費利浦·麥克莫蘭銅金 (FCX) 2004 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Freeport McMoran Copper & Gold first quarter 2004 earnings conference call.

During the presentation, all participants will be in a listen only mode.

Afterwards we will conduct a question and answer session at that time if you have questions then press the 1 followed by the 4 on your telephone.

I would now like to turn the conference over to Kathleen Quirk, Senior Vice President and Chief Financial Officer with Freeport McMoran.

Please go ahead ma’am.

Good morning everyone welcome to the Freeport McMoran Copper and Gold first quarter 2004 earnings conference call.

The FCX earnings announcement which released earlier this morning and a copy of the Press Release is available on our web site fcx.com.

Today’s call is being broadcast live on the internet; we also have several slides to supplement our comments this morning.

We will refer to the slides during the call.

You can access the slides using the web cast link on our fcx.com web site home page.

In addition to analysts and investors, the financial press has been invited to listen to today’s call.

A replay of the call will be available by accessing the web cast link on our internet home page later today.

Before we begin today’s comments we would like to remind everyone that today’s Press Release and certain of our comments on this call include forward-looking statements.

I’d like to refer everybody to the cautionary statements that’s been included in our slide material.

Also on the call today is Richard Adkerson, President and CEO of FCX and Jim Bob Moffett our Chairman of the Board.

As usual after our remarks we will open up the call for questions.

Today FCX report that the first quarter of 2004 net loss applicable to common stocks of $19.6m, 10 cents per share, including losses on early extinguishment and conversion of debt totaling $14.4m or 7 cents a share compared with third quarter 2003 net income of $49.2m, 33 cents per share including a gain for the cumulative effect to a change in accounting principle of $9.1m, 6 cents per share.

Our first quarter 2004 results were adversely affected by lower ore grades and reduced smelter re-put as we focused efforts on restoring safe access to the higher grade ore areas in our Grasberg open pit mines following the fourth quarter 2003 slippage and debris flow events.

PTFI share of first quarter 2004 copper and gold sales totaled 105.4m pounds of copper and 123,800 ounces of gold.

We expect our sales volumes to increase throughout the year with PTFI share 2004 sales estimated to total 1 billion pounds of copper and 1.5m ounces of gold.

With 2005 sales estimated to increase to 1.5 b pounds copper and 2.9 m ounces of gold.

We completed a number of financing transactions during the quarter which enhanced our financial position, including 226m in conversions of our 8 ¼% convertible notes into equity, the issuance of 350m in tenure notes and the issuance of 1.1b in convertible perpetual preferred stock with the portions of proceeds used to acquire 23.9m shares of FCX common stocks.

We ended the quarter with approximately $2.2b in debt, 1.66b net of our $534m cash position.

Richard will review these transactions in his remarks.

We are also very pleased to report today that we’ve established safe access and have initiated mining in our high grade ore areas in the Grasberg open pit.

I would now like to turn the call over to Jim Bob who will provide an update on these activities and we will then turn the call over to Richard Adkerson who will review our performance and outlook.

Good morning everybody this is Jim Bob Moffett.

I have sitting next to me Mark Johnson our Chief Operating Officer who will travel with me to the mine site and we went out there and spent several days to try to observe along with two of our directors Mr. McLincoln and Terry Warton the pit in general and in particular the 7 south phase to really make a determination that the operation was completely safe to go back to work after having had our work on the slopes since December and even going back further than that into October.

I’m happy to report to you that the pit is in great shape.

Our team is to be complemented for the accomplishments they have made.

We moved a lot of dirt around in order to get the pit back to where we consider to be a safe operation, particularly as it involves the important zones in the pit.

The first slide I’ll refer to is the grass pit open pit view.

I don’t know if you see -- there are two different color connotations. 1 is gold, which is our golden horse shoe which is the 6 south, 5 south …this is looking down into the pit and 7 south 6 north and 8 north, are areas that are outside our golden horse where there is still some lower grade ore in 6 north.

At 8 north 7 south -- are basically waste removal on the high wall.

If you will notice the access to 6 south that we are going to be talking about is noted here and it’s as critical as you remember because even though it’s the slip only affected a small percentage of the dimes of the pit, it was critical that we had the 6 south access open.

That’s -- there’s a second slot that sort of gives you another look at that and this is a side view.

I think this slide if you will concentrate with me is particularly important because what you see repeated here on the south side is 7 south, 6 south and 5 south and you know 7 south is the high wall, 6 south is the area that we just referred to and 5 south in the very bottom of the pit so I hope most of you looked at these things really to understand that.

In particular, I want to focus on the 7 south, where the south face slide area occurred.

There’s an arrow pointing directly to the top of it if you’ll notice it looks like a notch I call it an amphitheatre look now because we have literally taken and washed out all of the washed out and mined out all of the areas that had decayed that was a part of the slip.

I’m going to talk much more about the anatomy of this area, but if you can just focus on the fact that here above 6 south is the area that we have been concerned about and what we’ve done is to take off the top of it, which I’ll show you in the next slide and we’ve also taken the slope and we’ve put new terraces in order to assure that we won’t have debris or rolling rocks that would come down and create a problem for our end widths and (inaudible) on 6 south access.

There are two phases of this removal that we’ve gone through.

The next slide which is Grasberg Pit pushed back south is really kind of overwhelming slide so I’m trying to make sure that you understand what we’ve tried to point out here.

On the left (technical difficulty) (inaudible) is the high wall on October 9, right after the slip occurred you can see the slip area sort of in a dark grey with the brown on both sides and the so-called terraces or benches that are on both sides, an area that had failed in the middle where the terraces either got covered up or failed with the slide area.

