pit, which, again, as I pointed out to you, the ultimate pit will be 3,060 meters, which the bottom of this section cuts off at 3,400.

So as to not prolong this, why don't I do that, but what we would basically do is to show you how in our mine plan what the shape of that pit would look like in 2005 and then you could do the same thing that I just let you could interpolate how much we would have mined by 2005, 2010 and 2016.

That's our whole mine plan and the 5-year plan that we've given you is based on just that.

So I will try to do that for you, Mark, and let you see what happens.

Obviously, what happens is as we get to the pit, to the ultimate pit, we get into the core of the ore, and as you can see, say at the end of 2001, all of that white area that you see on the edges of slide 4 would mine the white area in order to get to the green, blue, green, and red.

That's what we call waste, and that waste goes to the waste stacks and doesn't even go to the mill, but as all of you know as a matter of common sense, we have to keep the shape of the pit, and therefore, as we get deeper in the pit, we mine less and less of the waste area on the perimeter of the pit.

As we go down into the core of this red-colored area, which is what Mark's asking about, but Mark, why don't I do that, and I'll try to do that on the next quarterly call.

I'll just get and cut some sections at 2005 and 2010, and we will go to 2016, and that way, although it will be a smaller scale, as I say, since we've all become expert mine planners today with this exercise, it will have an impact on you.

Sounds great.

Now, Richard, here comes the one for you.

All right, Mark.

Unless I'm doing my math wrong, which is not unusual, if you look at your site production delivery running roughly now with the improvement across the whole thing, you're running about, oh, 35, 36 cents a quarter.

If you hit in the third quarter what you're talking about on your gold and on your copper, at 316 gold, you're going to have a 50 cent trade.

You know, your treatment charges, you can put whatever you want, you're going to have one phenomenal production cost quarter.

Now, since most analysts on Wall Street, okay, are talking gold sort of running in as, you know, 310 to 325 range for the next umpteen years.

That's not what I'm saying.

That's what I'm reading on the Street.

That indicates that you're going to have, assuming you can keep your site in production on this kind of level, you're going to, again, have these great quarters.

If you look at these things quarter after quarter, year after year, I don't care what, and you look at your current capital expenditure budget, how many more years is it going to take you to get your -- (inaudible) -- which would get the S&P and moody's to get your rating, you know, up to, say, Triple B?

Well, Mark, if you look at our credit statistics right now, not even taking the very positive things that you're talking about having a period of time if we were to have gold prices higher than $300 an ounce, which we haven't had for some time.

Alternatively, if copper prices were to go to what people consider long-term averages whether it's 85 cents, 95 cents, a dollar, whatever you pick, you know, we don't pick prices, all of those things would push our credit statistics up.

Even today, if you look at our fundamental credit statistics compared with other mining companies that are investment grade, we look very, very strong.

We're really an investment grade credit and are really kept down from that today even without the types of improvement that we're exposed to from commodity prices because of Indonesia.

The credit rating agencies are looking better at Indonesia.

They're reviewing it now.

There's expectations that they will be upgrading perhaps about early next year.

They really, you know, the world would like for Indonesia to have a better credit rating and the country's working very hard to get there.

We will come along and the agencies are beginning to look at us different from Indonesia.

We argued that for a long time because of the structure of our business.

We sell our products in the world markets.

We're basically a U.S. dollar business.

Our currency stays outside of Indonesia, and we're protected by our contract of work from a lot of things that other companies in Indonesia are exposed to.

There's international items that give us structural problems.

So we're working hard to convince the agencies of that, and every day that goes by, we demonstrate that we're able to manage political risk, and the world gets better for Indonesia.

So it's going to be a combination of continuing working it out and the financial situation which is strong and likely to get much stronger, as well as the way agencies and the world's financial markets look at Indonesia.

Thank you.

Thank you, Mark.

Next question, operator.

The next question comes from Harrons Ocelon from TCS Associates.

Actually, my question was on the readings, as well.

To follow up on Mark's issues, how much of the B rating is due to the first half -- there's nothing in the second half expectation if you pay $225 million.