Our first priority was to get the top of this taken down and you’ll see in a cross section as it was some of the high angle at the top of the high wall that had created a kinetic energy or potential energy for the slide to have occurred in the first place.

If you go to the right hand side of the slide that dash yellow is the area that has literally been excavated since October 9 on April the 15th this picture was taken.

And what you will notice there is you get a completely different view, you can see the skyline in the back.

You can see that there has been just over a 30 story building that’s been removed along that whole area that’s shown in the dotted yellow and that’s about 20m tons of ore, 20-25m tons of ore that’s been taken off the top.

We’ll talk a minute about that, but that sort of sets it up for you.

If you turn to the next section you see that we’re going to take in – make a cross section of the, the next slide, excuse me, we’re going to take a cross section that on April 15 would have been the cross section of the 7-south wall.

That cross section is on your next slide.

The cross section’s got some notations but let me refer you to try to get you from the plan view and the front view that we’ve just looked at so you can kind of relate them.

Everything that you see with the orange line at the top of the cross section was the profile of the face as it existed when the slip occurred.

And basically the profile there indicated that you had a high wall that was at the top of the south 7-south obviously at that point some slippage had occurred.

We have taken down that high wall to the blue level and if you’ll notice there is an area that says 100 meters of high wall removed as you get your fliers printed out you will see that the scale on the right side that actually shows the meters of elevation that we’re talking about, but we calculated for you and showed you that there is a hundred meters or more that had been moved so all of the area in brown where if says 7 south has been removed and that is basically now a flat top as opposed to a high wall.

Obviously that takes the kinetic energy and there can’t be any more slip from that area.

Then we’ve gone in and we’ve taken the lower part of the slope and the scalping that we’ve done to scalp out the front of the face and get the other areas in the orange laid back to where the blue is, we’ve taken that down to a 33 degrees slope.

That’s important because 38 degrees is the angle of repose at which rock unconsolidated sand is supposed to stand and support an angle.

So we actually are lessening the angle of repose there and what we’ve done to make the amphitheatre, we’ve referred on the front slide to the new terraces, you’ll notice those are little notches and of course since this is such a huge scale there actually very wide areas that are put there so that as we continue to mine down the top of 7-south any rolling rock that would come down or any debris would catch on those various terraces and then they’d be cleaned up before they reach the 6-south.

So those are the things that we do to try to ensure the safety of the slope once the slope becomes unstable.

Now let’s just review where we were when we talked to you the last time about the things that we were going to do in the first quarter after the December debris slide.

We said were going to continue to mine waste on the south high wall.

As you’ve just seen we took off the 20 – 25 million tones off the top, we’ve removed the tatos (ph) on the face of the slope which is second issue, to re-slope and remove tatos, that is broken rock by the way the Tatos is just generally referred to in the mining jargon as just broken rocks.

Leeward of the south wall you can see that the wall has been completely sloped so that the water can’t stay on that slope it has to run down and get into our drainage that either takes it back up to the north or it comes down in the gullies on the south that are controlled.

We have installed monitoring systems on the south wall and by the way improved our monitoring system on any other areas in the pit that we feel might be subject to a slip so all of that’s been looked and then as you remember, we’ve actually drilled four pits on the back side of the high wall on 7-south and other areas in the pit.

Just to reassure ourselves of the rock that’s in that high wall itself.

We went over that in detail with you the last time that we talked and it does confirm that based on our not only recent drilling, but drilling that we did when we outlined the pit that there’s no weathering of the rock and the wall that’s left on 7-south or the other walls that we have been studying.

In 2004, the second quarter, we said that we would commence mining from our 6-south and 5-south areas.

We have done that in the 6-south area, we’re actually mining in both 6-south and 5-south currently, but in 6-south we have our access open and are mining ore and we’ll continue to ramp up that 6-south through the rest of this week and next week and we will be about at full production in 6-south by the end of April.

We are mining in 5-south now and we are mining to clean up some of the debris that we pumped and pushed down into 5-south.

While we’re doing that, we will also be taking ore, we hope in May to be able to be through with the clean up on 5-south and then toward the middle of May end of May we’ll be mining at normal rates in 5-south.

So we will be continuing to keep you informed of the progress in the second quarter as you can see we will also continue to take waste off the south high wall and for that matter the north high wall for those of you that know the company, we take out waste on the high wall continuously, have for 15 years, there’s just been a lot of focus on the south high wall because of this removal area and re-sloping in 7-south.

So I hope that shows you that we have basically accomplished all that.

Just in summary, this is --- the next line, number 8 is a look at the amphitheatre if you look right in the middle of your picture, on the site right above where is says access to 6-south open, you’ll notice this amphitheatre look or this area that’s slipped on us above 6-south has been as we said notched and laid back to a 30 degree angle.

We put all these terraces on which are the terraces just like the ones to the right and left of the 7-south area that gives you the protection from the debris and rolling rock.

You can see that there is a wide area that we’re calling the access to 6-south open and of course that’s important because as we point out to you on the right hand side the two shovels that are shown, you’ve got to look hard, those dots running to that area where it says 6-south high grade ore we have two shovels in there that are mining ore and the trucks have to get out through 6-south.

This is repetitious but it’s another view looking from the west to the east.

Here you see in a little enclosure what the truck and shovel operations right below you looks like so as you can see we have neutralized 7-south, we’re back in 6-south mining high grade ore and we’re in 5-south mining waste and some ore.

We will ramp up as we said and by the end of the quarter, we’ll be at full production and look forward to a great second quarter.