That's the first question.

The agencies have looked at us and seen that we have been reducing debt.

We give them information about our outlook and keeping them informed about what the expectations are.

I think that we don't have to talk to them much, as we don't have to talk to investors much about our financial strength.

I think it was driven more by the view that in Indonesia, we're going to be able to continue to operate our business as we've been doing throughout all of the factors with the government change and the other factors going on in Indonesia.

I think it reflects more of that view.

Other credits with businesses in Indonesia have been getting more positive views from the agencies as well and a number of those companies have issued debt securities into the public market place so all of those factors are what's driving it.

We're continuing to work with them and using our financial advisers to inform them not only -- as I said, three factors, improving the situation as a country, the structure of our business and how we're really not dependent on Indonesia's financial situation to continue operating, and then the fundamental financial strength of our business.

Second question, how much will the ore melt in the second quarter and (inaudible) and A, B, and C ore, if you are going to use that nomenclature, which is the better ore?

The first part of your question is how much came from underground and how much came from the pit?

I don't have that percentage in front of me.

Chris, do you have that percentage? 200,000 tons a day from the pit and then it's made up by our IOZ and BOV mine.

The BOV mine is stepping up and the IOZ, as it gets developed.

We went down the pit a good bit in the June because we were into this high-grade ore, but generally, the answer to your question then is 200,000 tons come from the pit or comes from the underground. [ Inaudible question ]

It will continue.

The percentage won't vary that much.

The grade and the pit as it goes up more, the metal will come, and we talk about tons, we talk about the ore as you know and the grade in the open pit will significantly alter -- be altered because of what I showed you.

The underground, as you know, is much more predictable even on a quarterly basis than a yearly basis because it has different characteristics.

It doesn't have this onion look where you got rings of the onion on the outside that are less grade.

So therefore, you don't have the grade variances so the metal that comes from the open pit will vary a lot more than metal that comes from the underground because it's fairly predict, but the percentage of ore won't change.

I hope that's clear.

On the A, B, C ore, you've heard us talk about it before, and I may in other calls, and since we will all be mine planners today, we will take an attempt to superimpose Type A, b, C over this because it was not completely coincide with the red, green, and blue, but it's similar, and to answer your question, the ore, as I tried to explain, as you get into the center of this onion and you get into the red area, what happens is if you look at the ore, there are a number of fracture plains, which we call joints, and these fractures are veins, as they're referred to, are filled with the white-looking substance, which is quartz, and that area that was being -- that was intentioned at the time, the mineralizing fluids were mineralizing this ore body, that quartz veining is also the area where you have this overprinting of gold and copper that rises that makes the ore a higher grade.

When you put that ore to the pit, excuse me, to the mill, it literally, like an Oreo cookie, it falls apart along the cleavage plains, we call it, of these quartz veins so that mother nature with these veins sort of pre-sliced your meat for you, and when it hits that mill, that higher grade ore, because, by definition, has more fractures in it, it break up easier.

So I hope that answers your question.

I guess soft versus hard, or A, B, C. There is a variance, (inaudible), right? [ Inaudible ]

It would be, but in terms of hardness versus cleavage, it's more the cleavage plains.

You might take the hardness of the ore and you break it, and it breaks along those selective cleavage plains and that makes the ore give up gold and copper with better recoveries so it's some of everything that you're saying, yes, sir.

The most important thing is, as you can see, in the A ore, we're averaging 97% recovery in that higher-grade ore as opposed to average of 77% in the ore that's added to the perimeter of the pit, which is the Type C so when you get into the Type A ore, which is a higher grade, not only do you have higher grade ore, but you have a better recovery so you get a multiple upgrade in the amount of metal you get out of the ore.

Great.

Thank you.

Yes, sir.

Chris.

Thank you very much, Jerry, next question.

Next question comes from James Copland from Goldmann Sachs.

Go ahead with your question.

This is James McConnally.

I thank you for putting those slides together.

They're very helpful.

First question.