I know that’s an awful lot to throw at you, I hope that most of you had the slides on the internet.

I’ll stop now and before Richard makes his remarks I want to stress on your mind if anybody has a question about any of the slides in particular so that we don’t loose the context of myself or Mark Johnson, our Chief Operating Officer and pit expert is here to answer the questions.

Operator we’d like to take questions at this point in the call and then we’ll complete our remarks.

Thank you.

Ladies and gentlemen, if you’d like to register for a question please press the 1 followed by the 4 on your telephone.

You will here a three tone prompt to acknowledge your request.

If your question has been answered and you’d like to withdraw your registration, please press the 1 followed by the 3.

If you’re using a speaker phone, please lift your handset before entering your request.

One moment please for the first question.

The first question comes from the line of John Hill with Smith Barney, please proceed with your question.

Thank you very much and good morning everyone.

Good morning John.

And thank you as well for a detailed review and recitation on the air photos, as always, quite helpful, a follow-up question on that since you’re mentioning laying the pit back to a shallower angle on the angle of repose etcetera, can you just review for us one more time whether you are anticipating any changes to the long term mine plan with regard to pit sloping configuration particularly in view of anything you may have learned from the recent geotechnical program?

John thank you, that’s a good question.

In the areas where we have the rock such as the rock that’s shown on some of these slides to the right and the (indiscernible) rock to the left of 7-south, we are not anticipating any change in our mining plan, this was a special situation in which was a notch in the pit that we described to you at the intersection of two fractures and in particular, because of the way the rock was mobile once the water got to it and gave us this surprise run-out, we have gone the second mile in this area just avoid any opportunity for any kind of debris slide.

The rest of our pit walls as you can see have good benches on them and are in competent rock so there are a few other areas in the pit that are going to be monitored, but there is no change in the kind of high wall that we anticipate.

This is a special situation, and therefore we treated it specially and removed this debris area, this tatos area, which is unique to just one part of the pit.

Very good, thank you and then just a quick follow-up for Kathleen on the inter-company deferrals, obviously a pretty big item and you guys have been quite clear in explaining the mechanics there over time one thing is little ambiguous in the press release is the $18m in the second quarter, is that a positive contribution to net income or a negative number?

John this is Richard, that’s a positive contribution in the first quarter because of the reversal, then in the second quarter as we build up production it falls from that, that we will be having greater inter-company sales and so there will be a negative impact in the second quarter and third quarter on net income and that’s strictly a timing because that means we had sales at PTFI in that quarter that goes to Atlantic Copper and to a lesser extent to PT Smelting and those profits get deferred into the next quarter.

So in the first quarter when our production was dropping, you get the reversal of that as our production increases you get an increase in the amount of deferred profits.

And we should look for a somewhat negative number for the full year?

Yes, because as you’ll see when I give my presentation, we’re going to have a very significant fourth quarter and that will result in that same effect.

We wanted to go ahead an give you that guidance, now that number is a number that’s going to be dependant on some factors that could cause it to change based on shipping schedules to individual smelters, particularly as we get later in the year but because of that effect we wanted to give some guidance to the extent we can in this earnings release.

Richard’s going to cover a lot of this in his remarks and if we could, why don’t we try to focus the questions on these geo-tech slides that we sent you, and if you have questions about the stability of the 7-south, the access on 6-south, or our mining plant, Mark and I will try to answer them because Richard may answer a lot of the questions that you have in his part of the presentation and I don’t want to short circuit that.

Very good thank you.

Thank you John for the question.

Thank You, the next question comes from the line of Lee Cooperman with Omega Advisors, please proceed.

I may have misunderstood, are you going to take financial questions later and this is just on the mine plan?

This is on the slope stability …

Why don’t I withdraw my question, I’ll come back later because my question is more financially related.

Thank you

Thank you, the next question comes from the line of Wayne Atwell from Morgan Stanley, please proceed

Yes thank you.

My question is financial too, I’ll get back in the queue later.

Okay the next question comes from the line of Jim McCoplan (ph) with Goldman Sachs.

Please proceed.

Thanks very much.

Good morning every body, looking at the slides there still does appear to be a fair amount of unconsolidated material between 7 south and 6 south and also below 6 south.

Could you please give an indication of how many tons remains to be cleaned up and when you’re likely to be addressing it?

Will it be this year or will it be just in the course of the usual mine plan, please thank you.

I might get Mark to answer a part of this, frankly every thing above 6 south that you see is literally being controlled.

What you see below 6 south is that high wall and that’s a thin veneer of stuff that we will work off that base as we go back into 5 south.

But it’s literally Jim it’s almost like a scale on the (indiscernible) part of the high wall down in the diright (ph) or granite.

And in the area that you see below 5 south is the thin veneer of material that was washed and pushed down from 7 south and it literally is a thin veneer and it will disappear in the next several weeks.

But – so the appearance of that we wanted to focus on getting 6 south access opening first and by getting 6 south access open and getting us access to the 6 south high grade ore we also create this 60 to 90 meter bench that gives us some – all the protection we want with equipment working up on 6 south so that we don’t have any rolling rock on that 5 south area.

And so it’s a safety issue as to why we opened up 6 south first because it gives us a complete protection while we get in and do the couple of week cleaning up of the 5 south area.

But that’s a thin veneer that you see down below 6 south.

Alright thanks Jim-Bob.

In terms of the tonnage I guess it’s more cosmetic than actual – you addressed the safety concerns.

I mean of the 20 million tons initially most of that would have been cleaned up already or?

The 20 million tons that we took off the top was all mined and put to the waste dump.