When you look at long term for 2016, is there any guidance you can give us, Jim Bob, maybe not 2016, but by 2010, how much of the current mill capacity will be supplied by the open pit?

You know what I will do so as not to pull things out of my head, what I will do is cut these sections for all of you, and maybe we'll just put them on our website sooner, and at that point, I can give you those statistics at the various years that you're talking about.

I would be happy to provide that to you.

Great.

Second question, when you are looking at this long-term plan, I just wonder if there's anything you're looking at in terms of -- with the contingencies would be in terms of trying to improve it or the risk.

For example, I think you're trying to make the pit slopes steeper in the past to try to get more, you know, more of the high grade in a lower ratio.

What are the variables here that could change this?

Well, frankly, as we get deeper into the pit, we get into the experience, DAN, you're an old experienced minor.

As you know, once you get those pit slopes, which we change three, four times, and as you get to the ore body and actually not just based on core modes, but based on visual inspection, you get more confident as to what you can do with these pit levels, but the levels that you're seeing and the gradient that you see of the pit, say the blue that you're seeing now and the sections that are cut deeper in the mines, those will get to be pretty well defined, and we pushed the limits of that because that pit level that we're talking about, the gradient or slope of that, we dealt with that pretty much as we -- up in the upper part of the ore body in prior years.

As we get lower, and as you can even see from the blue, light blue line, as you can see, we're starting to get out of the waste area on a very rapid basis, and we will get basically where we don't -- have to mine any of the white area on the perimeters as waste rock.

So it's going to go pretty quick, Dan, but when I cut these sections at 2005, 2010, 2016, that will become very apparent for you, and we'll do that for you.

Great.

Last question.

Anything, Indonesia, at least it's been kind of quiet lately.

Anything over there that the market or the press has not focused on in terms of how things are moving over there?

I would say to you, in general, it's really more of the same.

Obviously, with the election coming up in 2004, you have a lot of posturing in the parties.

There's a lot of things that reflect on the mining business.

There's been several things that have been in the press, the controversy over letting people mine in the protected forest, and as you may have seen, they just ruled after much debate in the parliament, that they're going to honor contracts that people have in place and will issue contracts.

They've even gone further than that because of the economic significance of allowing it.

They're going to allow people that don't have contracts to apply for contracts in protected forest as long as they have to file an AMDOL.

In the past, what's been the concern is some of the smaller mining companies because of the size of the mine weren't required to file an environmental impact study, which is what the AMDOL is in Indonesia.

That's one area, and that, as usual, got a lot of debate.

The environmentalists with their side, and the economic people with their side.

Much like we see in our forest areas that went on in the Clinton Administration, where you had a lot of the coal mining that was taken out of commerce.

That controversy about how much of the national forest to allow people to mine has pretty much been resolved in what I would call a rational fashion.

If there's a big mine, you basically go in and follow the environmental plan, and you have to limit it to the extent that you can of what forest you use.

That's been a situation.

Illegal mining, especially in the cool business has been in the headlines.

I tried to stick to mining controversies.

It continues to be a problem.

In coal mining more than gold mining.

In the coal, people just take trucks and go out in the pits of these coal mines and they basically load up their trucks with coal.

These open pits are up at altitudes and they're not easily accessible because the roads that will be built in their control, and you just can't have a Wildcat truck drive into the bottom of your pit and load up with concentrate, and if they got it, they wouldn't have any place to sell it because they couldn't get it to a ship and get it.

The illegal mining issue has received a lot of attention.

But I emphasize, when you hear about illegal mining, it is mostly the coal industry that's affected.

Now, illegal mining is a real problem for people in the gold business that have pure gold deposits like Philian and Balgaran (ph.) in Papua, New Guinea where you have 100% gold like our would be like population would be, and in that case, you have people using Mercury trying to extract the gold.

In our situation again, the concentrate that goes into our smurry lab has the microscopic gold in it.

Having said that, do you have people that will pan in our streams that are at the discharge of this mine, and you know, bless their hearts, some of them, they'll make $5 a month panning and just finding specks of gold that they find in the streams that are literally residual from our mining operation, and believe it or not, may just be from natural erosion of some of the soil.

There's actually some gold, because of the vast nature of this deposit, that makes it to the lowlands, but it's a limited situation, and to date, the government has been able to limit the exposure because not only do these people expose themselves to drowning as happens every time we have these floods, they literally get in there and expose themselves to these rising waters, but if they don't use it as much to get the gold out of the pan samples, that Mercury vapor just kills them, and so illegal mining is a big issue in the mining industry.

Of course, all of the other issues that affect the mining industry, solid waste disposal, which includes our bags.

People continue to talk about it.

All of the environmentalists would like for you to mine these open pits and create no trailings, and that isn't going to happen any more than people said mine the protected forest, but don't impact it, and on the ore away from the mining site on the political side, I would say because of what's going on on Wall Street and this crisis of confidence in the accounting, GAAP accounting, that the revelations that are coming out of that are basically the Indonesians like you're reading about in the European situation are taking a very interesting look at what they were told in 1987 when the IMF went in there and tried to get the Indonesians to swap to GAAP accounting and changing their laws to be more transparent as the western style U.S. government was.

You can imagine how that's playing in Indonesia when Indonesia in '97 and '98 were basically taken off the map financially by the rating agencies because of the corrupt business practices of the conglomerates.

Same thing happened in South Korea.

What this revelation in GAAP accounting is going to do on Wall Street and what's going on in the U.S. government right now, I can't tell you.

You can see the Europeans are in here taking their shots at us, wanting to have us go to European standards or come up with some sort of compromise.

The Indonesians are watching that with lots of interest, so I guess you would say that the Indonesians are taking advantage especially in the financial rating agencies of how do you look compared to the United States?

When in '97, '98, the United States was hole holier than thou and anybody that got competitive with the United States was trashed if they weren't using GAAP practices.

Where is that going to go?

You are reading and it and seeing it, I'm not sure.

A lot of that is going to play, and the credibility of the U.S., which is now reflected in the weakness of the dollar, will have a major impact on all of Asia and certainly on Indonesia as you start to see these currencies firm up against the U.S. dollar, and so I'd say, Dan, that those are the principle things, but the watch word is, is the United States in trouble so it makes the Indonesians and all of Asia look a lot better when you compare apples to apples and say, how does Indonesia as a financial community compare to the U.S.?

Well, today, people are he going to wonder whether or not maybe the Chinese conglomerate is going want to come over and Wall Street.

That's insightful.

Thank you, Bob.

Thank you.

Next question.

Adam Reilly from Research Metals and Mining.

Go ahead with your question.

I realize everything you said might be difficult to predict, but I wonder whether you can give us guidance as to what your total sales to 2003 might be.

I mean, just looking at the quarterly sales for this year, I guess, that range from under 300 million pounds in the first quarter to you are now expecting over 400 million pounds in the quarter in the second half of the year.

Is there any indication you can give us for next year?

Oh, sure.

As a matter of fact, we published charts and if you don't have them, please contact Chris.

We've given you a 5-year plan in many of our presentations, and we used to do quarter by quarterly appearances, but for 2003, Chris, give him the projection.

Our projection for FCX'S sales volume will be 1.4 billion pounds of copper and 2.5 million ounces of gold.

Does that compare to what your projections are for 2003.

How about 2004, Chris?

2004 is 1.4 and 2.3 on gold.

As you can see, we have made the 5-year projection.

Again, I hate to refer to these charts that everybody has been so kind to say they have appreciated, but it's a simple issue.

All we do is just cut these sections as we've just done for the second quarter and fourth quarter, and that's how we make the estimate as to how much cold and copper you're going to have.

So it's really complicated to do it on a quarterly basis to answer your question, but on a yearly basis, this model, because of these 1,200 cores that we drill, as you can see, we cored this apple.

We know where the core is.

We know where the meat of the apple is.

We can tell you what you're going to get into.

As Daniel McConvy said, when we were steepening the pits and had some more changes as we were getting this pit up and running in the mid-'90s, some of those early days were a little less predictable.