All this is just material that were washed out either by rain or by hydraulic mining or sloshing.

Mark you want to take a shot at what you think is in the bottom of 5 south.

Yes just to comment on the slope between 6 south and 7 south about 80% of that slope is in intact rock.

We have as you noted some loose rocks that we continued to push down to 6 south (inaudible) (technical difficulties) that could be in the order of 2 to 400,000 tons.

Our shovel can move 50, 000 tons per day.

And so it’s just a – we’re continuing to move that material out.

It’s not a safety issue, but we’re continuing to clean up to provide more – a higher percentage of that slope to be in the intact rock.

Down below 6 south as Jim-Bob mentioned it’s a very thin veneer of material.

We are in process of cleaning up that material.

Also as some of the slides show there is some loading equipment down below 6 south.

We’re starting to clean the area between 6 south and 5 south.

On the high wall I would guess it’s in the order of may be 20,000 tons somewhere in that order.

Down in 5 south itself we probably have in the order of 3 or 400,000 tons of material that need to be cleaned up.

We’ll just mine that conventionally and that will go fairly quick once we get down there and start addressing that with the loading equipment.

Fantastic thanks very much for that.

Thank you Mr. Adkerson I’ll turn the conference back over to you.

Okay thanks very much as Jim-Bob and Mark have just reported the highlight of our quarterly report is this return to ensuring safety for access to our high grade ore areas as we reported.

On January 20th in our year-end conference call we established this plan and we have our own target to that within the time frame we’ve previously set forth.

During the quarter we also continue to take steps to improve our balance sheet and we will continue to look for opportunities to do.

We induce converging of an additional 226 million of our 8 ¼ convertible senior notes into 15.8 FCX common and we’ve retired about 90% of that original issue through induced convergence.

We also had a successful sale of senior notes.

Our 6-7/8 senior notes which we’ve raised approximately $350m.

We did this with a relative of almost 400 basis point improvement over the notes that we issued a year ago reflecting the much more positive view from the credit markets about our company.

We also did the transaction of which we acquired the FCX comment shares own by Rio Tinto [ph] almost 24m shares which we acquired for $882m and we financed those with the new issue of a convertible preferred stock being perpetual preferred it has no maturity or foot rights for the holders, a coupon rate of 5 ½%, we raised just over a billion dollars.

That raise resulted in our common stock half standing at March 31st being at 177m shares.

Just a couple of comments about the Rio Tinto transactions, Rio Tinto acquired these shares from FCX it’s former parent in mid 1995 when FCX was spot off from its parent.

It acquired a market value at that time was $20.90 or about $500m.

Even at that point Rio Tinto’s interest was to invest in our joint venture operations and they made an additional $850m investment in our joint venture expansion at that time new and have indicated a commitment to continue on a long term basis as being our joint venture partner.

The shares they acquired was actually our requirement so that we could undertake and complete the spin off transaction and the shares traded up quickly and then traded off during the late 90’s and have since risen to the current levels.

Rio Tinto informed us they desire to sell the shares as part of a broader divestiger program for their asset and we were able to accomplish this in a manner that we feel is very positive for the Freeport-McMoran Copper and Gold shareholders by buying the shares rather than having them sold in the open market in the secondary offering in financing and through this preferred stock.

The Grasberg joint venture is unaffected by this transaction.

It only involved the common shares and Rio Tinto has stated very clearly that it remains one of their core assets.

By doing this we reduced the FCX shares outstanding from 201m to 177m, which of course give us--- our shareholders a broader exposure to our company’s assets and the positive commodity markets, we believe they’re before us.

The shares underline these preferred stocks approximately 20.7m shares.

This is no increase in debt because there is no redemption obligation with preferred shares.

Incremental cash about $40m on an annual basis is relatively small in connection with our outlook for free cash flows that our assets would generate.

Slide 14 gives our outlook for our five-year plan.

We’re continuing with our previous guidance of 1 billion pounds of copper for ’04 rising to 1.5 billion in ’05 and a million and a half ounces of gold in ’04 rising to 2.9m in ’05, and then returning to our longer range average levels of 1.4 billion pounds of copper and 2.2m ounces annually of gold.

As always as we’ve done for many years we will look for opportunities to advance metal and move metal forward but this is our best estimate, outlook at the present time which is consistent with what we had provided earlier.

On page 15 in relation to the question that John Hill asked earlier we’re giving our quarterly outlook for sales for 2004 for both copper and gold showing rising from just over 100m pounds of copper to 200, 300, 400m on a quarterly basis during the year as we access higher grade materials as the year progresses and of course we’ll have a strong outlook for ’05 as a year.

And with gold going from 124m ounces to over 300m over 400m was a very strong fourth quarter of over 600m ounces based on our current outlook.

We’ll update this as we go along and as we said that we will be determined by our execution of our long term mine plans and how we do that on a quarter by quarter basis.

Page 16 repeats some of the matters what we’ve talk about earlier, Atlantic Copper is in the midst of a 45-day shut down.

This has a $32m impact on the second quarter earnings estimating impact from second quarter earnings in cash flows.

This is a major shut down and all that’s required very rarely and shutting the Smelter down entirely, we only do that once every nine years and so they’re less significant turnarounds on a more frequent basis but this is the major shutdown.

It only happens every nine years.

As a result of our increasing grades and volumes throughout 2004 as I indicated earlier this results in an increase in the deferred income as we go forward.

We had the oxy defects in the fourth quarter of ’03 and the first quarter of ’04 when in aggregative we had about $48m of additions to net income and based on the current prices in shipping schedules we would expected deferral of income which would otherwise be recognized in the second quarter to the future quarter of $18m.