As we get down to the pit and we got the shape of the pit determined as to where we are going to be going, we cut these sections for you, and on a yearly basis, we can give these numbers to you.

It's these dog gone quarterly things where you have to have quarterly results, and we have to have quarterly results, but it's very difficult in this big mine to predict that weekly change especially when you are going from a lot of blue and green into red.

I hope you can see that.

Sure.

Chris, another question.

Just maybe you could comment on market conditions.

How you see things developing particularly in the concentrate market.

Obviously, what the watch word is what's going to happen to the world economy, and I don't have to make all of those statements for you.

Remember, our copper, in our case gold, the concentrate that we sell is going to be an infrastructure metal.

In spite of what you're reading about and the loss of confidence in the U.S. and possible slowdown, I'm sure you all read the big article where the Chinese had just committed between now and 2005 a $42 billion budget just to add 4,400 miles to their rail system.

If you read that article, they're telling everybody to go west, young man, just as we did when we took and expanded our railroads from the east coast into the western and central part of the United States, and they're doing all of that because they want to connect these rural areas to the east coast for obvious reasons just as we did during our pioneer days, but if you read that article, and I hope you will, it highlights what we've been telling you for several years, that as you see 42 billion in railroads expenditures, that stimulates all of the things that happen along that railroad with these towns that are going to have to get their infrastructure ready because the whole point of the Chinese $42 billion investment they announced is to try to bring the natural resources to the east coast and to bring consumer products to the interior of China.

You say, Jim Bob, what are you talking about?

I'm talking about a billion 200 million people, and that sort of thing is going on in all of these sorts of countries, and that's what drove the infrastructure funds, if you recall before we had this meltdown of Asia in '97, and I think that we have to watch and say, the economy in the U.S., the economy in the world, this infrastructure expenditure had been bridled now since the Asian crisis.

The Chinese have been putting their money into the infrastructure, but the rest of Asia, southeast Asia have been bridled.

As they come out of this, as we discussed about the financial situation in Indonesia, all of those pent-up expenditures have to get back up on target.

It's the only way you're going to solve the political issues in Asia and Africa.

You got to get these countries developed.

So that's my answer to you on the copper market, and it's a very difficult thing for dumb geologists to stand here and talk about economics, but those are some of the things I see that will affect the concentrate market is the amount of infrastructure market that other countries away from the United States are committing to spend.

Thank you.

Next question, operator.

Ladies and gentlemen, that does conclude the question and answer session for today I would like to turn the conference over.

Good.

I'm not going to take but a few minutes.

All of you who know me, I read the papers, as we just discussed, on worldwide issues.

I think it's appropriate for me as CEO to make a couple of comments on what's going on in the news paper in Congress and basically on Wall Street.

In the last two decades, under my tenure as CEO, you know, this company has been a transparent company.

We've had an exciting two decades.

We basically negotiated the contract with Indonesia to expand into Irian Jaya now known as Papua and controlled 210 square miles.

Under my management and direction, we found the Grasberg Deposit in 1998.

Since 1998, we planned, built, and financed the Grasberg.

We used a lot of gold index bonds, index bonds.

We bought RT Zinian as a financial partner for $1.250 billion, and we have prove than this ore body in is the envy of the industry.

It's known as the greatest ore body in the business because of its unique chemistry.

People can say, Jim Bob, you got lucky.

Luck is when preparation meets opportunity.

We went into this Papua area with these 15,000 foot elevations with these 300 inches of rainfall, but we forged a pioneer effort for you and found the biggest ore body in the world.

We now have it on production, as you just heard, and we've got predictable ore that we can get to the market.

We have managed through the political crisis in Indonesia because of the high quality, low-cost ore body we're operating.

We've been one of the few mines in the world, especially in the copper segment, that have been able to show a profit through these dive in copper prices, where we have been down on the table at below 60 cents, and yet we continued to generate cash flow and profits.

Under my leadership as CEO from the early '80s to now, we've made predictions for you.

We never promised things that we couldn't control.

Like whether we would define this ore body when we were in there spending a couple hundred million on expiration.

But I think the fact that we have done that, not only did we find the biggest ore body in the world in the last two decades talking about credibility, but we were able -- we were the company that had to expose the biggest fraud in the mining business in the middle '90s in the Buson (ph.) incident when the rest of the industry got dazzled by the results being published by Briax (ph.).

We had to go in in the mix of developing of Grasberg because the government insisted that we get involved in this Busong situation, and in three weeks, exposed the biggest fraud in the mining industry.

Credibility for this group, of this management team and my tenure as CEO, I think we have delivered the mail for you.

Yes, we're technical people, and we cover you up with technical answers, as I say in a joking sort of way, I'm just a dumb geologists, but with Richard, my financial partner and myself and our great management team, we have created a cash flow stream for you and have just talked to you about predictable results in the open pits for 2016, and as we go into the underground on into the 35, 40-year mine and remember, we add new reserves every year, that more than replace the reserves that we produced, I guess very emotional when I see the headlines about the crisis confidence with CEOs and management teams.

But this management team, as I say, has delivered for you.

We have met every crisis whether it's the revolution of Indonesia, the political upheaval, or the financial markets, through thick and thin, this management team has delivered for you and been very transparent with you, and I hope that the shareholders of Freeport of copper and gold as well as shareholders will differentiate between a management team and CEO that has delivered on a business plan that is profitable, and we never resorted to these illuminary tactics where we had to cook the books, but our books are so good that they cook themselves.

This mine cooks.

This is a profitable body of dedicated revenue stream.

We're paying down this debt.

Remember, we spent almost $6 billion to develop this new revenue stream.

But we haven't gone out and been acquired companies and overpaid for reserves and diluted your stock.

We avoided disasters because of credibility of this management team, so I think it's only appropriate for me as CEO to speak on behalf of Richard and the rest of the management team that we're offended by the remarks that are being daily printed in the headlines and yet we understand that it's going to -- the process will have to continue, and I'm disillusioned as you are by the dot com, telecom bust where people created business plans that they couldn't deliver on and committed billions and trillions of dollars of money to infrastructure that they can't generate a profit on today.

And apparently, and I'm not going to judge because it's not my place to do so, the investigations will tell you what the facts are, but apparently, if these business plans fail in a fit of desperation, some people may have created these ill luminary earnings.

We don't do that sort of thing.

We give you chant perverse what we're basing our predictions on, and as we've done today, we show you why we have things that you can depend upon.

So as your CEO and on behalf of Richard and his financial people and the rest of our management team, I hope you don't include us in any of this rhetoric.

It's a difficult thing for the USA.

It's a crisis for us in this country, but it's not a crisis for Freeport-McMoran Copper & Gold's.

Your CEO and your management team don't have loans to buy stock.

We get stock options when they're priced.

We never repriced options.

We take bonuses based on percentages of cash flow.

That's been our deal with the board.

We have directors who stay directors.

There's only five directors that are considered not independent directors.

I am the only management director.

We have three consultants that have been at Johnson, stake and Roy and McDonald who deliver for us in their field on a daily basis.

The rest of our directors are all totally independent directors.

Most people who run their own companies who get paid a meager sum to come and advise you and as shareholders about the performance of this management team, so I felt it was just important for me to make those points even though this is a long meeting, and I hope that those points and those comments about our management team will hit home for you.

We feel very, very strongly about the difference between this management team, this CEO, and what you're reading in the headlines.

Thank you very much, and if anybody wants to ask me a question about that, I'm happy to field it.

Any questions?

If there are any questions, you will need to press the 1 followed by the 4.

Please go ahead with your question.

Jim Bob and team, all we can say from the investment community is amen to what you just said.

Thank you, Mark.

We appreciate it.

Appreciate you being on the call.

Any other questions?

Ladies and gentlemen, if there are any additional questions, press the 1 followed by the 4 at this time.

Thank you very much for being on the call.

We look forward to updating you.

We will get these different scenarios cut on our sections and get them printed up for you so you can have them on the website, and we'll discuss them the next time we all get together.

Thank you very much.