And our higher union cost for the quarter, for the year in fact will be reflecting the lower volumes of copper and gold that we have in the fix nature of most of our cost.

Page 15 shows an updated outlook of our unit cost, we present this as we typically do with the basis of an array of gold prices because in this analysis our gold revenues offset our cash costs of operations.

As you recall, for 2003 we had a credit of two cents because our gold revenues totally offset out cost of operations.

For 2004, we are showing cost of 35 cents with $400 gold and a credit of five cents in 2005 with an average of eleven cents.

This is higher than out recent estimate and some of this for good reasons--- for positive reasons because we’re using now for this analysis the current price of copper of $1.30 at the end of year in the first quarter where we’re using a dollar cent for copper

The higher price results in higher royalty because our royalties are tiered with that a 3 ½% royalty.

At these price levels we have price participation in our Smelter contracts and so a significant portion of this ----the majority of if for ’05 is that the prices---the remainder result in some factors that are even though much our costs are fixed for Innis (ph), a diesel fuel we use, with the stronger Australian dollar which is about a sixth of our total cost and some increase in freight rates, we also have some other factors that resulted in the numbers that we have there.

Initiated a program in looking at all aspects of our costs, we haven’t factored any benefit numbers and as we go forward we will give you the updated outlook.

As a result of both copper and gold prices, these factors that change at the margin and our continuing efforts to reduce our cost.

As we’ve done in past years, we’ll continue to generate very strong operating cash flows.

The chart on page 18, updates this for these factors and in this chart we have used annual averages for the three years before 2004 which will be at lower levels of very, usually strong years at 2005 and returning to a more average year in 2006.

And on that basis, that $400 gold, we had a flat gold price, copper varied between 90 cents and a $1.40, you have operating cash flows on average of $500m dollars per year to about $900m per year.

If copper were to drop to $1 and gold prices ranged from $350-$450 you see averages going from $500m a year to over $600m a year, in fact as we look forward roughly current prices, we would be generating over a billion dollars of operating cash flows in 2005.

Our variance charts for these averages are presented on page 19, a $25 change in the per ounce price of gold would be $28m of cash flow and earnings effect and a 10cents change in copper at $70m.

Our capital expenditure outlook has been updated and is presented on page 20, we’ve made a decision to acquire a new electric shovel in 2004 to work with us in terms of advancing our long term mine plans, that is now included and we’re showing total capital expenditures of $165m in 2004 and dropping to $120- $135m in the following four years, of course these are very low numbers as they have been in relationship to our operating cash flows.

Our debt schedule is presented on page 21, and as this illustrates the effect of the steps we’ve taken in 2003 and 2004 to increase our financial flexibility, you can see that we’re in a very strong shape from a financial liquidity standpoint.

At the end of March we have $534m of unrestricted cash on our balance sheet, we have a total of $700m of maturities from 2005 to 2009, that includes just under $70m of a 8 ¼ of preferred which we expect to go into equity by the end of the year, we would expect to have substantially the same amount of cash as we have for maturities as we look forward over that period.

In looking at the available cash flow which our financial strategy has been focused on generating and benefiting for our shareholders on slide 22, we put these slides together to show the range of operating cash flows that would be available at different commodity - - prices models for those prices - - the effect of our current annual common dividend at 86 cents a share which the board established in 2003, the effect of the new dividend on our convertible preferred- - professional preferred amount, and you can see the amount of excess cash that’s potentially available to us depending on commodity prices and the chart that shows the amount of excess that will build up, again at the various prices.

So with the completion of our work in establishing safe access to our mine, we’re back in the position now of returning to our predictable pattern generating volumes, cost and strong cash flow for our shareholders.

With that operator we’ll turn the call over for questions.

Thank you.

As a reminder ladies and gentlemen if you would like to register for a question please press the 1 followed by the 4 on your telephone.

The next comes from the line of Glen Levy from World Bank of Canada, please proceed.

Mr. Levy, your line is open please proceed with your question or comment.

And we’ll proceed with the next question, the next question comes from the line of Terrence Orson, from TSO and Associates, please proceed.

Actually I had a question going back to the geo-technical maps plan there, Jim Bob, Mark where you - - remember how much of the ore will come from the 5-south versus 6-south in the second half of this year and 2005.

Yeah, 5-south we have about 4,000,000 tons of very high grade material, its bout 4% copper equivalent that will mine out relatively quickly in 2004 once we initiate operations there again. 6-south, we’ll be producing somewhere in the order of 30 million tons of ore throughout the remainder of the year and that will average about 1.4% copper equivalent.

We also have ore coming out of the push back that we refer to as 6-east, and that provides in the order of 20 million tons again at about 1.4% - 1.5% copper equivalent.

Okay, and in the 2005, your main sources of ore will be?

Will be 6-south, and then we also - - it’ll be 6-south will be in some very high grade material for 2005, it finish - - 6-south finishes up early in 2006 and throughout the course of 2005, the 6-north push back will take over where 6-south leaves off, and that will provide the high grade ore for 2006.

Okay.

So 5-south is on a (inaudible) for 2004, that’s it?

Yeah, 5-south, we’re near completion there, we - - 4 million tons typically will take us in the order of two to three months to mine out.

And the main haulage is again from the south side of the pit (inaudible)?

The 5-south area - - it shows up I think in some of those slides, its more stack up on the east of the pit, 6-south continues to have access along the south fault and then the other push back - - we didn’t mark 6-east on there but its just off to the - - just down below 6-north and off to the right - - off to the east.

Yeah, I got it from your area maps, yeah.

Thanks Mark.

Okay.

Thank you.

Ladies and gentlemen if you would like to register for a question please press the 1 followed by the 4 on your telephone.

The next question comes from the line of Anthony Resudo from Bear Sterns please proceed with your question.

Hi, good, morning everyone.

The question I have is have you guys done any meaningful hedging for any of the metals at this point, or do you have any plans to do so?

No Tony, we have not - - we have not done any hedging, we would have disclosed in this document if we had, as we’ve indicated in the past, we continue to review the copper and - - if you’re in the 1990s, at times we bought puts at - - we had targeted the 90cent level when the prices rose over a dollar.

At that time it was a different market place our situation was different too, because we were expanding our operation during those years and today we have not done any hedging contracts - - neither copper or gold.

Thanks very much Richard.

Thank you.

The next question comes from the line of John Tomazo from Prudential, please proceed.

Congratulations, the slides are really impressive.

Could you describe the elevation of the 7-south, 5-south - - 7, 6 and 5 south markers on the slide show please.

Lets see, there is - - I don’t know if you can see it, it’s on the slide that has the cross section, John, that we talked about, it shows the removal of the hundred meters of high wall its - - I believe its slide seven.

If you look to the far right on there , and I hope you can read it on your print out, it starts at 4,000 meters and it goes all the way down to 35 hundred and 35 meters, which takes you down the level that you’re talking about.

Thank you.

I you would like to have the specifics of what 7-south, 6-south and 5-south are, Mark why don’t you give the specific numbers and then you can find them on your scale John.

Yeah John, we’re currently mining on 7-south on the 3865 elevation, 6-south is primarily on 3700 elevation and 5-south is at the 3500 meter elevation.

Thank you.

Thank you, the next question comes from the line Lee Cooperman with Omega advisers, please proceed.

Hi I missed part of the call I apologize if you covered this but how do you find prices obviously mixture of cash flow is anywhere from $800m to a Billion?

Stock doesn’t seem to trade well and I don’t know whether it’s because we took out one shareholder and put in many new shareholders intelligent as that transaction looked, whether it has injected some element to some the supply or arbitrage pressure into the market.

Because, if you had to make a judgment call today where do you think the board would lay in using that $800m to a Billion cash flow as regards to either dividend the payments or stock repurchase, where do you think the priorities are at this point in time?

Well the priorities are really always flip, we would look very hard at obviously continuing to take opportunities if there was a reason in the market for us to feel that the stock would undervalued for the reasons you just said.

We would have no compunction at all, we have 20 million share buy back and we bought any shares in that was outside of this recent buy back of the shares and this third market transaction with RT is at.

But we would look at that $800m to a Billion in cash that we would generate next year and of course we would estimate we would generate about $325m net this year that’s about a billion but if prices stay anywhere above a dollar, that’s about a $1.3 billion to $1 billion $400 million in cash and since we don’t have any maturities on our debt we’d always look at opportunities to buy back any of our securities and stock.

But the obvious other answer is that if we have a lot of cash flow we’ve told people that we would give it back to the shareholders in the form of a dividend and the dividend will ebb and flow just as the cash flow from the company does.

We want the shareholders to benefit from these prices, and I think we’ve done that in the past and we continue to do it in honor of those priorities.

Got you thank you.

And Lee just to comment on the original numbers, at a $1.30 copper and $400 gold roughly where we are today, though 5 number would be $1.1 billon modeled on those prices and our CapEx that year would be $125m.

High Class problem?

But we’ll make sure the shareholders have the High Class problem of trying to figure out how to spend the money with us.

Thank you.

Thank you the next question comes from the line of Alexander Lots with Merrill Lynch please proceed.

Thanks had a question regarding the flow of your concentrates to other smelters of the other customers.

I know that Gresik has priority over the initial flows which Mitsubishi owns a substantial piece of that, but then beyond that I’m trying to get a feel for when your concentrates supply to your other smelter customers would resume and then when we might see the refined metal actually hitting the market?

Well Alex you’re right and just for those of you who may not be as familiar, we own a 25% interest in the Smeltric Gresik that’s owned by PT Smelting, Mitsubishi is the operator majority owner of that smelter.

We supply 100% of its concentrate requirements in under our contracts with them they do have a priority for Atlantic Copper are 100% smelter have specific provisions that have requirements for us to deliver concentrate zone but those have been modified by the force majeure provisions that we revoked under those contracts.

And we’ll be delivering amounts beyond PT Smelting to those other suppliers under the provisions of those contracts.

It won’t be something that will happen at the same weight, all smelters at the same time but to answer your questions about the impact on the market, you can look at our copper sales projections and I’ll point out that this only includes PTFI shares of our operations.

Rio Tintos joint venture interest in the copper would be in addition to what we’ve disclosed today and that would be hitting the market through these different smelters under the terms of delivery requirements of their contracts.

Richard for those who don’t remember this is Jim Bob Moffett again.

We had a contract division under our original contract that worked and when it was commercially buyable that we had to build a smelter in Indonesia and we had to supply all the concentrate from the Grasford mine to that Indonesian smelter, that was a provision in our original contract.

We joined with Mitsubishi to build that Smelter (indiscernible) buy it and just to clarify for people that may not have been following the company, the only reason why there is a priority for these PT smelting company in Jifora (ph) (indiscernible) excuse me is because it was initially a commitment that was a part of our initial contract to work and that’s the only reason why we have any kind of priority with them.

Thanks, thank you very much.

Thank you the next question comes from the line of Victor Florets (ph) with HSBC please proceed.

Thank you, good morning just going back to the amount of material ordered can you confirm that was 20 million tons that was weight that was removed in the first quarter?

No that’s the 25 million tons that we referred to is the material that got moved off of the South wall.

We moved in the order of, we were averaging about 550,000 tons a day for the first quarter which would be in the order of 50 million ton.

The 25 million ton where you referred to goes back to October 9th and illustrates how much we’ve moved just off the South wall.

Right I guess what I’m trying to get at, what I’m trying to find out how much additional material above and beyond what you expect to strip in the first quarter was taken out?

We had a four to one strip ratio in the first, Jim Bob again.

We had a four to one strip ratio because of the accelerated nature of our stripping on 7 South to accomplish the stabilization slope that we referred to and that is an anomaly because our strip ratio is about is two to one and of course over the next 10 years will fall significantly as we get into the middle of the pit.

I hope that answered your question, we basically had the anomaly of a four to one strip ratio because of the accelerated mining that we did on the 7 side.

And that’s exactly what I was asking.

And have you put a price tag on that additional tonnage in terms of cost per ton in total number of dollars?

Well I’m sure we could do that, if you could just take a look at our first quarter and see the amount of money we spent was spent on our fixed cost.

Those fixed cost go on those trucks were moving and many of them were moving as you just found out from the four to one strip ratio, a lot of those trucks have been moving over in the first quarter had we not been concentrating on the waste material, would have been moving over to the crusher, as opposed to taking to the waste dumps.

So the answer to that is the amount of money that we didn’t make in the first quarter because of our fixed cost would be the cost of what it cost us to mine on a four to one strip ratio verses our two to one.

Richard you want to make a crack at what that (indiscernible) would be?

Yes I also think it’s poor point out that we’ll be returning to over 700,000 tons a day if mine rate as we go forward in the year and return to our normal operations and have a more normal strip ratio.

In the first quarter our cost per ton of four mill was $4.65 with compared with $3.89 in ’03 and we expect to be under $4.00 for the year 2004 and then obviously as we know more and return to a normal operations it will be lower as we move into ’05 than ’06 depending on various cost factors.

Thank you very much.

Thank you for the question.

Thank you the next question comes from the line of John Hill with Smith Barney please proceed.

Hello gentlemen just a couple of quick follow ups, first we’ve been talking so much about the developments and pit and the 6s, 5s etc..some good news coming out of the DOZ at as evidenced 45,000 tons a day apparently.

Can you tell us what’s new or different or is just incremental progress there?

Well I’m glad you brought it up and excuse us for not complimenting our underground operation when I was there, two weeks ago looking at the open pit.

We had a dinner party, we made all of the underground people stand up because literally the underground mine was the foundation of our first quarter.

They’ve done a miraculous job as you know the pit was originally designed for 25,000 tons and we spent some extra money getting it up to 35,000 and as usual in all of our designs we’ve been able to get, we’ve been able to maximize that up to over 40,000 tons and have some pit dated at 50.

So that will continue as we get into the later year, Mark why don’t you discuss the infrastructure that’s going to have to be put in as we move to expand the new part of DOZ and when that happens.

We’re looking at the as the report indicates that we averaged about 45,000 tons a day under the DOZ for the first quarter, for the remainder of the year that will drop down to about 40,000 ton as we shut off some of the lower grades drop points that we’re accessing while the Grasford was ramping up.

We are schedule to complete a feasibility study within the next month looking at the expand deals any further it really comes at a currently low incremental capital cost from looking at an additional crusher and some minor pieces of additional mobile equipment.

So we feel that this expansion appears to be quite strong.

However we’re looking at rates up to 50,000 tons per day.

And the one thing also at the DOZ we’re starting to further development onto the left which would be under the old IOZ.

In 2005 our grades in the DOZ will increase by about 10%.

So as we kind of going through the transition of potentially ramping up to 50,000 tons our production will stay confident 40,000 and grades will increase 10% in 2005.

Mark why don’t you give us an idea just off the top of your head you say we’re going to put a crusher and do these other things, for some of the people that might not understand what a crusher cost.

Why don’t you tell us approximately what that would cost.

Right a crusher – the whole instillation construction excavation and every thing else will be in the order of $10m, the other incremental capital is relatively minor.

I’d say it all adds up to less than $15m.

And remember the underground operation and I’m really am glad you brought it up about the underground in question.

With the second largest underground operation in the world today and as we ramp up over the next years and get into the underground and when we get to the (indiscernible) and the Grasberg under ground we will be ramping over 200,000 tons per day.

So the underground operation is a huge success for us and we’ve had –- we’ve seen that this block caving in this area because of the metal-type metallization has been a huge success.

A lot of people are concerned about when we go underground how does it change the profile of the mine.

Remember that all of this stripping ratio that we’ve been talking about 2 to 1, 3 to 1 in the initial stage of the pit when you get underground there is no (indiscernible) falls out like taking a book out of a book case because of the competency of the rock on both sides of the metal.

So the metallization of the metal causes this rock to be fractured and you literally just put these draw points below the fractured ore and the ore comes out and the competent rock that is not mineralized stands.

So there are some real interesting things that come up.

Mark how many -- just as a for instance, this is important when we’re all thinking about where we go for the next 10 years and then under there’s the underground.

How many trucks are you using underground to produce this 45,000 tons load.

Yes we typically run about 6 trucks at any given time that’s near the total of 8 so it’s quite a very efficient use of the 55 tons truck that we have running underground.

Now just for every body how many trucks are we running in the pit?

We’re running in the order of 125 trucks in the pit..

And you all have seen these trucks, these looks like dinosaurs moving around some of them are so big either you think they are bigger than dinosaurs.

So imagine the difference of being able to move 50,000 tons under ground.

So there are some really interesting transitions that’s going on there.

But once again the ore – the 1% ore coming from underground has been a huge part of our first quarter and if it hadn’t been for that – as you noticed that the prices that we had other than these changes for the losses that we took because of these early terminations of our debts, we would have had a – we almost had a break even quarter even at these reduces mine rates.

So the underground and the high grade ore is the major asset for this company.

Very good thank you and sorry to hog the time on the call, but I did just want to ask about media reports out about a merger – I gather of PTFI with Indo Copper in (indiscernible) presumable just for some efficient structuring could you comment on any truth or fiction or implications there of ?

That’s all about the 5% that we acquired from those people.

They were unable to repay their debt.

If you remember we had an Indonesian owner and when – during the Indonesian crisis a lot of the Indonesians lost their liquidity.

We had to perform and acquire those shares from the bank and all this is, is just the cleaning up work of taking that 5% and merging it into the company.

So I’m sorry you have to see those headlines but it’s all about nothing.

It’s a formality where we are literally cleaning up the paper work with the government to take that 5% that we acquired when Indonesians could not perform on their debt.

Very good thank you.

Hello John just a couple of additional comments as Jim-Bob these were interest we already own.

So this is strictly corporate house keeping.

We now own 90.64% of PTFI and that wouldn’t change as a result of this corporate house keeping merger that we’re seeing now.

And I’ll just add a couple of comments John to the earlier question of capital numbers that Mark mentioned would be shared 50% by PTFI and 40% by Rio Tinto, they would have very high rates of returns on the invested capital and none of that reflected in the out look numbers that I have given to you earlier.

So that would be incremental for what we’ve been talking about.

Hey, operator next question please.

Thank you the next question comes from the line of Ernie Nather (ph) of RBC Capital Market.

Please proceed.

Hi good morning gentlemen just a quick one I understand the inventory build up at Atlantic Copper after the shut down, but given the fast ramp up here to out production do you expect any abnormal mismatches between production and sales aside from anything that you know might just happen with shifts at the end of the quarter?

No Ernie I mean our sales or our non-affiliated smelters are recorded at the time we’re loaded on ships.

So at the end of the quarter as you mentioned the only thing that could really cause any abnormal situation which we’ve had rarely in the past is that there was very unusual weather that would disrupt the loading of that ship.

Obviously with the world’s tightness for copper concentrates as soon as we produce concentrates they’re takers for those concentrates.

So we don’t have any significant inventory at all at PTFI.

And the only deferral occurs is with the Atlantic Copper at 25% of PTs smelting profits.

Okay and I guess you’re not having any trouble with actual ship availability or any thing?

No we have contracted for ship availability, in fact we’ve added –we were offered some contracts before the recent tightness there and we’re working co-operatively with all of our shippers which we’ve had very long-term relationships with.

You know we’ve been here for over 3 decades so we don’t have issues related to shipping matters.

That’s great thank you very much.

Thank you and the last question comes from the line of Steve Bonimon (ph) from CIC World Market.

Please proceed.

Hi good morning gentlemen and thanks for the very detailed presentation.

Going all the way back to the geo-technical work on the pit, did any discussion take place or is there any evaluation taking place regarding saturation and fluid level?

And have you changed at all or are you considering any changes to de-watering proposals and things like that being obviously the other component of fixed stability.

Well thank you for the question.

Frankly that the de-watering of the pit for the last 15 years has been a major component of all of our Geo-tech issues and with the exception of this one notch that got saturated our de-watering program has been very successful in the first 15 years which is why we’ve never had a problem.

But as you might imagine once we found out the mobility of this fractured zone which caused it to run out on us as we called it, one of about 3 times has it ever happens in the history of the mining business.

We’ve gone back and looked at all of our de-watering plans and we’ve increased the number of de-watering holes which are literally just horizontal holes that are drilled underneath areas that may be fractured and make sure that we (technical difficulty).

But to answer your question and I hope I’ve done that, the geo-tech a major portion of our plan is that the de-watering of the pit and it has to be as you create these different channels.

So we have a very successful water plan for 15 years.

And we have this one area that was unique that got saturated.

So we had to re-double our efforts to monitor all the water levels in the pit and increase our density of drilling to put these drain holes and direct the flow of water in the pit.

Thanks, so if I can reach that (indiscernible) you’ve augmented – you’re de-watering a little bit with some drainage holes but the work so far suggest that what you’ve got in places adequate you don’t see any impact or any requirement for further de-watering against the mine plan as it stands now?

Let me just again try to be correct that there is always a significant de-watering plan and it will continue as we until we get out of the pit.

So the question that you ask is when we’ll continue de-watering there will be a significant part of that as there has been for 15 years.

In some areas of the pit that we anticipate that any similar fracturing qualities and these are hydrated areas in the pit, we have gone in and drilled a number of drain holes which are literally just hallowed out drain holes and have re-directed water flows.

So to answer your question de-watering will be a major expenditure through out the life of the pit as it would have been with out the slip and was during the first 15 years, which is why we have no slips during the first 15 years.

That’s great thank you very much.

Thank you sir.

Thank you and there are no further questions at this time.

We want to thank everyone for participating today.

As always if you have follow up questions or comment be sure to call us.

The information as playback will be on the website fcx.com for you to follow up on and for others to listen.

Thanks for your interest.

Thank you ladies and gentlemen that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your line.